[House Report 104-350]
[From the U.S. Government Publishing Office]



   104th Congress 1st 
         Session        HOUSE OF REPRESENTATIVES        Report
                                                       104-350
_______________________________________________________________________


 
                      BALANCED BUDGET ACT OF 1995

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2491







  November 16 (legislative day of November 15), 1995.--Ordered to be 
                                printed
   104th Congress 1st   HOUSE OF REPRESENTATIVES        Report
         Session
                                                       104-350
_______________________________________________________________________



                      BALANCED BUDGET ACT OF 1995

                               __________

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2491







  November 16 (legislative day of November 15), 1995.--Ordered to be 
                                printed
104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    104-350
_______________________________________________________________________


                      BALANCED BUDGET ACT OF 1995

                                _______


   November 16 (legislative day, November 15), 1995.--Ordered to be 
                                printed

_______________________________________________________________________


 Mr. Kasich, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 2491]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
2491), to provide for reconciliation pursuant to section 105 of 
the concurrent resolution on the budget for fiscal year 1996, 
having met, after full and free conference, have agreed to 
recommend and do recommend to their respective Houses as 
follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Balanced Budget Act of 
1995''.

SEC. 2. TABLE OF TITLES.

    This Act is organized into titles as follows:

Title I--Agriculture and Related Provisions
Title II--Banking, Housing, and Related Provisions
Title III--Communication and Spectrum Allocation Provisions
Title IV--Education and Related Provisions
Title V--Energy and Natural Resources Provisions
Title VI--Federal Retirement and Related Provisions
Title VII--Medicaid
Title VIII--Medicare
Title IX--Transportation and Related Provisions
Title X--Veterans and Related Provisions
Title XI--Revenues
Title XII--Teaching hospitals and graduate medical education; asset 
          sales; welfare; and other provisions

              TITLE I--AGRICULTURE AND RELATED PROVISIONS

SEC. 1001. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This title may be cited as the 
``Agricultural Reconciliation Act of 1995''.
    (b) Table of Contents.--The table of contents of this title 
is as follows:

Sec. 1001. Short title; table of contents.

           Subtitle A--Agricultural Market Transition Program

Sec. 1101. Short title.
Sec. 1102. Definitions.
Sec. 1103. Production flexibility contracts.
Sec. 1104. Nonrecourse marketing assistance loans and loan deficiency 
          payments.
Sec. 1105. Payment limitations.
Sec. 1106. Peanut program.
Sec. 1107. Sugar program.
Sec. 1108. Administration.
Sec. 1109. Elimination of permanent price support authority.
Sec. 1110. Effect of amendments.

                        Subtitle B--Conservation

Sec. 1201. Conservation.

         Subtitle C--Agricultural Promotion and Export Programs

Sec. 1301. Market promotion program.
Sec. 1302. Export enhancement program.

                        Subtitle D--Miscellaneous

Sec. 1401. Crop insurance.
Sec. 1402. Collection and use of agricultural quarantine and inspection 
          fees.
Sec. 1403. Commodity Credit Corporation interest rate.

           Subtitle A--Agricultural Market Transition Program

SEC. 1101. SHORT TITLE.

    This subtitle may be cited as the ``Agricultural Market 
Transition Act''.

SEC. 1102. DEFINITIONS.

    In this subtitle:
            (1) Considered planted.--The term ``considered 
        planted'' means acreage that is considered planted 
        under title V of the Agricultural Act of 1949 (7 U.S.C. 
        1461 et seq.) (as in effect prior to the amendment made 
        by section 1109(b)(2)).
            (2) Contract.--The term ``contract'' means a 
        production flexibility contract entered into under 
        section 1103.
            (3) Contract acreage.--The term ``contract 
        acreage'' means 1 or more crop acreage bases 
        established for contract commodities under title V of 
        the Agricultural Act of 1949 (as in effect prior to the 
        amendment made by section 1109(b)(2)). If a crop 
        acreage base was not enrolled in an annual program for 
        the 1995 crop in order to increase crop acreage base, 
        the contract acreage for the 1996 crop shall reflect 
        the increased base acreage that would have been 
        established under title V of the Act (as so in effect).
            (4) Contract commodity.--The term `contract 
        commodity' means wheat, corn, grain sorghum, barley, 
        oats, upland cotton, and rice.
            (5) Contract payment.--The term ``contract 
        payment'' means a payment made under section 1103 
        pursuant to a contract.
            (6) Farm program payment yield.--The term ``farm 
        program payment yield'' means the farm program payment 
        yield established for the 1995 crop of a contract 
        commodity under title V of the Agricultural Act of 1949 
        (as in effect prior to the amendment made by section 
        1109(b)(2)).
            (7) Loan commodity.--The term `loan commodity' 
        means each contract commodity, extra long staple 
        cotton, and oilseeds.
            (8) Oilseed.--The term ``oilseed'' means a crop of 
        soybeans, sunflower seed, rapeseed, canola, safflower, 
        flaxseed, mustard seed, or, if designated by the 
        Secretary, other oilseeds.
            (9) Program.--The term ``program'' means the 
        agricultural market transition program established 
        under this subtitle.
            (10) Secretary.--The term ``Secretary'' means the 
        Secretary of Agriculture.

SEC. 1103. PRODUCTION FLEXIBILITY CONTRACTS.

    (a) Contracts Authorized.--
            (1) Offer and terms.--Beginning as soon as 
        practicable after the date of the enactment of this 
        subtitle, the Secretary shall offer to enter into a 
        contract with an eligible owner or operator described 
        in paragraph (2) on a farm containing eligible 
        farmland. Under the terms of a contract, the owner or 
        operator shall agree, in exchange for annual contract 
        payments, to comply with--
                    (A) the conservation plan for the farm 
                prepared in accordance with section 1212 of the 
                Food Security Act of 1985 (16 U.S.C. 3812);
                    (B) wetland protection requirements 
                applicable to the farm under subtitle C of 
                title XII of the Act (16 U.S.C. 3821 et seq.); 
                and
                    (C) the planting flexibility requirements 
                of subsection (j).
            (2) Eligible owners and operators described.--The 
        following persons shall be considered to be an owner or 
        operator eligible to enter into a contract:
                    (A) An owner of eligible farmland who 
                assumes all of the risk of producing a crop.
                    (B) An owner of eligible farmland who 
                shares in the risk of producing a crop.
                    (C) An operator of eligible farmland with a 
                share-rent lease of the eligible farmland, 
                regardless of the length of the lease, if the 
                owner enters into the same contract.
                    (D) An operator of eligible farmland who 
                cash rents the eligible farmland under a lease 
                expiring on or after September 30, 2002, in 
                which case the consent of the owner is not 
                required.
                    (E) An operator of eligible farmland who 
                cash rents the eligible farmland under a lease 
                expiring before September 30, 2002, if the 
                owner consents to the contract.
                    (F) An owner of eligible farmland who cash 
                rents the eligible farmland and the lease term 
                expires before September 30, 2002, but only if 
                the actual operator of the farm declines to 
                enter into a contract. In the case of an owner 
                covered by this subparagraph, contract payments 
                shall not begin under a contract until the 
                fiscal year following the fiscal year in which 
                the lease held by the nonparticipating operator 
                expires.
                    (G) An owner or operator described in a 
                preceding subparagraph regardless of whether 
                the owner or operator purchased catastrophic 
                risk protection for a fall-planted 1996 crop 
                under section 508(b) of the Federal Crop 
                Insurance Act (7 U.S.C. 1508(b)).
            (3) Tenants and sharecroppers.--In carrying out 
        this section, the Secretary shall provide adequate 
        safeguards to protect the interests of operators who 
        are tenants and sharecroppers.
    (b) Elements.--
            (1) Time for contracting.--
                    (A) Deadline.--Except as provided in 
                subparagraph (B), the Secretary may not enter 
                into a contract after April 15, 1996.
                    (B) Conservation reserve lands.--
                            (i) In general.--At the beginning 
                        of each fiscal year, the Secretary 
                        shall allow an eligible owner or 
                        operator on a farm covered by a 
                        conservation reserve contract entered 
                        into under section 1231 of the Food 
                        Security Act of 1985 (16 U.S.C. 3831) 
                        that terminates after the date 
                        specified in subparagraph (A) to enter 
                        into or expand a production flexibility 
                        contract to cover the contract acreage 
                        of the farm that was subject to the 
                        former conservation reserve contract.
                            (ii) Amount.--Contract payments 
                        made for contract acreage under this 
                        subparagraph shall be made at the rate 
                        and amount applicable to the annual 
                        contract payment level for the 
                        applicable crop.
            (2) Duration of contract.--
                    (A) Beginning date.--A contract shall begin 
                with--
                            (i) the 1996 crop of a contract 
                        commodity; or
                            (ii) in the case of acreage that 
                        was subject to a conservation reserve 
                        contract described in paragraph (1)(B), 
                        the date the production flexibility 
                        contract was entered into or expanded 
                        to cover the acreage.
                    (B) Ending date.--A contract shall extend 
                through the 2002 crop.
            (3) Estimation of contract payments.--At the time 
        the Secretary enters into a contract, the Secretary 
        shall provide an estimate of the minimum contract 
        payments anticipated to be made during at least the 
        first fiscal year for which contract payments will be 
        made.
    (c) Eligible Farmland Described.--Land shall be considered 
to be farmland eligible for coverage under a contract only if 
the land has contract acreage attributable to the land and--
            (1) for at least 1 of the 1991 through 1995 crops, 
        at least a portion of the land was enrolled in the 
        acreage reduction program authorized for a crop of a 
        contract commodity under section 101B, 103B, 105B, or 
        107B of the Agricultural Act of 1949 (as in effect 
        prior to the amendment made by section 1109(b)(2)) or 
        was considered planted;
            (2) was subject to a conservation reserve contract 
        under section 1231 of the Food Security Act of 1985 (16 
        U.S.C. 3831) whose term expired, or was voluntarily 
        terminated, on or after January 1, 1995; or
            (3) is released from coverage under a conservation 
        reserve contract by the Secretary during the period 
        beginning on January 1, 1995, and ending on the date 
        specified in subsection (b)(1)(A).
    (d) Time for Payment.--
            (1) In general.--An annual contract payment shall 
        be made not later than September 30 of each of fiscal 
        years 1996 through 2002.
            (2) Advance payments.--
                    (A) Fiscal year 1996.--At the option of the 
                owner or operator, 50 percent of the contract 
                payment for fiscal year 1996 shall be made not 
                later than 60 days after the date on which the 
                owner or operator enters into a contract.
                    (B) Subsequent fiscal years.--At the option 
                of the owner or operator for fiscal year 1997 
                and each subsequent fiscal year, 50 percent of 
                the annual contract payment shall be made on 
                December 15.
    (e) Amounts Available for Contract Payments for Each Fiscal 
Year.--
            (1) In general.--The Secretary shall expend on a 
        fiscal year basis the following amounts to satisfy the 
        obligations of the Secretary under all contracts:
                    (A) For fiscal year 1996, $5,570,000,000.
                    (B) For fiscal year 1997, $5,385,000,000.
                    (C) For fiscal year 1998, $5,800,000,000.
                    (D) For fiscal year 1999, $5,603,000,000.
                    (E) For fiscal year 2000, $5,130,000,000.
                    (F) For fiscal year 2001, $4,130,000,000.
                    (G) For fiscal year 2002, $4,008,000,000.
            (2) Allocation.--The amount made available for a 
        fiscal year under paragraph (1) shall be allocated as 
        follows:
                    (A) For wheat, 26.26 percent.
                    (B) For corn, 46.22 percent.
                    (C) For grain sorghum, 5.11 percent.
                    (D) For barley, 2.16 percent.
                    (E) For oats, 0.15 percent.
                    (F) For upland cotton, 11.63 percent.
                    (G) For rice, 8.47 percent.
            (3) Adjustment.--The Secretary shall adjust the 
        amounts allocated for each contract commodity under 
        paragraph (2) for a particular fiscal year by--
                    (A) subtracting an amount equal to the 
                amount, if any, necessary to satisfy payment 
                requirements under sections 101B, 103B, 105B, 
                and 107B of the Agricultural Act of 1949 (as in 
                effect prior to the amendment made by section 
                1109(b)(2)) for the 1994 and 1995 crops of the 
                commodity;
                    (B) adding an amount equal to the sum of 
                all producer repayments of deficiency payments 
                received under section 114(a)(2) of the Act (as 
                so in effect) for the commodity;
                    (C) adding an amount equal to the sum of 
                all contract payments withheld by the 
                Secretary, at the request of producers, during 
                the preceding fiscal year as an offset against 
                producer repayments of deficiency payments 
                otherwise required under section 114(a)(2) of 
                the Act (as so in effect) for the commodity; 
                and
                    (D) adding an amount equal to the sum of 
                all refunds of contract payments received 
                during the preceding fiscal year under 
                subsection (h) for the commodity.
    (f) Determination of Contract Payments.--
            (1) Individual payment quantity of contract 
        commodities.--For each contract, the payment quantity 
        of a contract commodity for each fiscal year shall be 
        equal to the product of--
                    (A) 85 percent of the contract acreage; and
                    (B) the farm program payment yield.
            (2) Annual payment quantity of contract 
        commodities.--The payment quantity of each contract 
        commodity covered by all contracts for each fiscal year 
        shall equal the sum of the amounts calculated under 
        paragraph (1) for each individual contract.
            (3) Annual payment rate.--The payment rate for a 
        contract commodity for each fiscal year shall be equal 
        to--
                    (A) the amount made available under 
                subsection (e) for the contract commodity for 
                the fiscal year; divided by
                    (B) the amount determined under paragraph 
                (2) for the fiscal year.
            (4) Annual payment amount.--The amount to be paid 
        under a contract in effect for each fiscal year with 
        respect to a contract commodity shall be equal to the 
        product of--
                    (A) the payment quantity determined under 
                paragraph (1) with respect to the contract; and
                    (B) the payment rate in effect under 
                paragraph (3).
            (5) Assignment of contract payments.--The 
        provisions of section 8(g) of the Soil Conservation and 
        Domestic Allotment Act (16 U.S.C. 590h(g)) (relating to 
        assignment of payments) shall apply to contract 
        payments under this subsection. The owner or operator 
        making the assignment, or the assignee, shall provide 
        the Secretary with notice, in such manner as the 
        Secretary may require in the contract, of any 
        assignment made under this paragraph.
            (6) Sharing of contract payments.--The Secretary 
        shall provide for the sharing of contract payments 
        among the owners and operators subject to the contract 
        on a fair and equitable basis.
    (g) Payment Limitation.--The total amount of contract 
payments made to a person under a contract during any fiscal 
year may not exceed the payment limitations established under 
section 1105.
    (h) Effect of Violation.--
            (1) Termination of contract.--Except as provided in 
        paragraph (2), if an owner or operator subject to a 
        contract violates the conservation plan for the farm 
        containing eligible farmland under the contract, 
        wetland protection requirements applicable to the farm, 
        or the planting flexibility requirements of subsection 
        (j), the Secretary shall terminate the contract with 
        respect to the owner or operator. On the termination, 
        the owner or operator shall forfeit all rights to 
        receive future contract payments and shall refund to 
        the Secretary all contract payments received by the 
        owner or operator during the period of the violation, 
        together with interest on the contract payments as 
        determined by the Secretary.
            (2) Refund or adjustment.--If the Secretary 
        determines that a violation does not warrant 
        termination of the contract under paragraph (1), the 
        Secretary may require the owner or operator subject to 
        the contract--
                    (A) to refund to the Secretary that part of 
                the contract payments received by the owner or 
                operator during the period of the violation, 
                together with interest on the contract payments 
                as determined by the Secretary; or
                    (B) to accept a reduction in the amount of 
                future contract payments that is proportionate 
                to the severity of the violation, as determined 
                by the Secretary.
            (3) Foreclosure.--An owner or operator subject to a 
        contract may not be required to make repayments to the 
        Secretary of amounts received under the contract if the 
        contract acreage has been foreclosed on and the 
        Secretary determines that forgiving the repayments is 
        appropriate in order to provide fair and equitable 
        treatment. This paragraph shall not void the 
        responsibilities of such an owner or operator under the 
        contract if the owner or operator continues or resumes 
        operation, or control, of the contract acreage. On the 
        resumption of operation or control over the contract 
        acreage by the owner or operator, the provisions of the 
        contract in effect on the date of the foreclosure shall 
        apply.
            (4) Review.--A determination of the Secretary under 
        this subsection shall be considered to be an adverse 
        decision for purposes of the availability of 
        administrative review of the determination.
    (i) Transfer of Interest in Lands Subject to Contract.--
            (1) Effect of transfer.--Except as provided in 
        paragraph (2), the transfer by an owner or operator 
        subject to a contract of the right and interest of the 
        owner or operator in the contract acreage shall result 
        in the termination of the contract with respect to the 
        acreage, effective on the date of the transfer, unless 
        the transferee of the acreage agrees with the Secretary 
        to assume all obligations of the contract. At the 
        request of the transferee, the Secretary may modify the 
        contract if the modifications are consistent with the 
        objectives of this section as determined by the 
        Secretary.
            (2) Exception.--If an owner or operator who is 
        entitled to a contract payment dies, becomes 
        incompetent, or is otherwise unable to receive the 
        contract payment, the Secretary shall make the payment, 
        in accordance with regulations prescribed by the 
        Secretary.
    (j) Planting Flexibility.--
            (1) Permitted crops.--Subject to paragraph (2)(A), 
        any commodity or crop may be planted on contract 
        acreage.
            (2) Limitations.--
                    (A) In general.--Except as provided in 
                subparagraph (B), the planting of any fruit or 
                vegetable, and unlimited haying and grazing, 
                shall be permitted on not more than 15 percent 
                of the contract acreage.
                    (B) Exception.--Subparagraph (A) shall not 
                apply to the planting of contract commodities, 
                lentils, mung beans, and dry peas on contract 
                acreage.
            (3) Alfalfa.--The planting of alfalfa on contract 
        acreage is unlimited, except that the quantity of 
        acreage on which the contract payment of the owner or 
        operator would otherwise be based shall be reduced for 
        each acre planted to alfalfa in excess of the 
        limitation in effect under paragraph (2)(A) for the 
        contract.
            (4) Haying and grazing.--Subject to paragraphs (2) 
        and (3), haying and grazing of contract acreage shall 
        be permitted, except during any consecutive 5-month 
        period that is established by the State committee 
        established under section 8(b) of the Soil Conservation 
        and Domestic Allotment Act (16 U.S.C. 590h(b)) for a 
        State. The 5-month period shall be established during 
        the period beginning April 1, and ending October 31, of 
        a year. In the case of a natural disaster, the 
        Secretary may permit unlimited haying and grazing on 
        the contract acreage.

SEC. 1104. NONRECOURSE MARKETING ASSISTANCE LOANS AND LOAN DEFICIENCY 
                    PAYMENTS.

    (a) Availability of Nonrecourse Loans.--
            (1) Availability.--For each of the 1996 through 
        2002 crops of each loan commodity, the Secretary shall 
        make available to producers on a farm nonrecourse 
        marketing assistance loans for loan commodities 
        produced on the farm. The loans shall be made under 
        terms and conditions that are prescribed by the 
        Secretary and at the loan rate established under 
        subsection (b) for the loan commodity.
            (2) Eligible production.--The following production 
        shall be eligible for a marketing assistance loan under 
        this section:
                    (A) In the case of a marketing assistance 
                loan for a contract commodity, any production 
                by a producer who has entered into a production 
                flexibility contract.
                    (B) In the case of a marketing assistance 
                loan for extra long staple cotton and oilseeds, 
                any production.
    (b) Loan Rates.--
            (1) Wheat.--
                    (A) Loan rate.--Subject to subparagraph 
                (B), the loan rate for a marketing assistance 
                loan for wheat shall be--
                            (i) not less than 85 percent of the 
                        simple average price received by 
                        producers of wheat, as determined by 
                        the Secretary, during the marketing 
                        years for the immediately preceding 5 
                        crops of wheat, excluding the year in 
                        which the average price was the highest 
                        and the year in which the average price 
                        was the lowest in the period; but
                            (ii) not more than $2.58 per 
                        bushel.
                    (B) Stocks to use ratio adjustment.--If the 
                Secretary estimates for any marketing year that 
                the ratio of ending stocks of wheat to total 
                use for the marketing year will be--
                            (i) equal to or greater than 30 
                        percent, the Secretary may reduce the 
                        loan rate for wheat for the 
                        corresponding crop by an amount not to 
                        exceed 10 percent in any year;
                            (ii) less than 30 percent but not 
                        less than 15 percent, the Secretary may 
                        reduce the loan rate for wheat for the 
                        corresponding crop by an amount not to 
                        exceed 5 percent in any year; or
                            (iii) less than 15 percent, the 
                        Secretary may not reduce the loan rate 
                        for wheat for the corresponding crop.
                    (C) No effect on future years.--Any 
                reduction in the loan rate for wheat under 
                subparagraph (B) shall not be considered in 
                determining the loan rate for wheat for 
                subsequent years.
            (2) Feed grains.--
                    (A) Loan rate for corn.--Subject to 
                subparagraph (B), the loan rate for a marketing 
                assistance loan for corn shall be--
                            (i) not less than 85 percent of the 
                        simple average price received by 
                        producers of corn, as determined by the 
                        Secretary, during the marketing years 
                        for the immediately preceding 5 crops 
                        of corn, excluding the year in which 
                        the average price was the highest and 
                        the year in which the average price was 
                        the lowest in the period; but
                            (ii) not more than $1.89 per 
                        bushel.
                    (B) Stocks to use ratio adjustment.--If the 
                Secretary estimates for any marketing year that 
                the ratio of ending stocks of corn to total use 
                for the marketing year will be--
                            (i) equal to or greater than 25 
                        percent, the Secretary may reduce the 
                        loan rate for corn for the 
                        corresponding crop by an amount not to 
                        exceed 10 percent in any year;
                            (ii) less than 25 percent but not 
                        less than 12.5 percent, the Secretary 
                        may reduce the loan rate for corn for 
                        the corresponding crop by an amount not 
                        to exceed 5 percent in any year; or
                            (iii) less than 12.5 percent the 
                        Secretary may not reduce the loan rate 
                        for corn for the corresponding crop.
                    (C) No effect on future years.--Any 
                reduction in the loan rate for corn under 
                subparagraph (B) shall not be considered in 
                determining the loan rate for corn for 
                subsequent years.
                    (D) Other feed grains.--The loan rate for a 
                marketing assistance loan for grain sorghum, 
                barley, and oats, respectively, shall be 
                established at such level as the Secretary 
                determines is fair and reasonable in relation 
                to the rate that loans are made available for 
                corn, taking into consideration the feeding 
                value of the commodity in relation to corn.
            (3) Upland cotton.--
                    (A) Loan rate.--Subject to subparagraph 
                (B), the loan rate for a marketing assistance 
                loan for upland cotton shall be established by 
                the Secretary at such loan rate, per pound, as 
                will reflect for the base quality of upland 
                cotton, as determined by the Secretary, at 
                average locations in the United States a rate 
                that is not less than the smaller of--
                            (i) 85 percent of the average price 
                        (weighted by market and month) of the 
                        base quality of cotton as quoted in the 
                        designated United States spot markets 
                        during 3 years of the 5-year period 
                        ending July 31 in the year in which the 
                        loan rate is announced, excluding the 
                        year in which the average price was the 
                        highest and the year in which the 
                        average price was the lowest in the 
                        period; or
                            (ii) 90 percent of the average, for 
                        the 15-week period beginning July 1 of 
                        the year in which the loan rate is 
                        announced, of the 5 lowest-priced 
                        growths of the growths quoted for 
                        Middling 1\3/32\-inch cotton C.I.F. 
                        Northern Europe (adjusted downward by 
                        the average difference during the 
                        period April 15 through October 15 of 
                        the year in which the loan is announced 
                        between the average Northern European 
                        price quotation of such quality of 
                        cotton and the market quotations in the 
                        designated United States spot markets 
                        for the base quality of upland cotton), 
                        as determined by the Secretary.
                    (B) Limitations.--The loan rate for a 
                marketing assistance loan for upland cotton 
                shall not be less than $0.50 per pound or more 
                than $0.5192 per pound.
            (4) Extra long staple cotton.--The loan rate for a 
        marketing assistance loan for extra long staple cotton 
        shall be--
                    (A) not less than 85 percent of the simple 
                average price received by producers of extra 
                long staple cotton, as determined by the 
                Secretary, during 3 years of the 5 previous 
                marketing years, excluding the year in which 
                the average price was the highest and the year 
                in which the average price was the lowest in 
                the period; but
                    (B) not more than $0.7965 per pound.
            (5) Rice.--The loan rate for a marketing assistance 
        loan for rice shall be $6.50 per hundredweight.
            (6) Oilseeds.--
                    (A) Soybeans.--The loan rate for a 
                marketing assistance loan for soybeans shall be 
                $4.92 per bushel.
                    (B) Sunflower seed, canola, rapeseed, 
                safflower, mustard seed, and flaxseed.--The 
                loan rates for a marketing assistance loan for 
                sunflower seed, canola, rapeseed, safflower, 
                mustard seed, and flaxseed, individually, shall 
                be $0.087 per pound.
                    (C) Other oilseeds.--The loan rates for a 
                marketing assistance loan for other oilseeds 
                shall be established at such level as the 
                Secretary determines is fair and reasonable in 
                relation to the loan rate available for 
                soybeans, except in no event shall the rate for 
                the oilseeds (other than cottonseed) be less 
                than the rate established for soybeans on a 
                per-pound basis for the same crop.
    (c) Term of Loan.--In the case of each loan commodity 
(other than upland cotton or extra long staple cotton), a 
marketing assistance loan under subsection (a) shall have a 
term of 9 months beginning on the first day of the first month 
after the month in which the loan is made. A marketing 
assistance loan for upland cotton or extra long staple cotton 
shall have a term of 10 months. The Secretary may not extend 
the term of a marketing assistance loan for any loan commodity.
    (d) Repayment.--
            (1) Repayment rates generally.--The Secretary shall 
        permit producers to repay a marketing assistance loan 
        under subsection (a) for a loan commodity (other than 
        extra long staple cotton) at a level that is the lesser 
        of--
                    (A) the loan rate established for the 
                commodity under subsection (b); or
                    (B) the prevailing world market price for 
                the commodity (adjusted to United States 
                quality and location), as determined by the 
                Secretary.
            (2) Repayment rates for extra long staple cotton.--
        Repayment of a marketing assistance loan for extra long 
        staple cotton shall be at the loan rate established for 
        the commodity under subsection (b).
            (3) Prevailing world market price.--For purposes of 
        paragraph (1)(B) and subsection (f), the Secretary 
        shall prescribe by regulation--
                    (A) a formula to determine the prevailing 
                world market price for each loan commodity, 
                adjusted to United States quality and location; 
                and
                    (B) a mechanism by which the Secretary 
                shall announce periodically the prevailing 
                world market price for each loan commodity.
            (4) Adjustment of prevailing world market price for 
        upland cotton.--
                    (A) In general.--During the period ending 
                July 31, 2003, the prevailing world market 
                price for upland cotton (adjusted to United 
                States quality and location) established under 
                paragraph (3) shall be further adjusted if--
                            (i) the adjusted prevailing world 
                        market price is less than 115 percent 
                        of the loan rate for upland cotton 
                        established under subsection (b), as 
                        determined by the Secretary; and
                            (ii) the Friday through Thursday 
                        average price quotation for the lowest-
                        priced United States growth as quoted 
                        for Middling (M) 1\3/32\-inch cotton 
                        delivered C.I.F. Northern Europe is 
                        greater than the Friday through 
                        Thursday average price of the 5 lowest-
                        priced growths of upland cotton, as 
                        quoted for Middling (M) 1\3/32\-inch 
                        cotton, delivered C.I.F. Northern 
                        Europe (referred to in this subsection 
                        as the ``Northern Europe price'').
                    (B) Further adjustment.--Except as provided 
                in subparagraph (C), the adjusted prevailing 
                world market price for upland cotton shall be 
                further adjusted on the basis of some or all of 
                the following data, as available:
                            (i) The United States share of 
                        world exports.
                            (ii) The current level of cotton 
                        export sales and cotton export 
                        shipments.
                            (iii) Other data determined by the 
                        Secretary to be relevant in 
                        establishing an accurate prevailing 
                        world market price for upland cotton 
                        (adjusted to United States quality and 
                        location).
                    (C) Limitation on further adjustment.--The 
                adjustment under subparagraph (B) may not 
                exceed the difference between--
                            (i) the Friday through Thursday 
                        average price for the lowest-priced 
                        United States growth as quoted for 
                        Middling 1\3/32\-inch cotton delivered 
                        C.I.F. Northern Europe; and
                            (ii) the Northern Europe price.
    (e) Loan Deficiency Payments.--
            (1) Availability.--Except as provided in paragraph 
        (4), the Secretary may make loan deficiency payments 
        available to producers who, although eligible to obtain 
        a marketing assistance loan under subsection (a) with 
        respect to a loan commodity, agree to forgo obtaining 
        the loan for the commodity in return for payments under 
        this subsection.
            (2) Computation.--A loan deficiency payment under 
        this subsection shall be computed by multiplying--
                    (A) the loan payment rate determined under 
                paragraph (3) for the loan commodity; by
                    (B) the quantity of the loan commodity that 
                the producers on a farm are eligible to place 
                under loan but for which the producers forgo 
                obtaining the loan in return for payments under 
                this subsection.
            (3) Loan payment rate.--For purposes of this 
        subsection, the loan payment rate shall be the amount 
        by which--
                    (A) the loan rate established under 
                subsection (b) for the loan commodity; exceeds
                    (B) the rate at which a loan for the 
                commodity may be repaid under subsection (d).
            (4) Exception for extra long staple cotton.--This 
        subsection shall not apply with respect to extra long 
        staple cotton.
    (f) Special Marketing Loan Provisions for Upland Cotton.--
            (1) First handler marketing certificates.--
                    (A) In general.--During the period ending 
                on July 31, 2003, if the repayment rates 
                provided in subsection (d) for upland cotton or 
                the availability of loan deficiency payments 
                for upland cotton under subsection (e) fails to 
                make United States upland cotton fully 
                competitive in world markets and the prevailing 
                world market price of upland cotton (adjusted 
                to United States quality and location) is below 
                the current loan repayment rate for upland 
                cotton, to make United States upland cotton 
                competitive in world markets and to maintain 
                and expand domestic consumption and exports of 
                upland cotton produced in the United States, 
                the Secretary shall provide for the issuance of 
                marketing certificates or cash payments in 
                accordance with this paragraph.
                    (B) Payments.--The Commodity Credit 
                Corporation, under such regulations as the 
                Secretary may prescribe, shall make payments, 
                through the issuance of marketing certificates 
                or cash payments, to first handlers of upland 
                cotton (persons regularly engaged in buying or 
                selling upland cotton) who have entered into an 
                agreement with the Commodity Credit Corporation 
                to participate in the program established under 
                this paragraph. The payments shall be made in 
                such amounts and subject to such terms and 
                conditions as the Secretary determines will 
                make upland cotton produced in the United 
                States available at competitive prices, 
                consistent with the purposes of this paragraph.
                    (C) Value.--The value of each certificate 
                or cash payment issued under subparagraph (B) 
                shall be based on the difference between--
                            (i) the loan repayment rate for 
                        upland cotton; and
                            (ii) the prevailing world market 
                        price of upland cotton (adjusted to 
                        United States quality and location), as 
                        determined by the Secretary.
                    (D) Redemption, marketing, or exchange.--
                The Commodity Credit Corporation, under 
                regulations prescribed by the Secretary, may 
                assist any person receiving marketing 
                certificates under this paragraph in the 
                redemption of certificates for cash, or 
                marketing or exchange of the certificates for 
                agricultural commodities or products owned by 
                the Commodity Credit Corporation, at such 
                times, in such manner, and at such price levels 
                as the Secretary determines will best 
                effectuate the purposes of the program 
                established under this paragraph. Any price 
                restrictions that may otherwise apply to the 
                disposition of agricultural commodities by the 
                Commodity Credit Corporation shall not apply to 
                the redemption of certificates under this 
                paragraph.
                    (E) Designation of commodities and 
                products; charges.--Insofar as practicable, the 
                Secretary shall permit owners of certificates 
                to designate the commodities and products, 
                including storage sites, the owners would 
                prefer to receive in exchange for certificates. 
                If any certificate is not presented for 
                redemption, marketing, or exchange within a 
                reasonable number of days after the issuance of 
                the certificate (as determined by the 
                Secretary), reasonable costs of storage and 
                other carrying charges, as determined by the 
                Secretary, shall be deducted from the value of 
                the certificate for the period beginning after 
                the reasonable number of days and ending with 
                the date of the presentation of the certificate 
                to the Commodity Credit Corporation.
                    (F) Displacement.--The Secretary shall take 
                such measures as may be necessary to prevent 
                the marketing or exchange of agricultural 
                commodities and products for certificates under 
                this subsection from adversely affecting the 
                income of producers of the commodities or 
                products.
                    (G) Transfers.--Under regulations 
                prescribed by the Secretary, certificates 
                issued to cotton handlers under this paragraph 
                may be transferred to other handlers and 
                persons approved by the Secretary.
            (2) Cotton user marketing certificates.--
                    (A) Issuance.--Subject to subparagraph (D), 
                during the period ending July 31, 2003, the 
                Secretary shall issue marketing certificates or 
                cash payments to domestic users and exporters 
                for documented purchases by domestic users and 
                sales for export by exporters made in the week 
                following a consecutive 4-week period in 
                which--
                            (i) the Friday through Thursday 
                        average price quotation for the lowest-
                        priced United States growth, as quoted 
                        for Middling (M) 1\3/32\-inch cotton, 
                        delivered C.I.F. Northern Europe 
                        exceeds the Northern Europe price by 
                        more than 1.25 cents per pound; and
                            (ii) the prevailing world market 
                        price for upland cotton (adjusted to 
                        United States quality and location) 
                        does not exceed 130 percent of the loan 
                        rate for upland cotton established 
                        under subsection (b).
                    (B) Value of certificates or payments.--The 
                value of the marketing certificates or cash 
                payments shall be based on the amount of the 
                difference (reduced by 1.25 cents per pound) in 
                the prices during the 4th week of the 
                consecutive 4-week period multiplied by the 
                quantity of upland cotton included in the 
                documented sales.
                    (C) Administration.--Subparagraphs (D) 
                through (G) of paragraph (1) shall apply to 
                marketing certificates issued under this 
                paragraph. Any such certificates may be 
                transferred to other persons in accordance with 
                regulations issued by the Secretary.
                    (D) Exception.--The Secretary shall not 
                issue marketing certificates or cash payments 
                under subparagraph (A) if, for the immediately 
                preceding consecutive 10-week period, the 
                Friday through Thursday average price quotation 
                for the lowest priced United States growth, as 
                quoted for Middling (M) 1\3/32\-inch cotton, 
                delivered C.I.F. Northern Europe, adjusted for 
                the value of any certificate issued under this 
                paragraph, exceeds the Northern Europe price by 
                more than 1.25 cents per pound.
                    (E) Limitation on expenditures.--Total 
                expenditures under this paragraph shall not 
                exceed $701,000,000 during fiscal years 1996 
                through 2002.
            (3) Special import quota.--
                    (A) Establishment.--The President shall 
                carry out an import quota program that provides 
                that, during the period ending July 31, 2003, 
                whenever the Secretary determines and announces 
                that for any consecutive 10-week period, the 
                Friday through Thursday average price quotation 
                for the lowest-priced United States growth, as 
                quoted for Middling (M) 1\3/32\-inch cotton, 
                delivered C.I.F. Northern Europe, adjusted for 
                the value of any certificates issued under 
                paragraph (2), exceeds the Northern Europe 
                price by more than 1.25 cents per pound, there 
                shall immediately be in effect a special import 
                quota.
                    (B) Quantity.--The quota shall be equal to 
                1 week's consumption of upland cotton by 
                domestic mills at the seasonally adjusted 
                average rate of the most recent 3 months for 
                which data are available.
                    (C) Application.--The quota shall apply to 
                upland cotton purchased not later than 90 days 
                after the date of the Secretary's announcement 
                under subparagraph (A) and entered into the 
                United States not later than 180 days after the 
                date.
                    (D) Overlap.--A special quota period may be 
                established that overlaps any existing quota 
                period if required by subparagraph (A), except 
                that a special quota period may not be 
                established under this paragraph if a quota 
                period has been established under subsection 
                (g).
                    (E) Preferential tariff treatment.--The 
                quantity under a special import quota shall be 
                considered to be an in-quota quantity for 
                purposes of--
                            (i) section 213(d) of the Caribbean 
                        Basin Economic Recovery Act (19 U.S.C. 
                        2703(d));
                            (ii) section 204 of the Andean 
                        Trade Preference Act (19 U.S.C. 3203);
                            (iii) section 503(d) of the Trade 
                        Act of 1974 (19 U.S.C. 2463(d)); and
                            (iv) General Note 3(a)(iv) to the 
                        Harmonized Tariff Schedule.
                    (F) Definition.--In this paragraph, the 
                term ``special import quota'' means a quantity 
                of imports that is not subject to the over-
                quota tariff rate of a tariff-rate quota.
    (g) Limited Global Import Quota for Upland Cotton.--
            (1) In general.--The President shall carry out an 
        import quota program that provides that whenever the 
        Secretary determines and announces that the average 
        price of the base quality of upland cotton, as 
        determined by the Secretary, in the designated spot 
        markets for a month exceeded 130 percent of the average 
        price of such quality of cotton in the markets for the 
        preceding 36 months, notwithstanding any other 
        provision of law, there shall immediately be in effect 
        a limited global import quota subject to the following 
        conditions:
                    (A) Quantity.--The quantity of the quota 
                shall be equal to 21 days of domestic mill 
                consumption of upland cotton at the seasonally 
                adjusted average rate of the most recent 3 
                months for which data are available.
                    (B) Quantity if prior quota.--If a quota 
                has been established under this subsection 
                during the preceding 12 months, the quantity of 
                the quota next established under this 
                subsection shall be the smaller of 21 days of 
                domestic mill consumption calculated under 
                subparagraph (A) or the quantity required to 
                increase the supply to 130 percent of the 
                demand.
                    (C) Preferential tariff treatment.--The 
                quantity under a limited global import quota 
                shall be considered to be an in-quota quantity 
                for purposes of--
                            (i) section 213(d) of the Caribbean 
                        Basin Economic Recovery Act (19 U.S.C. 
                        2703(d));
                            (ii) section 204 of the Andean 
                        Trade Preference Act (19 U.S.C. 3203);
                            (iii) section 503(d) of the Trade 
                        Act of 1974 (19 U.S.C. 2463(d)); and
                            (iv) General Note 3(a)(iv) to the 
                        Harmonized Tariff Schedule.
                    (D) Definitions.--In this subsection:
                            (i) Supply.--The term ``supply'' 
                        means, using the latest official data 
                        of the Bureau of the Census, the 
                        Department of Agriculture, and the 
                        Department of the Treasury--
                                    (I) the carry-over of 
                                upland cotton at the beginning 
                                of the marketing year (adjusted 
                                to 480-pound bales) in which 
                                the quota is established;
                                    (II) production of the 
                                current crop; and
                                    (III) imports to the latest 
                                date available during the 
                                marketing year.
                            (ii) Demand.--The term ``demand'' 
                        means--
                                    (I) the average seasonally 
                                adjusted annual rate of 
                                domestic mill consumption in 
                                the most recent 3 months for 
                                which data are available; and
                                    (II) the larger of--
                                            (aa) average 
                                        exports of upland 
                                        cotton during the 
                                        preceding 6 marketing 
                                        years; or
                                            (bb) cumulative 
                                        exports of upland 
                                        cotton plus outstanding 
                                        export sales for the 
                                        marketing year in which 
                                        the quota is 
                                        established.
                            (iii) Limited global import 
                        quota.--The term ``limited global 
                        import quota'' means a quantity of 
                        imports that is not subject to the 
                        over-quota tariff rate of a tariff-rate 
                        quota.
                    (D) Quota entry period.--When a quota is 
                established under this subsection, cotton may 
                be entered under the quota during the 90-day 
                period beginning on the date the quota is 
                established by the Secretary.
            (2) No overlap.--Notwithstanding paragraph (1), a 
        quota period may not be established that overlaps an 
        existing quota period or a special quota period 
        established under subsection (f)(3).

SEC. 1105. PAYMENT LIMITATIONS.

    (a) Limitation on Payments Under Production Flexibility 
Contracts.--The total amount of contract payments made to a 
person under 1 or more production flexibility contracts during 
any fiscal year may not exceed $40,000.
    (b) Limitation on Marketing Loan Gains and Loan Deficiency 
Payments.--
            (1) Limitation.--The total amount of payments 
        specified in paragraph (2) that a person shall be 
        entitled to receive under section 1104 for contract 
        commodities and oilseeds during any fiscal year may not 
        exceed $75,000.
            (2) Description of payments.--The payments referred 
        to in paragraph (1) are the following:
                    (A) Any gain realized by a producer from 
                repaying a marketing assistance loan for a crop 
                of any loan commodity at a lower level than the 
                original loan rate established for the 
                commodity under section 1104(b).
                    (B) Any loan deficiency payment received 
                for a loan commodity under section 1104(e).
    (c) Applicability of Other Provisions Regarding Payment 
Limitations.--Paragraphs (5), (6), and (7) of section 1001 and 
sections 1001A through 1001C of the Food Security Act of 1985 
(7 U.S.C. 1308 et seq.) shall apply with respect to the 
application of payment limitations under this section.
    (d) Conforming Amendments.--Section 1001 of the Food 
Security Act of 1985 (7 U.S.C. 1308) is amended by striking 
``1997'' each place it appears in paragraphs (1)(A), (1)(B), 
and (2)(A) and inserting ``1995''.

SEC. 1106. PEANUT PROGRAM.

    (a) Quota Peanuts.--
            (1) Availability of loans.--The Secretary shall 
        make nonrecourse loans available to producers of quota 
        peanuts.
            (2) Loan rate.--The national average quota loan 
        rate for quota peanuts shall be $610 per ton.
            (3) Inspection, handling, or storage.--The loan 
        amount may not be reduced by the Secretary by any 
        deductions for inspection, handling, or storage.
            (4) Location and other factors.--The Secretary may 
        make adjustments in the loan rate for quota peanuts for 
        location of peanuts and such other factors as are 
        authorized by section 411 of the Agricultural 
        Adjustment Act of 1938.
    (b) Additional Peanuts.--
            (1) In general.--The Secretary shall make 
        nonrecourse loans available to producers of additional 
        peanuts at such rates as the Secretary finds 
        appropriate, taking into consideration the demand for 
        peanut oil and peanut meal, expected prices of other 
        vegetable oils and protein meals, and the demand for 
        peanuts in foreign markets.
            (2) Announcement.--The Secretary shall announce the 
        loan rate for additional peanuts of each crop not later 
        than February 15 preceding the marketing year for the 
        crop for which the loan rate is being determined.
    (c) Area Marketing Associations.--
            (1) Warehouse storage loans.--
                    (A) In general.--In carrying out 
                subsections (a) and (b), the Secretary shall 
                make warehouse storage loans available in each 
                of the producing areas (described in section 
                1446.95 of title 7 of the Code of Federal 
                Regulations (January 1, 1989)) to a designated 
                area marketing association of peanut producers 
                that is selected and approved by the Secretary 
                and that is operated primarily for the purpose 
                of conducting the loan activities. The 
                Secretary may not make warehouse storage loans 
                available to any cooperative that is engaged in 
                operations or activities concerning peanuts 
                other than those operations and activities 
                specified in this section and section 358e of 
                the Agricultural Adjustment Act of 1938 (7 
                U.S.C. 1359a).
                    (B) Administrative and supervisory 
                activities.--An area marketing association 
                shall be used in administrative and supervisory 
                activities relating to loans and marketing 
                activities under this section and section 358e 
                of the Agricultural Adjustment Act of 1938 (7 
                U.S.C. 1359a).
                    (C) Association costs.--Loans made to the 
                association under this paragraph shall include 
                such costs as the area marketing association 
                reasonably may incur in carrying out the 
                responsibilities, operations, and activities of 
                the association under this section and section 
                358e of the Agricultural Adjustment Act of 1938 
                (7 U.S.C. 1359a).
            (2) Pools for quota and additional peanuts.--
                    (A) In general.--The Secretary shall 
                require that each area marketing association 
                establish pools and maintain complete and 
                accurate records by area and segregation for 
                quota peanuts handled under loan and for 
                additional peanuts placed under loan, except 
                that separate pools shall be established for 
                Valencia peanuts produced in New Mexico. Bright 
                hull and dark hull Valencia peanuts shall be 
                considered as separate types for the purpose of 
                establishing the pools.
                    (B) Net gains.--Net gains on peanuts in 
                each pool, unless otherwise approved by the 
                Secretary, shall be distributed only to 
                producers who placed peanuts in the pool and 
                shall be distributed in proportion to the value 
                of the peanuts placed in the pool by each 
                producer. Net gains for peanuts in each pool 
                shall consist of the following:
                            (i) Quota peanuts.--For quota 
                        peanuts, the net gains over and above 
                        the loan indebtedness and other costs 
                        or losses incurred on peanuts placed in 
                        the pool.
                            (ii) Additional peanuts.--For 
                        additional peanuts, the net gains over 
                        and above the loan indebtedness and 
                        other costs or losses incurred on 
                        peanuts placed in the pool for 
                        additional peanuts.
    (d) Losses.--Losses in quota area pools shall be covered 
using the following sources in the following order of priority:
            (1) Transfers from additional loan pools.--The 
        proceeds due any producer from any pool shall be 
        reduced by the amount of any loss that is incurred with 
        respect to peanuts transferred from an additional loan 
        pool to a quota loan pool by the producer under section 
        358-1(b)(8) of the Agricultural Adjustment Act of 1938 
        (7 U.S.C. 1358-1(b)(8)).
            (2) Other producers in same pool.--Further losses 
        in an area quota pool shall be offset by reducing the 
        gain of any producer in the pool by the amount of pool 
        gains attributed to the same producer from the sale of 
        additional peanuts for domestic and export edible use.
            (3) Use of marketing assessments.--The Secretary 
        shall use funds collected under subsection (g) (except 
        funds attributable to handlers) to offset further 
        losses in area quota pools. The Secretary shall 
        transfer to the Treasury those funds collected under 
        subsection (g) and available for use under this 
        subsection that the Secretary determines are not 
        required to cover losses in area quota pools.
            (4) Cross compliance.--Further losses in area quota 
        pools, other than losses incurred as a result of 
        transfers from additional loan pools to quota loan 
        pools under section 358-1(b)(8) of the Agricultural 
        Adjustment Act of 1938 (7 U.S.C. 1358-1(b)(8)), shall 
        be offset by any gains or profits from quota pools in 
        other production areas (other than separate type pools 
        established under subsection (c)(2)(A) for Valencia 
        peanuts produced in New Mexico) in such manner as the 
        Secretary shall by regulation prescribe.
            (5) Increased assessments.--If use of the 
        authorities provided in the preceding paragraphs is not 
        sufficient to cover losses in an area quota pool, the 
        Secretary shall increase the marketing assessment 
        established under subsection (g) by such an amount as 
        the Secretary considers necessary to cover the losses. 
        The increased assessment shall apply only to quota 
        peanuts in the production area covered by the pool. 
        Amounts collected under subsection (g) as a result of 
        the increased assessment shall be retained by the 
        Secretary to cover losses in that pool.
    (e) Disapproval of Quotas.--Notwithstanding any other 
provision of law, no loan for quota peanuts may be made 
available by the Secretary for any crop of peanuts with respect 
to which poundage quotas have been disapproved by producers, as 
provided for in section 358-1(d) of the Agricultural Adjustment 
Act of 1938 (7 U.S.C. 1358-1(d)).
    (f) Quality Improvement.--
            (1) In general.--With respect to peanuts under 
        loan, the Secretary shall--
                    (A) promote the crushing of peanuts at a 
                greater risk of deterioration before peanuts of 
                a lesser risk of deterioration;
                    (B) ensure that all Commodity Credit 
                Corporation inventories of peanuts sold for 
                domestic edible use must be shown to have been 
                officially inspected by licensed Department of 
                Agriculture inspectors both as farmer stock and 
                shelled or cleaned in-shell peanuts;
                    (C) continue to endeavor to operate the 
                peanut program so as to improve the quality of 
                domestic peanuts and ensure the coordination of 
                activities under the Peanut Administrative 
                Committee established under Marketing Agreement 
                No. 146, regulating the quality of domestically 
                produced peanuts (under the Agricultural 
                Adjustment Act (7 U.S.C. 601 et seq.), 
                reenacted with amendments by the Agricultural 
                Marketing Agreement Act of 1937); and
                    (D) ensure that any changes made in the 
                peanut program as a result of this subsection 
                requiring additional production or handling at 
                the farm level shall be reflected as an upward 
                adjustment in the Department of Agriculture 
                loan schedule.
            (2) Exports and other peanuts.--The Secretary shall 
        require that all peanuts in the domestic and export 
        markets fully comply with all quality standards under 
        Marketing Agreement No. 146.
    (g) Marketing Assessment.--
            (1) In general.--The Secretary shall provide for a 
        nonrefundable marketing assessment. The assessment 
        shall be made on a per pound basis in an amount equal 
        to 1.1 percent for each of the 1994 and 1995 crops, 
        1.15 percent for the 1996 crop, and 1.2 percent for 
        each of the 1997 through 2002 crops, of the national 
        average quota or additional peanut loan rate for the 
        applicable crop.
            (2) First purchasers.--
                    (A) In general.--Except as provided under 
                paragraphs (3) and (4), the first purchaser of 
                peanuts shall--
                            (i) collect from the producer a 
                        marketing assessment equal to the 
                        quantity of peanuts acquired multiplied 
                        by--
                                    (I) in the case of each of 
                                the 1994 and 1995 crops, .55 
                                percent of the applicable 
                                national average loan rate;
                                    (II) in the case of the 
                                1996 crop, .6 percent of the 
                                applicable national average 
                                loan rate; and
                                    (III) in the case of each 
                                of the 1997 through 2002 crops, 
                                .65 percent of the applicable 
                                national average loan rate;
                            (ii) pay, in addition to the amount 
                        collected under clause (i), a marketing 
                        assessment in an amount equal to the 
                        quantity of peanuts acquired multiplied 
                        by .55 percent of the applicable 
                        national average loan rate; and
                            (iii) remit the amounts required 
                        under clauses (i) and (ii) to the 
                        Commodity Credit Corporation in a 
                        manner specified by the Secretary.
                    (B) Definition of first purchaser.--In this 
                subsection, the term ``first purchaser'' means 
                a person acquiring peanuts from a producer 
                except that in the case of peanuts forfeited by 
                a producer to the Commodity Credit Corporation, 
                the term means the person acquiring the peanuts 
                from the Commodity Credit Corporation.
            (3) Other private marketings.--In the case of a 
        private marketing by a producer directly to a consumer 
        through a retail or wholesale outlet or in the case of 
        a marketing by the producer outside of the continental 
        United States, the producer shall be responsible for 
        the full amount of the assessment and shall remit the 
        assessment by such time as is specified by the 
        Secretary.
            (4) Loan peanuts.--In the case of peanuts that are 
        pledged as collateral for a loan made under this 
        section, \1/2\ of the assessment shall be deducted from 
        the proceeds of the loan. The remainder of the 
        assessment shall be paid by the first purchaser of the 
        peanuts. For purposes of computing net gains on peanuts 
        under this section, the reduction in loan proceeds 
        shall be treated as having been paid to the producer.
            (5) Penalties.--If any person fails to collect or 
        remit the reduction required by this subsection or 
        fails to comply with the requirements for recordkeeping 
        or otherwise as are required by the Secretary to carry 
        out this subsection, the person shall be liable to the 
        Secretary for a civil penalty up to an amount 
        determined by multiplying--
                    (A) the quantity of peanuts involved in the 
                violation; by
                    (B) the national average quota peanut rate 
                for the applicable crop year.
            (6) Enforcement.--The Secretary may enforce this 
        subsection in the courts of the United States.
    (h) Crops.--Subsections (a) through (f) shall be effective 
only for the 1996 through 2002 crops of peanuts.
    (i) Marketing Quotas.--
            (1) In general.--Part VI of subtitle B of title III 
        of the Agricultural Adjustment Act of 1938 is amended--
                    (A) in section 358-1 (7 U.S.C. 1358-1)--
                            (i) in the section heading, by 
                        striking ``1991 through 1997 crops 
                        of'';
                            (ii) in subsections (a)(1), 
                        (b)(1)(B), (b)(2)(A), (b)(2)(C), and 
                        (b)(3)(A), by striking ``of the 1991 
                        through 1997 marketing years'' each 
                        place it appears and inserting 
                        ``marketing year'';
                            (iii) in subsection (a)(3), by 
                        striking ``1990'' and inserting ``1990, 
                        for the 1991 through 1995 marketing 
                        years, and 1995, for the 1996 through 
                        2002 marketing years'';
                            (iv) in subsection (b)(1)(A)--
                                    (I) by striking ``each of 
                                the 1991 through 1997 marketing 
                                years'' and inserting ``each 
                                marketing year''; and
                                    (II) in clause (i), by 
                                inserting before the semicolon 
                                the following: ``, in the case 
                                of the 1991 through 1995 
                                marketing years, and the 1995 
                                marketing year, in the case of 
                                the 1996 through 2002 marketing 
                                years''; and
                            (v) in subsection (f), by striking 
                        ``1997'' and inserting ``2002'';
                    (B) in section 358b (7 U.S.C. 1358b)--
                            (i) in the section heading, by 
                        striking ``1991 through 1995 crops 
                        of''; and
                            (ii) in subsection (c), by striking 
                        ``1995'' and inserting ``2002'';
                    (C) in section 358c(d) (7 U.S.C. 1358c(d)), 
                by striking ``1995'' and inserting ``2002''; 
                and
                    (D) in section 358e (7 U.S.C. 1359a)--
                            (i) in the section heading, by 
                        striking ``for 1991 through 1997 crops 
                        of peanuts''; and
                            (ii) in subsection (i), by striking 
                        ``1997'' and inserting ``2002''.
            (2) Elimination of quota floor.--Section 358-
        1(a)(1) of the Act (7 U.S.C. 1358-1(a)(1)) is amended 
        by striking the second sentence.
            (3) Temporary quota allocation.--Section 358-1 of 
        the Act (7 U.S.C. 1358-1) is amended--
                    (A) in subsection (a)(1), by striking 
                ``domestic edible, seed,'' and inserting 
                ``domestic edible use''; and
                    (B) in subsection (b)(2)--
                            (i) in subparagraph (A), by 
                        striking ``subparagraph (B) and subject 
                        to''; and
                            (ii) by striking subparagraph (B) 
                        and inserting the following:
                    ``(B) Temporary quota allocation.--
                            ``(i) Allocation related to seed 
                        peanuts.--Temporary allocation of quota 
                        pounds for the marketing year only in 
                        which the crop is planted shall be made 
                        to producers for each of the 1996 
                        through 2002 marketing years as 
                        provided in this subparagraph.
                            ``(ii) Quantity.--The temporary 
                        quota allocation shall be equal to the 
                        pounds of seed peanuts planted on the 
                        farm, as may be adjusted under 
                        regulations prescribed by the 
                        Secretary.
                            ``(iii) Additional quota.--The 
                        temporary allocation of quota pounds 
                        under this paragraph shall be in 
                        addition to the farm poundage quota 
                        otherwise established under this 
                        subsection and shall be credited, for 
                        the applicable marketing year only, in 
                        total to the producer of the peanuts on 
                        the farm in a manner prescribed by the 
                        Secretary.
                            ``(iv) Effect of other 
                        requirements.--Nothing in this section 
                        alters or changes the requirements 
                        regarding the use of quota and 
                        additional peanuts established by 
                        section 358e(b).''.
            (4) Undermarketings.--Part VI of subtitle B of 
        title III of the Act is amended--
                    (A) in section 358-1(b) (7 U.S.C. 1358-
                1(b))--
                            (i) in paragraph (1)(B), by 
                        striking ``including--'' and clauses 
                        (i) and (ii) and inserting ``including 
                        any increases resulting from the 
                        allocation of quotas voluntarily 
                        released for 1 year under paragraph 
                        (7).'';
                            (ii) in paragraph (3)(B), by 
                        striking ``include--'' and clauses (i) 
                        and (ii) and inserting ``include any 
                        increase resulting from the allocation 
                        of quotas voluntarily released for 1 
                        year under paragraph (7).''; and
                            (iii) by striking paragraphs (8) 
                        and (9); and
                    (B) in section 358b(a) (7 U.S.C. 
                1358b(a))--
                            (i) in paragraph (1), by striking 
                        ``(including any applicable under 
                        marketings)'' both places it appears;
                            (ii) in paragraph (1)(A), by 
                        striking ``of undermarketings and'';
                            (iii) in paragraph (2), by striking 
                        ``(including any applicable under 
                        marketings)''; and
                            (iv) in paragraph (3), by striking 
                        ``(including any applicable 
                        undermarketings)''.
            (5) Disaster transfers.--Section 358-1(b) of the 
        Act (7 U.S.C. 1358-1(b)), as amended by paragraph 
        (4)(A)(iii), is further amended by adding at the end 
        the following:
            ``(8) Disaster transfers.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), additional peanuts produced 
                on a farm from which the quota poundage was not 
                harvested and marketed because of drought, 
                flood, or any other natural disaster, or any 
                other condition beyond the control of the 
                producer, may be transferred to the quota loan 
                pool for pricing purposes on such basis as the 
                Secretary shall by regulation provide.
                    ``(B) Limitation.--The poundage of peanuts 
                transferred under subparagraph (A) shall not 
                exceed the difference between--
                            ``(i) the total quantity of peanuts 
                        meeting quality requirements for 
                        domestic edible use, as determined by 
                        the Secretary, marketed from the farm; 
                        and
                            ``(ii) the total farm poundage 
                        quota, excluding quota pounds 
                        transferred to the farm in the fall.
                    ``(C) Support rate.--Peanuts transferred 
                under this paragraph shall be supported at not 
                more than 70 percent of the quota support rate 
                for the marketing years in which the transfers 
                occur. The transfers for a farm shall not 
                exceed 25 percent of the total farm quota 
                pounds, excluding pounds transferred in the 
                fall.''.

SEC. 1107. SUGAR PROGRAM.

    (a) Sugarcane.--The Secretary shall make loans available to 
processors of domestically grown sugarcane at a rate equal to 
18 cents per pound for raw cane sugar.
    (b) Sugar Beets.--The Secretary shall make loans available 
to processors of domestically grown sugar beets at a rate equal 
to 22.9 cents per pound for refined beet sugar.
    (c) Term of Loans.--
            (1) In general.--Loans under this section during 
        any fiscal year shall be made available not earlier 
        than the beginning of the fiscal year and shall mature 
        at the earlier of--
                    (A) the end of 9 months; or
                    (B) the end of the fiscal year.
            (2) Supplemental loans.--In the case of loans made 
        under this section in the last 3 months of a fiscal 
        year, the processor may repledge the sugar as 
        collateral for a second loan in the subsequent fiscal 
        year, except that the second loan shall--
                    (A) be made at the loan rate in effect at 
                the time the second loan is made; and
                    (B) mature in 9 months less the quantity of 
                time that the first loan was in effect.
    (d) Loan Type; Processor Assurances.--
            (1) Recourse loans.--Subject to paragraph (2), the 
        Secretary shall carry out this section through the use 
        of recourse loans.
            (2) Nonrecourse loans.--During any fiscal year in 
        which the tariff rate quota for imports of sugar into 
        the United States is established at, or is increased 
        to, a level in excess of 1,500,000 short tons raw 
        value, the Secretary shall carry out this section by 
        making available nonrecourse loans. Any recourse loan 
        previously made available by the Secretary under this 
        section during the fiscal year shall be changed by the 
        Secretary into a nonrecourse loan.
            (3) Processor assurances.--If the Secretary is 
        required under paragraph (2) to make nonrecourse loans 
        available during a fiscal year or to change recourse 
        loans into nonrecourse loans, the Secretary shall 
        obtain from each processor that receives a loan under 
        this section such assurances as the Secretary considers 
        adequate to ensure that the processor will provide 
        payments to producers that are proportional to the 
        value of the loan received by the processor for sugar 
        beets and sugarcane delivered by producers served by 
        the processor. The Secretary may establish appropriate 
        minimum payments for purposes of this paragraph.
    (e) Marketing Assessment.--
            (1) Sugarcane.--Effective for marketings of raw 
        cane sugar during the 1996 through 2003 fiscal years, 
        the first processor of sugarcane shall remit to the 
        Commodity Credit Corporation a nonrefundable marketing 
        assessment in an amount equal to--
                    (A) in the case of marketings during fiscal 
                year 1996, 1.1 percent of the loan rate 
                established under subsection (a) per pound of 
                raw cane sugar, processed by the processor from 
                domestically produced sugarcane or sugarcane 
                molasses, that has been marketed (including the 
                transfer or delivery of the sugar to a refinery 
                for further processing or marketing); and
                    (B) in the case of marketings during each 
                of fiscal years 1997 through 2003, 1.375 
                percent of the loan rate established under 
                subsection (a) per pound of raw cane sugar, 
                processed by the processor from domestically 
                produced sugarcane or sugarcane molasses, that 
                has been marketed (including the transfer or 
                delivery of the sugar to a refinery for further 
                processing or marketing).
            (2) Sugar beets.--Effective for marketings of beet 
        sugar during the 1996 through 2003 fiscal years, the 
        first processor of sugar beets shall remit to the 
        Commodity Credit Corporation a nonrefundable marketing 
        assessment in an amount equal to--
                    (A) in the case of marketings during fiscal 
                year 1996, 1.1794 percent of the loan rate 
                established under subsection (a) per pound of 
                beet sugar, processed by the processor from 
                domestically produced sugar beets or sugar beet 
                molasses, that has been marketed; and
                    (B) in the case of marketings during each 
                of fiscal years 1997 through 2003, 1.47425 
                percent of the loan rate established under 
                subsection (a) per pound of beet sugar, 
                processed by the processor from domestically 
                produced sugar beets or sugar beet molasses, 
                that has been marketed.
            (3) Collection.--
                    (A) Timing.--A marketing assessment 
                required under this subsection shall be 
                collected on a monthly basis and shall be 
                remitted to the Commodity Credit Corporation 
                not later than 30 days after the end of each 
                month. Any cane sugar or beet sugar processed 
                during a fiscal year that has not been marketed 
                by September 30 of the year shall be subject to 
                assessment on that date. The sugar shall not be 
                subject to a second assessment at the time that 
                it is marketed.
                    (B) Manner.--Subject to subparagraph (A), 
                marketing assessments shall be collected under 
                this subsection in the manner prescribed by the 
                Secretary and shall be nonrefundable.
            (4) Penalties.--If any person fails to remit the 
        assessment required by this subsection or fails to 
        comply with such requirements for recordkeeping or 
        otherwise as are required by the Secretary to carry out 
        this subsection, the person shall be liable to the 
        Secretary for a civil penalty up to an amount 
        determined by multiplying--
                    (A) the quantity of cane sugar or beet 
                sugar involved in the violation; by
                    (B) the loan rate for the applicable crop 
                of sugarcane or sugar beets.
            (5) Enforcement.--The Secretary may enforce this 
        subsection in a court of the United States.
    (f) Forfeiture Penalty.--
            (1) In general.--A penalty shall be assessed on the 
        forfeiture of any sugar pledged as collateral for a 
        nonrecourse loan under this section.
            (2) Sugarcane.--The penalty for sugarcane shall be 
        1 cent per pound.
            (3) Sugar beets.--The penalty for sugar beets shall 
        bear the same relation to the penalty for sugarcane as 
        the marketing assessment for sugar beets bears to the 
        marketing assessment for sugarcane.
            (4) Effect of forfeiture.--Any payments owed 
        producers by a processor that forfeits of any sugar 
        pledged as collateral for a nonrecourse loan shall be 
        reduced in proportion to the loan forfeiture penalty 
        incurred by the processor.
    (g) Information Reporting.--
            (1) Duty of processors and refiners to report.--A 
        sugarcane processor, cane sugar refiner, and sugar beet 
        processor shall furnish the Secretary, on a monthly 
        basis, such information as the Secretary may require to 
        administer sugar programs, including the quantity of 
        purchases of sugarcane, sugar beets, and sugar, and 
        production, importation, distribution, and stock levels 
        of sugar.
            (2) Penalty.--Any person willfully failing or 
        refusing to furnish the information, or furnishing 
        willfully any false information, shall be subject to a 
        civil penalty of not more than $10,000 for each such 
        violation.
            (3) Monthly reports.--Taking into consideration the 
        information received under paragraph (1), the Secretary 
        shall publish on a monthly basis composite data on 
        production, imports, distribution, and stock levels of 
        sugar.
    (h) Marketing Allotments.--Part VII of subtitle B of title 
III of the Agricultural Adjustment Act of 1938 (7 U.S.C. 1359aa 
et seq.) is repealed.
    (i) Crops.--This section (other than subsection (h)) shall 
be effective only for the 1996 through 2002 crops of sugar 
beets and sugarcane.

SEC. 1108. ADMINISTRATION.

    (a) Commodity Credit Corporation.--
            (1) Use of corporation.--The Secretary shall carry 
        out this subtitle through the Commodity Credit 
        Corporation.
            (2) Salaries and expenses.--No funds of the 
        Corporation shall be used for any salary or expense of 
        any officer or employee of the Department of 
        Agriculture in connection with the administration of 
        payments or loans under this subtitle.
    (b) Administration.--Title IV of the Agricultural 
Adjustment Act of 1938 (as added by section 1109) shall apply 
to the administration of this subtitle.
    (c) Regulations.--The Secretary may issue such regulations 
as the Secretary determines necessary to carry out this 
subtitle.

SEC. 1109. ELIMINATION OF PERMANENT PRICE SUPPORT AUTHORITY.

    (a) Agricultural Adjustment Act of 1938.--The Agricultural 
Adjustment Act of 1938 is amended--
            (1) in title III--
                    (A) in subtitle B--
                            (i) by striking parts II through V 
                        (7 U.S.C. 1326-1351); and
                            (ii) in part VI, by striking 
                        sections 358, 358a, and 358d (7 U.S.C. 
                        1358, 1358a, and 1359); and
                    (B) by striking subtitle D (7 U.S.C. 1379a-
                1379j); and
            (2) by striking title IV (7 U.S.C. 1401-1407).
    (b) Agricultural Act of 1949.--
            (1) Transfer of certain sections.--The Agricultural 
        Act of 1949 is amended--
                    (A) by transferring sections 106, 106A, and 
                106B (7 U.S.C. 1445, 1445-1, 1445-2) to appear 
                after section 314A of the Agricultural 
                Adjustment Act of 1938 (7 U.S.C. 1314-1) and 
                redesignating the transferred sections as 
                sections 315, 315A, and 315B, respectively;
                    (B) by transferring sections 111, 201(c), 
                and 204 (7 U.S.C. 1445f, 1446(c), 1446e) to 
                appear after section 304 of the Agricultural 
                Adjustment Act of 1938 (7 U.S.C. 1304) and 
                redesignating the transferred sections as 
                sections 305, 306, and 307, respectively;
                    (C) by transferring sections 403, 405, 407, 
                412, and 422 (7 U.S.C. 1423, 1425, 1427, 1429, 
                1431a) to appear after section 393 (7 U.S.C. 
                1393) and redesignating the transferred 
                sections as sections 411, 412, 413, 414, and 
                415, respectively; and
                    (D) by transferring section 416 (7 U.S.C. 
                1431) to appear after section 415 of the 
                Agricultural Adjustment Act of 1938 (as 
                transferred and redesignated by subparagraph 
                (C)).
            (2) Repeal.--The Agricultural Act of 1949 (7 U.S.C. 
        1421 et seq.) (as amended by paragraph (1)) is 
        repealed.
    (c) Conforming Amendments.--The Agricultural Adjustment Act 
of 1938 is amended--
            (1) in section 306 (as transferred and redesignated 
        by subsection (b)(1)(B)), by striking ``204'' and 
        inserting ``307''; and
            (2) by striking section 411 (as transferred and 
        redesignated by subsection (b)(1)(C)) and inserting the 
        following:

                  ``TITLE IV--ADMINISTRATION OF LOANS

``SEC. 411. ADJUSTMENTS FOR GRADE, TYPE, QUALITY, LOCATION, AND OTHER 
                    FACTORS.

    ``The Secretary may make such adjustments in the announced 
loan rate for a commodity as the Secretary considers 
appropriate to reflect differences in grade, type, quality, 
location, and other factors.''.

SEC. 1110. EFFECT OF AMENDMENTS.

    (a) Effect on Prior Crops.--Except as otherwise 
specifically provided and notwithstanding any other provision 
of law, this subtitle and the amendments made by this subtitle 
shall not affect the authority of the Secretary to carry out a 
price support or production adjustment program for any of the 
1991 through 1995 crops of an agricultural commodity 
established under a provision of law in effect immediately 
before the date of the enactment of this Act.
    (b) Liability.--A provision of this subtitle or an 
amendment made by this subtitle shall not affect the liability 
of any person under any provision of law as in effect before 
the date of the enactment of this Act.

                        Subtitle B--Conservation

SEC. 1201. CONSERVATION.

    (a) Funding.--Subtitle E of title XII of the Food Security 
Act of 1985 (16 U.S.C. 3841 et seq.) is amended to read as 
follows:

                         ``Subtitle E--Funding

``SEC. 1241. FUNDING.

    ``(a) Mandatory Expenses.--For each of fiscal years 1996 
through 2002, the Secretary shall use the funds of the 
Commodity Credit Corporation to carry out the programs 
authorized by--
            ``(1) subchapter B of chapter 1 of subtitle D 
        (including contracts extended by the Secretary pursuant 
        to section 1437 of the Food, Agriculture, Conservation, 
        and Trade Act of 1990 (Public Law 101-624; 16 U.S.C. 
        3831 note));
            ``(2) subchapter C of chapter 1 of subtitle D; and
            ``(3) chapter 4 of subtitle D.
    ``(b) Livestock Environmental Assistance Program.--For each 
of fiscal years 1996 through 2002, $100,000,000 of the funds of 
the Commodity Credit Corporation shall be available for 
providing technical assistance, cost-sharing payments, and 
incentive payments for practices relating to livestock 
production under the livestock environmental assistance program 
under chapter 4 of subtitle D.''.
    (b) Livestock Environmental Assistance Program.--To carry 
out the programs funded under the amendment made by subsection 
(a), subtitle D of title XII of the Food Security Act of 1985 
(16 U.S.C. 3830 et seq.) is amended by adding at the end the 
following:

        ``CHAPTER 4--LIVESTOCK ENVIRONMENTAL ASSISTANCE PROGRAM

``SEC. 1240. DEFINITIONS.

    ``In this chapter:
            ``(1) Land management practice.--The term `land 
        management practice' means a site-specific nutrient or 
        manure management, irrigation management, tillage or 
        residue management, grazing management, or other land 
        management practice that the Secretary determines is 
        needed to protect, in the most cost effective manner, 
        water, soil, or related resources from degradation due 
        to livestock production.
            ``(2) Large confined livestock operation.--The term 
        `large confined livestock operation' means an operation 
        that--
                    ``(A) is a confined animal feeding 
                operation; and
                    ``(B) has more than--
                            ``(i) 55 mature dairy cattle;
                            ``(ii) 10,000 beef cattle;
                            ``(iii) 30,000 laying hens or 
                        broilers (if the facility has 
                        continuous overflow watering);
                            ``(iv) 100,000 laying hens or 
                        broilers (if the facility has a liquid 
                        manure system);
                            ``(v) 55,000 turkeys;
                            ``(vi) 15,000 swine; or
                            ``(vii) 10,000 sheep or lambs.
            ``(3) Livestock.--The term `livestock' means dairy 
        cows, beef cattle, laying hens, broilers, turkeys, 
        swine, sheep, lambs, and such other animals as 
        determined by the Secretary.
            ``(4) Operator.--The term `operator' means a person 
        who is engaged in livestock production (as defined by 
        the Secretary).
            ``(5) Structural practice.--The term `structural 
        practice' means the establishment of an animal waste 
        management facility, terrace, grassed waterway, contour 
        grass strip, filterstrip, or other structural practice 
        that the Secretary determines is needed to protect, in 
        the most cost effective manner, water, soil, or related 
        resources from degradation due to livestock production.

``SEC. 1240A. ESTABLISHMENT AND ADMINISTRATION OF LIVESTOCK 
                    ENVIRONMENTAL ASSISTANCE PROGRAM.

    ``(a) Establishment.--
            ``(1) In general.--During the 1996 through 2002 
        fiscal years, the Secretary shall provide technical 
        assistance, cost-sharing payments, and incentive 
        payments to operators who enter into contracts with the 
        Secretary, through a livestock environmental assistance 
        program.
            ``(2) Eligible practices.--
                    ``(A) Structural practices.--An operator 
                who implements a structural practice shall be 
                eligible for technical assistance or cost-
                sharing payments, or both.
                    ``(B) Land management practices.--An 
                operator who performs a land management 
                practice shall be eligible for technical 
                assistance or incentive payments, or both.
            ``(3) Eligible land.--Assistance under this chapter 
        may be provided with respect to land that is used for 
        livestock production and on which a serious threat to 
        water, soil, or related resources exists, as determined 
        by the Secretary, by reason of the soil types, terrain, 
        climatic, soil, topographic, flood, or saline 
        characteristics, or other factors or natural hazards.
            ``(4) Selection criteria.--In providing technical 
        assistance, cost-sharing payments, and incentive 
        payments to operators in a region, watershed, or 
        conservation priority area in which an agricultural 
        operation is located, the Secretary shall consider--
                    ``(A) the significance of the water, soil, 
                and related natural resource problems; and
                    ``(B) the maximization of environmental 
                benefits per dollar expended.
    ``(b) Application and Term.--
            ``(1) In general.--A contract between an operator 
        and the Secretary under this chapter may--
                    ``(A) apply to 1 or more structural 
                practices or 1 or more land management 
                practices, or both; and
                    ``(B) have a term of not less than 5, nor 
                more than 10, years, as determined appropriate 
                by the Secretary, depending on the practice or 
                practices that are the basis of the contract.
            ``(2) Duties of operators and secretary.--To 
        receive cost sharing or incentive payments, or 
        technical assistance, participating operators shall 
        comply with all terms and conditions of the contract 
        and a plan, as established by the Secretary.
    ``(c) Structural Practices.--
            ``(1) Competitive offer.--The Secretary shall 
        administer a competitive offer system for operators 
        proposing to receive cost-sharing payments in exchange 
        for the implementation of 1 or more structural 
        practices by the operator. The competitive offer system 
        shall consist of--
                    ``(A) the submission of a competitive offer 
                by the operator in such manner as the Secretary 
                may prescribe; and
                    ``(B) evaluation of the offer in light of 
                the selection criteria established under 
                subsection (a)(4) and the projected cost of the 
                proposal, as determined by the Secretary.
            ``(2) Concurrence of owner.--If the operator making 
        an offer to implement a structural practice is a tenant 
        of the land involved in agricultural production, for 
        the offer to be acceptable, the operator shall obtain 
        the concurrence of the owner of the land with respect 
        to the offer.
    ``(d) Land Management Practices.--The Secretary shall 
establish an application and evaluation process for awarding 
technical assistance or incentive payments, or both, to an 
operator in exchange for the performance of 1 or more land 
management practices by the operator.
    ``(e) Cost-Sharing, Incentive Payments, and Technical 
Assistance.--
            ``(1) Cost-sharing payments.--
                    ``(A) In general.--The Federal share of 
                cost-sharing payments to an operator proposing 
                to implement 1 or more structural practices 
                shall not be greater than 75 percent of the 
                projected cost of each practice, as determined 
                by the Secretary, taking into consideration any 
                payment received by the operator from a State 
                or local government.
                    ``(B) Limitation.--An operator of a large 
                confined livestock operation shall not be 
                eligible for cost-sharing payments to construct 
                an animal waste management facility.
                    ``(C) Other payments.--An operator shall 
                not be eligible for cost-sharing payments for 
                structural practices on eligible land under 
                this chapter if the operator receives cost-
                sharing payments or other benefits for the same 
                land under chapter 1, 2, or 3.
            ``(2) Incentive payments.--The Secretary shall make 
        incentive payments in an amount and at a rate 
        determined by the Secretary to be necessary to 
        encourage an operator to perform 1 or more land 
        management practices.
            ``(3) Technical assistance.--
                    ``(A) Funding.--The Secretary shall 
                allocate funding under this chapter for the 
                provision of technical assistance according to 
                the purpose and projected cost for which the 
                technical assistance is provided for a fiscal 
                year. The allocated amount may vary according 
                to the type of expertise required, quantity of 
                time involved, and other factors as determined 
                appropriate by the Secretary. Funding shall not 
                exceed the projected cost to the Secretary of 
                the technical assistance provided for a fiscal 
                year.
                    ``(B) Other authorities.--The receipt of 
                technical assistance under this chapter shall 
                not affect the eligibility of the operator to 
                receive technical assistance under other 
                authorities of law available to the Secretary.
    ``(f) Limitation on Payments.--
            ``(1) In general.--The total amount of cost-sharing 
        and incentive payments paid to a person under this 
        chapter may not exceed--
                    ``(A) $10,000 for any fiscal year; or
                    ``(B) $50,000 for any multiyear contract.
            ``(2) Regulations.--The Secretary shall issue 
        regulations that are consistent with section 1001 for 
        the purpose of--
                    ``(A) defining the term `person' as used in 
                paragraph (1); and
                    ``(B) prescribing such rules as the 
                Secretary determines necessary to ensure a fair 
                and reasonable application of the limitations 
                established under this subsection.
    ``(g) Regulations.--Not later than 180 days after the 
effective date of this subsection, the Secretary shall issue 
regulations to implement the livestock environmental assistance 
program established under this chapter.''.
    (c) Conforming Amendments.--
            (1) Commodity credit corporation charter act.--
        Section 5(g) of the Commodity Credit Corporation 
        Charter Act (15 U.S.C. 714c(g)) is amended to read as 
        follows:
    ``(g) Carry out conservation functions and programs.''.
            (2) Wetlands reserve program.--
                    (A) In general.--Section 1237 of the Food 
                Security Act of 1985 (16 U.S.C. 3837) is 
                amended--
                            (i) in subsection (b)(2)--
                                    (I) by striking ``not 
                                less'' and inserting ``not 
                                more''; and
                                    (II) by striking ``2000'' 
                                and inserting ``2002''; and
                            (ii) in subsection (c), by striking 
                        ``2000'' and inserting ``2002''.
                    (B) Length of easement.--Section 1237A(e) 
                of the Food Security Act of 1985 (16 U.S.C. 
                3837a(e)) is amended by striking paragraph (2) 
                and inserting the following:
            ``(2) shall be for 15 years, but in no case shall 
        be a permanent easement.''.
            (3) Conservation reserve program.--
                    (A) In general.--Section 1231(d) of the 
                Food Security Act of 1985 (16 U.S.C. 3831(d)) 
                is amended by striking ``total of'' and all 
                that follows through the period at the end of 
                the subsection and inserting ``total of 
                36,400,000 acres.''.
                    (B) Optional contract termination by 
                producers.--Section 1235 of the Food Security 
                Act of 1985 (16 U.S.C. 3835) is amended by 
                adding at the end the following:
    ``(e) Termination by Owner or Operator.--
            ``(1) Notice of termination.--An owner or operator 
        of land subject to a contract entered into under this 
        subchapter may terminate the contract by submitting to 
        the Secretary written notice of the intention of the 
        owner or operator to terminate the contract.
            ``(2) Effective date.--The contract termination 
        shall take effect 60 days after the date on which the 
        owner or operator submits the written notice under 
        paragraph (1).
            ``(3) Prorated rental payment.--If a contract 
        entered into under this subchapter is terminated under 
        this subsection before the end of the fiscal year for 
        which a rental payment is due, the Secretary shall 
        provide a prorated rental payment covering the portion 
        of the fiscal year during which the contract was in 
        effect.
            ``(4) Renewed enrollment.--The termination of a 
        contract entered into under this subchapter shall not 
        affect the ability of the owner or operator who 
        requested the termination to submit a subsequent bid to 
        enroll the land that was subject to the contract into 
        the conservation reserve.
            ``(5) Conservation requirements.--If land that was 
        subject to a contract is returned to production of an 
        agricultural commodity, the conservation requirements 
        under subtitles B and C shall apply to the use of the 
        land to the extent that the requirements are similar to 
        those requirements imposed on other similar lands in 
        the area, except that the requirements may not be more 
        onerous that the requirements imposed on other lands.
            ``(6) Repayment of cost share.--A person who 
        terminates a contract entered into under this 
        subchapter within less than 3 years after entering into 
        the contract shall reimburse the Secretary for any cost 
        share assistance provided under the contract.''.
                    (C) Limitation.--Notwithstanding any other 
                provision of law, no new acres shall be 
                enrolled in the conservation reserve program 
                established under subchapter B of chapter 1 of 
                subtitle D of title XII of the Food Security 
                Act of 1985 (16 U.S.C. 3831 et seq.) in 
                calendar year 1997.

         Subtitle C--Agricultural Promotion and Export Programs

SEC. 1301. MARKET PROMOTION PROGRAM.

    Effective October 1, 1995, section 211(c)(1) of the 
Agricultural Trade Act of 1978 (7 U.S.C. 5641(c)(1)) is 
amended--
            (1) by striking ``and'' after ``1991 through 
        1993,''; and
            (2) by striking ``through 1997,'' and inserting 
        ``through 1995, and not more than $100,000,000 for each 
        of fiscal years 1996 through 2002,''.

SEC. 1302. EXPORT ENHANCEMENT PROGRAM.

    Effective October 1, 1995, section 301(e)(1) of the 
Agricultural Trade Act of 1978 (7 U.S.C. 5651(e)(1)) is amended 
to read as follows:
            ``(1) In general.--The Commodity Credit Corporation 
        shall make available to carry out the program 
        established under this section not more than--
                    ``(A) $350,000,000 for fiscal year 1996;
                    ``(B) $350,000,000 for fiscal year 1997;
                    ``(C) $500,000,000 for fiscal year 1998;
                    ``(D) $550,000,000 for fiscal year 1999;
                    ``(E) $579,000,000 for fiscal year 2000;
                    ``(F) $478,000,000 for fiscal year 2001; 
                and
                    ``(G) $478,000,000 for fiscal year 2002.''.

                       Subtitle D--Miscellaneous

SEC. 1401. CROP INSURANCE.

    (a) Catastrophic Risk Protection.--Section 508(b) of the 
Federal Crop Insurance Act (7 U.S.C. 1508(b)) is amended--
            (1) in paragraph (4), by adding at the end the 
        following:
                    ``(C) Delivery of coverage.--
                            ``(i) In general.--In full 
                        consultation with approved insurance 
                        providers, the Secretary may continue 
                        to offer catastrophic risk protection 
                        in a State (or a portion of a State) 
                        through local offices of the Department 
                        if the Secretary determines that there 
                        is an insufficient number of approved 
                        insurance providers operating in the 
                        State or portion to adequately provide 
                        catastrophic risk protection coverage 
                        to producers.
                            ``(ii) Coverage by approved 
                        insurance providers.--To the extent 
                        that catastrophic risk protection 
                        coverage by approved insurance 
                        providers is sufficiently available in 
                        a State as determined by the Secretary, 
                        only approved insurance providers may 
                        provide the coverage in the State.
                            ``(iii) Current policies.--Subject 
                        to clause (ii), all catastrophic risk 
                        protection policies written by local 
                        offices of the Department shall be 
                        transferred (including all fees 
                        collected for the crop year in which 
                        the approved insurance provider will 
                        assume the policies) to the approved 
                        insurance provider for performance of 
                        all sales, service, and loss adjustment 
                        functions.''; and
            (2) in paragraph (7), by striking subparagraph (A) 
        and inserting the following:
                    ``(A) In general.--Effective for the 
                spring-planted 1996 and subsequent crops, to be 
                eligible for any payment or loan under the 
                Agricultural Market Transition Act, the 
                conservation reserve program, or any benefit 
                described in section 371 of the Consolidated 
                Farm and Rural Development Act (7 U.S.C. 
                2008f), a person shall--
                            ``(i) obtain at least the 
                        catastrophic level of insurance for 
                        each crop of economic significance in 
                        which the person has an interest; or
                            ``(ii) provide a written waiver to 
                        the Secretary that waives any 
                        eligibility for emergency crop loss 
                        assistance in connection with the 
                        crop.''.
    (b) Coverage of Seed Crops.--Section 519(a)(2)(B) of the 
Act (7 U.S.C. 1519(a)(2)(B) is amended by inserting ``seed 
crops,'' after ``turfgrass sod,''.

SEC. 1402. COLLECTION AND USE OF AGRICULTURAL QUARANTINE AND INSPECTION 
                    FEES.

    Subsection (a) of section 2509 of the Food, Agriculture, 
Conservation, and Trade Act of 1990 (21 U.S.C. 136a) is amended 
to read as follows:
    ``(a) Quarantine and Inspection Fees.--
            ``(1) Fees authorized.--The Secretary of 
        Agriculture may prescribe and collect fees sufficient--
                    ``(A) to cover the cost of providing 
                agricultural quarantine and inspection services 
                in connection with the arrival at a port in the 
                customs territory of the United States, or the 
                preclearance or preinspection at a site outside 
                the customs territory of the United States, of 
                an international passenger, commercial vessel, 
                commercial aircraft, commercial truck, or 
                railroad car;
                    ``(B) to cover the cost of administering 
                this subsection; and
                    ``(C) through fiscal year 2002, to maintain 
                a reasonable balance in the Agricultural 
                Quarantine Inspection User Fee Account 
                established under paragraph (5).
            ``(2) Limitation.--In setting the fees under 
        paragraph (1), the Secretary shall ensure that the 
        amount of the fees are commensurate with the costs of 
        agricultural quarantine and inspection services with 
        respect to the class of persons or entities paying the 
        fees. The costs of the services with respect to 
        passengers as a class includes the costs of related 
        inspections of the aircraft or other vehicle.
            ``(3) Status of fees.--Fees collected under this 
        subsection by any person on behalf of the Secretary are 
        held in trust for the United States and shall be 
        remitted to the Secretary in such manner and at such 
        times as the Secretary may prescribe.
            ``(4) Late payment penalties.--If a person subject 
        to a fee under this subsection fails to pay the fee 
        when due, the Secretary shall assess a late payment 
        penalty, and the overdue fees shall accrue interest, as 
        required by section 3717 of title 31, United States 
        Code.
            ``(5) Agricultural quarantine inspection user fee 
        account.--
                    ``(A) Establishment.--There is established 
                in the Treasury of the United States a no-year 
                fund, to be known as the `Agricultural 
                Quarantine Inspection User Fee Account', which 
                shall contain all of the fees collected under 
                this subsection and late payment penalties and 
                interest charges collected under paragraph (4) 
                through fiscal year 2002.
                    ``(B) Use of account.--For each of the 
                fiscal years 1996 through 2002, funds in the 
                Agricultural Quarantine Inspection User Fee 
                Account shall be available, in such amounts as 
                are provided in advance in appropriations Acts, 
                to cover the costs associated with the 
                provision of agricultural quarantine and 
                inspection services and the administration of 
                this subsection. Amounts made available under 
                this subparagraph shall be available until 
                expended.
                    ``(C) Excess fees.--Fees and other amounts 
                collected under this subsection in any of the 
                fiscal years 1996 through 2002 in excess of 
                $100,000,000 shall be available for the 
                purposes specified in subparagraph (B) until 
                expended, without further appropriation.
            ``(6) Use of amounts collected after fiscal year 
        2002.--After September 30, 2002, the unobligated 
        balance in the Agricultural Quarantine Inspection User 
        Fee Account and fees and other amounts collected under 
        this subsection shall be credited to the Department of 
        Agriculture accounts that incur the costs associated 
        with the provision of agricultural quarantine and 
        inspection services and the administration of this 
        subsection. The fees and other amounts shall remain 
        available to the Secretary until expended without 
        fiscal year limitation.
            ``(7) Staff years.--The number of full-time 
        equivalent positions in the Department of Agriculture 
        attributable to the provision of agricultural 
        quarantine and inspection services and the 
        administration of this subsection shall not be counted 
        toward the limitation on the total number of full-time 
        equivalent positions in all agencies specified in 
        section 5(b) of the Federal Workforce Restructuring Act 
        of 1994 (Public Law 103-226; 5 U.S.C. 3101 note) or 
        other limitation on the total number of full-time 
        equivalent positions.''.

SEC. 1403. COMMODITY CREDIT CORPORATION INTEREST RATE.

    Notwithstanding any other provision of law, the monthly 
Commodity Credit Corporation interest rate applicable to loans 
provided for agricultural commodities by the Corporation shall 
be 100 basis points greater than the rate determined under the 
applicable interest rate formula in effect on October 1, 1995.

           TITLE II--BANKING, HOUSING, AND RELATED PROVISIONS

SEC. 2001. TABLE OF CONTENTS.

    The table of contents for this title is as follows:

           TITLE II--BANKING, HOUSING, AND RELATED PROVISIONS

Sec. 2001. Table of contents.

           TITLE II--BANKING, HOUSING, AND RELATED PROVISIONS

                   Subtitle A--Financial Institutions

Sec. 2011. Special assessment to capitalize SAIF.
Sec. 2012. Financing Corporation assessments shared proportionally by 
          all insured depository institutions.
Sec. 2013. Merger of BIF and SAIF.
Sec. 2014. Creation of SAIF Special Reserve.
Sec. 2015. Refund of amounts in deposit insurance fund in excess of 
          designated reserve amount.
Sec. 2016. Assessment rates for SAIF members may not be less than 
          assessment rates for BIF members.
Sec. 2017. Assessments authorized only if needed to maintain the reserve 
          ratio of a deposit insurance fund.
Sec. 2018. Limitation on authority of Oversight Board to continue to 
          employ more than 18 officers and employees.
Sec. 2019. Definitions.

                           Subtitle B--Housing

Sec. 2051. Annual adjustment factors for operating costs only; restraint 
          on rent increases.
Sec. 2052. Foreclosure avoidance and borrower assistance.

           TITLE II--BANKING, HOUSING, AND RELATED PROVISIONS

                   Subtitle A--Financial Institutions

SEC. 2011. SPECIAL ASSESSMENT TO CAPITALIZE SAIF.

    (a) In General.--Except as provided in subsection (f), the 
Board of Directors shall impose a special assessment on the 
SAIF-assessable deposits of each insured depository institution 
at a rate applicable to all such institutions that the Board of 
Directors, in its sole discretion, determines (after taking 
into account the adjustments described in subsections (g) 
through (j)) will cause the Savings Association Insurance Fund 
to achieve the designated reserve ratio on the first business 
day of January 1996.
    (b) Factors To Be Considered.--In carrying out subsection 
(a), the Board of Directors shall base its determination on--
            (1) the monthly Savings Association Insurance Fund 
        balance most recently calculated;
            (2) data on insured deposits reported in the most 
        recent reports of condition filed not later than 70 
        days before the date of enactment of this Act by 
        insured depository institutions; and
            (3) any other factors that the Board of Directors 
        deems appropriate.
    (c) Date of Determination.--For purposes of subsection (a), 
the amount of the SAIF-assessable deposits of an insured 
depository institution shall be determined as of March 31, 
1995.
    (d) Date Payment Due.--The special assessment imposed under 
this section shall be--
            (1) due on the first business day of January 1996; 
        and
            (2) paid to the Corporation on the later of--
                    (A) the first business day of January 1996; 
                or
                    (B) such other date as the Corporation 
                shall prescribe, but not later than 60 days 
                after the date of enactment of this Act.
    (e) Assessment Deposited in SAIF.--Notwithstanding any 
other provision of law, the proceeds of the special assessment 
imposed under this section shall be deposited in the Savings 
Association Insurance Fund.
    (f) Exemptions for Certain Institutions.--
            (1) Exemption for weak institutions.--The Board of 
        Directors may, by order, in its sole discretion, exempt 
        any insured depository institution that the Board of 
        Directors determines to be weak, from paying the 
        special assessment imposed under this section if the 
        Board of Directors determines that the exemption would 
        reduce risk to the Savings Association Insurance Fund.
            (2) Guidelines required.--Not later than 30 days 
        after the date of enactment of this Act, the Board of 
        Directors shall prescribe guidelines setting forth the 
        criteria that the Board of Directors will use in 
        exempting institutions under paragraph (1). Such 
        guidelines shall be published in the Federal Register.
            (3) Exemption for certain newly chartered and other 
        defined institutions.--
                    (A) In general.--In addition to the 
                institutions exempted from paying the special 
                assessment under paragraph (1), the Board of 
                Directors shall exempt any insured depository 
                institution from payment of the special 
                assessment if the institution--
                            (i) was in existence on October 1, 
                        1995, and held no SAIF-assessable 
                        deposits prior to January 1, 1993;
                            (ii) is a Federal savings bank 
                        which--
                                    (I) was established de novo 
                                in April 1994 in order to 
                                acquire the deposits of a 
                                savings association which was 
                                in default or in danger of 
                                default; and
                                    (II) received minority 
                                interim capital assistance from 
                                the Resolution Trust 
                                Corporation under section 
                                21A(w) of the Federal Home Loan 
                                Bank Act in connection with the 
                                acquisition of any such savings 
                                association; or
                            (iii) is a savings association, the 
                        deposits of which are insured by the 
                        Savings Association Insurance Fund, 
                        which--
                                    (I) prior to January 1, 
                                1987, was chartered as a 
                                Federal savings bank insured by 
                                the Federal Savings and Loan 
                                Insurance Corporation for the 
                                purpose of acquiring all or 
                                substantially all of the assets 
                                and assuming all or 
                                substantially all of the 
                                deposit liabilities of a 
                                national bank in a transaction 
                                consummated after July 1, 1986; 
                                and
                                    (II) as of the date of that 
                                transaction, had assets of less 
                                than $150,000,000.
                    (B) Definition.--For purposes of this 
                paragraph, an institution shall be deemed to 
                have held SAIF-assessable deposits prior to 
                January 1, 1993, if--
                            (i) it directly held SAIF-
                        assessable insured deposits prior to 
                        that date; or
                            (ii) it succeeded to, acquired, 
                        purchased, or otherwise holds any SAIF-
                        assessable deposits as of the date of 
                        enactment of this Act that were SAIF-
                        assessable deposits prior to January 1, 
                        1993.
            (4) Exempt institutions required to pay assessments 
        at former rates.--
                    (A) Payments to saif and dif.--Any insured 
                depository institution that the Board of 
                Directors exempts under this subsection from 
                paying the special assessment imposed under 
                this section shall pay semiannual assessments--
                            (i) during calendar years 1996 and 
                        1997, into the Savings Association 
                        Insurance Fund, based on SAIF-
                        assessable deposits of that 
                        institution, at assessment rates 
                        calculated under the schedule in effect 
                        for Savings Association Insurance Fund 
                        members on June 30, 1995; and
                            (ii) during calendar years 1998 and 
                        1999--
                                    (I) into the Deposit 
                                Insurance Fund, based on SAIF-
                                assessable deposits of that 
                                institution as of December 31, 
                                1997, at assessment rates 
                                calculated under the schedule 
                                in effect for Savings 
                                Association Insurance Fund 
                                members on June 30, 1995; or
                                    (II) in accordance with 
                                clause (i), if the Bank 
                                Insurance Fund and the Savings 
                                Association Insurance Fund are 
                                not merged into the Deposit 
                                Insurance Fund.
                    (B) Optional pro rata payment of special 
                assessment.--This paragraph shall not apply 
                with respect to any insured depository 
                institution (or successor insured depository 
                institution) that has paid, during any calendar 
                year from 1997 through 1999, upon such terms as 
                the Corporation may announce, an amount equal 
                to the product of--
                            (i) 12.5 percent of the special 
                        assessment that the institution would 
                        have been required to pay under 
                        subsection (a), if the Board of 
                        Directors had not exempted the 
                        institution; and
                            (ii) the number of full semiannual 
                        periods remaining between the date of 
                        the payment and December 31, 1999.
    (g) Special Election for Certain Institutions Facing 
Hardship as a Result of the Special Assessment.--
            (1) Election authorized.--If--
                    (A) an insured depository institution, or 
                any depository institution holding company 
                which, directly or indirectly, controls such 
                institution, is subject to terms or covenants 
                in any debt obligation or preferred stock 
                outstanding on September 13, 1995; and
                    (B) the payment of the special assessment 
                under subsection (a) would pose a significant 
                risk of causing such depository institution or 
                holding company to default or violate any such 
                term or covenant,
        the depository institution may elect, with the approval 
        of the Corporation, to pay such special assessment in 
        accordance with paragraphs (2) and (3) in lieu of 
        paying such assessment in the manner required under 
        subsection (a).
            (2) 1st assessment.--An insured depository 
        institution which makes an election under paragraph (1) 
        shall pay an assessment of 50 percent of the amount of 
        the special assessment that would otherwise apply under 
        subsection (a), by the date on which such special 
        assessment is otherwise due under subsection (d).
            (3) 2d assessment.--An insured depository 
        institution which makes an election under paragraph (1) 
        shall pay a 2d assessment, by the date established by 
        the Board of Directors in accordance with paragraph 
        (4), in an amount equal to the product of 51 percent of 
        the rate determined by the Board of Directors under 
        subsection (a) for determining the amount of the 
        special assessment and the SAIF-assessable deposits of 
        the institution on March 31, 1996, or such other date 
        in calendar year 1996 as the Board of Directors 
        determines to be appropriate.
            (4) Due date of 2d assessment.--The date 
        established by the Board of Directors for the payment 
        of the assessment under paragraph (3) by a depository 
        institution shall be the earliest practicable date 
        which the Board of Directors determines to be 
        appropriate, which is at least 15 days after the date 
        used by the Board of Directors under paragraph (3).
            (5) Supplemental special assessment.--An insured 
        depository institution which makes an election under 
        paragraph (1) shall pay a supplemental special 
        assessment, at the same time the payment under 
        paragraph (3) is made, in an amount equal to the 
        product of--
                    (A) 50 percent of the rate determined by 
                the Board of Directors under subsection (a) for 
                determining the amount of the special 
                assessment; and
                    (B) 95 percent of the amount by which the 
                SAIF-assessable deposits used by the Board of 
                Directors for determining the amount of the 1st 
                assessment under paragraph (2) exceeds, if any, 
                the SAIF-assessable deposits used by the Board 
                for determining the amount of the 2d assessment 
                under paragraph (3).
    (h) Adjustment of Special Assessment for Certain Bank 
Insurance Fund Member Banks.--
            (1) In general.--For purposes of computing the 
        special assessment imposed under this section with 
        respect to a Bank Insurance Fund member bank, the 
        amount of any deposits of any insured depository 
        institution which section 5(d)(3) of the Federal 
        Deposit Insurance Act treats as insured by the Savings 
        Association Insurance Fund shall be reduced by 20 
        percent--
                    (A) if the adjusted attributable deposit 
                amount of the Bank Insurance Fund member bank 
                is less than 50 percent of the total domestic 
                deposits of that member bank as of June 30, 
                1995; or
                    (B) if, as of June 30, 1995, the Bank 
                Insurance Fund member--
                            (i) had an adjusted attributable 
                        deposit amount equal to less than 75 
                        percent of the total assessable 
                        deposits of that member bank;
                            (ii) had total assessable deposits 
                        greater than $5,000,000,000; and
                            (iii) was owned or controlled by a 
                        bank holding company that owned or 
                        controlled insured depository 
                        institutions having an aggregate amount 
                        of deposits insured or treated as 
                        insured by the Bank Insurance Fund 
                        greater than the aggregate amount of 
                        deposits insured or treated as insured 
                        by the Savings Association Insurance 
                        Fund.
            (2) Adjusted attributable deposit amount.--For 
        purposes of this subsection, the ``adjusted 
        attributable deposit amount'' shall be determined in 
        accordance with section 5(d)(3)(C) of the Federal 
        Deposit Insurance Act.
    (i) Adjustment to the Adjusted Attributable Deposit Amount 
for Certain Bank Insurance Fund Member Banks.--Section 5(d)(3) 
of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3)) is 
amended--
            (1) in subparagraph (C), by striking ``The adjusted 
        attributable deposit amount'' and inserting ``Except as 
        provided in subparagraph (K), the adjusted attributable 
        deposit amount''; and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(K) Adjustment of adjusted attributable 
                deposit amount.--The amount determined under 
                subparagraph (C)(i) for deposits acquired by 
                March 31, 1995, shall be reduced by 20 percent 
                for purposes of computing the adjusted 
                attributable deposit amount for the payment of 
                any assessment for any semiannual period after 
                December 31, 1995 (other than the special 
                assessment imposed under section 2011(a) of the 
                Balanced Budget Act of 1995), for a Bank 
                Insurance Fund member bank that, as of June 30, 
                1995--
                            ``(i) had an adjusted attributable 
                        deposit amount that was less than 50 
                        percent of the total deposits of that 
                        member bank; or
                            ``(ii)(I) had an adjusted 
                        attributable deposit amount equal to 
                        less than 75 percent of the total 
                        assessable deposits of that member 
                        bank;
                            ``(II) had total assessable 
                        deposits greater than $5,000,000,000; 
                        and
                            ``(III) was owned or controlled by 
                        a bank holding company that owned or 
                        controlled insured depository 
                        institutions having an aggregate amount 
                        of deposits insured or treated as 
                        insured by the Bank Insurance Fund 
                        greater than the aggregate amount of 
                        deposits insured or treated as insured 
                        by the Savings Association Insurance 
                        Fund.''.
    (j) Adjustment of Special Assessment for Certain Savings 
Associations.--
            (1) Special assessment reduction.--For purposes of 
        computing the special assessment imposed under this 
        section, in the case of any converted association, the 
        amount of any deposits of such association which were 
        insured by the Savings Association Insurance Fund as of 
        March 31, 1995, shall be reduced by 20 percent.
            (2) Converted association.--For purposes of this 
        subsection, the term ``converted association'' means--
                    (A) any Federal savings association--
                            (i) that is a member of the Savings 
                        Association Insurance Fund and that has 
                        deposits subject to assessment by that 
                        fund which did not exceed 
                        $4,000,000,000, as of March 31, 1995; 
                        and
                            (ii) that had been, or is a 
                        successor by merger, acquisition, or 
                        otherwise to an institution that had 
                        been, a State savings bank, the 
                        deposits of which were insured by the 
                        Federal Deposit Insurance Corporation 
                        prior to August 9, 1989, that converted 
                        to a Federal savings association 
                        pursuant to section 5(i) of the Home 
                        Owners' Loan Act prior to January 1, 
                        1985;
                    (B) a State depository institution that is 
                a member of the Savings Association Insurance 
                Fund that had been a State savings bank prior 
                to October 15, 1982, and was a Federal savings 
                association on August 9, 1989;
                    (C) an insured bank that--
                            (i) was established de novo in 
                        order to acquire the deposits of a 
                        savings association in default or in 
                        danger of default;
                            (ii) did not open for business 
                        before acquiring the deposits of such 
                        savings association; and
                            (iii) was a Savings Association 
                        Insurance Fund member as of the date of 
                        enactment of this Act; and
                    (D) an insured bank that--
                            (i) resulted from a savings 
                        association before December 19, 1991, 
                        in accordance with section 5(d)(2)(G) 
                        of the Federal Deposit Insurance Act; 
                        and
                            (ii) had an increase in its capital 
                        in conjunction with the conversion in 
                        an amount equal to more than 75 percent 
                        of the capital of the institution on 
                        the day before the date of the 
                        conversion.

SEC. 2012. FINANCING CORPORATION ASSESSMENTS SHARED PROPORTIONALLY BY 
                    ALL INSURED DEPOSITORY INSTITUTIONS.

    (a) In General.--Section 21 of the Federal Home Loan Bank 
Act (12 U.S.C. 1441) is amended--
            (1) in subsection (f)(2)--
                    (A) in the matter immediately preceding 
                subparagraph (A)--
                            (i) by striking ``Savings 
                        Association Insurance Fund member'' and 
                        inserting ``insured depository 
                        institution''; and
                            (ii) by striking ``members'' and 
                        inserting ``institutions''; and
                    (B) by striking ``, except that--'' and all 
                that follows through the end of the paragraph 
                and inserting ``, except that--
                    ``(A) the Financing Corporation shall have 
                first priority to make the assessment; and
                    ``(B) no limitation under clause (i) or 
                (iii) of section 7(b)(2)(A) of the Federal 
                Deposit Insurance Act shall apply for purposes 
                of this paragraph.''; and
            (2) in subsection (k)--
                    (A) by striking ``section--'' and inserting 
                ``section, the following definitions shall 
                apply:'';
                    (B) by striking paragraph (1);
                    (C) by redesignating paragraphs (2) and (3) 
                as paragraphs (1) and (2), respectively; and
                    (D) by adding at the end the following new 
                paragraph:
            ``(3) Insured depository institution.--The term 
        `insured depository institution' has the same meaning 
        as in section 3 of the Federal Deposit Insurance 
        Act.''.
    (b) Conforming Amendment.--Section 7(b)(2) of the Federal 
Deposit Insurance Act (12 U.S.C. 1817(b)(2)) is amended by 
striking subparagraph (D).
    (c) Effective Date.--This section and the amendments made 
by this section shall become effective on January 1, 1996.

SEC. 2013. MERGER OF BIF AND SAIF.

    (a) In General.--
            (1) Merger.--The Bank Insurance Fund and the 
        Savings Association Insurance Fund shall be merged into 
        the Deposit Insurance Fund established by section 
        11(a)(4) of the Federal Deposit Insurance Act, as 
        amended by this section.
            (2) Disposition of assets and liabilities.--All 
        assets and liabilities of the Bank Insurance Fund and 
        the Savings Association Insurance Fund shall be 
        transferred to the Deposit Insurance Fund.
            (3) No separate existence.--The separate existence 
        of the Bank Insurance Fund and the Savings Association 
        Insurance Fund shall cease.
    (b) Special Reserve of the Deposit Insurance Fund.--
            (1) In general.--Immediately before the merger of 
        the Bank Insurance Fund and the Savings Association 
        Insurance Fund, if the reserve ratio of the Savings 
        Association Insurance Fund exceeds the designated 
        reserve ratio, the amount by which that reserve ratio 
        exceeds the designated reserve ratio shall be placed in 
        the Special Reserve of the Deposit Insurance Fund, 
        established under section 11(a)(5) of the Federal 
        Deposit Insurance Act, as amended by this section.
            (2) Definition.--For purposes of this subsection, 
        the term ``reserve ratio'' means the ratio of the net 
        worth of the Savings Association Insurance Fund to 
        aggregate estimated insured deposits held in all 
        Savings Association Insurance Fund members.
    (c) Effective Date.--This section and the amendments made 
by this section shall become effective on January 1, 1998, if 
no insured depository institution is a savings association on 
that date.
    (d) Technical and Conforming Amendments.--
            (1) Deposit insurance fund.--Section 11(a)(4) of 
        the Federal Deposit Insurance Act (12 U.S.C. 
        1821(a)(4)) is amended--
                    (A) by redesignating subparagraph (B) as 
                subparagraph (C);
                    (B) by striking subparagraph (A) and 
                inserting the following:
                    ``(A) Establishment.--There is established 
                the Deposit Insurance Fund, which the 
                Corporation shall--
                            ``(i) maintain and administer;
                            ``(ii) use to carry out its 
                        insurance purposes in the manner 
                        provided by this subsection; and
                            ``(iii) invest in accordance with 
                        section 13(a).
                    ``(B) Uses.--The Deposit Insurance Fund 
                shall be available to the Corporation for use 
                with respect to Deposit Insurance Fund 
                members.''; and
                    (C) by striking ``(4) General provisions 
                relating to funds.--'' and inserting the 
                following:
            ``(4) Establishment of the deposit insurance 
        fund.--''.
            (2) Other references.--Section 11(a)(4)(C) of the 
        Federal Deposit Insurance Act (12 U.S.C. 1821(a)(4)(C), 
        as redesignated by paragraph (1) of this subsection) is 
        amended by striking ``Bank Insurance Fund and the 
        Savings Association Insurance Fund'' and inserting 
        ``Deposit Insurance Fund''.
            (3) Deposits into fund.--Section 11(a)(4) of the 
        Federal Deposit Insurance Act (12 U.S.C. 1821(a)(4)) is 
        amended by adding at the end the following new 
        subparagraph:
                    ``(D) Deposits.--All amounts assessed 
                against insured depository institutions by the 
                Corporation shall be deposited in the Deposit 
                Insurance Fund.''.
            (4) Special reserve of deposits.--Section 11(a)(5) 
        of the Federal Deposit Insurance Act (12 U.S.C. 
        1821(a)(5)) is amended to read as follows:
            ``(5) Special reserve of deposit insurance fund.--
                    ``(A) Establishment.--
                            ``(i) In general.--There is 
                        established a Special Reserve of the 
                        Deposit Insurance Fund, which shall be 
                        administered by the Corporation and 
                        shall be invested in accordance with 
                        section 13(a).
                            ``(ii) Limitation.--The Corporation 
                        shall not provide any assessment 
                        credit, refund, or other payment from 
                        any amount in the Special Reserve.
                    ``(B) Emergency use of special reserve.--
                Notwithstanding subparagraph (A)(ii), the 
                Corporation may, in its sole discretion, 
                transfer amounts from the Special Reserve to 
                the Deposit Insurance Fund, for the purposes 
                set forth in paragraph (4), only if--
                            ``(i) the reserve ratio of the 
                        Deposit Insurance Fund is less than 50 
                        percent of the designated reserve 
                        ratio; and
                            ``(ii) the Corporation expects the 
                        reserve ratio of the Deposit Insurance 
                        Fund to remain at less than 50 percent 
                        of the designated reserve ratio for 
                        each of the next 4 calendar quarters.
                    ``(C) Exclusion of special reserve in 
                calculating reserve ratio.--Notwithstanding any 
                other provision of law, any amounts in the 
                Special Reserve shall be excluded in 
                calculating the reserve ratio of the Deposit 
                Insurance Fund under section 7.''.
            (5) Federal home loan bank act.--Section 
        21B(f)(2)(C)(ii) of the Federal Home Loan Bank Act (12 
        U.S.C. 1441b(f)(2)(C)(ii)) is amended--
                    (A) in subclause (I), by striking ``to 
                Savings Associations Insurance Fund members'' 
                and inserting ``to insured depository 
                institutions, and their successors, which were 
                Savings Association Insurance Fund members on 
                September 1, 1995''; and
                    (B) in subclause (II), by striking ``to 
                Savings Associations Insurance Fund members'' 
                and inserting ``to insured depository 
                institutions, and their successors, which were 
                Savings Association Insurance Fund members on 
                September 1, 1995''.
            (6) Repeals.--
                    (A) Section 3.--Section 3(y) of the Federal 
                Deposit Insurance Act (12 U.S.C. 1813(y)) is 
                amended to read as follows:
    ``(y) Definitions Relating to the Deposit Insurance Fund.--
The term
            ``(1) Deposit insurance fund.--The term `Deposit 
        Insurance Fund' means the fund established under 
        section 11(a)(4).
            ``(2) Reserve ratio.--The term `reserve ratio' 
        means the ratio of the net worth of the Deposit 
        Insurance Fund to aggregate estimated insured deposits 
        held in all insured depository institutions.
            ``(3) Designated reserve ratio.--The designated 
        reserve ratio of the Deposit Insurance Fund for each 
        year shall be--
                    ``(A) 1.25 percent of estimated insured 
                deposits; or
                    ``(B) a higher percentage of estimated 
                insured deposits that the Board of Directors 
                determines to be justified for that year by 
                circumstances raising a significant risk of 
                substantial future losses to the fund.
                    (B) Section 7.--Section 7 of the Federal 
                Deposit Insurance Act (12 U.S.C. 1817) is 
                amended--
                            (i) by striking subsection (l);
                            (ii) by redesignating subsections 
                        (m) and (n) as subsections (l) and (m), 
                        respectively;
                            (iii) in subsection (b)(2), by 
                        striking subparagraphs (B) and (F), and 
                        by redesignating subparagraphs (C), 
                        (E), (G), and (H) as subparagraphs (B) 
                        through (E), respectively.
                    (C) Section 11.--Section 11(a) of the 
                Federal Deposit Insurance Act (12 U.S.C. 
                1821(a)) is amended--
                            (i) by striking paragraphs (6) and 
                        (7); and
                            (ii) by redesignating paragraph (8) 
                        as paragraph (6).
            (7) Section 5136 of the revised statutes.--
        Paragraph Eleventh of section 5136 of the Revised 
        Statutes (12 U.S.C. 24) is amended in the fifth 
        sentence, by striking ``affected deposit insurance 
        fund'' and inserting ``Deposit Insurance Fund''.
            (8) Investments promoting public welfare; 
        limitations on aggregate investments.--The 23d 
        undesignated paragraph of section 9 of the Federal 
        Reserve Act (12 U.S.C. 338a) is amended in the fourth 
        sentence, by striking ``affected deposit insurance 
        fund'' and inserting ``Deposit Insurance Fund''.
            (9) Advances to critically undercapitalized 
        depository institutions.--Section 10B(b)(3)(A)(ii) of 
        the Federal Reserve Act (12 U.S.C. 347b(b)(3)(A)(ii)) 
        is amended by striking ``any deposit insurance fund 
        in'' and inserting ``the Deposit Insurance Fund of''.
            (10) Amendments to the balanced budget and 
        emergency deficit control act of 1985.--Section 
        255(g)(1)(A) of the Balanced Budget and Emergency 
        Deficit Control Act of 1985 (2 U.S.C. 905(g)(1)(A)) is 
        amended--
                    (A) by striking ``Bank Insurance Fund'' and 
                inserting ``Deposit Insurance Fund''; and
                    (B) by striking ``Federal Deposit Insurance 
                Corporation, Savings Association Insurance 
                Fund;''.
            (11) Further amendments to the federal home loan 
        bank act.--The Federal Home Loan Bank Act (12 U.S.C. 
        1421 et seq.) is amended--
                    (A) in section 11(k) (12 U.S.C. 1431(k))--
                            (i) in the subsection heading, by 
                        striking ``SAIF'' and inserting ``the 
                        Deposit Insurance Fund''; and
                            (ii) by striking ``Savings 
                        Association Insurance Fund'' each place 
                        such term appears and inserting 
                        ``Deposit Insurance Fund'';
                    (B) in section 21A(b)(4)(B) (12 U.S.C. 
                1441a(b)(4)(B)), by striking ``affected deposit 
                insurance fund'' and inserting ``Deposit 
                Insurance Fund'';
                    (C) in section 21A(b)(6)(B) (12 U.S.C. 
                1441a(b)(6)(B))--
                            (i) in the subparagraph heading, by 
                        striking ``SAIF-insured banks'' and 
                        inserting ``Charter conversions''; and
                            (ii) by striking ``Savings 
                        Association Insurance Fund member'' and 
                        inserting ``savings association'';
                    (D) in section 21A(b)(10)(A)(iv)(II) (12 
                U.S.C. 1441a(b)(10)(A)(iv)(II)), by striking 
                ``Savings Association Insurance Fund'' and 
                inserting ``Deposit Insurance Fund'';
                    (E) in section 21B(e) (12 U.S.C. 
                1441b(e))--
                            (i) in paragraph (5), by inserting 
                        ``as of the date of funding'' after 
                        ``Savings Association Insurance Fund 
                        members'' each place such term appears;
                            (ii) by striking paragraph (7); and
                            (iii) by redesignating paragraph 
                        (8) as paragraph (7); and
                    (F) in section 21B(k) (12 U.S.C. 
                1441b(k))--
                            (i) by striking paragraph (8); and
                            (ii) by redesignating paragraphs 
                        (9) and (10) as paragraphs (8) and (9), 
                        respectively.
            (12) Amendments to the home owners' loan act.--The 
        Home Owners' Loan Act (12 U.S.C. 1461 et seq.) is 
        amended--
                    (A) in section 5 (12 U.S.C. 1464)--
                            (i) in subsection (c)(5)(A), by 
                        striking ``that is a member of the Bank 
                        Insurance Fund'';
                            (ii) in subsection (c)(6), by 
                        striking ``As used in this subsection--
                        '' and inserting ``For purposes of this 
                        subsection, the following definitions 
                        shall apply:'';
                            (iii) in subsection (o)(1), by 
                        striking ``that is a Bank Insurance 
                        Fund member'';
                            (iv) in subsection (o)(2)(A), by 
                        striking ``a Bank Insurance Fund member 
                        until such time as it changes its 
                        status to a Savings Association 
                        Insurance Fund member'' and inserting 
                        ``insured by the Deposit Insurance 
                        Fund'';
                            (v) in subsection 
                        (t)(5)(D)(iii)(II), by striking 
                        ``affected deposit insurance fund'' and 
                        inserting ``Deposit Insurance Fund'';
                            (vi) in subsection (t)(7)(C)(i)(I), 
                        by striking ``affected deposit 
                        insurance fund'' and inserting 
                        ``Deposit Insurance Fund''; and
                            (vii) in subsection (v)(2)(A)(i), 
                        by striking ``, the Savings Association 
                        Insurance Fund'' and inserting ``or the 
                        Deposit Insurance Fund''; and
                    (B) in section 10 (12 U.S.C. 1467a)--
                            (i) in subsection 
                        (e)(1)(A)(iii)(VII), by adding ``or'' 
                        at the end;
                            (ii) in subsection (e)(1)(A)(iv), 
                        by adding ``and'' at the end;
                            (iii) in subsection (e)(1)(B), by 
                        striking ``Savings Association 
                        Insurance Fund or Bank Insurance Fund'' 
                        and inserting ``Deposit Insurance 
                        Fund'';
                            (iv) in subsection (e)(2), by 
                        striking ``Savings Association 
                        Insurance Fund or the Bank Insurance 
                        Fund'' and inserting ``Deposit 
                        Insurance Fund''; and
                            (v) in subsection (m)(3), by 
                        striking subparagraph (E), and by 
                        redesignating subparagraphs (F), (G), 
                        and (H) as subparagraphs (E), (F), and 
                        (G), respectively.
            (13) Amendments to the national housing act.--The 
        National Housing Act (12 U.S.C. 1701 et seq.) is 
        amended--
                    (A) in section 317(b)(1)(B) (12 U.S.C. 
                1723i(b)(1)(B)), by striking ``Bank Insurance 
                Fund for banks or through the Savings 
                Association Insurance Fund for savings 
                associations'' and inserting ``Deposit 
                Insurance Fund''; and
                    (B) in section 526(b)(1)(B)(ii) (12 U.S.C. 
                1735f-14(b)(1)(B)(ii)), by striking ``Bank 
                Insurance Fund for banks and through the 
                Savings Association Insurance Fund for savings 
                associations'' and inserting ``Deposit 
                Insurance Fund''.
            (14) Further amendments to the federal deposit 
        insurance act.--The Federal Deposit Insurance Act (12 
        U.S.C. 1811 et seq.) is amended--
                    (A) in section 3(a)(1) (12 U.S.C. 
                1813(a)(1)), by striking subparagraph (B) and 
                inserting the following:
                    ``(B) includes any former savings 
                association.'';
                    (B) in section 5(b)(5) (12 U.S.C. 
                1815(b)(5)), by striking ``the Bank Insurance 
                Fund or the Savings Association Insurance 
                Fund;'' and inserting ``Deposit Insurance 
                Fund,'';
                    (C) in section 5(d) (12 U.S.C. 1815(d)), by 
                striking paragraphs (2) and (3);
                    (D) in section 5(d)(1) (12 U.S.C. 
                1815(d)(1))--
                            (i) in subparagraph (A), by 
                        striking ``reserve ratios in the Bank 
                        Insurance Fund and the Savings 
                        Association Insurance Fund'' and 
                        inserting ``the reserve ratio of the 
                        Deposit Insurance Fund'';
                            (ii) by striking subparagraph (B) 
                        and inserting the following:
            ``(2) Fee credited to the deposit insurance fund.--
        The fee paid by the depository institution under 
        paragraph (1) shall be credited to the Deposit 
        Insurance Fund.'';
                            (iii) by striking ``(1) Uninsured 
                        institutions.--''; and
                            (iv) by redesignating subparagraphs 
                        (A) and (C) as paragraphs (1) and (3), 
                        respectively, and moving the margins 2 
                        ems to the left;
                    (E) in section 5(e) (12 U.S.C. 1815(e))--
                            (i) in paragraph (5)(A), by 
                        striking ``Bank Insurance Fund or the 
                        Savings Association Insurance Fund'' 
                        and inserting ``Deposit Insurance 
                        Fund'';
                            (ii) by striking paragraph (6); and
                            (iii) by redesignating paragraphs 
                        (7), (8), and (9) as paragraphs (6), 
                        (7), and (8), respectively;
                    (F) in section 6(5) (12 U.S.C. 1816(5)), by 
                striking ``Bank Insurance Fund or the Savings 
                Association Insurance Fund'' and inserting 
                ``Deposit Insurance Fund'';
                    (G) in section 7(b) (12 U.S.C. 1817(b))--
                            (i) in paragraph (1)(D), by 
                        striking ``each deposit insurance 
                        fund'' and inserting ``the Deposit 
                        Insurance Fund'';
                            (ii) in clauses (i)(I) and (iv) of 
                        paragraph (2)(A), by striking ``each 
                        deposit insurance fund'' each place 
                        such term appears and inserting ``the 
                        Deposit Insurance Fund'';
                            (iii) in paragraph (2)(A)(iii), by 
                        striking ``a deposit insurance fund'' 
                        and inserting ``the Deposit Insurance 
                        Fund'';
                            (iv) by striking clause (iv) of 
                        paragagraph (2)(A);
                            (v) in paragraph (2)(C) (as 
                        redesignated by paragraph (6)(B) of 
                        this subsection)--
                                    (I) by striking ``any 
                                deposit insurance fund'' and 
                                inserting ``the Deposit 
                                Insurance Fund''; and
                                    (II) by striking ``that 
                                fund'' each place such term 
                                appears and inserting ``the 
                                Deposit Insurance Fund'';
                            (vi) in paragraph (2)(D) (as 
                        redesignated by paragraph (6)(B) of 
                        this subsection)--
                                    (I) in the subparagraph 
                                heading, by striking ``funds 
                                achieve'' and inserting ``fund 
                                achieves''; and
                                    (II) by striking ``a 
                                deposit insurance fund'' and 
                                inserting ``the Deposit 
                                Insurance Fund'';
                            (vii) in paragraph (3)--
                                    (I) in the paragraph 
                                heading, by striking ``funds'' 
                                and inserting ``fund'';
                                    (II) by striking ``that 
                                fund'' each place such term 
                                appears and inserting ``the 
                                Deposit Insurance Fund'';
                                    (III) in subparagraph (A), 
                                by striking ``Except as 
                                provided in paragraph (2)(F), 
                                if'' and inserting ``If'';
                                    (IV) in subparagraph (A), 
                                by striking ``any deposit 
                                insurance fund'' and inserting 
                                ``the Deposit Insurance Fund''; 
                                and
                                    (V) by striking 
                                subparagraphs (C) and (D) and 
                                inserting the following:
                    ``(C) Amending schedule.--The Corporation 
                may, by regulation, amend a schedule 
                promulgated under subparagraph (B).''; and
                            (viii) in paragraph (6)--
                                    (I) by striking ``any such 
                                assessment'' and inserting 
                                ``any such assessment is 
                                necessary'';
                                    (II) by striking ``(A) is 
                                necessary--'';
                                    (III) by striking 
                                subparagraph (B);
                                    (IV) by redesignating 
                                clauses (i), (ii), and (iii) as 
                                subparagraphs (A), (B), and 
                                (C), respectively, and moving 
                                the margins 2 ems to the left; 
                                and
                                    (V) in subparagraph (C) (as 
                                redesignated), by striking ``; 
                                and'' and inserting a period;
                    (H) in section 11(f)(1) (12 U.S.C. 
                1821(f)(1)), by striking ``, except that--'' 
                and all that follows through the end of the 
                paragraph and inserting a period;
                    (I) in section 11(i)(3) (12 U.S.C. 
                1821(i)(3))--
                            (i) by striking subparagraph (B);
                            (ii) by redesignating subparagraph 
                        (C) as subparagraph (B); and
                            (iii) in subparagraph (B) (as 
                        redesignated), by striking 
                        ``subparagraphs (A) and (B)'' and 
                        inserting ``subparagraph (A)'';
                    (J) in section 11A(a) (12 U.S.C. 
                1821a(a))--
                            (i) in paragraph (2), by striking 
                        ``liabilities.--'' and all that follows 
                        through ``Except'' and inserting 
                        ``liabilities.--Except'';
                            (ii) by striking paragraph (2)(B); 
                        and
                            (iii) in paragraph (3), by striking 
                        ``the Bank Insurance Fund, the Savings 
                        Association Insurance Fund,'' and 
                        inserting ``the Deposit Insurance 
                        Fund'';
                    (K) in section 11A(b) (12 U.S.C. 1821a(b)), 
                by striking paragraph (4);
                    (L) in section 11A(f) (12 U.S.C. 1821a(f)), 
                by striking ``Savings Association Insurance 
                Fund'' and inserting ``Deposit Insurance 
                Fund'';
                    (M) in section 13 (12 U.S.C. 1823)--
                            (i) in subsection (a)(1), by 
                        striking ``Bank Insurance Fund, the 
                        Savings Association Insurance Fund,'' 
                        and inserting ``Deposit Insurance Fund, 
                        the Special Reserve of the Deposit 
                        Insurance Fund,'';
                            (ii) in subsection (c)(4)(E)--
                                    (I) in the subparagraph 
                                heading, by striking ``funds'' 
                                and inserting ``fund''; and
                                    (II) in clause (i), by 
                                striking ``any insurance fund'' 
                                and inserting ``the Deposit 
                                Insurance Fund'';
                            (iii) in subsection (c)(4)(G)(ii)--
                                    (I) by striking 
                                ``appropriate insurance fund'' 
                                and inserting ``Deposit 
                                Insurance Fund'';
                                    (II) by striking ``the 
                                members of the insurance fund 
                                (of which such institution is a 
                                member)'' and inserting 
                                ``insured depository 
                                institutions'';
                                    (III) by striking ``each 
                                member's'' and inserting ``each 
                                insured depository 
                                institution's''; and
                                    (IV) by striking ``the 
                                member's'' each place such term 
                                appears and inserting ``the 
                                institution's'';
                            (iv) in subsection (c), by striking 
                        paragraph (11);
                            (v) in subsection (h), by striking 
                        ``Bank Insurance Fund'' and inserting 
                        ``Deposit Insurance Fund'';
                            (vi) in subsection (k)(4)(B)(i), by 
                        striking ``Savings Association 
                        Insurance Fund'' and inserting 
                        ``Deposit Insurance Fund''; and
                            (vii) in subsection (k)(5)(A), by 
                        striking ``Savings Association 
                        Insurance Fund'' and inserting 
                        ``Deposit Insurance Fund'';
                    (N) in section 14(a) (12 U.S.C. 1824(a)) in 
                the fifth sentence--
                            (i) by striking ``Bank Insurance 
                        Fund or the Savings Association 
                        Insurance Fund'' and inserting 
                        ``Deposit Insurance Fund''; and
                            (ii) by striking ``each such fund'' 
                        and inserting ``the Deposit Insurance 
                        Fund'';
                    (O) in section 14(b) (12 U.S.C. 1824(b)), 
                by striking ``Bank Insurance Fund or Savings 
                Association Insurance Fund'' and inserting 
                ``Deposit Insurance Fund'';
                    (P) in section 14(c) (12 U.S.C. 1824(c)), 
                by striking paragraph (3);
                    (Q) in section 14(d) (12 U.S.C. 1824(d))--
                            (i) by striking ``BIF'' each place 
                        such term appears and inserting 
                        ``DIF''; and
                            (ii) by striking ``Bank Insurance 
                        Fund'' each place such term appears and 
                        inserting ``Deposit Insurance Fund'';
                    (R) in section 15(c)(5) (12 U.S.C. 
                1825(c)(5))--
                            (i) by striking ``the Bank 
                        Insurance Fund or Savings Association 
                        Insurance Fund, respectively'' each 
                        place such term appears and inserting 
                        ``the Deposit Insurance Fund''; and
                            (ii) in subparagraph (B), by 
                        striking ``the Bank Insurance Fund or 
                        the Savings Association Insurance Fund, 
                        respectively'' and inserting ``the 
                        Deposit Insurance Fund'';
                    (S) in section 17(a) (12 U.S.C. 1827(a))--
                            (i) in the subsection heading, by 
                        striking ``BIF, SAIF,'' and inserting 
                        ``the Deposit Insurance Fund''; and
                            (ii) in paragraph (1), by striking 
                        ``the Bank Insurance Fund, the Savings 
                        Association Insurance Fund,'' each 
                        place such term appears and inserting 
                        ``the Deposit Insurance Fund'';
                    (T) in section 17(d) (12 U.S.C. 1827(d)), 
                by striking ``the Bank Insurance Fund, the 
                Savings Association Insurance Fund,'' each 
                place such term appears and inserting ``the 
                Deposit Insurance Fund'';
                    (U) in section 18(m)(3) (12 U.S.C. 
                1828(m)(3))--
                            (i) by striking ``Savings 
                        Association Insurance Fund'' each place 
                        such term appears and inserting 
                        ``Deposit Insurance Fund''; and
                            (ii) in subparagraph (C), by 
                        striking ``or the Bank Insurance 
                        Fund'';
                    (V) in section 18(p) (12 U.S.C. 1828(p)), 
                by striking ``deposit insurance funds'' and 
                inserting ``Deposit Insurance Fund'';
                    (W) in section 24 (12 U.S.C. 1831a) in 
                subsections (a)(1) and (d)(1)(A), by striking 
                ``appropriate deposit insurance fund'' each 
                place such term appears and inserting ``Deposit 
                Insurance Fund'';
                    (X) in section 28 (12 U.S.C. 1831e), by 
                striking ``affected deposit insurance fund'' 
                each place such term appears and inserting 
                ``Deposit Insurance Fund'';
                    (Y) by striking section 31 (12 U.S.C. 
                1831h);
                    (Z) in section 36(i)(3) (12 U.S.C. 
                1831m(i)(3)) by striking ``affected deposit 
                insurance fund'' and inserting ``Deposit 
                Insurance Fund'';
                    (AA) in section 38(a) (12 U.S.C. 1831o(a)) 
                in the subsection heading, by striking 
                ``Funds'' and inserting ``Fund'';
                    (BB) in section 38(k) (12 U.S.C. 
                1831o(k))--
                            (i) in paragraph (1), by striking 
                        ``a deposit insurance fund'' and 
                        inserting ``the Deposit Insurance 
                        Fund''; and
                            (ii) in paragraph (2)(A)--
                                    (I) by striking ``A deposit 
                                insurance fund'' and inserting 
                                ``The Deposit Insurance Fund''; 
                                and
                                    (II) by striking ``the 
                                deposit insurance fund's 
                                outlays'' and inserting ``the 
                                outlays of the Deposit 
                                Insurance Fund''; and
                    (CC) in section 38(o) (12 U.S.C. 
                1831o(o))--
                            (i) by striking ``Associations.--'' 
                        and all that follows through 
                        ``Subsections (e)(2)'' and inserting 
                        ``Associations.--Subsections (e)(2)'';
                            (ii) by redesignating subparagraphs 
                        (A), (B), and (C) as paragraphs (1), 
                        (2), and (3), respectively, and moving 
                        the margins 2 ems to the left; and
                            (iii) in paragraph (1) (as 
                        redesignated), by redesignating clauses 
                        (i) and (ii) as subparagraphs (A) and 
                        (B), respectively, and moving the 
                        margins 2 ems to the left.
            (15) Amendments to the financial institutions 
        reform, recovery, and enforcement act of 1989.--The 
        Financial Institutions Reform, Recovery, and 
        Enforcement Act (Public Law 101-73; 103 Stat. 183) is 
        amended--
                    (A) in section 951(b)(3)(B) (12 U.S.C. 
                1833a(b)(3)(B)), by striking ``Bank Insurance 
                Fund, the Savings Association Insurance Fund,'' 
                and inserting ``Deposit Insurance Fund''; and
                    (B) in section 1112(c)(1)(B) (12 U.S.C. 
                3341(c)(1)(B)), by striking ``Bank Insurance 
                Fund, the Savings Association Insurance Fund,'' 
                and inserting ``Deposit Insurance Fund''.
            (16) Amendment to the bank enterprise act of 
        1991.--Section 232(a)(1) of the Bank Enterprise Act of 
        1991 (12 U.S.C. 1834(a)(1)) is amended by striking 
        ``section 7(b)(2)(H)'' and inserting ``section 
        7(b)(2)(G)''.
            (17) Amendment to the bank holding company act.--
        Section 2(j)(2) of the Bank Holding Company Act of 1956 
        (12 U.S.C. 1841(j)(2)) is amended by striking ``Savings 
        Association Insurance Fund'' and inserting ``Deposit 
        Insurance Fund''.

SEC. 2014. CREATION OF SAIF SPECIAL RESERVE.

    Section 11(a)(6) of the Federal Deposit Insurance Act (12 
U.S.C. 1821(a)(6)) is amended by adding at the end the 
following new subparagraph:
            ``(L) Establishment of saif special reserve.--
                    ``(i) Establishment.--If, on January 1, 
                1998, the reserve ratio of the Savings 
                Association Insurance Fund exceeds the 
                designated reserve ratio, there is established 
                a Special Reserve of the Savings Association 
                Insurance Fund, which shall be administered by 
                the Corporation and shall be invested in 
                accordance with section 13(a).
                    ``(ii) Amounts in special reserve.--If, on 
                January 1, 1998, the reserve ratio of the 
                Savings Association Insurance Fund exceeds the 
                designated reserve ratio, the amount by which 
                the reserve ratio exceeds the designated 
                reserve ratio shall be placed in the Special 
                Reserve of the Savings Association Insurance 
                Fund established by clause (i).
                    ``(iii) Limitation.--The Corporation shall 
                not provide any assessment credit, refund, or 
                other payment from any amount in the Special 
                Reserve of the Savings Association Insurance 
                Fund.
                    ``(iv) Emergency use of special reserve.--
                Notwithstanding clause (iii), the Corporation 
                may, in its sole discretion, transfer amounts 
                from the Special Reserve of the Savings 
                Association Insurance Fund to the Savings 
                Association Insurance Fund for the purposes set 
                forth in paragraph (4), only if--
                            ``(I) the reserve ratio of the 
                        Savings Association Insurance Fund is 
                        less than 50 percent of the designated 
                        reserve ratio; and
                            ``(II) the Corporation expects the 
                        reserve ratio of the Savings 
                        Association Insurance Fund to remain at 
                        less than 50 percent of the designated 
                        reserve ratio for each of the next 4 
                        calendar quarters.
                    ``(v) Exclusion of special reserve in 
                calculating reserve ratio.--Notwithstanding any 
                other provision of law, any amounts in the 
                Special Reserve of the Savings Association 
                Insurance Fund shall be excluded in calculating 
                the reserve ratio of the Savings Association 
                Insurance Fund.''.

SEC. 2015. REFUND OF AMOUNTS IN DEPOSIT INSURANCE FUND IN EXCESS OF 
                    DESIGNATED RESERVE AMOUNT.

    Subsection (e) of section 7 of the Federal Deposit 
Insurance Act (12 U.S.C. 1817(e)) is amended to read as 
follows:
    ``(e) Refunds.--
            ``(1) Overpayments.--In the case of any payment of 
        an assessment by an insured depository institution in 
        excess of the amount due to the Corporation, the 
        Corporation may--
                    ``(A) refund the amount of the excess 
                payment to the insured depository institution; 
                or
                    ``(B) credit such excess amount toward the 
                payment of subsequent semiannual assessments 
                until such credit is exhausted.
            ``(2) Balance in insurance fund in excess of 
        designated reserve.--
                    ``(A) In general.--Subject to subparagraphs 
                (B) and (C), if, as of the end of any 
                semiannual assessment period, the amount of the 
                actual reserves in--
                            ``(i) the Bank Insurance Fund 
                        (until the merger of such fund into the 
                        Deposit Insurance Fund pursuant to 
                        section 2013 of the Balanced Budget Act 
                        of 1995); or
                            ``(ii) the Deposit Insurance Fund 
                        (after the establishment of such fund),
                exceeds the balance required to meet the 
                designated reserve ratio applicable with 
                respect to such fund, such excess amount shall 
                be refunded to insured depository institutions 
                by the Corporation on such basis as the Board 
                of Directors determines to be appropriate, 
                taking into account the factors considered 
                under the risk-based assessment system.
                    ``(B) Refund not to exceed previous 
                semiannual assessment.--The amount of any 
                refund under this paragraph to any member of a 
                deposit insurance fund for any semiannual 
                assessment period may not exceed the total 
                amount of assessments paid by such member to 
                the insurance fund with respect to such period.
                    ``(C) Refund limitation for certain 
                institutions.--No refund may be made under this 
                paragraph with respect to the amount of any 
                assessment paid for any semiannual assessment 
                period by any insured depository institution 
                described in clause (v) of subsection 
                (b)(2)(A).''.

SEC. 2016. ASSESSMENT RATES FOR SAIF MEMBERS MAY NOT BE LESS THAN 
                    ASSESSMENT RATES FOR BIF MEMBERS.

    Section 7(b)(2)(C) of the Federal Deposit Insurance Act (12 
U.S.C. 1817(b)(2)(E), as redesignated by section 2013(d)(6) of 
this Act) is amended--
            (1) by striking ``and'' at the end of clause (i);
            (2) by striking the period at the end of clause 
        (ii) and inserting ``; and''; and
            (3) by adding at the end the following new clause:
                            ``(iii) notwithstanding any other 
                        provision of this subsection, during 
                        the period beginning on the date of 
                        enactment of the Balanced Budget Act of 
                        1995, and ending on January 1, 1998, 
                        the assessment rate for a Savings 
                        Association Insurance Fund member may 
                        not be less than the assessment rate 
                        for a Bank Insurance Fund member that 
                        poses a comparable risk to the deposit 
                        insurance fund.''.

SEC. 2017. ASSESSMENTS AUTHORIZED ONLY IF NEEDED TO MAINTAIN THE 
                    RESERVE RATIO OF A DEPOSIT INSURANCE FUND.

    (a) In General.--Section 7(b)(2)(A)(i) of the Federal 
Deposit Insurance Act (12 U.S.C. 1817(b)(2)(A)(i)) is amended 
in the matter preceding subclause (I) by inserting ``when 
necessary, and only to the extent necessary'' after ``insured 
depository institutions''.
    (b) Limitation on Assessment.--Section 7(b)(2)(A)(iii) of 
the Federal Deposit Insurance Act (12 U.S.C. 
1817(b)(2)(A)(iii)) is amended to read as follows:
                            ``(iii) Limitation on assessment.--
                        Except as provided in clause (v), the 
                        Board of Directors shall not set 
                        semiannual assessments with respect to 
                        a deposit insurance fund in excess of 
                        the amount needed--
                                    ``(I) to maintain the 
                                reserve ratio of the fund at 
                                the designated reserve ratio; 
                                or
                                    ``(II) if the reserve ratio 
                                is less than the designated 
                                reserve ratio, to increase the 
                                reserve ratio to the designated 
                                reserve ratio.''.
    (c) Exception to Limitation on Assessments.--Section 
7(b)(2)(A) of the Federal Deposit Insurance Act (12 U.S.C. 
1817(b)(2)(A)) is amended by adding at the end the following 
new clause:
                            ``(v) Exception to limitation on 
                        assessments.--The Board of Directors 
                        may set semiannual assessments in 
                        excess of the amount permitted under 
                        clauses (i) and (iii) with respect to 
                        insured depository institutions that 
                        exhibit financial, operational, or 
                        compliance weaknesses ranging from 
                        moderately severe to unsatisfactory, or 
                        are not well capitalized, as that term 
                        is defined in section 38.''.

SEC. 2018. LIMITATION ON AUTHORITY OF OVERSIGHT BOARD TO CONTINUE TO 
                    EMPLOY MORE THAN 18 OFFICERS AND EMPLOYEES.

    (a) In General.--Section 21A(a) of the Federal Home Loan 
Bank Act (12 U.S.C. 1441a(a)) is amended by adding at the end 
the following new paragraph:
            ``(17) Phased-down operation of oversight board 
        following termination of corporation.--
                    ``(A) Termination of authority to employ 
                staff.--Except as provided in subparagraph (B), 
                the authority of the Thrift Depositor 
                Protection Oversight Board under paragraph (5) 
                to establish officer and employee positions, to 
                compensate officers and employees of the Board, 
                and to provide other benefits for officers and 
                employees of the Board shall terminate as of 
                December 31, 1995.
                    ``(B) Limited authority for employing 
                staff.--The Thrift Depositor Protection 
                Oversight Board may employ not more than 18 
                individuals, excluding any employee of any 
                other department or agency utilized by the 
                Board, to carry out the functions of the Board 
                during the period beginning on January 1, 1996 
                and ending on May 1, 1996, other than employees 
                whose employment is in the process of being 
                terminated in accordance with subparagraph (C).
                    ``(C) Termination of employment of 
                additional employees required to be 
                commenced.--The Thrift Depositor Protection 
                Oversight Board shall commence terminating, not 
                later than December 31, 1995, and in accordance 
                with title 5, United States Code, and 
                applicable regulations of the Office of 
                Personnel Management, the employment of any 
                employee of the Board whose continued 
                employment by the Board after such date is 
                inconsistent with the requirement of 
                subparagraph (B).''.
    (b) Technical and Conforming Amendments.--Section 21A(a)(5) 
of the Federal Home Loan Bank Act (12 U.S.C. 1441a(a)(5)) is 
amended in subparagraphs (B), (C), (D), and (E), by inserting 
``subject to paragraph (17),'' after the closing parenthesis of 
the subparagraph designation in each such subparagraph.

SEC. 2019. DEFINITIONS.

    For purposes of this subtitle--
            (1) the term ``Bank Insurance Fund'' means the fund 
        established pursuant to section (11)(a)(5)(A) of the 
        Federal Deposit Insurance Act, as that section existed 
        on the day before the date of enactment of this Act;
            (2) the terms ``Bank Insurance Fund member'' and 
        ``Savings Association Insurance Fund member'' have the 
        same meanings as in section 7(l) of the Federal Deposit 
        Insurance Act;
            (3) the terms ``bank'', ``Board of Directors'', 
        ``Corporation'', ``insured depository institution'', 
        ``Federal savings association'', ``savings 
        association'', ``State savings bank'', and ``State 
        depository institution'' have the same meanings as in 
        section 3 of the Federal Deposit Insurance Act;
            (4) the term ``Deposit Insurance Fund'' means the 
        fund established under section 11(a)(4) of the Federal 
        Deposit Insurance Act, as amended by section 2013(d) of 
        this Act;
            (5) the term ``depository institution holding 
        company'' has the same meaning as in section 3 of the 
        Federal Deposit Insurance Act;
            (6) the term ``designated reserve ratio'' has the 
        same meaning as in section 7(b)(2)(A)(iv) of the 
        Federal Deposit Insurance Act;
            (7) the term ``Savings Association Insurance Fund'' 
        means the fund established pursuant to section 
        11(a)(6)(A) of the Federal Deposit Insurance Act, as 
        that section existed on the day before the date of 
        enactment of this Act; and
            (8) the term ``SAIF-assessable deposit'' means--
                    (A) a deposit that is subject to assessment 
                for purposes of the Savings Association 
                Insurance Fund under the Federal Deposit 
                Insurance Act; and
                    (B) a deposit that section 5(d)(3) of the 
                Federal Deposit Insurance Act treats as insured 
                by the Savings Association Insurance Fund.

                          Subtitle B--Housing

SEC. 2051. ANNUAL ADJUSTMENT FACTORS FOR OPERATING COSTS ONLY; 
                    RESTRAINT ON RENT INCREASES.

    (a) Annual Adjustment Factors for Operating Costs Only.--
Section 8(c)(2)(A) of the United States Housing Act of 1937 (42 
U.S.C. 1437f(c)(2)(A)) is amended--
            (1) by striking ``(2)(A)'' and inserting 
        ``(2)(A)(i)'';
            (2) by striking the second sentence and all that 
        follows through the end of the subparagraph; and
            (3) by adding at the end the following new clause:
    ``(ii) Each assistance contract under this section shall 
provide that--
            ``(I) if the maximum monthly rent for a unit in a 
        new construction or substantial rehabilitation project 
        to be adjusted using an annual adjustment factor 
        exceeds 100 percent of the fair market rent for an 
        existing dwelling unit in the market area, the 
        Secretary shall adjust the rent using an operating 
        costs factor that increases the rent to reflect 
        increases in operating costs in the market area; and
            ``(II) if the owner of a unit in a project 
        described in subclause (I) demonstrates that the 
        adjusted rent determined under subclause (I) would not 
        exceed the rent for an unassisted unit of similar 
        quality, type, and age in the same market area, as 
        determined by the Secretary, the Secretary shall use 
        the otherwise applicable annual adjustment factor.''.
    (b) Restraint on Section 8 Rent Increases.--Section 
8(c)(2)(A) of the United States Housing Act of 1937 (42 U.S.C. 
1437f(c)(2)(A)), as amended by subsection (a), is amended by 
adding at the end the following new clause:
    ``(iii)(I) Subject to subclause (II), with respect to any 
unit assisted under this section that is occupied by the same 
family at the time of the most recent annual rental adjustment, 
if the assistance contract provides for the adjustment of the 
maximum monthly rent by applying an annual adjustment factor, 
and if the rent for the unit is otherwise eligible for an 
adjustment based on the full amount of the annual adjustment 
factor, 0.01 shall be subtracted from the amount of the annual 
adjustment factor, except that the annual adjustment factor 
shall not be reduced to less than 1.0.
    ``(II) With respect to any unit described in subclause (I) 
that is assisted under the certificate program, the adjusted 
rent shall not exceed the rent for a comparable unassisted unit 
of similar quality, type, and age in the market area in which 
the unit is located.''.
    (c) Effective Date.--The amendments made by this section 
shall become effective on October 1, 1995.

SEC. 2052. FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE.

    (a) Foreclosure Avoidance.--Except as provided in 
subsection (e), the last sentence of section 204(a) of the 
National Housing Act (12 U.S.C. 1710(a)) is amended by 
inserting before the period the following: ``: And provided 
further, That the Secretary may pay insurance benefits to the 
mortgagee to recompense the mortgagee for its actions to 
provide an alternative to foreclosure of a mortgage that is in 
default, which actions may include such actions as special 
forbearance, loan modification, and deeds in lieu of 
foreclosure, all upon such terms and conditions as the 
mortgagee shall determine in the mortgagee's sole discretion 
within guidelines provided by the Secretary, but which may not 
include assignment of a mortgage to the Secretary: And provided 
further, That for purposes of the preceding proviso, no action 
authorized by the Secretary and no action taken, nor any 
failure to act, by the Secretary or the mortgagee shall be 
subject to judicial review''.
    (b) Authority to Assist Mortgagors in Default.--Except as 
provided in subsection (e), section 230 of the National Housing 
Act (12 U.S.C. 1715u) is amended to read as follows:


              ``authority to assist mortgagors in default


    ``Sec. 230. (a) Payment of Partial Claim.--The Secretary 
may establish a program for payment of a partial insurance 
claim to a mortgagee that agrees to apply the claim amount to 
payment of a mortgage on a 1- to 4-family residence that is in 
default. Any such payment under such program to the mortgagee 
shall be made in the Secretary's sole discretion and on terms 
and conditions acceptable to the Secretary, except that--
            ``(1) the amount of the payment shall be in an 
        amount determined by the Secretary, which shall not 
        exceed an amount equivalent to 12 monthly mortgage 
        payments and any costs related to the default that are 
        approved by the Secretary; and
            ``(2) the mortgagor shall agree to repay the amount 
        of the insurance claim to the Secretary upon terms and 
        conditions acceptable to the Secretary.
The Secretary may pay the mortgagee, from the appropriate 
insurance fund, in connection with any activities that the 
mortgagee is required to undertake concerning repayment by the 
mortgagor of the amount owed to the Secretary.
    ``(b) Assignment.--
            ``(1) Program authority.--The Secretary may 
        establish a program for assignment to the Secretary, 
        upon request of the mortgagee, of a mortgage on a 1- to 
        4-family residence insured under this Act.
            ``(2) Program requirements.--The Secretary may 
        accept assignment of a mortgage under a program under 
        this subsection only if--
                    ``(A) the mortgage was in default;
                    ``(B) the mortgagee has modified the 
                mortgage to cure the default and provide for 
                mortgage payments within the reasonable ability 
                of the mortgagor to pay at interest rates not 
                exceeding current market interest rates; and
                    ``(C) the Secretary arranges for servicing 
                of the assigned mortgage by a mortgagee (which 
                may include the assigning mortgagee) through 
                procedures that the Secretary has determined to 
                be in the best interests of the appropriate 
                insurance fund.
            ``(3) Payment of insurance benefits.--Upon 
        accepting assignment of a mortgage under the program 
        under this subsection, the Secretary may pay insurance 
        benefits to the mortgagee from the appropriate 
        insurance fund in an amount that the Secretary 
        determines to be appropriate, but which may not exceed 
        the amount necessary to compensate the mortgagee for 
        the assignment and any losses and expenses resulting 
        from the mortgage modification.
    ``(c) Prohibition of Judicial Review.--No decision by the 
Secretary to exercise or forego exercising any authority under 
this section shall be subject to judicial review.
    ``(d) Savings Provision.--Any mortgage for which the 
mortgagor has applied to the Secretary, before the date of the 
enactment of the Balanced Budget Act of 1995, for assignment 
pursuant to subsection (b) of this section as in effect before 
such date of enactment shall continue to be governed by the 
provisions of this section in effect immediately before such 
date of enactment.
    ``(e) Applicability of Other Laws.--No provision of this 
Act or any other law shall be construed to require the 
Secretary to provide an alternative to foreclosure for 
mortgagees with mortgages on 1- to 4-family residences insured 
by the Secretary under this Act, or to accept assignments of 
such mortgages.''.
    (c) Applicability of Amendments.--Except as provided in 
subsection (e), the amendments made by subsections (a) and (b) 
shall apply only with respect to mortgages insured under the 
National Housing Act that are originated on or after October 1, 
1995.
    (d) Regulations.--Not later than the expiration of the 60-
day period beginning on the date of the enactment of this Act, 
the Secretary of Housing and Urban Development shall issue 
interim regulations to implement this section and the 
amendments made by this section.
    (e) Effectiveness and Applicability.--If this Act is 
enacted after the date of the enactment of the Departments of 
Veterans Affairs and Housing and Urban Development, and 
Independent Agencies Appropriations Act, 1996--
            (1) subsections (a), (b), (c), and (d) of this 
        section shall not take effect; and
            (2) subsection (c) of the section relating to 
        foreclosure avoidance and borrower assistance in title 
        II of the Departments of Veterans Affairs and Housing 
        and Urban Development, and Independent Agencies 
        Appropriations Act, 1996, is amended by striking ``only 
        with respect to mortgages insured under the National 
        Housing Act that are originated before October 1, 
        1995'' and inserting ``to mortgages originated before, 
        on, and after October 1, 1995''.

      TITLE III--COMMUNICATIONS AND SPECTRUM ALLOCATION PROVISIONS

SEC. 3001. SPECTRUM AUCTIONS.

    (a) Extension and Expansion of Auction Authority.--
            (1) Amendments.--Section 309(j) of the 
        Communications Act of 1934 (47 U.S.C. 309(j)) is 
        amended--
                    (A) by striking paragraphs (1) and (2) and 
                inserting the following:
            ``(1) General authority.--If, consistent with the 
        obligations described in paragraph (6)(E), mutually 
        exclusive applications are accepted for any initial 
        license or construction permit, then the Commission 
        shall grant such license or permit to a qualified 
        applicant through a system of competitive bidding that 
        meets the requirements of this subsection.
            ``(2) Exemptions.--The competitive bidding 
        authority granted by this subsection shall not apply to 
        licenses or construction permits issued by the 
        Commission--
                    ``(A) that, as the result of the Commission 
                carrying out the obligations described in 
                paragraph (6)(E), are not mutually exclusive;
                    ``(B) for public safety radio services, 
                including non-Government uses the sole or 
                principal purpose of which is to protect the 
                safety of life, health, and property and which 
                are not made commercially available to the 
                public; or
                    ``(C) for initial licenses or construction 
                permits for new terrestrial digital television 
                services assigned by the Commission to existing 
                terrestrial broadcast licensees to replace 
                their current television licenses, unless--
                            ``(i) the Commission, not later 
                        than 180 days after the date of 
                        enactment of the Balanced Budget Act of 
                        1995, after notice and public comment, 
                        submits to Congress a report on the use 
                        of the authority provided in this 
                        subsection for the assignment of 
                        initial licenses or construction 
                        permits for use of the electromagnetic 
                        spectrum allocated but not assigned as 
                        of the date of enactment of that Act 
                        for television broadcast services; and
                            ``(ii) the Congress amends this 
                        subsection to authorize the use of the 
                        authority provided by this subsection 
                        for such licenses or permits.
                Except as provided in this subparagraph, the 
                Commission may not assign initial licenses or 
                construction permits under this title to 
                terrestrial commercial television broadcast 
                licensees to replace their existing broadcast 
                licenses before November 15, 1996.''; and
                    (B) by striking ``1998'' in paragraph (11) 
                and inserting ``2002''.
            (2) Conforming amendment.--Subsection (i) of 
        section 309 of such Act is repealed.
            (3) Effective date.--The amendment made by 
        paragraph (1)(A) shall not apply with respect to any 
        license or permit for a terrestrial radio or television 
        broadcast station for which the Federal Communications 
        Commission has accepted mutually exclusive applications 
        on or before the date of enactment of this Act.
    (b) Commission Obligation To Make Additional Spectrum 
Available by Auction.--
            (1) In general.--The Federal Communications 
        Commission shall complete all actions necessary to 
        permit the assignment, by September 30, 2002, by 
        competitive bidding pursuant to section 309(j) of the 
        Communications Act of 1934 (47 U.S.C. 309(j)) of 
        licenses for the use of bands of frequencies that--
                    (A) individually span not less than 25 
                megahertz, unless a combination of smaller 
                bands can, notwithstanding the provisions of 
                paragraph (7) of such section, reasonably be 
                expected to produce greater receipts;
                    (B) in the aggregate span not less than 100 
                megahertz;
                    (C) are located below 3 gigahertz; and
                    (D) have not, as of the date of enactment 
                of this Act--
                            (i) been designated by Commission 
                        regulation for assignment pursuant to 
                        such section;
                            (ii) been identified by the 
                        Secretary of Commerce pursuant to 
                        section 113 of the National 
                        Telecommunications and Information 
                        Administration Organization Act; or
                            (iii) been reserved for Federal 
                        Government use pursuant to section 305 
                        of the Communications Act of 1934 (47 
                        U.S.C. 305).
                The Commission shall conduct the competitive 
                bidding for not less than one-half of such 
                aggregate spectrum by September 30, 2000.
            (2) Criteria for reassignment.--In making available 
        bands of frequencies for competitive bidding pursuant 
        to paragraph (1), the Commission shall--
                    (A) seek to promote the most efficient use 
                of the spectrum;
                    (B) take into account the cost to incumbent 
                licensees of relocating existing uses to other 
                bands of frequencies or other means of 
                communication;
                    (C) take into account the needs of public 
                safety radio services;
                    (D) comply with the requirements of 
                international agreements concerning spectrum 
                allocations; and
                    (E) take into account the costs to 
                satellite service providers that could result 
                from multiple auctions of like spectrum 
                internationally for global satellite systems.
            (3) Notification to ntia.--The Commission shall 
        notify the Secretary of Commerce if--
                    (A) the Commission is not able to provide 
                for the effective relocation of incumbent 
                licensees to bands of frequencies that are 
                available to the Commission for assignment; and
                    (B) the Commission has identified bands of 
                frequencies that are--
                            (i) suitable for the relocation of 
                        such licensees; and
                            (ii) allocated for Federal 
                        Government use, but that could be 
                        reallocated pursuant to part B of the 
                        National Telecommunications and 
                        Information Administration Organization 
                        Act (as amended by this section).
    (c) Identification and Reallocation of Frequencies.--The 
National Telecommunications and Information Administration 
Organization Act (47 U.S.C. 901 et seq.) is amended--
            (1) in section 113, by adding at the end the 
        following new subsections:
    ``(f) Additional Reallocation Report.--If the Secretary 
receives a notice from the Commission pursuant to section 
3001(b)(3) of the Balanced Budget Act of 1995, the Secretary 
shall prepare and submit to the President and the Congress a 
report recommending for reallocation for use other than by 
Federal Government stations under section 305 of the 1934 Act 
(47 U.S.C. 305), bands of frequencies that are suitable for the 
uses identified in the Commission's notice.
    ``(g) Relocation of Federal Government Stations.--
            ``(1) In general.--In order to expedite the 
        efficient use of the electromagnetic spectrum and 
        notwithstanding section 3302(b) of title 31, United 
        States Code, any Federal entity which operates a 
        Federal Government station may accept payment in 
        advance or in-kind reimbursement of costs, or a 
        combination of payment in advance and in-kind 
        reimbursement, from any person to defray entirely the 
        expenses of relocating the Federal entity's operations 
        from one or more radio spectrum frequencies to another 
        frequency or frequencies, including, without 
        limitation, the costs of any modification, replacement, 
        or reissuance of equipment, facilities, operating 
        manuals, regulations, or other expenses incurred by 
        that entity. Any such payment shall be deposited in the 
        account of such Federal entity in the Treasury of the 
        United States. Funds deposited according to this 
        paragraph shall be available, without appropriation or 
        fiscal year limitation, only for the operations of the 
        Federal entity for which such funds were deposited 
        under this paragraph.
            ``(2) Process for relocation.--Any person seeking 
        to relocate a Federal Government station that has been 
        assigned a frequency within a band allocated for mixed 
        Federal and non-Federal use may submit a petition for 
        such relocation to NTIA. The NTIA shall limit or 
        terminate the Federal Government station's operating 
        license when the following requirements are met:
                    ``(A) the person seeking relocation of the 
                Federal Government station has guaranteed to 
                defray entirely, through payment in advance, 
                in-kind reimbursement of costs, or a 
                combination thereof, all relocation costs 
                incurred by the Federal entity, including all 
                engineering, equipment, site acquisition and 
                construction, and regulatory fee costs;
                    ``(B) the person seeking relocation 
                completes all activities necessary for 
                implementing the relocation, including 
                construction of replacement facilities (if 
                necessary and appropriate) and identifying and 
                obtaining on the Federal entity's behalf new 
                frequencies for use by the relocated Federal 
                Government station (where such station is not 
                relocating to spectrum reserved exclusively for 
                Federal use);
                    ``(C) any necessary replacement facilities, 
                equipment modifications, or other changes have 
                been implemented and tested to ensure that the 
                Federal Government station is able to 
                successfully accomplish its purposes; and
                    ``(D) NTIA has determined that the proposed 
                use of the spectrum frequency band to which the 
                Federal entity will relocate its operations 
                is--
                            ``(i) consistent with obligations 
                        undertaken by the United States in 
                        international agreements and with 
                        United States national security and 
                        public safety interests; and
                            ``(ii) suitable for the technical 
                        characteristics of the band and 
                        consistent with other uses of the band.
                In exercising its authority under subparagraph 
                (D)(i), NTIA shall consult with the Secretary 
                of Defense, the Secretary of State, or other 
                appropriate officers of the Federal Government.
            ``(3) Right to reclaim.--If within one year after 
        the relocation the Federal Government station 
        demonstrates to the Commission that the new facilities 
        or spectrum are not comparable to the facilities or 
        spectrum from which the Federal Government station was 
        relocated, the person seeking such relocation must take 
        reasonable steps to remedy any defects or pay the 
        Federal entity for the costs of returning the Federal 
        Government station to the spectrum from which such 
        station was relocated.
    ``(h) Federal Action To Expedite Spectrum Transfer.--Any 
Federal Government station which operates on electromagnetic 
spectrum that has been identified for reallocation for mixed 
Federal and non-Federal use in any reallocation report under 
subsection (a) shall, to the maximum extent practicable through 
the use of the authority granted under subsection (g) and any 
other applicable provision of law, take action to relocate its 
spectrum use to other frequencies that are reserved for Federal 
use or to consolidate its spectrum use with other Federal 
Government stations in a manner that maximizes the spectrum 
available for non-Federal use. Subsection (c)(4) of this 
section shall not apply to the extent that a non-Federal user 
seeks to relocate or relocates a Federal power agency under 
subsection (g).
    ``(i) Definition.--For purposes of this section, the term 
`Federal entity' means any department, agency, or other 
instrumentality of the Federal Government that utilizes a 
Government station license obtained under section 305 of the 
1934 Act (47 U.S.C. 305).''; and
            (2) in section 114(a)(1), by striking ``(a) or 
        (d)(1)'' and inserting ``(a), (d)(1), or (f)''.
    (d) Identification and Reallocation of Auctionable 
Frequencies.--The National Telecommunications and Information 
Administration Organization Act (47 U.S.C. 901 et seq.) is 
amended--
            (1) in section 113(b)--
                    (A) by striking the heading of paragraph 
                (1) and inserting ``Initial reallocation 
                report.--'';
                    (B) by inserting ``in the first report 
                required by subsection (a)'' after ``recommend 
                for reallocation'' in paragraph (1);
                    (C) by inserting ``or (3)'' after 
                ``paragraph (1)'' each place it appears in 
                paragraph (2); and
                    (D) by inserting after paragraph (2) the 
                following new paragraph:
            ``(3) Second reallocation report.--In accordance 
        with the provisions of this section, the Secretary 
        shall recommend for reallocation in the second report 
        required by subsection (a), for use other than by 
        Federal Government stations under section 305 of the 
        1934 Act (47 U.S.C. 305), a single frequency band that 
        spans not less than an additional 20 megahertz, that is 
        located below 3 gigahertz, and that meets the criteria 
        specified in paragraphs (1) through (5) of subsection 
        (a).''; and
            (2) in section 115--
                    (A) in subsection (b), by striking ``the 
                report required by section 113(a)'' and 
                inserting ``the initial reallocation report 
                required by section 113(a)''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(c) Allocation and Assignment of Frequencies Identified 
in the Second Reallocation Report.--With respect to the 
frequencies made available for reallocation pursuant to section 
113(b)(3), the Commission shall, not later than 1 year after 
receipt of the second reallocation report required by such 
section, prepare, submit to the President and the Congress, and 
implement, a plan for the allocation and assignment under the 
1934 Act of such frequencies. Such plan shall propose the 
immediate allocation and assignment of all such frequencies in 
accordance with section 309(j) of the 1934 Act (47 U.S.C. 
309(j)).''.

               TITLE IV--EDUCATION AND RELATED PROVISIONS

SEC. 4000. TABLE OF CONTENTS.

    The table of contents for this title is as follows:

               TITLE IV--EDUCATION AND RELATED PROVISIONS

Sec. 4000. Table of contents.

                      Subtitle A--Higher Education

Sec. 4001. Short title; references; and general effective date.
Sec. 4002. Participation of institutions and administration of loan 
          programs.
Sec. 4003. Loan terms and conditions.
Sec. 4004. Amendments affecting guaranty agencies.
Sec. 4005. Amendments affecting FFELP lenders and loan holders.
Sec. 4006. Connie Lee privatization.
Sec. 4007. Extension of program duration.

   Subtitle B--Provisions Relating to the Employee Retirement Income 
                          Security Act of 1974

Sec. 4101. Waiver of minimum period for joint and survivor annuity 
          explanation before annuity starting date.

                      Subtitle A--Higher Education

SEC. 4001. SHORT TITLE; REFERENCES; AND GENERAL EFFECTIVE DATE.

    (a) Short Title.--This subtitle may be cited as the 
``Student Loan Reform Act of 1995''.
    (b) References.--Except as otherwise expressly provided, 
whenever in this subtitle an amendment or repeal is expressed 
in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a 
section or other provision of the Higher Education Act of 1965 
(20 U.S.C. 1001 et seq.).
    (c) General Effective Date.--Unless otherwise specified in 
this subtitle, the amendments made by this subtitle shall take 
effect on January 1, 1996.

SEC. 4002. PARTICIPATION OF INSTITUTIONS AND ADMINISTRATION OF LOAN 
                    PROGRAMS.

    (a) Limitation on Proportion of Loans Made Under the Direct 
Loan Program.--Section 453(a) (20 U.S.C. 1087c(a)) is amended--
            (1) by amending paragraph (2) to read as follows:
            ``(2) Determination of number of agreements.--
        Notwithstanding any other provision of law, the 
        Secretary may enter into agreements under subsections 
        (a) and (b) of section 454 with institutions for 
        participation in the direct loan program under this 
        part, subject to the following:
                    ``(A) For academic year 1994-1995, loans 
                made under this part shall represent not more 
                than 5 percent of new student loan volume for 
                such year.
                    ``(B) For academic year 1995-1996, loans 
                made under this part, including Federal Direct 
                Consolidation Loans, shall represent not more 
                than 30 percent of the new student loan volume 
                for such year, except that the Secretary shall 
                not enter into such an agreement with an 
                eligible institution that has not applied and 
                been accepted for participation in the direct 
                loan program under this part on or before 
                September 30, 1995.
                    ``(C) For academic year 1996-1997 and for 
                each succeeding academic year, loans made under 
                this part, including Federal Direct 
                Consolidation Loans, shall represent not more 
                than 10 percent of the new student loan volume 
                for such year, except that only the 102 
                eligible institutions that participated in the 
                direct loan program under this part for 
                academic year 1994-1995 shall be eligible to 
                participate in such program for academic year 
                1996-1997 and for each succeeding academic 
                year.'';
            (2) by striking paragraph (3);
            (3) by redesignating paragraph (4) as paragraph 
        (3); and
            (4) in the second sentence of paragraph (3) (as 
        redesignated by paragraph (3)), by striking ``on the 
        most recent program data available'' and inserting ``on 
        data from the academic year preceding the academic year 
        for which the estimate is made''.
    (b) Elimination of Conscription.--Section 453(b)(2) (20 
U.S.C. 1087c(b)(2)) is amended--
            (1) by striking subparagraph (B); and
            (2) in subparagraph (A)--
                    (A) in clause (ii)--
                            (i) by striking ``beginning''; and
                            (ii) by striking ``clause (i); 
                        and'' and inserting ``subparagraph 
                        (A).'';
                    (B) by redesignating clause (ii) (as 
                amended by subparagraph (A)) as subparagraph 
                (B); and
                    (C) by striking ``(i) categorizing'' and 
                inserting ``categorizing''.
    (c) Control of Administrative Expenses.--Section 458 (20 
U.S.C. 1087h) is amended--
            (1) by amending subsection (a) to read as follows:
    ``(a) Expenses.--
            ``(1) In general.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), each fiscal year there shall 
                be available to the Secretary from funds not 
                otherwise appropriated, funds to be obligated 
                for subsidy costs under this part for the 
                William D. Ford Federal Direct Loan Program. 
                There shall also be available from funds not 
                otherwise appropriated, funds to be obligated 
                for indirect administrative expenses under this 
                part and part B, not to exceed (from such funds 
                not otherwise appropriated) $260,000,000 for 
                fiscal year 1994, $345,000,000 for fiscal year 
                1995, $85,000,000 (and such sums as may be 
                necessary for administrative cost allowances 
                for guaranty agencies for costs accrued prior 
                to January 1, 1996) for fiscal year 1996, and 
                $85,000,000 for each of the fiscal years 1997 
                through 2002.
                    ``(B) Reduction.--The amount authorized to 
                be made available for fiscal year 1997 under 
                subparagraph (A) shall be reduced by the amount 
                of any unobligated unexpended funds available 
                to carry out this subsection for any fiscal 
                year prior to fiscal year 1996.
            ``(2) Direct and indirect administrative 
        expenses.--
                    ``(A) Direct administrative expenses.--
                            ``(i) In general.--For purposes of 
                        this subsection the term `direct 
                        administrative expenses' means the cost 
                        under the William D. Ford Federal 
                        Direct Loan Program of--
                                    ``(I) activities related to 
                                credit extension, loan 
                                origination, loan servicing, 
                                management of contractors, and 
                                payments to contractors, other 
                                government entities, and 
                                program participants, under 
                                this part;
                                    ``(II) collection of 
                                delinquent loans under this 
                                part; and
                                    ``(III) write-off and 
                                closeout of loans under this 
                                part.
                            ``(ii) Clarification with respect 
                        to certain expenses.--Such term does 
                        not include the costs to the Department 
                        of personnel, training, rent, printing, 
                        or other administrative costs, 
                        associated with the activities 
                        described in subclause (I), (II), or 
                        (III) of clause (i).
                    ``(B) Indirect administrative expenses.--
                For purposes of this subsection the term 
                `indirect administrative expenses' means the 
                cost of--
                            ``(i) personnel engaged in 
                        developing program regulations, policy 
                        and administrative guidance;
                            ``(ii) audits of institutions and 
                        contractors;
                            ``(iii) program reviews; and
                            ``(iv) other oversight of the 
                        program under this part or under part 
                        B.
            ``(3) Subsidy cost.--The term `subsidy cost' means 
        the estimated long-term cost to the Federal Government 
        of direct administrative expenses calculated on a net 
        present value basis.''; and
            (2) by striking subsection (d).
    (d) Default Rate Limitations on Direct Lending.--
            (1) Institutional eligibility based on default 
        rates.--The first sentence of section 435(a)(2)(A) (20 
        U.S.C. 1085(a)(2)(A)) is amended by inserting ``or part 
        D'' after ``under this part''.
            (2) Cohort default rate.--Section 435(m)(1) (20 
        U.S.C. 1085(m)(1)) is amended--
                    (A) in subparagraph (A)--
                            (i) by striking ``428, 428A, or 
                        428H'' and inserting ``428, 428A, 428H, 
                        or part D (other than Federal Direct 
                        PLUS Loans)''; and
                            (ii) by striking ``428C'' and 
                        inserting ``428C or 455(g)'';
                    (B) in subparagraph (B)--
                            (i) by striking ``only''; and
                            (ii) by inserting ``and loans made 
                        under part D determined by the 
                        Secretary to be in default,'' after 
                        ``for insurance,''; and
                    (C) in subparagraph (C), by striking 
                ``428C'' and inserting ``428C or 455(g)''.
            (3) Default rates and income contingent 
        repayment.--Section 435(m) (20 U.S.C. 1085(m)) is 
        amended by adding at the end the following new 
        paragraph:
            ``(5) Default rate and income contingent 
        repayment.--The Secretary shall prescribe regulations 
        for the calculation of default rates for loans that are 
        repaid pursuant to income contingent repayment under 
        this part, which regulations shall be comparable to 
        regulations for the calculation of default rates for 
        loans that are repaid pursuant to income contingent 
        repayment under part D.''.
            (4) Termination of institutional participation.--
        Section 455 (20 U.S.C. 1087e) is amended by adding at 
        the end the following new subsection:
    ``(l) Termination of Institutions for High Default Rates.--
            ``(1) Methodology and criteria.--The Secretary 
        shall develop--
                    ``(A) a methodology for the calculation of 
                institutional default rates under the loan 
                programs operated pursuant to this part;
                    ``(B) criteria for the initiation of 
                termination proceedings on the basis of such 
                default rates; and
                    ``(C) procedures for the conduct of such 
                termination proceedings.
            ``(2) Comparability to part b.--In developing the 
        methodology, criteria, and procedures required by 
        paragraph (1), the Secretary, to the maximum extent 
        possible, shall establish standards for the termination 
        of institutions from participation in loan programs 
        under this part that are comparable to the standards 
        established for the termination of institutions from 
        participation in the loan programs under part B. Such 
        procedures shall include provisions for the appeal of 
        default rate calculations based on deficiencies in the 
        servicing of loans under this part that are comparable 
        to the provisions for such appeals based on 
        deficiencies in the servicing of loans under part B.
            ``(3) Promulgation.--The methodology, criteria, 
        procedures and standards required by paragraphs (1) and 
        (2) shall be promulgated in final form not later than 
        120 days after the date of enactment of this 
        paragraph.''.
    (e) Elimination of Transition to Direct Loans.--The Act (20 
U.S.C. 1001 et seq.) is further amended--
            (1) in section 422(c)(7) (20 U.S.C. 1072(c)(7))--
                    (A) in subparagraph (A), by striking 
                ``during the transition'' and all that follows 
                through ``part D of this title''; and
                    (B) in subparagraph (B), by striking 
                ``section 428(c)(10)(F)(v)'' and inserting 
                ``section 428(c)(9)(F)(v)'';
            (2) in section 422(g)(1) (20 U.S.C. 1072(g)(1))--
                    (A) in the first sentence, by striking ``or 
                the program authorized by part D of this 
                title''; and
                    (B) in the second sentence, by striking 
                ``or the program authorized by part D of this 
                title'';
            (3) in section 428(c)(8) (20 U.S.C. 1078(c)(8))--
                    (A) by striking subparagraph (B); and
                    (B) by striking ``(A) If'' and inserting 
                ``If'';
            (4) in section 428(c)(9)(F)(vii) (20 U.S.C. 
        1078(c)(9)(F)(vii))--
                    (A) by inserting ``and'' before ``to avoid 
                disruption''; and
                    (B) by striking ``, and to ensure an 
                orderly transition'' and all that follows 
                through the end of such clause and inserting a 
                period;
            (5) in section 428(c)(9)(K) (20 U.S.C. 
        1078(c)(9)(K)), by striking ``the progress of the 
        transition from the loan programs under this part to'' 
        and inserting ``the integrity and administration of'';
            (6) in section 428(e)(1)(B)(ii) (20 U.S.C. 
        1078(e)(1)(B)(ii)), by striking ``during the 
        transition'' and all that follows through ``under part 
        D of this title'';
            (7) in section 428(e)(3) (20 U.S.C. 1078(e)(3)), by 
        striking ``costs of transition'' and inserting 
        ``indirect administrative expenses'';
            (8) in section 428(j)(3) (20 U.S.C. 1078(j)(3))--
                    (A) in the heading for paragraph (3), by 
                striking ``during transition to direct 
                lending''; and
                    (B) in subparagraph (A), by striking 
                ``during the transition'' and all that follows 
                through ``part D of this title'';
            (9) in the heading for paragraph (2) of section 
        453(c) (20 U.S.C. 1087c(c)), by striking ``Transition'' 
        and inserting ``Institutional'';
            (10) in the heading for paragraph (3) of section 
        453(c) (20 U.S.C. 1087c(c)), by striking ``after 
        transition''; and
            (11) in section 456(b) (20 U.S.C. 1087f(b))--
                    (A) in paragraph (3), by inserting ``and'' 
                after the semicolon;
                    (B) by striking paragraph (4);
                    (C) by redesignating paragraph (5) as 
                paragraph (4); and
                    (D) in paragraph (4) (as redesignated by 
                subparagraph (C)), by striking ``successful 
                operation'' and inserting ``integrity and 
                efficiency''.
    (f) Fees for Origination Services.--Section 452 (20 U.S.C. 
1087b) is amended--
            (1) by striking subsection (b); and
            (2) by redesignating subsections (c) and (d) as 
        subsections (b) and (c), respectively.
    (g) Risk Sharing.--Section 428(n) (20 U.S.C. 1078(n)) is 
amended by adding at the end the following new paragraph:
            ``(5) Applicability to part d loans.--The 
        provisions of this subsection shall apply to 
        institutions of higher education participating in 
        direct lending under part D with respect to loans made 
        under such part, and for the purposes of this 
        paragraph, paragraph (4) shall be applied by inserting 
        `or part D' after `this part'.''.
    (h) Technical Amendment.--Section 428(b)(1)(X) (20 U.S.C. 
1078(b)(1)(X)) is amended by striking ``section 428(c)(10)'' 
and inserting ``section 428(c)(9)''.

SEC. 4003. LOAN TERMS AND CONDITIONS.

    (a) Comparability Provisions.--
            (1) In general.--Paragraph (1) of section 455(a) 
        (20 U.S.C. 1087e(a)) is amended to read as follows:
            ``(1) Parallel terms, conditions, eligibility 
        requirements, benefits and amounts.--Unless otherwise 
        specified in this part, loans made to borrowers under 
        this part shall have the same terms, conditions, 
        deferments, forbearances, eligibility requirements, and 
        benefits, be subject to the same administrative 
        requirements for origination, payment and processing of 
        applications, be available in the same amounts, be 
        subject to the same interest rates and same amount of 
        fees, and have the same repayment plans, as the 
        corresponding types of loans made to borrowers under 
        sections 428, 428B, and 428H. The Secretary shall 
        promulgate regulations implementing this paragraph not 
        later than 120 days after the date of enactment of the 
        Student Loan Reform Act of 1995.''.
            (2) Conforming amendments.--Section 428(b)(1) (20 
        U.S.C. 1078(b)(1)) is amended--
                    (A) in subparagraph (D)(ii), by inserting 
                ``(except pursuant to a graduated, income-
                sensitive, or income contingent repayment 
                schedule)'' after ``10 years''; and
                    (B) in subparagraph (E)(ii), by inserting 
                ``(except pursuant to a graduated, income-
                sensitive, or income contingent repayment 
                schedule)'' after ``10 years''.
    (b) Ability of Part D Borrowers To Obtain Federal Stafford 
Consolidation Loans.--Section 428C(a)(4) (20 U.S.C. 1078-
3(a)(4)) is amended--
            (1) by redesignating subparagraphs (B), (C), and 
        (D) as subparagraphs (C), (D), and (E), respectively; 
        and
            (2) by inserting after subparagraph (A) the 
        following new subparagraph:
                    ``(B) made under part D of this title;''.
    (c) Ability of Part B Borrowers To Obtain Federal Direct 
Consolidation Loans.--Paragraph (5) of section 428C(b) (20 
U.S.C. 1078-3(b)) is amended to read as follows:
            ``(5) Direct consolidation loans for borrowers in 
        specified circumstances.--
                    ``(A) Subject to subparagraphs (B) and (C) 
                of section 453(a)(2), the Secretary may offer a 
                borrower a Federal Direct Consolidation loan if 
                such borrower is otherwise eligible for a 
                consolidation loan pursuant to this section and 
                such borrower is--
                            ``(i) unable to obtain a 
                        consolidation loan from a lender with 
                        an agreement under subsection (a)(1) 
                        that holds one of such borrower's loans 
                        under this part; or
                            ``(ii) unable to obtain a 
                        consolidation loan with income 
                        contingent repayment terms from a 
                        lender with an agreement under 
                        subsection (a)(1).
                    ``(B) The Secretary shall establish 
                appropriate certification procedures to verify 
                the eligibility of borrowers for consolidation 
                loans under this paragraph.
                    ``(C) The Secretary shall not offer 
                consolidation loans under this paragraph if, in 
                the Secretary's judgment, the Department does 
                not have the necessary origination and 
                servicing arrangements in place for such loans, 
                or the projected volume in such loans will be 
                destabilizing to the availability of loans 
                otherwise available under this part.''.
    (d) Income Contingent Repayment in the Federal Family 
Education Loan Program.--
            (1) Insurance program agreements.--Section 
        428(b)(1)(E)(i) (20 U.S.C. 1078(b)(1)(E)(i)) is amended 
        by striking ``or income-sensitive repayment schedule'' 
        and inserting ``repayment schedule or an income-
        sensitive repayment schedule, and may, at the 
        discretion of the lender, offer the borrower the option 
        of repaying the loan in accordance with an income 
        contingent repayment schedule,''.
            (2) Repayment schedules.--The matter preceding 
        clause (i) of section 428C(c)(2)(A) (20 U.S.C. 1078-
        3(c)(2)(A)) is amended--
                    (A) in the first sentence, by striking ``or 
                income-sensitive repayment schedules'' and 
                inserting ``repayment schedules or income-
                sensitive repayment schedules, and may include, 
                at the discretion of the lender, the 
                establishment of income contingent repayment 
                schedules''; and
                    (B) in the second sentence, by striking 
                ``income-sensitive'' and inserting ``graduated, 
                income-sensitive, or income contingent''.
            (3) Comparable terms and conditions.--Section 
        428(m) (20 U.S.C. 1078(m)) is amended by adding at the 
        end the following new paragraph:
            ``(3) Income contingent repayment schedules.--For 
        the purpose of this part, income contingent repayment 
        schedules established pursuant to subsection 
        (b)(1)(E)(i) and section 428C(c)(2)(A) shall have terms 
        and conditions comparable to the terms and conditions 
        established by the Secretary pursuant to section 
        455(e)(4). The Secretary shall discharge or cancel the 
        indebtedness of borrowers that repay pursuant to income 
        contingent repayment under this part to the same 
        extent, and under the same circumstances, as the 
        Secretary discharges or cancels the indebtedness of 
        borrowers that repay pursuant to income contingent 
        repayment under part D.''.
    (e) Plus Program Reductions.--Section 428B(b) (20 U.S.C. 
1078-2(b)) is amended--
            (1) by striking ``(b) Limitation based on need.--'' 
        and inserting the following:
    ``(b) Annual Limits.--
            ``(1) Limitation based on need.--'';
            (2) by inserting before the last sentence thereof 
        the following:
            ``(3) Limitation computed on basis of actual 
        payments.--''; and
            (3) by inserting before paragraph (3) (as 
        designated by the amendment made by paragraph (2) of 
        this section) the following new paragraph:
            ``(2) Dollar limitation.--Subject to paragraph (1), 
        the maximum amount parents may borrow for one student 
        in any academic year or its equivalent (as defined by 
        regulations of the Secretary) is $15,000.''.

SEC. 4004. AMENDMENTS AFFECTING GUARANTY AGENCIES.

    (a) Use of Reserve Funds To Purchase Defaulted Loans.--
Section 422 (20 U.S.C. 1072) is amended by adding at the end 
the following new subsection:
    ``(h) Use of Reserve Funds To Purchase Defaulted Loans.--
            ``(1) In general.--Except as provided in paragraph 
        (2), a guaranty agency shall use not less than 50 
        percent of such agency's reserve funds to purchase and 
        hold defaulted loans that are guaranteed by such agency 
        and for which a claim for insurance is filed with such 
        agency by an eligible lender. The amount of such 
        purchases shall be considered as reserve funds under 
        this section and used in the calculation of the minimum 
        reserve level under section 428(c)(9).
            ``(2) Special rule.--A guaranty agency shall not be 
        required to use its reserve funds to purchase and hold 
        defaulted loans in accordance with paragraph (1) to the 
        extent that--
                    ``(A) the dollar volume of insurance claims 
                filed with such agency does not amount to 50 
                percent of such agency's available reserve 
                funds;
                    ``(B) such use is prohibited by State law; 
                or
                    ``(C) such use will compromise the ability 
                of the guaranty agency to pay program 
                expenses.''.
    (b) Extension of Period a Guaranty Agency Must Hold a 
Defaulted Loan.--
            (1) Exemption for extended holding period.--The 
        last sentence of section 428(c)(1)(A) (20 U.S.C. 
        1078(c)(1)(A)) is amended by striking ``A guaranty 
        agency'' and inserting ``Except as provided in section 
        428K, a guaranty agency''.
            (2) New extended holding period program.--
                    (A) Amendment.--Part B of title IV (20 
                U.S.C. 1071 et seq.) is amended by inserting 
                after section 428J the following new section:

``SEC. 428K. GUARANTOR PURCHASE OF CLAIMS WITH RESERVE FUNDS.

    ``(a) Loans Subject to Extended Holding Period.--Except as 
provided in subsection (b), a guaranty agency shall file a 
claim for reimbursement with respect to losses (resulting from 
the default of a borrower) subject to reimbursement by the 
Secretary pursuant to section 428(c)(1) not less than 180 days 
nor more than 225 days after the guaranty agency discharges 
such agency's insurance obligation on a loan insured under this 
part. Such claim shall include losses on the unpaid principal 
and accrued interest of any such loan, including interest 
accrued from the date of such discharge to the date such agency 
files the claim for reimbursement from the Secretary.
    ``(b) Loans Excluded From Extended Holding.--A guaranty 
agency may file a claim with respect to losses subject to 
reimbursement by the Secretary pursuant to section 428(c)(1) 
prior to 180 days after the date the guaranty agency discharges 
such agency's insurance obligation on a loan insured under this 
part, if--
            ``(1) such agency used 50 percent or more of such 
        agency's reserve funds to purchase or hold loans in 
        accordance with section 422(h);
            ``(2) such claim is based on an inability to locate 
        the borrower and the guaranty agency certifies to the 
        Secretary that--
                    ``(A) diligent attempts were made to locate 
                the borrower through the use of reasonable 
                skip-tracing techniques in accordance with 
                section 428(c)(2)(G); and
                    ``(B) such skip-tracing attempts to locate 
                the borrower were unsuccessful; or
            ``(3) the guaranty agency determines that the 
        borrower is unlikely to possess the financial resources 
        to begin repaying the loan prior to 180 days after 
        default by the borrower.
    ``(c) Guaranty Agency Efforts During Extended Holding 
Period.--A guaranty agency shall attempt to bring a loan 
described in subsection (a) into repayment status during the 
period prior to 225 days after the date the guaranty agency 
discharges its insurance obligation on such loan, so that no 
claim for reimbursement by the Secretary is necessary. Upon 
securing payments satisfactory to the guaranty agency during 
such period, such agency shall, if practicable, sell such loan 
to an eligible lender. Such loan shall not be sold to an 
eligible lender that the guaranty agency determines has 
substantially failed to exercise the due diligence required of 
lenders under this part.
    ``(d) Regulation Prohibited.--The Secretary shall not 
promulgate regulations regarding the collection activity of a 
guaranty agency with respect to a loan described in subsection 
(a) for which reinsurance has not been paid under section 
428(c)(1).''.
                    (B) Effective date.--The amendment made by 
                this paragraph shall apply with respect to 
                loans for which claims for insurance are filed 
                by eligible lenders on or after January 1, 
                1996.
    (c) Administrative Cost Allowance.--Section 428(f)(1) (20 
U.S.C. 1078(f)(1)) is amended--
            (1) in the matter preceding clause (i) of 
        subparagraph (A), by striking ``For a fiscal year prior 
        to fiscal year 1994, the'' and inserting ``The''; and
            (2) by amending subparagraph (B) to read as 
        follows:
            ``(B)(i) The total amount of payments for any 
        fiscal year prior to fiscal year 1994 made under this 
        paragraph shall be equal to 1 percent of the total 
        principal amount of the loans upon which insurance was 
        issued under this part during such fiscal year by such 
        guaranty agency.
            ``(ii) For the period beginning January 1, 1996 and 
        ending September 30, 1996, and for each fiscal year 
        thereafter, each guaranty agency shall receive an 
        administrative cost allowance, payable quarterly, for 
        such fiscal year calculated on the basis of 0.85 
        percent of the total principal amount of the loans upon 
        which insurance was issued under this part during such 
        fiscal year by such guaranty agency.
            ``(iii) The guaranty agency shall be deemed to have 
        a contractual right against the United States to 
        receive payments according to the provisions of this 
        subparagraph. Payments shall be made promptly and 
        without administrative delay to any guaranty agency 
        submitting an accurate and complete application 
        therefor under this subparagraph.
            ``(iv) Notwithstanding clauses (ii) and (iii)--
                    ``(I) for each of the fiscal years 1996 
                through 1998, the Secretary shall pay an 
                aggregate amount for such year of not more than 
                $220,000,000 to all guaranty agencies receiving 
                administrative cost allowances under this 
                subparagraph; and
                    ``(II) for each of the fiscal years 1999 
                through 2002, the Secretary shall pay an 
                aggregate amount for such year of not more than 
                $180,000,000 to all guaranty agencies receiving 
                administrative cost allowances under this 
                subparagraph.''.
    (d) Secretary's Equitable Share of Collections on 
Consolidated Defaulted Loans.--Section 428(c)(6)(A) (20 U.S.C. 
1078(c)(6)(A)) is amended--
            (1) in the matter preceding clause (i)--
                    (A) by inserting ``or on behalf of'' after 
                ``made by''; and
                    (B) by inserting ``, including payments 
                made to discharge loans made under this title 
                to obtain a consolidation loan pursuant to this 
                part or part D,'' after ``borrower''; and
            (2) in clause (ii), by inserting after ``an amount 
        equal to'' the following: ``--
                                    ``(I) for defaulted loans 
                                consolidated pursuant to this 
                                part or part D on or after 
                                January 1, 1996, 18.5 percent 
                                of the balance of the 
                                principal, accrued interest, 
                                and collection costs, 
                                outstanding at the time of such 
                                consolidation; or
                                    ``(II) for all other 
                                loans,''.
    (e) Reserve Fund Reforms.--
            (1) Strengthening and stabilizing guaranty 
        agencies.--Section 428(c) (20 U.S.C. 1078(c)) is 
        amended--
                    (A) in paragraph (9)(C)(ii), by striking 
                ``80 percent'' and inserting ``76 percent''; 
                and
                    (B) in paragraph (9)(E)--
                            (i) in the matter preceding clause 
                        (i), by striking ``The Secretary may 
                        terminate a'' and inserting ``After 
                        providing a guaranty agency notice and 
                        opportunity for a hearing on the 
                        record, the Secretary may terminate 
                        such'';
                            (ii) in clause (iv), by inserting 
                        ``or'' after the semicolon;
                            (iii) by striking clause (vi); and
                            (iv) in clause (v), by striking ``; 
                        or'' and inserting a period.
            (2) Additional amendments.--Section 422 (20 U.S.C. 
        1072) is further amended--
                    (A) in the last sentence of subsection 
                (a)(2), by striking ``Except as provided in 
                section 428(c)(10)(E) or (F), such'' and 
                inserting ``Except as provided in subparagraph 
                (E) or (F) of section 428(c)(9), such''; and
                    (B) in subsection (g), by amending 
                paragraph (4) to read as follows:
            ``(4) Disposition of funds returned to or recovered 
        by the secretary.--Any funds that are returned to or 
        otherwise recovered by the Secretary pursuant to this 
        subsection shall be returned to the Treasury of the 
        United States for purposes of reducing the Federal debt 
        and shall be deposited into the special account under 
        section 3113(d) of title 31, United States Code.''.
    (f) Elimination of Supplemental Preclaims Assistance.--
            (1) Amendment.--Section 428(l) (20 U.S.C. 1078(l)) 
        is amended--
                    (A) by striking paragraph (2); and
                    (B) by striking ``(l) Preclaims'' and all 
                that follows through ``Upon receipt'' and 
                inserting the following:
    ``(l) Preclaims Assistance and Supplemental Preclaims 
Assistance.--Upon receipt''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to loans for which the first 
        delinquency occurs on or after January 1, 1996.
    (g) Reserve Ratios.--Section 428(c)(9)(A) (20 U.S.C. 
1078(c)(9)(A)) is amended--
            (1) in clause (i), by inserting ``and'' after the 
        semicolon;
            (2) in clause (ii), by striking ``; and'' and 
        inserting a period; and
            (3) by striking clause (iii).
    (h) Guaranty Agency Reimbursement.--
            (1) In general.--Section 428(c)(1) (20 U.S.C. 
        1078(c)(1)) is amended--
                    (A) in subparagraph (A), by striking ``98 
                percent'' and inserting ``96 percent''; and
                    (B) in subparagraph (B)--
                            (i) in clause (i), by striking ``88 
                        percent'' and inserting ``86 percent''; 
                        and
                            (ii) in clause (ii), by striking 
                        ``78 percent'' and inserting ``76 
                        percent''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply with respect to loans for 
        which the first disbursement is made on or after 
        January 1, 1996.

SEC. 4005. AMENDMENTS AFFECTING FFELP LENDERS AND LOAN HOLDERS.

    (a) Risk Sharing by the Loan Holders.--
            (1) Amendment.--Section 428(b)(1)(G) (20 U.S.C. 
        1078(b)(1)(G)) is amended by striking ``not less than 
        98 percent'' and inserting ``95 percent''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply with respect to loans for which 
        the first disbursement is made on or after January 1, 
        1996.
    (b) Lenders-of-Last-Resort.--Section 428(j)(2) (20 U.S.C. 
1078(j)(2)) is amended--
            (1) in subparagraph (A), by striking ``60 days'' 
        and inserting ``15 days''; and
            (2) in subparagraph (B), by striking ``two 
        rejections from eligible lenders'' and inserting ``one 
        rejection from an eligible lender''.
    (c) Exceptional Performance Insurance Reduction.--Section 
428I(b)(1) (20 U.S.C. 1078-9(b)(1)) is amended--
            (1) in the paragraph heading, by striking ``100 
        percent''; and
            (2) by striking ``100 percent'' and inserting ``95 
        percent (or 100 percent in the case of a lender-of-
        last-resort)''.
    (d) Loan Fees From Lenders.--
            (1) Amendment.--Section 438(d)(2) (20 U.S.C. 1087-
        1(d)(2)) is amended by striking ``0.50 percent'' and 
        inserting ``0.80 percent''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply with respect to loans for which 
        the first disbursement is made on or after January 1, 
        1996.
    (e) Lender and Holder Rebate.--
            (1) Amendment.--Section 438 (20 U.S.C. 1078) is 
        amended by adding at the end the following new 
        subsection:
    ``(g) Subsidy Rebate on Stafford and PLUS Loans.--
            ``(1) Rebate.--Each holder of a subsidized or 
        unsubsidized Federal Stafford Loan under this part, or 
        a Federal PLUS loan under section 428B, shall pay to 
        the Secretary, on June 30 and December 31 of each year, 
        a subsidy rebate in an amount equal to 0.035 percent of 
        the unpaid principal amount of each such loan that such 
        holder holds during the repayment period described in 
        section 428(b)(7), except that, notwithstanding 
        subparagraphs (A), (B), and (C) of section 428(b)(7), 
        such holder shall pay a subsidy rebate under this 
        paragraph with respect to such loan during any period 
        of authorized forbearance.
            ``(2) Payment of rebate.--The subsidy rebate shall 
        be paid, to the extent possible, by subtracting from 
        amounts owed such holder under section 438(b) (after 
        deducting from such amounts any amount owed by such 
        holder under section 438(d) for the quarters ending 
        June 30 and December 31, as appropriate) the amount of 
        subsidy rebates owed by such holder. To the extent the 
        amounts owed such holder under section 438(b) (after 
        making the deduction described in the preceding 
        sentence) are insufficient to pay in full the subsidy 
        rebates due from such holder, such holder shall pay the 
        insufficiency by check or wire transfer of funds, in a 
        manner determined by the Secretary.
            ``(3) Deposit.--The Secretary shall deposit all 
        subsidy rebates collected under the second sentence of 
        paragraph (2) into the insurance fund established in 
        section 431.''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply with respect to loans for which 
        the first disbursement is made on or after January 1, 
        1996.
    (f) Small Lender Audit Exemption.--Section 
428(b)(1)(U)(iii) (20 U.S.C. 1078(b)(1)(U)(iii)) is amended--
            (1) by inserting ``in the case of any lender that 
        originates or holds more than $5,000,000 in principal 
        on loans made under this title in any fiscal year'' 
        before ``for (I)'';
            (2) in subclause (I), by inserting ``such'' before 
        ``lender at least once'';
            (3) in subclause (II), by inserting ``such'' before 
        ``a lender that is audited''; and
            (4) by striking ``if the lender'' and inserting 
        ``if such lender''.

SEC. 4006. CONNIE LEE PRIVATIZATION.

    (a) Status of the Corporation and Corporate Powers; 
Obligations Not Federally Guaranteed.--
            (1) Status of the corporation.--The Corporation 
        shall not be an agency, instrumentality, or 
        establishment of the United States Government, nor a 
        Government corporation nor a Government controlled 
        corporation as such terms are defined in section 103 of 
        title 5, United States Code. No action under section 
        1491 of title 28, United States Code (commonly known as 
        the Tucker Act) shall be allowable against the United 
        States based on the actions of the Corporation.
            (2) Corporate powers.--The Corporation shall be 
        subject to the provisions of this section, and, to the 
        extent not inconsistent with this section, to the 
        District of Columbia Business Corporation Act (or the 
        comparable law of another State, if applicable). The 
        Corporation shall have the powers conferred upon a 
        corporation by the District of Columbia Business 
        Corporation Act (or such other applicable State law) as 
        from time to time in effect in order to conduct its 
        affairs as a private, for-profit corporation and to 
        carry out its purposes and activities incidental 
        thereto. The Corporation shall have the power to enter 
        into contracts, to execute instruments, to incur 
        liabilities, to provide products and services, and to 
        do all things as are necessary or incidental to the 
        proper management of its affairs and the efficient 
        operation of a private, for-profit business.
            (3) Limitation on ownership of stock.--
                    (A) Secretary of the treasury.--The 
                Secretary of the Treasury, in completing the 
                sale of stock pursuant to subsection (c), may 
                not sell or issue the stock held by the 
                Secretary of Education to an agency, 
                instrumentality, or establishment of the United 
                States Government, or to a Government 
                corporation or a Government controlled 
                corporation as such terms are defined in 
                section 103 of title 5, United States Code, or 
                to a government-sponsored enterprise as such 
                term is defined in section 622 of title 2, 
                United States Code.
                    (B) Student loan marketing association.--
                The Student Loan Marketing Association shall 
                not increase its share of the ownership of the 
                Corporation in excess of 42 percent of the 
                shares of stock of the Corporation outstanding 
                on the date of enactment of this Act. The 
                Student Loan Marketing Association shall not 
                control the operation of the Corporation, 
                except that the Student Loan Marketing 
                Association may participate in the election of 
                directors as a shareholder, and may continue to 
                exercise its right to appoint directors under 
                section 754 of the Higher Education Act of 1965 
                (20 U.S.C. 1132f-3) as long as that section is 
                in effect.
                    (C) Prohibition.--Until such time as the 
                Secretary of the Treasury sells the stock of 
                the Corporation owned by the Secretary of 
                Education pursuant to subsection (c), the 
                Student Loan Marketing Association shall not 
                provide financial support or guarantees to the 
                Corporation.
                    (D) Financial support or guarantees.--After 
                the Secretary of the Treasury sells the stock 
                of the Corporation owned by the Secretary of 
                Education pursuant to subsection (c), the 
                Student Loan Marketing Association may provide 
                financial support or guarantees to the 
                Corporation, if such support or guarantees are 
                subject to terms and conditions that are no 
                more advantageous to the Corporation than the 
                terms and conditions the Student Loan Marketing 
                Association provides to other entities, 
                including, where applicable, other monoline 
                financial guaranty corporations in which the 
                Student Loan Marketing Association has no 
                ownership interest.
            (4) No federal guarantee.--
                    (A) Obligations insured by the 
                corporation.--
                            (i) Full faith and credit of the 
                        united states.--No obligation that is 
                        insured, guaranteed, or otherwise 
                        backed by the Corporation shall be 
                        deemed to be an obligation that is 
                        guaranteed by the full faith and credit 
                        of the United States.
                            (ii) Student loan marketing 
                        association.--No obligation that is 
                        insured, guaranteed, or otherwise 
                        backed by the Corporation shall be 
                        deemed to be an obligation that is 
                        guaranteed by the Student Loan 
                        Marketing Association.
                            (iii) Special rule.--This paragraph 
                        shall not affect the determination of 
                        whether such obligation is guaranteed 
                        for purposes of Federal income taxes.
                    (B) Securities offered by the 
                corporation.--No debt or equity securities of 
                the Corporation shall be deemed to be 
                guaranteed by the full faith and credit of the 
                United States.
            (5) Definition.--The term ``Corporation'' as used 
        in this section means the College Construction Loan 
        Insurance Association as in existence on the day before 
        the date of enactment of this Act, and to any successor 
        corporation.
    (b) Related Privatization Requirements.--
            (1) Notice requirements.--
                    (A) In general.--During the six-year period 
                following the date of enactment of this Act, 
                the Corporation shall include, in each of the 
                Corporation's contracts for the insurance, 
                guarantee, or reinsurance of obligations, and 
                in each document offering debt or equity 
                securities of the Corporation a prominent 
                statement providing notice that--
                            (i) such obligations or such 
                        securities, as the case may be, are not 
                        obligations of the United States, nor 
                        are such obligations guaranteed in any 
                        way by the full faith and credit of the 
                        United States; and
                            (ii) the Corporation is not an 
                        instrumentality of the United States.
                    (B) Additional notice.--During the five-
                year period following the sale of stock 
                pursuant to subsection (c)(1), in addition to 
                the notice requirements in subparagraph (A), 
                the Corporation shall include, in each of the 
                contracts and documents referred to in such 
                subparagraph, a prominent statement providing 
                notice that the United States is not an 
                investor in the Corporation.
            (2) Corporate charter.--The Corporation's charter 
        shall be amended as necessary and without delay to 
        conform to the requirements of this section.
            (3) Corporate name.--The name of the Corporation, 
        or of any direct or indirect subsidiary thereof, may 
        not contain the term ``College Construction Loan 
        Insurance Association'', or any substantially similar 
        variation thereof.
            (4) Articles of incorporation.--The Corporation 
        shall amend its articles of incorporation without delay 
        to reflect that one of the purposes of the Corporation 
        shall be to guarantee, insure, and reinsure bonds, 
        leases, and other evidences of debt of educational 
        institutions, including Historically Black Colleges and 
        Universities and other academic institutions which are 
        ranked in the lower investment grade category using a 
        nationally recognized credit rating system.
            (5) Requirements until stock sale.--Notwithstanding 
        subsection (d), the requirements of sections 754 and 
        760 of the Higher Education Act of 1965 (20 U.S.C. 
        1132f-3 and 1132f-9), as such sections were in effect 
        on the day before the date of enactment of this Act, 
        shall continue to be effective until the day 
        immediately following the date of closing of the 
        purchase of the Secretary of Education's stock (or the 
        date of closing of the final purchase, in the case of 
        multiple transactions) pursuant to subsection (c)(1) of 
        this Act.
    (c) Sale of Federally Owned Stock.--
            (1) Sale of stock required.--The Secretary of the 
        Treasury shall sell, pursuant to section 324 of title 
        31, United States Code, the stock of the Corporation 
        owned by the Secretary of Education as soon as possible 
        after the date of enactment of this Act, but not later 
        than six months after such date.
            (2) Purchase by the corporation.--In the event that 
        the Secretary of the Treasury is unable to sell the 
        stock, or any portion thereof, at a price acceptable to 
        the Secretary of Education and the Secretary of the 
        Treasury, the Corporation shall purchase, within 6 
        months after the date of enactment of this Act, such 
        stock at a price determined by the Secretary of the 
        Treasury and acceptable to the Corporation based on the 
        independent appraisal of one or more nationally 
        recognized financial firms, except that such price 
        shall not exceed the value of the Secretary of 
        Education's stock as determined by the Congressional 
        Budget Office in House Report 104-153, dated June 22, 
        1995.
            (3) Reimbursement of costs of sale.--The Secretary 
        of the Treasury shall be reimbursed from the proceeds 
        of the sale of the stock under this subsection for all 
        reasonable costs related to such sale, including all 
        reasonable expenses relating to one or more independent 
        appraisals under this subsection.
            (4) Assistance by the corporation.--The Corporation 
        shall provide such assistance as the Secretary of the 
        Treasury and the Secretary of Education may require to 
        facilitate the sale of the stock under this subsection.
    (d) Repeal of Statutory Restrictions and Related 
Provisions.--Part D of title VII of the Higher Education Act of 
1965 (20 U.S.C. 1001 et seq.) is repealed.

SEC. 4007. EXTENSION OF PROGRAM DURATION.

    Part B of title IV (20 U.S.C. 1071 et seq.) is amended--
            (1) in section 424(a) (20 U.S.C. 1074(a)), by 
        striking ``1998'' and inserting ``2002'';
            (2) in section 428(a)(5) (20 U.S.C. 1078(a)(5))--
                    (A) by striking ``1998'' and inserting 
                ``2002''; and
                    (B) by striking ``2002'' and inserting 
                ``2006''; and
            (3) in section 428C(e) (20 U.S.C. 1078-3(e)), by 
        amending the first sentence to read as follows: ``The 
        authority to make loans under this section expires at 
        the close of September 30, 2002.''.

   Subtitle B--Provisions Relating to the Employee Retirement Income 
                          Security Act of 1974

SEC. 4101. WAIVER OF MINIMUM PERIOD FOR JOINT AND SURVIVOR ANNUITY 
                    EXPLANATION BEFORE ANNUTIY STARTING DATE.

    (a) General Rule.--For purposes of section 205(c)(3)(A) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1055(c)(3)(A)), the minimum period prescribed by the Secretary 
of the Treasury between the date that the explanation referred 
to in such section is provided and the annuity starting date 
shall not apply if waived by the participant and, if 
applicable, the participant's spouse.
    (b) Effective Date.--Subsection (a) shall apply to plan 
years beginning after December 31, 1995.

            TITLE V--ENERGY AND NATURAL RESOURCES PROVISIONS

        Subtitle A--Nuclear Regulatory Commission Annual Charges

SEC. 5001. NUCLEAR REGULATORY COMMISSION ANNUAL CHARGES.

    Section 6101(a)(3) of the Omnibus Budget Reconciliation Act 
of 1990 (42 U.S.C. 2214(a)(3)) is amended by striking 
``September 30, 1998'' and inserting ``September 30, 2002''.

                Subtitle B--Department of Energy Assets

            CHAPTER 1--UNITED STATES ENRICHMENT CORPORATION

SEC. 5201. SHORT TITLE.

    This chapter may be cited as the ``USEC Privatization 
Act''.

SEC. 5202. DEFINITIONS.

    For purposes of this chapter:
            (1) The term ``AVLIS'' means atomic vapor laser 
        isotope separation technology.
            (2) The term ``Corporation'' means the United 
        States Enrichment Corporation and, unless the context 
        otherwise requires, includes the private corporation 
        and any successor thereto following privatization.
            (3) The term ``gaseous diffusion plants'' means the 
        Paducah Gaseous Diffusion Plant at Paducah, Kentucky 
        and the Portsmouth Gaseous Diffusion Plant at Piketon, 
        Ohio.
            (4) The term ``highly enriched uranium'' means 
        uranium enriched to 20 percent or more of the uranium-
        235 isotope.
            (5) The term ``low-enriched uranium'' means uranium 
        enriched to less than 20 percent of the uranium-235 
        isotope, including that which is derived from highly 
        enriched uranium.
            (6) The term ``low-level radioactive waste'' has 
        the meaning given such term in section 2(9) of the Low-
        Level Radioactive Waste Policy Act (42 U.S.C. 
        2021b(9)).
            (7) The term ``private corporation'' means the 
        corporation established under section 5205.
            (8) The term ``privatization'' means the transfer 
        of ownership of the Corporation to private investors.
            (9) The term ``privatization date'' means the date 
        on which 100 percent of the ownership of the 
        Corporation has been transferred to private investors.
            (10) The term ``public offering'' means an 
        underwritten offering to the public of the common stock 
        of the private corporation pursuant to section 5204.
            (11) The ``Russian HEU Agreement'' means the 
        Agreement Between the Government of the United States 
        of America and the Government of the Russian Federation 
        Concerning the Disposition of Highly Enriched Uranium 
        Extracted from Nuclear Weapons, dated February 18, 
        1993.
            (12) The term ``Secretary'' means the Secretary of 
        Energy.
            (13) The ``Suspension Agreement'' means the 
        Agreement to Suspend the Antidumping Investigation on 
        Uranium from the Russian Federation, as amended.
            (14) The term ``uranium enrichment'' means the 
        separation of uranium of a given isotopic content into 
        2 components, 1 having a higher percentage of a fissile 
        isotope and 1 having a lower percentage.

SEC. 5203. SALE OF THE CORPORATION.

    (a) Authorization.--The Board of Directors of the 
Corporation, with the approval of the Secretary of the 
Treasury, shall transfer the interest of the United States in 
the United States Enrichment Corporation to the private sector 
in a manner that provides for the long-term viability of the 
Corporation, provides for the continuation by the Corporation 
of the operation of the Department of Energy's gaseous 
diffusion plants, provides for the protection of the public 
interest in maintaining a reliable and economical domestic 
source of uranium mining, enrichment and conversion services, 
and, to the extent not inconsistent with such purposes, secures 
the maximum proceeds to the United States.
    (b) Proceeds.--Proceeds from the sale of the United States' 
interest in the Corporation shall be deposited in the general 
fund of the Treasury.

SEC. 5204. METHOD OF SALE.

    (a) Authorization.--The Board of Directors of the 
Corporation, with the approval of the Secretary of the 
Treasury, shall transfer ownership of the assets and 
obligations of the Corporation to the private corporation 
established under section 5205 (which may be consummated 
through a merger or consolidation effected in accordance with, 
and having the effects provided under, the law of the state of 
incorporation of the private corporation, as if the Corporation 
were incorporated thereunder).
    (b) Board Determination.--The Board, with the approval of 
the Secretary of the Treasury, shall select the method of 
transfer and establish terms and conditions for the transfer 
that will provide the maximum proceeds to the Treasury of the 
United States and will provide for the long-term viability of 
the private corporation, the continued operation of the gaseous 
diffusion plants, and the public interest in maintaining 
reliable and economical domestic uranium mining and enrichment 
industries.
    (c) Adequate Proceeds.--The Secretary of the Treasury shall 
not allow the privatization of the Corporation unless before 
the sale date the Secretary of Treasury determines that the 
method of transfer will provide the maximum proceeds to the 
Treasury consistent with the principles set forth in section 
5203(a).
    (d) Application of Securities Laws.--Any offering or sale 
of securities by the private corporation shall be subject to 
the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), and 
the provisions of the Constitution and laws of any State, 
territory, or possession of the United States relating to 
transactions in securities.

SEC. 5205. ESTABLISHMENT OF PRIVATE CORPORATION.

    (a) Incorporation.--(1) The directors of the Corporation 
shall establish a private for-profit corporation under the laws 
of a State for the purpose of receiving the assets and 
obligations of the Corporation at privatization and continuing 
the business operations of the Corporation following 
privatization.
    (2) The directors of the Corporation may serve as 
incorporators of the private corporation and shall take all 
steps necessary to establish the private corporation, including 
the filing of articles of incorporation consistent with the 
provisions of this chapter.
    (3) Employees and officers of the Corporation (including 
members of the Board of Directors) acting in accordance with 
this section on behalf of the private corporation shall be 
deemed to be acting in their official capacities as employees 
or officers of the Corporation for purposes of section 205 of 
title 18, United States Code.
    (b) Status of the Private Corporation.--(1) The private 
corporation shall not be an agency, instrumentality, or 
establishment of the United States, a Government corporation, 
or a Government-controlled corporation.
    (2) Except as otherwise provided by this chapter, financial 
obligations of the private corporation shall not be obligations 
of, or guaranteed as to principal or interest by, the 
Corporation or the United States, and the obligations shall so 
plainly state.
    (3) No action under section 1491 of title 28, United States 
Code, shall be allowable against the United States based on 
actions of the private corporation.
    (c) Application of Post-Government Employment 
Restrictions.--Beginning on the privatization date, the 
restrictions stated in section 207 (a), (b), (c), and (d) of 
title 18, United States Code, shall not apply to the acts of an 
individual done in carrying out official duties as a director, 
officer, or employee of the private corporation, if the 
individual was an officer or employee of the Corporation 
(including a director) continuously during the 45 days prior to 
the privatization date.
    (d) Dissolution.--In the event that the privatization does 
not occur, the Corporation will provide for the dissolution of 
the private corporation within 1 year of the private 
corporation's incorporation unless the Secretary of the 
Treasury or his delegate, upon the Corporation's request, 
agrees to delay any such dissolution for an additional year.

SEC. 5206. TRANSFERS TO THE PRIVATE CORPORATION.

    Concurrent with privatization, the Corporation shall 
transfer to the private corporation--
            (1) the lease of the gaseous diffusion plants in 
        accordance with section 5207,
            (2) all personal property and inventories of the 
        Corporation,
            (3) all contracts, agreements, and leases under 
        section 5208(a),
            (4) the Corporation's right to purchase power from 
        the Secretary under section 5208(b),
            (5) such funds in accounts of the Corporation held 
        by the Treasury or on deposit with any bank or other 
        financial institution as approved by the Secretary of 
        the Treasury, and
            (6) all of the Corporation's records, including all 
        of the papers and other documentary materials, 
        regardless of physical form or characteristics, made or 
        received by the Corporation.

SEC. 5207. LEASING OF GASEOUS DIFFUSION FACILITIES.

    (a) Transfer of Lease.--Concurrent with privatization, the 
Corporation shall transfer to the private corporation the lease 
of the gaseous diffusion plants and related property for the 
remainder of the term of such lease in accordance with the 
terms of such lease.
    (b) Renewal.--The private corporation shall have the 
exclusive option to lease the gaseous diffusion plants and 
related property for additional periods following the 
expiration of the initial term of the lease.
    (c) Exclusion of Facilities for Production of Highly 
Enriched Uranium.--The Secretary shall not lease to the private 
corporation any facilities necessary for the production of 
highly enriched uranium but may, subject to the requirements of 
the Atomic Energy Act of 1954 (42 U.S.C. 2011 et seq.), grant 
the Corporation access to such facilities for purposes other 
than the production of highly enriched uranium.
    (d) DOE Responsibility for Preexisting Conditions.--The 
payment of any costs of decontamination and decommissioning, 
response actions, or corrective actions with respect to 
conditions existing before July 1, 1993 at the gaseous 
diffusion plants shall remain the sole responsibility of the 
Secretary.
    (e) Environmental Audit.--For purposes of subsection (d), 
the conditions existing before July 1, 1993, at the gaseous 
diffusion plants shall be determined from the environmental 
audit conducted pursuant to section 1403(e) of the Atomic 
Energy Act of 1954 (42 U.S.C. 2297c-2(e)).
    (f) Treatment Under Price-Anderson Provisions.--Any lease 
executed between the Secretary and the Corporation or the 
private corporation, and any extension or renewal thereof, 
under this section shall be deemed to be a contract for 
purposes of section 170d. of the Atomic Energy Act of 1954 (42 
U.S.C. 2210(d)).
    (g) Waiver of EIS Requirement.--The execution or transfer 
of the lease between the Secretary and the Corporation or the 
private corporation, and any extension or renewal thereof, 
shall not be considered a major Federal action significantly 
affecting the quality of the human environment for purposes of 
section 102 of the National Environmental Policy Act of 1969 
(42 U.S.C. 4332).

SEC. 5208. TRANSFER OF CONTRACTS.

    (a) Transfer of Contracts.--Concurrent with privatization, 
the Corporation shall transfer to the private corporation all 
contracts, agreements, and leases, including all uranium 
enrichment contracts, that were--
            (1) transferred by the Secretary to the Corporation 
        pursuant to section 1401(b) of the Atomic Energy Act of 
        1954 (42 U.S.C. 2297c(b)), or
            (2) entered into by the Corporation before the 
        privatization date.
    (b) Nontransferable Power Contracts.--The Corporation shall 
transfer to the private corporation the right to purchase power 
from the Secretary under the power purchase contracts for the 
gaseous diffusion plants executed by the Secretary before July 
1, 1993. The Secretary shall continue to receive power for the 
gaseous diffusion plants under such contracts and shall 
continue to resell such power to the private corporation at 
cost during the term of such contracts.
    (c) Effect of Transfer.--(1) Notwithstanding subsection 
(a), the United States shall remain obligated to the parties to 
the contracts, agreements, and leases transferred under 
subsection (a) for the performance of its obligations under 
such contracts, agreements, or leases during their terms. 
Performance of such obligations by the private corporation 
shall be considered performance by the United States.
    (2) If a contract, agreement, or lease transferred under 
subsection (a) is terminated, extended, or materially amended 
after the privatization date--
            (A) the private corporation shall be responsible 
        for any obligation arising under such contract, 
        agreement, or lease after any extension or material 
        amendment, and
            (B) the United States shall be responsible for any 
        obligation arising under the contract, agreement, or 
        lease before the termination, extension, or material 
        amendment.
    (3) The private corporation shall reimburse the United 
States for any amount paid by the United States under a 
settlement agreement entered into with the consent of the 
private corporation or under a judgment, if the settlement or 
judgment--
            (A) arises out of an obligation under a contract, 
        agreement, or lease transferred under subsection (a), 
        and
            (B) arises out of actions of the private 
        corporation between the privatization date and the date 
        of a termination, extension, or material amendment of 
        such contract, agreement, or lease.
    (d) Pricing.--The Corporation may establish prices for its 
products, materials, and services provided to customers on a 
basis that will allow it to attain the normal business 
objectives of a profit making corporation.

SEC. 5209. LIABILITIES.

    (a) Liability of the United States.--(1) Except as 
otherwise provided in this chapter, all liabilities arising out 
of the operation of the uranium enrichment enterprise before 
July 1, 1993, shall remain the direct liabilities of the 
Secretary.
    (2) Except as provided in subsection (a)(3) or otherwise 
provided in a memorandum of agreement entered into by the 
Corporation and the Office of Management and Budget prior to 
the privatization date, all liabilities arising out of the 
operation of the Corporation between July 1, 1993, and the 
privatization date shall remain the direct liabilities of the 
United States.
    (3) All liabilities arising out of the disposal of depleted 
uranium generated by the Corporation between July 1, 1993, and 
the privatization date shall become the direct liabilities of 
the Secretary.
    (4) Any stated or implied consent for the United States, or 
any agent or officer of the United States, to be sued by any 
person for any legal, equitable, or other relief with respect 
to any claim arising from any action taken by any agent or 
officer of the United States in connection with the 
privatization of the Corporation is hereby withdrawn.
    (5) To the extent that any claim against the United States 
under this section is of the type otherwise required by Federal 
statute or regulation to be presented to a Federal agency or 
official for adjudication or review, such claim shall be 
presented to the Department of Energy in accordance with 
procedures to be established by the Secretary. Nothing in this 
paragraph shall be construed to impose on the Department of 
Energy liability to pay any claim presented pursuant to this 
paragraph.
    (6) The Attorney General shall represent the United States 
in any action seeking to impose liability under this 
subsection.
    (b) Liability of the Corporation.--Notwithstanding any 
provision of any agreement to which the Corporation is a party, 
the Corporation shall not be considered in breach, default, or 
violation of any agreement because of the transfer of such 
agreement to the private corporation under section 5208 or any 
other action the Corporation is required to take under this 
chapter.
    (c) Liability of the Private Corporation.--Except as 
provided in this chapter, the private corporation shall be 
liable for any liabilities arising out of its operations after 
the privatization date.
    (d) Liability of Officers and Directors.--(1) No officer, 
director, employee, or agent of the Corporation shall be liable 
in any civil proceeding to any party in connection with any 
action taken in connection with the privatization if, with 
respect to the subject matter of the action, suit, or 
proceeding, such person was acting within the scope of his 
employment.
    (2) This subsection shall not apply to claims arising under 
the Securities Act of 1933 (15 U.S.C. 77a. et seq.), the 
Securities Exchange Act of 1934 (15 U.S.C. 78a. et seq.), or 
under the Constitution or laws of any State, territory, or 
possession of the United States relating to transactions in 
securities.

SEC. 5210. EMPLOYEE PROTECTIONS.

    (a) Contractor Employees.--(1) Privatization shall not 
diminish the accrued, vested pension benefits of employees of 
the Corporation's operating contractor at the two gaseous 
diffusion plants.
    (2) In the event that the private corporation terminates or 
changes the contractor at either or both of the gaseous 
diffusion plants, the plan sponsor or other appropriate 
fiduciary of the pension plan covering employees of the prior 
operating contractor shall arrange for the transfer of all plan 
assets and liabilities relating to accrued pension benefits of 
such plan's participants and beneficiaries from such plant to a 
pension plan sponsored by the new contractor or the private 
corporation or a joint-labor management plan, as the case may 
be.
    (3) In addition to any obligations arising under the 
National Labor Relations Act (29 U.S.C. 151 et seq.), any 
employer (including the private corporation if it operates a 
gaseous diffusion plant without a contractor or any contractor 
of the private corporation) at a gaseous diffusion plant 
shall--
            (A) abide by the terms of any unexpired collective 
        bargaining agreement covering employees in bargaining 
        units at the plant and in effect on the privatization 
        date until the stated expiration or termination date of 
        the agreement; or
            (B) in the event a collective bargaining agreement 
        is not in effect upon the privatization date, have the 
        same bargaining obligations under section 8(d) of the 
        National Labor Relations Act (29 U.S.C. 158(d)) as it 
        had immediately before the privatization date.
    (4) If the private corporation replaces its operating 
contractor at a gaseous diffusion plant, the new employer 
(including the new contractor or the private corporation if it 
operates a gaseous diffusion plant without a contractor) 
shall--
            (A) offer employment to non-management employees of 
        the predecessor contractor to the extent that their 
        jobs still exist or they are qualified for new jobs, 
        and
            (B) abide by the terms of the predecessor 
        contractor's collective bargaining agreement until the 
        agreement expires or a new agreement is signed.
    (5) In the event of a plant closing or mass layoff (as such 
terms are defined in section 2101(a)(2) and (3) of title 29, 
United States Code) at either of the gaseous diffusion plants, 
the Secretary of Energy shall treat any adversely affected 
employee of an operating contractor at either plant who was an 
employee at such plant on July 1, 1993, as a Department of 
Energy employee for purposes of sections 3161 and 3162 of the 
National Defense Authorization Act for Fiscal Year 1993 (42 
U.S.C. 7274h-7274i).
    (6)(A) The Secretary and the private corporation shall 
cause the post-retirement health benefits plan provider (or its 
successor) to continue to provide benefits for eligible 
persons, as described under subparagraph (B), employed by an 
operating contractor at either of the gaseous diffusion plants 
in an economically efficient manner and at substantially the 
same level of coverage as eligible retirees are entitled to 
receive on the privatization date.
    (B) Persons eligible for coverage under subparagraph (A) 
shall be limited to:
            (i) persons who retired from active employment at 
        one of the gaseous diffusion plants on or before the 
        privatization date as vested participants in a pension 
        plan maintained either by the Corporation's operating 
        contractor or by a contractor employed prior to July 1, 
        1993, by the Department of Energy to operate a gaseous 
        diffusion plant; and
            (ii) persons who are employed by the Corporation's 
        operating contractor on or before the privatization 
        date and are vested participants in a pension plan 
        maintained either by the Corporation's operating 
        contractor or by a contractor employed prior to July 1, 
        1993, by the Department of Energy to operate a gaseous 
        diffusion plant.
    (C) The Secretary shall fund the entire cost of post-
retirement health benefits for persons who retired from 
employment with an operating contractor prior to July 1, 1993.
    (D) The Secretary and the Corporation shall fund the cost 
of post-retirement health benefits for persons who retire from 
employment with an operating contractor on or after July 1, 
1993, in proportion to the retired person's years and months of 
service at a gaseous diffusion plant under their respective 
management.
    (7)(A) Any suit under this subsection alleging a violation 
of an agreement between an employer and a labor organization 
shall be brought in accordance with section 301 of the Labor 
Management Relations Act (29 U.S.C. 185).
    (B) Any charge under this subsection alleging an unfair 
labor practice violative of section 8 of the National Labor 
Relations Act (29 U.S.C. 158) shall be pursued in accordance 
with section 10 of the National Labor Relations Act (29 U.S.C. 
160).
    (C) Any suit alleging a violation of any provision of this 
subsection, to the extent it does not allege a violation of the 
National Labor Relations Act, may be brought in any district 
court of the United States having jurisdiction over the 
parties, without regard to the amount in controversy or the 
citizenship of the parties.
    (b) Former Federal Employees.--(1)(A) An employee of the 
Corporation that was subject to either the Civil Service 
Retirement System (referred to in this section as ``CSRS'') or 
the Federal Employees' Retirement System (referred to in this 
section as ``FERS'') on the day immediately preceding the 
privatization date shall elect--
            (i) to retain the employee's coverage under either 
        CSRS or FERS, as applicable, in lieu of coverage by the 
        Corporation's retirement system, or
            (ii) to receive a deferred annuity or lump-sum 
        benefit payable to a terminated employee under CSRS or 
        FERS, as applicable.
    (B) An employee that makes an election under subparagraph 
(A)(ii) shall have the option to transfer the balance in the 
employee's Thrift Savings Plan account to a defined 
contribution plan under the Corporation's retirement system, 
consistent with applicable law and the terms of the 
Corporation's defined contribution plan.
    (2) The Corporation shall pay to the Civil Service 
Retirement and Disability Fund--
            (A) such employee deductions and agency 
        contributions as are required by sections 8334, 8422, 
        and 8423 of title 5, United States Code, for those 
        employees who elect to retain their coverage under 
        either CSRS or FERS pursuant to paragraph (1);
            (B) such additional agency contributions as are 
        determined necessary by the Office of Personnel 
        Management to pay, in combination with the sums under 
        subparagraph (A), the ``normal cost'' (determined using 
        dynamic assumptions) of retirement benefits for those 
        employees who elect to retain their coverage under CSRS 
        pursuant to paragraph (1), with the concept of ``normal 
        cost'' being used consistent with generally accepted 
        actuarial standards and principles; and
            (C) such additional amounts, not to exceed two 
        percent of the amounts under subparagraphs (A) and (B), 
        as are determined necessary by the Office of Personnel 
        Management to pay the cost of administering retirement 
        benefits for employees who retire from the Corporation 
        after the privatization date under either CSRS or FERS, 
        for their survivors, and for survivors of employees of 
        the Corporation who die after the privatization date 
        (which amounts shall be available to the Office of 
        Personnel Management as provided in section 
        8348(a)(1)(B) of title 5, United States Code).
    (3) The Corporation shall pay to the Thrift Savings Fund 
such employee and agency contributions as are required by 
section 8432 of title 5, United States Code, for those 
employees who elect to retain their coverage under FERS 
pursuant to paragraph (1).
    (4) Any employee of the Corporation who was subject to the 
Federal Employee Health Benefits Program (referred to in this 
section as ``FEHBP'') on the day immediately preceding the 
privatization date and who elects to retain coverage under 
either CSRS or FERS pursuant to paragraph (1) shall have the 
option to receive health benefits from a health benefit plan 
established by the Corporation or to continue without 
interruption coverage under the FEHBP, in lieu of coverage by 
the Corporation's health benefit system.
    (5) The Corporation shall pay to the Employees Health 
Benefits Fund--
            (A) such employee deductions and agency 
        contributions as are required by section 8906(a)-(f) of 
        title 5, United States Code, for those employees who 
        elect to retain their coverage under FEHBP pursuant to 
        paragraph (4); and
            (B) such amounts as are determined necessary by the 
        Office of Personnel Management under paragraph (6) to 
        reimburse the Office of Personnel Management for 
        contributions under section 8906(g)(1) of title 5, 
        United States Code, for those employees who elect to 
        retain their coverage under FEHBP pursuant to paragraph 
        (4).
    (6) The amounts required under paragraph (5)(B) shall pay 
the Government contributions for retired employees who retire 
from the Corporation after the privatization date under either 
CSRS or FERS, for survivors of such retired employees, and for 
survivors of employees of the Corporation who die after the 
privatization date, with said amounts prorated to reflect only 
that portion of the total service of such employees and retired 
persons that was performed for the Corporation after the 
privatization date.

SEC. 5211. OWNERSHIP LIMITATIONS.

    (a) Securities Limitations.--No director, officer, or 
employee of the Corporation may acquire any securities, or any 
rights to acquire any securities of the private corporation on 
terms more favorable than those offered to the general public--
            (1) in a public offering designed to transfer 
        ownership of the Corporation to private investors,
            (2) pursuant to any agreement, arrangement, or 
        understanding entered into before the privatization 
        date, or
            (3) before the election of the directors of the 
        private corporation.
    (b) Ownership Limitation.--Immediately following the 
consummation of the transaction or series of transactions 
pursuant to which 100 percent of the ownership of the 
Corporation is transferred to private investors, and for a 
period of three years thereafter, no person may acquire, 
directly or indirectly, beneficial ownership of securities 
representing more than 10 percent of the total votes of all 
outstanding voting securities of the Corporation. The foregoing 
limitation shall not apply to--
            (1) any employee stock ownership plan of the 
        Corporation,
            (2) members of the underwriting syndicate 
        purchasing shares in stabilization transactions in 
        connection with the privatization, or
            (3) in the case of shares beneficially held in the 
        ordinary course of business for others, any commercial 
        bank, broker-dealer, or clearing agency.

SEC. 5212. URANIUM TRANSFERS AND SALES.

    (a) Transfers and Sales by the Secretary.--The Secretary 
shall not provide enrichment services or transfer or sell any 
uranium (including natural uranium concentrates, natural 
uranium hexafluoride, or enriched uranium in any form) to any 
person except as consistent with this section.
    (b) Russian HEU.--(1) On or before December 31, 1996, the 
United States Executive Agent under the Russian HEU Agreement 
shall transfer to the Secretary without charge title to an 
amount of uranium hexafluoride equivalent to the natural 
uranium component of low-enriched uranium derived from at least 
18 metric tons of highly enriched uranium purchased from the 
Russian Executive Agent under the Russian HEU Agreement. The 
quantity of such uranium hexafluoride delivered to the 
Secretary shall be based on a tails assay of 0.30 U\235\. 
Uranium hexafluoride transferred to the Secretary pursuant to 
this paragraph shall be deemed under United States law for all 
purposes to be of Russian origin.
    (2) Within 7 years of the date of enactment of this Act, 
the Secretary shall sell, and receive payment for, the uranium 
hexafluoride transferred to the Secretary pursuant to paragraph 
(1). Such uranium hexafluoride shall be sold--
            (A) at any time for use in the United States for 
        the purpose of overfeeding;
            (B) at any time for end use outside the United 
        States;
            (C) in 1995 and 1996 to the Russian Executive Agent 
        at the purchase price for use in matched sales pursuant 
        to the Suspension Agreement; or,
            (D) in calendar year 2001 for consumption by end 
        users in the United States not prior to January 1, 
        2002, in volumes not to exceed 3,000,000 pounds 
        U3O8 equivalent per year.
    (3) With respect to all enriched uranium delivered to the 
United States Executive Agent under the Russian HEU Agreement 
on or after January 1, 1997, the United States Executive Agent 
shall, upon request of the Russian Executive Agent, enter into 
an agreement to deliver concurrently to the Russian Executive 
Agent an amount of uranium hexafluoride equivalent to the 
natural uranium component of such uranium. An agreement 
executed pursuant to a request of the Russian Executive Agent, 
as contemplated in this paragraph, may pertain to any 
deliveries due during any period remaining under the Russian 
HEU Agreement. The quantity of such uranium hexafluoride 
delivered to the Russian Executive Agent shall be based on a 
tails assay of 0.30 U\235\. Title to uranium hexafluoride 
delivered to the Russian Executive Agent pursuant to this 
paragraph shall transfer to the Russian Executive Agent upon 
delivery of such material to the Russian Executive Agent, with 
such delivery to take place at a North American facility 
designated by the Russian Executive Agent. Uranium hexafluoride 
delivered to the Russian Executive Agent pursuant to this 
paragraph shall be deemed under U.S. law for all purposes to be 
of Russian origin. Such uranium hexafluoride may be sold to any 
person or entity for delivery and use in the United States only 
as permitted in subsections (b)(5), (b)(6) and (b)(7) of this 
section.
    (4) In the event that the Russian Executive Agent does not 
exercise its right to enter into an agreement to take delivery 
of the natural uranium component of any low-enriched uranium, 
as contemplated in paragraph (3), within 90 days of the date 
such low-enriched uranium is delivered to the United States 
Executive Agent, or upon request of the Russian Executive 
Agent, then the United States Executive Agent shall engage an 
independent entity through a competitive selection process to 
auction an amount of uranium hexafluoride or U3O8 (in 
the event that the conversion component of such hexafluoride 
has previously been sold) equivalent to the natural uranium 
component of such low-enriched uranium. An agreement executed 
pursuant to a request of the Russian Executive Agent, as 
contemplated in this paragraph, may pertain to any deliveries 
due during any period remaining under the Russian HEU 
Agreement. Such independent entity shall sell such uranium 
hexafluoride in one or more lots to any person or entity to 
maximize the proceeds from such sales, for disposition 
consistent with the limitations set forth in this subsection. 
The independent entity shall pay to the Russian Executive Agent 
the proceeds of any such auction less all reasonable 
transaction and other administrative costs. The quantity of 
such uranium hexafluoride auctioned shall be based on a tails 
assay of 0.30 U235. Title to uranium hexafluoride auctioned 
pursuant to this paragraph shall transfer to the buyer of such 
material upon delivery of such material to the buyer. Uranium 
hexafluoride auctioned pursuant to this paragraph shall be 
deemed under United States law for all purposes to be of 
Russian origin.
    (5) Except as provided in paragraphs (6) and (7), uranium 
hexafluoride delivered to the Russian Executive Agent under 
paragraph (3) or auctioned pursuant to paragraph (4), may not 
be delivered for consumption by end users in the United States 
either directly or indirectly prior to January 1, 1998, and 
thereafter only in accordance with the following schedule:


Annual maximum deliveries to end users

  Year:                        (millions lbs. U3O8 equivalent)
    1998......................................................        2 
    1999......................................................        4 
    2000......................................................        6 
    2001......................................................        8 
    2002......................................................       10 
    2003......................................................       12 
    2004......................................................       14 
    2005......................................................       16 
    2006......................................................       17 
    2007......................................................       18 
    2008......................................................       19 
    2009 and each year thereafter.............................       20.

    (6) Uranium hexafluoride delivered to the Russian Executive 
Agent under paragraph (3) or auctioned pursuant to paragraph 
(4) may be sold at any time as Russian-origin natural uranium 
in a matched sale pursuant to the Suspension Agreement, and in 
such case shall not be counted against the annual maximum 
deliveries set forth in paragraph (5).
    (7) Uranium hexafluoride delivered to the Russian Executive 
Agent under paragraph (3) or auctioned pursuant to paragraph 
(4) may be sold at any time for use in the United States for 
the purpose of overfeeding in the operations of enrichment 
facilities.
    (8) Nothing in this subsection (b) shall restrict the sale 
of the conversion component of such uranium hexafluoride.
    (9) The Secretary of Commerce shall have responsibility for 
the administration and enforcement of the limitations set forth 
in this subsection. The Secretary of Commerce may require any 
person to provide any certifications, information, or take any 
action that may be necessary to enforce these limitations. The 
United States Customs Service shall maintain and provide any 
information required by the Secretary of Commerce and shall 
take any action requested by the Secretary of Commerce which is 
necessary for the administration and enforcement of the uranium 
delivery limitations set forth in this section.
    (10) The President shall monitor the actions of the United 
States Executive Agent under the Russian HEU Agreement and 
shall report to the Congress not later than December 31 of each 
year on the effect the low-enriched uranium delivered under the 
Russian HEU Agreement is having on the domestic uranium mining, 
conversion, and enrichment industries, and the operation of the 
gaseous diffusion plants. Such report shall include a 
description of actions taken or proposed to be taken by the 
President to prevent or mitigate any material adverse impact on 
such industries or any loss of employment at the gaseous 
diffusion plants as a result of the Russian HEU Agreement.
    (c) Transfers to the Corporation.--(1) The Secretary shall 
transfer to the Corporation without charge up to 50 metric tons 
of enriched uranium and up to 7,000 metric tons of natural 
uranium from the Department of Energy's stockpile, subject to 
the restrictions in subsection (c)(2).
    (2) The Corporation shall not deliver for commercial end 
use in the United States--
            (A) any of the uranium transferred under this 
        subsection before January 1, 1998;
            (B) more than 10 percent of the uranium (by uranium 
        hexafluoride equivalent content) transferred under this 
        subsection or more than 4,000,000 pounds, whichever is 
        less, in any calendar year after 1997; or
            (C) more than 800,000 separative work units 
        contained in low-enriched uranium transferred under 
        this subsection in any calendar year.
    (d) Inventory Sales.--(1) In addition to the transfers 
authorized under subsections (c) and (e), the Secretary may, 
from time to time, sell natural and low-enriched uranium 
(including low-enriched uranium derived from highly enriched 
uranium) from the Department of Energy's stockpile.
    (2) Except as provided in subsections (b), (c), and (e), no 
sale or transfer of natural or low-enriched uranium shall be 
made unless--
            (A) the President determines that the material is 
        not necessary to national security needs,
            (B) the Secretary determines that the sale of the 
        material will not have an adverse material impact on 
        the domestic uranium mining, conversion, or enrichment 
        industry, taking into account the sales of uranium 
        under the Russian HEU Agreement and the Suspension 
        Agreement, and
            (C) the price paid to the Secretary will not be 
        less than the fair market value of the material.
    (e) Government Transfers.--Notwithstanding subsection 
(d)(2), the Secretary may transfer or sell enriched uranium--
            (1) to a Federal agency if the material is 
        transferred for the use of the receiving agency without 
        any resale or transfer to another entity and the 
        material does not meet commercial specifications;
            (2) to any person for national security purposes, 
        as determined by the Secretary; or
            (3) to any State or local agency or nonprofit, 
        charitable, or educational institution for use other 
        than the generation of electricity for commercial use.
    (f) Savings Provision.--Nothing in this chapter shall be 
read to modify the terms of the Russian HEU Agreement.

SEC. 5213. LOW-LEVEL WASTE.

    (a) Responsibility of DOE.--(1) The Secretary, at the 
request of the generator, shall accept for disposal low-level 
radioactive waste, including depleted uranium if it were 
ultimately determined to be low-level radioactive waste, 
generated by the Corporation as a result of the operations of 
the gaseous diffusion plants or as a result of the treatment of 
such wastes at a location other than a gaseous diffusion plant. 
The terms and conditions for such service shall be no more 
favorable than those the Secretary offers any other generator 
of such wastes generated by uranium enrichment plants licensed 
by the Nuclear Regulatory Commission.
    (2) The Secretary shall recover the cost of providing the 
service in paragraph (1), including a pro rata share of any 
capital costs, by charging the Corporation a fee for such 
service in an amount equal to the price charged uranium 
enrichment plants licensed by the Nuclear Regulatory 
Commission, but in no event shall the Secretary charge any 
generator more than an amount equal to that which would be 
charged by commercial, state, regional, or interstate compact 
entities for disposal of such waste.
    (b) Agreements With Other Persons.--The Corporation or any 
other generator may also enter into agreements for the disposal 
of low-level radioactive waste subject to subsection (a) with 
any person other than the Secretary that is authorized by 
applicable laws and regulations to dispose of such wastes, but 
shall have no authority under this or any other law to require 
a State or interstate compact to treat, store, or dispose of 
such waste in a State or interstate compact facility without 
the State or compact's consent.

SEC. 5214. AVLIS.

    (a) Exclusive Right To Commercialize.--The Corporation 
shall have the exclusive commercial right to deploy and use any 
AVLIS patents, processes, and technical information owned or 
controlled by the Government, upon completion of a royalty 
agreement with the Secretary.
    (b) Transfer of Related Property to Corporation.--
            (1) In general.--To the extent requested by the 
        Corporation and subject to the requirements of the 
        Atomic Energy Act of 1954 (42 U.S.C. 2011 et seq.), the 
        President shall transfer without charge to the 
        Corporation all of the right, title, or interest in and 
        to property owned by the United States under control or 
        custody of the Secretary that is directly related to 
        and materially useful in the performance of the 
        Corporation's purposes regarding AVLIS and alternative 
        technologies for uranium enrichment, including--
                    (A) facilities, equipment, and materials 
                for research, development, and demonstration 
                activities; and
                    (B) all other facilities, equipment, 
                materials, processes, patents, technical 
                information of any kind, contracts, agreements, 
                and leases.
            (2) Exception.--Facilities, real estate, 
        improvements, and equipment related to the gaseous 
        diffusion, and gas centrifuge, uranium enrichment 
        programs of the Secretary shall not transfer under 
        paragraph (1)(B).
            (3) Expiration of transfer authority.--The 
        President's authority to transfer property under this 
        subsection shall expire upon the privatization date.
    (c) Liability for Patent and Related Claims.--With respect 
to any right, title, or interest provided to the Corporation 
under subsection (a) or (b), the Corporation shall have sole 
liability for any payments made or awards under section 157 b. 
(3) of the Atomic Energy Act of 1954 (42 U.S.C. 2187(b)(3)), or 
any settlements or judgments involving claims for alleged 
patent infringement. Any royalty agreement under subsection (a) 
of this section shall provide for a reduction of royalty 
payments to the Secretary to offset any payments, awards, 
settlements, or judgments under this subsection.

SEC. 5215. APPLICATION OF CERTAIN LAWS.

    (a) OSHA.--(1) As of the privatization date, the private 
corporation shall be subject to and comply with the 
Occupational Safety and Health Act of 1970 (29 U.S.C. 651 et 
seq.).
    (2) The Nuclear Regulatory Commission and the Occupational 
Safety and Health Administration shall, within 90 days after 
the date of enactment of this Act, enter into a memorandum of 
agreement to govern the exercise of their authority over 
occupational safety and health hazards at the gaseous diffusion 
plants, including inspection, investigation, enforcement, and 
rulemaking relating to such hazards.
    (b) Antitrust Laws.--For purposes of the antitrust laws, 
the performance by the private corporation of a ``matched 
import'' contract under the Suspension Agreement shall be 
considered to have occurred prior to the privatization date, if 
at the time of privatization, such contract had been agreed to 
by the parties in all material terms and confirmed by the 
Secretary of Commerce under the Suspension Agreement.
    (c) Energy Reorganization Act Requirements.--(1) The 
private corporation and its contractors and subcontractors 
shall be subject to the provisions of section 211 of the Energy 
Reorganization Act of 1974 (42 U.S.C. 5851) to the same extent 
as an employer subject to such section.
    (2) With respect to the operation of the facilities leased 
by the private corporation, section 206 of the Energy 
Reorganization Act of 1974 (42 U.S.C. 5846) shall apply to the 
directors and officers of the private corporation.

SEC. 5216. AMENDMENTS TO THE ATOMIC ENERGY ACT.

    (a) Repeal.--(1) Chapters 22 through 26 of the Atomic 
Energy Act of 1954 (42 U.S.C. 2297-2297e-7) are repealed as of 
the privatization date.
    (2) The table of contents of such Act is amended as of the 
privatization date by striking the items referring to sections 
repealed by paragraph (1).
    (b) NRC Licensing.--(1) Section 11v. of the Atomic Energy 
Act of 1954 (42 U.S.C. 2014v.) is amended by striking ``or the 
construction and operation of a uranium enrichment facility 
using Atomic Vapor Laser Isotope Separation technology''.
    (2) Section 193 of the Atomic Energy Act of 1954 (42 U.S.C. 
2243) is amended by adding at the end the following:
    ``(f) Limitation.--No license or certificate of compliance 
may be issued to the United States Enrichment Corporation or 
its successor under this section or sections 53, 63, or 1701, 
if the Commission determines that--
            ``(1) the Corporation is owned, controlled, or 
        dominated by an alien, a foreign corporation, or a 
        foreign government; or
            ``(2) the issuance of such a license or certificate 
        of compliance would be inimical to--
                    ``(A) the common defense and security of 
                the United States; or
                    ``(B) the maintenance of a reliable and 
                economical domestic source of enrichment 
                services.''.
    (3) Section 1701(c)(2) of the Atomic Energy Act of 1954 (42 
U.S.C. 2297f(c)(2)) is amended to read as follows:
            ``(2) Periodic application for certificate of 
        compliance.--The Corporation shall apply to the Nuclear 
        Regulatory Commission for a certificate of compliance 
        under paragraph (1) periodically, as determined by the 
        Commission, but not less than every 5 years. The 
        Commission shall review any such application and any 
        determination made under subsection (b)(2) shall be 
        based on the results of any such review.''.
    (4) Section 1702(a) of the Atomic Energy Act of 1954 (42 
U.S.C. 2297f-1(a)) is amended--
            (1) by striking ``other than'' and inserting 
        ``including'', and
            (2) by striking ``sections 53 and 63'' and 
        inserting ``sections 53, 63, and 193''.
    (c) Judicial Review of NRC Actions.--Section 189b. of the 
Atomic Energy Act of 1954 (42 U.S.C. 2239(b)) is amended to 
read as follows:
    ``b. The following Commission actions shall be subject to 
judicial review in the manner prescribed in chapter 158 of 
title 28, United States Code and chapter 7 of title 5, United 
States Code:
            ``(1) Any final order entered in any proceeding of 
        the kind specified in subsection (a).
            ``(2) Any final order allowing or prohibiting a 
        facility to begin operating under a combined 
        construction and operating license.
            ``(3) Any final order establishing by regulation 
        standards to govern the Department of Energy's gaseous 
        diffusion uranium enrichment plants, including any such 
        facilities leased to a corporation established under 
        the USEC Privatization Act.
            ``(4) Any final determination under section 1701(c) 
        relating to whether the gaseous diffusion plants, 
        including any such facilities leased to a corporation 
        established under the USEC Privatization Act, are in 
        compliance with the Commission's standards governing 
        the gaseous diffusion plants and all applicable 
        laws.''.
    (d) Civil Penalties.--Section 234 a. of the Atomic Energy 
Act of 1954 (42 U.S.C. 2282(a)) is amended by--
            (1) striking ``any licensing provision of section 
        53, 57, 62, 63, 81, 82, 101, 103, 104, 107, or 109'' 
        and inserting: ``any licensing or certification 
        provision of section 53, 57, 62, 63, 81, 82, 101, 103, 
        104, 107, 109, or 1701''; and
            (2) by striking ``any license issued thereunder'' 
        and inserting: ``any license or certification issued 
        thereunder''.
    (e) References to the Corporation.--Following the 
privatization date, all references in the Atomic Energy Act of 
1954 to the United States Enrichment Corporation shall be 
deemed to be references to the private corporation.

SEC. 5217. AMENDMENTS TO OTHER LAWS.

    (a) Definition of Government Corporation.--As of the 
privatization date, section 9101(3) of title 31, United States 
Code, is amended by striking subparagraph (N) as added by 
section 902(b) of Public Law 102-486.
    (b) Definition of the Corporation.--Section 1018(1) of the 
Energy Policy Act of 1992 (42 U.S.C. 2296b-7(1) is amended by 
inserting ``or its successor'' before the period.

                    CHAPTER 2--DEPARTMENT OF ENERGY

SEC. 5221. SALE OF DOE ASSETS

    (a) Asset Management and Disposition Program.--
            (1) In general.--In order to maximize the use of 
        Department of Energy assets and to reduce overhead and 
        other costs related to asset management at the 
        Department's facilities and laboratories, the Secretary 
        of Energy shall conduct an asset management and 
        disposition program that will result in not less than 
        $225,000,000 in receipts and savings by October 1, 
        2000.
            (2) Items to be included.--The program shall 
        include an inventory of assets in the care of the 
        Department and its contractors; the recovery, reuse, 
        and stewardship of assets; and disposition of a minimum 
        of 1,139,000,000 pounds of fuel, 136,000 tons of 
        chemicals and industrial gases, 557,000 tons of scrap 
        metal, 14,000 radiation sources, 17,000 pieces of major 
        equipment, 11,000 pounds of precious metals, and 
        91,000,000 pounds of base metals.
    (b) Federal Property and Adminstrative Services Act.--The 
disposition of assets under this section is not subject to 
section 202 or 203 of the Federal Property and Administrative 
Services Act of 1949 (40 U.S.C. 483, 484) or section 13 of the 
Surplus Property Act of 1944 (50 U.S.C. App. 1622). In order to 
avoid market disruptions, the Secretary shall consult with 
appropriate executive agencies with respect to dispositions 
under this section.
    (c) Disposition of Proceeds.--After deduction of 
administrative costs of disposition under this section not to 
exceed $7,000,000 per year, the remainder of the proceeds from 
dispositions under this subpart shall be returned to the 
Treasury as miscellaneous receipts. There shall be established 
a new receipt account in the Treasury for proceeds of asset 
sales under this section.

SEC. 5222. SALE OF WEEKS ISLAND OIL.

    Notwithstanding section 161 of the Energy Policy and 
Conservation Act (42 U.S.C. 6241), the Secretary of Energy 
shall draw down and sell 32,000,000 barrels of oil contained in 
the Weeks Island Strategic Petroleum Reserve Facility. The 
Secretary shall, to the greatest extent practicable, sell oil 
from the reserve in a manner that minimizes the impact of such 
sale upon supply levels and market forces.

SEC. 5223. LEASE OF EXCESS STRATEGIC PETROLEUM RESERVE CAPACITY.

    (a) Amendment.--Part B of title I of the Energy Policy and 
Conservation Act (42 U.S.C. 6231 et seq.) is amended by adding 
at the end the following:


                   ``use of underutilized facilities


    ``Sec. 168. (a) Authority.--Notwithstanding any other 
provision of this title, the Secretary, by lease or otherwise, 
for any term and under such other conditions as the Secretary 
considers necessary or appropriate, may store in underutilized 
Strategic Petroleum Reserve facilities petroleum product owned 
by a foreign government or its representative. Petroleum 
products stored under this section are not part of the 
Strategic Petroleum Reserve and may be exported without license 
from the United States.
    ``(b) Protection of Facilities.--All agreements entered 
into pursuant to subsection (a) shall contain provisions 
providing for fees to fully compensate the United States for 
all costs of storage and removals of petroleum products, 
including the cost of replacement facilities necessitated as a 
result of any withdrawals.
    ``(c) Access to Stored Oil.--The Secretary shall ensure 
that agreements to store petroleum products for foreign 
governments or their representatives do not affect the ability 
of the United States to withdraw, distribute, or sell petroleum 
from the Strategic Petroleum reserve in response to an energy 
emergency or to the obligations of the United States under the 
Agreement on an International Energy Program.
    ``(d) Availability of Funds.--Beginning in fiscal year 2001 
and in each fiscal year thereafter except for fiscal years 2003 
and 2004, 50 percent of the funds resulting from the leasing of 
Strategic Petroleum Reserve facilities authorized by subsection 
(a) shall be available to the Secretary of Energy without 
further appropriation for the purchase of oil for the Strategic 
Petroleum Reserve.''.
    (b) Table of Contents Amendment.--The table of contents of 
part B of title I of the Energy Policy and Conservation Act is 
amended by adding at the end the following:

``Sec. 168. Use of underutilized facilities.''.

                     Subtitle C--Natural Resources

           CHAPTER 1--DEPARTMENT OF THE INTERIOR CONVEYANCES

              Subchapter A--California Directed Land Sale

SEC. 5301. CONVEYANCE OF PROPERTY.

    All right, title and interest of the United States in the 
property depicted on a map designated USGS 7.5 minute 
quadrangle, west of Flattop Mtn, CA 1984, entitled ``Location 
Map for Ward Valley Site'', located in San Bernardino Meridian, 
Township 9 North, Range 19 East, and improvements thereon, 
together with all necessary easements for utilities and ingress 
and egress to such property, including, but not limited to, the 
right to improve those easements, are conveyed to the 
Department of Health Services of the State of California upon 
the tendering of $500,100 on behalf of the State of California 
and the release of the United States by the State of California 
from any liability for claims relating to the property 
described in this section and, as part of the consideration 
paid for such property, such conveyance is declared to meet and 
fully comply with any otherwise applicable provisions of 
section 7 of Endangered Species Act of 1973 (16 U.S.C. 1536) 
and the National Environmental Policy Act of 1969 (42 U.S.C. 
4332). The Secretary of the Interior shall issue evidence of 
title pursuant to this Act notwithstanding any other provision 
of law.

                     Subchapter B--Helium Reserves

SEC. 5311. SHORT TITLE.

    This subchapter may be cited as the ``Helium Act of 1995''.

SEC. 5312. AMENDMENT OF HELIUM ACT.

    Except as otherwise expressly provided, whenever in this 
chapter an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the 
reference shall be considered to be made to a section or other 
provision of the Helium Act (50 U.S.C. 167 to 167n).

SEC. 5313. AUTHORITY OF SECRETARY.

    Sections 3, 4, and 5 are amended to read as follows:

``SEC. 3. AUTHORITY OF SECRETARY.

    ``(a) Extraction and Disposal of Helium on Federal Lands.--
            ``(1) In general.--The Secretary may enter into 
        agreements with private parties for the recovery and 
        disposal of helium on Federal lands upon such terms and 
        conditions as the Secretary deems fair, reasonable, and 
        necessary.
            ``(2) Leasehold rights.--The Secretary may grant 
        leasehold rights to any such helium.
            ``(3) Limitation.--The Secretary may not enter into 
        any agreement by which the Secretary sells such helium 
        other than to a private party with whom the Secretary 
        has an agreement for recovery and disposal of helium.
            ``(4) Regulations.--Agreements under paragraph (1) 
        may be subject to such regulations as may be prescribed 
        by the Secretary.
            ``(5) Existing rights.--An agreement under 
        paragraph (1) shall be subject to any rights of any 
        affected Federal oil and gas lessee that may be in 
        existence prior to the date of the agreement.
            ``(6) Terms and conditions.--An agreement under 
        paragraph (1) (and any extension or renewal of an 
        agreement) shall contain such terms and conditions as 
        the Secretary may consider appropriate.
            ``(7) Prior agreements.--This subsection shall not 
        in any manner affect or diminish the rights and 
        obligations of the Secretary and private parties under 
        agreements to dispose of helium produced from Federal 
        lands in existence on the date of enactment of the 
        Helium Act of 1995 except to the extent that such 
        agreements are renewed or extended after that date.
    ``(b) Storage, Transportation and Sale.--The Secretary may 
store, transport, and sell helium only in accordance with this 
Act.

``SEC. 4. STORAGE, TRANSPORTATION, AND WITHDRAWAL OF CRUDE HELIUM.

    ``(a) Storage, Transportation and Withdrawal.--The 
Secretary may store, transport and withdraw crude helium and 
maintain and operate crude helium storage facilities, in 
existence on the date of enactment of the Helium Act of 1995 at 
the Bureau of Mines Cliffside Field, and related helium 
transportation and withdrawal facilities.
    ``(b) Cessation of Production, Refining, and Marketing.--
Not later than 18 months after the date of enactment of the 
Helium Act of 1995, the Secretary shall cease producing, 
refining, and marketing refined helium and shall cease carrying 
out all other activities relating to helium which the Secretary 
was authorized to carry out under this Act before the date of 
enactment of the Helium Act of 1995, except activities 
described in subsection (a).
    ``(c) Disposal of Facilities.--
            ``(1) In general.--Subject to paragraph (5), not 
        later than 24 months after the cessation of activities 
        referred to in section (b) of this section, the 
        Secretary shall designate as excess property and 
        dispose of all facilities, equipment, and other real 
        and personal property, and all interests therein, held 
        by the United States for the purpose of producing, 
        refining and marketing refined helium.
            ``(2) Applicable law.--The disposal of such 
        property shall be in accordance with the Federal 
        Property and Administrative Services Act of 1949.
            ``(3) Proceeds.--All proceeds accruing to the 
        United States by reason of the sale or other disposal 
        of such property shall be treated as moneys received 
        under this chapter for purposes of section 6(f).
            ``(4) Costs.--All costs associated with such sale 
        and disposal (including costs associated with 
        termination of personnel) and with the cessation of 
        activities under subsection (b) shall be paid from 
        amounts available in the helium production fund 
        established under section 6(f).
            ``(5) Exception.--Paragraph (1) shall not apply to 
        any facilities, equipment, or other real or personal 
        property, or any interest therein, necessary for the 
        storage, transportation and withdrawal of crude helium 
        or any equipment, facilities, or other real or personal 
        property, required to maintain the purity, quality 
        control, and quality assurance of crude helium in the 
        Bureau of Mines Cliffside Field.
    ``(d) Existing Contracts.--
            ``(1) In general.--All contracts that were entered 
        into by any person with the Secretary for the purchase 
        by the person from the Secretary of refined helium and 
        that are in effect on the date of the enactment of the 
        Helium Act of 1995 shall remain in force and effect 
        until the date on which the refining operations cease, 
        as described in subsection (b).
            ``(2) Costs.--Any costs associated with the 
        termination of contracts described in paragraph (1) 
        shall be paid from the helium production fund 
        established under section 6(f).

``SEC. 5. FEES FOR STORAGE, TRANSPORTATION AND WITHDRAWAL.

    ``(a) In General.--Whenever the Secretary provides helium 
storage withdrawal or transportation services to any person, 
the Secretary shall impose a fee on the person to reimburse the 
Secretary for the full costs of providing such storage, 
transportation, and withdrawal.
    ``(b) Treatment.--All fees received by the Secretary under 
subsection (a) shall be treated as moneys received under this 
Act for purposes of section 6(f).''.

SEC. 5314. SALE OF CRUDE HELIUM.

    (a) Subsection 6(a) is amended by striking ``from the 
Secretary'' and inserting ``from persons who have entered into 
enforceable contracts to purchase an equivalent amount of crude 
helium from the Secretary''.
    (b) Subsection 6(b) is amended--
            (1) by inserting ``crude'' before ``helium''; and
            (2) by adding the following at the end: ``Except as 
        may be required by reason of subsection (a), sales of 
        crude helium under this section shall be in amounts as 
        the Secretary determines, in consultation with the 
        helium industry, necessary to carry out this subsection 
        with minimum market disruption.''.
    (c) Subsection 6(c) is amended--
            (1) by inserting ``crude'' after ``Sales of''; and
            (2) by striking ``together with interest as 
        provided in this subsection'' and all that follows 
        through the end of the subsection and inserting ``all 
        funds required to be repaid to the United States as of 
        October 1, 1995 under this section (referred to in this 
        subsection as `repayable amounts'). The price at which 
        crude helium is sold by the Secretary shall not be less 
        than the amount determined by the Secretary by--
            ``(1) dividing the outstanding amount of such 
        repayable amounts by the volume (in million cubic feet) 
        of crude helium owned by the United States and stored 
        in the Bureau of Mines Cliffside Field at the time of 
        the sale concerned, and
            ``(2) adjusting the amount determined under 
        paragraph (1) by the Consumer Price Index for years 
        beginning after December 31, 1995.''.
    (d) Subsection 6(d) is amended to read as follows:
    ``(d) Extraction of Helium From Deposits on Federal 
Lands.--All moneys received by the Secretary from the sale or 
disposition of helium on Federal lands shall be paid to the 
Treasury and credited against the amounts required to be repaid 
to the Treasury under subsection (c).''.
    (e) Subsection 6(e) is repealed.
    (f) Subsection 6(f) is amended--
            (1) by striking ``(f)'' and inserting ``(e)(1)''; 
        and
            (2) by adding the following at the end:
    ``(2)(A) Within 7 days after the commencement of each 
fiscal year after the disposal of the facilities referred to in 
section 4(c), all amounts in such fund in excess of $2,000,000 
(or such lesser sum as the Secretary deems necessary to carry 
out this Act during such fiscal year) shall be paid to the 
Treasury and credited as provided in paragraph (1).
    ``(B) On repayment of all amounts referred to in subsection 
(c), the fund established under this section shall be 
terminated and all moneys received under this Act shall be 
deposited in the general fund of the Treasury.''.

SEC. 5315. ELIMINATION OF STOCKPILE.

    Section 8 is amended to read as follows:

``SEC. 8. ELIMINATION OF STOCKPILE.

    ``(a) Stockpile Sales.--
            ``(1) Commencement.--Not later than January 1, 
        2005, the Secretary shall commence offering for sale 
        crude helium from helium reserves owned by the United 
        States in such amounts as would be necessary to dispose 
        of all such helium reserves in excess of 600,000,000 
        cubic feet on a straight-line basis between such date 
        and January 1, 2015.
            ``(2) Times of sale.--The sales shall be at such 
        times during each year and in such lots as the 
        Secretary determines, in consultation with the helium 
        industry, to be necessary to carry out this subsection 
        with minimum market disruption.
            ``(3) Price.--The price for all sales under 
        paragraph (1), as determined by the Secretary in 
        consultation with the helium industry, shall be such 
        price as will ensure repayment of the amounts required 
        to be repaid to the Treasury under section 6(c).
    ``(b) Discovery of Additional Reserves.--The discovery of 
additional helium reserves shall not affect the duty of the 
Secretary to make sales of helium under subsection (a).''.

SEC. 5316. REPEAL OF AUTHORITY TO BORROW.

    Sections 12 and 15 are repealed.

SEC. 5317. LAND CONVEYANCE IN POTTER COUNTY, TEXAS.

    (a) In General.--The Secretary of the Interior shall 
transfer all right, title, and interest of the United States in 
and to the parcel of land described in subsection (b) to the 
Texas Plains Girl Scout Council for consideration of $1, 
reserving to the United States such easements as may be 
necessary for pipeline rights-of-way.
    (b) Land Description.--The parcel of land referred to in 
subsection (a) is all those certain lots, tracts or parcels of 
land lying and being situated in the County of Potter and State 
of Texas, and being the East Three Hundred Thirty-One (E331) 
acres out of Section Seventy-eight (78) in Block Nine (9), B.S. 
& F. Survey, (some times known as the G.D. Landis pasture) 
Potter County, Texas, located by certificate No. 1/39 and 
evidenced by letters patents Nos. 411 and 412 issued by the 
State of Texas under date of November 23, 1937, and of record 
in Vol. 66A of the Patent Records of the State of Texas. The 
metes and bounds description of such lands is as follows:
            (1) First tract.--One Hundred Seventy-one (171) 
        acres of land known as the North part of the East part 
        of said survey Seventy-eight (78) aforesaid, described 
        by metes and bounds as follows:
            Beginning at a stone 20 x 12 x 3 inches marked X, 
        set by W.D. Twichell in 1905, for the Northeast corner 
        of this survey and the Northwest corner of Section 59;
            Thence, South 0 degrees 12 minutes East with the 
        West line of said Section 59, 999.4 varas to the 
        Northeast corner of the South 160 acres of East half of 
        Section 78;
            Thence, North 89 degrees 47 minutes West with the 
        North line of the South 150 acres of the East half, 
        956.8 varas to a point in the East line of the West 
        half Section 78;
            Thence, North 0 degrees 10 minutes West with the 
        East line of the West half 999.4 varas to a stone 18 x 
        14 x 3 inches in the middle of the South line of 
        Section 79;
            Thence, South 89 degrees 47 minutes East 965 varas 
        to the place of beginning.
            (2) Second tract.--One Hundred Sixty (160) acres of 
        land known as the South part of the East part of said 
        survey No. Seventy-eight (78) described by metes and 
        bounds as follows:
            Beginning at the Southwest corner of Section 59, a 
        stone marked X and a pile of stones; Thence, North 89 
        degrees 47 minutes West with the North line of Section 
        77, 966.5 varas to the Southeast corner of the West 
        half of Section 78; Thence, North 0 degrees 10 minutes 
        West with the East line of the West half of Section 78;
            Thence, South 89 degrees 47 minutes East 965.8 
        varas to a point in the East line of Section 78;
            Thence, South 0 degrees 12 minutes East 934.6 varas 
        to the place of beginning.
            Containing an area of 331 acres, more or less.

        CHAPTER 2--ARCTIC COASTAL PLAIN LEASING AND REVENUE ACT

SEC. 5312. SHORT TITLE.

    This chapter may be cited as the 'Arctic Coastal Plain 
Leasing and Revenue Act of 1995''.

SEC. 5322. DEFINITIONS.

    When used in this chapter the term--
            (1) ``Coastal Plain'' means that area identified as 
        such in the map entitled ``Arctic National Wildlife 
        Refuge'', dated August 1980, as referenced in section 
        1002(b) of the Alaska National Interest Lands 
        Conservation Act of 1980 (16 U.S.C. 3142(b)(1)) 
        comprising approximately 1, 549,000 acres; and
            (2) ``Secretary'' except as otherwise provided, 
        means the Secretary of the Interior or the Secretary's 
        designee.

SEC. 5333. LEASING PROGRAM FOR LANDS WITHIN THE COASTAL PLAIN.

    (a) Authorization.--The Congress hereby authorizes and 
directs the Secretary, acting through the Bureau of Land 
Management in consultation with the Fish and Wildlife Service 
and other appropriate Federal officers and agencies, to take 
such actions as are necessary to establish and implement a 
competitive oil and gas leasing program that will result in an 
environmentally sound program for the exploration, development, 
and production of the oil and gas resources of the Coastal 
Plain and to administer the provisions of this chapter through 
regulations, lease terms, conditions, restrictions, 
prohibitions, stipulations and other provisions that ensure the 
oil and gas exploration, development, and production activities 
on the Coastal Plain will result in no significant adverse 
effect on fish and wildlife, their habitat, subsistence 
resources, and the environment, and shall require the 
application of the best commercially available technology for 
oil and gas exploration, development, and production, on all 
new exploration, development, and production operations, and 
whenever practicable, on existing operations, and in a manner 
to ensure the receipt of fair market value by the public for 
the mineral resources to be leased.
    (b) Repeal.--The prohibitions and limitations contained in 
section 1003 of the Alaska National Interest Lands Conservation 
Act of 1980 (16 U.S.C. 3143) are hereby repealed.
    (c) Compatibility.--Congress hereby determines that the oil 
and gas leasing program and activities authorized by this 
section in the Coastal Plain are compatible with the purposes 
for which the Arctic National Wildlife Refuge was established, 
and that no further findings or decisions are required to 
implement this determination.
    (d) Sole Authority.--This chapter shall be the sole 
authority for leasing on the Coastal Plain. Provided, That 
nothing in this chapter shall be deemed to expand or limit 
state and local regulatory authority.
    (e) Federal Land.--The Coastal Plain shall be considered 
``Federal land'' for the purposes of the Federal Oil and Gas 
Royalty Management Act of 1982 .
    (f) Special Areas.--The Secretary, after consultation with 
the State of Alaska, City of Kaktovik, and the North Slope 
Borough, is authorized to designate up to a total of 45,000 
acres of the Coastal Plain as Special Areas and close such 
areas to leasing if the Secretary determines that these Special 
Areas are of such unique character and interest so as to 
require special management and regulatory protection. The 
Secretary may, however, permit leasing of all or portions of 
any Special Areas within the Coastal Plain by setting lease 
terms that limit or condition surface use and occupancy by 
lessees of such lands but permit the use of horizontal drilling 
technology from sites on leases located outside the designated 
Special Areas.
    (g) Limitation on Closed Areas.--The Secretary's sole 
authority to close lands within the Coastal Plain to oil and 
gas leasing and to exploration, development, and production is 
that set forth in this subtitle.
    (h) Conveyance.--In order to maximize federal revenues by 
removing clouds on title of lands and clarifying land ownership 
patterns within the Coastal Plain, the Secretary, 
notwithstanding the provisions of section 1302(h)(2) of the 
Alaska National Interest Lands Conservation Act (16 U.S.C. 
3192(h)(2)), is authorized and directed to convey (1) to the 
Kaktovik Inupiat Corporation the surface estate of the lands 
described in paragraph 2 of Public Land Order 6959, to the 
extent necessary to fulfill the corporation's entitlement under 
section 12 of the Alaska Native Claims Settlement Act (43 
U.S.C. 1611), and (2) to the Arctic Slope Regional Corporation 
the subsurface estate beneath such surface estate pursuant to 
the August 9, 1983, agreement between the Arctic Slope Regional 
Corporation and the United States of America.

SEC. 5334. RULES AND REGULATIONS.

    (a) Promulgation.--The Secretary shall prescribe such rules 
and regulations as may be necessary to carry out the purposes 
and provisions of this chapter, including rules and regulations 
relating to protection of the fish and wildlife, their habitat, 
subsistence resources, and the environment of the Coastal 
Plain. Such rules and regulations shall be promulgated no later 
than fourteen months after the date of enactment of this 
chapter and shall, as of their effective date, apply to all 
operations conducted under a lease issued or maintained under 
the provisions of this chapter and all operations on the 
Coastal Plain related to the leasing, exploration, development 
and production of oil and gas.
    (b) Revision of Regulations.--The Secretary shall 
periodically review and, if appropriate, revise the rules and 
regulations issued under subsection (a) of this section to 
reflect any significant biological, environmental, or 
engineering data which come to the Secretary's attention.

SEC. 5335. ADEQUACY OF THE DEPARTMENT OF THE INTERIOR'S LEGISLATIVE 
                    ENVIRONMENTAL IMPACT STATEMENT.

    The ``Final Legislative Environmental Impact Statement'' 
(April 1987) on the Coastal Plain prepared pursuant to section 
1002 of the Alaska National Interest Lands Conservation Act of 
1980 (16 U.S.C. 3142) and section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)) is 
hereby found by the Congress to be adequate to satisfy the 
legal and procedural requirements of the National Environmental 
Policy Act of 1969 with respect to actions authorized to be 
taken by the Secretary to develop and promulgate the 
regulations for the establishment of the leasing program 
authorized by this chapter, to conduct the first lease sale and 
any subsequent lease sale authorized by this chapter, and to 
grant rights-of-way and easements to carry out the purposes of 
this chapter.

SEC. 5336. LEASE SALES.

    (a) Lease Sales.--Lands may be leased pursuant to the 
provisions of this chapter to any person qualified to obtain a 
lease for deposits of oil and gas under the Mineral Leasing 
Act, as amended (30 U.S.C. 181).
    (b) Procedures.--The Secretary shall, by regulation, 
establish procedures for--
            (1) receipt and consideration of sealed nominations 
        for any area in the Coastal Plain for inclusion in, or 
        exclusion (as provided in subsection (c)) from, a lease 
        sale; and
            (2) public notice of and comment on designation of 
        areas to be included in, or excluded from, a lease 
        sale.
    (c) Lease Sales on Coastal Plain.--The Secretary shall, by 
regulation, provide for lease sales of lands on the Coastal 
Plain. When lease sales are to be held, they shall occur after 
the nomination process provided for in subsection (b) of this 
section. For the first lease sale, the Secretary shall offer 
for lease those acres receiving the greatest number of 
nominations, but no less than two hundred thousand acres and no 
more than three hundred thousand acres shall be offered. If the 
total acreage nominated is less than two hundred thousand 
acres, the Secretary shall include in such sale any other 
acreage which he believes has the highest resource potential, 
but in no event shall more than three hundred thousand acres of 
the Coastal Plain be offered in such sale. With respect to 
subsequent lease sales, the Secretary shall offer for lease no 
less than two hundred thousand acres of the Coastal Plain. The 
initial lease sale shall be held within twenty months of the 
date of enactment of this chapter. The second lease sale shall 
be held no later than twenty-four months after the initial 
sale, with additional sales conducted no later than twelve 
months thereafter so long as sufficient interest in development 
exists to warrant, in the Secretary's judgment, the conduct of 
such sales.

SEC. 5337. GRANT OF LEASES BY THE SECRETARY.

    (a) In General.--The Secretary is authorized to grant to 
the highest responsible qualified bidder by sealed competitive 
cash bonus bid any lands to be leased on the Coastal Plain upon 
payment by the lessee of such bonus as may be accepted by the 
Secretary and of such royalty as may be fixed in the lease, 
which shall be not less than 12\1/2\ per centum in amount or 
value of the production removed or sold from the lease.
    (b) Antitrust Review.--Following each notice of a proposed 
lease sale and before the acceptance of bids and the issuance 
of leases based on such bids, the Secretary shall allow the 
Attorney General, in consultation with the Federal Trade 
Commission, thirty days to perform an antitrust review of the 
results of such lease sale on the likely effects the issuance 
of such leases would have on competition and the Attorney 
General shall advise the Secretary with respect to such review, 
including any recommendation for the nonacceptance of any bid 
or the imposition of terms or conditions on any lease, as may 
be appropriate to prevent any situation inconsistent with the 
antitrust laws.
    (c) Subsequent Transfers.--No lease issued under this 
chapter may be sold, exchanged, assigned, sublet, or otherwise 
transferred except with the approval of the Secretary. Prior to 
any such approval the Secretary shall consult with, and give 
due consideration to the views of, the Attorney General.
    (d) Immunity.--Nothing in this chapter shall be deemed to 
convey to any person, association, corporation, or other 
business organization immunity from civil or criminal 
liability, or to create defenses to actions, under any 
antitrust law.
    (e) Definitions.--As used in this section, the term--
            (1) ``antitrust review'' shall be deemed an 
        ``antitrust investigation'' for the purposes of the 
        Antitrust Civil Process Act (15 U.S.C. 1311); and
            (2) ``antitrust laws'' means those Acts set forth 
        in section 1 of the Clayton Act (15 U.S.C. 12) as 
        amended.

SEC. 5338. LEASE TERMS AND CONDITIONS.

    An oil or gas lease issued pursuant to this chapter shall--
            (1) be for a tract consisting of a compact area not 
        to exceed five thousand seven hundred sixty acres, or 
        nine surveyed or protracted sections which shall be as 
        compact in form as possible.
            (2) be for an initial period of ten years and shall 
        be extended for so long thereafter as oil or gas is 
        produced in paying quantities from the lease or unit 
        area to which the lease is committed or for so long as 
        drilling or reworking operations, as approved by the 
        Secretary, are conducted on the lease or unit area;
            (3) require the payment of royalty as provided for 
        in section 5337 of this chapter;
            (4) require that exploration activities pursuant to 
        any lease issued or maintained under this chapter shall 
        be conducted in accordance with an exploration plan or 
        a revision of such plan approved by the Secretary;
            (5) require that all development and production 
        pursuant to a lease issued or maintained pursuant to 
        this chapter shall be conducted in accordance with 
        development and production plans approved by the 
        Secretary;
            (6) require posting of bond as required by section 
        5339 of this chapter;
            (7) provide that the Secretary may close, on a 
        seasonal basis, portions of the Coastal Plain to 
        exploratory drilling activities as necessary to protect 
        caribou calving areas and other species of fish and 
        wildlife;
            (8) contain such provisions relating to rental and 
        other fees as the Secretary may prescribe at the time 
        of offering the area for lease;
            (9) provide that the Secretary may direct or assent 
        to the suspension of operations and production under 
        any lease granted under the terms of this chapter in 
        the interest of conservation of the resource or where 
        there is no available system to transport the resource. 
        If such a suspension is directed or assented to by the 
        Secretary, any payment of rental prescribed by such 
        lease shall be suspended during such period of 
        suspension of operations and production, and the term 
        of the lease shall be extended by adding any such 
        suspension period thereto;
            (10) provide that whenever the owner of a 
        nonproducing lease fails to comply with any of the 
        provisions of this chapter, or of any applicable 
        provision of Federal or State environmental law, or of 
        the lease, or of any regulation issued under this 
        chapter, such lease may be canceled by the Secretary if 
        such default continues for more than thirty days after 
        mailing of notice by registered letter to the lease 
        owner at the lease owner's record post office address 
        of record;
            (11) provide that whenever the owner of any 
        producing lease fails to comply with any of the 
        provisions of this chapter, or of any applicable 
        provision of Federal or State environmental law, or of 
        the lease, or of any regulation issued under this 
        chapter, such lease may be forfeited and canceled by 
        any appropriate proceeding brought by the Secretary in 
        any United States district court having jurisdiction 
        under the provisions of this chapter;
            (12) provide that cancellation of a lease under 
        this chapter shall in no way release the owner of the 
        lease from the obligation to provide for reclamation of 
        the lease site;
            (13) allow the lessee, at the discretion of the 
        Secretary, to make written relinquishment of all rights 
        under any lease issued pursuant to this chapter. The 
        Secretary shall accept such relinquishment by the 
        lessee of any lease issued under this chapter where 
        there has not been surface disturbance on the lands 
        covered by the lease;
            (14) provide that for the purpose of conserving the 
        natural resources of any oil or gas pool, field, or 
        like area, or any part thereof, and in order to avoid 
        the unnecessary duplication of facilities, to protect 
        the environment of the Coastal Plain, and to protect 
        correlative rights, the Secretary shall require that, 
        to the greatest extent practicable, lessees unite with 
        each other in collectively adopting and operating under 
        a cooperative or unit plan of development for operation 
        of such pool, field, or like area, or any part thereof, 
        and the Secretary is also authorized and directed to 
        enter into such agreements as are necessary or 
        appropriate for the protection of the United States 
        against drainage;
            (15) require that the holder of a lease or leases 
        on lands within the Coastal Plain shall be fully 
        responsible and liable for the reclamation of lands 
        within the Coastal Plain and any other Federal lands 
        adversely affected in connection with exploration, 
        development, production or transportation activities on 
        a lease within the Coastal Plain by the holder of a 
        lease or as a result of activities conducted on the 
        lease by any of the leaseholder's subcontractors or 
        agents;
            (16) provide that the holder of a lease may not 
        delegate or convey, by contract or otherwise, the 
        reclamation responsibility and liability to another 
        party without the express written approval of the 
        Secretary;
            (17) provide that the standard of reclamation for 
        lands required to be reclaimed under this chapter be, 
        as nearly as practicable, a condition capable of 
        supporting the uses which the lands were capable of 
        supporting prior to any exploration, development, or 
        production activities, or upon application by the 
        lessee, to a higher or better use as approved by the 
        Secretary;
            (18) contain the terms and conditions relating to 
        protection of fish and wildlife, their habitat, and the 
        environment, as required by section 5333(a) of this 
        chapter;
            (19) provide that the holder of a lease, its 
        agents, and contractors use best efforts to provide a 
        fair share, as determined by the level of obligation 
        previously agreed to in the 1974 agreement implementing 
        Section 29 of the Federal Agreement and Grant of Right 
        of Way for the Operation of the Trans-Alaska Pipeline, 
        of employment and contracting for Alaska Natives and 
        Alaska Native Corporations from throughout the State; 
        and
            (20) contain such other provisions as the Secretary 
        determines necessary to ensure compliance with the 
        provisions of this chapter and the regulations issued 
        under this chapter.

SEC. 5339. BONDING REQUIREMENTS TO ENSURE FINANCIAL RESPONSIBILITY OF 
                    LESSEE AND AVOID FEDERAL LIABILITY.

    (a) Requirement.--The Secretary shall, by rule or 
regulation, establish such standards as may be necessary to 
ensure that an adequate bond, surety, or other financial 
arrangement will be established prior to the commencement of 
surface disturbing activities on any lease, to ensure the 
complete and timely reclamation of the lease tract, and the 
restoration of any lands or surface waters adversely affected 
by lease operations after the abandonment or cessation of oil 
and gas operations on the lease. Such bond, surety, or 
financial arrangement is in addition to, and not in lieu, of 
any bond, surety, or financial arrangement required by any 
other regulatory authority or required by any other provision 
of law.
    (b) Amount.--The bond, surety, or financial arrangement 
shall be in an amount--
            (1) to be determined by the Secretary to provide 
        for reclamation of the lease site in accordance with an 
        approved or revised exploration or development and 
        production plan; plus
            (2) set by the Secretary consistent with the type 
        of operations proposed, to provide the means for rapid 
        and effective cleanup, and to minimize damages 
        resulting from an oil spill, the escape of gas, refuse, 
        domestic wastewater, hazardous or toxic substances, or 
        fire caused by oil and gas activities.
    (c) Adjustment.--In the event that an approved exploration 
or development and production plan is revised, the Secretary 
may adjust the amount of the bond, surety, or other financial 
arrangement to conform to such modified plan.
    (d) Duration.--The responsibility and liability of the 
lessee and its surety under the bond, surety, or other 
financial arrangement shall continue until such time as the 
Secretary determines that there has been compliance with the 
terms and conditions of the lease and all applicable law.
    (e) Termination.--Within sixty days after determining that 
there has been compliance with the terms and conditions of the 
lease and all applicable laws, the Secretary, after 
consultation with affected Federal and State agencies, shall 
notify the lessee that the period of liability under the bond, 
surety, or other financial arrangement has been terminated.

SEC. 5340. OIL AND GAS INFORMATION.

    (a) In General.--(1) Any lessee or permittee conducting any 
exploration for, or development or production of, oil or gas 
pursuant to this chapter shall provide the Secretary access to 
all data and information from any lease granted pursuant to 
this chapter (including processed and analyzed) obtained from 
such activity and shall provide copies of such data and 
information as the Secretary may request. Such data and 
information shall be provided in accordance with regulations 
which the Secretary shall prescribe.
    (2) If processed and analyzed information provided pursuant 
to paragraph (1) is provided in good faith by the lessee or 
permittee, such lessee or permittee shall not be responsible 
for any consequence of the use or of reliance upon such 
processed and analyzed information.
    (3) Whenever any data or information is provided to the 
Secretary, pursuant to paragraph (1)--
                    (A) by a lessee or permittee, in the form 
                and manner of processing which is utilized by 
                such lessee or permittee in the normal conduct 
                of business, the Secretary shall pay the 
                reasonable cost of reproducing such data and 
                information; or
                    (B) by a lessee or permittee, in such other 
                form and manner of processing as the Secretary 
                may request, the Secretary shall pay the 
                reasonable cost of processing and reproducing 
                such data and information.
    (b) Regulations.--The Secretary shall prescribe regulations 
to: (1) assure that the confidentiality of privileged or 
proprietary information received by the Secretary under this 
section will be maintained; and (2) set forth the time periods 
and conditions which shall be applicable to the release of such 
information.

SEC. 5341. EXPEDITED JUDICIAL REVIEW.

    (a) Any complaint seeking judicial review of any provision 
in this chapter, or any other action of the Secretary under 
this chapter may be filed in any appropriate district court of 
the United States, and such complaint must be filed within 
ninety days from the date of the action being challenged, or 
after such date if such complaint is based solely on grounds 
arising after such ninetieth day, in which case the complaint 
must be filed within ninety days after the complainant knew or 
reasonably should have known of the grounds for the complaint: 
Provided, That any complaint seeking judicial review of an 
action of the Secretary in promulgating any regulation under 
this chapter may be filed only in the United States Court of 
Appeals for the District of Columbia.
    (b) Actions of the Secretary with respect to which review 
could have been obtained under this section shall not be 
subject to judicial review in any civil or criminal proceeding 
for enforcement.

SEC. 5342. RIGHTS-OF-WAY ACROSS THE COASTAL PLAIN.

    Notwithstanding Title XI of the Alaska National Interest 
Lands Conservation Act of 1980 (16 U.S.C. 3161 et seq.), the 
Secretary is authorized and directed to grant, in accordance 
with the provisions of Section 28(c) through (t) and (v) 
through (y) of the Mineral Leasing Act of 1920 (30 U.S.C. 185), 
rights-of-way and easements across the Coastal Plain for the 
transportation of oil and gas under such terms and conditions 
as may be necessary so as not to result in a significant 
adverse effect on the fish and wildlife, subsistence resources, 
their habitat, and the environment of the Coastal Plain. Such 
terms and conditions shall include requirements that facilities 
be sited or modified so as to avoid unnecessary duplication of 
roads and pipelines. The regulations issued as required by 
section 5334 of this chapter shall include provisions granting 
rights-of-way and easements across the Coastal Plain.

SEC. 5343. ENFORCEMENT OF SAFETY AND ENVIRONMENTAL REGULATIONS TO 
                    ENSURE COMPLIANCE WITH TERMS AND CONDITIONS OF 
                    LEASE.

    (a) Responsibility of the Secretary.--The Secretary shall 
diligently enforce all regulations, lease terms, conditions, 
restrictions, prohibitions, and stipulations promulgated 
pursuant to this chapter.
    (b) Responsibility of Holders of Lease.--It shall be the 
responsibility of any holder of a lease under this chapter to--
            (1) maintain all operations within such lease area 
        in compliance with regulations intended to protect 
        persons and property on, and fish and wildlife, their 
        habitat, subsistence resources, and the environment of, 
        the Coastal Plain; and
            (2) allow prompt access at the site of any 
        operations subject to regulation under this chapter to 
        any appropriate Federal or State inspector, and to 
        provide such documents and records which are pertinent 
        to occupational or public health, safety, or 
        environmental protection, as may be requested.
    (c) On-Site Inspection.--The Secretary shall promulgate 
regulations to provide for--
            (1) scheduled onsite inspection by the Secretary, 
        at least twice a year, of each facility on the Coastal 
        Plain which is subject to any environmental or safety 
        regulation promulgated pursuant to this chapter or 
        conditions contained in any lease issued pursuant to 
        this chapter to assure compliance with such 
        environmental or safety regulations or conditions; and
            (2) periodic onsite inspection by the Secretary at 
        least once a year without advance notice to the 
        operator of such facility to assure compliance with all 
        environmental or safety regulations.

SEC. 5344. NEW REVENUES.

    (a) Distribution of Revenues.--(1) Notwithstanding any 
other provision of law, all revenues received by the Federal 
Government from competitive bids, sales, bonuses, royalties, 
rents, fees, or interest derived from the leasing of oil and 
gas within the Coastal Plain shall be deposited into the 
Treasury of the United States, solely as provided in this 
subsection.
    (2) Fifty percent of all revenues referred to in paragraph 
(1) shall be paid by the Secretary of the Treasury semiannually 
to the State of Alaska, on March 30 and September 30 of each 
year.
    (3)(A) The Secretary of the Treasury is directed to monitor 
the revenues deposited into the Treasury from oil and gas 
leases issued under the authority of this chapter. Except as 
provided in subparagraph (B), all monies deposited into the 
Treasury from such oil and gas leases in excess of 
$2,600,000,000 shall be distributed as follows:
            (i) Fifty percent shall be paid to the State of 
        Alaska in the manner provided in this subsection; and
            (ii) Fifty percent shall be deposited into a 
        special fund established in the Treasury of the United 
        States known as the ``National Park, Refuge, and Fish 
        and Wildlife Renewal and Protection Fund (hereinafter 
        in this section referred to as the ``renewal fund'').
    (B) Deposits into the renewal fund shall not exceed 
$250,000,000 over the life of the renewal fund. Monies in 
excess of such amount shall be deposited as miscellaneous 
receipts in the Treasury of the United States.
    (C) Deposits into the renewal fund shall remain available 
until expended. The Secretary of the Treasury is directed to 
develop procedures for use of the renewal fund to ensure 
accountability and demonstrated results.
    (b) Use of Renewal Fund.--Monies from the renewal fund 
shall be made available to the Secretary of the Interior, 
without further appropriation, at the beginning of each fiscal 
year in which funds are available, and shall be expended by the 
Secretary as follows:
            (1) Twenty-five percent shall be used for 
        infrastructure needs at units of the National Park 
        System, including but not limited to, facility 
        refurbishment, repair and replacement, interpretive 
        media and exhibit repair and replacement, and 
        Infrastructure projects associated with park resource 
        protection;
            (2) Twenty-five percent shall be used for 
        infrastructure needs at units of the National Wildlife 
        Refuge System, including but not limited to, facility 
        refurbishment, repair and replacement, interpretive 
        media and exhibit repair and replacement, and 
        infrastructure projects associated with refuge resource 
        protection;
            (3) Twenty-five percent shall be used for 
        acquisition of important habitat lands for threatened 
        or endangered species from owners of private property. 
        Such lands shall be acquired solely on a willing seller 
        basis and shall be managed by the Secretary for the 
        conservation of such species pursuant to the terms of 
        section 5 of the Endangered Species Act of 1973 (16 
        U.S.C. 1534); and
            (4) Twenty-five percent shall be available for 
        wetlands projects in accordance with the applicable 
        provision of the North American Wetlands Conservation 
        Act (16 U.S.C. 4401 et seq.).
    (c) Community Assistance.--There is hereby established a 
Community Assistance Fund in the Treasury into which shall be 
deposited $30,000,000 from revenues derived from the federal 
share of the first lease sale authorized under this chapter. 
The Secretary of the Treasury shall invest the funds in the 
Community Assistance Fund in interest bearing government 
securities. No more than $5,000,000 per year from the Community 
Assistance Fund, shall be available to the Secretary for 
distribution, upon application and without further 
appropriation, to organized boroughs, other municipal 
subdivisions of the State of Alaska, and recognized Indian 
Reorganization Act entities which are directly impacted by the 
exploration and production of oil and gas on the Coastal Plain 
authorized by this chapter to provide public and social 
services and facilities required in connection with such 
activities.

                       CHAPTER 3--WATER PROJECTS

                  Subchapter A--Irrigation Prepayment

SEC. 5351. AUTHORIZATION FOR PREPAYMENT OF CONSTRUCTION CHARGES.

    Subsection 213(a) of the Reclamation Reform Act of 1982 (96 
Stat. 1269, 43 U.S.C. 390mm(a)) is amended:
            (1) by adding at the beginning:
    ``Notwithstanding any provision of Reclamation law or 
limitation contained in any repayment or water service 
contract, any person or district holding such a contract or 
receiving water under such a contract with the United States 
may prepay the construction costs referred to in this section 
either through accelerated or lump sum payments. For the 
purposes of such prepayment only, the project to which such 
contract applies is declared to be complete and the Secretary 
shall determine the repayment obligations associated with the 
construction costs of the project facilities so that 
accelerated payments or a lump sum payment may be made. The 
amount of any prepayment shall be calculated by discounting the 
remaining payments due under a contract in accordance with the 
guidelines set forth in Circular A-129 issued by the Office of 
Management and Budget: Provided, That the discount shall be 
adjusted by any amounts necessary to compensate the Federal 
Government for the direct or indirect loss of future tax 
revenues if the individual or district plans to use federally 
tax-exempt financing for such prepayment.'';
            (2) by striking ``lands in a district'' and 
        inserting: ``lands in a district, or lands owned or 
        leased by a person'';
            (3) by striking ``obligation of a district'' and 
        inserting: ``obligation of a district or a person'';
            (4) by striking ``enactment of this Act.'' and 
        inserting: ``enactment of this Act or as otherwise 
        provided for in this section. Any additional capital 
        costs incurred after the date of such prepayment shall 
        be recoverable as a separate obligation and shall not 
        be considered to be a new or supplemental benefit for 
        the purposes of this act nor cause the full cost 
        pricing limitation of this Act or the ownership 
        limitations contained in any provision of federal 
        reclamation law to apply to the lands to which such 
        capital costs apply.''.

SEC. 5352. CONFORMING AMENDMENT.

    Subsection 213 (c) of the Reclamation Reform Act of 1982 
(43 U.S.C. 390 mm (c)) is repealed.

                       Subchapter B--Hetch Hetchy

SEC. 5353. HETCH HETCHY DAM.

    Section 7 of the Act of December 19, 1913 (38 Stat. 242, 
chapter 4), is amended--
            (1) by striking ``$30,000'' in the first sentence 
        and inserting ``$2,000,000''; and
            (2) by amending the second and third sentences to 
        read as follows: ``These funds shall be placed in a 
        separate fund by the United States and, notwithstanding 
        any other provision of law, shall not be available for 
        obligation or expenditure until appropriated by the 
        Congress. The highest priority use of the funds shall 
        be for annual operation of Yosemite National Park, with 
        the remainder of any funds to be used to fund 
        operations of other national parks in the State of 
        California.''.

                     Subchapter C--Collbran Project

SEC. 5355. COLLBRAN PROJECT.

    (a) Short Title.--This subchapter may be cited as the 
``Collbran Project Unit Conveyance Act''.
    (b) Definitions.--For purposes of this subchapter:
            (1) Districts.--The term ``Districts'' means the 
        Ute Water Conservancy District and the Collbran 
        Conservancy District (including their successors and 
        assigns), which are political subdivisions of the State 
        of Colorado.
            (2) Federal reclamation laws.--The term ``Federal 
        reclamation laws'' means the Act of June 17, 1902 and 
        Acts amendatory thereof or supplementary thereto (32 
        Stat. 388, chapter 1093; 43 U.S.C. 371 et seq.) 
        (including regulations adopted pursuant to those Acts).
            (3) Project.--The term ``Project'' means the 
        Collbran Reclamation Project, as constructed and 
        operated under the Act of July 3, 1952 (66 Stat. 325, 
        chapter 565), including all property, equipment, and 
        assets of or relating to the Project that are owned by 
        the United States, including--
                    (A) Vega Dam and Reservoir (but not 
                including The Vega Recreation Facilities);
                    (B) Leon-Park Dams and Feeder Canal;
                    (C) Southside Canal;
                    (D) East Fork Diversion Dam and Feeder 
                Canal;
                    (E) Bonham-Cottonwood Pipeline;
                    (F) Snowcat Shed and Diesel Storage;
                    (G) Upper Molina Penstock and Power Plant;
                    (H) Lower Molina Penstock and Power Plant;
                    (I) the diversion structure in the tailrace 
                of the Lower Molina Power Plant;
                    (J) all substations and switchyards;
                    (K) a non-exclusive easement for the use of 
                existing easements or rights-of-way owned by 
                the United States on or across nonfederal lands 
                which are necessary for access to Project 
                facilities;
                    (L) title to lands reasonably necessary for 
                all Project facilities except for land 
                described in subparagraph (K) or subsection 
                (c)(1)(B) or (C);
                    (M) all permits and contract rights held by 
                the Bureau of Reclamation, including, without 
                limitation, contract or other rights relating 
                to the operation, use, maintenance, repair, or 
                replacement of the water storage reservoirs 
                located on the Grand Mesa which are operated as 
                a part of the Project;
                    (N) all equipment, parts inventories, and 
                tools;
                    (O) all additions, replacements, 
                betterments, and appurtenances to any of the 
                above; and
                    (P) a copy of all data, plans, designs, 
                reports, records, or other materials, whether 
                in writing or in any form of electronic storage 
                relating specifically to the Project.
            (4) Vega recreation facilities.--The term ``Vega 
        Recreation Facilities'' includes, but is not limited 
        to, buildings, campgrounds, picnic areas, parking lots, 
        fences, boat docks and ramps, electrical lines, water 
        and sewer systems, trash and toilet facilities, roads 
        and trails, and other structures and equipment used for 
        State park purposes at and near Vega Reservoir such as 
        recreation, maintenance and daily and overnight visitor 
        use, and lands above the high water level of Vega 
        Reservoir within the area previously defined by the 
        Department of the Interior as the ``Reservoir Area 
        Boundary'' which have not historically been utilized 
        for Collbran Project water storage and delivery 
        facilities, together with an easement for public access 
        for recreational purposes to Vega Reservoir and the 
        water surface thereof, and construction, operation, 
        maintenance and replacement of such recreation 
        facilities below the high water line. Such facilities 
        shall also include improvements constructed or added as 
        a result of the agreements referred to in section 
        (c)(6).
    (c) Conveyance of the Collbran Project.--
            (1) In general.--
                    (A) Conveyance to districts.--The Secretary 
                of the Interior shall convey to the Districts 
                all right, title, and interest of the United 
                States in and to the Project, as described in 
                subsection (b)(3), by quitclaim deed and bill 
                of sale, without warranties, in the last 
                quarter of fiscal year 2000, subject only to 
                the requirements of this section. Until such 
                conveyance occurs, the Bureau of Reclamation 
                shall continue to provide for the operation, 
                maintenance, repair, and replacement of Project 
                facilities and the storage reservoirs on the 
                Grand Mesa to the extent such responsibilities 
                are the responsibility of the Bureau of 
                Reclamation and have not been delegated to the 
                Districts prior to the date of enactment of 
                this Act or are delegated or transferred to the 
                Districts by agreement thereafter, so that at 
                the time of conveyance such facilities are in 
                the same condition as, or better condition 
                than, the condition of the facilities on the 
                date of enactment of this Act.
                    (B) Easements on national forest system 
                lands.--The Secretary of Agriculture shall 
                grant, in the last quarter of fiscal year 2000, 
                subject only to the requirements of this 
                section; (i) a non-exclusive easement on and 
                across National Forest System lands to the 
                Districts for ingress and egress on existing 
                access routes to each existing component of the 
                Project and to the existing storage reservoirs 
                on the Grand Mesa which are operated as a part 
                of the Project; (ii) a non-exclusive easement 
                on National Forest System lands for the 
                operation, use, maintenance, repair, and 
                replacement, but not enlargement, of the 
                existing storage reservoirs on the Grand Mesa 
                to the owners and operators of such reservoirs 
                which are operated as a part of the Project; 
                which easement may be exercised in the event 
                that the existing land use authorizations for 
                such storage reservoirs are restricted, 
                terminated, relinquished, or abandoned, and 
                which easement shall not be subject to 
                conditions or requirements that interfere with 
                or limit the use of such reservoirs for water 
                supply or power purposes; and (iii) a non-
                exclusive easement to the Districts for the 
                operation, use, maintenance, repair, and 
                replacement, but not enlargement, of those 
                components of Project facilities which are 
                located on National Forest System lands, 
                subject to the requirement that the Districts 
                shall provide reasonable notice to and the 
                opportunity for consultation with the 
                designated representative of the Secretary of 
                Agriculture for non-routine, non-emergency 
                activities that occur on such easements.
                    (C) Easements to districts for southside 
                canal.--The Secretary of the Interior shall 
                grant to the Districts, in the last quarter of 
                fiscal year 2000, subject only to the 
                requirements of this section, (i) a non-
                exclusive easement on and across lands 
                administered by agencies within the Department 
                of the Interior for ingress and egress on 
                existing access routes to and along the 
                Southside Canal, and (ii) a non-exclusive 
                easement for the operation, use, maintenance, 
                repair, and replacement of the Southside Canal, 
                subject to the requirement that the Districts 
                shall provide reasonable notice to and the 
                opportunity for consultation with the 
                designated representative of the Secretary of 
                the Interior for non-routine, non-emergency 
                activities that occur on such easements.
            (2) Reservation.--The transfer of rights and 
        interests pursuant to paragraphs (1)(A), (B), and (C) 
        shall reserve to the United States all minerals, 
        including hydrocarbons, and a perpetual right of public 
        access over, across, under, and to the portions of the 
        Project which on the date of enactment of this Act were 
        open to public use for fishing, boating, hunting, and 
        other outdoor recreation purposes and other public uses 
        such as grazing, mineral development and logging: 
        Provided, That the United States may allow for 
        continued public use and enjoyment of such portions of 
        the Project for recreational activities and other 
        public uses conducted as of the date of enactment of 
        this Act.
            (3) Conveyance to state of colorado.--All right, 
        title, and interest in the Vega Recreation Facilities 
        shall remain in the United States until the terms of 
        the agreements referred to in paragraph (6) have been 
        fulfilled by the United States. At such time, all 
        right, title, and interest in the Vega Recreation 
        Facilities shall be conveyed by the Secretary of the 
        Interior to the State of Colorado, Division of Parks 
        and Outdoor Recreation.
            (4) Payment.--
                    (A) In general.--At the time of transfer, 
                the Districts shall pay to the United States 
                $12,900,000 ($12,300,000 of which represents 
                the net present value of the outstanding 
                repayment obligations for the Project), of 
                which--
                            (i) $12,300,000 shall be deposited 
                        in the general fund of the United 
                        States Treasury; and
                            (ii) $600,000 shall be deposited in 
                        a special account in the United States 
                        Treasury and shall be available to the 
                        United States Fish and Wildlife 
                        Service, Region 6, without further 
                        appropriation, for use in funding 
                        Colorado operations and capital 
                        expenditures associated with the Grand 
                        Valley Water Management Project for the 
                        purpose of recovering endangered fish 
                        in the Upper Colorado River Basin, as 
                        identified in the Recovery 
                        Implementation Program for Endangered 
                        Fish Species in the Upper Colorado 
                        River Basin, or such other component of 
                        the Recovery Implementation Program 
                        within Colorado that is selected with 
                        the concurrence of the Governor of the 
                        State of Colorado.
                    (B) Source of funds.--Funds for the payment 
                to the extent of the amount specified in 
                subparagraph (A) shall not be derived from the 
                issuance or sale, prior to the conveyance, of 
                State or local bonds the interest on which is 
                exempt from taxation under section 103 of the 
                Internal Revenue Code of 1986.
            (5) Operation of project.--
                    (A) In general.--The Project was authorized 
                and constructed to place water to beneficial 
                use for authorized purposes within the State of 
                Colorado. The Project shall be operated and 
                used by the Districts for a period of 40 years 
                after the date of enactment of this Act for the 
                purposes for which the Project was authorized 
                under the Act of July 3, 1952 (66 Stat. 325, 
                chapter 565). The Districts shall attempt to 
                the extent practicable, taking into 
                consideration historic Project operations, to 
                notify the State of Colorado of changes in 
                historic Project operations which may adversely 
                affect State park operations.
                    (B) Requirements.--During the 40-year 
                period described in subparagraph (A)--
                            (i) the Districts shall annually 
                        submit to the Secretary of Agriculture 
                        and the Colorado Department of Natural 
                        Resources a plan for operation of the 
                        Project, which plan shall--
                                    (I) report on Project 
                                operations for the previous 
                                year;
                                    (II) provide a description 
                                of the manner of Project 
                                operations anticipated for the 
                                forthcoming year, which shall 
                                be prepared after consultation 
                                with the designated 
                                representatives of the 
                                Secretary of Agriculture, the 
                                Board of County Commissioners 
                                of Mesa County, Colorado, and 
                                the Colorado Department of 
                                Natural Resources; and
                                    (III) certify that the 
                                Districts have operated and 
                                will operate and maintain the 
                                Project facilities in 
                                accordance with sound 
                                engineering practices; and
                            (ii) subject to subsection (d), all 
                        electric power generated by operation 
                        of the Project shall be made available 
                        to and be marketed by the Western Area 
                        Power Administration (including its 
                        successors or assigns).
            (6) Agreements.--Conveyance of the Project shall be 
        subject to the agreements between the United States and 
        the State of Colorado dated August 22, 1994, and 
        September 23, 1994, relating to the construction and 
        operation of recreational facilities at Vega Reservoir, 
        which agreements shall continue to be performed by the 
        parties thereto according to the terms of the 
        agreements.
    (d) Operation of the Power Component.--
            (1) Conformity to historic operations.--The power 
        component and facilities of the Project shall be 
        operated in substantial conformity with the historic 
        operations of the power component and facilities 
        (including recent operations in a peaking mode).
            (2) Power marketing.--
                    (A) Existing marketing arrangement.--The 
                Post-1989 Marketing Criteria, which provide for 
                the marketing of power generated by the power 
                component of the Project as part of the output 
                of the Salt Lake City Area Integrated Projects, 
                shall no longer be binding on the Project upon 
                conveyance of the Project under subsection 
                (c)(1).
                    (B) After termination of existing marketing 
                arrangement.--
                            (i) In general.--After the 
                        conveyance, the Districts shall offer 
                        all power produced by the power 
                        component of the Project to the Western 
                        Area Power Administration or its 
                        successors or assigns (referred to in 
                        this section as ``Western''), which, in 
                        consultation with its affected 
                        preference customers, shall have the 
                        first right to purchase such power at 
                        the rates established in accordance 
                        with clause (ii). If Western declines 
                        to purchase the power after 
                        consultation with its affected 
                        preference customers, such power shall 
                        then be offered at the same rates first 
                        to Western's preference customers 
                        located in the Salt Lake City Area 
                        Integrated Projects marketing area 
                        (referred to in this section as the 
                        ``SLCAIP preference customers''). 
                        Thereafter, such power may be sold to 
                        any other party: Provided, however, 
                        That no such sale may occur at rates 
                        less than rates established in 
                        accordance with clause (ii) unless such 
                        power is first offered at such lesser 
                        rate first to Western and then to its 
                        SLCAIP preference customers.
                            (ii) The rate for power initially 
                        offered to Western and its SLCAIP 
                        preference customers under this 
                        paragraph shall not exceed that 
                        required to produce revenues sufficient 
                        to provide for
                                    (I) annual debt service 
                                and/or recoupment of the cost 
                                of capital for the amount 
                                specified in subsection 
                                (c)(4)(A)(i) of this section, 
                                less the sum of $310,000 (which 
                                is the net present value of the 
                                outstanding repayment 
                                obligation of the Collbran 
                                Conservancy District), and
                                    (II) the cost of operation, 
                                maintenance, and replacement of 
                                the power component of the 
                                Project.
                        Such costs and rate shall be determined 
                        in a manner consistent with the current 
                        principles followed by the Secretary of 
                        the Interior and by Western in its 
                        annual power and repayment study.
    (e) License.--
            (1) Prior to the conveyance of the Project to the 
        Districts, the Commission shall issue to the Districts 
        a license or licenses as appropriate under part I of 
        the Federal Power Act, as amended, (16 U.S.C. 791 et 
        seq.), authorizing for a term of 40 years the continued 
        operation and maintenance of the power component of the 
        Project.
            (2) The license issued pursuant to subsection (1):
                    (A) shall be for the purpose of operating, 
                using, maintaining, repairing, and replacing 
                the power component of the Project as 
                authorized by the Act of July 3, 1952 (66 Stat. 
                325, chapter 565);
                    (B) shall be conditioned upon the 
                requirement that the power component of the 
                project continue to be operated and maintained 
                in accordance with the authorized purposes of 
                the project;
                    (C) shall be subject only to the provisions 
                of Part I of the Federal Power Act, except the 
                word ``constructed'' in section 3(10); the four 
                provisos of section 4(e); section 6 to the 
                extent it requires the licensee's acceptance of 
                those terms and conditions of the Act that this 
                subsection waives; section 10(e) as concerns 
                annual charges for the use and occupancy of 
                federal lands and facilities; section 10(f); 
                section 10(j); section 18; section 19; section 
                20; and section 22 of the Federal Power Act, 16 
                U.S.C. 796(10), 797(e), 799, 803(e), 803(f), 
                803(j), 811, 812, 813, and 815; and shall not 
                be subject to the standard ``L-Form'' license 
                conditions, published at 54 FPC 1792-1928 
                (1975), the Federal Land Policy and Management 
                Act (43 U.S.C. 1701 et seq.), as amended, 
                section 2402 of the Energy Policy Act of 1992 
                (16 U.S.C. 797c), the National Environmental 
                Policy Act of 1969 (42 U.S.C. 4321 et seq.), 
                the Endangered Species Act of 1973 (16 U.S.C. 
                1531 et seq.), the Wild and Scenic Rivers Act 
                (16 U.S.C. 1271 et seq.), the Federal Water 
                Pollution Control Act (commonly known as the 
                ``Clean Water Act'') (33 U.S.C. 1251 et seq.), 
                the National Historic Preservation Act (16 
                U.S.C. 470 et seq.), the Coastal Zone 
                Management Act of 1972 (16 U.S.C. 1451 et 
                seq.), the Fish and Wildlife Coordination Act 
                (16 U.S.C. 661 et seq.), or any other Act 
                otherwise applicable to the licensing of the 
                project.
            (3) The license issued under paragraph (1) is 
        deemed to meet the licensing standards of the Federal 
        Power Act, including section 10(a) and the last 
        sentence of section 4(e), 16 U.S.C. 797(e).
            (4) Any power site reservation established by the 
        President, the Secretary of the Interior, or pursuant 
        to section 24 of the Federal Power Act (16 U.S.C. 818) 
        or any other law, which exists on any lands, whether 
        federally or privately owned, that are included within 
        the boundaries of the project shall be vacated by 
        operation of law upon issuance of the license for the 
        project.
            (5) All requirements of Part I of the Federal Power 
        Act and of any other Act applicable to the licensing of 
        a hydroelectric project shall apply to the project upon 
        expiration of the license issued under this section.
            (6) For purposes of this section, ``Commission'' 
        means the Federal Energy Regulatory Commission.
            (7) The operation of the Project shall be subject 
        to all applicable state and federal laws subsequent to 
        the issuance of the license pursuant to paragraph (1).
    (f) Inapplicability of NEPA.--Neither the conveyance of the 
Project nor the issuance of easements pursuant to this section 
constitutes a major Federal action within the meaning of the 
National Environmental Policy Act of 1969 (42 U.S.C. 4321 et 
seq.), including any regulations issued under such Act.
    (g) Inapplicability of Prior Agreements and of Federal 
Reclamation Laws.--On conveyance of the Project to the 
Districts--
            (1) the Repayment Contract dated May 27, 1957, as 
        amended April 12, 1962, between the Collbran 
        Conservancy District and the United States, and the 
        Contract for use of Project facilities for Diversion of 
        Water dated January 11, 1962, as amended November 10, 
        1977, between the Ute Water Conservancy District and 
        the United States, shall be terminated and of no 
        further force or effect; and
            (2) the Project shall no longer be subject to or 
        governed by the Federal reclamation laws.
    (h) Districts' Liability.--The Districts shall be liable, 
to the extent allowed under State law, for all acts or 
omissions relating to the operation and use of the Project by 
the Districts that occur subsequent to the conveyance under 
section (c), including damages to Federal lands or facilities 
which result from the failure of Project facilities.
    (i) Effect on State Law.--Nothing in this section shall be 
construed to impair the effectiveness of any State or local law 
(including regulations) relating to land use.
    (j) Treatment of Sales for Purposes of Certain Laws.--The 
sales of assets under this subchapter shall not be considered a 
disposal of Federal surplus property under the following 
provisions of law:
            (1) Section 203 of the Federal Property and 
        Administrative Services Act of 1949 (40 U.S.C. 484).
            (2) Section 13 of the Surplus Property Act of 1944 
        (50 U.S.C. App. 1622).

                         Subchapter D--Sly Park

SEC. 5356. SLY PARK.

    (a) Short Title.--This subchapter may be cited as the ``Sly 
Park Unit Conveyance Act''.
    (b) Definitions.--For purposes of this subchapter:
            (1) The term ``El Dorado Irrigation District'' or 
        ``District'' means a political subdivision of the State 
        of California duly organized, existing, and acting 
        pursuant to the laws thereof with its principal place 
        of business in the city of Placerville, El Dorado 
        County, California.
            (2) The term ``Secretary'' means the Secretary of 
        the Interior.
            (3) The term ``Sly Park Unit'' means the Sly Park 
        Dam and Reservoir, Camp Creek Diversion Dam and Tunnel 
        and conduits and canals as authorized under the Act 
        entitled ``An Act to authorize the American River Basin 
        development, California, for irrigation and 
        reclamation, and for other purposes'', approved October 
        14, 1949 (63 Stat. 852 chapter 690), together with all 
        other facilities owned by the United States including 
        those used to convey and store water delivered from Sly 
        Park, as well as all recreation facilities associated 
        thereto.
    (c) Sale of the Sly Park Unit.--
            (1) In general.--The Secretary shall, on or before 
        December 31, 1997, and upon receipt of the payment for 
        the original construction debt described in paragraph 
        (2), sell and convey to the El Dorado Irrigation 
        District all right, title, and interest of the United 
        States in and to the Sly Park Unit. At the time the Sly 
        Park Unit is conveyed, the Secretary shall also 
        transfer and assign to the District the water rights 
        relating to the Sly Park Unit held in trust by the 
        Secretary for diversion and storage under California 
        State permits numbered 2631, 5645A, 10473, and 10474.
            (2) Sale price.--The sale price for the Sly Park 
        Unit shall be $3,993,982, which is the outstanding 
        balance for the original construction of the Sly Park 
        Unit payable to the United States. Payment shall be 
        deposited as miscellaneous receipts in the Treasury and 
        credited to the Central Valley Project Restoration 
        Fund. Payment of such price shall extinguish all 
        payment obligations under contract numbered 14-06-200-
        949 between the District and the Secretary.
    (d) No Additional Environmental Impact.--The Congress 
specifically finds that (A) the sale, conveyance and assignment 
of the Sly Park Unit and water rights under this section 
involves the transfer of the ownership and operation of an 
existing ongoing water project, (B) the Sly Park Unit 
operation, facilities, and water rights have been, and after 
the sale and transfer will continue to be, committed to maximum 
reasonable and beneficial use for existing services, and (C) 
the sale, conveyance and assignment of the Sly Park Unit and 
water rights does not involve any additional growth or 
expansion of the project or other environmental impacts. 
Consequently, the sale, conveyance and assignment of the Sly 
Park Unit and water rights shall not be subject to 
environmental review pursuant to the National Environmental 
Policy Act of 1969 (42 U.S.C. 4332) or endangered species 
review or consultation pursuant to section 7 of the Endangered 
Species Act of 1973 (16 U.S.C. 1536).
    (e) Certain Contract Obligations Not Affected.--The sale of 
the Sly Park Unit under this section shall not affect the 
payment obligations of the District under the contract between 
the District and the Secretary numbered 14-06-200-7734, as 
amended by contracts numbered 14-06-200-4282A and 14-06-200-
8536A.
    (f) Treatment of Sales for Purposes of Certain Laws.--The 
sales of assets under this subchapter part shall not be 
considered a disposal of Federal surplus property under the 
following provisions of law:
            (1) Section 203 of the Federal Property and 
        Administrative Services Act of 1949 (40 U.S.C. 484).
            (2) Section 13 of the Surplus Property Act of 1944 
        (50 U.S.C. App. 1622).

                   Subchapter E--Central Utah Project

SEC. 5357. PREPAYMENT OF CERTAIN REPAYMENT CONTRACTS BETWEEN THE UNITED 
                    STATES AND THE CENTRAL UTAH WATER CONSERVANCY 
                    DISTRICT.

    The second sentence of section 210 of the Central Utah 
Project Completion Act (106 Stat. 4624) is amended to read as 
follows: ``The Secretary shall allow for prepayment of the 
repayment contract between the United States and the Central 
Utah Water Conservancy District dated December 28, 1965, and 
supplemented on November 26, 1985, providing for repayment of 
municipal and industrial water delivery facilities for which 
repayment is provided pursuant to such contract, under terms 
and conditions similar to those contained in the supplemental 
contract that provided for the prepayment of the Jordan 
Aqueduct dated October 28, 1993. The prepayment may be provided 
in several installments to reflect substantial completion of 
the delivery facilities being prepaid and may not be adjusted 
on the basis of the type of prepayment financing utilized by 
the District: Provided That the District shall complete all 
payments authorized pursuant to this section by the end of 
fiscal year 2002.''.

                CHAPTER 4--FEDERAL OIL AND GAS ROYALTIES

SEC. 5361. DEFINITIONS.

    Section 3 of the Federal Oil and Gas Royalty Management Act 
of 1982 (30 U.S.C. 1701 et seq.) is amended--
            (1) by amending paragraph (7) to read as follows:
            ``(7) `lessee' means any person to whom the United 
        States issues an oil and gas lease or any person to 
        whom operating rights in a lease have been assigned;''; 
        and
            (2) by striking ``and'' at the end of paragraph 
        (15), by striking the period at the end of paragraph 
        (16) and inserting a semicolon, and by adding at the 
        end the following:
            ``(17) `adjustment' means an amendment to a 
        previously filed report on an obligation, and any 
        additional payment or credit, if any, applicable 
        thereto, to rectify an underpayment or overpayment on a 
        lease;
            ``(18) `administrative proceeding' means any 
        Department of the Interior agency process in which a 
        demand, decision or order issued by the Secretary or a 
        delegated State is subject to appeal or has been 
        appealed;
            ``(19) `assessment' means any fee or charge levied 
        or imposed by the Secretary or a delegated State other 
        than--
                    ``(A) the principal amount of any royalty, 
                minimum royalty, rental, bonus, net profit 
                share or proceed of sale;
                    ``(B) any interest; or
                    ``(C) any civil or criminal penalty;
            ``(20) `commence' means--
                    ``(A) with respect to a judicial 
                proceeding, the service of a complaint, 
                petition, counterclaim, crossclaim, or other 
                pleading seeking affirmative relief or seeking 
                credit or recoupment; or
                    ``(B) with respect to a demand, the receipt 
                by the Secretary or a delegated State or a 
                lessee of the demand;
            ``(21) `credit' means the application of an 
        overpayment (in whole or in part) against an obligation 
        which has become due to discharge, cancel or reduce the 
        obligation;
            ``(22) `delegated State' means a State which, 
        pursuant to an agreement or agreements under section 
        205, performs authorities, duties, responsibilities, or 
        activities of the Secretary which may be performed by a 
        State under the Constitution of the United States for 
        all lands within the State, including, but not limited 
        to--
                    ``(A) activities under sections 111 and 
                115;
                    ``(B) collection, audit, lease and post-
                lease management activities, and applicable 
                enforcement activities;
                    ``(C) inspections (including activities 
                described in section 108;
                    ``(D) approval of pooling, unitization, and 
                communitization agreements; and
                    ``(E) investigations;
            ``(23) `demand' means--
                    ``(A) an order to pay issued by the 
                Secretary or the applicable delegated State 
                that has a reasonable basis to conclude that 
                the obligation in the amount of the demand is 
                due and owing; or
                    ``(B) a separate written request by a 
                lessee which asserts an obligation due the 
                lessee that has a reasonable basis to conclude 
                that the obligation in the amount of the demand 
                is due and owing, but does not mean any royalty 
                or production report, or any information 
                contained therein, required by the Secretary or 
                a delegated State;
            ``(24) `obligation' means--
                    ``(A) any duty of the Secretary or, if 
                applicable, a delegated State--
                            ``(i) to take oil or gas royalty in 
                        kind at or near the lease (unless the 
                        lease expressly provides for delivery 
                        at a different location); or
                            ``(ii) to pay, refund, offset, or 
                        credit monies including but not limited 
                        to)--
                                    ``(I) the principal amount 
                                of any royalty, minimum 
                                royalty, rental, bonus, net 
                                profit share or proceed of 
                                sale; or
                                    ``(II) any interest;
                    ``(B) any duty of a lessee--
                            ``(i) to deliver oil or gas royalty 
                        in kind at or near the lease (unless 
                        the lease expressly provides for 
                        delivery at a different location); or
                            ``(ii) to pay, offset or credit 
                        monies including but not limited to--
                                    ``(I) the principal amount 
                                of any royalty, minimum 
                                royalty, rental, bonus, net 
                                profit share or proceed of 
                                sale;
                                    ``(II) any interest;
                                    ``(III) any penalty; or
                                    ``(IV) any assessment, 
                                which arises from or relates to 
                                any lease administered by the 
                                Secretary for, or any mineral 
                                leasing law related to, the 
                                exploration, production and 
                                development of oil or gas on 
                                Federal lands or the Outer 
                                Continental Shelf;
            ``(25) `order to pay' means a written order issued 
        by the Secretary or the applicable delegated State 
        which--
                    ``(A) asserts a specific, definite, and 
                quantified obligation claimed to be due, and
                    ``(B) specifically identifies the 
                obligation by lease, production month and 
                monetary amount of such obligation claimed to 
                be due and ordered to be paid, as well as the 
                reason or reasons such obligation is claimed to 
                be due, but such term does not include any 
                other communication or action by or on behalf 
                of the Secretary or a delegated State;
            ``(26) `overpayment' means any payment by a lessee 
        in excess of an amount legally required to be paid on 
        an obligation and includes the portion of any estimated 
        payment for a production month that is in excess of the 
        royalties due for that month;
            ``(27) `payment' means satisfaction, in whole or in 
        part, of an obligation;
            ``(28) `penalty' means a statutorily authorized 
        civil fine levied or imposed for a violation of this 
        Act, any mineral leasing law, or a term or provision of 
        a lease administered by the Secretary;
            ``(29) `refund' means the return of an overpayment;
            ``(30) `State concerned' means, with respect to a 
        lease, a State which receives a portion of royalties or 
        other payments under the mineral leasing laws from such 
        lease;
            ``(31) `underpayment' means any payment or 
        nonpayment by a lessee that is less than the amount 
        legally required to be paid on an obligation; and
            ``(32) `United States' means the United States 
        Government and any department, agency, or 
        instrumentality thereof, the several States, the 
        District of Columbia, and the territories of the United 
        States.''.

SEC. 5362. MAXIMIZING RECEIPTS THROUGH STATE EFFORTS.

    (a) General Authority.--Section 205(a) of the Federal Oil 
and Gas Royalty Management Act of 1982 (30 U.S.C. 1735(a)) is 
amended to read as follows:
    ``(a) In order to provide incentives to States to maximize 
the amount of oil and gas receipts collected on lease 
obligations within the six-year period of limitations, and 
consequently to maximize the Federal share of such receipts to 
the United States Treasury, upon written request of a State, 
the State, pursuant to an agreement or agreements and 
consistent with subsection (c), may perform all or part of the 
authorities, duties, responsibilities, and activities of the 
Secretary under this Act which may be delegated to a State 
under the Constitution of the United States for all Federal 
lands within the State. The delegated State shall assume and 
perform the authorities, duties, responsibilities, or 
activities delegated under this section. To avoid duplication 
of effort, any authority, duty, responsibility, or activity 
delegated to a State under this Act with respect to all Federal 
lands within the State may not be carried out by the Secretary. 
Under any such agreement, the Secretary shall share oil or gas 
royalty management information.''.
    (b) Determination.--Section 205(b) of the Federal Oil and 
Gas Royalty Management Act of 1982 (30 U.S.C. 1735(b)) is 
amended by striking ``is authorized to'' and inserting 
``shall''.
    (c) Federal-State Royalty Collection Efforts.--Subsection 
(c) section 205 of the Federal Oil and Gas Royalty Management 
Act of 1982 (30 U.S.C. 1735) is amended by striking ``which 
define'' and all that follows and inserting ``within 18 months 
after the date of enactment of section 115, under which States 
may perform the authorities, duties, responsibilities, and 
activities under this title which are subject to delegation, 
based on the recommendations of the States concerned following 
consultation with affected persons. If the Secretary decides 
not to follow any recommendations supported by all States 
concerned, the Secretary shall justify such decision within 30 
days after making such decision. In carrying out this section 
the Secretary shall provide for reasonable flexibility to a 
State to perform any authority, duty, responsibility or 
activity delegated hereunder in a more efficient and cost-
effective manner and provide the States concerned a direct role 
in determining such requirements, procedures and policies. To 
ensure efficient and timely collections of royalties pursuant 
to this Act, the delegated States shall provide--
            ``(1) for the effective and efficient performance 
        of any authority, duty, responsibility or activity 
        delegated under this Act;
            ``(2) for the consistent and uniform performance 
        among the delegated States of any authority, duty, 
        responsibility or activity delegated under this Act;
            ``(3) for valuation under the terms of the leases 
        and applicable Federal statutes; and
            ``(4) for uniform reporting form and reporting 
        requirements for all Federal lessees, unless the State 
        and all affected parties otherwise agree.''.
    (d) Performance.--Subsection (d) of section 205 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 
1735) is amended by striking ``, pertaining'' and all that 
follows and inserting the following: ``for requirements 
pertaining to records and accounts to be maintained and 
reporting procedures to be required by delegated States under 
this section. The records and accounts under such reporting 
procedures shall be sufficient to allow the Secretary to 
monitor the performance of any delegated State under this 
section. The applicable delegated State and the Secretary shall 
agree to terms and conditions for inclusion into an agreement 
to perform all or part of the authorities, duties, 
responsibilities, and activities under this title consistent 
with subsection (c).''.
    (e) State Actions.--Section 204 of the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C. 1734) is amended by 
adding at the end the following:
    ``(d) With respect to enforcement of an obligation under 
this Act, a State bringing an action under this section shall 
enjoy no greater rights than the Secretary enjoys under this 
Act.''.
    (f) Savings Provision.--Nothing in the amendments made by 
this section shall impair any agreement, or any extension 
thereof, existing under section 205 as in effect on the day 
before the date of enactment of this Act. Following enactment 
of this Act, any State which is a party to an existing 
agreement under such section under which the State has been 
delegated audit or inspection responsibility, may issue orders 
to pay, subpoenas, or notices to perform restructured 
accounting and may continue to perform audits or inspections 
under terms and conditions consistent with the Federal Oil and 
Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et seq.), as 
amended by this chapter.
    (g) Receipts.--Section 205(f) of the Federal Oil and Gas 
Royalty Management Act of 1982 (30 U.S.C. 1735(f)) is amended 
by adding at the end the following: ``Such costs shall be 
allocable for the purposes of section 35(b) of the Act entitled 
``An Act to promote the mining of coal, phosphate, oil, oil 
shale, gas, and sodium on the public domain'', approved 
February 25, 1920 (commonly known as the ``Mineral Leasing 
Act'') (30 U.S.C. 191(b)) to the administration and enforcement 
of laws providing for the leasing of any onshore lands or 
interests in land owned by the United States. The Secretary 
shall compensate any State in the next succeeding fiscal year 
for the aggregate amount of such costs incurred but not 
compensated due to such allocation for the current fiscal year. 
All money received from sales, bonuses, royalties, and 
interest, including money claimed to be due and owing pursuant 
to a delegation under this section, shall be payable and paid 
to the Treasury of the United States.''.

SEC. 5363. SECRETARIAL AND DELEGATED STATES' ACTIONS AND LIMITATION 
                    PERIODS.

    (a) In General.--The Federal Oil and Gas Royalty Management 
Act of 1982 (30 U.S.C. 1701 et seq.) is amended by adding after 
section 114 the following new section:

``SEC. 115. SECRETARIAL AND DELEGATED STATES' ACTIONS AND LIMITATION 
                    PERIODS.

    ``(a) In General.--All duties, responsibilities, and 
activities with respect to a lease shall be performed by the 
Secretary, delegated States, and lessees in a timely manner.
    ``(b) Limitation Period.--
            ``(1) A judicial proceeding or demand which arises 
        from, or relates to an obligation, shall be commenced 
        within six years from the date on which the obligation 
        becomes due and if not so commenced shall be barred. 
        The Secretary, a delegated State, or a lessee (A) shall 
        not take any other or further action regarding that 
        obligation, including (but not limited to) the issuance 
        of any order, request, demand or other communication 
        seeking any document, accounting, determination, 
        calculation, recalculation, payment, principal, 
        interest, assessment, or penalty or the initiation, 
        pursuit or completion of an audit with respect to that 
        obligation; and (B) shall not pursue any other 
        equitable or legal remedy, whether under statute or 
        common law, with respect to an action on or an 
        enforcement of said obligation.
            ``(2) The limitations set forth in sections 2401, 
        2415, 2416, and 2462 of title 28, United States Code 
        and section 42 of the Mineral Leasing Act (30 U.S.C. 
        226-2) shall not apply to any obligation to which this 
        Act applies. Section 3716 of title 31, United States 
        Code, may be applied to an obligation the enforcement 
        of which is not barred by this Act, but may not be 
        applied to any obligation the enforcement of which is 
        barred by this Act.
    ``(c) Obligation Becomes Due.--
            ``(1) In general.--For purposes of this Act, an 
        obligation becomes due when the right to enforce the 
        obligation is fixed.
            ``(2) Royalty obligations.--The right to enforce 
        any royalty obligation for any given production month 
        for a lease is fixed for purposes of this Act on the 
        last day of the calendar month following the month in 
        which oil or gas is produced.
    ``(d) Tolling of Limitation Period.--The running of the 
limitation period under subsection (b) shall not be suspended, 
tolled, extended, or enlarged for any obligation for any reason 
by any action, including an action by the Secretary or a 
delegated State, other than the following:
            ``(1) Tolling agreement.--A written agreement 
        executed during the limitation period between the 
        Secretary or a delegated State and a lessee which tolls 
        the limitation period for the amount of time during 
        which the agreement is in effect.
            ``(2) Subpoena.--
                    ``(A) The issuance of a subpoena to a 
                lessee in accordance with the provisions of 
                subsection (B)(i) shall toll the limitation 
                period with respect to the obligation which is 
                the subject of a subpoena only for the period 
                beginning on the date the lessee receives the 
                subpoena and ending on the date on which (i) 
                the lessee has produced such subpoenaed records 
                for the subject obligation, (ii) the Secretary 
                or a delegated State receives written notice 
                that the subpoenaed records for the subject 
                obligation are not in existence or are not in 
                the lessee's possession or control, or (iii) a 
                court has determined in a final decision that 
                such records are not required to be produced, 
                whichever occurs first.
                    ``(B)(i) A subpoena for the purposes of 
                this section which requires a lessee to produce 
                records necessary to determine the proper 
                reporting and payment of an obligation due the 
                Secretary may be issued only by an Assistant 
                Secretary of the Interior or an acting 
                Assistant Secretary of the Interior who is a 
                schedule C employee (as defined by section 
                213.3301 of title 5, Code of Federal 
                Regulations) and may not be delegated to any 
                other person. If a State has been delegated 
                authority pursuant to section 205, the State, 
                acting through the highest elected State 
                official having ultimate authority over the 
                collection of royalties from leases on Federal 
                lands within the state, may issue such 
                subpoena, but may not delegate such authority 
                to any other person.
                    ``(ii) A subpoena described in clause (i) 
                may only be issued against a lessee during the 
                limitation period provided in this section and 
                only after the Secretary or a delegated State 
                has in writing requested the records from the 
                lessee related to the obligation which is the 
                subject of the subpoena and has determined 
                that--
                            ``(I) the lessee has failed to 
                        respond within a reasonable period of 
                        time to the Secretary's or the 
                        applicable delegated State's written 
                        request for such records necessary for 
                        an audit, investigation or other 
                        inquiry made in accordance with the 
                        Secretary's or such delegated State's 
                        responsibilities under this Act; or
                            ``(II) the lessee has in writing 
                        denied the Secretary's or the 
                        applicable delegated State's written 
                        request to produce such records in the 
                        lessee's possession or control 
                        necessary for an audit, investigation 
                        or other inquiry made in accordance 
                        with the Secretary's or such delegated 
                        State's responsibilities under this 
                        Act; or
                            ``(III) the lessee has unreasonably 
                        delayed in producing records necessary 
                        for an audit, investigation or other 
                        inquiry made in accordance with the 
                        Secretary's or the applicable delegated 
                        State's responsibilities under this Act 
                        after the Secretary's or such delegated 
                        State's written request.
                    ``(C) In seeking records, the Secretary or 
                the applicable delegated State shall afford the 
                lessee a reasonable period of time after a 
                written request by the Secretary or such 
                delegated State in which to provide such 
                records prior to the issuance of any subpoena.
            ``(3) Misrepresentation or concealment.--The 
        intentional misrepresentation or concealment of a 
        material fact for the purpose of evading the payment of 
        an obligation in which case the limitation period shall 
        be tolled for the period of such misrepresentation or 
        such concealment.
            ``(4) Order to perform a restructured accounting.--
        (A) The issuance of a notice under subsection (D) that 
        the lessee has not adequately performed a restructured 
        accounting shall toll the limitation period with 
        respect to the obligation which is the subject of the 
        notice only for the period beginning on the date the 
        lessee receives the notice and ending 120 days after 
        the date on which (i) the Secretary or the applicable 
        delegated State receives written notice the accounting 
        or other requirement has been performed, or (ii) a 
        court has determined in a final decision that the 
        lessee is not required to perform the accounting, 
        whichever occurs first.
                    ``(B)(i) The Secretary or the applicable 
                delegated State may issue an order to perform a 
                restructured accounting to a lessee when the 
                Secretary or such delegated State determines 
                during an in-depth audit of a lessee that the 
                lessee should recalculate royalty due on an 
                obligation based upon the Secretary's or the 
                delegated State's finding that the lessee has 
                made identified underpayments or overpayments 
                which are demonstrated by the Secretary or the 
                delegated State to be based upon repeated, 
                systemic reporting errors for a significant 
                number of leases or a single lease for a 
                significant number of reporting months with the 
                same type of error which constitutes a pattern 
                of violations and which are likely to result in 
                either significant underpayments or 
                overpayments.
                    ``(ii) The power of the Secretary to issue 
                an order to perform a restructured accounting 
                may not be delegated below the most senior 
                career professional position having 
                responsibility for the royalty management 
                program, which position is currently designated 
                as the `Associate Director for Royalty 
                Management', and may not be delegated to any 
                other person. If a State has been delegated 
                authority pursuant to section 205, the State, 
                acting through the highest ranking State 
                official having ultimate authority over the 
                collection of royalties from leases on Federal 
                lands within the state, may issue such order to 
                perform, which may not be delegated to any 
                other person. An order to perform a 
                restructured accounting shall--
                            ``(I) be issued within a reasonable 
                        period of time from when the audit 
                        identifies the systemic, reporting 
                        errors;
                            ``(II) specify the reasons and 
                        factual bases for such order; and
                            ``(III) be specifically identified 
                        as an `order to perform a restructured 
                        accounting'.
                    ``(C) An order to perform a restructured 
                accounting shall not mean or be construed to 
                include any other communication or action by or 
                on behalf of the Secretary or a delegated 
                State.
                    ``(D) If a lessee fails to adequately 
                perform a restructured accounting pursuant to 
                this subsection, a notice shall be issued to 
                the lessee that the restructured accounting has 
                not been adequately performed. A lessee shall 
                be given a reasonable time within which to 
                perform the restructured accounting. Such 
                notice may be issued under this section only by 
                an Assistant Secretary of the Interior or an 
                acting Assistant Secretary of the Interior who 
                is a schedule C employee (as defined by section 
                213.3301 of title 5, Code of Federal 
                Regulations) and may not be delegated to any 
                other person. If a State has been delegated 
                authority pursuant to section 205, the State, 
                acting through the highest elected State 
                official having ultimate authority over the 
                collection of royalties from leases on Federal 
                lands within the state, may issue such notice, 
                which may not be delegated to any other person.
    ``(e) Termination of Limitations Period.--An action or an 
enforcement of an obligation by the Secretary or delegated 
State or a lessee shall be barred under this section prior to 
the running of the six-year period provided in subsection (b) 
in the event--
            ``(1) the Secretary or a delegated State has 
        notified the lessee in writing that a time period is 
        closed to further audit; or
            ``(2) the Secretary or a delegated State and a 
        lessee have so agreed in writing.
    ``(f) Records Required for Determining Collections.--
Records required pursuant to section 103 by the Secretary or 
any delegated State for the purpose of determining obligations 
due and compliance with any applicable mineral leasing law, 
lease provision, regulation or order with respect to oil and 
gas leases from Federal lands or the Outer Continental Shelf 
shall be maintained for the same period of time during which a 
judicial proceeding or demand may be commenced under subsection 
(b). If a judicial proceeding or demand is timely commenced, 
the record holder shall maintain such records until the final 
nonappealable decision in such judicial proceeding is made, or 
with respect to that demand is rendered, unless the Secretary 
or the applicable delegated State authorizes in writing an 
earlier release of the requirement to maintain such records. 
Notwithstanding anything herein to the contrary, under no 
circumstance shall a record holder be required to maintain or 
produce any record relating to an obligation for any time 
period which is barred by the applicable limitation in this 
section. Records required for administrative actions and 
investigations (including, but not limited to, accounting 
collection and audits) under this Act involving obligations 
shall not be duplicated pursuant to section 3518(c)(1)(B) of 
title 44, United States Code.
    ``(g) Timely Collections.--In order to most effectively 
utilize resources available to the Secretary to maximize the 
collection of oil and gas receipts from lease obligations to 
the Treasury within the six-year period of limitations, and 
consequently to maximize the State share of such receipts, the 
Secretary shall not perform or require accounting, reporting, 
or audit activities if the Secretary and the State concerned 
determines that the cost of conducting or requiring the 
activity exceeds the expected amount to be collected by the 
activity, based on the most current 12 months of activity. To 
the maximum extent possible, the Secretary and delegated States 
shall reduce costs to the United States Treasury and the States 
by discontinuing requirements for unnecessary or duplicative 
data and other information, such as separate allowances and 
payor information, relating to obligations due. If the 
Secretary and the State concerned determine that collection 
will result sooner, the Secretary or the applicable delegated 
State may waive or forego interest in whole or in part.
    ``(h) Appeals and Final Agency Action.--
            ``(1) 30-month period.--All orders issued by the 
        Secretary or a delegated State are subject to appeal to 
        the Secretary. No State shall impose any conditions 
        which would hinder a lessee's immediate appeal of an 
        order to the Secretary or the Secretary's designee. The 
        Secretary shall issue a final decision in any 
        administrative proceeding, including any administrative 
        proceedings pending on the date of enactment of this 
        section, within 30 months from the date such proceeding 
        was commenced or 30 months from the date of such 
        enactment, whichever is later. The 30-month period may 
        be extended by any period of time agreed upon in 
        writing by the Secretary and the lessee.
            ``(2) Effect of failure to issue decision.--If no 
        such decision has been issued by the Secretary within 
        the 30-month period referred to in paragraph (1)--
                    ``(A) the Secretary shall be deemed to have 
                issued and granted a decision in favor of the 
                lessee or lessees as to any nonmonetary 
                obligation and any monetary obligation the 
                principal amount of which is less than $2,500; 
                and
                    ``(B) the Secretary shall be deemed to have 
                issued a final decision in favor of the 
                Secretary, which decision shall be deemed to 
                affirm those issues for which the agency 
                rendered a decision prior to the end of such 
                period, as to any monetary obligation the 
                principal amount of which is $2,500 or more, 
                and the lessee shall have a right to a de novo 
                judicial review of such deemed final decision.
    ``(i) Collections of Disputed Amounts Due.--To expedite 
collections relating to disputed obligations due within the 
six-year period beginning on the date the obligation became 
due, the parties shall hold not less than one settlement 
consultation and the Secretary and the State concerned may take 
such action as is appropriate to compromise and settle a 
disputed obligation, including waiving or reducing interest and 
allowing offsetting of obligations among leases.
    ``(j) Enforcement of a Claim for Judicial Review.--In the 
event a demand subject to this section is properly and timely 
issued, the obligation which is the subject of the demand may 
be enforced beyond the six year limitations period without 
being barred by this statute of limitations. In the event a 
demand subject to this section is properly and timely 
commenced, a judicial proceeding challenging the final agency 
action with respect to such demand shall be deemed timely so 
long as such judicial proceeding is commenced within 180 days 
from receipt of notice by the lessee of the final agency 
action.
    ``(k) Implementation of Final Decision.--In the event a 
judicial proceeding or demand subject to this section is timely 
commenced and thereafter the limitation period in this section 
lapses during the pendency of such proceeding, any party to 
such proceeding shall not be barred from taking such action as 
is required or necessary to implement a final unappealable 
judicial or administrative decision, including any action 
required or necessary to implement such decision by the 
recovery or recoupment of an underpayment or overpayment by 
means of refund or credit.
    ``(l) Stay of Payment Obligation Pending Review.--Any party 
ordered by the Secretary or a delegated State to pay any 
obligation (other than an assessment) shall be entitled to a 
stay of such payment without bond or other surety instrument 
pending an administrative or judicial proceeding if the party 
periodically demonstrates to the satisfaction of the Secretary 
that such party is financially solvent or otherwise able to pay 
the obligation. In the event the party is not able to so 
demonstrate, the Secretary may require a bond or other surety 
instrument satisfactory to cover the obligation. Any party 
ordered by the Secretary or a delegated State to pay an 
assessment shall be entitled to a stay without bond or other 
surety instrument.''.
    (b) Clerical Amendment.--The table of contents in section 1 
of the Federal Oil and Gas Royalty Management Act of 1982 (30 
U.S.C. 1701) is amended by inserting after the item relating to 
section 114 the following new item:

``Sec. 115. Limitation periods and agency actions.''.

SEC. 5364. ADJUSTMENT AND REFUNDS.

    (a) In General.--The Federal Oil and Gas Royalty Management 
Act of 1982 (30 U.S.C. 1701 et seq.) is amended by inserting 
after section 111 the following:

``SEC. 111A. ADJUSTMENTS AND REFUNDS.

    ``(a) Adjustments to Royalties Paid to the Secretary or a 
Delegated State.--
            ``(1) If, during the adjustment period, a lessee 
        determines that an adjustment or refund request is 
        necessary to correct an underpayment or overpayment of 
        an obligation, the lessee shall make such adjustment or 
        request a refund within a reasonable period of time and 
        only during the adjustment period. The filing of a 
        royalty report which reflects the underpayment or 
        overpayment of an obligation shall constitute prior 
        written notice to the Secretary or the applicable 
        delegated State of an adjustment.
            ``(2)(A) For any adjustment, the lessee shall 
        calculate and report the interest due attributable to 
        such adjustment at the same time the lessee adjusts the 
        principal amount of the subject obligation, except as 
        provided by subparagraph (B).
            ``(B) In the case of a lessee who determines that 
        subparagraph (A) would impose a hardship, the Secretary 
        or such delegated State shall calculate the interest 
        due and notify the lessee within a reasonable time of 
        the amount of interest due, unless such lessee elects 
        to calculate and report interest in accordance with 
        subparagraph (A).
            ``(3) An adjustment or a request for a refund for 
        an obligation may be made after the adjustment period 
        only upon written notice to and approval by the 
        Secretary or the applicable delegated State, as 
        appropriate, during an audit of the period which 
        includes the production month for which the adjustment 
        is being made. If an overpayment is identified during 
        an audit, then the Secretary or the applicable 
        delegated State, as appropriate, shall allow a credit 
        or refund in the amount of the overpayment.
            ``(4) For purposes of this section, the adjustment 
        period for any obligation shall be the five-year period 
        following the date on which an obligation became due. 
        The adjustment period shall be suspended, tolled, 
        extended, enlarged, or terminated by the same actions 
        as the limitation period in section 115.
    ``(b) Refunds.--
            ``(1) In general.--A request for refund is 
        sufficient if it--
                    ``(A) is made in writing to the Secretary 
                and, for purposes of section 115, is 
                specifically identified as a demand;
                    ``(B) identifies the person entitled to 
                such refund;
                    ``(C) provides the Secretary information 
                that reasonably enables the Secretary to 
                identify the overpayment for which such refund 
                is sought; and
                    ``(D) provides the reasons why the payment 
                was an overpayment.
            ``(2) Notice.--The Secretary shall promptly notify 
        each State concerned of a request for refund.
            ``(3) Payment by secretary of the treasury.--The 
        Secretary shall certify the amount of the refund to be 
        paid under paragraph (1) to the Secretary of the 
        Treasury who shall make such refund. Such refund shall 
        be paid from amounts received as current receipts from 
        sales, bonuses, royalties (including interest charges 
        collected under this section) and rentals of the public 
        lands and the Outer Continental Shelf under the 
        provisions of the Mineral Leasing Act and the Outer 
        Continental Shelf Lands Act, which are not payable to a 
        State or the Reclamation Fund. The portion of any such 
        refund attributable to any amounts previously disbursed 
        to a State, the Reclamation Fund, or any recipient 
        prescribed by law shall be deducted from the next 
        disbursements to that recipient made under the 
        applicable law. Such amounts deducted from subsequent 
        disbursements shall be credited to miscellaneous 
        receipts in the Treasury.
            ``(4) Payment period.--A refund under this 
        subsection shall be paid or denied (with an explanation 
        of the reasons for the denial) within 120 days of the 
        date on which the request for refund is received by the 
        Secretary. Such refund shall be subject to later audit 
        by the Secretary or the applicable delegated State and 
        subject to the provisions of this Act.
            ``(5) Prohibition against reduction of refunds or 
        credits.--In no event shall the Secretary or any 
        delegated State directly or indirectly claim or offset 
        any amount or amounts against, or reduce any refund or 
        credit (or interest accrued thereon) by the amount of 
        any obligation the enforcement of which is barred by 
        section 115.''.
    (b) Clerical Amendment.--The table of contents in section 1 
of the Federal Oil and Gas Royalty Management Act of 1982 (30 
U.S.C. 1701) is amended by inserting after the item relating to 
section 111 the following new item:

``Sec. 111A. Adjustments and refunds.''.

SEC. 5365. ROYALTY TERMS AND CONDITIONS, INTEREST, AND PENALTIES.

    (a) Lessee Interest.--Section 111 of the Federal Oil and 
Gas Royalty Management Act of 1982 (30 U.S.C. 1721) is amended 
by adding after subsection (g) the following:
    ``(h) Interest shall be allowed and paid or credited on any 
overpayment, with such interest to accrue from the date such 
overpayment was made, at the rate obtained by applying the 
provisions of subparagraphs (A) and (B) of section 6621(a)(1) 
of the Internal Revenue Code of 1986, but determined without 
regard to the matter following subparagraph (B) of section 
6621(a)(1). Interest which has accrued on any overpayment may 
be applied to reduce an underpayment. This subsection applies 
to overpayments made later than six months after the date of 
enactment of this subsection or September 1, 1996, whichever is 
later. Such interest shall be paid from amounts received as 
current receipts from sales, bonuses, royalties (including 
interest charges collected under this section) and rentals of 
the public lands and the Outer Continental Shelf under the 
provisions of the Mineral Leasing Act, and the Outer 
Continental Shelf Lands Act, which are not payable to a State 
or the Reclamation Fund. The portion of any such interest 
payment attributable to any amounts previously disbursed to a 
State, the Reclamation Fund, or any other recipient designated 
by law shall be deducted from the next disbursements to that 
recipient made under the applicable law. Such amounts deducted 
from subsequent disbursements shall be credited to 
miscellaneous receipts in the Treasury.''.
    (b) Limitation on Interest.--Section 111 of the Federal Oil 
and Gas Royalty Management Act of 1982, as amended by 
subsection (a), is further amended by adding at the end the 
following:
    ``(i) Upon a determination by the Secretary that an 
excessive overpayment (based upon all obligations of a lessee 
for a given reporting month) was made for the sole purpose of 
receiving interest, interest shall not be paid on the excessive 
amount of such overpayment. For purposes of this Act, an 
`excessive overpayment' shall be the amount that any 
overpayment a lessee pays for a given reporting month 
(excluding payments for demands for obligations determined to 
be due as a result of judicial or administrative proceedings or 
agreed to be paid pursuant to settlement agreements) for the 
aggregate of all of its Federal leases exceeds 10 percent of 
the total royalties paid that month for those leases.''.
    (c) Estimated Payment.--Section 111 of the Federal Oil and 
Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as amended 
by subsections (a) and (b), is further amended by adding at the 
end the following:
    ``(j) A lessee may make a payment for the approximate 
amount of royalties (hereinafter in this subsection `estimated 
payment') that would otherwise be due for such lease to avoid 
underpayment or nonpayment interest charges. When an estimated 
payment is made, actual royalties are due and payable at the 
end of the month following the month in which the estimated 
payment is made. If the lessee makes a payment for such actual 
royalties, the lessee may apply the estimated payment to future 
royalties. Any estimated payment may be adjusted, recouped, or 
reinstated at any time by the lessee.''.
    (d) Volume Allocation of Oil and Gas Production.--Section 
111 of the Federal Oil and Gas Royalty Management Act of 1982 
(30 U.S.C. 1721), as amended by subsections (a) through (c), is 
amended by adding at the end the following:
    ``(k)(1) Except as otherwise provided by this subsection--
            ``(A) a lessee of a lease in a unit or 
        communitization agreement which contains only Federal 
        leases with the same royalty rate and funds 
        distribution shall report and pay royalties on oil and 
        gas production for each production month based on the 
        actual volume of production sold by or on behalf of 
        that lessee;
            ``(B) a lessee of a lease in any other unit or 
        communitization agreement shall report and pay 
        royalties on oil and gas production for each production 
        month based on the volume of oil and gas produced from 
        such agreement and allocated to the lease in accordance 
        with the terms of the agreement; and
            ``(C) a lessee of a lease that is not contained in 
        a unit or communitization agreement shall report and 
        pay royalties on oil and gas production for each 
        production month based on the actual volume of 
        production sold by or on behalf of that lessee.
    ``(2) This subsection applies only to requirements for 
reporting and paying royalties. Nothing in this subsection is 
intended to alter a lessee's liability for royalties on oil or 
gas production based on the share of production allocated to 
the lease in accordance with the terms of the lease, a unit or 
communitization agreement, or any other agreement.
    ``(3) For any unit or communitization agreement, if all 
lessees contractually agree to an alternative method of royalty 
reporting and payment, the lessees may submit such alternative 
method to the Secretary or the delegated State for approval and 
make payments in accordance with such approved alternative 
method so long as such alternative method does not reduce the 
amount of the royalty obligation.
    ``(4) The Secretary or the delegated State shall grant an 
exception from the reporting and payment requirements for 
marginal properties by allowing for any calendar year or 
portion thereof royalties to be paid each month based on the 
volume of production sold. Interest shall not accrue on the 
difference for the entire calendar year or portion thereof 
between the amount of oil and gas actually sold and the share 
of production allocated to the lease until the beginning of the 
month following calendar year or portion thereof. Any 
additional royalties due or overpaid royalties and associated 
interest shall be paid, refunded, or credited within six months 
after the end of each calendar year in which royalties are paid 
based on volumes of production sold. For the purpose of this 
subsection, the term 'marginal property' means a lease that 
produces on average the combined equivalent of less than 15 
barrels of oil per day or 90 thousand cubic feet of gas per 
day, or a combination thereof, determined by dividing the 
average daily production of crude oil and natural gas from 
producing wells on such lease by the number of such wells, 
unless the Secretary, together with the State concerned, 
determines that a different production is more appropriate.
    ``(5) Not later than two years after the date of the 
enactment of this subsection, the Secretary shall issue any 
appropriate demand for all outstanding royalty payment disputes 
regarding who is required to report and pay royalties on 
production from units and communitization agreements 
outstanding on the date of the enactment of this subsection, 
and collect royalty amounts owed on such production.''.
    ``(e) Production Allocation.--Section 111 of the Federal 
Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as 
amended by subsections (a) through (d), is amended by adding at 
the end the following:
    ``(l) The Secretary or the delegated State shall issue all 
determinations of allocations of production for units and 
communitization agreements within 120 days of a request for 
determination. If the Secretary or the delegated State fails to 
issue a determination within such 120-day period, the Secretary 
shall waive interest due on obligations subject to the 
determination until the end of the month following the month in 
which the determination is made.''.
    (f) New Assessment to Encourage Proper Royalty Payments.--
            (1) In general.--The Federal Oil and Gas Royalty 
        Management Act of 1982 (30 U.S.C. 1721), as amended by 
        this section, is further amended by adding at the end 
        the following:

``SEC. 116. ASSESSMENTS.

    ``Beginning eighteen months after the date of enactment of 
this section, to encourage proper royalty payment the Secretary 
or the delegated State shall impose assessments on lessees who 
chronically submit erroneous reports under this Act. 
Assessments under this Act may only be issued as provided for 
in this section.''.
            (2) Clerical amendment.--The table of contents in 
        section 1 of such Act (30 U.S.C. 1701) is amended by 
        adding after the item relating to section 115 the 
        following new item:

``Sec. 116. Assessments.''.
    (g) Liability for Royalty Payments.--Section 102(a) of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 
1712(a)) is amended to read as follows:
    ``(a) In order to increase receipts and achieve effective 
collections of royalty and other payments, a lessee who is 
required to make any royalty or other payment under a lease or 
under the mineral leasing laws, shall make such payments in the 
time and manner as may be specified by the Secretary or the 
applicable delegated State. A lessee may designate a person to 
make all or part of the payments due under a lease on the 
lessee's behalf and shall notify the Secretary or the 
applicable delegated State in writing of such designation, in 
which event said designated person may, in its own name, pay, 
offset or credit monies, make adjustments, request and receive 
refunds and submit reports with respect to payments required by 
the lessee. The person owning operating rights in a lease shall 
be primarily liable for its pro rata share of payment 
obligations under the lease. If the person owning the legal 
record title in a lease is other than the operating rights 
owner, the person owning the legal record title shall be 
secondarily liable for its pro rata share of such payment 
obligations under the lease.''.
    (h) Clerical Amendment.--The heading of section 111 of the 
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 
1721) is amended to read as follows:


       ``royalty terms and conditions, interest, and penalties''.


SEC. 5366. ALTERNATIVES FOR MARGINAL PROPERTIES.

    (a) In General.--The Federal Oil and Gas Royalty Management 
Act of 1982 (30 U.S.C. 1701 et seq.), as amended by section 
5365 of this chapter, is further amended by adding at the end 
the following:

``SEC. 117. ALTERNATIVES FOR MARGINAL PROPERTIES.

    ``(a) Determination of Best Interests of State Concerned 
and the United States.--The Secretary and the State concerned, 
acting in the best interests of the United States and the State 
concerned to promote production, reduce administrative costs, 
and increase net receipts to the United States and the States, 
shall jointly determine, on a case by case basis, the amount of 
what marginal production from a lease or leases or well or 
wells, or parts thereof, shall be subject to a prepayment under 
subsection (b) or regulatory relief under subsection (c). If 
the State concerned does not consent, such prepayments or 
regulatory relief shall not be made available under this 
section for such marginal production, provided that if royalty 
payments from a lease or leases, or well or wells is not shared 
with any State, such determination shall be made solely by the 
Secretary.
    ``(b) Prepayment of Royalty.--
            ``(1) I general.--Notwithstanding the provisions of 
        any lease to the contrary, for any lease or leases or 
        well or wells identified by the Secretary and the State 
        concerned pursuant to subsection (a), the Secretary is 
        authorized to accept a prepayment for royalties in lieu 
        of monthly royalty payments under the lease for the 
        remainder of the lease term if the affected lessee so 
        agrees. Any prepayment agreed to by the Secretary, 
        State concerned and lessee which is less than an 
        average $500 per month in total royalties shall be 
        effectuated under this section not earlier than two 
        years after the date of enactment of this section and, 
        any prepayment which is greater than an average $500 
        per month in total royalties shall be effectuated under 
        this section not earlier than three years after the 
        date of enactment of this section. The Secretary and 
        the State concerned may condition their acceptance of 
        the prepayment authorized under this section on the 
        lessee's agreeing to such terms and conditions as the 
        Secretary and the State concerned deem appropriate and 
        consistent with the purposes of this Act. Such terms 
        may--
                    ``(A) provide for prepayment that does not 
                result in a loss of revenue to the United 
                States in present value terms;
                    ``(B) include provisions for receiving 
                additional prepayments or royalties for 
                developments in the lease or leases or well or 
                wells that deviate significantly from the 
                assumptions and facts on which the valuation is 
                determined; and
                    ``(C) require the lessee to provide such 
                periodic production reports as may be necessary 
                to allow the Secretary and the State concerned 
                to monitor production for the purposes of 
                subparagraph (B).
            ``(2) State share.--A prepayment under this section 
        shall be shared by the Secretary with any State or 
        other recipient to the same extent as any royalty 
        payment for such lease.
            ``(3) Satisfaction of obligation.--Except as may be 
        provided in the terms and conditions established by the 
        Secretary under subsection (b), a lessee who makes a 
        prepayment under this section shall have satisfied in 
        full its obligation to pay royalty on the production 
        stream sold from the lease or leases or well or wells.
    ``(c) Alternative Accounting and Auditing Requirements.--
            ``(1) In general.--Within one year after the date 
        of the enactment of this section, the Secretary or the 
        delegated State shall provide accounting, reporting, 
        and auditing relief that will encourage lessees to 
        continue to produce and develop properties subject to 
        subsection (a); provided, that such relief will only be 
        available to lessees in a State that concurs, which 
        concurrence is not required if royalty from the lease 
        or leases or well or wells is not shared with any 
        State. Prior to granting such relief, the Secretary 
        and, if appropriate, the State concerned shall agree 
        that the type of marginal wells and relief provided 
        under this paragraph is in the best interest of the 
        United States and, if appropriate, the State 
        concerned.''.
    (b) Clerical Amendment.--The table of contents in section 1 
of such Act (30 U.S.C. 1701) is amended by adding after the 
item relating to section 115 the following new item:

``Sec. 117. Alternatives for marginal properties.''.

SEC. 5367. REPEALS.

    (a) FOGRMA.--As applicable to Federal lands, sections 202 
and 307 of the Federal Oil and Gas Royalty Management Act of 
1982 (30 U.S.C. 1732 and 1755), are repealed. Such repeal shall 
not affect cooperative agreements involving Indian tribes or 
Indian lands. Section 1 of such Act (relating to the table of 
contents) is amended by striking out the items relating to 
sections 202 and 307.
    (b) OCSLA.--Effective on the date of the enactment of this 
Act, section 10 of the Outer Continental Shelf Lands Act (43 
U.S.C. 1339) is repealed.

SEC. 5368. INDIAN LANDS.

    The amendments and repeals made by this chapter shall not 
apply with respect to Indian lands, and the provisions of the 
Federal Oil and Gas Royalty Management Act of 1982 as in effect 
on the day before the date of enactment of this Act shall 
continue to apply after such date with respect to Indian lands.

SEC. 5369. PRIVATE LANDS.

    This chapter shall not apply to any privately owned 
minerals.

SEC. 5369A. EFFECTIVE DATE.

    Except as provided by section 115(f), section 111(h), 
section 111(k)(5), and section 117 of the Federal Oil and Gas 
Royalty Management Act of 1982 (as added by this chapter), this 
chapter, and the amendments made by this chapter, shall apply 
with respect to the production of oil and gas after the first 
day of the month following the date of the enactment of this 
Act.

                           CHAPTER 5--MINING

SEC. 5371. SHORT TITLE.

    This chapter may be cited as ``The Mining Law Revenue Act 
of 1995''.

SEC. 5372. DEFINITIONS.

    When used in this chapter--
            (1) ``Assessment year'' means the annual period 
        commencing at 12 o'clock noon on the 1st day of 
        September and ending at 12 o'clock noon on the 1st day 
        of September of the following year.
            (2) ``Federal lands'' means lands and interests in 
        lands owned by the United States that are open to 
        mineral location, or that were open to mineral location 
        when a mining claim or site was located and which have 
        not been patented under the general mining laws.
            (3) ``General mining laws'' means those Acts which 
        generally comprise chapters 2, 11, 12, 12A, 15, and 16, 
        and sections 161 and 162, of Title 30 of the United 
        States Code, all Acts heretofore enacted which are 
        amendatory of or supplementary to any of the foregoing 
        Acts, and the judicial and administrative decisions 
        interpreting such Acts.
            (4) ``Locatable minerals'' means those minerals 
        owned by the United States and subject to location and 
        disposition under the general mining laws on or after 
        the effective date of this chapter, but not including 
        any mineral held in trust by the United States for any 
        Indian or Indian tribe, as defined in section 2 of the 
        Indian Mineral Development Act of 1982 (25 U.S.C. 
        2101), or any mineral owned by any Indian or Indian 
        tribe, as defined in that section, that is subject to a 
        restriction against alienation imposed by the United 
        States, or any mineral owned by any incorporated Native 
        group, village corporation, or regional corporation and 
        acquired by the group or corporation under the 
        provisions of the Alaska Native Claims Settlement Act 
        (43 U.S.C. 1601 et seq.).
            (5) ``Mineral activities'' means any activity 
        related to, or incidental to, exploration for or 
        development, mining, production, beneficiation, or 
        processing of any locatable mineral or mineral that 
        would be locatable if it were subject to disposition 
        under the general mining laws, or reclamation of the 
        impacts of such activities.
            (6) ``Mining claim or site'', except where provided 
        otherwise, means a lode mining claim, placer mining 
        claim, mill site or tunnel site.
            (7) ``Operator'' means any person conducting 
        mineral activities subject to this chapter.
            (8) ``Person'' means an individual, Indian tribe, 
        partnership, association, society, joint venture, joint 
        stock company, firm, company, limited liability 
        company, corporation, cooperative or other 
        organization, and any instrumentality of State or local 
        government, including any publicly owned utility or 
        publicly owned corporation of State or local 
        government.
            (9) ``Secretary'' means the Secretary of the 
        Interior.

SEC. 5373. RENTAL PAYMENT REQUIREMENTS.

    (a) Rental Payments.--(1) After the date of enactment of 
this Act, the owner of each unpatented mining claim or site 
located pursuant to the general mining laws, whether located 
before or after the enactment of this Act, shall pay to the 
Secretary prior to September 1 of each year, until a patent has 
been issued therefor, an annual rental payment for each 
unpatented mining claim or site.
    (2) Location payment.--The owner of each unpatented mining 
claim or site located after the date of enactment of this Act 
pursuant to the general mining laws shall pay to the Secretary, 
at the time the copy of the notice or certificate of location 
is filed with the Bureau of Land Management pursuant to section 
314(b) of the Federal Land Policy and Management Act of 1976 
(43 U.S.C. 1744(b)), a $25.00 location payment, in lieu of the 
annual rental payment of $100 per mining claim or site for the 
assessment year which includes the date of location of such 
mining claim or site.
    (3) Exemption and waiver.--(A) The owner of any mining 
claim or site who demonstrates to the Secretary on or before 
the first day of any assessment year that access to such mining 
claim or site was denied during the prior assessment year by 
the action or inaction of any State or Federal governmental 
officer, agency, or court, or by any Indian tribal authority, 
shall be exempt from the annual rental payment requirements of 
paragraph (1) for the assessment year following the filing of 
the certification.
    (B) The rental payment provided for in subsection 5373(a) 
shall be waived for the owner of a mining claim or site who 
certifies in writing to the Secretary, on or before the date 
the payment is due, that, as of the date such payment is due, 
such owner and all related persons own not more than ten 
unpatented mining claims or sites. Any owner of a mining claim 
or site that is not required to pay a rental payment under this 
subsection shall continue to be subject to the assessment work 
requirements of the general mining laws or of any other State 
or Federal law, subject to any suspension or deferment of 
annual assessment work provided by law, for the assessment year 
following the filing of the certification required by this 
subsection.
    (4) Amount of annual rental payment.--For each assessment 
year the annual rental payment payable for a claim or site 
referred to in paragraph (1) shall be in the amount specified 
in Table 1.

                                Table 1

Assessment Year:    Amount of Payment Per Site or Claim:
  1996-1998.........$100 per year.......................................
  1999 and thereafter...................................................

                    $200 per year
    (5) Effect of forfeiture.--No owner or co-owner of a mining 
claim or site which has been forfeited because the rental 
payment has not been paid and no person who is a related person 
of any such owner or co-owner may relocate a new claim on any 
part of lands located within the forfeited claim for a period 
of 12 months after the date of forfeiture.
    (b) Annual Labor.--(1) Beginning in 1999, amounts expended 
on activities that qualify as annual labor under the general 
mining laws may be credited on a dollar for dollar basis 
towards up to 50 percent of the annual rental payment payable 
under this section for the following assessment year. During 
the assessment year in 1999, annual labor performed in 1998 may 
be credited toward the annual rental payment due in 1999.
    (2) In order to receive credit under this subsection for 
annual labor work, the description and value of the work must 
be included in the statement required in subsection (e) and the 
statement must be timely filed.
    (3) Annual labor performed on an individual mining claim or 
site within a group of contiguous claims may be credited 
towards the aggregate amount of rental payments due on all of 
the contiguous claims within that group.
    (c) Work Qualifying as Annual Labor.--(1) Only work which 
directly benefits or develops a mining claim or facilitates the 
extraction of ore qualifies as annual labor or other activities 
as determined by the Secretary. Acceptable labor and 
improvements include, but are not limited to, any of the 
following:
            (A) Drilling or excavating, including ore 
        extraction.
            (B) Mining costs directly associated with the 
        production of ore.
            (C) Prospecting work which benefits the claim or a 
        contiguous claim.
            (D) Development work toward an actual mine, such as 
        shafts, tunnels, crosscuts and drifts, settling ponds 
        and dams.
            (E) Activities covered under section 1 of the Act 
        of September 2, 1958 (30 U.S.C. 281), as amended.
            (F) Reclamation conducted pursuant to State or 
        Federal surface management laws or regulations.
    (2) The following activities do not qualify as annual 
labor:
            (A) Work involved in maintaining the location such 
        as brushing and marking boundaries or replacing corner 
        posts and location notices.
            (B) Transportation of workers to or from the 
        location.
            (C) Prospecting or exploration work not conducted 
        within the location or a contiguous location.
    (d) Amendments of Public Law 85-876.--The Act of September 
2, 1958 (Public Law 85-876; 30 U.S.C. 281), is amended as 
follows:
            (1) Section 1 is amended by inserting ``mineral 
        activities, environmental baseline monitoring, and'' 
        after ``without being limited to'' and before 
        ``geological, geochemical and geophysical surveys'' and 
        by striking ``Such'' at the beginning of the last 
        sentence and inserting ``Airborne''.
            (2) Section 2(d) is amended by inserting 
        ``environmental baseline monitoring or'' after 
        ``experience to conduct'' and before ``geological, 
        geochemical or geophysical surveys''.
            (3) Section 2 is amended by adding the following 
        new subsection at the end thereof:
    ``(e) The term `environmental baseline monitoring' means 
activities for collecting, reviewing and analyzing information 
concerning soil, vegetation, wildlife, mineral, air, water, 
cultural, historical, archaeological or other resources related 
to planning for or complying with Federal and State 
environmental or permitting requirements applicable to 
potential or proposed mineral activities on the claim(s).''.
    (e) Rental Payment Statement.--Each payment under 
subsection (a) of this section shall be accompanied by a 
statement which reasonably identifies the mining claim or site 
for which the rental payment is being paid. The statement 
required under this subsection shall be in lieu of any annual 
filing requirements for mining claims or sites, under any other 
Federal law, but shall not supersede any such filing 
requirement under applicable State law.
    (f) Annual Labor Statement.--When the value of annual labor 
is credited towards part or all of the rental payment, subject 
to the 50-percent limit set forth in subsection (b)(1), the 
following shall apply:
            (1) The rental payment statement required in 
        subsection (e) must also state the dates of performance 
        of the labor, describe the character and total value of 
        the improvements made or the labor performed, and the 
        amount of labor used as a credit toward the rental 
        payment for the current year.
            (2) The annual labor statements must include a 
        summary of the quantity, value and location of work 
        done. This includes a listing of the physical work 
        done, to include drilling, trenching, sampling and 
        underground excavation, and the location of any 
        environmental, geologic, geochemical, and geophysical 
        surveys. The claim holder shall maintain sufficient 
        records which document the value of the work claimed.
            (3) All supporting material filed pursuant to 
        paragraph (2) shall remain confidential in accordance 
        with section 552 of title 5 of the United States Code 
        as long as the location is maintained and for a period 
        of one year after the location is abandoned, after 
        which all data filed shall be considered public 
        information.
            (4) To the extent that labor credited against the 
        rental payment payable under this section is determined 
        by a final action not to qualify as labor under the 
        general mining laws, the claimant shall pay the 
        insufficiency by making payment to the Secretary of an 
        amount equal to the amount of the rental payment 
        against which the insufficient labor was credited. If 
        such payment is made within 30 days of the claimant's 
        receipt of a notice of a final decision making such 
        determination, the claim concerned shall not be 
        forfeited or null or void, and the rental payment 
        applicable to such claim shall be deemed timely paid.
    (g) Credit Against Royalty.--The annual claim rental 
payment payable in advance of the assessment year for any 
unpatented mining claim or site, or the aggregate rental 
payments from a group of contiguous claims or sites, shall be 
credited against the amount of royalty obligation accruing for 
that year for such claims or sites under section 5375.
    (h) Failure to Comply.--The failure of the owner to pay any 
claim rental payment for a mining claim or site by the date 
such payment is due under this section shall constitute 
forfeiture of the mining claim or site and such mining claim or 
site shall be null and void, effective as of the day after the 
date such payment is due: Provided, That if such rental payment 
is paid on or before the 30th day after such payment was due 
under this section, such mining claim or site shall not be 
forfeited or null or void.
    (i) Amendment of FLPMA Filing Requirements.--Section 314(a) 
of the Federal Land Policy and Management Act of 1976 (43 
U.S.C. 1744(a)) is hereby repealed.
    (j) Related Persons.--As used in this section, the term 
``related persons'' includes--
            (1) the spouse and dependent children (as defined 
        in section 152 of the Internal Revenue Code of 1986) of 
        the owner of the mining claim or site; and
            (2) a person controlled by, controlling, or under 
        common control with the owner of the mining claim or 
        site.
    (k) Repeal.--Sections 10101 through 10106 of the Omnibus 
Budget Reconciliation Act of 1993 (107 Stat. 406; 30 U.S.C. 
28g) are repealed.

SEC. 5374. PATENTS.

    (a) In General.--Except as provided in subsection (c), any 
patent issued by the United States under the general mining 
laws after the date of enactment of this chapter shall be 
issued only--
            (1) upon payment by the owner of the claim of the 
        fair market value for the interest in the land owned by 
        the United States exclusive of and without regard to 
        the mineral deposits in the land or the use of the land 
        for mineral activities; and
            (2) subject to reservation by the United States of 
        the royalty provided in section 5375.
    (b) Right of Re-entry.--
            (1) Except as provided in subsection 5374(c), and 
        notwithstanding any other provision of law, the United 
        States shall retain a right of re-entry in lands 
        patented under section 5374.
            (2) Such right of re-entry of the United States 
        shall ripen if--
                    (A) the land is used by the patentee, or 
                any subsequent owners, for any purpose other 
                than conducting mineral activities in good 
                faith;
                    (B) such use is not discontinued within a 
                time period specified by the Secretary (but not 
                earlier than 90 days after the Secretary 
                provides the owner of the land with written 
                notice pursuant to paragraph (2) to discontinue 
                such use); and
                    (C) the Secretary elects to assert the 
                right of re-entry in accordance with paragraph 
                (3).
            (3) The ripened right of re-entry retained by the 
        United States pursuant to subparagraph (2) shall vest 
        and all right, title and interest in such patented 
        estate shall revert to the United States only if--
                    (A) the Secretary files a declaration of 
                re-entry within 6 months of the requisite 
                occurrences under paragraph (2) with the Office 
                of the Bureau of Land Management in the state 
                where the land subject to such right of re-
                entry is situated; and
                    (B) the Secretary records such declaration 
                in the office of the county recorder of the 
                county in which the lands subject to a 
                reversion are situated within 30 days of filing 
                under subparagraph (A).
            (4) One year after the patent holder provides 
        written notice to the Secretary that all mineral 
        activities are completed and applicable reclamation is 
        completed, the right of re-entry held by the United 
        States and created under the subsection (b) shall 
        expire unless within such period the Secretary notifies 
        the patent holder in writing that he is exercising the 
        right of re-entry held by the United States. At such 
        time, ownership of the patented lands shall 
        automatically revert to the United States, 
        notwithstanding subparagraphs (A), (B) and (C) of 
        subsection (b)(2). The Secretary may decline to 
        exercise the right of re-entry and such rights shall 
        continue if--
                    (a) solid waste or hazardous substances 
                released on or from the patented estate may 
                pose a threat to public safety or the 
                environment; or
                    (b) acceptance of title would expose the 
                United States to liability for past mineral 
                activities on the patented estate.
    (c) Protection of Valid Existing Rights.--Notwithstanding 
any other provision of law, the requirements of this chapter 
(except with respect to rental payments in accordance with 
section 5373)--
            (1) shall not apply to the mining claims and sites 
        contained within those mineral patent applications 
        pending at the Department as of September 30, 1995, 
        which shall be processed under the general mining laws 
        in effect immediately prior to the date of enactment of 
        this chapter; and
            (2) likewise shall not apply to the mining claims 
        or sites for which there is on the date of enactment of 
        this chapter a vested possessory property right against 
        the Government under the general mining laws in effect 
        immediately prior to the date of enactment of this 
        chapter.

SEC. 5375. ROYALTY.

    (a) In General.--The production and sale of locatable 
minerals (including associated minerals) from any unpatented 
mining claim (other than those from Federal lands to which 
subsection 5374(c) applies) or any mining claim patented under 
subsection 5374(a) shall be subject to a royalty of 5.0 percent 
on the net proceeds from such production mined and sold from 
such claim.
    (b) Royalty Exclusion.--
            (1) The royalty payable under this section shall be 
        waived for any person with annual net proceeds from 
        mineral production subject to subsection (a) of less 
        than $50,000.
            (2) The obligation to pay royalties hereunder shall 
        accrue upon the sale of locatable minerals or mineral 
        products produced from a mining claim subject to such 
        royalty, and not upon the stockpiling of the same for 
        future processing.
            (3) Where mining operations subject to this section 
        are conducted in two or more places by the same person, 
        the operations shall be considered a single operation 
        the aggregate net proceeds from which shall be subject 
        to the $50,000 limitation set forth in this subsection.
            (4) No royalty shall be payable under this section 
        with respect to minerals processed at a facility by the 
        same person or entity which extracted the minerals if 
        an urban development action grant has been made under 
        section 119 of the Housing and Community Development 
        Act of 1974 with respect to any portion of such 
        facility.
    (c) Definitions.--For the purposes of this chapter:
            (1) The term ``net proceeds'' shall mean gross 
        yield, less the sum of the following deductions for 
        costs incurred prior to sale or value determination, 
        and none other:
                    (A) The actual cost of extracting the 
                locatable mineral.
                    (B) The actual cost of transporting the 
                locatable mineral from the claim to the place 
                or places of reduction, beneficiation, 
                refining, and sale.
                    (C) The actual cost of reduction, 
                beneficiation, refining, and sale of the 
                locatable mineral.
                    (D) The actual cost of marketing and 
                delivering the locatable mineral and the 
                conversion of the locatable mineral into money.
                    (E) The actual cost of maintenance and 
                repairs of--
                            (i) all machinery, equipment, 
                        apparatus, and facilities used in the 
                        mine;
                            (ii) all crushing, milling, 
                        leaching, refining, smelting, and 
                        reduction works, plants, and 
                        facilities; and
                            (iii) all facilities and equipment 
                        for transportation.
                    (F) The actual cost for support personnel 
                and support services at the mine site, 
                including without limitation, accounting, 
                assaying, drafting and mapping, computer 
                services, surveying, housing, camp, and office 
                expenses, safety, and security.
                    (G) The actual cost of engineering, 
                sampling, and assaying pertaining to 
                development and production.
                    (H) The actual cost of permitting, 
                reclamation, environmental compliance and 
                monitoring.
                    (I) The actual cost of fire and other 
                insurance on the machinery, equipment, 
                apparatus, works, plants, and facilities 
                mentioned in subparagraph (E).
                    (J) Depreciation of the original 
                capitalized cost of the machinery, equipment, 
                apparatus, works, plants, and facilities listed 
                in subparagraph (E). The annual depreciation 
                charge shall consist of amortization of the 
                original cost in the manner consistent with the 
                Internal Revenue Code of 1986, as amended from 
                time to time. The probable life of the property 
                represented by the original cost must be 
                considered in computing the depreciation 
                charge.
                    (K) All money expended for premiums for 
                industrial insurance, and the owner paid cost 
                of hospital and medical attention and accident 
                benefits and group insurance for all employees 
                engaged in the production or processing of 
                locatable minerals.
                    (L) All money paid as contributions or 
                payments under State unemployment compensation 
                law, all money paid as contributions under the 
                Federal Social Security Act, and all money paid 
                to State government in real property taxes and 
                severance or other taxes measured or levied on 
                production, or Federal excise tax payments and 
                payments as fees or charges for use of the 
                Federal lands from which the locatable minerals 
                are produced.
                    (M) The actual cost of the developmental 
                work in or about the mine or upon a group of 
                mines when operated as a unit.
            (2) The term ``gross yield'' shall having the 
        following meaning:
                    (A) In the case of sales of gold and silver 
                ore, concentrates or bullion, or the sales of 
                other locatable minerals in the form of ore or 
                concentrates, the term ``gross yield'' means 
                the actual proceeds of sale of such ore, 
                concentrates or bullion.
                    (B) In the case of sales of beneficiated 
                products from locatable minerals other than 
                those subject to subparagraph (A) (including 
                cathode, anode or copper rod or wire, or other 
                products fabricated from the locatable 
                minerals), the term ``gross yield'' means the 
                gross income from mining derived from the first 
                commercially marketable product determined in 
                the same manner as under section 613 of the 
                Internal Revenue Code of 1986.
                    (C) If ore, concentrates, beneficiated or 
                fabricated products, or locatable minerals are 
                used or consumed and are not sold in an arms 
                length transaction, the term ``gross yield'' 
                means the reasonable fair market value of the 
                ore, concentrates, beneficiated or fabricated 
                products at the mine or wellhead determined 
                from the first applicable of the following:
                            (i) Published or other competitive 
                        selling prices of locatable minerals of 
                        like kind and grade.
                            (ii) Any proceeds of sale.
                            (iii) Value received in exchange 
                        for any thing or service.
                            (iv) The value of any locatable 
                        minerals in kind or used or consumed in 
                        a manufacturing process or in providing 
                        a service.
                Without limiting the foregoing, the profits or 
                losses incurred in connection with forward 
                sales, futures or commodity options trading, 
                metal loans, or any other price hedging or 
                speculative activity or arrangement shall not 
                be included in gross yield.
    (d) Limitations and Allocations of Net Proceeds, Gross 
Yield, and Allowable Deductions.--
            (1) The deductions listed in subsection (c)(1) are 
        intended to allow a reasonable allowance for overhead. 
        Such deductions shall not include any expenditures for 
        salaries, or any portion of salaries, of any person not 
        actually engaged in--
                    (A) the working of the mine;
                    (B) the operating of the leach pads, ponds, 
                plants, mills, smelters, or reduction works;
                    (C) the operating of the facilities or 
                equipment for transportation; or
                    (D) superintending the management of any of 
                those operations described in subparagraphs (A) 
                through (C).
            (2) Ores or solutions of locatable minerals subject 
        to the royalty requirements of this section may be 
        extracted from mines comprised of mining claims and 
        lands other than mining claims and ore or solutions of 
        locatable minerals subject to the royalty requirements 
        of this section may be commingled with ores or 
        solutions from lands other than mining claims. In any 
        such case, for purposes of determining the amount of 
        royalties payable under this section--
                    (A) the operator shall first sample, weigh 
                or measure, and assay the same in accordance 
                with accepted industry standards; and
                    (B) gross yield, allowable costs and net 
                proceeds for royalty purposes shall be 
                allocated in proportion to mineral products 
                recovered from the mining claims in accordance 
                with accepted industry standards.
    (e) Liability for Royalty Payments.--The owner or co-owners 
of a mining claim subject to a royalty under this section shall 
be liable for such royalty to the extent of the interest in 
such claim owned. As used in this subsection, the terms 
``owner'' and ``co-owner'' mean the person or persons owning 
the right to mine locatable minerals from such claim and 
receiving the net proceeds of such sale. No person who makes 
any royalty payment attributable to the interest of the owner 
or co-owners liable therefor shall become liable to the United 
States for such royalty as a result of making such payment on 
behalf of such owner or co-owners.
    (f) Time and Manner of Payment.--
            (1) Royalty payments for production from any mining 
        claim subject to the royalty payable under this section 
        shall be due to the United States at the end of the 
        month following the end of the calendar quarter in 
        which the net proceeds from the sale of such production 
        are received by the owner or co-owners. Royalty 
        payments may be made based upon good faith estimates of 
        the gross yield, net proceeds and the quantity of ore, 
        concentrates, or other beneficiated or fabricated 
        products of locatable minerals, subject to adjustment 
        when the actual annual gross yield, net proceeds and 
        quantity are determined by the owner of the mining 
        claim or site or co-owners.
            (2) Each royalty payment or adjustment shall be 
        accompanied by a statement containing each of the 
        following:
                    (A) The name and Bureau of Land Management 
                serial number of the mining claim or claims 
                from which ores, concentrates, solutions or 
                beneficiated products of locatable minerals 
                subject to the royalty required in this section 
                were produced and sold for the period covered 
                by such payment or adjustment.
                    (B) The estimated (or actual, if 
                determined) quantity of such ore, concentrates, 
                solutions or beneficiated or fabricated 
                products produced and sold from such mining 
                claim or claims for such period.
                    (C) The estimated (or actual, if 
                determined) gross yield from the production and 
                sale of such ore, concentrates, solutions or 
                beneficiated products for such period.
                    (D) The estimated (or actual, if 
                determined) net proceeds from the production 
                and sale of such ores, concentrates, solutions 
                or beneficiated products for such period, 
                including an itemization of the applicable 
                deductions described in subsection (c)(1).
                    (E) The estimated (or actual, if 
                determined) royalty due to the United States, 
                or adjustment due to the United States or such 
                owner or co-owners, for such period.
            (3) In lieu of receiving a refund under subsection 
        (h), the owner or co-owners may elect to apply any 
        adjustment due to such owner or co-owners as an offset 
        against royalties due from such owner or co-owners to 
        the United States under this Act, regardless of whether 
        such royalties are due for production and sale from the 
        same mining claim or claims.
    (g) Recordkeeping and Reporting Requirements.--
            (1) An owner, operator, or other person directly 
        involved in the conduct of mineral activities, 
        transportation, purchase, or sale of locatable 
        minerals, concentrates, or products derived therefrom, 
        subject to the royalty under this section, through the 
        point of royalty computation, shall establish and 
        maintain any records, make any reports, and provide any 
        information that the Secretary may reasonably require 
        for the purposes of implementing this section or 
        determining compliance with regulations or orders under 
        this section. Upon the request of the Secretary when 
        conducting an audit or investigation pursuant to 
        subsection (i), the appropriate records, reports, or 
        information required by this subsection shall be made 
        available for inspection and duplication by the 
        Secretary.
            (2) Records required by the Secretary under this 
        section shall be maintained for 3 years after the 
        records are generated unless the Secretary notifies the 
        record holder that he or she has initiated an audit or 
        investigation specifically identifying and involving 
        such records and that such records must be maintained 
        for a longer period. When an audit or investigation is 
        under way, such records shall be maintained until the 
        earlier of the date that the Secretary releases the 
        record holder of the obligation to maintain such 
        records or the date that the limitations period 
        applicable to such audit or investigation under 
        subsection (i) expires.
    (h) Interest Assessments.--
            (1) If royalty payments under this section are not 
        received by the Secretary on the date that such 
        payments are due, or if such payments are less than the 
        amount due, the Secretary shall charge interest on such 
        unpaid amount. Interest under this subsection shall be 
        computed at the rate published by the Department of the 
        Treasury as the ``Treasury Current Value of Funds 
        Rate.'' In the case of an underpayment or partial 
        payment, interest shall be computed and charged only on 
        the amount of the deficiency and not on the total 
        amount, and only for the number of days such payment is 
        late. No other late payment or underpayment charge or 
        penalty shall be charged with respect to royalties 
        under this section.
            (2) In any case in which royalty payments are made 
        in excess of the amount due, or amounts are held by the 
        Secretary pending the outcome of any appeal in which 
        the Secretary does not prevail, the Secretary shall 
        promptly refund such overpayments or pay such amounts 
        to the person or persons entitled thereto, together 
        with interest thereon for the number of days such 
        overpayment or amounts were held by the Secretary, with 
        the addition of interest charged against the United 
        States computed at the rate published by the Department 
        of the Treasury as the ``Treasury Current Value of 
        Funds Rate.''
    (i) Audits, Payment Demands and Limitations.--
            (1) The Secretary may conduct, after notice, any 
        audit reasonably necessary and appropriate to verify 
        the payments required under this section.
            (2) The Secretary shall send or issue any billing 
        or demand letter for royalty due on locatable minerals 
        produced and sold from any mining claim subject to 
        royalty required by this section not later than 3 years 
        after the date such royalty was due and must 
        specifically identify the production involved, the 
        royalty allegedly due and the basis for the claim. No 
        action, proceeding or claim for royalty due on 
        locatable minerals produced and sold, or relating to 
        such production, may be brought by the United States, 
        including but not limited to any claim for additional 
        royalties or claim of the right to offset the amount of 
        such additional royalties against amounts owed to any 
        person by the United States, unless judicial suit or 
        administrative proceedings are commenced to recover 
        specific amounts claimed to be due prior to the 
        expiration of 3 years from the date such royalty is 
        alleged to have been due.
    (j) Transitional Rules.--Any mining claim for which a 
patent is issued pursuant to section 5374(c) shall not be 
subject to the obligation to pay the royalty pursuant to this 
section. Royalty payments for any claim processed under section 
5374(c) shall be suspended pending final determination of the 
right to patent. For any such claim that is determined not to 
qualify for the issuance of a patent under section 5374(c), 
royalties shall be payable under this section on production 
after the date of enactment of this Act, plus interest computed 
at the rate published by the Department of the Treasury as the 
``Treasury Current Value of Funds Rate'' on production after 
such date of enactment and before the date of such 
determination.
    (k) Penalties.--Any person who withholds payment or 
royalties under this section after a final, nonappealable 
determination of liability may be liable for civil penalties of 
up to $ 5,000 per day that payment is withheld after becoming 
due.
    (l) Disbursement of Revenues.--The receipts from royalties 
collected under this section shall be disbursed as follows:
            (1) Fifty percent of such receipts shall be paid 
        into the Treasury of the United States and deposited as 
        miscellaneous receipts.
            (2) Forty percent of such receipts shall be paid 
        into a State Fund or Federal Fund in accordance with 
        section 5376; until termination as provided in section 
        5379.
            (3) Ten percent of such receipts shall be paid by 
        the Secretary of the Treasury to the State in which the 
        mining claim from which production occurred is located.

SEC. 5376. ABANDONED LOCATABLE MINERALS MINE RECLAMATION FUND.

    (a) State Fund.--Any State within which royalties are 
collected pursuant to section 5375 from a mining claim and 
which wishes to become eligible to receive such proceeds 
allocated by paragraph 5375(l)(2) shall establish and maintain 
an interest-bearing abandoned locatable mineral mine 
reclamation fund (hereinafter referred to in this chapter as 
``State Fund'') to accomplish the purposes of this chapter. 
States with existing abandoned locatable mineral reclamation 
programs shall qualify to receive proceeds allocated by section 
5375(l)(2).
    (b) Federal Fund.--There is established on the books of the 
Treasury of the United States an interest-bearing fund to be 
known as the Abandoned Locatable Minerals Mine Reclamation Fund 
(hereinafter referred to in this chapter as ``Federal Fund'') 
which shall consist of royalty proceeds allocated by paragraph 
5375(l)(2) from mining claims in a State where a State Fund has 
not been established or maintained under subsection (a).

SEC. 5377. ALLOCATION AND PAYMENTS.

    (a) State Fund.--Royalties collected pursuant to section 
5375 and allocated by section 5375(l)(2) shall be paid by the 
Secretary of the Treasury to the State Fund established 
pursuant to subsection 5376(a) for the State where the mining 
claim from which the production occurred is located. Payments 
to States under this subsection with respect to any royalties 
received by the United States, shall be made not later than the 
last business day of the month in which such royalties are 
warranted by the United States Treasury to the Secretary of the 
Interior as having been received, except for any portion of 
such royalties which is under challenge, which shall be placed 
in a suspense account pending resolution of such challenge. 
Such warrants shall be issued by the United States Treasury not 
later than 10 days after receipt of such royalties by the 
Treasury. Royalties placed in a suspense account which are 
determined to be due the United States shall be payable to a 
State Fund not later than fifteen days after such challenge is 
resolved. Any such amount placed in a suspense account pending 
resolution shall bear interest until the challenge is resolved. 
In determining the amount of payments to State Funds under this 
section, the amount of such payments shall not be reduced by 
any administrative or other costs incurred by the United 
States.
    (b) Federal Fund.--Royalties collected pursuant to section 
5375, and allocated by paragraph 5375(l)(2), from mining claims 
located in a State which has not established or maintained a 
State Fund, and such royalties from mining claims located in a 
State for which the Secretary's authority has expired under 
subsection 5379(a), shall be credited to the Federal Fund and 
distributed in accordance with subsection (c).
    (c) Transition.--Prior to the time a State establishes a 
State Fund pursuant to subsection 5376(a), any royalties 
collected from a mining claim within such State shall be 
deposited into the Federal Fund and allocated to such State. 
Once a State establishes a State Fund under subsection 5376(a), 
the State allocation in the Federal Fund with accrued interest 
shall be paid by the Secretary of the Treasury to the State 
Fund in accordance with subsection (a). Commencing three years 
after the date of enactment of this chapter, the Secretary of 
the Treasury shall distribute royalty proceeds then accrued or 
which are thereafter credited to the Federal Fund equally among 
all States which maintain a State Fund established under 
subsection 5376(a), and for which the Secretary of the 
Treasury's authority has not expired under subsection 5379(a).

SEC. 5378. ELIGIBLE AREA.

    (a) In General.--Subject to subsection (b), lands and water 
eligible for reclamation under this chapter shall be Federal 
lands that--
            (1) have been adversely affected by past mineral 
        activities on lands abandoned and left inadequately 
        reclaimed prior to the date of enactment of this 
        chapter; and
            (2) for which the State determines there is no 
        identifiable party with a continuing reclamation 
        responsibility under State or Federal laws.
    (b) Specific Sites and Areas Not Eligible.--The following 
areas shall not be eligible for expenditures from a State Fund:
            (1) any area subject to a plan of operations 
        submitted or approved prior to, on or after the date of 
        enactment of this chapter which includes remining or 
        reclamation of the area adversely affected by past 
        locatable mineral activities;
            (2) any area affected by coal mining eligible for 
        reclamation expenditures pursuant to section 404 of the 
        Surface Mining Control and Reclamation Act (30 U.S.C. 
        1234);
            (3) any area designated for remedial action 
        pursuant to the Uranium Mill Tailings Radiation Control 
        Act of 1978 (42 U.S.C. 7912); and
            (4) any area that was listed on the National 
        Priorities List pursuant to the Comprehensive 
        Environmental Response, Compensation and Liability Act 
        of 1980 (42 U.S.C. 9605) prior to the date of enactment 
        of this chapter, or where the Environmental Protection 
        Agency has initiated or caused to be initiated a 
        response action pursuant to that Act.

SEC. 5379. SUNSET PROVISIONS.

    (a) Termination of Authority.--The Secretary of the 
Treasury's authority to allocate funds to a State Fund under 
section 5377 shall expire on the date that the State submits a 
report to the Congress which states that there are no areas in 
the State eligible under subsection 5378(a) which remain to be 
reclaimed.
    (b) Termination of Fund.--Upon the termination of authority 
as provided in subsection (a) with respect to all State Funds, 
the Federal Fund shall also be terminated, and all royalty 
proceeds thereafter remaining in the Federal Fund shall be 
distributed to the States as provided for in Section 
5375(l)(3).

SEC. 5380. EFFECT ON THE GENERAL MINING LAWS.

    The provisions of this chapter shall supersede the general 
mining laws only to the extent such laws conflict with the 
requirements of this chapter. Where no such conflict exists, 
the general mining laws, including all judicial and 
administrative decisions interpreting them, shall remain in 
full force and effect.

SEC. 5381. SEVERABILITY.

    If any provision of this chapter or the applicability 
thereof to any person or circumstances is held invalid, the 
remainder of this chapter and the application of such provision 
to other persons or circumstances shall not be affected 
thereby.

SEC. 5382. MINERAL MATERIALS.

    (a) Determinations.--Section 3 of the Act of July 23, 1955 
(30 U.S.C. 611), is amended as follows:
            (1) Insert ``(a)'' before the first sentence.
            (2) Add the following new subsection at the end 
        thereof:
    (b)(1) Subject to valid existing rights, after the date of 
enactment of this subsection, notwithstanding the reference to 
common varieties in subsection (a) and to the exception to such 
term relating to a deposit of materials with some property 
giving it distinct and special value, all deposits of mineral 
materials referred to in such subsection, including the block 
pumice referred to in such subsection, shall be subject to 
disposal only under the terms and conditions of the Materials 
Act of 1947.
    (2) For purposes of paragraph (1), the term ``valid 
existing rights'' means that a mining claim located for any 
such mineral material had some property giving it the distinct 
and special value referred to in subsection (a), or as the case 
may be, met the definition of block pumice referred to in such 
subsection, was properly located and maintained under the 
general mining laws prior to the date of the enactment of this 
subsection, and was supported by a discovery of a valuable 
mineral deposit within the meaning of the general mining laws 
as in effect immediately prior to such date of enactment and 
that such claim continues to be valid under this Act.''.
    (b) Identified Deposits.--The Act entitled ``An Act to 
provide for the disposal of materials on the public lands of 
the United States'', approved July 31, 1947 (30 U.S.C. 602), is 
amended by adding at the end the following:
    ``(b) Identified Deposits.--
            ``(1) Lands known to contain valuable deposits of 
        mineral materials subject to this Act and subsequent 
        amendments and not covered by any contract, permit, or 
        lease, for uncommon varieties of mineral materials 
        under this section or by a valid mining claim for an 
        uncommon variety of a mineral material under the 
        general mining laws shall be subject to disposition by 
        lease under this Act by the Secretary through 
        advertisement, competitive bidding, or such other 
        methods as he may by general regulations adopt, and in 
        such reasonably compact areas as he shall fix.
            ``(2) All leases will be conditioned upon--
                    ``(A) the payment by the lessee of such 
                royalty as may be fixed in the lease, not less 
                than two percent of the quantity or gross value 
                of the output of mineral materials, and
                    ``(B) the payment in advance of a rental of 
                25 cents per acre for the first calendar year 
                or fraction thereof; 50 cents per acre for the 
                second, third, fourth, and fifth years, 
                respectively; and $1 per acre per annum 
                thereafter during the continuance of the lease, 
                such rental for that year being credited 
                against royalties accruing for that year.
            ``(3)(A) Any lease issued under this subsection 
        shall be for a term of 20 years and so long thereafter 
        as the lessee complies with the terms and conditions of 
        the lease and upon the further condition that at the 
        end of each 20-year period succeeding the date of the 
        lease such reasonable adjustment of the terms and 
        conditions thereof may be made therein as may be 
        prescribed by the Secretary unless otherwise provided 
        by law at the expiration of such periods.
            ``(B) Leases shall be conditioned upon a minimum 
        annual production or the payment of a minimum royalty 
        in lieu thereof, except when production is interrupted 
        by strikes, the elements, or casualties not 
        attributable to the lessee.
            ``(C) The Secretary may permit suspension of 
        operations under any such leases when marketing 
        conditions are such that the leases cannot be operated 
        except at a loss.
            ``(D) The Secretary upon application by the lessee 
        prior to the expiration of any existing lease in good 
        standing shall amend such lease to provide for the same 
        tenure and to contain the same conditions, including 
        adjustment at the end of each 20-year period succeeding 
        the date of said lease, as provided for in this 
        subsection.
    ``(c) Other Lands.--
            ``(1) The Secretary is hereby authorized, under 
        such rules and regulations as he may prescribe, to 
        grant to any qualified applicant a prospecting permit 
        which shall give the exclusive right to prospect for 
        mineral materials in lands belonging to the United 
        States which are not subject to subsection (b), and are 
        not covered by a contract, permit, or lease under this 
        Act, except that a prospecting permit shall not exceed 
        a period of 2 years and the area to be included in such 
        a permit shall not exceed 2,560 acres of land in 
        reasonably compact form.
            ``(2) The Secretary shall reserve and may exercise 
        the authority to cancel any prospecting permit upon 
        failure by the permittee to exercise due diligence in 
        the prosecution of the prospecting work in accordance 
        with the terms and conditions stated in the permit, and 
        shall insert in every such permit issued under the 
        provisions of this Act appropriate provisions for its 
        cancellation by him.
            ``(3)(A) Upon showing to the satisfaction of the 
        Secretary that valuable deposits of one of the mineral 
        materials subject to the Materials Act of 1947 have 
        been discovered by the permittee within the area 
        covered by his permit, and that such land is valuable 
        therefor, the permittee shall be entitled to a lease 
        for any or all of the land embraced in the prospecting 
        permit, at a royalty of not less than two percent of 
        the quantity or gross value of the output of the 
        mineral materials at the point of shipment to market, 
        such lease to be taken in compact form by legal 
        subdivisions of the public land surveys, or if the land 
        be not surveyed, by survey executed at the cost of the 
        permittee in accordance with regulations prescribed by 
        the Secretary.''.
            ``(B) ``Persons holding valid mining claims for 
        uncommon varieties of mineral materials shall be 
        entitled to receive a lease under this subsection.''
    (D) Mineral Materials Disposal Clarification.--Section 4 
July 23, 1955 (30 U.S.C. 612), is amended as follows:
            (1) In subsection (b) insert ``and mineral 
        material'' after ``vegetative''.
            (2) In subsection (c) insert ``and mineral 
        material'' after ``vegetative''.
    (e) Authorization for Disposal of Mineral Materials by 
Contract.--Section 2(a) of the Act entitled ``An Act to provide 
for the disposal of materials on the public lands of the United 
States'', approved July 31, 1947 (30 U.S.C. 602(a)), is 
amended--
            (1) by striking the period at the end of paragraph 
        (3) and inserting ``or, if''; and
            (2) by adding after paragraph (3) the following:
            ``(4) the material is a mineral material.''.

                 CHAPTER 6--DEPARTMENT OF THE INTERIOR

SEC. 5391. AIRCRAFT SERVICES.

    (a) Use of Private Contractors.--By not later than October 
1, 1996, the Secretary of the Interior shall contract with 
private entities for the provision of all aircraft services 
required by the Department of the Interior, other than those 
available from existing DOI aircraft whose primary purpose is 
fire suppression.
    (b) Sale of Federal Aircraft.--By September 30, 1998, the 
Secretary of the Interior is authorized and directed to sell 
all aircraft owned by the Department of the Interior and all 
associated equipment and facilities, other than those whose 
primary purpose is fire suppression.
    (c) Exemptions.--The disposition of assets under this 
section is not subject to section 202 and 203 of the Federal 
Property and Administrative Services Act of 1949 (40 U.S.C. 483 
and 484) or section 13 of the Surplus Property Act of 1944 (50 
U.S.C. App. 1622).
    (d) Disposition of Proceeds.--The proceeds from 
dispositions under this section shall be returned to the 
Treasury as miscellaneous receipts and all savings from reduced 
overhead and other costs related to the management of the 
assets sold shall be returned to the Treasury.

               CHAPTER 7--POWER MARKETING ADMINISTRATIONS

       Subchapter A--Bonneville Power Administration Refinancing

SEC. 5401. DEFINITIONS.

    For the purposes of this subchapter--
            (1) ``Administrator'' means the Administrator of 
        the Bonneville Power Administration;
            (2) ``capital investment'' means a capitalized cost 
        funded by Federal appropriations that--
                    (A) is for a project, facility, or 
                separable unit or feature of a project or 
                facility;
                    (B) is a cost for which the Administrator 
                is required by law to establish rates to repay 
                to the United States Treasury through the sale 
                of electric power, transmission, or other 
                services;
                    (C) excludes a Federal irrigation 
                investment; and
                    (D) excludes an investment financed by the 
                current revenues of the Administrator or by 
                bonds issued and sold, or authorized to be 
                issued and sold, by the Administrator under 
                section 13 of the Federal Columbia River 
                Transmission System Act (16 U.S.C. 838k);
            (3) ``new capital investment'' means a capital 
        investment for a project, facility, or separable unit 
        or feature of a project, facility, or separable unit or 
        feature of a project or facility, placed in service 
        after September 30, 1995;
            (4) ``old capital investment'' means a capital 
        investment the capitalized cost of which--
                    (A) was incurred, but not repaid, before 
                October 1, 1995, and
                    (B) was for a project, facility, or 
                separable unit or feature of a project or 
                facility, placed in service before October 1, 
                1995;
            (5) ``repayment date'' means the end of the period 
        within which the Administrator's rates are to assure 
        the repayment of the principal amount of a capital 
        investment; and
            (6) ``Treasury rate'' means--
                    (A) for an old capital investment, a rate 
                determined by the Secretary of the Treasury, 
                taking into consideration prevailing market 
                yields, during the month preceding October 1, 
                1995, on outstanding interest-bearing 
                obligations of the United States with periods 
                to maturity comparable to the period between 
                October 1, 1995, and the repayment date for the 
                old capital investment; and
                    (B) for a new capital investment, a rate 
                determined by the Secretary of the Treasury, 
                taking into consideration prevailing market 
                yields, during the month preceding the 
                beginning of the fiscal year in which the 
                related project, facility, or separable unit or 
                feature is placed in service, on outstanding 
                interest-bearing obligations of the United 
                States with periods to maturity comparable to 
                the period between the beginning of the fiscal 
                year and the repayment date for the new capital 
                investment.

SEC. 5402. NEW PRINCIPAL AMOUNTS.

    (a) Principal Amount.--Effective October 1, 1995, an old 
capital investment has a new principal amount that is the sum 
of--
            (1) the present value of the old payment amounts 
        for the old capital investment, calculated using a 
        discount rate equal to the Treasury rate for the old 
        capital investment; and
            (2) an amount equal to $100,000,000 multiplied by a 
        fraction the numerator of which is the principal amount 
        of the old payment amounts for the old capital 
        investment and the denominator of which is the sum of 
        the principal amounts of the old payment amounts for 
        all old capital investments.
    (b) Determination.--With the approval of the Secretary of 
the Treasury, based solely on consistency with this subchapter, 
the Administrator shall determine the new principal amounts 
under this section and the assignment of interest rates to the 
new principal amounts under section 5403.
    (c) Old Payment Amount.--For the purposes of this section, 
``old payment amounts'' means, for an old capital investment, 
the annual interest and principal that the Administrator would 
have paid to the United States Treasury from October 1, 1995, 
if this subchapter had not been enacted, assuming that--
            (1) the principal were repaid--
                    (A) on the repayment date the Administrator 
                assigned before October 1, 1993, to the old 
                capital investment, or
                    (B) with respect to an old capital 
                investment for which the Administrator has not 
                assigned a repayment date before October 1, 
                1993, on a repayment date the Administrator 
                shall assign to the old capital investment in 
                accordance with paragraph 10(d)(1) of the 
                version of Department of Energy Order RA 6120.2 
                in effect on October 1, 1993; and
            (2) interest were paid--
                    (A) at the interest rate the Administrator 
                assigned before October 1, 1993, to the old 
                capital investment, or
                    (B) with respect to an old capital 
                investment for which the Administrator has not 
                assigned an interest rate before October 1, 
                1993, at a rate determined by the Secretary of 
                the Treasury, taking into consideration 
                prevailing market yields, during the month 
                preceding the beginning of the fiscal year in 
                which the related project, facility, or 
                separable unit or feature is placed in service, 
                on outstanding interest-bearing obligations of 
                the United States with periods to maturity 
                comparable to the period between the beginning 
                of the fiscal year and the repayment date for 
                the old capital investment.

SEC. 5403. INTEREST RATE FOR NEW PRINCIPAL AMOUNTS.

    As of October 1, 1995, the unpaid balance on the new 
principal amount established for an old capital investment 
under section 5402 bears interest annually at the Treasury rate 
for the old capital investment until the earlier of the date 
that the new principal amount is repaid or the repayment date 
for the new principal amount.

SEC. 5404. REPAYMENT DATES.

    As of October 1, 1995, the repayment date for the new 
principal amount established for an old capital investment 
under section 5402 is no earlier than the repayment date for 
the old capital investment assumed in section 5402(c)(1).

SEC. 5405. PREPAYMENT LIMITATIONS.

    During the period October 1, 1995, through September 30, 
2000, the total new principal amounts of old capital 
investments, as established under section 5402, that the 
Administrator may pay before their respective repayment dates 
shall not exceed $100,000,000.

SEC. 5406. INTEREST RATES FOR NEW CAPITAL INVESTMENTS DURING 
                    CONSTRUCTION.

    (a) New Capital Investment.--The principal amount of a new 
capital investment includes interest in each fiscal year of 
construction of the related project, facility, or separable 
unit or feature at a rate equal to the one-year rate for the 
fiscal year on the sum of--
            (1) construction expenditures that were made from 
        the date construction commenced through the end of the 
        fiscal year, and
            (2) accrued interest during construction.
    (b) Payment.--The Administrator is not required to pay, 
during construction of the project, facility, or separable unit 
or feature, the interest calculated, accrued, and capitalized 
under subsection (a).
    (c) One-Year Rate.--For the purposes of this section, 
``one-year rate'' for a fiscal year means a rate determined by 
the Secretary of the Treasury, taking into consideration 
prevailing market yields, during the month preceding the 
beginning of the fiscal year, on outstanding interest-bearing 
obligations of the United States with periods to maturity of 
approximately one year.

SEC. 5407. INTEREST RATES FOR NEW CAPITAL INVESTMENTS.

    The unpaid balance on the principal amount of a new capital 
investment bears interest at the Treasury rate for the new 
capital investment from the date the related project, facility, 
or separable unit or feature is placed in service until the 
earlier of the date the new capital investment is repaid or the 
repayment date for the new capital investment.

SEC. 5408. CREDITS TO ADMINISTRATOR'S PAYMENTS TO THE UNITED STATES 
                    TREASURY.

    The Confederated Tribe of the Colville Reservation Grand 
Coulee Dam Settlement Act (Public Law 103-436; 108 Stat. 4577) 
is amended by striking section 6 and inserting the following:

``SEC. 6. CREDITS TO ADMINISTRATOR'S PAYMENTS TO THE UNITED STATES 
                    TREASURY.

    ``So long as the Administrator makes annual payments to the 
tribes under the settlement agreement, the Administrator shall 
apply against amounts otherwise payable by the Administrator to 
the United States Treasury a credit that reduces the 
Administrator's payment in the amount and for each fiscal year 
as follows: $15,250,000 in fiscal year 1996; $15,860,000 in 
fiscal year 1997; $16,490,000 in fiscal year 1998; $17,150,000 
in fiscal year 1999; $17,840,000 in fiscal year 2000; and 
$4,100,000 in each succeeding fiscal year.''.

SEC. 5409. CONTRACT PROVISIONS.

    In each contract of the Administrator that provides for the 
Administrator to sell electric power, transmission, or related 
services, and that is in effect after September 30, 1995, the 
Administrator shall offer to include, or as the case may be, 
shall offer to amend to include, provisions specifying that 
after September 30, 1995--
            (1) the Administrator shall establish rates and 
        charges on the basis that--
                    (A) the principal amount of an old capital 
                investment shall be no greater than the new 
                principal amount established under section 
                5402;
                    (B) the interest rate applicable to the 
                unpaid balance of the new principal amount of 
                an old capital investment shall be no greater 
                than the interest rate established under 
                section 5403;
                    (C) any payment of principal of an old 
                capital investment shall reduce the outstanding 
                principal balance of the old capital investment 
                in the amount of the payment at the time the 
                payment is tendered; and
                    (D) any payment of interest on the unpaid 
                balance of the new principal amount of an old 
                capital investment shall be a credit against 
                the appropriate interest account in the amount 
                of the payment at the time the payment is 
                tendered;
            (2) apart from charges necessary to repay the new 
        principal amount of an old capital investment as 
        established under section 5402 and to pay the interest 
        on the principal amount under section 5403, no amount 
        may be charged for return to the United States Treasury 
        as repayment for or return on an old capital 
        investment, whether by way of rate, rent, lease 
        payment, assessment, user charge, or any other fee;
            (3) amounts provided under section 1304 of title 
        31, United States Code, shall be available to pay, and 
        shall be the sole source for payment of, a judgment 
        against or settlement by the Administrator or the 
        United States on a claim for a breach of the contract 
        provisions required by this subchapter; and
            (4) the contract provisions specified in this 
        subchapter do not--
                    (A) preclude the Administrator from 
                recovering, through rates or other means, any 
                tax that is generally imposed on electric 
                utilities in the United States, or
                    (B) affect the Administrator's authority 
                under applicable law, including section 7(g) of 
                the Pacific Northwest Electric Power Planning 
                and Conservation Act (16 U.S.C. 839e(g)), to--
                            (i) allocate costs and benefits, 
                        including but not limited to fish and 
                        wildlife costs, to rates or resources, 
                        or
                            (ii) design rates.

SEC. 5410. SAVINGS PROVISIONS.

    (a) Repayment.--This subchapter does not affect the 
obligation of the Administrator to repay the principal 
associated with each capital investment, and to pay interest on 
the principal, only from the ``Administrator's net proceeds,'' 
as defined in section 13(b) of the Federal Columbia River 
Transmission System Act (16 U.S.C. 838k(b)).
    (b) Payment of Capital Investment.--Except as provided in 
section 5405, this subchapter does not affect the authority of 
the Administrator to pay all or a portion of the principal 
amount associated with a capital investment before the 
repayment date for the principal amount.

        Subchapter B--Alaska Power Marketing Administration Sale

SEC. 5411. SHORT TITLE.

    This subchapter may be cited as the ``Alaska Power 
Administration Asset Sale and Termination Act''.

SEC. 5412. DEFINITIONS.

    For Purposes of this subchapter:
            (1) The term ``Eklutna'' means Eklutna 
        Hydroelectric Project and related assets as described 
        in section 4 and Exhibit A of the Eklutna Purchase 
        Agreement.
            (2) The term ``Eklutna Purchase Agreement'' means 
        the August 2, 1989, Eklutna Purchase Agreement between 
        the Alaska Power Administration of the Department of 
        Energy and the Eklutna Purchasers, together with any 
        amendments thereto adopted before the date of enactment 
        of this Act.
            (3) The term ``Eklutna Purchasers'' means the 
        Municipality of Anchorage doing business as Municipal 
        Light and Power, the Chugach Electric Association, Inc. 
        and the Matanuska Electric Association, Inc.
            (4) The term ``Snettisham'' means the Snettisham 
        Hydroelectric Project and related assets as described 
        in section 4 and Exhibit A of the Snettisham Purchase 
        Agreement.
            (5) The term ``Snettisham Purchase Agreement'' 
        means the February 10, 1989, Snettisham Purchase 
        Agreement between the Alaska Power Administration of 
        the Department of Energy and the Alaska Power Authority 
        and its successors in interest, together with any 
        amendments thereto adopted before the date of enactment 
        of this Act.
            (6) The term ``Snettisham Purchaser'' means the 
        Alaska Industrial Development and Export Authority or a 
        successor State agency or authority.

SEC. 5413. SALE OF EKLUTNA AND SNETTISHAM HYDROELECTRIC PROJECTS.

    (a) Sale of Eklutna.--The Secretary of Energy is authorized 
and directed to sell Eklutna to the Eklutna Purchasers in 
accordance with the terms of this subchapter and the Eklutna 
Purchase Agreement.
    (b) Sale of Snettisham.--The Secretary of Energy is 
authorized and directed to sell Snettisham to the Snettisham 
Purchaser in accordance with the terms of this subchapter and 
the Snettisham Purchase Agreement.
    (c) Cooperation of Other Agencies.--The heads of other 
Federal departments, agencies, and instrumentalities of the 
United States shall assist the Secretary of Energy in 
implementing the sales and conveyances authorized and directed 
by this subchapter.
    (d) Proceeds.--Proceeds from the sales required by this 
subchapter shall be deposited in the Treasury of the United 
States to the credit of miscellaneous receipts.
    (e) Preparation of Eklutna and Snettisham for Sale.--The 
Secretary of Energy is authorized and directed to use such 
funds from the sale of electric power by the Alaska Power 
Administration as may be necessary to prepare, survey, and 
acquire Eklutna and Snettisham assets for sale and conveyance. 
Such preparations and acquisitions shall provide sufficient 
title to ensure the beneficial use, enjoyment, and occupancy by 
the purchaser.
    (f) Contributed Funds.--Notwithstanding any other provision 
of law, the Alaska Power Administration is authorized to 
receive, administer, and expend such contributed funds as may 
be provided by the Eklutna Purchasers or customers or the 
Snettisham Purchaser or customers for the purposes of 
upgrading, improving, maintaining, or administering Eklutna or 
Snettisham. Upon the termination of the Alaska Power 
Administration under section 5414(f), the Secretary of Energy 
shall administer and expend any remaining balances of such 
contributed funds for the purposes intended by the 
contributors.

SEC. 5414. EXEMPTION AND OTHER PROVISIONS.

    (a) Federal Power Act.--
            (1) After the sales authorized by this subchapter 
        occur, Eklutna and Snettisham, including future 
        modifications, shall continue to be exempt from the 
        requirements of part I of the Federal Power Act (16 
        U.S.C. 791a et seq.), except as provided in subsection 
        (b).
            (2) The exemption provided by paragraph (1) shall 
        not affect the Memorandum of Agreement entered into 
        among the State of Alaska, the Eklutna Purchasers, the 
        Alaska Energy Authority, and Federal fish and wildlife 
        agencies regarding the protection, mitigation of, 
        damages to, and enhancement of fish and wildlife, dated 
        August 7, 1991, which remains in full force and effect.
            (3) Nothing in this subchapter or the Federal Power 
        Act (16 U.S.C. 791 et seq.) preempts the State of 
        Alaska from carrying out the responsibilities and 
        authorities of the Memorandum of Agreement.
    (b) Subsequent Transfers.--Except for subsequent assignment 
of interest in Eklutna by the Eklutna Purchasers to the Alaska 
Electric Generation and Transmission Cooperative Inc. pursuant 
to section 19 of the Eklutna Purchase Agreement, upon any 
subsequent sale or transfer of any portion of Eklutna or 
Snettisham from the Eklutna Purchasers or the Snettisham 
Purchaser to any other person, the exemption set forth in 
paragraph (1) of subsection (a) of this section shall cease to 
apply to such portion.
    (c) Review.--
            (1) The United States District Court for the 
        District of Alaska shall have jurisdiction to review 
        decisions made under the Memorandum of Agreement and to 
        enforce the provisions of the Memorandum of Agreement, 
        including the remedy of specific performance.
            (2) An action seeking review of a Fish and Wildlife 
        Program (``Program'') of the Governor of Alaska under 
        the Memorandum of Agreement or challenging actions of 
        any of the parties to the Memorandum of Agreement prior 
        to the adoption of the Program shall be brought not 
        later than 90 days after the date on which the Program 
        is adopted by the Governor of Alaska, or be barred.
            (3) An action seeking review of implementation of 
        the Program shall be brought not later than 90 days 
        after the challenged act implementing the Program, or 
        be barred.
    (d) Eklutna Lands.--With respect to Eklutna lands described 
in Exhibit A of the Eklutna Purchase Agreement:
            (1) The Secretary of the Interior shall issue 
        rights-of-way to the Alaska Power Administration for 
        subsequent reassignment to the Eklutna Purchasers--
                    (A) at no cost to the Eklutna Purchasers;
                    (B) to remain effective for a period equal 
                to the life of Eklutna as extended by 
                improvements, repairs, renewals, or 
                replacements; and
                    (C) sufficient for the operation of, 
                maintenance of, repair to, and replacement of, 
                and access to, Eklutna facilities located on 
                military lands and lands managed by the Bureau 
                of Land Management, including lands selected by 
                the State of Alaska.
            (2) Fee title to lands at Anchorage Substation 
        shall be transferred to Eklutna Purchasers at no 
        additional cost if the Secretary of the Interior 
        determines that pending claims to, and selections of, 
        those lands are invalid or relinquished.
            (3) With respect to the Eklutna lands identified in 
        paragraph 1 of Exhibit A of the Eklutna Purchase 
        Agreement, the State of Alaska may select, and the 
        Secretary of the Interior shall convey to the State, 
        improved lands under the selection entitlements in 
        section 6 of the Act of July 7, 1958 (commonly known as 
        the Alaska Statehood Act, Public Law 85-508; 72 Stat. 
        339), and the North Anchorage Land Agreement dated 
        January 31, 1983. This conveyance shall be subject to 
        the rights-of-way provided to the Eklutna Purchasers 
        under paragraph (1).
    (e) Snettisham Lands.--With respect to the Snettisham lands 
identified in paragraph 1 of Exhibit A of the Snettisham 
Purchase Agreement and Public Land Order No. 5108, the State of 
Alaska may select, and the Secretary of the Interior shall 
convey to the State of Alaska, improved lands under the 
selection entitlements in section 6 of the Act of July 7, 1958 
(commonly known as the Alaska Statehood Act, Public Law 85-508; 
72 Stat. 339).
    (f) Termination of Alaska Power Administration.--Not later 
than one year after both of the sales authorized in section 
5413 have occurred, as measured by the Transaction Dates 
stipulated in the Purchase Agreements, the Secretary of Energy 
shall--
            (1) complete the business of, and close out, the 
        Alaska Power Administration;
            (2) submit to Congress a report documenting the 
        sales; and
            (3) return unobligated balances of funds 
        appropriated for the Alaska Power Administration to the 
        Treasury of the United States.
    (g) Repeals.--
            (1) The Act of July 31, 1950 (64 Stat. 382) is 
        repealed effective on the date that Eklutna is conveyed 
        to the Eklutna Purchasers.
            (2) Section 204 of the Flood Control Act of 1962 
        (76 Stat. 1193) is repealed effective on the date that 
        Snettisham is conveyed to the Snettisham Purchaser.
            (3) The Act of August 9, 1955, concerning water 
        resources investigation in Alaska (69 Stat. 618), is 
        repealed.
    (h) DOE Organization Act.--As of the later of the two dates 
determined in paragraphs (1) and (2) of subsection (g), section 
302(a) of the Department of Energy Organization Act (42 U.S.C. 
7152(a)) is amended--
            (1) in paragraph (1)--
                    (A) by striking subparagraph (C); and
                    (B) by redesignating subparagraphs (D), 
                (E), and (F) as subparagraphs (C), (D), and (E) 
                respectively; and
            (2) in paragraph (2) by striking out ``and the 
        Alaska Power Administration'' and by inserting ``and'' 
        after ``Southwestern Power Administration,''.
    (i) Disposal.--The sales of Eklutna and Snettisham under 
this subchapter are not considered disposal of Federal surplus 
property under the Federal Property and Administrative Services 
Act of 1949 (40 U.S.C. 484) or the Act of October 3, 1944, 
popularly known as the ``Surplus Property Act of 1944'' (50 
U.S.C. App. 1622).

SEC. 5415. OTHER FEDERAL HYDROELECTRIC PROJECTS.

    The provisions of this subchapter regarding the sale of the 
Alaska Power Administration's hydroelectric projects under 
section 5413 and the exemption of these projects from part I of 
the Federal Power Act under section 5414 do not apply to other 
Federal hydroelectric projects.

      CHAPTER 8--OUTER CONTINENTAL SHELF DEEP WATER ROYALTY RELIEF

SEC. 5421. SHORT TITLE.

    This chapter may be referred to as the ``Outer Continental 
Shelf Deep Water Royalty Relief Act''.

SEC. 5422. AMENDMENTS TO THE OUTER CONTINENTAL SHELF LANDS ACT.

    Section 8(a)(3) of the Outer Continental Shelf Lands Act 
(43 U.S.C. 1337(a)(3)), is amended--
            (1) by designating the provisions of paragraph (3) 
        as subparagraph (A) of such paragraph (3); and
            (2) by inserting after subparagraph (A), as so 
        designated, the following:
                    ``(B) In the Western and Central Planning 
                Areas of the Gulf of Mexico and the portion of 
                the Eastern Planning Area of the Gulf of Mexico 
                encompassing whole lease blocks lying west of 
                87 degrees, 30 minutes West longitude, the 
                Secretary may, in order to--
                            ``(i) promote development or 
                        increased production on producing or 
                        non-producing leases; or
                            ``(ii) encourage production of 
                        marginal resources on producing or non-
                        producing leases;
                through primary, secondary, or tertiary 
                recovery means, reduce or eliminate any royalty 
                or net profit share set forth in the lease(s). 
                With the lessee's consent, the Secretary may 
                make other modifications to the royalty or net 
                profit share terms of the lease in order to 
                achieve these purposes.
                    ``(C)(i) Notwithstanding the provisions of 
                this Act other than this subparagraph, with 
                respect to any lease or unit in existence on 
                the date of enactment of the Outer Continental 
                Shelf Deep Water Royalty Relief Act meeting the 
                requirements of this subparagraph, no royalty 
                payments shall be due on new production, as 
                defined in clause (iv) of this subparagraph, 
                from any lease or unit located in water depths 
                of 200 meters or greater in the Western and 
                Central Planning Areas of the Gulf of Mexico, 
                including that portion of the Eastern Planning 
                Area of the Gulf of Mexico encompassing whole 
                lease blocks lying west of 87 degrees, 30 
                minutes West longitude, until such volume of 
                production as determined pursuant to clause 
                (ii) has been produced by the lessee.
                    ``(ii) Upon submission of a complete 
                application by the lessee, the Secretary shall 
                determine within 180 days of such application 
                whether new production from such lease or unit 
                would be economic in the absence of the relief 
                from the requirement to pay royalties provided 
                for by clause (i) of this subparagraph. In 
                making such determination, the Secretary shall 
                consider the increased technological and 
                financial risk of deep water development and 
                all costs associated with exploring, 
                developing, and producing from the lease. The 
                lessee shall provide information required for a 
                complete application to the Secretary prior to 
                such determination. The Secretary shall clearly 
                define the information required for a complete 
                application under this section. Such 
                application may be made on the basis of an 
                individual lease or unit. If the Secretary 
                determines that such new production would be 
                economic in the absence of the relief from the 
                requirement to pay royalties provided for by 
                clause (i) of this subparagraph, the provisions 
                of clause (i) shall not apply to such 
                production. If the Secretary determines that 
                such new production would not be economic in 
                the absence of the relief from the requirement 
                to pay royalties provided for by clause (i), 
                the Secretary must determine the volume of 
                production from the lease or unit on which no 
                royalties would be due in order to make such 
                new production economically viable; except that 
                for new production as defined in clause 
                (iv)(I), in no case will that volume be less 
                than 17.5 million barrels of oil equivalent in 
                water depths of 200 to 400 meters, 52.5 million 
                barrels of oil equivalent in 400 to 800 meters 
                of water, and 87.5 million barrels of oil 
                equivalent in water depths greater than 800 
                meters. Redetermination of the applicability of 
                clause (i) shall be undertaken by the Secretary 
                when requested by the lessee prior to the 
                commencement of the new production and upon 
                significant change in the factors upon which 
                the original determination was made. The 
                Secretary shall make such redetermination 
                within 120 days of submission of a complete 
                application. The Secretary may extend the time 
                period for making any determination or 
                redetermination under this clause for 30 days, 
                or longer if agreed to by the applicant, if 
                circumstances so warrant. The lessee shall be 
                notified in writing of any determination or 
                redetermination and the reasons for and 
                assumptions used for such determination. Any 
                determination or redetermination under this 
                clause shall be a final agency action. The 
                Secretary's determination or redetermination 
                shall be judicially reviewable under section 
                10(a) of the Administrative Procedure Act (5 
                U.S.C. 702), only for actions filed within 30 
                days of the Secretary's determination or 
                redetermination.
                    ``(iii) In the event that the Secretary 
                fails to make the determination or 
                redetermination called for in clause (ii) upon 
                application by the lessee within the time 
                period, together with any extension thereof, 
                provided for by clause (ii), no royalty 
                payments shall be due on new production as 
                follows:
                            ``(I) For new production, as 
                        defined in clause (iv) (I) of this 
                        subparagraph, no royalty shall be due 
                        on such production according to the 
                        schedule of minimum volumes specified 
                        in clause (ii) of this subparagraph.
                            ``(II) For new production, as 
                        defined in clause (iv) (II) of this 
                        subparagraph, no royalty shall be due 
                        on such production for one year 
                        following the start of such production.
                    ``(iv) For purposes of this subparagraph, 
                the term `new production' is--
                            ``(I) any production from a lease 
                        from which no royalties are due on 
                        production, other than test production, 
                        prior to the date of enactment of the 
                        Outer Continental Shelf Deep Water 
                        Royalty Relief Act; or
                            ``(II) any production resulting 
                        from lease development activities 
                        pursuant to a Development Operations 
                        Coordination Document, or supplement 
                        thereto that would expand production 
                        significantly beyond the level 
                        anticipated in the Development 
                        Operations Coordination Document, 
                        approved by the Secretary after the 
                        date of enactment of the Outer 
                        Continental Shelf Deep Water Royalty 
                        Relief Act.
                    ``(v) During the production of volumes 
                determined pursuant to clauses (ii) or (iii) of 
                this subparagraph, in any year during which the 
                arithmetic average of the closing prices on the 
                New York Mercantile Exchange for light sweet 
                crude oil exceeds $28.00 per barrel, any 
                production of oil will be subject to royalties 
                at the lease stipulated royalty rate. Any 
                production subject to this clause shall be 
                counted toward the production volume determined 
                pursuant to clause (ii) or (iii). Estimated 
                royalty payments will be made if such average 
                of the closing prices for the previous year 
                exceeds $28.00. After the end of the calendar 
                year, when the new average price can be 
                calculated, lessees will pay any royalties due, 
                with interest but without penalty, or can apply 
                for a refund, with interest, of any 
                overpayment.
                    ``(vi) During the production of volumes 
                determined pursuant to clause (ii) or (iii) of 
                this subparagraph, in any year during which the 
                arithmetic average of the closing prices on the 
                New York Mercantile Exchange for natural gas 
                exceeds $3.50 per million British thermal 
                units, any production of natural gas will be 
                subject to royalties at the lease stipulated 
                royalty rate. Any production subject to this 
                clause shall be counted toward the production 
                volume determined pursuant to clauses (ii) or 
                (iii). Estimated royalty payments will be made 
                if such average of the closing prices for the 
                previous year exceeds $3.50. After the end of 
                the calendar year, when the new average price 
                can be calculated, lessees will pay any 
                royalties due, with interest but without 
                penalty, or can apply for a refund, with 
                interest, of any overpayment.
                    ``(vii) The prices referred to in clauses 
                (v) and (vi) of this subparagraph shall be 
                changed during any calendar year after 1994 by 
                the percentage, if any, by which the implicit 
                price deflator for the gross domestic product 
                changed during the preceding calendar year.''.

SEC. 5423. NEW LEASES.

    Section 8(a)(1) of the Outer Continental Shelf Lands Act, 
as amended (43 U.S.C. 1337 (a)(1)), is amended--
            (1) by redesignating subparagraph (H) as 
        subparagraph (I);
            (2) by striking ``or'' at the end of subparagraph 
        (G); and
            (3) by inserting after subparagraph (G) the 
        following new subparagraph:
                    ``(H) cash bonus bid with royalty at no 
                less than 12 and 1/2 per centum fixed by the 
                Secretary in amount or value of production 
                saved, removed, or sold, and with suspension of 
                royalties for a period, volume, or value of 
                production determined by the Secretary, which 
                suspensions may vary based on the price of 
                production from the lease; or''.

SEC. 5424. LEASE SALES.

    For all tracts located in water depths of 200 meters or 
greater in the Western and Central Planning Area of the Gulf of 
Mexico, including that portion of the Eastern Planning Area of 
the Gulf of Mexico encompassing whole lease blocks lying west 
of 87 degrees, 30 minutes West longitude, any lease sale within 
seven years of the date of enactment of this chapter, shall use 
the bidding system authorized in section 8(a)(1)(H) of the 
Outer Continental Shelf Lands Act, as amended by this chapter, 
except that the suspension of royalties shall be set at a 
volume of not less than the following:
            (1) 17.5 million barrels of oil equivalent for 
        leases in water depths of 200 to 400 meters;
            (2) 52.5 million barrels of oil equivalent for 
        leases in 400 to 800 meters of water; and
            (3) 87.5 million barrels of oil equivalent for 
        leases in water depths greater than 800 meters.

SEC. 5425. REGULATIONS.

    The Secretary shall promulgate such rules and regulations 
as are necessary to implement the provisions of this chapter 
within 180 days after the enactment of this Act.

SEC. 5426. SAVINGS CLAUSE.

    Nothing in this chapter shall be construed to affect any 
offshore pre-leasing, leasing, or development moratorium, 
including any moratorium applicable to the Eastern Planning 
Area of the Gulf of Mexico located off the Gulf Coast of 
Florida.

              CHAPTER 9--EXPORTS OF ALASKA NORTH SLOPE OIL

SEC. 5431. EXPORTS OF ALASKAN NORTH SLOPE OIL.

    Section 28 of the Mineral Leasing Act (30 U.S.C. 185) is 
amended by amending subsection (s) to read as follows:


                  ``exports of alaskan north slope oil


    ``(s)(1) Subject to paragraphs (2) through (6) of this 
subsection and notwithstanding any other provision of this Act 
or any other provision of law (including any regulation) 
applicable to the export of oil transported by pipeline over 
right-of-way granted pursuant to section 203 of the Trans-
Alaska Pipeline Authorization Act (43 U.S.C. 1652), such oil 
may be exported unless the President finds that exportation of 
this oil is not in the national interest. The President shall 
make his national interest determination within five months of 
the date of enactment of this subsection. In evaluating whether 
exports of this oil are in the national interest, the President 
shall at a minimum consider--
                    ``(A) whether exports of this oil would 
                diminish the total quantity or quality of 
                petroleum available to the United States;
                    ``(B) the results of an appropriate 
                environmental review, including consideration 
                of appropriate measures to mitigate any 
                potential adverse effects of exports of this 
                oil on the environment, which shall be 
                completed within four months of the date of the 
                enactment of this subsection; and
                    ``(C) whether exports of this oil are 
                likely to cause sustained material oil supply 
                shortages or sustained oil prices significantly 
                above world market levels that would cause 
                sustained material adverse employment effects 
                in the United States or that would cause 
                substantial harm to consumers, including 
                noncontiguous States and Pacific territories. 
                If the President determines that exports of 
                this oil are in the national interest, he may 
                impose such terms and conditions (other than a 
                volume limitation) as are necessary or 
                appropriate to ensure that such exports are 
                consistent with the national interest.
    ``(2) Except in the case of oil exported to a country with 
which the United States entered into a bilateral international 
oil supply agreement before November 26, 1979, or to a country 
pursuant to the International Emergency Oil Sharing Plan of the 
International Energy Agency, any oil transported by pipeline 
over right-of-way granted pursuant to section 203 of the Trans-
Alaska Pipeline Authorization Act (43 U.S.C. 1652) shall, when 
exported, be transported by a vessel documented under the laws 
of the United States and owned by a citizen of the United 
States (as determined in accordance with section 2 of the 
Shipping Act, 1916 (46 U.S.C. App. 802)).
    ``(3) Nothing in this subsection shall restrict the 
authority of the President under the Constitution, the 
International Emergency Economic Powers Act (50 U.S.C. 1701 et 
seq.), the National Emergencies Act (50 U.S.C. 1601 et seq.), 
or part B of title II of the Energy Policy and Conservation Act 
(42 U.S.C. 6271-76) to prohibit exports.
    ``(4) The Secretary of Commerce shall issue any rules 
necessary for implementation of the President's national 
interest determination, including any licensing requirements 
and conditions, within 30 days of the date of such 
determination by the President. The Secretary of Commerce shall 
consult with the Secretary of Energy in administering the 
provisions of this subsection.
    ``(5) If the Secretary of Commerce finds that exporting oil 
under authority of this subsection has caused sustained 
material oil supply shortages or sustained oil prices 
significantly above world market levels and further finds that 
these supply shortages or price increases have caused or are 
likely to cause sustained material adverse employment effects 
in the United States, the Secretary of Commerce, in 
consultation with the Secretary of Energy, shall recommend, and 
the President may take, appropriate action concerning exports 
of this oil, which may include modifying or revoking authority 
to export such oil.
    ``(6) Administrative action under this subsection is not 
subject to sections 551 and 553 through 559 of title 5, United 
States Code.''.

 CHAPTER 10--SKI AREA PERMIT RENTAL CHARGES ON NATIONAL FOREST SYSTEM 
                                 LANDS

SEC. 5441. SKI AREA PERMIT RENTAL CHARGE.

    (a) The Secretary of Agriculture shall charge a rental 
charge for all ski area permits issued pursuant to section 3 of 
the National Forest Ski Area Permit Act of 1986 (16 U.S.C. 
497b), the Act of March 4, 1915 (38 Stat. 1101, chapter 144; 16 
U.S.C. 497), or the 9th through 20th paragraphs under the 
heading ``Surveying the public lands'' under the heading 
``under the department of the interior'' in the Act of June 4, 
1897 (30 Stat. 34, chapter 2), on National Forest System lands. 
Permit rental charges for permits issued pursuant to the 
National Forest Ski Area Permit Act of 1986 shall be calculated 
as set forth in subsection (b). Permit rental charges for 
existing ski area permits issued pursuant to the Act of March 
4, 1915, and the Act of June 4, 1897, shall be calculated in 
accordance with those existing permits: Provided, That a 
permittee may, at the permittee's option, use the calculation 
method set forth in subsection (b).
    (b)(1) The ski area permit rental charge (SAPRC) shall be 
calculated by adding the permittee's gross revenues from lift 
ticket/year-round ski area use pass sales plus revenue from ski 
school operations (LT+SS) and multiplying such total by the 
slope transport feet percentage (STFP) on National Forest 
System land. That amount shall be increased by the gross year-
round revenue from ancillary facilities (GRAF) physically 
located on national forest land, including all permittee or 
subpermittee lodging, food service, rental shops, parking and 
other ancillary operations, to determine the adjusted gross 
revenue (AGR) subject to the permit rental charge. The final 
rental charge shall be calculated by multiplying the AGR by the 
following percentages for each revenue bracket and adding the 
total for each revenue bracket:
            (A) 1.5 percent of all adjusted gross revenue below 
        $3,000,000;
            (B) 2.5 percent for adjusted gross revenue between 
        $3,000,000 and $15,000,000;
            (C) 2.75 percent for adjusted gross revenue between 
        $15,000,000 and $50,000,000; and
            (D) 4.0 percent for the amount of adjusted gross 
        revenue that exceeds $50,000,000.
    (2) In cases where ski areas are only partially located on 
national forest lands, the slope transport feet percentage on 
national forest land referred to in subsection (b) shall be 
calculated as generally described in the Forest Service Manual 
in effect as of January 1, 1992. Revenues from Nordic ski 
operations shall be included or excluded from the rental charge 
calculation according to the percentage of trails physically 
located on national forest land.
    (3) In order to ensure that the rental charge remains fair 
and equitable to both the United States and ski area 
permittees, the adjusted gross revenue figures for each revenue 
bracket in paragraph (1) shall be adjusted annually by the 
percent increase or decrease in the national Consumer Price 
Index for the preceding calendar year.
    (c) The rental charge set forth in subsection (b) shall be 
due on June 1 of each year and shall be paid or pre-paid by the 
permittee on a monthly, quarterly, annual or other schedule as 
determined appropriate by the Secretary in consultation with 
the permittee. Unless mutually agreed otherwise by the 
Secretary of Agriculture and the permittee, the payment or 
prepayment schedule shall conform to the permittee's schedule 
in effect prior to the date of enactment of this Act. To reduce 
costs to the permittee and the Forest Service, the Secretary 
shall each year provide the permittee with a standardized form 
and worksheets (including annual rental charge calculation 
brackets and rates) to be used for rental charge calculation 
and submitted with the rental charge payment.
    (d) The ski area permit rental charge set forth in this 
section shall become effective on June 1, 1996 and cover 
receipts retroactive to June 1, 1995: Provided, however, That 
if a permittee has paid rental charges for the period June 1, 
1995, to June 1, 1996, under the graduated rate rental charge 
system formula in effect prior to the date of enactment of this 
Act, such rental charges shall be credited toward the new 
rental charge due on June 1, 1996. In order to ensure 
increasing rental charge receipt levels to the United States 
during transition from the graduated rate rental charge system 
formula to the formula of this Act, the rental charge paid by 
any individual permittee shall be--
            (1) for the 1995-1996 permit year, shall be either 
        the rental charge paid for the preceding 1994-1995 base 
        year or the rental charge calculated pursuant to this 
        Act, whichever is higher;
            (2) for the 1996-1997 permit year, the rental 
        charge paid shall be either the rental charge paid for 
        the 1994-1995 base year or the rental charge calculated 
        pursuant to this Act, whichever is higher; and
            (3) for the 1997-1998 permit year, the rental 
        charge for the 1994-1995 base year or the rental charge 
        calculated pursuant to this Act, whichever is higher.
If an individual permittee's adjusted gross revenue for the 
1995-1996, 1996-1997, or 1997-1998 permit years falls more than 
10 percent below the 1994-1995 base year, the rental charge 
paid shall be the rental charge calculated pursuant to this 
Act.
    (e) Under no circumstances shall revenue, or subpermittee 
revenue (other than lift ticket, area use pass, or ski school 
sales) obtained from operations physically located on non-
national forest land be included in the ski area permit rental 
charge calculation.
    (f) To reduce administrative costs on ski area permittees 
and the Forest Service the terms ``revenue'' and ``sales'', as 
used in this section, shall mean actual income from sales and 
shall not include sales of operating equipment, refunds, rent 
paid to the permittee by sublessees, sponsor contributions to 
special events or any amounts attributable to employee 
gratuities or employee lift tickets, discounts, or other goods 
or services (except for bartered goods and complimentary lift 
tickets) for which the permittee does not receive money.
    (g) In cases where an area of national forest land is under 
a ski area permit but the permittee does not have revenue or 
sales qualifying for rental charge payment pursuant to 
subsection (a), the permittee shall pay an annual minimum 
rental charge of $2 for each national forest acre under permit 
or a percentage of appraised land value, as determined to be 
appropriate by the Secretary.
    (h) Where the new rental charge provided for in subsection 
(b)(1) results in an increase in permit rental charge greater 
than one half of one percent of the permittee's adjusted gross 
revenue (as determined under subsection (b)(1)), the new rental 
charge shall be phased in over a 5-year period in a manner 
providing for increases of approximately equal increments.

                     CHAPTER 11--PARK ENTRANCE FEES

SEC. 5451. FEES.

    (a) Admission Fees.--Section 4(a) of the Land and Water 
Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(a)) is 
amended--
            (1) in the first sentence of the subsection by 
        striking ``no more than 21'';
            (2) in the first sentence of paragraph (1)(A)(i) by 
        striking ``$25'' and inserting ``$50'';
            (3) in the second sentence of paragraph (1)(B) by 
        striking ``$15'' and inserting ``$25'';
            (4) in paragraph (2) by striking the fourth, fifth, 
        and sixth sentences and inserting ``The fee for a 
        single-visit permit at any designated area shall be 
        collected on a per person basis, not to exceed $6 per 
        person, including for persons entering by private, 
        noncommercial vehicle.'';
            (5) in paragraph (3)--
                    (A) in the third sentence by inserting 
                ``Great'' before ``Smoky''; and
                    (B) by striking the last sentence;
            (6) in paragraph (4)--
                    (A) by striking the second sentence and 
                inserting ``Such permit shall be 
                nontransferable, shall be issued for a one-time 
                charge, which shall be set at the same rate as 
                the fee for a Golden Eagle Passport, and shall 
                entitle the permittee to free admission into 
                any area designated pursuant to this 
                subsection.''; and
                    (B) by striking the third sentence and 
                inserting ``No fees of any kind shall be 
                collected from any persons who have a right of 
                access for hunting or fishing privileges under 
                a specific provision of law or treaty or who 
                are engaged in the conduct of official Federal, 
                State, or local government business.'';
            (7) by striking paragraph (5) and inserting the 
        following:
            ``(5) The Secretary of the Interior and the 
        Secretary of Agriculture shall establish procedures 
        providing for the issuance of a lifetime admission 
        permit to any citizen of, or person legally domiciled 
        in, the United States, if such citizen or person 
        applies for such permit and is permanently disabled. 
        Such procedures shall ensure that a lifetime admission 
        permit shall be issued only to persons who have been 
        medically determined to be permanently disabled. A 
        lifetime admission permit shall be nontransferable, 
        shall be issued without charge, and shall entitle the 
        permittee and one accompanying individual to general 
        admission into any area designated pursuant to this 
        subsection, notwithstanding the method of travel.'';
            (8) by striking paragraph (9) and by redesignating 
        paragraph (10) as paragraph (9)'';
            (9) by striking all but the last sentence of 
        paragraph (11) and redesignating paragraph (11) as 
        paragraph (10); and
            (10) by redesignating paragraph (12) as paragraph 
        (11).
    (b) Recreation Fees.--Section 4 of the Land and Water 
Conservation Fund Act of 1965 (16 U.S.C. 460l-6a) is amended by 
striking subsection (b) and inserting the following:
    ``(b) Recreation Use Fees.--Each agency developing, 
administering, providing, or furnishing at Federal expense 
services for such activities as camping, including, but not 
limited to, back country camping under permit, guarded swimming 
sites, boat launch facilities, managed parking lots, motorized 
recreation use and other recreation uses, is authorized, in 
accordance with this section to provide for the collection of 
recreation use fees at the place of use or any reasonably 
convenient location. The administering Secretary may establish 
both daily and annual recreation use fees.''.
    (c) Criteria, Posting and Uniformity of Fees.--Section 4(d) 
of the Land and Water Conservation Fund Act of 1965 (16 U.S.C. 
460l-6a(d)) is amended in the first sentence by striking 
``recreation fees charged by non-Federal public agencies,'' and 
inserting ``fees charged by other public and private 
entities,''.
    (d) Penalty.--Section 4(e) of the Land and Water 
Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(e)) is amended 
by striking ``of not more than $100.'' and inserting ``as 
provided by law.''.
    (e) Technical Amendments.--Section 4(h) of the Land and 
Water Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(h)) is 
amended--
            (1) by striking ``Bureau of Outdoor Recreation'' 
        and inserting ``National Park Service'';
            (2) by striking ``Natural Resources'' and inserting 
        ``Resources''; and
            (3) by striking ``Bureau'' and inserting ``National 
        Park Service''.
    (f) Use of Fees.--Section 4(i) of the Land and Water 
Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(i)) is 
amended--
            (1) in the first sentence of paragraph (1)(B) by 
        striking ``fee collection costs for that fiscal year'' 
        and inserting ``fee collection costs for the 
        immediately preceding fiscal year'' and by striking 
        ``section in that fiscal year'' and inserting ``section 
        in such immediately preceding fiscal year'';
            (2) in the second sentence of subparagraph (B) by 
        striking ``in that fiscal year''; and
            (3) by striking paragraph (4) and inserting the 
        following:
    ``(4) Amounts covered into the special account for the 
National Park Service shall be allocated among park system 
units in accordance with subsection (j) for obligation or 
expenditure by the Director of the National Park Service for 
park operations.''.
    (g) Time of Reimbursement.--Section 4(k) of the Land and 
Water Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(k)) is 
amended by striking the last sentence.
    (h) Commercial Tour Use Fees.--Section 4(n) of the Land and 
Water Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(n)) is 
amended--
            (1) by striking the first sentence of paragraph (1) 
        and inserting ``In the case of each unit of the 
        National Park System for which an admission fee is 
        charged under this section, the Secretary of the 
        Interior shall establish, by October 1, 1996, a 
        commercial tour use fee in lieu of a per person 
        admission fee to be imposed on each vehicle entering 
        the unit for the purpose of providing commercial tour 
        services within the unit.''; and
            (2) by striking the period at the end of paragraph 
        (3) and inserting ``, with written notification of such 
        adjustments provided to commercial tour operators 12 
        months in advance of implementation.''.
    (i) Conforming Amendments.--
            (1) Title I of the Department of the Interior and 
        Related Agencies Appropriations Act, 1994, is amended 
        by striking the second proviso under the heading 
        ``Administrative Provisions'' under the heading 
        ``National Park Service'' (related to recovery of costs 
        associated with special use permits).
            (2) Section 3 of the Act entitled ``An Act creating 
        the Mount Rushmore National Memorial Commission and 
        defining its purposes and powers'', approved February 
        25, 1929 (45 Stat. 1300, chapter 315), is amended by 
        striking the last sentence.
            (3) Section 5 of Public Law 87-657 (16 U.S.C. 459c-
        5), is amended by striking subsection (e).
            (4) Section 3 of Public Law 87-750 (16 U.S.C. 398e) 
        is amended by striking subsection (b).
            (5) Section 4(e) of Public Law 92-589 (16 U.S.C. 
        460bb-3) is amended by striking the first sentence.
            (6) Section 6 of Public Law 95-348 (16 U.S.C. 
        410dd) is amended by striking subsection (j).
            (7) Section 207 of Public Law 96-199 (16 U.S.C. 
        410ff-6) is repealed.
            (8) Section 106 of Public Law 96-287 (16 U.S.C. 
        410gg-5) is amended by striking the last sentence.
            (9) Section 204 of Public Law 96-287 (94 Stat. 601) 
        is amended by striking the last sentence.
            (10) Section 5 of Public Law 96-428 (94 Stat. 1842; 
        16 U.S.C. 461 note) is repealed.
            (11) Public Law 100-55 (101 Stat. 371; U.S.C. 460l-
        6a note) is repealed.

SEC. 5452. COVERING OF INCREASED FEE REVENUES INTO SPECIAL ACCOUNTS.

    Of the funds deposited in special accounts in the Treasury 
for the National Park Service, Bureau of Land Management, and 
Forest Service as set forth in section 4(i) of the Land and 
Water Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(i)), 
beginning in fiscal year 1997, 80 percent of all receipts 
earned in the previous year in excess of the following amounts 
for each covered agency shall be made available to that agency 
without further appropriation:
            (1) National Park System:
                    (A) $82,000,000 for fiscal year 1997.
                    (B) $85,000,000 for fiscal year 1998.
                    (C) $88,000,000 for fiscal year 1999.
                    (D) $91,000,000 for fiscal year 2000.
                    (E) $94,000,000 for fiscal year 2001.
                    (F) $97,000,000 for fiscal year 2002.
                    (G) $100,000,000 for fiscal year 2003.
                    (H) $112,000,000 for fiscal year 2004.
                    (I) $106,000,000 for fiscal year 2005.
            (2) Bureau of Land Management:
                    (A) $4,500,000 for fiscal year 1997.
                    (B) $5,000,000 for fiscal year 1998.
                    (C) $5,000,000 for fiscal year 1999.
                    (D) $5,000,000 for fiscal year 2000.
                    (E) $5,000,000 for fiscal year 2001.
                    (F) $5,000,000 for fiscal year 2002.
                    (G) $5,000,000 for fiscal year 2003.
                    (H) $5,000,000 for fiscal year 2004.
                    (I) $5,000,000 for fiscal year 2005.
            (3) Forest Service:
                    (A) $20,000,000 for fiscal year 1997.
                    (B) $20,600,000 for fiscal year 1998.
                    (C) $21,200,000 for fiscal year 1999.
                    (D) $21,900,000 for fiscal year 2000.
                    (E) $22,500,000 for fiscal year 2001.
                    (F) $23,600,000 for fiscal year 2002.
                    (G) $24,300,000 for fiscal year 2003.
                    (H) $25,000,000 for fiscal year 2004.
                    (I) $25,800,000 for fiscal year 2005.
Beginning in fiscal year 2006, and in each fiscal year 
thereafter, the amounts set forth in this section for each 
covered agency in fiscal year 2005 shall be increased by 4 
percent per year, and 80 percent of all receipts earned in 
excess of such amounts for each covered agency shall be made 
available to that agency without further appropriation.

SEC. 5453. ALLOCATION AND USE OF FEES.

    (a) Allocation.--Beginning in fiscal year 1997, receipts 
above the amounts stated in section 5452 in each covered 
agency's special account from the previous fiscal year shall be 
allocated as follows:
            (1) Seventy-five percent shall be allocated among 
        the units or areas of each affected agency in the same 
        proportion as fees collected pursuant to section 4 of 
        the Land and Water Conservation Fund Act of 1965 (16 
        U.S.C. 460l-6a) from a specific unit or area bear to 
        the total amount of such fees collected from all units 
        or areas of the same covered agency for each fiscal 
        year.
            (2) Twenty-five percent shall be allocated among 
        each covered agency's units or areas on the basis of 
        need, as determined by the Secretary.
    (b) Use.--Expenditures from the special accounts shall be 
used solely for infrastructure related to visitor use and 
annual operating expenses related to visitor services at units 
or areas of the covered agencies.

                     CHAPTER 12--CONCESSION REFORM

SEC. 5461. SHORT TITLE.

    This chapter may be cited as the ``Visitor Facilities and 
Services Enhancement Act of 1995''.

SEC. 5462. DEFINITIONS.

    In this chapter:
            (1) ``adjusted gross receipts'' means gross 
        receipts less revenue derived from goods and services 
        provided on other than Federal lands or conveyed to 
        units of Government for hunting or fishing licenses or 
        for entrance or recreation fees, or from such other 
        exclusions as the Secretary concerned might apply.
            (2) ``agency head'' means the head of an agency or 
        his or her designated representative.
            (3) ``bidder'' means a person who has submitted, or 
        may submit, a proposal respecting the facilities or 
        services, whether or not such bidder is the current 
        concessioner.
            (4) ``concessioner'' means a person or other entity 
        acting under a concession authorization which provides 
        public services, facilities, or activities on Federal 
        lands pursuant to a concession service agreement or 
        concession license.
            (5) ``concession authorization'' means a concession 
        service agreement or concession license as applicable.
            (6) ``concession license'' means a written contract 
        between the agency head and the concessioner which sets 
        forth the terms and conditions under which the 
        concessioner is authorized to provide recreation 
        services or activities on a limited basis as well as 
        the rights and obligations of the Federal Government.
            (7) ``concession service agreement'' means a 
        written contract between the agency head and the 
        concessioner which sets forth the terms and conditions 
        under which the concessioner is authorized to provide 
        visitor services, facilities, or activities as well as 
        the rights and obligations of the Federal Government.
            (8) ``Consumer Price Index'' means the Consumer 
        Price Index-All Urban Consumers published by the Bureau 
        of Labor Statistics of the Department of Labor, and 
        from and after such time as such index is no longer 
        published, the Consumer Price Index or other regularly-
        published cost-of-living index chosen by the Secretary 
        concerned which reasonably approximates the Consumer 
        Price Index specified above.
            (9) ``gross receipts'' means revenue from goods or 
        services provided by concession services, facilities, 
        or activities on Federal lands and waters.
            (10) ``performance incentive'' means a credit based 
        on past performance toward the score awarded by the 
        Secretary concerned to an incumbent concessioner's 
        proposal submitted in response to a solicitation for 
        the reissuance of such incumbent concessioner's 
        contract.
            (11) ``proposal'' means the complete submission for 
        a concession service agreement offered in response to 
        the solicitation for such concession service agreement.
            (12) ``prospectus'' means a document or documents 
        issued by the Secretary concerned and included with a 
        solicitation which sets forth the minimum requirements 
        for the award of a concession service agreement.
            (13) ``Secretary concerned'' means --
                    (A) the Secretary of the Interior with 
                respect to all concession authorizations issued 
                by the National Park Service, and all 
                concession authorizations for river runner, 
                outfitter, or guide concessions issued by the 
                United States Fish and Wildlife Service and the 
                Bureau of Land Management; and
                    (B) the Secretary of Agriculture with 
                respect to all river runner, outfitter, or 
                guide concessions issued by the Forest Service.
            (14) ``selected bidder'' means the bidder selected 
        by the Secretary concerned for the award of a 
        concession service agreement until such bidder becomes 
        the concessioner.
            (15) ``solicitation'' means a request by the 
        Secretary concerned for proposals in response to a 
        prospectus.

SEC. 5463. NATURE AND TYPES OF CONCESSION AUTHORIZATIONS.

    (a) In General.--The Secretary concerned may enter into 
concession authorizations as follows:
            (1) Concession service agreement.--A concession 
        service agreement shall be entered into for all 
        concessions where the Secretary concerned determines 
        that the provision of concession services is in the 
        interest of the Federal Government and issues either a 
        competitive offering for concession services, 
        facilities or activities or a noncompetitive offering 
        for such services, facilities, or activities based on a 
        finding that due to special circumstances it is not in 
        the public interest of the United States to award a 
        concession service agreement on a competitive basis.
            (2) Concession license.--Whenever the Secretary 
        concerned makes a determination that public enjoyment 
        of Federal lands would be enhanced through the 
        provision of concession services for one-time, 
        intermittent, or infrequently scheduled activities and 
        that there exists no need to limit the number of 
        concessionaires providing such services, the Secretary 
        shall enter into a concession license with a qualified 
        concessioner. The Secretary concerned may not limit the 
        number of concession licenses issued for the same types 
        of activities in a particular geographic area.
            (3) Lands under multiple jurisdictions.--In order 
        to reduce administrative costs the Secretaries of the 
        Departments concerned shall designate an agency to be 
        the lead agency concerning concessions which conduct a 
        single operation on lands or waters under the 
        jurisdiction of more than one agency. Unless otherwise 
        agreed to by each such Secretary concerned, the lead 
        agency shall be that agency under whose jurisdiction 
        the concessioner generates the greatest amount of gross 
        receipts. The agency so designated shall issue a single 
        concession authorization and collect a single fee under 
        paragraphs (1) and (2) for such operation.

SEC. 5464. COMPETITIVE SELECTION PROCESS FOR CONCESSION SERVICE 
                    AGREEMENTS.

    (a) Award to Best Proposal.--The Secretary concerned shall 
enter into, and reissue, a concession service agreement with 
the person whom the Secretary determines in accordance with 
this section submits the best proposal through a competitive 
process as defined in this section.
    (b) Solicitation and Prospectus.--Prior to making a 
solicitation for a concession service agreement, the Secretary 
concerned shall prepare a prospectus for such solicitation, 
shall publish notice of its availability at least once in such 
local or national newspapers or trade publications as the 
Secretary determines appropriate, and shall make such 
prospectus available upon request to all interested parties. 
The prospectus shall specify the minimum requirements for such 
concession service agreement, including but not limited to:
            (1) a description of the services and facilities to 
        be provided by the concessioner.
            (2) the level of capital investment required by the 
        concessioner (if any).
            (3) terms and conditions of the concession service 
        agreement.
            (4) minimum facilities and services to be provided 
        by the Secretary concerned to the concessioner, if any, 
        including but not limited to public access, utilities, 
        buildings, and minimum public services.
            (5) such other information related to the 
        concession operation available to the Secretary 
        concerned as is not privileged or otherwise exempt from 
        disclosure under Federal law, as the Secretary 
        determines is necessary to allow for the submission of 
        competitive proposals; and
            (6) Local hiring preferences provisions, if 
        applicable, and notwithstanding any other provision of 
        law, to increase revenue to the United States by 
        avoiding additional transportation and related costs 
        associated with non-resident labor, each contract 
        awarded by the Department of the Interior for 
        concessioner or commercial use contractor-provided 
        visitor services performed in whole or in part of a 
        State which is not contiguous with another State and 
        has an unemployment rate in excess of the national 
        average rate of unemployment, as determined by the 
        Secretary of Labor shall include a provision requiring 
        the concessioner or commercial use contractor to employ 
        individuals who are residents of such State, and who, 
        in the case of any craft or trade, possess or would be 
        able to acquire promptly the necessary skills for the 
        purpose of performing that portion of the contract in 
        such State.
            (7) Minimum fees to the United States.
    (c) Factors and Minimum Standards in Determining Best 
Proposal.--The prospectus shall assign a weight to each factor 
identified therein related to the importance of such factor in 
the selection process. Points shall be awarded for each such 
factor, based on the relative strength of the proposal 
concerning that factor. In selecting the best proposal, the 
Secretary concerned shall take into consideration (but shall 
not be limited to) the following, including whether the 
proposal meets the minimum requirements (if any) of the 
Secretary for each of the following:
            (1) Responsiveness to the prospectus.
            (2) Quality of visitor services to be provided 
        taking into account the nature of equipment and 
        facilities to be provided.
            (3) Experience and performance in providing the 
        same or similar accommodations, facilities, or 
        services. This factor shall account for not less than 
        20 percent of the maximum points available under any 
        prospectus. Where the Secretary concerned determines it 
        to be warranted to provide for a high quality visitor 
        experience, the prospectus for a concession service 
        agreement shall provide greater weight to this factor 
        based on such aspects of the concession service 
        agreement as scope or size, complexity, nature of 
        technical skills required, and site-specific knowledge 
        of the area. The similarity of the qualifying 
        experience outlined in the proposal to the nature of 
        the services required under the concession service 
        agreement and the length of such qualifying experience 
        shall be the basis for awarding points for this factor.
            (4) Record of resource protection (as appropriate 
        for services and activities with potential to impact 
        natural or cultural resources).
            (5) Financial capability.
            (6) Fees to the United States.
    (d) Selection Process.--The process for selecting the best 
proposal shall consist of the following:
            (1) First, the Secretary concerned shall identify 
        those proposals which meet the minimum standards (if 
        any) for the factors identified under subsection (c).
            (2) Second, the Secretary concerned shall evaluate 
        all proposals identified under paragraph (1), 
        considering all factors identified under subsection 
        (c), as well as performance incentives earned under 
        subsection (e) and renewal penalties incurred under 
        subsection (f).
            (3) Third, the Secretary concerned shall offer the 
        concession service agreement to the best qualified 
        applicant as determined by the evaluation under 
        paragraph (2). Prior to any such offer, the Secretary 
        shall certify that such applicant has adequate funds to 
        purchase any investment interest.
    (e) Performance Incentives.--
            (1) In evaluating the proposal of an incumbent 
        concessioner when the Secretary concerned issues a 
        prospectus for the renewal of the concession service 
        agreement, such concessioner is entitled to a 
        performance incentive of--
                    (A) one percent of the maximum points 
                available under such prospectus for each year 
                in which the concessioner's annual performance 
                is rated as exceeding the requirements outlined 
                in the prospectus or ``good'', and
                    (B) a one-time 3-year merit term extension 
                upon a finding that a concessioner has been 
                rated as ``good'' in each annual performance 
                evaluation through the term of the concession 
                service agreement.
            (2) A performance incentive awarded under paragraph 
        (1)(A) may not exceed 10 percent of the maximum points 
        available under such prospectus.
            (3) The performance incentive specified under 
        paragraph (1)(A) may only be awarded to a concessioner 
        which meets the monetary definition of a small business 
        under section 3 of the Small Business Act (15 U.S.C. 
        632). The Board of Contract Appeals within each 
        Department shall adjudicate disputes between the 
        Federal Government and concessionaires regarding 
        performance evaluations.
    (f) Renewal Penalty.--In evaluating the proposal of an 
incumbent concessioner when the Secretary concerned issues a 
prospectus for the renewal of the concession service agreement, 
the incumbent concessioner shall be penalized one percent of 
the maximum points available under such prospectus for each 
year in which the concessioner's annual performance is found to 
be unsatisfactory.
    (g) Inapplicability of NEPA to Temporary Extensions and 
Similar Reissuance of Concessions Agreements.--The temporary 
extension of a concession authorization, or reissuance of a 
concession authorization to provide concession services similar 
in nature and amount to concession services provided under the 
previous authorization, is hereby determined not to be a major 
Federal action for the purposes of the National Environmental 
Policy Act of 1969 (42 U.S.C. 4331 et. seq.).
    (h) Provision for Additional Related Services.--The 
Secretary concerned may modify the concession service agreement 
to allow concessionaires to provide services closely related to 
such agreement only if the Secretary concerned determines that 
such changes would enhance the safety or enjoyment of visitors 
and would not unduly restrict the award of future concession 
service agreements.

SEC. 5465. CAPITAL IMPROVEMENTS.

    (a) In General.--Concessionaires may construct or finance 
construction under terms of section 5470 only such public 
facilities on Federal lands as are to be used by the 
concessioner under the terms of its concession service 
agreement or facilities which are necessary for the 
concessioner to administer such public facilities on Federal 
lands.
    (b) Investment Interest.--
            (1) In general.--A concessioner that is required or 
        authorized under a concession service agreement 
        pursuant to this subchapter to acquire or construct any 
        structure, improvement, or fixture pursuant to such 
        agreement on Federal lands shall have an investment 
        interest therein, as defined in this subchapter. Any 
        such investment interest shall consist of all incidents 
        of ownership, except legal title which shall be vested 
        in the Federal Government. Such investment interest 
        shall not be extinguished by the expiration of such 
        agreement. Such investment interest may be assigned, 
        transferred, encumbered or relinquished.
            (2) Limitation.--Such investment interest shall not 
        be construed to include or imply any authority, 
        privilege, or right to operate or engage in any 
        business or other activity, and the use of any 
        improvement in which the concessioner has an investment 
        interest shall be wholly subject to the applicable 
        provisions of the concession service agreement and of 
        laws and regulations relating to the area.
            (3) Federal property.--Notwithstanding paragraph 
        (1), a concession service agreement may specify that 
        certain new structures, improvements, or fixtures 
        required to be constructed under terms of the 
        concession service agreement shall be property of the 
        Federal Government subject only to the right of the 
        concessioner to use such improvements during the term 
        of such agreement and that the concessioner shall not 
        be accorded an investment interest therein. Concession 
        service agreements shall not, to the extent 
        practicable, provide for a concessioner to obtain an 
        investment interest in any building or facilities 
        wholly owned by the Federal Government.
    (c) Sale of Assets.--If the existing concessioner is not 
the selected bidder at the time of reissuance of a concession 
service agreement, the Secretary concerned shall require the 
new concessioner to buy the investment interest of the existing 
concession. In the event that the successor concessioner is 
unable to fully pay such investment interest, any deficiency 
shall be paid by the Federal Government.
    (d) Closure of Concessioner Facilities.--If the Secretary 
concerned determines that the public interest, by reason of 
public and safety considerations or for other reasons beyond 
the control of the concessioner, requires the discontinuation 
or closure of facilities in which the concessioner has an 
investment interest, the Federal Government shall compensate 
the concessioner in the amount equal to the value of the 
investment interest.
    (e) Determination of Value of Investment Interest.--For 
purposes of this subchapter, the investment interest of any 
capital improvement at the end of the concession service 
agreement period shall be an amount equal to the actual cost of 
construction or purchase of such investment interest or such 
capital improvement adjusted from the time of completion of 
such construction by changes in the Consumer Price Index less 
depreciation evidenced by the condition and prospective 
serviceability in comparison with a new unit of like kind. The 
Secretary concerned shall include the value to be paid by the 
selected bidder for any existing investment interest in the 
prospectus for the related concession service agreement.

SEC. 5466. DURATION OF CONCESSION AUTHORIZATION.

    (a) Concession Service Agreement.--The standard term of a 
concession service agreement shall be 10 years. The Secretary 
concerned may issue a concession service agreement for less 
than 10 years if the Secretary determines that the average 
annual gross receipts over the life of the concession service 
agreement would be less than $100,000. The Secretary concerned 
may not issue a concession service agreement for less than 5 
years. The Secretary concerned shall issue a concession service 
agreement for longer than 10 years if the Secretary determines 
that such longer term is in the public interest or necessary 
due to the extent of investment and associated financing 
requirements and to meet the obligations assumed. The term for 
a concession service agreement may not exceed 30 years.
    (b) Concession License.--The term for a concession license 
may not exceed 2 years.
    (c) Temporary Extension.--The Secretary concerned may agree 
to temporary extensions of concession service agreements for up 
to 2 years on a noncompetitive basis to avoid interruption of 
services to the public.

SEC. 5467. RATES AND CHARGES TO THE PUBLIC.

    In general, rates and charges to the public shall be set by 
the concessioner. For concession service agreements only, a 
concessioner's rates and charges to the public shall be subject 
to the approval of the Secretary concerned in those instances 
where the Secretary determines that sufficient competition for 
such facilities and services does not exist within or in close 
proximity to the area in which the concessioner operates. In 
those instances, the concession service agreement shall state 
that the reasonableness of the concessioner's rates and charges 
to the public shall be reviewed and approved by the Secretary 
concerned primarily by comparison with those rates and charges 
for facilities and services of comparable character under 
similar conditions, with due consideration for length of 
season, seasonal variations, average percentage of occupancy, 
accessibility, availability and costs of labor and materials, 
type of patronage, and other factors deemed significant by the 
Secretary concerned. Such review shall be completed within 90 
days of receipt of all necessary information, or the 
requirement for the Secretary's approval shall be waived and 
such rates and charges as proposed by the concessioner 
considered to be approved for immediate use.

SEC. 5468. TRANSFERABILITY OF CONCESSION AUTHORIZATIONS.

    (a) Concession Service Agreements.--
            (1) Approval required.--A concession service 
        agreement is transferable or assignable only with the 
        approval of the Secretary concerned, which approval may 
        not be unreasonably withheld or delayed. The Secretary 
        may not approve any such transfer or assignment if the 
        Secretary determines that the prospective concessioner 
        is or is likely to be unable to completely satisfy all 
        of the material requirements, term, and conditions of 
        the agreement or that the terms of the transfer or 
        assignment would preclude providing appropriate 
        facilities or services to the public at reasonable 
        rates.
            (2) Consideration period.--If the Secretary 
        concerned fails to approve or disapprove a transfer or 
        assignment under paragraph (1) within 90 days after the 
        date on which the Secretary receives all necessary 
        information requested by the Secretary with respect to 
        such transfer, the transfer or assignment shall be 
        deemed to have been approved.
            (3) No modification of terms and conditions.--The 
        terms and conditions of the concessions service 
        agreement shall not be subject to modification by 
        reason of any transfer or assignment under this 
        section.
    (b) Concession License.--A concession license may not be 
transferred.

SEC. 5469. FEES CHARGED BY THE UNITED STATES FOR CONCESSION 
                    AUTHORIZATIONS.

    (a) In General.--The Secretary concerned shall charge a fee 
for the privilege of providing concession services pursuant to 
this subchapter. The fee for any concession service agreement 
may include any of the following:
            (1) An annual cash payment for the privilege of 
        providing concession services.
            (2) The amount required for capital improvements 
        required pursuant to section 5465 (a).
            (3) Fees for rental or lease of Government-owned 
        facilities or lands occupied by the concessioner.
            (4) Expenditures for maintenance of or improvements 
        to Government-owned facilities occupied by the 
        concessioner.
    (b) Establishment of Amount.--
            (1) Minimum acceptable fee.--The Secretary 
        concerned shall establish a minimum fee for each 
        applicable category specified in paragraphs (1) through 
        (4) of subsection (a) which is acceptable to the 
        Secretary under this section and shall include the 
        minimum fee in the prospectus under section 5464. This 
        fee shall be based on historical data, where available, 
        as well as industry-specific and other market data 
        available to the Secretary concerned.
            (2) Final fee.--Except as provided in paragraph 
        (3), the final fee shall be the amount bid by the 
        selected applicant under section 5464.
            (3) Substantially similar services in a specific 
        geographic area.--When the Secretary concerned 
        simultaneously offers authorizations for more than one 
        river runner, outfitter, or guide concession operation 
        to provide substantially similar services in a defined 
        geographic area, the concession fee for all such 
        concessionaires shall be specified by the Secretary 
        concerned in the prospectus. The Secretary concerned 
        shall base the fee on historical data, where available, 
        as well as on industry-specific and other market data 
        available to the Secretary concerned or may establish a 
        charge per user day.
    (c) Adjustment of Fees.--The amount of any fee for the term 
of the concession service agreement shall be set at the 
beginning of the concession authorization and may only be 
modified if stated in the contract on the basis of inflation, 
when the annual payment is not determined by a percentage of 
adjusted gross receipts (as measured by changes in the Consumer 
Price Index), to reflect substantial changes from the 
conditions specified in the prospectus, or in the event of an 
unforseen disaster.
    (d) Concession License Fee.--The fee for a concession 
license shall at least cover the program administrative costs 
and may not be changed over the term of the license.

SEC. 5470. DISPOSITION OF FEES.

    (a) Concession Improvement Account.--
            (1) In general.--The Secretary concerned shall, 
        whenever the concession service agreement requires or 
        authorizes the concessioner to perform maintenance or 
        make improvements to Government-owned facilities 
        occupied by the concessioner, require the concessioner 
        to establish a concession improvement account. The 
        concessioner shall deposit into this account all funds 
        for maintenance of or improvements to Government-owned 
        facilities occupied by the concessioner;
            (2) Terms and conditions.--The account shall be 
        maintained by the concessioner in an interest bearing 
        account in a Federally insured financial institution. 
        The concessioner shall maintain the account separately 
        from any other funds or accounts and shall not 
        commingle the money in the account with any other 
        money.
            (3) Disbursements.--The concessioner shall make 
        disbursements from the account for improvements and 
        other activities, only for capital improvements or 
        maintenance of improvements to Government-owned 
        facilities occupied by the concessioner as specified in 
        the concession service agreement.
            (4) Transfer of remaining balance.--On the 
        termination of a concession authorization, or on the 
        transfer of a concession service agreement, any 
        remaining balance in the account shall be transferred 
        by the concessioner to the successor concessioner, to 
        be used solely as set forth in this subsection. In the 
        event there is no successor concessioner, the account 
        balance shall be deposited in the Treasury as 
        miscellaneous receipts.
    (b) When the concessioner is required to make capital 
improvements to other than Government-owned facilities occupied 
by the concessioner in accordance with a concession service 
agreement, the concessioner shall have the option to control 
and expend such funds directly.
    (c) Amounts Received Relating to Privilege of Providing 
Concession Services and Rental of Government-Owned 
Facilities.--
            (1) Deposit into treasury.--The Secretary concerned 
        shall deposit in the Treasury of the United States as 
        miscellaneous receipts all funds not deposited in 
        concession improvement accounts or funds for capital 
        improvements specified in (b) above, including 
        specifically amounts received for a fiscal year for the 
        privilege of providing concession services and the 
        rental of Government-owned facilities, except that of 
        the amount of fees paid by vessel operators for the 
        privilege of entering into Glacier Bay, Alaska, 50 
        percent of such fees for the 5-year period beginning on 
        the first full fiscal year following the date of 
        enactment of this subchapter shall be deposited into a 
        special account and that such funds shall be available 
        without further appropriation and may only be used to 
        conduct research to quantify any effect of such vessel 
        activity on wildlife and other natural resource values 
        of Glacier Bay National Park. For the National Park 
        Service such deposits into the Treasury shall total not 
        less than the amounts specified in the table in 
        paragraph (2). For the other agencies covered under 
        this subchapter, the Secretary concerned shall develop 
        a schedule of anticipated receipts to be deposited to 
        the Treasury and submit such schedule to the 
        appropriate Congressional committees not later than 18 
        months after the date of enactment of this Act. Nothing 
        in this chapter shall be construed to modify any 
        provision of law relating to sharing of Federal 
        receipts with any other level of Government.
            (2) Deposit into concession improvement accounts.--
        The table referred to in paragraph (1), expressed by 
        fiscal year, is as follows:

                         National Park Service

``Fiscal year:                                                   Amount:
    1997................................................     $15,800,000
    1998................................................     $21,100,000
    1999................................................     $26,700,000
    2000................................................     $32,300,000
    2001................................................     $38,200,000
    2002................................................    $44,400,000.

    (d) Beginning in fiscal year 1998, the Inspector General of 
the Department concerned shall conduct a biennial audit of 
concession fees generated pursuant to this chapter. The 
Inspector General shall make a determination as to whether 
concession fees are being collected and expended in accordance 
with this chapter and shall submit copies of each audit to the 
Committee on Resources of the House of Representatives and the 
Committee on Energy and Natural Resources of the Senate.

SEC. 5471. REGULATIONS.

    The Secretary concerned shall promulgate regulations to 
implement this chapter no later than 2 years after the date of 
enactment of this Act. Subsequent to the date of enactment of 
this chapter, no new concession authorization may be issued, 
nor may any existing concession authorization be amended or 
extended, unless such authorization, amendment, or extension is 
fully consistent with sections 5465, 5469(c), and 5470.

SEC. 5472. RELATIONSHIP TO OTHER LAWS.

    (a) Repeals.--
            (1) The Act entitled ``An Act relating to the 
        establishment of concession policies in the areas 
        administered by the National Park Service and for other 
        purposes'' (16 U.S.C. 20-20g) approved October 9, 1965, 
        is repealed.
    (b) Savings.--
            (1) In general.--The repeal of any provision, the 
        superseding of any provision, and the amendment of any 
        provision, of an Act referred to in subsection (a) 
        shall not affect the validity of any authorizations 
        entered into under any such Act. The provisions of this 
        chapter shall apply to any such authorizations, except 
        to the extent such provisions are inconsistent with the 
        express terms and conditions of such authorizations.
            (2) Right of renewal.--The right of renewal 
        explicitly provided for by any concession contract 
        under any such provision shall be preserved for a 
        single renewal of a contract following the enactment 
        of, or concession authorization under, this chapter.
            (3) Value of capital improvements or possessory 
        interest.--Nothing in this chapter shall be construed 
        to change the value as of the date of enactment of this 
        chapter for existing capital improvements or possessory 
        interest as identified in concession contracts entered 
        into before the date of enactment of this Act. 
        Subsequent to enactment of this chapter, the increase 
        in value for any possessory interest established under 
        any concession contract in effect on the date of 
        enactment of this chapter shall be as provided for in 
        this chapter unless otherwise specifically provided in 
        the contract.
            (4) Anilca.--Nothing in this chapter shall be 
        construed to amend, supersede or otherwise affect any 
        provision of the Alaska National Interest Lands 
        Conservation Act (16 U.S.C. 3101 et seq.) relating to 
        revenue-producing visitor services.
            (5) Procedures for considering existing 
        concessionaires in reissuance of contracts.--In the 
        case of a concession contract which has expired prior 
        to the date of the enactment of this Act, or within 5 
        years after the date of the enactment of this Act, an 
        incumbent concessioner shall be entitled to a one-time 
        bonus of five percent of the maximum points available 
        in the reissuance of a previous concession 
        authorization. For any concession contract entered into 
        prior to the date of enactment of this Act, which is 
        projected to terminate 5 years or later after the date 
        of enactment of this Act, any concessioner shall be 
        entitled to a performance incentive in accordance with 
        this chapter. The concessioner shall be entitled to an 
        evaluation of ``good'' for each year in which the 
        Secretary concerned does not complete an evaluation as 
        provided for in this chapter.

          TITLE VI--FEDERAL RETIREMENT AND RELATED PROVISIONS

        Subtitle A--Civil Service and Postal Service Provisions

SEC. 6001. EXTENSION OF DELAY IN COST-OF-LIVING ADJUSTMENTS IN FEDERAL 
                    EMPLOYEE RETIREMENT BENEFITS THROUGH FISCAL YEAR 
                    2002.

    Section 11001(a) of the Omnibus Budget Reconciliation Act 
of 1993 (Public Law 103-66; 107 Stat. 408) is amended in the 
matter preceding paragraph (1) by striking out ``or 1996,'' and 
inserting in lieu thereof ``1996, 1997, 1998, 1999, 2000, 2001, 
or 2002,''.

SEC. 6002. INCREASED CONTRIBUTIONS TO FEDERAL CIVILIAN RETIREMENT 
                    SYSTEMS.

    (a) Civil Service Retirement System.--
            (1) Deductions.--The first sentence of section 
        8334(a)(1) of title 5, United States Code, is amended 
        to read as follows: ``The employing agency shall deduct 
        and withhold from the basic pay of an employee, Member, 
        Congressional employee, law enforcement officer, 
        firefighter, bankruptcy judge, judge of the United 
        States Court of Appeals for the Armed Forces, United 
        States magistrate, or Claims Court judge, as the case 
        may be, the percentage of basic pay applicable under 
        subsection (c).''.
            (2) Agency contributions.--
                    (A) Increase in agency contributions during 
                calendar years 1996 through 2002.--Section 
                8334(a)(1) of title 5, United States Code (as 
                amended by this section) is further amended--
                            (i) by inserting ``(A)'' after 
                        ``(1)''; and
                            (ii) by adding at the end thereof 
                        the following new subparagraph:
                    ``(B)(i) Notwithstanding subparagraph (A), 
                the agency contribution under the second 
                sentence of such subparagraph, during the 
                period beginning on January 1, 1996, through 
                December 31, 2002--
                            ``(I) for each employing agency 
                        (other than the United States Postal 
                        Service or the Washington Metropolitan 
                        Airport Authority) shall be 8.51 
                        percent of the basic pay of an 
                        employee, Congressional employee, and a 
                        Member of Congress, 9.01 percent of the 
                        basic pay of a law enforcement officer, 
                        a member of the Capitol Police, and a 
                        firefighter, and 8.51 percent of the 
                        basic pay of a Claims Court judge, a 
                        United States magistrate, a judge of 
                        the United States Court of Appeals for 
                        the Armed Services, and a bankruptcy 
                        judge, as the case may be; and
                            ``(II) for the United States Postal 
                        Service and the Washington Metropolitan 
                        Airport Authority shall be 7 percent of 
                        the basic pay of an employee and 7.5 
                        percent of the basic pay of a law 
                        enforcement officer or firefighter.''.
                    (B) No reduction in agency contributions by 
                the postal service.--Agency contributions by 
                the United States Postal Service under section 
                8348(h) of title 5, United States Code--
                            (i) shall not be reduced as a 
                        result of the amendments made under 
                        paragraph (3) of this subsection; and
                            (ii) shall be computed as though 
                        such amendments had not been enacted.
            (3) Individual deductions, withholdings, and 
        deposits.--The table under section 8334(c) of title 5, 
        United States Code, is amended--
                    (A) in the matter relating to an employee 
                by striking out


                                ``7..........  After December 31,       
                                                1969.''                 
                                                                        


                and inserting in lieu thereof the following:


                                ``7..........  January 1, 1970, to      
                                                December 31, 1995.      
                                 7.25........  January 1, 1996, to      
                                                December 31, 1996.      
                                 7.4.........  January 1, 1997, to      
                                                December 31, 1997.      
                                 7.5.........  January 1, 1998, to      
                                                December 31, 2002.      
                                 7...........  After December 31,       
                                                2002.'';                
                                                                        


                    (B) in the matter relating to a Member or 
                employee for Congressional employee service by 
                striking out


                                ``7\1/2\.....  After December 31,       
                                                1969.''                 
                                                                        


                and inserting in lieu thereof the following:


                                ``7.5........  January 1, 1970, to      
                                                December 31, 1995.      
                                 7.25........  January 1, 1996, to      
                                                December 31, 1996.      
                                 7.4.........  January 1, 1997, to      
                                                December 31, 1997.      
                                 7.5.........  January 1, 1998, to      
                                                December 31, 2002.      
                                 7...........  After December 31,       
                                                2002.'';                
                                                                        


                    (C) in the matter relating to a Member for 
                Member service by striking out


                                ``8..........  After December 31,       
                                                1969.''                 
                                                                        


                and inserting in lieu thereof the following:


                                ``8..........  January 1, 1970, to      
                                                December 31, 1995.      
                                 7.25........   January 1, 1996, to     
                                                December 31, 1996.      
                                 7.4.........  January 1, 1997, to      
                                                December 31, 1997.      
                                 7.5.........  January 1, 1998, to      
                                                December 31, 2002.      
                                 7...........  After December 31,       
                                                2002.'';                
                                                                        


                    (D) in the matter relating to a law 
                enforcement officer for law enforcement service 
                and firefighter for firefighter service by 
                striking out


                                ``7\1/2\.....  After December 31,       
                                                1974.''                 
                                                                        


                and inserting in lieu thereof the following:


                                ``7.5........  January 1, 1975, to      
                                                December 31, 1995.      
                                 7.75........  January 1, 1996, to      
                                                December 31, 1996.      
                                 7.9.........  January 1, 1997, to      
                                                December 31, 1997.      
                                 8...........  January 1, 1998, to      
                                                December 31, 2002.      
                                 7.5.........  After December 31,       
                                                2002.'';                
                                                                        


                    (E) in the matter relating to a bankruptcy 
                judge by striking out


                                ``8..........  After December 31,       
                                                1983.''                 
                                                                        


                and inserting in lieu thereof the following:


                                ``8..........  January 1, 1984, to      
                                                December 31, 1995.      
                                 7.25........  January 1, 1996, to      
                                                December 31, 1996.      
                                 7.4.........  January 1, 1997, to      
                                                December 31, 1997.      
                                 7.5.........  January 1, 1998, to      
                                                December 31, 2002.      
                                 7...........  After December 31,       
                                                2002.'';                
                                                                        


                    (F) in the matter relating to a judge of 
                the United States Court of Appeals for the 
                Armed Forces for service as a judge of that 
                court by striking out


                                ``8..........  On and after the date of 
                                                the enactment of the    
                                                Department of Defense   
                                                Authorization Act,      
                                                1984.''                 
                                                                        


                and inserting in lieu thereof the following:


                                ``8..........  The date of the enactment
                                                of the Department of    
                                                Defense Authorization   
                                                Act, 1984, to December  
                                                31, 1995.               
                                 7.25........  January 1, 1996, to      
                                                December 31, 1996.      
                                 7.4.........  January 1, 1997, to      
                                                December 31, 1997.      
                                 7.5.........  January 1, 1998, to      
                                                December 31, 2002.      
                                 7...........  After December 31,       
                                                2002.'';                
                                                                        


                    (G) in the matter relating to a United 
                States magistrate by striking out


                                ``8..........  After September 30,      
                                                1987.''                 
                                                                        


                and inserting in lieu thereof the following:


                                ``8..........  October 1, 1987, to      
                                                December 31, 1995.      
                                 7.25........  January 1, 1996, to      
                                                December 31, 1996.      
                                 7.4.........  January 1, 1997, to      
                                                December 31, 1997.      
                                 7.5.........  January 1, 1998, to      
                                                December 31, 2002.      
                                 7...........  After December 31,       
                                                2002.'';                
                                                                        


                    (H) in the matter relating to a Claims 
                Court judge by striking out


                                ``8..........  After September 30,      
                                                1988.''                 
                                                                        


                and inserting in lieu thereof the following:


                                ``8..........  October 1, 1988, to      
                                                December 31, 1995.      
                                 7.25........  January 1, 1996, to      
                                                December 31, 1996.      
                                 7.4.........  January 1, 1997, to      
                                                December 31, 1997.      
                                 7.5.........  January 1, 1998, to      
                                                December 31, 2002.      
                                 7...........  After December 31,       
                                                2002.'';                
                                                                        


                and
                    (I) by inserting after the matter relating 
                to a Claims Court judge the following:


``Member of the Capitol Police  2.5..........  August 1, 1920, to June  
                                                30, 1926.               
                                3.5..........  July 1, 1926, to June 30,
                                                1942.                   
                                5............  July 1, 1942, to June 30,
                                                1948.                   
                                6............  July 1, 1948, to October 
                                                31, 1956.               
                                6.5..........  November 1, 1956, to     
                                                December 31, 1969.      
                                7.5..........  January 1, 1970, to      
                                                December 31, 1995.      
                                7.75.........  January 1, 1996, to      
                                                December 31, 1996.      
                                7.9..........  January 1, 1997, to      
                                                December 31, 1997.      
                                8............  January 1, 1998, to      
                                                December 31, 2002.      
                                7.5..........  After December 31,       
                                                2002.''.                
                                                                        


            (4) Other service.--
                    (A) Military service.--Section 8334(j) of 
                title 5, United States Code, is amended--
                            (i) in paragraph (1)(A) by 
                        inserting ``and subject to paragraph 
                        (5),'' after ``Except as provided in 
                        subparagraph (B),''; and
                            (ii) by adding at the end thereof 
                        the following new paragraph:
    ``(5) Effective with respect to any period of military 
service after December 31, 1995, the percentage of basic pay 
under section 204 of title 37 payable under paragraph (1) shall 
be equal to the same percentage as would be applicable under 
section 8334(c) for that same period for service as an 
employee, subject to paragraph (1)(B).''.
                    (B) Volunteer service.--Section 8334(l) of 
                title 5, United States Code, is amended--
                            (i) in paragraph (1) by adding at 
                        the end thereof the following: ``This 
                        paragraph shall be subject to paragraph 
                        (4).''; and
                            (ii) by adding at the end thereof 
                        the following new paragraph:
    ``(4) Effective with respect to any period of service after 
December 31, 1995, the percentage of the readjustment allowance 
or stipend (as the case may be) payable under paragraph (1) 
shall be equal to the same percentage as would be applicable 
under section 8334(c) for that same period for service as an 
employee.''.
    (b) Federal Employees Retirement System.--
            (1) Individual deductions and withholdings.--
                    (A) In general.--Section 8422(a) of title 
                5, United States Code, is amended by striking 
                out paragraph (2) and inserting in lieu thereof 
                the following:
    ``(2) The percentage to be deducted and withheld from basic 
pay for any pay period shall be equal to--
            ``(A) the applicable percentage under paragraph 
        (3), minus
            ``(B) the percentage then in effect under section 
        3101(a) of the Internal Revenue Code of 1986 (relating 
        to rate of tax for old-age, survivors, and disability 
        insurance).
    ``(3) The applicable percentage under this paragraph, for 
civilian service shall be as follows:


Employee.....................  7..............  Before January 1, 1996. 
                               7.25...........  January 1, 1996, to     
                                                 December 31, 1996.     
                               7.4............  January 1, 1997, to     
                                                 December 31, 1997.     
                               7.5............  January 1, 1998, to     
                                                 December 31, 2002.     
                               7..............  After December 31, 2002.
 Congressional employee......  7.5............  Before January 1, 1996. 
                               7.25...........  January 1, 1996, to     
                                                 December 31, 1996.     
                               7.4............  January 1, 1997, to     
                                                 December 31, 1997.     
                               7.5............  January 1, 1998, to     
                                                 December 31, 2002.     
                               7..............  After December 31, 2002.
 Member......................  7.5............  Before January 1, 1996. 
                               7.25...........  January 1, 1996, to     
                                                 December 31, 1996.     
                               7.4............  January 1, 1997, to     
                                                 December 31, 1997.     
                               7.5............  January 1, 1998, to     
                                                 December 31, 2002.     
                               7..............  After December 31, 2002.
 Law enforcement officer,      7.5............  Before January 1, 1996. 
 firefighter, member of the                                             
 Capitol Police, or air                                                 
 traffic controller.                                                    
                               7.75...........  January 1, 1996, to     
                                                 December 31, 1996.     
                               7.9............  January 1, 1997, to     
                                                 December 31, 1997.     
                               8..............  January 1, 1998, to     
                                                 December 31, 2002.     
                               7.5............  After December 31, 2002.
                                                                        


                    (B) Military service.--Section 8422(e) of 
                title 5, United States Code, is amended--
                            (i) in paragraph (1)(A) by 
                        inserting ``and subject to paragraph 
                        (6),'' after ``Except as provided in 
                        subparagraph (B),''; and
                            (ii) by adding at the end thereof 
                        the following:
            ``(6) The percentage of basic pay under section 204 
        of title 37 payable under paragraph (1), with respect 
        to any period of military service performed during--
                    ``(A) January 1, 1996, through December 31, 
                1996, shall be 3.25 percent;
                    ``(B) January 1, 1997, through December 31, 
                1997, shall be 3.4 percent; and
                    ``(C) January 1, 1998, through December 31, 
                2002, shall be 3.5 percent.''.
                    (C) Volunteer service.--Section 8422(f) of 
                title 5, United States Code, is amended--
                            (i) in paragraph (1) by adding at 
                        the end thereof the following: ``This 
                        paragraph shall be subject to paragraph 
                        (4).''; and
                            (ii) by adding at the end the 
                        following:
            ``(4) The percentage of the readjustment allowance 
        or stipend (as the case may be) payable under paragraph 
        (1), with respect to any period of volunteer service 
        performed during--
                    ``(A) January 1, 1996, through December 31, 
                1996, shall be 3.25 percent;
                    ``(B) January 1, 1997, through December 31, 
                1997, shall be 3.4 percent; and
                    ``(C) January 1, 1998, through December 31, 
                2002, shall be 3.5 percent.''.
            (2) No reduction in agency contributions.--Agency 
        contributions under section 8423 (a) and (b) of title 
        5, United States Code , shall not be reduced as a 
        result of the amendments made under paragraph (1) of 
        this subsection.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the first day of the first applicable pay 
period beginning on or after January 1, 1996.

SEC. 6003. FEDERAL RETIREMENT PROVISIONS RELATING TO MEMBERS OF 
                    CONGRESS AND CONGRESSIONAL EMPLOYEES.

    (a) Relating to the Years of Service as a Member of 
Congress and Congressional Employees for Purposes of Computing 
an Annuity.--
            (1) CSRS.--Section 8339 of title 5, United States 
        Code, is amended--
                    (A) in subsection (a) by inserting ``or 
                Member'' after ``employee''; and
                    (B) by striking out subsections (b) and 
                (c).
            (2) FERS.--Section 8415 of title 5, United States 
        Code, is amended--
                    (A) by striking out subsections (b) and 
                (c);
                    (B) in subsections (a) and (g) by inserting 
                ``or Member'' after ``employee'' each place it 
                appears; and
                    (C) in subsection (g)(2) by striking out 
                ``Congressional employee''.
    (b) Accrual Rate for Member and Congressional Employee 
Service Performed but Not Vested Before Effective Date.--
            (1) Application.--This subsection shall apply to an 
        individual who--
                    (A) is a Member of Congress or 
                Congressional employee on December 31, 1995;
                    (B) has performed less than 5 years of 
                service as a Member of Congress or 
                Congressional employee on December 31, 1995; 
                and
                    (C) after December 31, 1995, completes 5 
                years of service as a Member of Congress or 
                Congressional employee, that includes a period 
                of service performed as a Member of Congress or 
                Congressional employee before January 1, 1996.
            (2) Computation of annuity.-- In computing the 
        annuity of an individual described under paragraph 
        (1)--
                    (A) any period of service as a Member of 
                Congress or Congressional employee performed 
                before January 1, 1996, shall be computed under 
                section 8339 or 8415 of title 5, United States 
                Code (as though the amendments under subsection 
                (a) of this section were not enacted); and
                    (B) the 5 year service requirement under 
                subsections (b) and (c) of section 8339 or 8415 
                of such title (as in effect before the date of 
                enactment of this Act) shall be deemed 
                fulfilled.
    (c) Capitol Police.--Section 8339(q) of title 5, United 
States Code, is amended by striking out ``with subsection (b), 
except that, in the case of a member who retires under section 
8335(d) or 8336(m), and who meets the requirements of 
subsection (b)(2),'' and inserting in lieu thereof ``with 
subsection (a), except that in the case of a member who retires 
under section 8335(d) or 8336(m), and who has deductions 
withheld from his pay or has made deposit covering his last 5 
years of civilian service,''.
    (d) Administrative Regulations.--The Office of Personnel 
Management, in consultation with the Secretary of the Senate 
and the Clerk of the House of Representatives, may prescribe 
regulations to carry out the provisions of this section and the 
amendments made by this section for applicable employees and 
Members of Congress.
    (e) Effective Dates.--
            (1) Years of service; annuity computation.--
                    (A) Service after effective date.--The 
                amendments made by subsection (a) shall take 
                effect on January 1, 1996, and shall apply only 
                with respect to the computation of an annuity 
                relating to--
                            (i) the service of a Member of 
                        Congress as a Member or as a 
                        Congressional employee performed on or 
                        after January 1, 1996; and
                            (ii) the service of a Congressional 
                        employee as a Congressional employee 
                        performed on or after January 1, 1996.
                    (B) Service before effective date.--An 
                annuity shall be computed as though the 
                amendments made under subsection (a) had not 
                been enacted with respect to--
                            (i) the service of a Member of 
                        Congress as a Member or a Congressional 
                        employee or military service performed 
                        before January 1, 1996; and
                            (ii) the service of a Congressional 
                        employee as a Congressional employee or 
                        military service performed before 
                        January 1, 1996.
                    (C) Alternative effective date relating to 
                members of congress.--If a court of competent 
                jurisdiction makes a final determination that a 
                provision of this paragraph violates the 27th 
                amendment of the United States Constitution, 
                the effective date and application dates 
                relating to Members of Congress shall be 
                January 1, 1997.
            (2) Administrative provisions.--The provisions of 
        subsections (b), (c), and (d) shall take effect on the 
        date of the enactment of this Act.

SEC. 6004. ACCRUAL RATES RELATING TO CERTAIN JUDGES WITH SIMILAR 
                    TREATMENT AS CONGRESSIONAL SERVICE.

    (a) Judge of the United States Court of Military Appeals.--
Section 8339(d)(7) of title 5, United States Code, is amended 
by striking out ``service.'' and inserting in lieu thereof 
``service performed before January 1, 1996.''.
    (b) Claims Court Judge, Bankruptcy Judge, United States 
Magistrate.--Section 8339(n) of title 5, United States Code, is 
amended by striking out ``service.'' and inserting in lieu 
thereof ``service performed before January 1, 1996. The annuity 
of any such employee is, with respect to any service referred 
to in the preceding sentence that is performed on or after 
January 1, 1996, computed under subsection (a).''.

SEC. 6005. REPEAL OF AUTHORIZATION OF TRANSITIONAL APPROPRIATIONS FOR 
                    THE UNITED STATES POSTAL SERVICE.

    (a) Repeal.--
            (1) In general.--Section 2004 of title 39, United 
        States Code, is repealed.
            (2) Technical and conforming amendments.--
                    (A) The table of sections for chapter 20 of 
                such title is amended by repealing the item 
                relating to section 2004.
                    (B) Section 2003(e)(2) of such title is 
                amended by striking ``sections 2401 and 2004'' 
                each place it appears and inserting ``section 
                2401''.
    (b) Clarification That Liabilities Formerly Paid Pursuant 
to Section 2004 Remain Liabilities Payable by the Postal 
Service.--Section 2003 of title 39, United States Code, is 
amended by adding at the end the following:
    ``(h) Liabilities of the former Post Office Department to 
the Employees' Compensation Fund (appropriations for which were 
authorized by former section 2004, as in effect before the 
effective date of this subsection) shall be liabilities of the 
Postal Service payable out of the Fund.''.
    (c) Effective Date.--
            (1) In general.--This section and the amendments 
        made by this section shall be effective as of October 
        1, 1995.
            (2) Provisions relating to payments for fiscal year 
        1996.--
                    (A) Amounts not yet paid.--No payment may 
                be made to the Postal Service Fund, on or after 
                the date of the enactment of this Act, pursuant 
                to any appropriation for fiscal year 1996 
                authorized by section 2004 of title 39, United 
                States Code (as in effect before the effective 
                date of this section).
                    (B) Amounts paid.--If any payment to the 
                Postal Service Fund is or has been made 
                pursuant to an appropriation for fiscal year 
                1996 authorized by such section 2004, then an 
                amount equal to the amount of such payment 
                shall be paid from such Fund into the Treasury 
                as miscellaneous receipts.

                 Subtitle B--Patent and Trademark Fees

SEC. 6011. PATENT AND TRADEMARK FEES.

    Section 10101 of the Omnibus Budget Reconciliation Act of 
1990 (35 U.S.C. 41 note) is amended--
            (1) in subsection (a) by striking ``1998'' and 
        inserting ``2002'';
            (2) in subsection (b)(2) by striking ``1998'' and 
        inserting ``2002''; and
            (3) in subsection (c)--
                    (A) by striking ``through 1998'' and 
                inserting ``through 2002''; and
                    (B) by adding at the end the following:
            ``(9) $119,000,000 in fiscal year 1999.
            ``(10) $119,000,000 in fiscal year 2000.
            ``(11) $119,000,000 in fiscal year 2001.
            ``(12) $119,000,000 in fiscal year 2002.''.

                     Subtitle C--GSA Property Sales

SEC. 6021. SALE OF GOVERNORS ISLAND, NEW YORK.

    (a) In General.--Notwithstanding any other provision of 
law, the Administrator of General Services shall dispose of by 
sale at fair market value all rights, title, and interests of 
the United States in and to the land of, and improvements to, 
Governors Island, New York.
    (b) Right of First Refusal.--Before a sale is made under 
subsection (a) to any other parties, the State of New York and 
the city of New York shall be given the right of first refusal 
to purchase all or part of Governors Island. Such right may be 
exercised by either the State of New York or the city of New 
York or by both parties acting jointly.
    (c) Proceeds.--Proceeds from the disposal of Governors 
Island under subsection (a) shall be deposited in the general 
fund of the Treasury and credited as miscellaneous receipts.

SEC. 6022. SALE OF AIR RIGHTS.

    (a) In General.--Notwithstanding any other provision of 
law, the Administrator of General Services shall sell, at fair 
market value and in a manner to be determined by the 
Administrator, the air rights adjacent to Washington Union 
Station described in subsection (b), including air rights 
conveyed to the Administrator under subsection (d). The 
Administrator shall complete the sale by such date as is 
necessary to ensure that the proceeds from the sale will be 
deposited in accordance with subsection (c).
    (b) Description.--The air rights referred to in subsection 
(a) total approximately 16.5 acres and are depicted on the plat 
map of the District of Columbia as follows:
            (1) Part of lot 172, square 720.
            (2) Part of lots 172 and 823, square 720.
            (3) Part of lot 811, square 717.
    (c) Proceeds.--Before September 30, 1996, proceeds from the 
sale of air rights under subsection (a) shall be deposited in 
the general fund of the Treasury and credited as miscellaneous 
receipts.
    (d) Conveyance of Amtrak Air Rights.--
            (1) General rule.--As a condition of future Federal 
        financial assistance, Amtrak shall convey to the 
        Administrator of General Services on or before December 
        31, 1995, at no charge, all of the air rights of Amtrak 
        described in subsection (b).
            (2) Failure to comply.--If Amtrak does not meet the 
        condition established by paragraph (1), Amtrak shall be 
        prohibited from obligating Federal funds after March 1, 
        1996.

SEC. 6023. AVAILABILITY OF SURPLUS PROPERTY FOR HOMELESS ASSISTANCE.

    (a) Repeal.--(1) Title V of the Stewart B. McKinney 
Homeless Assistance Act (42 U.S.C. 11411 et seq.) is repealed.
    (2) The table of contents in section 101(b) of that Act is 
amended by striking the items relating to title V.
    (3) This subsection shall be effective October 1, 1995.
    (b) Authority To Transfer Surplus Real Property for Housing 
Use.--Section 203 of the Federal Property and Administrative 
Services Act of 1949 (40 U.S.C. 484) is amended by adding at 
the end the following:
    ``(r) Under such regulations as the Administrator may 
prescribe, and in consultation with appropriate local 
governmental authorities, the Administrator may transfer to any 
nonprofit organization which exists for the primary purpose of 
providing housing or housing assistance for homeless 
individuals or families, such surplus real property, including 
buildings, fixtures, and equipment situated thereon, as is 
needed for housing use.
    ``(s)(1) Under such regulations as the Administrator may 
prescribe, and in consultation with appropriate local 
governmental authorities, the Administrator may transfer to any 
non-profit organization which exists for the primary purpose of 
providing housing or housing assistance for low-income 
individuals or families such surplus real property, including 
buildings, fixtures, and equipment situated thereon, as is 
needed for housing use.
    ``(2) In making transfers under this subsection, the 
Administrator shall take such actions, which may include grant 
agreements with an organization receiving a grant, as may be 
necessary to ensure that--
            ``(A) assistance provided under this subsection is 
        used to facilitate and encourage homeownership 
        opportunities through the construction of self-help 
        housing, under terms which require that the person 
        receiving the assistance contribute a significant 
        amount of labor toward the construction; and
            ``(B) the dwellings constructed with property 
        transferred under this subsection shall be quality 
        dwellings that comply with local building and safety 
        codes and standards and shall be available at prices 
        below the prevailing market prices.''.

           TITLE VII--TRANSFORMATION OF THE MEDICAID PROGRAM

SEC. 7000. SHORT TITLE OF TITLE; TABLE OF CONTENTS OF TITLE.

    (a) Short Title of Title.--This title may be cited as the 
``Medicaid Transformation Act of 1995''.
    (b) Table of Contents of Title.--The table of contents of 
this title is as follows:
Sec. 7000. Short title of title; table of contents of title.
Sec. 7001. Transformation of medicaid program.
Sec. 7002. Termination of current program and transition.
Sec. 7003. Medicare/MediGrant integration demonstration project.

SEC. 7001. TRANSFORMATION OF MEDICAID PROGRAM.

    The Social Security Act is amended by adding at the end the 
following new title:

 ``TITLE XXI--MEDIGRANT PROGRAM FOR LOW-INCOME INDIVIDUALS AND FAMILIES


                      ``table of contents of title


``Sec. 2100. Purpose; State MediGrant plans.

     ``Part A--Objectives, Goals, and Performance Under State Plans

``Sec. 2101. Description of strategic objectives and performance goals.
``Sec. 2102. Annual reports.
``Sec. 2103. Periodic, independent evaluations.
``Sec. 2104. Description of process for MediGrant plan development.
``Sec. 2105. Consultation in MediGrant plan development.

             ``Part B--Eligibility, Benefits, and Set-Asides

``Sec. 2111. Eligibility and benefits.
``Sec. 2112. Set-asides of funds.
``Sec. 2113. Premiums and cost-sharing.
``Sec. 2114. Description of process for developing capitation payment 
          rates.
``Sec. 2115. Preventing spousal impoverishment.
``Sec. 2116. State flexibility.

                      ``Part C--Payments to States

``Sec. 2121. Allotment of funds among States.
``Sec. 2122. Payments to States.
``Sec. 2123. Limitation on use of funds; disallowance.

                 ``Part D--Program Integrity and Quality

``Sec. 2131. Use of audits to achieve fiscal integrity.
``Sec. 2132. Fraud prevention program.
``Sec. 2133. Information concerning sanctions taken by State licensing 
          authorities against health care practitioners and providers.
``Sec. 2134. State MediGrant fraud control units.
``Sec. 2135. Recoveries from third parties and others.
``Sec. 2136. Assignment of rights of payment.
``Sec. 2137. Quality assurance requirements for nursing facilities.
``Sec. 2138. Other provisions promoting program integrity.

        ``Part E--Establishment and Amendment of MediGrant Plans

``Sec. 2151. Submittal and approval of MediGrant plans.
``Sec. 2152. Submittal and approval of plan amendments.
``Sec. 2153. Process for State withdrawal from program.
``Sec. 2154. Sanctions for noncompliance.
``Sec. 2155. Secretarial authority.

                      ``Part F--General Provisions

``Sec. 2171. Definitions.
``Sec. 2172. Treatment of territories.
``Sec. 2173. Description of treatment of Indian Health Service 
          facilities.
``Sec. 2174. Application of certain general provisions.
``Sec. 2175. MediGrant master drug rebate agreements.

``SEC. 2100. PURPOSE; STATE MEDIGRANT PLANS.

    ``(a) Purpose.--The purpose of this title is to provide 
block grants to States to enable them to provide medical 
assistance to low-income individuals and families in a more 
effective, efficient, and responsive manner.
    ``(b) State Plan Required.--A State is not eligible for 
payment under section 2122 of this title unless the State has 
submitted to the Secretary under part E a plan (in this title 
referred to as a `MediGrant plan') that--
            ``(1) sets forth how the State intends to use the 
        funds provided under this title to provide medical 
        assistance to needy individuals and families consistent 
        with the provisions of this title, and
            ``(2) is approved under such part.
    ``(c) Continued Approval.--An approved MediGrant plan shall 
continue in effect unless and until--
            ``(1) the State amends the plan under section 2152,
            ``(2) the State terminates participation under this 
        title under section 2153, or
            ``(3) the Secretary finds substantial noncompliance 
        of the plan with the requirements of this title under 
        section 2154.
    ``(d) State Entitlement.--This title constitutes budget 
authority in advance of appropriations Acts, and represents the 
obligation of the Federal Government to provide for the payment 
to States of amounts provided under part C.

     ``Part A--Objectives, Goals, and Performance Under State Plans

``SEC. 2101. DESCRIPTION OF STRATEGIC OBJECTIVES AND PERFORMANCE GOALS.

    ``(a) Description.--A MediGrant plan shall include a 
description of the strategic objectives and performance goals 
the State has established for providing health care services to 
low-income populations under this title, including a general 
description of the manner in which the plan is designed to meet 
these objectives and goals.
    ``(b) Certain Objectives and Goals Required.--A MediGrant 
plan shall include strategic objectives and performance goals 
relating to rates of childhood immunizations and reductions in 
infant mortality and morbidity.
    ``(c) Considerations.--In specifying these objectives and 
goals the State may consider factors such as the following:
            ``(1) The State's priorities with respect to 
        providing assistance to low-income populations.
            ``(2) The State's priorities with respect to the 
        general public health and the health status of 
        individuals eligible for assistance under the MediGrant 
        plan.
            ``(3) The State's financial resources, the 
        particular economic conditions in the State, and 
        relative adequacy of the health care infrastructure in 
        different regions of the State.
    ``(d) Performance Measures.--To the extent practicable--
            ``(1) one or more performance goals shall be 
        established by the State for each strategic objective 
        identified in the MediGrant plan; and
            ``(2) the MediGrant plan shall describe, how 
        program performance will be--
                    ``(A) measured through objective, 
                independently verifiable means, and
                    ``(B) compared against performance goals, 
                in order to determine the State's performance 
                under this title.
    ``(e) Period Covered.--
            ``(1) Strategic objectives.--The strategic 
        objectives shall cover a period of not less than 5 
        years and shall be updated and revised at least every 3 
        years.
            ``(2) Performance goals.--The performance goals 
        shall be established for dates that are not more than 3 
        years apart.

``SEC. 2102. ANNUAL REPORTS.

    ``(a) In General.--In the case of a State with a MediGrant 
plan that is in effect for part or all of a fiscal year, no 
later than March 31 following such fiscal year (or March 31, 
1998, in the case of fiscal year 1996) the State shall prepare 
and submit to the Secretary and the Congress a report on 
program activities and performance under this title for such 
fiscal year.
    ``(b) Contents.--Each annual report under this section for 
a fiscal year shall include the following:
            ``(1) Expenditure and beneficiary summary.--
                    ``(A) Initial summary.--For the report for 
                fiscal year 1997 (and, if applicable, fiscal 
                year 1996), a summary of all expenditures under 
                the MediGrant plan during the fiscal year (and 
                during any portions of fiscal year 1996 during 
                which the MediGrant plan was in effect under 
                this title) as follows:
                            ``(i) Aggregate medical assistance 
                        expenditures, disaggregated to the 
                        extent required to determine compliance 
                        with the set-aside requirements of 
                        subsections (a) through (d) of section 
                        2112 and to compute the case mix index 
                        under section 2121(d)(3).
                            ``(ii) For each general category of 
                        eligible individuals (specified in 
                        subsection (c)(1), aggregate medical 
                        assistance expenditures and the total 
                        and average number of eligible 
                        individuals under the MediGrant plan.
                            ``(iii) By each general category of 
                        eligible individuals, total 
                        expenditures for each of the categories 
                        of health care items and services 
                        (specified in subsection (c)(2)) which 
                        are covered under the MediGrant plan 
                        and provided on a fee-for-service 
                        basis.
                            ``(iv) By each general category of 
                        eligible individuals, total 
                        expenditures for payments to capitated 
                        health care organizations (as defined 
                        in section 2114(c)(1)).
                            ``(v) Total administrative 
                        expenditures.
                    ``(B) Subsequent summaries.--For reports 
                for each succeeding fiscal year, a summary of--
                            ``(i) all expenditures under the 
                        MediGrant plan, and
                            ``(ii) the total and average number 
                        of eligible individuals under the 
                        MediGrant plan for each general 
                        category of eligible individuals.
            ``(2) Utilization summary.--
                    ``(A) Initial summary.--For the report for 
                fiscal year 1997 (and, if applicable, fiscal 
                year 1996), summary statistics on the 
                utilization of health care services under the 
                MediGrant plan during the year (and during any 
                portions of fiscal year 1996 during which the 
                MediGrant plan was in effect under this title) 
                as follows:
                            ``(i) For each general category of 
                        eligible individuals and for each of 
                        the categories of health care items and 
                        services which are covered under the 
                        MediGrant plan and provided on a fee-
                        for-service basis, the number and 
                        percentage of persons who received such 
                        a type of service or item during the 
                        period covered by the report.
                            ``(ii) Summary of health care 
                        utilization data reported to the State 
                        by capitated health care organizations.
                    ``(B) Subsequent summaries.--For reports 
                for each succeeding fiscal year, summary 
                statistics on the utilization of health care 
                services under the MediGrant plan.
            ``(3) Achievement of performance goals.--With 
        respect to each performance goal established under 
        section 2101 and applicable to the year involved--
                    ``(A) a brief description of the goal;
                    ``(B) a description of the methods to be 
                used to measure the attainment of such goal;
                    ``(C) data on the actual performance with 
                respect to the goal;
                    ``(D) a review of the extent to which the 
                goal was achieved, based on such data; and
                    ``(E) if a performance goal has not been 
                met--
                            ``(i) why the goal was not met, and
                            ``(ii) actions to be taken in 
                        response to such performance, including 
                        adjustments in performance goals or 
                        program activities for subsequent 
                        years.
            ``(4) Program evaluations.--A summary of the 
        findings of evaluations under section 2103 completed 
        during the fiscal year covered by the report.
            ``(5) Fraud and abuse and quality control 
        activities.--A general description of the State's 
        activities under part D to detect and deter fraud and 
        abuse and to assure quality of services provided under 
        the program.
            ``(6) Plan administration.--
                    ``(A) A description of the administrative 
                roles and responsibilities of entities in the 
                State responsible for administration of this 
                title.
                    ``(B) Organizational charts for each entity 
                in the State primarily responsible for 
                activities under this title.
                    ``(C) A brief description of each 
                interstate compact (if any) the State has 
                entered into with other States with respect to 
                activities under this title.
                    ``(D) General citations to the State 
                statutes and administrative rules governing the 
                State's activities under this title.
    ``(c) Description of Categories.--In this section:
            ``(1) General categories of eligible individuals.--
        Each of the following is a general category of eligible 
        individuals:
                    ``(A) Pregnant women.
                    ``(B) Children.
                    ``(C) Blind or disabled adults who are not 
                elderly individuals.
                    ``(D) Elderly individuals.
                    ``(E) Other adults.
            ``(2) Categories of health care items and 
        services.--The health care items and services described 
        in each paragraph of section 2171(a) shall be 
        considered a separate category of health care items and 
        services.

``SEC. 2103. PERIODIC, INDEPENDENT EVALUATIONS.

    ``(a) In General.--During fiscal year 1998 and every third 
fiscal year thereafter, each State shall provide for an 
evaluation of the operation of its MediGrant plan under this 
title.
    ``(b) Independent.--Each such evaluation with respect to an 
activity under the MediGrant plan shall be conducted by an 
entity that is neither responsible under State law for the 
submission of the State MediGrant plan (or part thereof) nor 
responsible for administering (or supervising the 
administration of) the activity. If consistent with the 
previous sentence, such an entity may be a college or 
university, a State agency, a legislative branch agency in a 
State, or an independent contractor.
    ``(c) Research Design.--Each such evaluation shall be 
conducted in accordance with a research design that is based on 
generally accepted models of survey design and sampling and 
statistical analysis.

``SEC. 2104. DESCRIPTION OF PROCESS FOR MEDIGRANT PLAN DEVELOPMENT.

    ``Each MediGrant plan shall include a description of the 
process under which the plan shall be developed and implemented 
in the State (consistent with section 2105).

``SEC. 2105. CONSULTATION IN MEDIGRANT PLAN DEVELOPMENT.

    ``(a) Public Notice Process.--Before submitting a MediGrant 
plan or a plan amendment described in subsection (c) to the 
Secretary under part E, a State shall provide--
            ``(1) public notice respecting the submittal of the 
        proposed plan or amendment, including a general 
        description of the plan or amendment,
            ``(2) a means for the public to inspect or obtain a 
        copy (at reasonable charge) of the proposed plan or 
        amendment,
            ``(3) an opportunity for submittal and 
        consideration of public comments on the proposed plan 
        or amendment, and
            ``(4) for consultation with one or more advisory 
        committees established and maintained by the State.
The previous sentence shall not apply to a revision of a 
MediGrant plan (or revision of an amendment to a plan) made by 
a State under section 2154(c)(1) or to a plan amendment 
withdrawal described in section 2154(c)(4).
    ``(b) Contents of Notice.--A notice under subsection (a)(1) 
for a proposed plan or amendment shall include a description 
of--
            ``(1) the general purpose of the proposed plan or 
        amendment (including applicable effective dates),
            ``(2) where the public may inspect the proposed 
        plan or amendment,
            ``(3) how the public may obtain a copy of the 
        proposed plan or amendment and the applicable charge 
        (if any) for the copy, and
            ``(4) how the public may submit comments on the 
        proposed plan or amendment, including any deadlines 
        applicable to consideration of such comments.
    ``(c) Amendments Described.--An amendment to a MediGrant 
plan described in this subsection is an amendment which makes a 
material and substantial change in eligibility under the 
MediGrant plan or the benefits provided under the plan.
    ``(d) Publication.--Notices under this section may be 
published (as selected by the State) in one or more daily 
newspapers of general circulation in the State or in any 
publication used by the State to publish State statutes or 
rules.
    ``(e) Comparable Process.--A separate notice, or notices, 
shall not be required under this section for a State if notice 
of the MediGrant plan or an amendment to the plan will be 
provided under a process specified in State law that is 
substantially equivalent to the notice process specified in 
this section.

            ``Part B--Eligibility, Benefits, and Set-Asides

``SEC. 2111. ELIGIBILITY AND BENEFITS.

    ``(a) Description of General Eligibility and Benefits.--
Each MediGrant plan shall include a description (consistent 
with this title) of the following:
            ``(1) General eligibility standards.--The general 
        eligibility standards of the plan for eligible low-
        income individuals (including individuals described in 
        subsection (b)), including--
                    ``(A) any limitations as to the duration of 
                eligibility,
                    ``(B) any eligibility standards relating to 
                age, income and resources (including any 
                standards relating to spenddowns and 
                disposition of resources), residency, 
                disability status, immigration status, or 
                employment status of individuals,
                    ``(C) methods of establishing and 
                continuing eligibility and enrollment, 
                including the methodology for computing family 
                income,
                    ``(D) the eligibility standards in the plan 
                that protect the income and resources of a 
                married individual who is living in the 
                community and whose spouse is residing in an 
                institution in order to prevent the 
                impoverishment of the community spouse, and
                    ``(E) any other standards relating to 
                eligibility for medical assistance under the 
                plan.
            ``(2) Scope of assistance.--The amount, duration, 
        and scope of health care services and items covered 
        under the plan, including differences among different 
        eligible population groups.
            ``(3) Delivery method.--The State's approach to 
        delivery of medical assistance, including a general 
        description of--
                    ``(A) the use (or intended use) of 
                vouchers, fee-for-service, or managed care 
                arrangements (such as capitated health care 
                plans, case management, and case coordination); 
                and
                    ``(B) utilization control systems.
            ``(4) Fee-for-service benefits.--To the extent that 
        medical assistance is furnished on a fee-for-service 
        basis--
                    ``(A) how the State determines the 
                qualifications of health care providers 
                eligible to provide such assistance; and
                    ``(B) how the State determines rates of 
                reimbursement for providing such assistance.
            ``(5) Cost-sharing.--Beneficiary cost-sharing (if 
        any), including variations in such cost-sharing by 
        population group or type of service and financial 
        responsibilities of parents of recipients who are 
        children and the spouses of recipients.
            ``(6) Utilization incentives.--Incentives or 
        requirements (if any) to encourage the appropriate 
        utilization of services.
            ``(7) Support for certain hospitals.--
                    ``(A) In general.--With respect to 
                hospitals described in subparagraph (B) located 
                in the State, a description of the extent to 
                which provisions are made for expenditures for 
                items and services furnished by such hospitals 
                and covered under the MediGrant plan.
                    ``(B) Hospitals described.--A hospital 
                described in this subparagraph is a short-term 
                acute care general hospital or a children's 
                hospital, the low-income utilization rate of 
                which exceeds the lesser of--
                            ``(i) 1 standard deviation above 
                        the mean low-income utilization rate 
                        for hospitals receiving payments under 
                        a MediGrant plan in the State in which 
                        such hospital is located, or
                            ``(ii) 1\1/4\ standard deviations 
                        above the mean low-income utilization 
                        rate for hospitals receiving such 
                        payments in the 50 States and the 
                        District of Columbia.
                    ``(C) Low-income utilization rate.--For 
                purposes of subparagraph (B), the term `low-
                income utilization rate' means, for a hospital, 
                a fraction (expressed as a percentage), the 
                numerator of which is the hospital's number of 
                patient days attributable to patients who (for 
                such days) were eligible for medical assistance 
                under a MediGrant plan or were uninsured in a 
                period, and the denominator of which is the 
                total number of the hospital's patient days in 
                that period.
                    ``(D) Patient days.--For purposes of 
                subparagraph (C), the term `patient day' 
                includes each day in which--
                            ``(i) an individual, including a 
                        newborn, is an inpatient in the 
                        hospital, whether or not the individual 
                        is in a specialized ward and whether or 
                        not the individual remains in the 
                        hospital for lack of suitable placement 
                        elsewhere; or
                            ``(ii) an individual makes one or 
                        more outpatient visits to the hospital.
    ``(b) Mandatory Coverage.--Each MediGrant plan shall 
provide for making medical assistance available (subject to the 
eligibility standards described under the plan pursuant to 
subsection (a)(1) and State flexibility of benefits under 
section 2116) to--
            ``(1) any pregnant woman or child under the age of 
        13 whose family income does not exceed the poverty line 
        applicable to a family of the size involved, and
            ``(2) any individual who is disabled, as defined by 
        the State.
    ``(c) Immunizations for Children.--The MediGrant plan shall 
provide medical assistance for immunizations for children 
eligible for any medical assistance under the MediGrant plan, 
in accordance with a schedule for immunizations established by 
the Health Department of the State in consultation with the 
individuals and entities in the State responsible for the 
administration of the plan.
    ``(d) Family Planning Services.--The MediGrant plan shall 
provide prepregnancy planning services and supplies as 
specified by the State.
    ``(e) Preexisting Condition Exclusions.--Notwithstanding 
any other provision of this title--
            ``(1) a MediGrant plan may not deny or exclude 
        coverage of any item or service for an eligible 
        individual for benefits under the MediGrant plan for 
        such item or service on the basis of a preexisting 
        condition; and
            ``(2) if a State contracts or makes other 
        arrangements (through the eligible individual or 
        through another entity) with a capitated health care 
        organization, insurer, or other entity, for the 
        provision of items or services to eligible individuals 
        under the MediGrant plan and the State permits such 
        organization, insurer, or other entity to exclude 
        coverage of a covered item or service on the basis of a 
        preexisting condition, the State shall provide, through 
        its MediGrant plan, for such coverage (through direct 
        payment or otherwise) for any such covered item or 
        service denied or excluded on the basis of a 
        preexisting condition.
    ``(f) Family Responsibility.--A MediGrant plan may not 
require an adult child with a family income below the State 
median income (as determined by the State) applicable to a 
family of the size involved to contribute to the cost of 
covered nursing facility services and other long-term care 
services for the child's parent under the plan.
    ``(g) Solvency Standards for Capitated Health Care 
Organizations.--
            ``(1) In general.--A State may not contract with a 
        capitated health care organization, as defined in 
        section 2114(c)(1), for the provision of medical 
        assistance under a MediGrant plan under which the 
        organization is--
                    ``(A) at full financial risk, as defined by 
                the State, unless the organization meets 
                solvency standards established by the State for 
                private health maintenance organizations, or
                    ``(B) is not at such risk, unless the 
                organization meets solvency standards that are 
                established under the MediGrant plan.
            ``(2) Treatment of public entities.--Paragraph (1) 
        shall not apply to an organization that is a public 
        entity or if the solvency of such organization is 
        guaranteed by the State.
            ``(3) Transition.--In the case of a capitated 
        health care organization that as of the date of the 
        enactment of this title has entered into a contract 
        with a State for the provision of medical assistance 
        under title XIX under which the organization assumes 
        full financial risk and is receiving capitation 
        payments, paragraph (1) shall not apply to such 
        organization until 3 years after the date of the 
        enactment of this title.

``SEC. 2112. SET-ASIDES OF FUNDS.

    ``(a) For Targeted Low-Income Families.--
            ``(1) In general.--Subject to subsection (f), a 
        MediGrant plan shall provide that the amount of funds 
        expended under the plan for medical assistance for 
        targeted low-income families (as defined in paragraph 
        (3)) for a fiscal year shall be not less than the 
        minimum low-income-family percentage specified in 
        paragraph (2) of the total funds expended under the 
        plan for all medical assistance for the fiscal year.
            ``(2) Minimum low-income-family percentage.--The 
        minimum low-income-family percentage specified in this 
        paragraph for a State is equal to 85 percent of the 
        average percentage of the expenditures under title XIX 
        for medical assistance in the State during Federal 
        fiscal years 1992 through 1994 which were attributable 
        to expenditures for medical assistance for mandated 
        benefits (as defined in subsection (h)) furnished to 
        individuals--
                    ``(A) who (at the time of furnishing the 
                assistance) were under 65 years of age;
                    ``(B) whose coverage (at such time) under a 
                State plan under title XIX was required under 
                Federal law; and
                    ``(C) whose eligibility for such coverage 
                (at such time) was not on a basis directly 
                related to disability status, including being 
                blind.
            ``(3) Targeted low-income family defined.--In this 
        subsection, the term `targeted low-income family' means 
        a family (which may be an individual)--
                    ``(A) which includes a child or a pregnant 
                woman; and
                    ``(B) the income of which does not exceed 
                185 percent of the poverty line applicable to a 
                family of the size involved.
    ``(b) For Low-Income Elderly.--
            ``(1) Set-asides.--Subject to subsection (f)--
                    ``(A) General set-aside.--A MediGrant plan 
                shall provide that the amount of funds expended 
                under the plan for medical assistance for 
                eligible low-income elderly individuals for a 
                fiscal year shall be not less than the minimum 
                low-income-elderly percentage specified in 
                paragraph (2)(A) of the total funds expended 
                under the plan for all medical assistance for 
                the fiscal year.
                    ``(B) Set-aside for medicare premium 
                assistance.--A MediGrant plan shall provide 
                that the amount of funds expended under the 
                plan for medical assistance for medicare cost-
                sharing described in section 2171(c)(1) for a 
                fiscal year shall be not less than the minimum 
                medicare premium assistance percentage 
                specified in paragraph (2)(B) of the total 
                funds expended under the plan for all medical 
                assistance for the fiscal year. The MediGrant 
                plan shall provide priority for such making 
                such assistance available for targeted low-
                income elderly individuals (as defined in 
                paragraph (3)).
            ``(2) Minimum percentages.--
                    ``(A) For general set-aside.--The minimum 
                low-income-elderly percentage specified in this 
                subparagraph for a State is equal to 85 percent 
                of the average percentage of the expenditures 
                under title XIX for medical assistance in the 
                State during Federal fiscal years 1992 through 
                1994 which was attributable to expenditures for 
                medical assistance for mandated benefits 
                furnished to individuals--
                            ``(i) whose eligibility for such 
                        assistance was based on their being 65 
                        years of age or older; and
                            ``(ii)(I) whose coverage (at such 
                        time) under a State plan under title 
                        XIX was required under Federal law, or 
                        (II) who (at such time) were residents 
                        of a nursing facility.
                    ``(B) For set-aside for medicare premium 
                assistance.--The minimum medicare premium 
                assistance percentage specified in this 
                subparagraph for a State is equal to 90 percent 
                of the average percentage of the expenditures 
                under title XIX for medical assistance in the 
                State during Federal fiscal years 1993 through 
                1995 which was attributable to expenditures for 
                medical assistance for medicare premiums 
                described in section 1905(p)(3)(A) for 
                individuals whose coverage (at such time) for 
                such assistance for such premiums under a State 
                plan under title XIX was required under Federal 
                law.
            ``(3) Targeted low-income elderly individual 
        defined.--In this subsection, the term `targeted low-
        income elderly individual' means an elderly individual 
        whose family income does not exceed 100 percent of the 
        poverty line applicable to a family of the size 
        involved.
    ``(c) For Low-Income Disabled Persons.--
            ``(1) In general.--Subject to subsection (f), a 
        MediGrant plan shall provide that the percentage of 
        funds expended under the plan for medical assistance 
        for eligible low-income individuals who are not elderly 
        individuals and who are eligible for such assistance on 
        the basis of a disability, including being blind, for a 
        fiscal year is not less than the minimum low-income-
        disabled percentage specified in paragraph (2) of the 
        total funds expended under the plan for medical 
        assistance for the fiscal year.
            ``(2) Minimum low-income-disabled percentage.--The 
        minimum low-income-disabled percentage specified in 
        this paragraph for a State is equal to 85 percent of 
        the average percentage of the expenditures under title 
        XIX for medical assistance in the State during Federal 
        fiscal years 1992 through 1994 which was attributable 
        to expenditures for medical assistance for mandated 
        benefits furnished to individuals--
                    ``(A) whose coverage (at such time) under a 
                State plan under title XIX was required under 
                Federal law; and
                    ``(B) whose coverage (at such time) was on 
                a basis directly related to disability status, 
                including being blind.
    ``(d) For Services Provided at Federally Qualified Health 
Centers and Rural Health Clinics.--Subject to subsection (f), a 
MediGrant plan shall provide that the amount of funds expended 
under the plan for medical assistance for services provided at 
rural health clinics (as defined in section 1861(aa)(2)) and 
Federally-qualified health centers (as defined in section 
1861(aa)(4)), for eligible low-income individuals for a fiscal 
year is not less than 85 percent of the average annual 
expenditures under title XIX for medical assistance in the 
State during Federal fiscal years 1992 through 1994 which were 
attributable to expenditures for medical assistance for rural 
health clinic services and Federally-qualified health center 
services (as defined in section 1905(l)).
    ``(e) Use of Residual Funds.--
            ``(1) In general.--Subject to limitations on 
        payment under section 2123, any funds not required to 
        be expended under the set-asides under the previous 
        subsections may be expended under the MediGrant plan 
        for any of the following:
                    ``(A) Additional medical assistance.--
                Medical assistance for eligible low-income 
                individuals (as defined in section 2171(b)), in 
                addition to any medical assistance made 
                available under a previous subsection.
                    ``(B) Medically-related services.--Payment 
                for medically-related services (as defined in 
                paragraph (2)).
                    ``(C) Administration.--Payment for the 
                administration of the MediGrant plan.
            ``(2) Medically-related services defined.--In this 
        title, the term `medically-related services' means 
        services reasonably related to, or in direct support 
        of, the State's attainment of one or more of the 
        strategic objectives and performance goals established 
        under section 2101, but does not include items and 
        services included on the list under section 2171(a) 
        (relating to the definition of medical assistance).
    ``(f) Exceptions to Minimum Set-Asides.--
            ``(1) Alternative minimum set-asides.--
                    ``(A) In general.--A State may provide in 
                its MediGrant plan (through an amendment to the 
                plan) for a lower percentage of expenditures 
                than the minimum percentages specified in any 
                (or all) of paragraphs (2) of subsections (a), 
                (b), (c), and (d) if the State determines (and 
                certifies to the Secretary) that--
                            ``(i) the health care needs of the 
                        low-income populations described in 
                        paragraph (1) of the subsections (a), 
                        (b), (c), or (d) who are eligible for 
                        medical assistance under the plan 
                        during the previous fiscal year (or 
                        medicare premium assistance needs 
                        described in subsection (b)(1)(B)) can 
                        be reasonably met without the 
                        expenditure of the percentages 
                        otherwise required to be expended,
                            ``(ii) the performance goals 
                        established under section 2101 relating 
                        to the respective population can 
                        reasonably be met with the expenditure 
                        of such lower percentage of funds, and
                            ``(iii) in the case of subsection 
                        (d) with respect to rural health clinic 
                        services and Federally-qualified health 
                        center services, the health care needs 
                        of eligible low-income individuals 
                        residing in medically underserved rural 
                        areas can reasonably be met without the 
                        level of expenditure for such services 
                        otherwise required and the performance 
                        goals established under section 2101 
                        relating to such individuals can 
                        reasonably be met with such lower level 
                        of expenditures.
                    ``(B) Period of application.--The 
                determination and certification under 
                subparagraph (A) shall be made for such period 
                as a State may request, but may not be made for 
                a period of more than 3 consecutive Federal 
                fiscal years (beginning with the first fiscal 
                year for which the lower percentage is sought). 
                A new determination and certification must be 
                made under such clause for any subsequent 
                period.
                    ``(C) No exception permitted before fiscal 
                year 1998.--This paragraph may not apply with 
                respect to the percentages described in 
                paragraphs (2) of subsections (a), (b), and (c) 
                for a fiscal year before fiscal year 1998.
            ``(2) Independent certification of compliance with 
        goals.--
                    ``(A) In general.--For purposes of section 
                2151(c), a MediGrant plan shall not be 
                considered to be in substantial violation of 
                the requirements of this section if the amount 
                of actual State expenditures specified in any 
                (or all) of paragraphs (1) of subsections (a), 
                (b), (c), and (d) is lower than the minimum 
                percentages specified in any (or all) of 
                paragraphs (2) of such subsections if an 
                independent actuary determines and certifies to 
                the State that the MediGrant plan is reasonably 
                designed to result in a level of expenditures 
                which is consistent with the requirements of 
                such subsections.
                    ``(B) Limit on variation.--Subparagraph (A) 
                shall not apply in the case of a MediGrant plan 
                for which the actual State expenditures 
                described in any (or all) of paragraphs (1) of 
                subsections (a), (b), (c), and (d) are less 
                than 95 percent of the expenditures which would 
                be made if the amount of State expenditures 
                specified in any (or all) of such paragraphs 
                was equal to the applicable minimum percentage 
                specified in any (or all) of paragraphs (2) of 
                such subsections.
    ``(g) Computations.--States shall calculate the minimum 
percentages under paragraphs (2) of subsections (a), (b), (c), 
and (d) in a reasonable manner consistent with reports 
submitted to the Secretary for the fiscal years involved and 
medical assistance attributable to the exception provided under 
section 1903(v)(2) shall not be considered to be expenditures 
for medical assistance.
    ``(h) Benefits Included for Purposes of Computing Set-
Asides.--In this section, the term `mandated benefits'--
            ``(1) means medical assistance for items and 
        services described in section 1905(a) to the extent 
        such assistance with respect to such items and services 
        was required to be provided under title XIX,
            ``(2) includes medical assistance for medicare 
        cost-sharing only to the extent such assistance was 
        required to be provided under section 1902(a)(10)(E), 
        and
            ``(3) does not include medical assistance 
        attributable to disproportionate share payment 
        adjustments described in section 1923.

``SEC. 2113. PREMIUMS AND COST-SHARING.

    ``(a) In General.--Subject to subsection (b), if any 
charges are imposed under the MediGrant plan for cost-sharing 
(as defined in subsection (d)), such cost-sharing shall be 
pursuant to a public cost-sharing schedule.
    ``(b) Limitation on Premium and Certain Cost-Sharing for 
Low-Income Families Including Children or Pregnant Women.--
            ``(1) In general.--In the case of a pregnant woman 
        or a child who is a member of a family described in 
        paragraph (2)--
                    ``(A) the plan shall not impose any 
                premium, and
                    ``(B) the plan shall not (except as 
                provided in subsection (c)(1)) impose any cost-
                sharing with respect to primary and preventive 
                care services (as defined by the State) covered 
                under the MediGrant plan for children or 
                pregnant women unless such cost-sharing is 
                nominal in nature.
            ``(2) Family described.--A family described in this 
        paragraph is a family (which may be an individual) 
        which--
                    ``(A) includes a child or a pregnant woman,
                    ``(B) is made eligible for medical 
                assistance under the MediGrant plan, and
                    ``(C) the income of which does not exceed 
                100 percent of the poverty line applicable to a 
                family of the size involved.
    ``(c) Certain Cost-Sharing Permitted.--Nothing in this 
section shall be construed as preventing a MediGrant plan 
(consistent with subsection (b))--
            ``(1) from imposing cost-sharing to discourage the 
        inappropriate use of emergency medical services 
        delivered through a hospital emergency room, a medical 
        transportation provider, or otherwise,
            ``(2) from imposing premiums and cost-sharing 
        differentially in order to encourage the use of primary 
        and preventive care and discourage unnecessary or less 
        economical care,
            ``(3) from scaling cost-sharing in a manner that 
        reflects economic factors, employment status, and 
        family size,
            ``(4) from scaling cost-sharing based on the 
        availability to the individual or family of other 
        health insurance coverage, or
            ``(5) from scaling cost-sharing based on 
        participation in employment training programs, drug or 
        alcohol abuse treatment, counseling programs, or other 
        programs promoting personal responsibility.
    ``(d) Cost-Sharing Defined.--In this section, the term 
`cost-sharing' includes copayments, deductibles, coinsurance, 
and other charges for the provision of health care services.

``SEC. 2114. DESCRIPTION OF PROCESS FOR DEVELOPING CAPITATION PAYMENT 
                    RATES.

    ``(a) In General.--If a State contracts (or intends to 
contract) with a capitated health care organization (as defined 
in subsection (c)(1)) under which the State makes a capitation 
payment (as defined in subsection (c)(2)) to the organization 
for providing or arranging for the provision of medical 
assistance under the MediGrant plan for a group of services, 
including at least inpatient hospital services and physicians' 
services, the plan shall include a description of the 
following:
            ``(1) Use of actuarial science.--The extent and 
        manner in which the State uses actuarial science--
                    ``(A) to analyze and project health care 
                expenditures and utilization for individuals 
                enrolled (or to be enrolled) in such an 
                organization under the MediGrant plan, and
                    ``(B) to develop capitation payment rates, 
                including a brief description of the general 
                methodologies used by actuaries.
            ``(2) Qualifications of organizations.--The general 
        qualifications, including any accreditation, State 
        licensure or certification, or provider network 
        standards, required by the State for participation of 
        capitated health care organizations under the MediGrant 
        plan.
            ``(3) Dissemination process.--The process used by 
        the State under subsection (b) and otherwise to 
        disseminate, before entering into contracts with 
        capitated health care organizations, actuarial 
        information to such organizations on the historical 
        fee-for-service costs (or, if not available, other 
        recent financial data associated with providing covered 
        services) and utilization associated with individuals 
        described in paragraph (1)(A).
    ``(b) Public Notice and Comment.--Under the MediGrant plan 
the State shall provide a process for providing, before the 
beginning of each contract year--
            ``(1) public notice of--
                    ``(A) the amounts of the capitation 
                payments (if any) made under the plan for the 
                contract year preceding the public notice, and
                    ``(B)(i) the information described under 
                subsection (a)(1) with respect to capitation 
                payments for the contract year involved, or 
                (ii) amounts of the capitation payments the 
                State expects to make for the contract year 
                involved,
        unless such information is designated as proprietary 
        and not subject to public disclosure under State law, 
        and
            ``(2) an opportunity for receiving public comment 
        on the amounts and information for which notice is 
        provided under paragraph (1).
    ``(c) Definitions.--In this title:
            ``(1) Capitated health care organization.--The term 
        `capitated health care organization' means a health 
        maintenance organization or any other entity (including 
        a health insuring organization, managed care 
        organization, prepaid health plan, integrated service 
        network, or similar entity) which under State law is 
        permitted to accept capitation payments for providing 
        (or arranging for the provision of) a group of items 
        and services including at least inpatient hospital 
        services and physicians' services.
            ``(2) Capitation payment.--The term `capitation 
        payment' means, with respect to payment, payment on a 
        prepaid capitation basis or any other risk basis to an 
        entity for the entity's provision (or arranging for the 
        provision) of a group of items and services, including 
        at least inpatient hospital services and physicians' 
        services.

``SEC. 2115. PREVENTING SPOUSAL IMPOVERISHMENT.

    ``(a) Special Treatment for Institutionalized Spouses.--
            ``(1) Supersedes other provisions.--In determining 
        the eligibility for medical assistance of an 
        institutionalized spouse (as defined in subsection 
        (h)(1)), the provisions of this section supersede any 
        other provision of this title which is inconsistent 
        with them.
            ``(2) Does not affect certain determinations.--
        Except as this section specifically provides, this 
        section does not apply to--
                    ``(A) the determination of what constitutes 
                income or resources, or
                    ``(B) the methodology and standards for 
                determining and evaluating income and 
                resources.
            ``(3) No application in commonwealths and 
        territories.--This section shall only apply to a State 
        that is one of the 50 States or the District of 
        Columbia.
    ``(b) Rules for Treatment of Income.--
            ``(1) Separate treatment of income.--During any 
        month in which an institutionalized spouse is in the 
        institution, except as provided in paragraph (2), no 
        income of the community spouse shall be deemed 
        available to the institutionalized spouse.
            ``(2) Attribution of income.--In determining the 
        income of an institutionalized spouse or community 
        spouse for purposes of the post-eligibility income 
        determination described in subsection (d), except as 
        otherwise provided in this section and regardless of 
        any State laws relating to community property or the 
        division of marital property, the following rules 
        apply:
                    ``(A) Non-trust property.--Subject to 
                subparagraphs (C) and (D), in the case of 
                income not from a trust, unless the instrument 
                providing the income otherwise specifically 
                provides--
                            ``(i) if payment of income is made 
                        solely in the name of the 
                        institutionalized spouse or the 
                        community spouse, the income shall be 
                        considered available only to that 
                        respective spouse,
                            ``(ii) if payment of income is made 
                        in the names of the institutionalized 
                        spouse and the community spouse, \1/2\ 
                        of the income shall be considered 
                        available to each of them, and
                            ``(iii) if payment of income is 
                        made in the names of the 
                        institutionalized spouse or the 
                        community spouse, or both, and to 
                        another person or persons, the income 
                        shall be considered available to each 
                        spouse in proportion to the spouse's 
                        interest (or, if payment is made with 
                        respect to both spouses and no such 
                        interest is specified, \1/2\ of the 
                        joint interest shall be considered 
                        available to each spouse).
                    ``(B) Trust property.--In the case of a 
                trust--
                            ``(i) except as provided in clause 
                        (ii), income shall be attributed in 
                        accordance with the provisions of this 
                        title; and
                            ``(ii) income shall be considered 
                        available to each spouse as provided in 
                        the trust, or, in the absence of a 
                        specific provision in the trust--
                                    ``(I) if payment of income 
                                is made solely to the 
                                institutionalized spouse or the 
                                community spouse, the income 
                                shall be considered available 
                                only to that respective spouse,
                                    ``(II) if payment of income 
                                is made to both the 
                                institutionalized spouse and 
                                the community spouse, \1/2\ of 
                                the income shall be considered 
                                available to each of them, and
                                    ``(III) if payment of 
                                income is made to the 
                                institutionalized spouse or the 
                                community spouse, or both, and 
                                to another person or persons, 
                                the income shall be considered 
                                available to each spouse in 
                                proportion to the spouse's 
                                interest (or, if payment is 
                                made with respect to both 
                                spouses and no such interest is 
                                specified, \1/2\ of the joint 
                                interest shall be considered 
                                available to each spouse).
                    ``(C) Property with no instrument.--In the 
                case of income not from a trust in which there 
                is no instrument establishing ownership, 
                subject to subparagraph (D), \1/2\ of the 
                income shall be considered to be available to 
                the institutionalized spouse and \1/2\ to the 
                community spouse.
                    ``(D) Rebutting ownership.--The rules of 
                subparagraphs (A) and (C) are superseded to the 
                extent that an institutionalized spouse can 
                establish, by a preponderance of the evidence, 
                that the ownership interests in income are 
                other than as provided under such 
                subparagraphs.
    ``(c) Rules for Treatment of Resources.--
            ``(1) Computation of spousal share at time of 
        institutionalization.--
                    ``(A) Total joint resources.--There shall 
                be computed (as of the beginning of the first 
                continuous period of institutionalization of 
                the institutionalized spouse)--
                            ``(i) the total value of the 
                        resources to the extent either the 
                        institutionalized spouse or the 
                        community spouse has an ownership 
                        interest, and
                            ``(ii) a spousal share which is 
                        equal to \1/2\ of such total value.
                    ``(B) Assessment.--At the request of an 
                institutionalized spouse or community spouse, 
                at the beginning of the first continuous period 
                of institutionalization of the 
                institutionalized spouse and upon the receipt 
                of relevant documentation of resources, the 
                State shall promptly assess and document the 
                total value described in subparagraph (A)(i) 
                and shall provide a copy of such assessment and 
                documentation to each spouse and shall retain a 
                copy of the assessment for use under this 
                section. If the request is not part of an 
                application for medical assistance under this 
                title, the State may, at its option as a 
                condition of providing the assessment, require 
                payment of a fee not exceeding the reasonable 
                expenses of providing and documenting the 
                assessment. At the time of providing the copy 
                of the assessment, the State shall include a 
                notice indicating that the spouse will have a 
                right to a fair hearing under subsection 
                (e)(2).
            ``(2) Attribution of resources at time of initial 
        eligibility determination.--In determining the 
        resources of an institutionalized spouse at the time of 
        application for medical assistance under this title, 
        regardless of any State laws relating to community 
        property or the division of marital property--
                    ``(A) except as provided in subparagraph 
                (B), all the resources held by either the 
                institutionalized spouse, community spouse, or 
                both, shall be considered to be available to 
                the institutionalized spouse, and
                    ``(B) resources shall be considered to be 
                available to an institutionalized spouse, but 
                only to the extent that the amount of such 
                resources exceeds the amount computed under 
                subsection (f)(2)(A) (as of the time of 
                application for medical assistance).
            ``(3) Assignment of support rights.--The 
        institutionalized spouse shall not be ineligible by 
        reason of resources determined under paragraph (2) to 
        be available for the cost of care where--
                    ``(A) the institutionalized spouse has 
                assigned to the State any rights to support 
                from the community spouse,
                    ``(B) the institutionalized spouse lacks 
                the ability to execute an assignment due to 
                physical or mental impairment but the State has 
                the right to bring a support proceeding against 
                a community spouse without such assignment, or
                    ``(C) the State determines that denial of 
                eligibility would work an undue hardship.
            ``(4) Separate treatment of resources after 
        eligibility for medical assistance established.--During 
        the continuous period in which an institutionalized 
        spouse is in an institution and after the month in 
        which an institutionalized spouse is determined to be 
        eligible for medical assistance under this title, no 
        resources of the community spouse shall be deemed 
        available to the institutionalized spouse.
            ``(5) Resources defined.--In this section, the term 
        `resources' does not include--
                    ``(A) resources excluded under subsection 
                (a) or (d) of section 1613, and
                    ``(B) resources that would be excluded 
                under section 1613(a)(2)(A) but for the 
                limitation on total value described in such 
                section.
    ``(d) Protecting Income for Community Spouse.--
            ``(1) Allowances to be offset from income of 
        institutionalized spouse.--After an institutionalized 
        spouse is determined or redetermined to be eligible for 
        medical assistance, in determining the amount of the 
        spouse's income that is to be applied monthly to 
        payment for the costs of care in the institution, there 
        shall be deducted from the spouse's monthly income the 
        following amounts in the following order:
                    ``(A) A personal needs allowance (described 
                in paragraph (2)(A)), in an amount not less 
                than the amount specified in paragraph (2)(C).
                    ``(B) A community spouse monthly income 
                allowance (as defined in paragraph (3)), but 
                only to the extent income of the 
                institutionalized spouse is made available to 
                (or for the benefit of) the community spouse.
                    ``(C) A family allowance, for each family 
                member, equal to at least \1/3\ of the amount 
                by which the amount described in paragraph 
                (4)(A)(i) exceeds the amount of the monthly 
                income of that family member.
                    ``(D) Amounts for incurred expenses for 
                medical or remedial care for the 
                institutionalized spouse as provided under 
                paragraph (6).
        In subparagraph (C), the term `family member' only 
        includes minor or dependent children, dependent 
        parents, or dependent siblings of the institutionalized 
        or community spouse who are residing with the community 
        spouse.
            ``(2) Personal needs allowance.--
                    ``(A) In general.--The MediGrant plan must 
                provide that, in the case of an 
                institutionalized individual or couple 
                described in subparagraph (B), in determining 
                the amount of the individual's or couple's 
                income to be applied monthly to payment for the 
                cost of care in an institution, there shall be 
                deducted from the monthly income (in addition 
                to other allowances otherwise provided under 
                the plan) a monthly personal needs allowance--
                            ``(i) which is reasonable in amount 
                        for clothing and other personal needs 
                        of the individual (or couple) while in 
                        an institution, and
                            ``(ii) which is not less (and may 
                        be greater) than the minimum monthly 
                        personal needs allowance described in 
                        subparagraph (C).
                    ``(B) Institutionalized individual or 
                couple defined.--In this paragraph, the term 
                `institutionalized individual or couple' means 
                an individual or married couple--
                            ``(i) who is an inpatient (or who 
                        are inpatients) in a medical 
                        institution or nursing facility for 
                        which payments are made under this 
                        title throughout a month, and
                            ``(ii) who is or are determined to 
                        be eligible for medical assistance 
                        under the State MediGrant plan.
                    ``(C) Minimum allowance.--The minimum 
                monthly personal needs allowance described in 
                this subparagraph is $40 for an 
                institutionalized individual and $80 for an 
                institutionalized couple (if both are aged, 
                blind, or disabled, and their incomes are 
                considered available to each other in 
                determining eligibility).
            ``(3) Community spouse monthly income allowance 
        defined.--
                    ``(A) In general.--In this section (except 
                as provided in subparagraph (B)), the community 
                spouse monthly income allowance for a community 
                spouse is an amount by which--
                            ``(i) except as provided in 
                        subsection (e), the minimum monthly 
                        maintenance needs allowance 
                        (established under and in accordance 
                        with paragraph (4)) for the spouse, 
                        exceeds
                            ``(ii) the amount of monthly income 
                        otherwise available to the community 
                        spouse (determined without regard to 
                        such an allowance).
                    ``(B) Court ordered support.--If a court 
                has entered an order against an 
                institutionalized spouse for monthly income for 
                the support of the community spouse, the 
                community spouse monthly income allowance for 
                the spouse shall be not less than the amount of 
                the monthly income so ordered.
            ``(4) Establishment of minimum monthly maintenance 
        needs allowance.--
                    ``(A) In general.--Each State shall 
                establish a minimum monthly maintenance needs 
                allowance for each community spouse which, 
                subject to subparagraph (B), is equal to or 
                exceeds--
                            ``(i) 150 percent of \1/12\ of the 
                        poverty line applicable to a family 
                        unit of 2 members, plus
                            ``(ii) an excess shelter allowance 
                        (as defined in paragraph (4)).
                A revision of the poverty line referred to in 
                clause (i) shall apply to medical assistance 
                furnished during and after the second calendar 
                quarter that begins after the date of 
                publication of the revision.
                    ``(B) Cap on minimum monthly maintenance 
                needs allowance.--The minimum monthly 
                maintenance needs allowance established under 
                subparagraph (A) may not exceed $1,500 (subject 
                to adjustment under subsections (e) and (g)).
            ``(5) Excess shelter allowance defined.--In 
        paragraph (4)(A)(ii), the term `excess shelter 
        allowance' means, for a community spouse, the amount by 
        which the sum of--
                    ``(A) the spouse's expenses for rent or 
                mortgage payment (including principal and 
                interest), taxes and insurance and, in the case 
                of a condominium or cooperative, required 
                maintenance charge, for the community spouse's 
                principal residence, and
                    ``(B) the standard utility allowance (used 
                by the State under section 5(e) of the Food 
                Stamp Act of 1977) or, if the State does not 
                use such an allowance, the spouse's actual 
                utility expenses,
        exceeds 30 percent of the amount described in paragraph 
        (4)(A)(i), except that, in the case of a condominium or 
        cooperative, for which a maintenance charge is included 
        under subparagraph (A), any allowance under 
        subparagraph (B) shall be reduced to the extent the 
        maintenance charge includes utility expenses.
            ``(6) Treatment of incurred expenses.--With respect 
        to the post-eligibility treatment of income under this 
        section, there shall be disregarded reparation payments 
        made by the Federal Republic of Germany and, there 
        shall be taken into account amounts for incurred 
        expenses for medical or remedial care that are not 
        subject to payment by a third party, including--
                    ``(A) medicare and other health insurance 
                premiums, deductibles, or coinsurance, and
                    ``(B) necessary medical or remedial care 
                recognized under State law but not covered 
                under the State MediGrant plan under this 
                title, subject to reasonable limits the State 
                may establish on the amount of these expenses.
    ``(e) Notice and Hearing.--
            ``(1) Notice.--Upon--
                    ``(A) a determination of eligibility for 
                medical assistance of an institutionalized 
                spouse, or
                    ``(B) a request by either the 
                institutionalized spouse, or the community 
                spouse, or a representative acting on behalf of 
                either spouse,
        each State shall notify both spouses (in the case 
        described in subparagraph (A)) or the spouse making the 
        request (in the case described in subparagraph (B)) of 
        the amount of the community spouse monthly income 
        allowance (described in subsection (d)(1)(B)), of the 
        amount of any family allowances (described in 
        subsection (d)(1)(C)), of the method for computing the 
        amount of the community spouse resources allowance 
        permitted under subsection (f), and of the spouse's 
        right to a hearing under the MediGrant plan respecting 
        ownership or availability of income or resources, and 
        the determination of the community spouse monthly 
        income or resource allowance.
            ``(2) Results of hearing.--
                    ``(A) Revision of minimum monthly 
                maintenance needs allowance.--If either such 
                spouse establishes in a hearing under this 
                subsection that the community spouse needs 
                income, above the level otherwise provided by 
                the minimum monthly maintenance needs 
                allowance, due to exceptional circumstances 
                resulting in significant financial duress, 
                there shall be substituted, for the minimum 
                monthly maintenance needs allowance in 
                subsection (d)(2)(A), an amount adequate to 
                provide such additional income as is necessary.
                    ``(B) Revision of community spouse resource 
                allowance.--If either such spouse establishes 
                in such a hearing that the community spouse 
                resource allowance (in relation to the amount 
                of income generated by such an allowance) is 
                inadequate to raise the community spouse's 
                income to the minimum monthly maintenance needs 
                allowance, there shall be substituted, for the 
                community spouse resource allowance under 
                subsection (f)(2), an amount adequate to 
                provide such a minimum monthly maintenance 
                needs allowance.
    ``(f) Permitting Transfer of Resources to Community 
Spouse.--
            ``(1) In general.--An institutionalized spouse may, 
        without regard to any other provision of the MediGrant 
        plan to the contrary, transfer an amount equal to the 
        community spouse resource allowance (as defined in 
        paragraph (2)), but only to the extent the resources of 
        the institutionalized spouse are transferred to, or for 
        the sole benefit of, the community spouse. The transfer 
        under the preceding sentence shall be made as soon as 
        practicable after the date of the initial determination 
        of eligibility, taking into account such time as may be 
        necessary to obtain a court order under paragraph (3).
            ``(2) Community spouse resource allowance 
        defined.--In paragraph (1), the `community spouse 
        resource allowance' for a community spouse is an amount 
        (if any) by which--
                    ``(A) the greatest of--
                            ``(i) $12,000 (subject to 
                        adjustment under subsection (g)), or, 
                        if greater (but not to exceed the 
                        amount specified in clause (ii)(II)) an 
                        amount specified under the State 
                        MediGrant plan,
                            ``(ii) the lesser of (I) the 
                        spousal share computed under subsection 
                        (c)(1), or (II) $60,000 (subject to 
                        adjustment under subsection (g)), or
                            ``(iii) the amount established 
                        under subsection (e)(2);
                exceeds
                    ``(B) the amount of the resources otherwise 
                available to the community spouse (determined 
                without regard to such an allowance).
    ``(g) Indexing Dollar Amounts.--For services furnished 
during a calendar year after 1989, the dollar amounts specified 
in subsections (d)(3)(C), (f)(2)(A)(i), and (f)(2)(A)(ii)(II) 
shall be increased by the same percentage as the percentage 
increase in the consumer price index for all urban consumers 
(all items; U.S. city average) between September 1988 and the 
September before the calendar year involved.
    ``(h) Definitions.--In this section:
            ``(1) Institutionalized spouse.--The term 
        `institutionalized spouse' means an individual--
                    ``(A)(i) who is in a medical institution or 
                nursing facility, or
                    ``(ii) at the option of the State (I) who 
                would be eligible under the MediGrant plan 
                under this title if such individual was in a 
                medical institution, (II) with respect to whom 
                there has been a determination that but for the 
                provision of home or community-based services 
                such individual would require the level of care 
                provided in a hospital, nursing facility or 
                intermediate care facility for the mentally 
                retarded the cost of which could be reimbursed 
                under the plan, and (III) who will receive home 
                or community-based services pursuant the plan; 
                and
                    ``(B) is married to a spouse who is not in 
                a medical institution or nursing facility;
        but does not include any such individual who is not 
        likely to meet the requirements of subparagraph (A) for 
        at least 30 consecutive days.
            ``(2) Community spouse.--The term `community 
        spouse' means the spouse of an institutionalized 
        spouse.

``SEC. 2116. STATE FLEXIBILITY.

    ``(a) State Flexibility in Benefits, Provider Payments, 
Geographical Coverage Area, and Selection of Providers.--
Nothing in this title (other than subsections (c) and (d) of 
section 2111) shall be construed as requiring a State--
            ``(1) to provide medical assistance for any 
        particular items or services,
            ``(2) to provide for any payments with respect to 
        any specific health care providers or any level of 
        payments for any services,
            ``(3) to provide for the same medical assistance in 
        all geographical areas or political subdivisions of the 
        State, so long as medical assistance is made available 
        in all such areas or subdivisions,
            ``(4) to provide that the medical assistance made 
        available to any individual eligible for medical 
        assistance must not be less in amount, duration, or 
        scope than the medical assistance made available to any 
        other such individual, or
            ``(5) to provide that any individual eligible for 
        medical assistance with respect to an item or service 
        may choose to obtain such assistance from any 
        institution, agency, or person qualified to provide the 
        item or service.
    ``(b) State Flexibility With Respect to Managed Care.--
Nothing in this title shall be construed--
            ``(1) to limit a State's ability to contract with, 
        on a capitated basis or otherwise, health care plans or 
        individual health care providers for the provision or 
        arrangement of medical assistance,
            ``(2) to limit a State's ability to contract with 
        health care plans or other entities for case management 
        services or for coordination of medical assistance, or
            ``(3) to restrict a State from establishing 
        capitation rates on the basis of competition among 
        health care plans or negotiations between the State and 
        one or more health care plans.

                      ``Part C--Payments to States

``SEC. 2121. ALLOTMENT OF FUNDS AMONG STATES.

    ``(a) Allotments.--
            ``(1) Computation.--The Secretary shall provide for 
        the computation of State obligation and outlay 
        allotments in accordance with this section for each 
        fiscal year beginning with fiscal year 1996.
            ``(2) Limitation on obligations.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the Secretary shall not enter into 
                obligations with any State under this title for 
                a fiscal year in excess of the obligation 
                allotment for that State for the fiscal year 
                under paragraph (4). The sum of such obligation 
                allotments for all States in any fiscal year 
                (excluding amounts carried over under 
                subparagraph (B) and excluding changes in 
                allotments effected under paragraph (4)(D)) 
                shall not exceed the aggregate limit on new 
                obligation authority specified in paragraph (3) 
                for that fiscal year.
                    ``(B) Adjustments.--
                            ``(i) Carryover of allotment 
                        permitted.--If the amount of 
                        obligations entered into under this 
                        part with a State for quarters in a 
                        fiscal year is less than the amount of 
                        the obligation allotment under this 
                        section to the State for the fiscal 
                        year, the amount of the difference 
                        shall be added to the amount of the 
                        State obligation allotment otherwise 
                        provided under this section for the 
                        succeeding fiscal year. This clause 
                        shall be applied separately with 
                        respect to the portion of the 
                        obligation allotment that is 
                        attributable to the supplemental outlay 
                        allotment under subsection (f).
                            ``(ii) Reduction for post-enactment 
                        new obligations under title xix in 
                        fiscal year 1996.--The amount of the 
                        obligation allotment otherwise provided 
                        under this section for fiscal year 1996 
                        for a State shall be reduced by the 
                        amount of the obligations entered into 
                        with respect to the State under section 
                        1903(a) after the date of the enactment 
                        of this title.
                    ``(C) No effect on prior year 
                obligations.--Subparagraph (A) shall not apply 
                to or affect obligations for a fiscal year 
                prior to fiscal year 1996.
                    ``(D) Obligation.--For purposes of this 
                section, the Secretary's establishment of an 
                estimate under section 2123(b) of the amount a 
                State is entitled to receive for a quarter 
                (taking into account any adjustments described 
                in such subsection) shall be treated as the 
                obligation of such amount for the State as of 
                the first day of the quarter.
            ``(3) Aggregate limit on new obligation 
        authority.--
                    ``(A) In general.--For purposes of this 
                subsection, subject to subparagraph (C), the 
                `aggregate limit on new obligation authority', 
                for a fiscal year, is the pool amount under 
                subsection (b) for the fiscal year, divided by 
                the payout adjustment factor (described in 
                subparagraph (B)) for the fiscal year.
                    ``(B) Payout adjustment factor.--For 
                purposes of this subsection, the `payout 
                adjustment factor'--
                            ``(i) for fiscal year 1996 is 
                        0.950,
                            ``(ii) for fiscal year 1997 is 
                        0.986, and
                            ``(iii) for a subsequent fiscal 
                        year is 0.998.
                    ``(C) Transitional adjustment for pre-
                enactment-obligation outlays.--In order to 
                account for pre-enactment-obligation outlays 
                described in paragraph (4)(C)(iv), in 
                determining the aggregate limit on new 
                obligation authority under subparagraph (A) for 
                fiscal year 1996, the pool amount for such 
                fiscal year is equal to--
                            ``(i) the pool amount for such 
                        year, reduced by
                            ``(ii) $24,624,000,000.
            ``(4) Obligation allotments.--
                    ``(A) General rule for 50 states and the 
                district of columbia.--Except as provided in 
                this paragraph, the `obligation allotment' for 
                any of the 50 States or the District of 
                Columbia for a fiscal year (beginning with 
                fiscal year 1997) is an amount that bears the 
                same ratio to the outlay allotment under 
                subsection (c)(2) for such State or District 
                (not taking into account any adjustment due to 
                an election under paragraph (4)) for the fiscal 
                year as the ratio of--
                            ``(i) the aggregate limit on new 
                        obligation authority (less the total of 
                        the obligation allotments under 
                        subparagraph (B)) for the fiscal year, 
                        to
                            ``(ii) the pool amount (less the 
                        sum of the outlay allotments for the 
                        territories) for such fiscal year.
                    ``(B) Territories.--The obligation 
                allotment for each of the Commonwealths and 
                territories for a fiscal year is the outlay 
                allotment for such Commonwealth or territory 
                (as determined under subsection (c)(5)) for the 
                fiscal year divided by the payout adjustment 
                factor for the fiscal year (as defined in 
                paragraph (3)(B)).
                    ``(C) Transitional rule for fiscal year 
                1996.--
                            ``(i) In general.--The obligation 
                        amount for fiscal year 1996 for any 
                        State (including the District of 
                        Columbia, a Commonwealth, or territory) 
                        is determined according to the formula: 
                        A=(B-C)/D, where--
                                    ``(I) `A' is the obligation 
                                amount for such State,
                                    ``(II) `B' is the outlay 
                                allotment of such State for 
                                fiscal year 1996, as determined 
                                under subsection (c),
                                    ``(III) `C' is the amount 
                                of the pre-enactment-obligation 
                                outlays (as established for 
                                such State under clause (ii)), 
                                and
                                    ``(IV) `D' is the payout 
                                adjustment factor for such 
                                fiscal year (as defined in 
                                paragraph (3)(B)).
                            ``(ii) Pre-enactment-obligation 
                        outlay amounts.--Within 30 days after 
                        the date of the enactment of this 
                        title, the Secretary shall estimate 
                        (based on the best data available) and 
                        publish in the Federal Register the 
                        amount of the pre-enactment-obligation 
                        outlays (as defined in clause (iv)) for 
                        each State (including the District of 
                        Columbia, Commonwealths, and 
                        territories). The total of such amounts 
                        shall equal the dollar amount specified 
                        in paragraph (3)(C)(ii).
                            ``(iii) Agreement.--The submission 
                        of a MediGrant plan by a State under 
                        this title is deemed to constitute the 
                        State's acceptance of the obligation 
                        allotment limitations under this 
                        subsection, including the formula for 
                        computing the amount of such obligation 
                        allotment.
                            ``(iv) Pre-enactment-obligation 
                        outlays defined.--In this subsection, 
                        the term `pre-enactment-obligation 
                        outlays' means, for a State, the 
                        outlays of the Federal Government that 
                        result from obligations that have been 
                        incurred under title XIX with respect 
                        to the State before the date of the 
                        enactment of this title, but for which 
                        payments to States have not been made 
                        as of such date of enactment.
                    ``(D) Adjustment to reflect adoption of 
                alternative growth formula.--Any State that has 
                elected an alternative growth formula under 
                subsection (c)(4) which increases or decreases 
                the dollar amount of an outlay allotment for a 
                fiscal year is deemed to have increased or 
                decreased, respectively, its obligation amount 
                for such fiscal year by the amount of such 
                increase or decrease.
                    ``(E) Transitional correction for fiscal 
                year 1997.--
                            ``(i) In general.--The obligation 
                        amount for fiscal year 1997 for any 
                        State described in clause (ii) shall be 
                        increased by 90 percent of the amount 
                        by which 90 percent of the amount 
                        described in clause (ii)(I) exceeds the 
                        amount described in clause (ii)(II), 
                        divided by the payout adjustment factor 
                        specified in paragraph (3)(B) for 
                        fiscal year 1996. The increase under 
                        this clause shall be paid to a State in 
                        the first quarter of fiscal year 1997.
                            ``(ii) States described.--A State 
                        described in this clause is a State for 
                        which--
                                    ``(I) the amount of the 
                                pre-enactment-obligation 
                                outlays (as established for 
                                such State under subparagraph 
                                (C)(ii)), exceeded
                                    ``(II) the outlays of the 
                                Federal Government during 
                                fiscal year 1996 that are 
                                attributable to obligations 
                                that were incurred under title 
                                XIX with respect to the State 
                                before the date of the 
                                enactment of this title, but 
                                for which payments to States 
                                had not been made as of such 
                                date of enactment,
                        by at least 10 percent of the amount 
                        described in subclause (I).
    ``(b) Pool of Available Funds.--
            ``(1) In general.--For purposes of this section, 
        the `pool amount' under this subsection for--
                    ``(A) fiscal year 1996 is $96,386,037,894,
                    ``(B) fiscal year 1997 is $103,233,603,164,
                    ``(C) fiscal year 1998 is $107,907,625,827,
                    ``(D) fiscal year 1999 is $112,644,040,408,
                    ``(E) fiscal year 2000 is $117,359,685,046,
                    ``(F) fiscal year 2001 is $122,284,072,525,
                    ``(G) fiscal year 2002 is $127,418,239,580, 
                and
                    ``(H) each subsequent fiscal year is the 
                pool amount under this paragraph for the 
                previous fiscal year increased by the lesser of 
                4.2 percent or the annual percentage increase 
                in the gross domestic product for the 12-month 
                period ending in June before the beginning of 
                that subsequent fiscal year.
            ``(2) National medigrant growth percentage.--For 
        purposes of this section for a fiscal year (beginning 
        with fiscal year 1997), the `national MediGrant growth 
        percentage' is the percentage by which--
                    ``(A) the pool amount under paragraph (1) 
                for the fiscal year, exceeds
                    ``(B) such pool amount for the previous 
                fiscal year.
    ``(c) State Outlay Allotments.--
            ``(1) Fiscal year 1996.--
                    ``(A) In general.--For each of the 50 
                States and the District of Columbia, the amount 
                of the State outlay allotment under this 
                subsection for fiscal year 1996 is, subject to 
                paragraph (4), determined in accordance with 
                the following table:

``State or District:Outlay allotment (in dollars):
    Alabama.............................................  1,517,652,207 
    Alaska..............................................    204,933,213 
    Arizona.............................................  1,370,781,297 
    Arkansas............................................  1,011,457,933 
    California..........................................  8,946,838,461 
    Colorado............................................    757,492,679 
    Connecticut.........................................  1,463,011,635 
    Delaware............................................    212,327,763 
    District of Columbia................................    501,412,091 
    Florida.............................................  3,715,624,180 
    Georgia.............................................  2,426,320,602 
    Hawaii..............................................    323,124,375 
    Idaho...............................................    278,329,686 
    Illinois............................................  3,467,274,342 
    Indiana.............................................  1,952,467,267 
    Iowa................................................    835,235,895 
    Kansas..............................................    713,700,869 
    Kentucky............................................  1,577,828,832 
    Louisiana...........................................  2,622,000,000 
    Maine...............................................    694,220,790 
    Maryland............................................  1,369,699,847 
    Massachusetts.......................................  2,870,346,862 
    Michigan............................................  3,465,182,886 
    Minnesota...........................................  1,793,776,356 
    Mississippi.........................................  1,261,781,330 
    Missouri............................................  1,849,248,945 
    Montana.............................................    312,212,472 
    Nebraska............................................    463,900,417 
    Nevada..............................................    257,896,453 
    New Hampshire.......................................    360,000,000 
    New Jersey..........................................  2,854,621,241 
    New Mexico..........................................    634,756,945 
    New York............................................ 12,901,793,038 
    North Carolina......................................  2,587,883,809 
    North Dakota........................................    241,168,563 
    Ohio................................................  4,034,049,690 
    Oklahoma............................................    911,198,775 
    Oregon..............................................  1,088,670,440 
    Pennsylvania........................................  4,454,423,400 
    Rhode Island........................................    545,686,262 
    South Carolina......................................  1,621,021,815 
    South Dakota........................................    262,804,959 
    Tennessee...........................................  2,519,934,251 
    Texas...............................................  6,351,909,343 
    Utah................................................    484,274,254 
    Vermont.............................................    248,158,729 
    Virginia............................................  1,144,962,509 
    Washington..........................................  1,763,460,996 
    West Virginia.......................................  1,156,813,157 
    Wisconsin...........................................  1,709,500,642 
    Wyoming.............................................   132,925,390. 
            ``(2) Computation of state outlay allotments.--
                    ``(A) In general.--Subject to the 
                succeeding provisions of this subsection, the 
                amount of the State outlay allotment under this 
                subsection for one of the 50 States and the 
                District of Columbia for a fiscal year 
                (beginning with fiscal year 1997) is equal to 
                the product of--
                            ``(i) the needs-based amount 
                        determined under subparagraph (B) for 
                        such State or District for the fiscal 
                        year, and
                            ``(ii) the scalar factor described 
                        in subparagraph (C) for the fiscal 
                        year.
                    ``(B) Needs-based amount.--The needs-based 
                amount under this subparagraph for a State or 
                the District of Columbia for a fiscal year is 
                equal to the product of--
                            ``(i) the State's or District's 
                        aggregate expenditure need for the 
                        fiscal year (as determined under 
                        subsection (d)), and
                            ``(ii) the State's or District's 
                        old Federal medical assistance 
                        percentage (as defined in section 
                        2122(d)) for the fiscal year (or, in 
                        the case of fiscal year 1997, the 
                        Federal medical assistance percentage 
                        determined under section 1905(b) for 
                        fiscal year 1996).
                    ``(C) Scalar factor.--The scalar factor 
                under this subparagraph for a fiscal year is 
                such proportion so that, when it is applied 
                under subparagraph (A)(ii) for the fiscal year 
                (taking into account the floors and ceilings 
                under paragraph (3)), the total of the outlay 
                allotments under this subsection for all the 50 
                States and the District of Columbia for the 
                fiscal year (not taking into account any 
                increase in an outlay allotment for a fiscal 
                year attributable to the election of an 
                alternative growth formula under paragraph (4)) 
                is equal to the amount by which (i) the pool 
                amount for the fiscal year (as determined under 
                subsection (b)), exceeds (ii) the sum of the 
                outlay allotments provided under paragraph (5) 
                for the Commonwealths and territories for the 
                fiscal year.
            ``(3) Floors and ceilings.--
                    ``(A) Floors.--Subject to the ceiling 
                established under subparagraph (B), in no case 
                shall the amount of the State outlay allotment 
                under paragraph (2) for a fiscal year be less 
                than the greatest of the following:
                            ``(i) In general.--Beginning with 
                        fiscal year 1998, 0.24 percent of the 
                        pool amount for the fiscal year.
                            ``(ii) Floor based on previous 
                        year's outlay allotment.--Subject to 
                        clause (iii)--
                                    ``(I) Fiscal year 1997.--
                                For fiscal year 1997, 103.5 
                                percent of the amount of the 
                                State outlay allotment under 
                                this subsection for fiscal year 
                                1996.
                                    ``(II) Fiscal year 1998.--
                                For fiscal year 1998, 103 
                                percent of the amount of the 
                                State outlay allotment under 
                                this subsection for fiscal year 
                                1997.
                                    ``(III) Subsequent fiscal 
                                years.--For a fiscal year after 
                                1998, 102 percent of the amount 
                                of the State outlay allotment 
                                under this subsection for the 
                                previous fiscal year.
                            ``(iii) Floor based on outlay 
                        allotment growth rate in first year.--
                        Beginning with fiscal year 1998, in the 
                        case of a State for which the outlay 
                        allotment under this subsection for 
                        fiscal year 1997 exceeded its outlay 
                        allotment under this subsection for the 
                        previous fiscal year by more than the 
                        national MediGrant growth percentage 
                        for fiscal year 1997, 104 percent of 
                        the amount of the State outlay 
                        allotment under this subsection for the 
                        previous fiscal year (or, if less, 
                        beginning with fiscal year 2003, 95 
                        percent of the national MediGrant 
                        growth percentage for the year).
                    ``(B) Ceilings.--
                            ``(i) In general.--Subject to 
                        clause (ii), in no case shall the 
                        amount of the State outlay allotment 
                        under paragraph (2) for a fiscal year 
                        be greater than the product of--
                                    ``(I) the State outlay 
                                allotment under this subsection 
                                for the State for the preceding 
                                fiscal year, and
                                    ``(II) the applicable 
                                percent (specified in clause 
                                (ii) or (iii)) for the fiscal 
                                year involved.
                            ``(ii) General rule for applicable 
                        percent.--For purposes of clause (i), 
                        subject to clause (iii), the 
                        `applicable percent'--
                                    ``(I) for fiscal year 1997 
                                is 109 percent, and
                                    ``(II) for a subsequent 
                                fiscal year is 105.33 percent.
                            ``(iii) Special rule.--For a fiscal 
                        year after fiscal year 1997, in the 
                        case of a State (among the 50 States 
                        and the District of Columbia) that is 
                        one of the 10 States with the lowest 
                        Federal MediGrant spending per 
                        resident-in-poverty rates (as 
                        determined under clause (iv)) for the 
                        fiscal year, the `applicable percent' 
                        is 107 percent.
                            ``(iv) Determination of federal 
                        medigrant spending per resident-in-
                        poverty rate.--For purposes of clause 
                        (iii), the `Federal MediGrant spending 
                        per resident-in-poverty rate' for a 
                        State for a fiscal year is equal to--
                                    ``(I) the State's outlay 
                                allotment under this subsection 
                                for the previous fiscal year 
                                (determined without regard to 
                                paragraph (4)), divided by
                                    ``(II) the average annual 
                                number of residents of the 
                                State in poverty (as defined in 
                                subsection (d)(2)) with respect 
                                to the fiscal year.
                    ``(C) Special rule.--
                            ``(i) In general.--Notwithstanding 
                        the preceding subparagraphs of this 
                        paragraph, the State outlay allotment 
                        for--
                                    ``(I) New Hampshire for 
                                each of the fiscal years 1997 
                                through 2000, is $360,000,000,
                                    ``(II) Louisiana, subject 
                                to subclause (III), for each of 
                                the fiscal years 1997 through 
                                2000, is $2,622,000,000, and
                                    ``(III) Louisiana and 
                                Nebraska for fiscal year 1997, 
                                as otherwise determined, shall 
                                be increased by $37,048,207 and 
                                $106,132,408, respectively.
                                    ``(IV) Nevada for each of 
                                fiscal years 1996, 1997, and 
                                1998, as otherwise determined, 
                                shall be increased by 
                                $90,000,000.
                            ``(ii) Exception.--A State 
                        described in subclause (I) or (II) of 
                        clause (i) may apply to the Secretary 
                        for use of the State outlay allotment 
                        otherwise determined under this 
                        subsection for any fiscal year, if such 
                        State notifies the Secretary not later 
                        than March 1 preceding such fiscal year 
                        that such State will be able to expend 
                        sufficient State funds in such fiscal 
                        year to qualify for such allotment.
                            ``(iii) Treatment of increase as 
                        supplemental allotment.--Any increase 
                        in an outlay allotment under clause 
                        (i)(III) or (i)(IV) shall not be taken 
                        into account for purposes of 
                        determining the scalar factor under 
                        paragraph (2) for fiscal year 1997, any 
                        State outlay allotment for a fiscal 
                        year after fiscal year 1997, the pool 
                        amount for a fiscal year after fiscal 
                        year 1997, or determination of the 
                        national MediGrant growth percentage 
                        for any fiscal year.
            ``(4) Election of alternative growth formula.--
                    ``(A) Election.--In order to reduce 
                variations in increases in outlay allotments 
                over time, any of the 50 States or the District 
                of Columbia may elect (by notice provided to 
                the Secretary by not later than April 1, 1996) 
                to adopt an alternative growth rate formula 
                under this paragraph for the determination of 
                the State's outlay allotment in fiscal year 
                1996 and for the increase in the amount of such 
                allotment in subsequent fiscal years.
                    ``(B) Formula.--The alternative growth 
                formula under this paragraph may be any formula 
                under which a portion of the State outlay 
                allotment for fiscal year 1996 under paragraph 
                (1) is deferred and applied to increase the 
                amount of its outlay allotment for one or more 
                subsequent fiscal years, so long as the total 
                amount of such increases for all such 
                subsequent fiscal years does not exceed the 
                amount of the outlay allotment deferred from 
                fiscal year 1996.
            ``(5) Commonwealths and territories.--
                    ``(A) In general.--The outlay allotment for 
                each of the Commonwealths and territories for a 
                fiscal year is the maximum amount that could 
                have been certified under section 1108(c) (as 
                in effect on the day before the date of the 
                enactment of this title) with respect to the 
                Commonwealth or territory for the fiscal year 
                with respect to title XIX, if the national 
                MediGrant growth percentage (as determined 
                under subsection (b)(2)) for the fiscal year 
                had been substituted (beginning with fiscal 
                year 1997) for the percentage increase referred 
                to in section 1108(c)(1)(B) (as so in effect).
                    ``(B) Disregard of rounding requirements.--
                For purposes of subparagraph (A), the rounding 
                requirements under section 1108(c) shall not 
                apply.
                    ``(C) Limitation on total amount for fiscal 
                year 1996.--Notwithstanding the provisions of 
                subparagraph (A), the total amount of the 
                outlay allotments for the Commonwealths and 
                territories for fiscal year 1996 may not exceed 
                $139,950,000.
    ``(d) State Aggregate Expenditure Need Determined.--
            ``(1) In general.--For purposes of subsection (c), 
        the `State aggregate expenditure need' for a State or 
        the District of Columbia for a fiscal year is equal to 
        the product of the following 4 factors:
                    ``(A) Residents in poverty.--The average 
                annual number of residents in poverty of such 
                State or District with respect to the fiscal 
                year (as determined under paragraph (2)).
                    ``(B) Case mix index.--The case mix index 
                for such State or District (as determined under 
                paragraph (3)) for the most recent fiscal year 
                for which data are available, but in no case 
                less than 0.9 or greater than 1.15.
                    ``(C) Input cost index.--The input cost 
                index for the State (as determined under 
                paragraph (4)) for the most recent fiscal year 
                for which data are available.
                    ``(D) National average spending per 
                resident in poverty.--The national average 
                spending per resident in poverty (as determined 
                under paragraph (5)).
            ``(2) Residents in poverty.--In this section--
                    ``(A) In general.--The term `average annual 
                number of residents in poverty' means, with 
                respect to a State or the District of Columbia 
                and a fiscal year, the average annual number of 
                residents in poverty (as defined in 
                subparagraph (B)) in such State or District 
                (based on data made generally available by the 
                Bureau of the Census from the Current 
                Population Survey) for the most recent 3-
                calendar-year period (ending before the fiscal 
                year) for which such data are available.
                    ``(B) Resident in poverty defined.--The 
                term `resident in poverty' means an individual 
                whose family income does not exceed the poverty 
                threshold (as such terms are defined by the 
                Office of Management and Budget and are 
                generally interpreted and applied by the Bureau 
                of the Census for the year involved).
            ``(3) Case mix index.--
                    ``(A) In general.--In this subsection, the 
                `case mix index' for a State or the District of 
                Columbia for a fiscal year is equal to--
                            ``(i) the sum of--
                                    ``(I) the projected per 
                                recipient expenditures with 
                                respect to elderly individuals 
                                in such State or District for 
                                the fiscal year (determined 
                                under subparagraph (B)),
                                    ``(II) the projected per 
                                recipient expenditures with 
                                respect to the blind and 
                                disabled individuals in such 
                                State or District for the 
                                fiscal year (determined under 
                                subparagraph (C)), and
                                    ``(III) the projected per 
                                recipient expenditures with 
                                respect to other individuals in 
                                such State or District 
                                (determined under subparagraph 
                                (D));
                divided by--
                            ``(ii) the national average 
                        spending per recipient determined under 
                        subparagraph (E) for the fiscal year 
                        involved.
                    ``(B) Projected per recipient expenditures 
                for the elderly.--For purposes of subparagraph 
                (A)(i)(I), the `projected per recipient 
                expenditures with respect to elderly 
                individuals' in a State or the District of 
                Columbia for a fiscal year is equal to the 
                product of--
                            ``(i) the national average per 
                        recipient expenditures under this title 
                        in the 50 States and the District of 
                        Columbia for the most recent fiscal 
                        year for which data are available for 
                        elderly individuals, and
                            ``(ii) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in such 
                        State or District in the most recent 
                        fiscal year referred to in clause (i), 
                        that were individuals described in such 
                        clause.
                    ``(C) Projected per recipient expenditures 
                for the blind and disabled.--For purposes of 
                subparagraph (A)(i)(II), the `projected per 
                recipient expenditures with respect to blind 
                and disabled individuals' in a State or the 
                District of Columbia for a fiscal year is equal 
                to the product of--
                            ``(i) the national average per 
                        recipient expenditures under this title 
                        in the 50 States and the District of 
                        Columbia for the most recent fiscal 
                        year for which data are available for 
                        individuals who are eligible for 
                        medical assistance because such 
                        individuals are blind or disabled and 
                        are not elderly individuals, and
                            ``(ii) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in the 
                        State in the most recent fiscal year 
                        referred to in clause (i), that were 
                        individuals described in such clause.
                    ``(D) Projected per recipient expenditures 
                for other individuals.--For purposes of 
                subparagraph (A)(i)(III), the `projected per 
                recipient expenditures with respect to other 
                individuals' in a State or the District of 
                Columbia for a fiscal year is equal to the 
                product of--
                            ``(i) the national average per 
                        recipient expenditures under this title 
                        in the 50 States and the District of 
                        Columbia for the most recent fiscal 
                        year for which data are available for 
                        individuals who are not described in 
                        subparagraph (B)(i) or (C)(i), and
                            ``(ii) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in such 
                        State or District in the most recent 
                        fiscal year referred to in clause (i), 
                        that were individuals described in such 
                        clause.
                    ``(E) National average spending per 
                recipient.--For purposes of this paragraph, the 
                `national average expenditures per recipient' 
                for a fiscal year is equal to the sum of--
                            ``(i) the product of (I) the 
                        national average described in 
                        subparagraph (B)(i), and (II) the 
                        proportion, of all individuals who 
                        received medical assistance under this 
                        title in any of the 50 States or the 
                        District of Columbia in the fiscal year 
                        referred to in such subparagraph, who 
                        are described in such subparagraph,
                            ``(ii) the product of (I) the 
                        national average described in 
                        subparagraph (C)(i), and (II) the 
                        proportion, of all individuals who 
                        received medical assistance under this 
                        title in any of the 50 States or the 
                        District of Columbia in the fiscal year 
                        referred to in such subparagraph, who 
                        are described in such subparagraph, and
                            ``(iii) the product of (I) the 
                        national average described in 
                        subparagraph (D)(i), and (II) the 
                        proportion, of all individuals who 
                        received medical assistance under this 
                        title in any of the 50 States or the 
                        District of Columbia in the fiscal year 
                        referred to in such subparagraph, who 
                        are described in such subparagraph.
                    ``(F) Determination of national averages 
                and proportions.--
                            ``(i) In general.--The national 
                        averages per recipient and the 
                        proportions referred to in clauses (i) 
                        and (ii), respectively, of 
                        subparagraphs (B), (C), and (D) and 
                        subparagraph (E) shall be determined by 
                        the Secretary using the most recent 
                        data available.
                            ``(ii) Use of medicaid data.--If 
                        for a fiscal year there is inadequate 
                        data to compute such averages and 
                        proportions based on expenditures and 
                        numbers of individuals receiving 
                        medical assistance under this title, 
                        the Secretary may compute such averages 
                        based on expenditures and numbers of 
                        such individuals under title XIX for 
                        the most recent fiscal year for which 
                        data are available and, for this 
                        purpose--
                                    ``(I) any reference in 
                                subparagraph (B)(i) to `elderly 
                                individuals' is deemed a 
                                reference to `individuals whose 
                                eligibility for medical 
                                assistance is based on being 65 
                                years of age or older',
                                    ``(II) the reference in 
                                subparagraph (C)(i) to `and are 
                                not elderly individuals' shall 
                                be considered to be deleted, 
                                and
                                    ``(III) individuals whose 
                                basis for eligibility for 
                                medical assistance was reported 
                                as unknown shall not be counted 
                                as individuals under 
                                subparagraph (D)(i).
                            ``(iii) Expenditure defined.--For 
                        purposes of this paragraph, the term 
                        `expenditure' means medical vendor 
                        payments by basis of eligibility as 
                        reported by HCFA Form 2082.
            ``(4) Input cost index.--
                    ``(A) In general.--In this section, the 
                `input cost index' for a State or the District 
                of Columbia for a fiscal year is the sum of--
                            ``(i) 0.15, and
                            ``(ii) 0.85 multiplied by the ratio 
                        of (I) the annual average wages for 
                        hospital employees in such State or 
                        District for the fiscal year (as 
                        determined under subparagraph (B)), to 
                        (II) the annual average wages for 
                        hospital employees in the 50 States and 
                        the District of Columbia for such year 
                        (as determined under such 
                        subparagraph).
                    ``(B) Determination of annual average wages 
                of hospital employees.--The Secretary shall 
                provide for the determination of annual average 
                wages for hospital employees in a State or the 
                District of Columbia and, collectively, in the 
                50 States and the District of Columbia for a 
                fiscal year based on the area wage data 
                applicable to hospitals under section 
                1886(d)(2)(E) (or, if such data no longer 
                exists, comparable data of hospital wages) for 
                discharges occurring during the fiscal year 
                involved.
            ``(5) National average spending per resident in 
        poverty.--For purposes of this subsection, the 
        `national average spending per resident in poverty'--
                    ``(A) for fiscal year 1997 is equal to--
                            ``(i) the sum (for each of the 50 
                        States and the District of Columbia) of 
                        the total of the Federal and State 
                        expenditures under title XIX for 
                        calendar quarters in fiscal year 1994, 
                        increased by the percentage by which 
                        (I) the pool amount for fiscal year 
                        1997, exceeds (II) $83,213,431,458 
                        (which represents Federal medicaid 
                        expenditures for such States and 
                        District for fiscal year 1994); divided 
                        by
                            ``(ii) the sum of the number of 
                        residents in poverty (as defined in 
                        paragraph (2)(A)) for all of the 50 
                        States and the District of Columbia for 
                        fiscal year 1994; and
                    ``(B) for a succeeding fiscal year is equal 
                to the national average spending per resident 
                in poverty under this paragraph for the 
                preceding fiscal year increased by the national 
                MediGrant growth percentage (as defined in 
                subsection (b)(2)) for the fiscal year 
                involved.
    ``(e) Publication of Obligation and Outlay Allotments.--
            ``(1) Notice of preliminary allotments.--Not later 
        than April 1 before the beginning of each fiscal year 
        (beginning with fiscal year 1997), the Secretary shall 
        initially compute, after consultation with the 
        Comptroller General, and publish in the Federal 
        Register notice of the proposed obligation and outlay 
        allotments for each State under this section (not 
        taking into account subsection (a)(2)(B)) for the 
        fiscal year. The Secretary shall include in the notice 
        a description of the methodology and data used in 
        deriving such allotments for the year.
            ``(2) Review by gao.--The Comptroller General shall 
        submit to Congress by not later than May 15 of each 
        such fiscal year, a report analyzing such allotments 
        and the extent to which they comply with the precise 
        requirements of this section.
            ``(3) Notice of final allotments.--Not later than 
        July 1 before the beginning of each such fiscal year, 
        the Secretary, taking into consideration the analysis 
        contained in the report of the Comptroller General 
        under paragraph (2), shall compute and publish in the 
        Federal Register notice of the final allotments under 
        this section (both taking into account and not taking 
        into account subsection (a)(2)(B)) for the fiscal year. 
        The Secretary shall include in the notice a description 
        of any changes in such allotments from the initial 
        allotments published under paragraph (1) for the fiscal 
        year and the reasons for such changes. Once published 
        under this paragraph, the Secretary is not authorized 
        to change such allotments.
            ``(4) GAO report on final allotments.--The 
        Comptroller General shall submit to Congress by not 
        later than August 1 of each such fiscal year, a report 
        analyzing the final allotments under paragraph (3) and 
        the extent to which they comply with the precise 
        requirements of this section.
    ``(f) Supplemental Allotment for Emergency Health Care 
Services to Certain Aliens.--
            ``(1) In general.--Notwithstanding the previous 
        provisions of this section, the amount of the State 
        outlay allotment for each of fiscal years 1996 through 
        2000 for each supplemental allotment eligible State 
        shall be increased by the amount of the supplemental 
        outlay allotment provided under paragraph (2) for the 
        State for that year. The amount of such increased 
        allotment may only be used for the purpose of providing 
        medical assistance for care and services for aliens 
        described in paragraph (1) of section 2123(e) and for 
        which the exception described in paragraph (2) of such 
        section applies. Section 2122(f)(3) shall apply to such 
        assistance in the same manner as it applies to medical 
        assistance described in such section.
            ``(2) Supplemental outlay allotment.--
                    ``(A) In general.--For purposes of 
                paragraph (1), the amount of the supplemental 
                outlay allotment for a supplemental allotment 
                eligible State for a fiscal year is equal to 
                the supplemental allotment ratio (as defined in 
                subparagraph (C)) multiplied by the 
                supplemental pool amount (specified in 
                subparagraph (D)) for the fiscal year.
                    ``(B) Supplemental allotment eligible 
                state.--In this subsection, the term 
                `supplemental allotment eligible State' means 
                one of the 15 States with the highest number of 
                undocumented alien residents of all the States.
                    ``(C) Supplemental allotment ratio.--In 
                this paragraph, the `supplemental allotment 
                ratio' for a State is the ratio of--
                            ``(i) the number of undocumented 
                        aliens residing in the State, to
                            ``(ii) the sum of such numbers for 
                        all supplemental allotment eligible 
                        States.
                    ``(D) Supplemental pool amount.--In this 
                paragraph, the `supplemental pool amount'--
                            ``(i) for fiscal year 1996 is 
                        $627,325,551,
                            ``(ii) for fiscal year 1997 is 
                        $673,388,855,
                            ``(iii) for fiscal year 1998 is 
                        $702,313,450,
                            ``(iv) for fiscal year 1999 is 
                        $733,140,258, and
                            ``(v) for fiscal year 2000 is 
                        $763,831,886.
                    ``(E) Determination of number.--
                            ``(i) In general.--The number of 
                        undocumented aliens residing in a State 
                        under this paragraph--
                                    ``(I) for fiscal year 1996 
                                shall be determined based on 
                                estimates of the resident 
                                illegal alien population 
                                residing in each State prepared 
                                by the Statistics Division of 
                                the Immigration and 
                                Naturalization Service as of 
                                October 1992, and
                                    ``(II) for a subsequent 
                                fiscal year shall be determined 
                                based on the most recent 
                                updated estimate made under 
                                clause (ii).
                            ``(ii) Updating estimate.--For each 
                        fiscal year beginning with fiscal year 
                        1997, the Secretary, in consultation 
                        with the Commission of the Immigration 
                        and Naturalization Service, States, and 
                        outside experts, shall estimate the 
                        number of undocumented aliens residing 
                        in each of the 50 States and the 
                        District of Columbia.
            ``(3) Treatment for obligation purposes.--For 
        purposes of computing obligation allotments under 
        subsection (a)--
                    ``(A) the amount of the supplemental pool 
                amount for a fiscal year shall be added to the 
                pool amount under subsection (b) for that 
                fiscal year, and
                    ``(B) the amount of the supplemental 
                allotment to a State provided under paragraph 
                (1) shall be added to the outlay allotment of 
                the State for that fiscal year.
            ``(4) Sequence of obligations.--For purposes of 
        carrying out this title, payments to a supplemental 
        allotment eligible State under section 2122 that are 
        attributable to expenditures for medical assistance 
        described in the second sentence of paragraph (1) shall 
        first be counted toward the supplemental outlay 
        allotment provided under this subsection, rather than 
        toward the outlay allotment otherwise provided under 
        this section.

``SEC. 2122. PAYMENTS TO STATES.

    ``(a) Amount of Payment.--From the allotment of a State 
under section 2121 for a fiscal year, subject to the succeeding 
provisions of this title, the Secretary shall pay to each State 
which has a MediGrant plan approved under part E, for each 
quarter in the fiscal year--
            ``(1) an amount equal to the applicable Federal 
        medical assistance percentage (as defined in subsection 
        (c)) of the total amount expended during such quarter 
        as medical assistance under the plan; plus
            ``(2) an amount equal to the applicable Federal 
        medical assistance percentage of the total amount 
        expended during such quarter for medically-related 
        services (as defined in section 2112(e)(2)); plus
            ``(3) subject to section 2123(c)--
                    ``(A) an amount equal to 90 percent of the 
                amounts expended during such quarter for the 
                design, development, and installation of 
                information systems and for providing 
                incentives to promote the enforcement of 
                medical support orders, plus
                    ``(B) an amount equal to 75 percent of the 
                amounts expended during such quarter for 
                medical personnel, administrative support of 
                medical personnel, operation and maintenance of 
                information systems, modification of 
                information systems, quality assurance 
                activities, utilization review, medical and 
                peer review, anti-fraud activities, independent 
                evaluations, coordination of benefits, and 
                meeting reporting requirements under this 
                title, plus
                    ``(C) an amount equal to 50 percent of so 
                much of the remainder of the amounts expended 
                during such quarter as are expended by the 
                State in the administration of the State 
                MediGrant plan.
    ``(b) Payment Process.--
            ``(1) Quarterly estimates.--Prior to the beginning 
        of each quarter, the Secretary shall estimate the 
        amount to which a State will be entitled under 
        subsection (a) for such quarter, such estimates to be 
        based on (A) a report filed by the State containing its 
        estimate of the total sum to be expended in such 
        quarter in accordance with the provisions of such 
        subsections, and stating the amount appropriated or 
        made available by the State and its political 
        subdivisions for such expenditures in such quarter, and 
        if such amount is less than the State's proportionate 
        share of the total sum of such estimated expenditures, 
        the source or sources from which the difference is 
        expected to be derived, and (B) such other 
        investigation as the Secretary may find necessary.
            ``(2) Payment.--
                    ``(A) In general.--The Secretary shall then 
                pay to the State, in such installments as the 
                Secretary may determine and in accordance with 
                section 6503(a) of title 31, United States 
                Code, the amount so estimated, reduced or 
                increased to the extent of any overpayment or 
                underpayment which the Secretary determines was 
                made under this section (or section 1903) to 
                such State for any prior quarter and with 
                respect to which adjustment has not already 
                been made under this subsection (or under 
                section 1903(d)).
                    ``(B) Treatment as overpayments.--
                Expenditures for which payments were made to 
                the State under subsection (a) shall be treated 
                as an overpayment to the extent that the State 
                or local agency administering such plan has 
                been reimbursed for such expenditures by a 
                third party pursuant to the provisions of its 
                plan in compliance with section 2135.
                    ``(C) Recovery of overpayments.--For 
                purposes of this subsection, when an 
                overpayment is discovered, which was made by a 
                State to a person or other entity, the State 
                shall have a period of 60 days in which to 
                recover or attempt to recover such overpayment 
                before adjustment is made in the Federal 
                payment to such State on account of such 
                overpayment. Except as otherwise provided in 
                subparagraph (D), the adjustment in the Federal 
                payment shall be made at the end of the 60 
                days, whether or not recovery was made.
                    ``(D) No adjustment for uncollectables.--In 
                any case where the State is unable to recover a 
                debt which represents an overpayment (or any 
                portion thereof) made to a person or other 
                entity on account of such debt having been 
                discharged in bankruptcy or otherwise being 
                uncollectable, no adjustment shall be made in 
                the Federal payment to such State on account of 
                such overpayment (or portion thereof).
            ``(3) Federal share of recoveries.--The pro rata 
        share to which the United States is equitably entitled, 
        as determined by the Secretary, of the net amount 
        recovered during any quarter by the State or any 
        political subdivision thereof with respect to medical 
        assistance furnished under the State MediGrant plan 
        shall be considered an overpayment to be adjusted under 
        this subsection.
            ``(4) Timing of obligation of funds.--Upon the 
        making of any estimate by the Secretary under this 
        subsection, any appropriations available for payments 
        under this section shall be deemed obligated.
            ``(5) Disallowances.--In any case in which the 
        Secretary estimates that there has been an overpayment 
        under this section to a State on the basis of a claim 
        by such State that has been disallowed by the Secretary 
        under section 1116(d), and such State disputes such 
        disallowance, the amount of the Federal payment in 
        controversy shall, at the option of the State, be 
        retained by such State or recovered by the Secretary 
        pending a final determination with respect to such 
        payment amount. If such final determination is to the 
        effect that any amount was properly disallowed, and the 
        State chose to retain payment of the amount in 
        controversy, the Secretary shall offset, from any 
        subsequent payments made to such State under this 
        title, an amount equal to the proper amount of the 
        disallowance plus interest on such amount disallowed 
        for the period beginning on the date such amount was 
        disallowed and ending on the date of such final 
        determination at a rate (determined by the Secretary) 
        based on the average of the bond equivalent of the 
        weekly 90-day treasury bill auction rates during such 
        period.
    ``(c) Applicable Federal Medical Assistance Percentage 
Defined.--In this section, except as provided in subsection 
(f), the term `applicable Federal medical assistance 
percentage' means, with respect to one of the 50 States or the 
District of Columbia, at the State's or District's option--
            ``(1) the old Federal medical assistance percentage 
        (as determined in subsection (d));
            ``(2) the lesser of--
                    ``(A) new Federal medical assistance 
                percentage (as determined under subsection (e)) 
                or
                    ``(B) the old Federal medical assistance 
                percentage plus 10 percentage points; or
            ``(3) 60 percent.
    ``(d) Old Federal Medical Assistance Percentage.--
            ``(1) In general.--Except as provided in paragraph 
        (2) and subsection (f), the term `old Federal medical 
        assistance percentage' for any State is 100 percent 
        less the State percentage; and the State percentage is 
        that percentage which bears the same ratio to 45 
        percent as the square of the per capita income of such 
        State bears to the square of the per capita income of 
        the continental United States (including Alaska) and 
        Hawaii.
            ``(2) Limitation on range.--In no case shall the 
        old Federal medical assistance percentage be less than 
        50 percent or more than 83 percent.
            ``(3) Promulgation.--The old Federal medical 
        assistance percentage for any State shall be determined 
        and promulgated in accordance with the provisions of 
        section 1101(a)(8)(B).
    ``(e) New Federal Medical Assistance Percentage Defined.--
            ``(1) In general.--
                    ``(A) Term defined.--Except as provided in 
                paragraph (3) and subsection (f), the term `new 
                Federal medical assistance percentage' means, 
                for each of the 50 States and the District of 
                Columbia, 100 percent reduced by the product 
                0.39 and the ratio of--
                            ``(i)(I) for each of the 50 States, 
                        the total taxable resources (TTR) ratio 
                        of the State specified in subparagraph 
                        (B), or
                            ``(II) for the District of 
                        Columbia, the per capita income ratio 
                        specified in subparagraph (C),
                to--
                            ``(ii) the aggregate expenditure 
                        need ratio of the State or District, as 
                        described in subparagraph (D).
                    ``(B) Total taxable resources (ttr) 
                ratio.--For purposes of subparagraph (A)(i)(I), 
                the total taxable resources (TTR) ratio for 
                each of the 50 States is--
                            ``(i) an amount equal to the most 
                        recent 3-year average of the total 
                        taxable resources (TTR) of the State, 
                        as determined by the Secretary of the 
                        Treasury, divided by
                            ``(ii) an amount equal to the sum 
                        of the 3-year averages determined under 
                        clause (i) for each of the 50 States.
                    ``(C) Per capita income ratio.--For 
                purposes of subparagraph (A)(i)(II), the per 
                capita income ratio of the District of Columbia 
                is--
                            ``(i) an amount equal to the most 
                        recent 3-year average of the total 
                        personal income of the District of 
                        Columbia, as determined in accordance 
                        with the provisions of section 
                        1101(a)(8)(B), divided by
                            ``(ii) an amount equal to the total 
                        personal income of the continental 
                        United States (including Alaska) and 
                        Hawaii, as determined under section 
                        1101(a)(8)(B).
                    ``(D) Aggregate expenditure need ratio.--
                For purposes of subparagraph (A), with respect 
                to each of the 50 States and the District of 
                Columbia for a fiscal year, the aggregate 
                expenditure need ratio is--
                            ``(i) the State aggregate 
                        expenditure need (as defined in section 
                        2121(d)) for the State for the fiscal 
                        year, divided by
                            ``(ii) the such of such State 
                        aggregate expenditure needs for the 50 
                        States and the District of Columbia for 
                        the fiscal year.
            ``(2) Limitation on range.--Except as provided in 
        subsection (f), the new Federal medical assistance 
        percentage shall in no case be less than 40 percent or 
        greater than 83 percent.
            ``(3) Promulgation.--The new Federal medical 
        assistance percentage for any State shall be 
        promulgated in a timely manner consistent with the 
        promulgation of the old Federal medical assistance 
        percentage under section 1101(a)(8)(B).
    ``(f) Special Rules.--For purposes of this title--
            ``(1) Commonwealths and territories.--In the case 
        of Puerto Rico, the Virgin Islands, Guam, the Northern 
        Mariana Islands, and American Samoa, the old and new 
        Federal medical assistance percentages are 50 percent.
            ``(2) Alaska.--In the case of Alaska, the old 
        Federal medical assistance percentage is that 
        percentage which bears the same ratio to 45 percent as 
        the square of the adjusted per capita income of such 
        State bears to the square of the per capita income of 
        the continental United States. For purposes of the 
        preceding sentence, the adjusted per capita income for 
        Alaska shall be determined by dividing the State's most 
        recent 3-year average per capita by the input cost 
        index for such State (as determined under section 
        2121(d)(4)).
            ``(3) Indian health service facilities.--
                    ``(A) In general.--The old and new Federal 
                medical assistance percentages shall be 100 
                percent with respect to the amounts expended as 
                medical assistance for services which are 
                received through a facility described in 
                subparagraph (B) of an Indian tribe or tribal 
                organization or through an Indian Health 
                Service facility whether operated by the Indian 
                Health Service or by an Indian tribe or tribal 
                organization (as defined in section 4 of the 
                Indian Health Care Improvement Act).
                    ``(B) Facility described.--For purposes of 
                subparagraph (A), a facility described in this 
                subparagraph is a facility of an Indian tribe 
                if--
                            ``(i) the facility is located in a 
                        State which, as of the date of the 
                        enactment of this title, was not 
                        operating its State plan under title 
                        XIX pursuant to a Statewide waiver 
                        approved under section 1115,
                            ``(ii) the facility is not an 
                        Indian Health Service facility,
                            ``(iii) the tribe owns at least 2 
                        such facilities, and
                            ``(iv) the tribe has at least 
                        50,000 members (as of the date of the 
                        enactment of this title).
            ``(4) No state matching required for certain 
        expenditures.--In applying subsection (a)(1) with 
        respect to medical assistance provided to unlawful 
        aliens pursuant to the exception specified in section 
        2123(f)(2), payment shall be made for the amount of 
        such assistance without regard to any need for a State 
        match.
            ``(5) Special transitional rule.--
                    ``(A) In general.--Notwithstanding 
                subsections (a) and (f), in order to receive 
                the full State outlay allotment described in 
                section 2121(c)(3)(C)(i), a State described in 
                subparagraph (C) shall expend State funds in a 
                fiscal year (before fiscal year 2000) under a 
                MediGrant plan under this title in an amount 
                not less than the adjusted base year State 
                expenditures, plus the applicable percentage of 
                the difference between such expenditures and 
                the amount necessary to qualify for the full 
                State outlay allotment so described in such 
                fiscal year as determined under this section 
                without regard to this paragraph.
                    ``(B) Reduction in allotment if expenditure 
                not met.--In the event a State described in 
                subparagraph (C) fails to expend State funds in 
                an amount required by subparagraph (A) for a 
                fiscal year, the outlay allotment described in 
                section 2121(c)(3)(C)(i) for such year for such 
                State shall be reduced by an amount which bears 
                the same ratio to such outlay allotment as the 
                State funds expended in such fiscal year bears 
                to the amount required by subparagraph (A).
                    ``(C) Adjusted base year state 
                expenditures.--For purposes of this paragraph, 
                the term `adjusted base year State 
                expenditures' means--
                            ``(i) for New Hampshire, 
                        $203,000,000, and
                            ``(ii) for Louisiana, $355,000,000.
                    ``(D) Applicable percentage.--For purposes 
                of this paragraph, the applicable percentage 
                for a fiscal year is specified in the following 
                table:

                                                              Applicable
``Fiscal year:                                               Percentage:
    1996......................................................       20 
    1997......................................................       40 
    1998......................................................       60 
    1999......................................................       80.

    ``(g) State Financial Participation.--Each MediGrant plan 
shall provide for financial participation by the State equal to 
not less than 40 percent of the non-Federal share of the 
expenditures under the plan with respect to which payments may 
be made under this section.

``SEC. 2123. LIMITATION ON USE OF FUNDS; DISALLOWANCE.

    ``(a) In General.--Funds provided to a State under this 
title shall only be used to carry out the purposes of this 
title.
    ``(b) Disallowances for Excluded Providers.--
            ``(1) In general.--Payment shall not be made to a 
        State under this part for expenditures for items and 
        services furnished--
                    ``(A) by a provider who was excluded from 
                participation under title V, XVIII, or XX or 
                under this title pursuant to section 1128, 
                1128A, 1156, or 1842(j)(2), or
                    ``(B) under the medical direction or on the 
                prescription of a physician who was so 
                excluded, if the provider of the services knew 
                or had reason to know of the exclusion.
            ``(2) Exception for emergency services.--Paragraph 
        (1) shall not apply to emergency items or services, not 
        including hospital emergency room services.
    ``(c) Limitations.--
            ``(1) In general.--No Federal financial assistance 
        is available for expenditures under the MediGrant plan 
        for--
                    ``(A) medically-related services for a 
                quarter to the extent such expenditures exceed 
                5 percent of the total expenditures under the 
                plan for the quarter, or
                    ``(B) total administrative expenses (other 
                than expenses described in paragraph (2) during 
                the first 8 quarters in which the plan is in 
                effect under this title) for quarters in a 
                fiscal year to the extent such expenditures 
                exceed the sum of $20,000,000 plus 10 percent 
                of the total expenditures under the plan for 
                the year.
            ``(2) Administrative expenses not subject to 
        limitation.--The administrative expenses referred to in 
        this paragraph are expenditures under the MediGrant 
        plan for the following activities:
                    ``(A) Quality assurance.
                    ``(B) The development and operation of the 
                certification program for nursing facilities 
                and intermediate care facilities for the 
                mentally retarded under section 2137.
                    ``(C) Utilization review activities, 
                including medical activities and activities of 
                peer review organizations.
                    ``(D) Inspection and oversight of providers 
                and capitated health care organizations.
                    ``(E) Anti-fraud activities.
                    ``(F) Independent evaluations.
                    ``(G) Activities required to meet reporting 
                requirements under this title.
    ``(d) Treatment of Third Party Liability.--No payment shall 
be made to a State under this part for expenditures for medical 
assistance provided for an individual under its MediGrant plan 
to the extent that a private insurer (as defined by the 
Secretary by regulation and including a group health plan (as 
defined in section 607(1) of the Employee Retirement Income 
Security Act of 1974), a service benefit plan, and a health 
maintenance organization) would have been obligated to provide 
such assistance but for a provision of its insurance contract 
which has the effect of limiting or excluding such obligation 
because the individual is eligible for or is provided medical 
assistance under the plan.
    ``(e) MediGrant as Secondary Payer.--Except as otherwise 
provided by law, no payment shall be made to a State under this 
part for expenditures for medical assistance provided for an 
individual under its MediGrant plan to the extent that payment 
has been made or can reasonably be expected to be made promptly 
(as determined in accordance with regulations) under any other 
federally operated or financed health care program, other than 
a program operated or financed by the Indian Health Service, as 
identified by the Secretary. For purposes of this subsection, 
rules similar to the rules for overpayments under section 
2122(b) shall apply.
    ``(f) Limitation on Payments to Emergency Services for 
Nonlawful Aliens.--
            ``(1) In general.--Notwithstanding the preceding 
        provisions of this section, except as provided in 
        paragraph (2), no payment may be made to a State under 
        this part for medical assistance furnished to an alien 
        who is not lawfully admitted for permanent residence or 
        otherwise permanently residing in the United States 
        under color of law.
            ``(2) Exception for emergency services.--Payment 
        may be made under this section for care and services 
        that are furnished to an alien described in paragraph 
        (1) only if--
                    ``(A) such care and services are necessary 
                for the treatment of an emergency medical 
                condition of the alien,
                    ``(B) such alien otherwise meets the 
                eligibility requirements for medical assistance 
                under the MediGrant plan (other than a 
                requirement of the receipt of aid or assistance 
                under title IV, supplemental security income 
                benefits under title XVI, or a State 
                supplementary payment), and
                    ``(C) such care and services are not 
                related to an organ transplant procedure.
            ``(3) Emergency medical condition defined.--For 
        purposes of this subsection, the term `emergency 
        medical condition' means a medical condition (including 
        emergency labor and delivery) manifesting itself by 
        acute symptoms of sufficient severity (including severe 
        pain) such that the absence of immediate medical 
        attention could reasonably be expected to result in--
                    ``(A) placing the patient's health in 
                serious jeopardy,
                    ``(B) serious impairment to bodily 
                functions, or
                    ``(C) serious dysfunction of any bodily 
                organ or part.
    ``(g) Limitation on Payment for Certain Outpatient 
Prescription Drugs.--
            ``(1) In general.--No payment may be made to a 
        State under this part for medical assistance for 
        covered outpatient drugs (as defined in section 
        2175(i)(2)) of a manufacturer provided under the 
        MediGrant plan unless the manufacturer (as defined in 
        section 2175(i)(4)) of the drug--
                    ``(A) has entered into a MediGrant master 
                rebate agreement with the Secretary under 
                section 2175,
                    ``(B) is otherwise complying with the 
                provisions of such section,
                    ``(C) is complying with the provisions of 
                section 8126 of title 38, United States Code, 
                including the requirement of entering into a 
                master agreement with the Secretary of Veterans 
                Affairs under such section, and
                    ``(D) subject to paragraph (4), is 
                complying with the provisions of section 340B 
                of the Public Health Service Act, including the 
                requirement of entering into an agreement with 
                the Secretary under such section.
            ``(2) Construction.--Nothing in this subsection 
        shall be construed as requiring a State to participate 
        in the MediGrant master rebate agreement under section 
        2175.
            ``(3) Effect of subsequent amendments.--For 
        purposes of subparagraphs (C) and (D), in determining 
        whether a manufacturer is in compliance with the 
        requirements of section 8126 of title 38, United States 
        Code, or section 340B of the Public Health Service 
        Act--
                    ``(A) the Secretary shall not take into 
                account any amendments to such sections that 
                are enacted after the enactment of title VI of 
                the Veterans Health Care Act of 1992, and
                    ``(B) a manufacturer is deemed to meet such 
                requirements if the manufacturer establishes to 
                the satisfaction of the Secretary that the 
                manufacturer would comply (and has offered to 
                comply) with the provisions of such sections 
                (as in effect immediately after the enactment 
                of the Veterans Health Care Act of 1992) and 
                would have entered into an agreement under such 
                section (as such section was in effect at such 
                time), but for a legislative change in such 
                section after the date of the enactment of the 
                Veterans Health Care Act of 1992.
            ``(4) Effect of establishment of alternative 
        mechanism under public health service act.--If the 
        Secretary does not establish a mechanism to ensure 
        against duplicate discounts or rebates under section 
        340B(a)(5)(A) of the Public Health Service Act within 
        12 months of the date of the enactment of such section, 
        the following requirements shall apply:
                    ``(A) Each covered entity under such 
                section shall inform the State when it is 
                seeking reimbursement from the MediGrant plan 
                for medical assistance with respect to a unit 
                of any covered outpatient drug which is subject 
                to an agreement under section 340B(a) of such 
                Act.
                    ``(B) Each such State shall provide a means 
                by which such an entity shall indicate on any 
                drug reimbursement claims form (or format, 
                where electronic claims management is used) 
                that a unit of the drug that is the subject of 
                the form is subject to an agreement under 
                section 340B of such Act, and not submit to any 
                manufacturer a claim for a rebate payment with 
                respect to such a drug.

                ``Part D--Program Integrity and Quality

``SEC. 2131. USE OF AUDITS TO ACHIEVE FISCAL INTEGRITY.

    ``(a) Financial Audits of Program.--
            ``(1) In general.--Each MediGrant plan shall 
        provide for an annual audit of the State's expenditures 
        from amounts received under this title, in compliance 
        with chapter 75 of title 31, United States Code.
            ``(2) Verification audits.--If, after consultation 
        with the State and the Comptroller General and after a 
        fair hearing, the Secretary determines that a State's 
        audit under paragraph (1) was performed in substantial 
        violation of chapter 75 of title 31, United States 
        Code, the Secretary may--
                    ``(A) require that the State provide for a 
                verification audit in compliance with such 
                chapter, or
                    ``(B) conduct such a verification audit.
            ``(3) Availability of audit reports.--Within 30 
        days after completion of each audit or verification 
        audit under this subsection, the State shall--
                    ``(A) provide the Secretary with a copy of 
                the audit report, including the State's 
                response to any recommendations of the auditor, 
                and
                    ``(B) make the audit report available for 
                public inspection in the same manner as 
                proposed MediGrant plan amendments are made 
                available under section 2105.
    ``(b) Fiscal Controls.--
            ``(1) In general.--With respect to the accounting 
        and expenditure of funds under this title, each State 
        shall adopt and maintain such fiscal controls, 
        accounting procedures, and data processing safeguards 
        as the State deems reasonably necessary to assure the 
        fiscal integrity of the State's activities under this 
        title.
            ``(2) Consistency with generally accepted 
        accounting principles.--Such controls and procedures 
        shall be generally consistent with generally accepted 
        accounting principles as recognized by the Governmental 
        Accounting Standards Board or the Comptroller General.
    ``(c) Audits of Providers.--Each MediGrant plan shall 
provide that the records of any entity providing items or 
services for which payment may be made under the plan may be 
audited as necessary to ensure that proper payments are made 
under the plan.

``SEC. 2132. FRAUD PREVENTION PROGRAM.

    ``(a) Establishment.--Each MediGrant plan shall provide for 
the establishment and maintenance of an effective program for 
the detection and prevention of fraud and abuse by 
beneficiaries, providers, and others in connection with the 
operation of the program.
    ``(b) Program Requirements.--The program established 
pursuant to subsection (a) shall include at least the following 
requirements:
            ``(1) Disclosure of information.--Any disclosing 
        entity (as defined in section 1124(a)) receiving 
        payments under the MediGrant plan shall comply with the 
        requirements of section 1124.
            ``(2) Supply of information.--An entity (other than 
        an individual practitioner or a group of practitioners) 
        that furnishes, or arranges for the furnishing of, an 
        item or service under the MediGrant plan shall supply 
        upon request specifically addressed to the entity by 
        the Secretary or the State agency the information 
        described in section 1128(b)(9).
            ``(3) Exclusion.--
                    ``(A) In general.--The MediGrant plan shall 
                exclude any specified individual or entity from 
                participation in the plan for the period 
                specified by the Secretary when required by the 
                Secretary to do so pursuant to section 1128 or 
                section 1128A, and provide that no payment may 
                be made under the plan with respect to any item 
                or service furnished by such individual or 
                entity during such period.
                    ``(B) Authority.--In addition to any other 
                authority, a State may exclude any individual 
                or entity for purposes of participating under 
                the MediGrant plan for any reason for which the 
                Secretary could exclude the individual or 
                entity from participation in a program under 
                title XVIII or under section 1128, 1128A, or 
                1866(b)(2).
            ``(4) Notice.--The MediGrant plan shall provide 
        that whenever a provider of services or any other 
        person is terminated, suspended, or otherwise 
        sanctioned or prohibited from participating under the 
        plan, the State agency responsible for administering 
        the plan shall promptly notify the Secretary and, in 
        the case of a physician, the State medical licensing 
        board of such action.
            ``(5) Access to information.--The MediGrant plan 
        shall provide that the State will provide information 
        and access to certain information respecting sanctions 
        taken against health care practitioners and providers 
        by State licensing authorities in accordance with 
        section 2133.

``SEC. 2133. INFORMATION CONCERNING SANCTIONS TAKEN BY STATE LICENSING 
                    AUTHORITIES AGAINST HEALTH CARE PRACTITIONERS AND 
                    PROVIDERS.

    ``(a) Information Reporting Requirement.--The requirement 
referred to in section 2132(b)(5) is that the State must 
provide for the following:
            ``(1) Information reporting system.--The State must 
        have in effect a system of reporting the following 
        information with respect to formal proceedings (as 
        defined by the Secretary in regulations) concluded 
        against a health care practitioner or entity by any 
        authority of the State (or of a political subdivision 
        thereof) responsible for the licensing of health care 
        practitioners (or any peer review organization or 
        private accreditation entity reviewing the services 
        provided by health care practitioners) or entities:
                    ``(A) Any adverse action taken by such 
                licensing authority as a result of the 
                proceeding, including any revocation or 
                suspension of a license (and the length of any 
                such suspension), reprimand, censure, or 
                probation.
                    ``(B) Any dismissal or closure of the 
                proceedings by reason of the practitioner or 
                entity surrendering the license or leaving the 
                State or jurisdiction.
                    ``(C) Any other loss of the license of the 
                practitioner or entity, whether by operation of 
                law, voluntary surrender, or otherwise.
                    ``(D) Any negative action or finding by 
                such authority, organization, or entity 
                regarding the practitioner or entity.
            ``(2) Access to documents.--The State must provide 
        the Secretary (or an entity designated by the 
        Secretary) with access to such documents of the 
        authority described in paragraph (1) as may be 
        necessary for the Secretary to determine the facts and 
        circumstances concerning the actions and determinations 
        described in such paragraph for the purpose of carrying 
        out this Act.
    ``(b) Form of Information.--The information described in 
subsection (a)(1) shall be provided to the Secretary (or to an 
appropriate private or public agency, under suitable 
arrangements made by the Secretary with respect to receipt, 
storage, protection of confidentiality, and dissemination of 
information) in such a form and manner as the Secretary 
determines to be appropriate in order to provide for activities 
of the Secretary under this Act and in order to provide, 
directly or through suitable arrangements made by the 
Secretary, information--
            ``(1) to agencies administering Federal health care 
        programs, including private entities administering such 
        programs under contract,
            ``(2) to licensing authorities described in 
        subsection (a)(1),
            ``(3) to State agencies administering or 
        supervising the administration of State health care 
        programs (as defined in section 1128(h)),
            ``(4) to utilization and quality control peer 
        review organizations described in part B of title XI 
        and to appropriate entities with contracts under 
        section 1154(a)(4)(C) with respect to eligible 
        organizations reviewed under the contracts,
            ``(5) to State MediGrant fraud control units (as 
        defined in section 2134),
            ``(6) to hospitals and other health care entities 
        (as defined in section 431 of the Health Care Quality 
        Improvement Act of 1986), with respect to physicians or 
        other licensed health care practitioners that have 
        entered (or may be entering) into an employment or 
        affiliation relationship with, or have applied for 
        clinical privileges or appointments to the medical 
        staff of, such hospitals or other health care entities 
        (and such information shall be deemed to be disclosed 
        pursuant to section 427 of, and be subject to the 
        provisions of, that Act),
            ``(7) to the Attorney General and such other law 
        enforcement officials as the Secretary deems 
        appropriate, and
            ``(8) upon request, to the Comptroller General,
        in order for such authorities to determine the fitness 
        of individuals to provide health care services, to 
        protect the health and safety of individuals receiving 
        health care through such programs, and to protect the 
        fiscal integrity of such programs.
    ``(c) Confidentiality of Information Provided.--The 
Secretary shall provide for suitable safeguards for the 
confidentiality of the information furnished under subsection 
(a). Nothing in this subsection shall prevent the disclosure of 
such information by a party which is otherwise authorized, 
under applicable State law, to make such disclosure.
    ``(d) Appropriate Coordination.--The Secretary shall 
provide for the maximum appropriate coordination in the 
implementation of subsection (a) of this section and section 
422 of the Health Care Quality Improvement Act of 1986 and 
section 1128E.

``SEC. 2134. STATE MEDIGRANT FRAUD CONTROL UNITS.

    ``(a) In General.--Each MediGrant plan shall provide for a 
State MediGrant fraud control unit described in subsection (b) 
that effectively carries out the functions and requirements 
described in such subsection, unless the State demonstrates to 
the satisfaction of the Secretary that the effective operation 
of such a unit in the State would not be cost-effective because 
minimal fraud exists in connection with the provision of 
covered services to eligible individuals under the plan, and 
that beneficiaries under the plan will be protected from abuse 
and neglect in connection with the provision of medical 
assistance under the plan without the existence of such a unit.
    ``(b) Units Described.--For purposes of this section, the 
term `State MediGrant fraud control unit' means a single 
identifiable entity of the State government which meets the 
following requirements:
            ``(1) Organization.--The entity--
                    ``(A) is a unit of the office of the State 
                Attorney General or of another department of 
                State government which possesses statewide 
                authority to prosecute individuals for criminal 
                violations;
                    ``(B) is in a State the constitution of 
                which does not provide for the criminal 
                prosecution of individuals by a statewide 
                authority and has formal procedures that--
                            ``(i) assure its referral of 
                        suspected criminal violations relating 
                        to the program under this title to the 
                        appropriate authority or authorities in 
                        the State for prosecution, and
                            ``(ii) assure its assistance of, 
                        and coordination with, such authority 
                        or authorities in such prosecutions; or
                    ``(C) has a formal working relationship 
                with the office of the State Attorney General 
                and has formal procedures (including procedures 
                for its referral of suspected criminal 
                violations to such office) which provide 
                effective coordination of activities between 
                the entity and such office with respect to the 
                detection, investigation, and prosecution of 
                suspected criminal violations relating to the 
                program under this title.
            ``(2) Independence.--The entity is separate and 
        distinct from any State agency that has principal 
        responsibilities for administering or supervising the 
        administration of the MediGrant plan.
            ``(3) Function.--The entity's function is 
        conducting a statewide program for the investigation 
        and prosecution of violations of all applicable State 
        laws regarding any and all aspects of fraud in 
        connection with any aspect of the provision of medical 
        assistance and the activities of providers of such 
        assistance under the MediGrant plan.
            ``(4) Review of complaints.--The entity has 
        procedures for reviewing complaints of the abuse and 
        neglect of patients of health care facilities which 
        receive payments under the MediGrant plan under this 
        title, and, where appropriate, for acting upon such 
        complaints under the criminal laws of the State or for 
        referring them to other State agencies for action.
            ``(5) Overpayments.--
                    ``(A) In general.--The entity provides for 
                the collection, or referral for collection to a 
                single State agency, of overpayments that are 
                made under the MediGrant plan to health care 
                providers and that are discovered by the entity 
                in carrying out its activities.
                    ``(B) Treatment of certain overpayments.--
                If an overpayment is the direct result of the 
                failure of the provider (or the provider's 
                billing agent) to adhere to a change in the 
                State's billing instructions, the entity may 
                recover the overpayment only if the entity 
                demonstrates that the provider (or the 
                provider's billing agent) received prior 
                written or electronic notice of the change in 
                the billing instructions before the submission 
                of the claims on which the overpayment is 
                based.
            ``(6) Personnel.--The entity employs such auditors, 
        attorneys, investigators, and other necessary personnel 
        and is organized in such a manner as is necessary to 
        promote the effective and efficient conduct of the 
        entity's activities.

``SEC. 2135. RECOVERIES FROM THIRD PARTIES AND OTHERS.

    ``(a) Third Party Liability.--Each MediGrant plan shall 
provide for reasonable steps--
            ``(1) to ascertain the legal liability of third 
        parties to pay for care and services available under 
        the plan, including the collection of sufficient 
        information to enable States to pursue claims against 
        third parties, and
            ``(2) to seek reimbursement for medical assistance 
        provided to the extent legal liability is established 
        where the amount expected to be recovered exceeds the 
        costs of the recovery.
    ``(b) Beneficiary Protection.--
            ``(1) In general.--Each MediGrant plan shall 
        provide that in the case of a person furnishing 
        services under the plan for which a third party may be 
        liable for payment--
                    ``(A) the person may not seek to collect 
                from the individual (or financially responsible 
                relative) payment of an amount for the service 
                more than could be collected under the plan in 
                the absence of such third party liability, and
                    ``(B) may not refuse to furnish services to 
                such an individual because of a third party's 
                potential liability for payment for the 
                service.
            ``(2) Penalty.--A MediGrant plan may provide for a 
        reduction of any payment amount otherwise due with 
        respect to a person who furnishes services under the 
        plan in an amount equal to up to 3 times the amount of 
        any payment sought to be collected by that person in 
        violation of paragraph (1)(A).
    ``(c) General Liability.--The State shall prohibit any 
health insurer, including a group health plan as defined in 
section 607 of the Employee Retirement Income Security Act of 
1974, a service benefit plan, or a health maintenance 
organization, in enrolling an individual or in making any 
payments for benefits to the individual or on the individual's 
behalf, from taking into account that the individual is 
eligible for or is provided medical assistance under a 
MediGrant plan for any State.
    ``(d) Acquisition of Rights of Beneficiaries.--To the 
extent that payment has been made under a MediGrant plan in any 
case where a third party has a legal liability to make payment 
for such assistance, the State shall have in effect laws under 
which, to the extent that payment has been made under the plan 
for health care items or services furnished to an individual, 
the State is considered to have acquired the rights of such 
individual to payment by any other party for such health care 
items or services.
    ``(e) Assignment of Medical Support Rights.--The MediGrant 
plan shall provide for mandatory assignment of rights of 
payment for medical support and other medical care owed to 
recipients in accordance with section 2136.
    ``(f) Required Laws Relating to Medical Child Support.--
            ``(1) In general.--Each State with a MediGrant plan 
        shall have in effect the following laws:
                    ``(A) A law that prohibits an insurer from 
                denying enrollment of a child under the health 
                coverage of the child's parent on the ground 
                that--
                            ``(i) the child was born out of 
                        wedlock,
                            ``(ii) the child is not claimed as 
                        a dependent on the parent's Federal 
                        income tax return, or
                            ``(iii) the child does not reside 
                        with the parent or in the insurer's 
                        service area.
                    ``(B) In any case in which a parent is 
                required by a court or administrative order to 
                provide health coverage for a child and the 
                parent is eligible for family health coverage 
                through an insurer, a law that requires such 
                insurer--
                            ``(i) to permit such parent to 
                        enroll under such family coverage any 
                        such child who is otherwise eligible 
                        for such coverage (without regard to 
                        any enrollment season restrictions);
                            ``(ii) if such a parent is enrolled 
                        but fails to make application to obtain 
                        coverage of such child, to enroll such 
                        child under such family coverage upon 
                        application by the child's other parent 
                        or by the State agency administering 
                        the program under this title or part D 
                        of title IV; and
                            ``(iii) not to disenroll, or 
                        eliminate coverage of, such a child 
                        unless the insurer is provided 
                        satisfactory written evidence that--
                                    ``(I) such court or 
                                administrative order is no 
                                longer in effect, or
                                    ``(II) the child is or will 
                                be enrolled in comparable 
                                health coverage through another 
                                insurer which will take effect 
                                not later than the effective 
                                date of such disenrollment.
                    ``(C) In any case in which a parent is 
                required by a court or administrative order to 
                provide health coverage for a child and the 
                parent is eligible for family health coverage 
                through an employer doing business in the 
                State, a law that requires such employer--
                            ``(i) to permit such parent to 
                        enroll under such family coverage any 
                        such child who is otherwise eligible 
                        for such coverage (without regard to 
                        any enrollment season restrictions);
                            ``(ii) if such a parent is enrolled 
                        but fails to make application to obtain 
                        coverage of such child, to enroll such 
                        child under such family coverage upon 
                        application by the child's other parent 
                        or by the State agency administering 
                        the program under this title or part D 
                        of title IV; and
                            ``(iii) not to disenroll (or 
                        eliminate coverage of) any such child 
                        unless--
                                    ``(I) the employer is 
                                provided satisfactory written 
                                evidence that such court or 
                                administrative order is no 
                                longer in effect, or the child 
                                is or will be enrolled in 
                                comparable health coverage 
                                which will take effect not 
                                later than the effective date 
                                of such disenrollment, or
                                    ``(II) the employer has 
                                eliminated family health 
                                coverage for all of its 
                                employees; and
                            ``(iv) to withhold from such 
                        employee's compensation the employee's 
                        share (if any) of premiums for health 
                        coverage (except that the amount so 
                        withheld may not exceed the maximum 
                        amount permitted to be withheld under 
                        section 303(b) of the Consumer Credit 
                        Protection Act), and to pay such share 
                        of premiums to the insurer, except that 
                        the Secretary may provide by regulation 
                        for appropriate circumstances under 
                        which an employer may withhold less 
                        than such employee's share of such 
                        premiums.
                    ``(D) A law that prohibits an insurer from 
                imposing requirements on a State agency, which 
                has been assigned the rights of an individual 
                eligible for medical assistance under this 
                title and covered for health benefits from the 
                insurer, that are different from requirements 
                applicable to an agent or assignee of any other 
                individual so covered.
                    ``(E) A law that requires an insurer, in 
                any case in which a child has health coverage 
                through the insurer of a noncustodial parent--
                            ``(i) to provide such information 
                        to the custodial parent as may be 
                        necessary for the child to obtain 
                        benefits through such coverage,
                            ``(ii) to permit the custodial 
                        parent (or provider, with the custodial 
                        parent's approval) to submit claims for 
                        covered services without the approval 
                        of the noncustodial parent, and
                            ``(iii) to make payment on claims 
                        submitted in accordance with clause 
                        (ii) directly to such custodial parent, 
                        the provider, or the State agency.
                    ``(F) A law that permits the State agency 
                under this title to garnish the wages, salary, 
                or other employment income of, and requires 
                withholding amounts from State tax refunds to, 
                any person who--
                            ``(i) is required by court or 
                        administrative order to provide 
                        coverage of the costs of health 
                        services to a child who is eligible for 
                        medical assistance under this title,
                            ``(ii) has received payment from a 
                        third party for the costs of such 
                        services to such child, but
                            ``(iii) has not used such payments 
                        to reimburse, as appropriate, either 
                        the other parent or guardian of such 
                        child or the provider of such services,
                to the extent necessary to reimburse the State 
                agency for expenditures for such costs under 
                its plan under this title, but any claims for 
                current or past-due child support shall take 
                priority over any such claims for the costs of 
                such services.
            ``(2) Definition.--For purposes of this subsection, 
        the term `insurer' includes a group health plan, as 
        defined in section 607(1) of the Employee Retirement 
        Income Security Act of 1974, a health maintenance 
        organization, and an entity offering a service benefit 
        plan.
    ``(g) Estate Recoveries and Liens Permitted.--A State may 
take such actions as it considers appropriate to adjust or 
recover from the individual or the individual's estate any 
amounts paid as medical assistance to or on behalf of the 
individual under the MediGrant plan, including through the 
imposition of liens against the property or estate of the 
individual.

``SEC. 2136. ASSIGNMENT OF RIGHTS OF PAYMENT.

    ``(a) In General.--For the purpose of assisting in the 
collection of medical support payments and other payments for 
medical care owed to recipients of medical assistance under the 
MediGrant plan, each MediGrant plan shall--
            ``(1) provide that, as a condition of eligibility 
        for medical assistance under the plan to an individual 
        who has the legal capacity to execute an assignment for 
        himself, the individual is required--
                    ``(A) to assign the State any rights, of 
                the individual or of any other person who is 
                eligible for medical assistance under the plan 
                and on whose behalf the individual has the 
                legal authority to execute an assignment of 
                such rights, to support (specified as support 
                for the purpose of medical care by a court or 
                administrative order) and to payment for 
                medical care from any third party,
                    ``(B) to cooperate with the State (i) in 
                establishing the paternity of such person 
                (referred to in subparagraph (A)) if the person 
                is a child born out of wedlock, and (ii) in 
                obtaining support and payments (described in 
                subparagraph (A)) for himself and for such 
                person, unless (in either case) the individual 
                is a pregnant woman or the individual is found 
                to have good cause for refusing to cooperate as 
                determined by the State, and
                    ``(C) to cooperate with the State in 
                identifying, and providing information to 
                assist the State in pursuing, any third party 
                who may be liable to pay for care and services 
                available under the plan, unless such 
                individual has good cause for refusing to 
                cooperate as determined by the State; and
            ``(2) provide for entering into cooperative 
        arrangements, including financial arrangements, with 
        any appropriate agency of any State (including, with 
        respect to the enforcement and collection of rights of 
        payment for medical care by or through a parent, with a 
        State's agency established or designated under section 
        454(3)) and with appropriate courts and law enforcement 
        officials, to assist the agency or agencies 
        administering the plan with respect to--
                    ``(A) the enforcement and collection of 
                rights to support or payment assigned under 
                this section, and
                    ``(B) any other matters of common concern.
    ``(b) Use of Amounts Collected.--Such part of any amount 
collected by the State under an assignment made under the 
provisions of this section shall be retained by the State as is 
necessary to reimburse it for medical assistance payments made 
on behalf of an individual with respect to whom such assignment 
was executed (with appropriate reimbursement of the Federal 
Government to the extent of its participation in the financing 
of such medical assistance), and the remainder of such amount 
collected shall be paid to such individual.

``SEC. 2137. QUALITY ASSURANCE REQUIREMENTS FOR NURSING FACILITIES.

    ``(a) Nursing Facility Defined.--In this title, the term 
`nursing facility' means an institution (or a distinct part of 
an institution) which--
            ``(1) is primarily engaged in providing to 
        residents--
                    ``(A) skilled nursing care and related 
                services for residents who require medical or 
                nursing care,
                    ``(B) rehabilitation services for the 
                rehabilitation of injured, disabled, or sick 
                persons, or
                    ``(C) on a regular basis, health-related 
                care and services to individuals who because of 
                their mental or physical condition require care 
                and services (above the level of room and 
                board) which can be made available to them only 
                through institutional facilities,
        and is not primarily for the care and treatment of 
        mental diseases;
            ``(2) has in effect a transfer agreement (meeting 
        the requirements of section 1861(l)) with one or more 
        hospitals having agreements in effect under section 
        1866; and
            ``(3) meets the requirements for a nursing facility 
        described in subsections (b), (c), and (d) of this 
        section.
Such term also includes any facility which is located in a 
State on an Indian reservation and is certified by the 
Secretary as meeting the requirements of paragraph (1) and 
subsections (b), (c), and (d).
    ``(b) Requirements Relating to Provision of Services.--
            ``(1) Quality of life.--
                    ``(A) In general.--A nursing facility must 
                care for its residents in such a manner and in 
                such an environment as will reasonably promote 
                maintenance or enhancement of the quality of 
                life of each resident.
                    ``(B) Quality assessment and assurance.--A 
                nursing facility must maintain a quality 
                assessment and assurance committee, consisting 
                of the director of nursing services, a 
                physician designated by the facility, and at 
                least 3 other members of the facility's staff, 
                which (i) meets at least quarterly to identify 
                issues with respect to which quality assessment 
                and assurance activities are necessary and (ii) 
                develops and implements appropriate plans of 
                action to correct identified quality 
                deficiencies. A State or the Secretary may not 
                require disclosure of the records of such 
                committee except insofar as such disclosure is 
                related to the compliance of such committee 
                with the requirements of this subparagraph.
            ``(2) Scope of services and activities under plan 
        of care.--A nursing facility must provide services and 
        activities in accordance with a written plan of care 
        which--
                    ``(A) describes the medical, nursing, and 
                psychosocial needs of the resident and how such 
                needs will be met;
                    ``(B) is initially prepared, with the 
                participation to the extent practicable of the 
                resident or the resident's family or legal 
                representative, by a team which includes the 
                resident's attending physician and a registered 
                professional nurse with responsibility for the 
                resident; and
                    ``(C) is periodically reviewed and revised 
                by such team after each assessment under 
                paragraph (3).
            ``(3) Residents' assessment.--
                    ``(A) Requirement.--A nursing facility must 
                conduct a comprehensive, accurate, 
                standardized, reproducible assessment of each 
                resident's functional capacity, which 
                assessment--
                            ``(i) describes the resident's 
                        capability to perform daily life 
                        functions and significant impairments 
                        in functional capacity;
                            ``(ii) uses an instrument which is 
                        specified by the State under subsection 
                        (e)(5); and
                            ``(iii) includes the identification 
                        of medical problems.
                    ``(B) Certification.--
                            ``(i) In general.--Each such 
                        assessment must be conducted or 
                        coordinated (with the appropriate 
                        participation of health professionals) 
                        by a registered professional nurse who 
                        signs and certifies the completion of 
                        the assessment. Each individual who 
                        completes a portion of such an 
                        assessment shall sign and certify as to 
                        the accuracy of that portion of the 
                        assessment.
                            ``(ii) Penalty for falsification.--
                                    ``(I) An individual who 
                                willfully and knowingly 
                                certifies under clause (i) a 
                                material and false statement in 
                                a resident assessment is 
                                subject to a civil money 
                                penalty of not more than $1,000 
                                with respect to each 
                                assessment.
                                    ``(II) An individual who 
                                willfully and knowingly causes 
                                another individual to certify 
                                under clause (i) a material and 
                                false statement in a resident 
                                assessment is subject to a 
                                civil money penalty of not more 
                                than $5,000 with respect to 
                                each assessment.
                                    ``(III) The provisions of 
                                section 1128A (other than 
                                subsections (a) and (b)) shall 
                                apply to a civil money penalty 
                                under this clause in the same 
                                manner as such provisions apply 
                                to a penalty or proceeding 
                                under section 1128A(a).
                            ``(iii) Use of independent 
                        assessors.--If a State determines, 
                        under a survey under subsection (g) or 
                        otherwise, that there has been a 
                        knowing and willful certification of 
                        false assessments under this paragraph, 
                        the State may require (for a period 
                        specified by the State) that resident 
                        assessments under this paragraph be 
                        conducted and certified by individuals 
                        who are independent of the facility and 
                        who are approved by the State.
                    ``(C) Frequency.--
                            ``(i) In general.--Such an 
                        assessment must be conducted--
                                    ``(I) promptly upon (but no 
                                later than 14 days after the 
                                date of) admission for each 
                                individual admitted;
                                    ``(II) promptly after a 
                                significant change in the 
                                resident's physical or mental 
                                condition; and
                                    ``(III) in no case less 
                                often than once every 12 
                                months.
                            ``(ii) Resident review.--The 
                        nursing facility must examine each 
                        resident no less frequently than once 
                        every 3 months and, as appropriate, 
                        revise the resident's assessment to 
                        assure the continuing accuracy of the 
                        assessment.
                    ``(D) Use.--The results of such an 
                assessment shall be used in developing, 
                reviewing, and revising the resident's plan of 
                care under paragraph (2).
                    ``(E) Coordination.--Such assessments shall 
                be coordinated with any State-required 
                preadmission screening program to the maximum 
                extent practicable in order to avoid 
                duplicative testing and effort. In addition, a 
                nursing facility shall notify the State mental 
                health authority or State mental retardation or 
                developmental disability authority, as 
                applicable, promptly after a significant change 
                in the physical or mental condition of a 
                resident who is mentally ill or mentally 
                retarded.
            ``(4) Provision of services and activities.--
                    ``(A) In general.--To the extent needed to 
                fulfill all plans of care described in 
                paragraph (2), a nursing facility must provide 
                (or arrange for the provision of)--
                            ``(i) nursing and related services 
                        and specialized rehabilitative 
                        services;
                            ``(ii) medically-related social 
                        services to attain or maintain the 
                        highest practicable physical, mental, 
                        and psychosocial well-being of 
                        residents;
                            ``(iii) pharmaceutical services 
                        (including procedures that assure the 
                        accurate acquiring, receiving, 
                        dispensing, and administering of all 
                        drugs and biologicals) to meet the 
                        needs of residents;
                            ``(iv) dietary services that assure 
                        that the meals meet the daily 
                        nutritional and special dietary needs 
                        of residents;
                            ``(v) an on-going program, directed 
                        by a qualified professional, of 
                        activities designed to meet the 
                        interests and the physical, mental, and 
                        psychosocial well-being of residents; 
                        and
                            ``(vi) routine dental services (to 
                        the extent covered under the State 
                        MediGrant plan) and emergency dental 
                        services to meet the needs of 
                        residents.
                The services provided or arranged by the 
                facility must meet professional standards of 
                quality.
                    ``(B) Qualified persons providing 
                services.--Services described in clauses (i), 
                (ii), (iii), (iv), and (vi) of subparagraph (A) 
                must be provided by qualified persons in 
                accordance with each resident's written plan of 
                care.
                    ``(C) Required nursing care; facility 
                waivers.--
                            ``(i) General requirements.--A 
                        nursing facility--
                                    ``(I) except as provided in 
                                clause (ii), must provide 24-
                                hour licensed nursing services 
                                which are sufficient to meet 
                                the nursing needs of its 
                                residents, and
                                    ``(II) except as provided 
                                in clause (ii), must use the 
                                services of a registered 
                                professional nurse for at least 
                                8 consecutive hours a day, 7 
                                days a week.
                            ``(ii) Waiver by state.--To the 
                        extent that a facility is unable to 
                        meet the requirements of clause (i), a 
                        State may waive such requirements with 
                        respect to the facility if--
                                    ``(I) the facility 
                                demonstrates to the 
                                satisfaction of the State that 
                                the facility has been unable, 
                                despite diligent efforts 
                                (including offering wages at 
                                the community prevailing rate 
                                for nursing facilities), to 
                                recruit appropriate personnel,
                                    ``(II) the State determines 
                                that a waiver of the 
                                requirement will not endanger 
                                the health or safety of 
                                individuals staying in the 
                                facility,
                                    ``(III) the State finds 
                                that, for any such periods in 
                                which licensed nursing services 
                                are not available, a registered 
                                professional nurse or a 
                                physician is obligated to 
                                respond immediately to 
                                telephone calls from the 
                                facility,
                                    ``(IV) the State agency 
                                granting a waiver of such 
                                requirements provides notice of 
                                the waiver to the State long-
                                term care ombudsman 
                                (established under section 
                                307(a)(12) of the Older 
                                Americans Act of 1965) and the 
                                protection and advocacy system 
                                in the State for the mentally 
                                ill and the mentally retarded, 
                                and
                                    ``(V) the nursing facility 
                                that is granted such a waiver 
                                by a State notifies residents 
                                of the facility (or, where 
                                appropriate, the guardians or 
                                legal representatives of such 
                                residents) and members of their 
                                immediate families of the 
                                waiver.
                        A waiver under this clause shall be 
                        subject to annual review and to the 
                        review of the Secretary and subject to 
                        clause (iii) shall be accepted by the 
                        Secretary for purposes of this title to 
                        the same extent as is the State's 
                        certification of the facility. In 
                        granting or renewing a waiver, a State 
                        may require the facility to use other 
                        qualified, licensed personnel.
                            ``(iii) Assumption of waiver 
                        authority by secretary.--If the 
                        Secretary determines that a State has 
                        shown a clear pattern and practice of 
                        allowing waivers in the absence of 
                        diligent efforts by facilities to meet 
                        the staffing requirements, the 
                        Secretary shall assume and exercise the 
                        authority of the State to grant 
                        waivers.
            ``(5) Required training of nurse aides.--
                    ``(A) In general.--(i) Except as provided 
                in clause (ii), a nursing facility must not use 
                on a full-time basis any individual as a nurse 
                aide in the facility, for more than 4 months 
                unless the individual--
                            ``(I) has completed a training and 
                        competency evaluation program, or a 
                        competency evaluation program, approved 
                        by the State under subsection 
                        (e)(1)(A), and
                            ``(II) is competent to provide 
                        nursing or nursing-related services.
                    ``(ii) A nursing facility must not use on a 
                temporary, per diem, leased, or on any other 
                basis other than as a permanent employee any 
                individual as a nurse aide in the facility, 
                unless the individual meets the requirements 
                described in clause (i).
                    ``(B) Offering competency evaluation 
                programs for current employees.--A nursing 
                facility must provide, for individuals used as 
                a nurse aide by the facility, for a competency 
                evaluation program approved by the State under 
                subsection (e)(1) and such preparation as may 
                be necessary for the individual to complete 
                such a program.
                    ``(C) Competency.--The nursing facility 
                must not permit an individual, other than in a 
                training and competency evaluation program 
                approved by the State, to serve as a nurse aide 
                or provide services of a type for which the 
                individual has not demonstrated competency and 
                must not use such an individual as a nurse aide 
                unless the facility has inquired of any State 
                registry established under subsection (e)(2)(A) 
                that the facility believes will include 
                information concerning the individual.
                    ``(D) Re-training required.--For purposes 
                of subparagraph (A), if, since an individual's 
                most recent completion of a training and 
                competency evaluation program, there has been a 
                continuous period of 24 consecutive months 
                during none of which the individual performed 
                nursing or nursing-related services for 
                monetary compensation, such individual shall 
                complete a new training and competency 
                evaluation program, or a new competency 
                evaluation program.
                    ``(E) Regular in-service education.--The 
                nursing facility must provide such regular 
                performance review and regular in-service 
                education as assures that individuals used as 
                nurse aides are competent to perform services 
                as nurse aides, including training for 
                individuals providing nursing and nursing-
                related services to residents with cognitive 
                impairments.
                    ``(F) Nurse aide defined.--In this 
                paragraph, the term `nurse aide' means any 
                individual providing nursing or nursing-related 
                services to residents in a nursing facility, 
                but does not include an individual--
                            ``(i) who is a licensed health 
                        professional (as defined in 
                        subparagraph (G)) or a registered 
                        dietician,
                            ``(ii) who volunteers to provide 
                        such services without monetary 
                        compensation, or
                            ``(iii) who is trained, whether 
                        compensated or not, to perform a task-
                        specific function which assists 
                        residents in their daily activities.
                    ``(G) Licensed health professional 
                defined.--In this paragraph, the term `licensed 
                health professional' means a physician, 
                physician assistant, nurse practitioner, 
                physical, speech, or occupational therapist, 
                physical or occupational therapy assistant, 
                registered professional nurse, licensed 
                practical nurse, or licensed or certified 
                social worker.
            ``(6) Physician supervision and clinical records.--
        A nursing facility must--
                    ``(A) require that the health care of every 
                resident be provided under the supervision of a 
                physician (or, at the option of a State, under 
                the supervision of a nurse practitioner, 
                clinical nurse specialist, or physician 
                assistant who is not an employee of the 
                facility but who is working in collaboration 
                with a physician);
                    ``(B) provide for having a physician 
                available to furnish necessary medical care in 
                case of emergency; and
                    ``(C) maintain clinical records on all 
                residents, which records include the plans of 
                care (described in paragraph (2)) and the 
                residents' assessments (described in paragraph 
                (3)).
    ``(c) Requirements Relating to Residents' Rights.--
            ``(1) General rights.--
                    ``(A) Specified rights.--A nursing facility 
                must protect and promote the rights of each 
                resident, including each of the following 
                rights:
                            ``(i) Free choice.--The right to 
                        choose a personal attending physician, 
                        to be fully informed in advance about 
                        care and treatment, to be fully 
                        informed in advance of any changes in 
                        care or treatment that may affect the 
                        resident's well-being, and (except with 
                        respect to a resident adjudged 
                        incompetent) to participate in planning 
                        care and treatment or changes in care 
                        and treatment.
                            ``(ii) Free from restraints.--The 
                        right to be free from physical or 
                        mental abuse, corporal punishment, 
                        involuntary seclusion, and any physical 
                        or chemical restraints imposed for 
                        purposes of discipline or convenience 
                        and not required to treat the 
                        resident's medical symptoms. Restraints 
                        may only be imposed--
                                    ``(I) to ensure the 
                                physical safety of the resident 
                                or other residents, and
                                    ``(II) only upon the 
                                written order of a physician 
                                that specifies the duration and 
                                circumstances under which the 
                                restraints are to be used 
                                (except in emergency 
                                circumstances specified by the 
                                Secretary until such an order 
                                could reasonably be obtained).
                            ``(iii) Privacy.--The right to 
                        privacy with regard to accommodations, 
                        medical treatment, written and 
                        telephonic communications, visits, and 
                        meetings of family and of resident 
                        groups.
                            ``(iv) Confidentiality.--The right 
                        to confidentiality of personal and 
                        clinical records and to access to 
                        current clinical records of the 
                        resident upon request by the resident 
                        or the resident's legal representative, 
                        within 24 hours (excluding hours 
                        occurring during a weekend or holiday) 
                        after making such a request.
                            ``(v) Accommodation of needs.--The 
                        right--
                                    ``(I) to reside and receive 
                                services with reasonable 
                                accommodation of individual 
                                needs and preferences, except 
                                where the health or safety of 
                                the individual or other 
                                residents would be endangered, 
                                and
                                    ``(II) to receive notice 
                                before the room or roommate of 
                                the resident in the facility is 
                                changed unless a delay in 
                                changing the room or roommate 
                                while notice is given would 
                                endanger the resident or 
                                others.
                            ``(vi) Grievances.--The right to 
                        voice grievances with respect to 
                        treatment or care that is (or fails to 
                        be) furnished, without discrimination 
                        or reprisal for voicing the grievances 
                        and the right to prompt efforts by the 
                        facility to resolve grievances the 
                        resident may have, including those with 
                        respect to the behavior of other 
                        residents.
                            ``(vii) Participation in resident 
                        and family groups.--The right of the 
                        resident to organize and participate in 
                        resident groups in the facility and the 
                        right of the resident's family to meet 
                        in the facility with the families of 
                        other residents in the facility.
                            ``(viii) Participation in other 
                        activities.--The right of the resident 
                        to participate in social, religious, 
                        and community activities that do not 
                        interfere with the rights of other 
                        residents in the facility.
                            ``(ix) Examination of survey 
                        results.--The right to examine, upon 
                        reasonable request, the results of the 
                        most recent survey of the facility 
                        conducted by the Secretary or a State 
                        with respect to the facility and any 
                        plan of correction in effect with 
                        respect to the facility.
                            ``(x) Other rights.--Any other 
                        right established by the Secretary.
                Clause (iii) shall not be construed as 
                requiring the provision of a private room.
                    ``(B) Notice of rights.--A nursing facility 
                must--
                            ``(i) inform each resident, orally 
                        and in writing at the time of admission 
                        to the facility, of the resident's 
                        legal rights during the stay at the 
                        facility and of the requirements and 
                        procedures for establishing eligibility 
                        for medical assistance under this 
                        title, including the right to request 
                        an assessment under section 
                        2115(c)(1)(B);
                            ``(ii) make available to each 
                        resident, upon reasonable request, a 
                        written statement of such rights (which 
                        statement is updated upon changes in 
                        such rights) including the notice (if 
                        any) of the State developed under 
                        subsection (e)(6);
                            ``(iii) inform each resident who is 
                        entitled to medical assistance under 
                        this title--
                                    ``(I) at the time of 
                                admission to the facility or, 
                                if later, at the time the 
                                resident becomes eligible for 
                                such assistance, of the items 
                                and services that are included 
                                in nursing facility services 
                                under the State MediGrant plan 
                                and for which the resident may 
                                not be charged, and of those 
                                other items and services that 
                                the facility offers and for 
                                which the resident may be 
                                charged and the amount of the 
                                charges for such items and 
                                services, and
                                    ``(II) of changes in the 
                                items and services described in 
                                subclause (I) and of changes in 
                                the charges imposed for items 
                                and services described in that 
                                subclause; and
                            ``(iv) inform each other resident, 
                        in writing before or at the time of 
                        admission and periodically during the 
                        resident's stay, of services available 
                        in the facility and of related charges 
                        for such services, including any 
                        charges for services not covered under 
                        title XVIII or by the facility's basic 
                        per diem charge.
                The written description of legal rights under 
                this subparagraph shall include a description 
                of the protection of personal funds under 
                paragraph (6) and a statement that a resident 
                may file a complaint with a State survey and 
                certification agency respecting resident abuse 
                and neglect and misappropriation of resident 
                property in the facility.
                    ``(C) Rights of incompetent residents.--In 
                the case of a resident adjudged incompetent 
                under the laws of a State, the rights of the 
                resident under this title shall devolve upon, 
                and, to the extent judged necessary by a court 
                of competent jurisdiction, be exercised by, the 
                person appointed under State law to act on the 
                resident's behalf.
                    ``(D) Use of psychopharmacologic drugs.--
                Psychopharmacologic drugs may be administered 
                only on the orders of a physician and only as 
                part of a plan (included in the written plan of 
                care described in paragraph (2)) designed to 
                eliminate or modify the symptoms for which the 
                drugs are prescribed and only if, at least 
                annually an independent, external consultant 
                reviews the appropriateness of the drug plan of 
                each resident receiving such drugs.
            ``(2) Transfer and discharge rights.--
                    ``(A) In general.--A nursing facility must 
                permit each resident to remain in the facility 
                and must not transfer or discharge the resident 
                from the facility unless--
                            ``(i) the transfer or discharge is 
                        necessary to meet the resident's 
                        welfare and the resident's welfare 
                        cannot be met in the facility;
                            ``(ii) the transfer or discharge is 
                        appropriate because the resident's 
                        health has improved sufficiently so the 
                        resident no longer needs the services 
                        provided by the facility;
                            ``(iii) the safety of individuals 
                        in the facility is endangered;
                            ``(iv) the health of individuals in 
                        the facility would otherwise be 
                        endangered;
                            ``(v) the resident has failed, 
                        after reasonable and appropriate 
                        notice, to pay (or to have paid under 
                        this title or title XVIII on the 
                        resident's behalf) for a stay at the 
                        facility; or
                            ``(vi) the facility ceases to 
                        operate.
                In each of the cases described in clauses (i) 
                through (iv), the basis for the transfer or 
                discharge must be documented in the resident's 
                clinical record. In the cases described in 
                clauses (i) and (ii), the documentation must be 
                made by the resident's physician, and in the 
                case described in clause (iv) the documentation 
                must be made by a physician. For purposes of 
                clause (v), in the case of a resident who 
                becomes eligible for assistance under this 
                title after admission to the facility, only 
                charges which may be imposed under this title 
                shall be considered to be allowable.
                    ``(B) Pre-transfer and pre-discharge 
                notice.--
                            ``(i) In general.--Before effecting 
                        a transfer or discharge of a resident, 
                        a nursing facility must--
                                    ``(I) notify the resident 
                                (and, if known, an immediate 
                                family member of the resident 
                                or legal representative) of the 
                                transfer or discharge and the 
                                reasons therefor,
                                    ``(II) record the reasons 
                                in the resident's clinical 
                                record (including any 
                                documentation required under 
                                subparagraph (A)), and
                                    ``(III) include in the 
                                notice the items described in 
                                clause (iii).
                            ``(ii) Timing of notice.--The 
                        notice under clause (i)(I) must be made 
                        at least 30 days in advance of the 
                        resident's transfer or discharge 
                        except--
                                    ``(I) in a case described 
                                in clause (iii) or (iv) of 
                                subparagraph (A);
                                    ``(II) in a case described 
                                in clause (ii) of subparagraph 
                                (A), where the resident's 
                                health improves sufficiently to 
                                allow a more immediate transfer 
                                or discharge;
                                    ``(III) in a case described 
                                in clause (i) of subparagraph 
                                (A), where a more immediate 
                                transfer or discharge is 
                                necessitated by the resident's 
                                urgent medical needs;
                                    ``(IV) in a case where a 
                                resident has not resided in the 
                                facility for 30 days; or
                                    ``(V) in a case where the 
                                provision of a 30-day notice 
                                would be impossible or 
                                impracticable.
                        In the case of such exceptions, notice 
                        must be given as many days before the 
                        date of the transfer or discharge as is 
                        practicable.
                            ``(iii) Items included in notice.--
                        Each notice under clause (i) must 
                        include--
                                    ``(I) notice of the 
                                resident's right to appeal the 
                                transfer or discharge under the 
                                State process established under 
                                subsection (e)(3);
                                    ``(II) the name, mailing 
                                address, and telephone number 
                                of the State long-term care 
                                ombudsman (established under 
                                title III or VII of the Older 
                                Americans Act of 1965);
                                    ``(III) in the case of 
                                residents with developmental 
                                disabilities, the mailing 
                                address and telephone number of 
                                the agency responsible for the 
                                protection and advocacy system 
                                for developmentally disabled 
                                individuals established under 
                                part C of the Developmental 
                                Disabilities Assistance and 
                                Bill of Rights Act; and
                                    ``(IV) in the case of 
                                mentally ill residents (as 
                                defined in subsection 
                                (e)(7)(G)(i)), the mailing 
                                address and telephone number of 
                                the agency responsible for the 
                                protection and advocacy system 
                                for mentally ill individuals 
                                established under the 
                                Protection and Advocacy for 
                                Mentally Ill Individuals Act.
                            ``(iv) Exception.--This 
                        subparagraph shall not apply to a 
                        voluntary transfer or discharge or a 
                        transfer or discharge necessitated by a 
                        medical emergency.
                    ``(C) Orientation.--A nursing facility must 
                provide reasonable preparation and orientation 
                to residents to promote safe and orderly 
                transfer or discharge from the facility.
                    ``(D) Notice on bed-hold policy and 
                readmission.--
                            ``(i) Notice before transfer.--
                        Before a resident of a nursing facility 
                        is transferred for hospitalization or 
                        therapeutic leave, a nursing facility 
                        must provide written information to the 
                        resident and an immediate family member 
                        or legal representative concerning--
                                    ``(I) the provisions of the 
                                State MediGrant plan under this 
                                title regarding the period (if 
                                any) during which the resident 
                                will be permitted under the 
                                State MediGrant plan to return 
                                and resume residence in the 
                                facility, and
                                    ``(II) the policies of the 
                                facility regarding such a 
                                period, which policies must be 
                                consistent with clause (iii).
                            ``(ii) Notice upon transfer.--At 
                        the time of transfer of a resident to a 
                        hospital or for therapeutic leave, a 
                        nursing facility must provide written 
                        notice to the resident and an immediate 
                        family member or legal representative 
                        of the duration of any period described 
                        in clause (i).
                            ``(iii) Permitting resident to 
                        return.--A nursing facility must 
                        establish and follow a written policy 
                        under which a resident--
                                    ``(I) who is eligible for 
                                medical assistance for nursing 
                                facility services under a State 
                                MediGrant plan,
                                    ``(II) who is transferred 
                                from the facility for 
                                hospitalization or therapeutic 
                                leave, and
                                    ``(III) whose 
                                hospitalization or therapeutic 
                                leave exceeds a period paid for 
                                under the State MediGrant plan 
                                for the holding of a bed in the 
                                facility for the resident,
                        will be permitted to be readmitted to 
                        the facility immediately upon the first 
                        availability of a bed in a room (not 
                        including a private room) in the 
                        facility if, at the time of 
                        readmission, the resident requires the 
                        services provided by the facility.
            ``(3) Access and visitation rights.--A nursing 
        facility must--
                    ``(A) permit immediate access to any 
                resident by any representative of the 
                Secretary, by any representative of the State, 
                by an ombudsman or agency described in 
                subclause (II), (III), or (IV) of paragraph 
                (2)(B)(iii), or by the resident's individual 
                physician;
                    ``(B) permit immediate access to a 
                resident, subject to the resident's right to 
                deny or withdraw consent at any time, by 
                immediate family or other relatives of the 
                resident;
                    ``(C) permit immediate access to a 
                resident, subject to reasonable restrictions 
                and the resident's right to deny or withdraw 
                consent at any time, by others who are visiting 
                with the consent of the resident, unless such 
                access would endanger the health or safety of 
                the resident or others in the facility;
                    ``(D) permit reasonable access to a 
                resident by any entity or individual that 
                provides health, social, legal, or other 
                services to the resident, subject to the 
                resident's right to deny or withdraw consent at 
                any time; and
                    ``(E) permit representatives of the State 
                ombudsman (described in paragraph 
                (2)(B)(iii)(II)), with the permission of the 
                resident (or the resident's legal 
                representative) and consistent with State law, 
                to examine a resident's clinical records.
            ``(4) Equal access to quality care.--
                    ``(A) In general.--A nursing facility must 
                establish and maintain identical policies and 
                practices regarding transfer, discharge, and 
                the provision of services required under the 
                State MediGrant plan for all individuals 
                regardless of source of payment.
                    ``(B) Construction.--
                            ``(i) Nothing prohibiting any 
                        charges for non-medigrant patients.--
                        Subparagraph (A) shall not be construed 
                        as prohibiting a nursing facility from 
                        charging any amount for services 
                        furnished, consistent with the notice 
                        in paragraph (1)(B) describing such 
                        charges.
                            ``(ii) No additional services 
                        required.--Subparagraph (A) shall not 
                        be construed as requiring a State to 
                        offer additional services on behalf of 
                        a resident than are otherwise provided 
                        under the State MediGrant plan.
            ``(5) Protection of resident funds.--
                    ``(A) In general.--The nursing facility--
                            ``(i) may not require residents to 
                        deposit their personal funds with the 
                        facility, and
                            ``(ii) upon the written 
                        authorization of the resident, must 
                        hold, safeguard, and account for such 
                        personal funds under a system 
                        established and maintained by the 
                        facility in accordance with this 
                        paragraph.
                    ``(B) Management of personal funds.--Upon 
                written authorization of a resident under 
                subparagraph (A)(ii), the facility must manage 
                and account for the personal funds of the 
                resident deposited with the facility as 
                follows:
                            ``(i) Deposit.--The facility must 
                        deposit any amount of personal funds in 
                        excess of $250 with respect to a 
                        resident in an interest bearing account 
                        (or accounts) that is separate from any 
                        of the facility's operating accounts 
                        and credits all interest earned on such 
                        separate account to such account. With 
                        respect to any other personal funds, 
                        the facility must maintain such funds 
                        in a non-interest bearing account or 
                        petty cash fund.
                            ``(ii) Accounting and records.--The 
                        facility must assure a full and 
                        complete accounting of each such 
                        resident's personal funds, maintain a 
                        written record of all financial 
                        transactions involving the personal 
                        funds of a resident deposited with the 
                        facility, and afford the resident (or a 
                        legal representative of the resident) 
                        reasonable access to such record.
                            ``(iii) Conveyance upon death.--
                        Upon the death of a resident with such 
                        an account, the facility must convey 
                        promptly the resident's personal funds 
                        (and a final accounting of such funds) 
                        to the individual administering the 
                        resident's estate. All other personal 
                        property, including medical records, 
                        shall be considered part of the 
                        resident's estate and shall only be 
                        released to the administrator of the 
                        estate.
                    ``(C) Assurance of financial security.--The 
                facility must purchase a surety bond, or 
                otherwise provide assurance satisfactory to the 
                State, to assure the security of all personal 
                funds of residents deposited with the facility.
                    ``(D) Limitation on charges to personal 
                funds.--The facility may not impose a charge 
                against the personal funds of a resident for 
                any item or service for which payment is made 
                under this title or title XVIII.
            ``(6) Limitation on charges in case of medigrant-
        eligible individuals.--A nursing facility may not 
        impose charges, for certain MediGrant-eligible 
        individuals for nursing facility services covered by 
        the State under its plan under this title, that exceed 
        the payment amounts established by the State for such 
        services under this title.
            ``(7) Posting of survey results.--A nursing 
        facility must post in a place readily accessible to 
        residents, and family members and legal representatives 
        of residents, the results of the most recent survey of 
        the facility conducted under subsection (g).
    ``(d) Requirements Relating to Administration and Other 
Matters.--
            ``(1) Administration.--
                    ``(A) In general.--A nursing facility must 
                be administered in a manner that enables it to 
                use its resources effectively and efficiently 
                to attain or maintain the highest practicable 
                physical, mental, and psychosocial well-being 
                of each resident (consistent with requirements 
                established under subsection (f)(5)).
                    ``(B) Required notices.--If a change occurs 
                in--
                            ``(i) the persons with an ownership 
                        or control interest (as defined in 
                        section 1124(a)(3)) in the facility,
                            ``(ii) the persons who are 
                        officers, directors, agents, or 
                        managing employees (as defined in 
                        section 1126(b)) of the facility,
                            ``(iii) the corporation, 
                        association, or other company 
                        responsible for the management of the 
                        facility, or
                            ``(iv) the individual who is the 
                        administrator or director of nursing of 
                        the facility,
                the nursing facility must provide notice to the 
                State agency responsible for the licensing of 
                the facility, at the time of the change, of the 
                change and of the identity of each new person, 
                company, or individual described in the 
                respective clause.
                    ``(C) Nursing facility administrator.--The 
                administrator of a nursing facility, whether 
                freestanding or hospital-based, must meet such 
                standards as are established by the Secretary.
            ``(2) Licensing and life safety code.--
                    ``(A) Licensing.--A nursing facility must 
                be licensed under applicable State and local 
                law.
                    ``(B) Life safety code.--A nursing facility 
                must meet such provisions of such edition (as 
                specified by the Secretary in regulation) of 
                the Life Safety Code of the National Fire 
                Protection Association as are applicable to 
                nursing homes; except that--
                            ``(i) the Secretary may waive, for 
                        such periods as he deems appropriate, 
                        specific provisions of such Code which 
                        if rigidly applied would result in 
                        unreasonable hardship upon a facility, 
                        but only if such waiver would not 
                        adversely affect the health and safety 
                        of residents or personnel, and
                            ``(ii) the provisions of such Code 
                        shall not apply in any State if the 
                        Secretary finds that in such State 
                        there is in effect a fire and safety 
                        code, imposed by State law, which 
                        adequately protects residents of and 
                        personnel in nursing facilities.
            ``(3) Sanitary and infection control and physical 
        environment.--A nursing facility must--
                    ``(A) establish and maintain an infection 
                control program designed to provide a safe, 
                sanitary, and comfortable environment in which 
                residents reside and to help prevent the 
                development and transmission of disease and 
                infection, and
                    ``(B) be designed, constructed, equipped, 
                and maintained in a manner to protect the 
                health and safety of residents, personnel, and 
                the general public.
            ``(4) Miscellaneous.--
                    ``(A) Compliance with federal, state, and 
                local laws and professional standards.--A 
                nursing facility, whether freestanding or 
                hospital-based, must operate and provide 
                services in compliance with all applicable 
                Federal, State, and local laws and regulations 
                (including the requirements of section 1124) 
                and with accepted professional standards and 
                principles which apply to professionals 
                providing services in such a facility.
                    ``(B) Other.--A nursing facility must meet 
                such other requirements relating to the health 
                and safety of residents or relating to the 
                physical facilities thereof as the Secretary 
                may find necessary.
    ``(e) State Requirements Relating to Nursing Facility 
Requirements.--A State with a MediGrant plan shall provide for 
the following:
            ``(1) Specification and review of nurse aide 
        training and competency evaluation programs and of 
        nurse aide competency evaluation programs.--The State 
        must--
                    ``(A) specify those training and competency 
                evaluation programs, and those competency 
                evaluation programs, that the State approves 
                for purposes of subsection (b)(5) and that meet 
                the requirements established under subsection 
                (f)(2), and
                    ``(B) provide for the review and reapproval 
                of such programs, at a frequency and using a 
                methodology consistent with the requirements 
                established under subsection (f)(2)(A)(iii).
            ``(2) Nurse aide registry.--
                    ``(A) In general.--The State shall 
                establish and maintain a registry of all 
                individuals who have satisfactorily completed a 
                nurse aide training and competency evaluation 
                program, or a nurse aide competency evaluation 
                program, approved under paragraph (1) in the 
                State, or any individual described in 
                subsection (f)(2)(B)(ii) or in subparagraph 
                (B), (C), or (D) of section 6901(b)(4) of the 
                Omnibus Budget Reconciliation Act of 1989.
                    ``(B) Information in registry.--The 
                registry under subparagraph (A) shall provide 
                for the inclusion of specific documented 
                findings by a State under subsection (g)(1)(C) 
                of resident neglect or abuse or 
                misappropriation of resident property involving 
                an individual listed in the registry, as well 
                as any brief statement of the individual 
                disputing the findings. The State shall make 
                available to the public information in the 
                registry. In the case of inquiries to the 
                registry concerning an individual listed in the 
                registry, any information disclosed concerning 
                such a finding shall also include disclosure of 
                any such statement in the registry relating to 
                the finding or a clear and accurate summary of 
                such a statement.
                    ``(C) Prohibition against charges.--A State 
                may not impose any charges on a nurse aide 
                relating to the registry established and 
                maintained under subparagraph (A).
            ``(3) State appeals process for transfers and 
        discharges.--The State must provide for a fair 
        mechanism, meeting the guidelines established under 
        subsection (f)(3), for hearing appeals on transfers and 
        discharges of residents of such facilities.
            ``(4) Nursing facility administrator standards.--
        The State must implement and enforce the nursing 
        facility administrator standards developed under 
        subsection (f)(4) respecting the qualification of 
        administrators of nursing facilities. Any such 
        standards promulgated shall apply to administrators of 
        hospital-based facilities as well as administrators of 
        freestanding facilities.
            ``(5) Specification of resident assessment 
        instrument.--The State shall specify the instrument to 
        be used by nursing facilities in the State in complying 
        with the requirement of subsection (b)(3)(A)(iii).
            ``(6) Notice of medigrant rights.--Each State shall 
        develop (and periodically update) a written notice of 
        the rights and obligations of residents of nursing 
        facilities (and spouses of such residents) under this 
        title.
            ``(7) State requirements for preadmission screening 
        and resident review.--
                    ``(A) Preadmission screening.--
                            ``(i) In general.--The State must 
                        have in effect a preadmission screening 
                        program, for identifying mentally ill 
                        and mentally retarded individuals (as 
                        defined in subparagraph (B)) who are 
                        admitted to nursing facilities.
                            ``(ii) State requirement for 
                        resident review.--The State shall 
                        notify the State mental health 
                        authority or the State mental 
                        retardation or developmental disability 
                        authority, as appropriate, of the 
                        individuals so identified.
                    ``(B) Definitions.--In this paragraph:
                            ``(i) An individual is considered 
                        to be `mentally ill' if the individual 
                        has a serious mental illness (as 
                        defined by the Secretary in 
                        consultation with the National 
                        Institute of Mental Health) and does 
                        not have a primary diagnosis of 
                        dementia (including Alzheimer's disease 
                        or a related disorder) or a diagnosis 
                        (other than a primary diagnosis) of 
                        dementia and a primary diagnosis that 
                        is not a serious mental illness.
                            ``(ii) An individual is considered 
                        to be `mentally retarded' if the 
                        individual is mentally retarded or a 
                        person with a related condition.
    ``(f) Responsibilities Relating to Nursing Facility 
Requirements.--
            ``(1) General responsibility.--It is the duty and 
        responsibility of a State with a MediGrant plan under 
        this title to assure that requirements which govern the 
        provision of care in nursing facilities under the plan, 
        and the enforcement of such requirements, are adequate 
        to protect the health, safety, welfare, and rights of 
        residents and to promote the effective and efficient 
        use of public moneys.
            ``(2) Requirements for nurse aide training and 
        competency evaluation programs and for nurse aide 
        competency evaluation programs.--For purposes of 
        subsections (b)(5) and (e)(1)(A), the State shall 
        establish--
                    ``(A) requirements for the approval of 
                nurse aide training and competency evaluation 
                programs, including requirements relating to 
                (i) the areas to be covered in such a program 
                (including at least basic nursing skills, 
                personal care skills, recognition of mental 
                health and social service needs, care of 
                cognitively impaired residents, basic 
                restorative services, and residents' rights) 
                and content of the curriculum, (ii) minimum 
                hours of initial and ongoing training and 
                retraining, (iii) qualifications of 
                instructors, and (iv) procedures for 
                determination of competency;
                    ``(B) requirements for the approval of 
                nurse aide competency evaluation programs, 
                including requirement relating to the areas to 
                be covered in such a program, including at 
                least basic nursing skills, personal care 
                skills, recognition of mental health and social 
                service needs, care of cognitively impaired 
                residents, basic restorative services, and 
                residents' rights, and procedures for 
                determination of competency;
                    ``(C) requirements respecting the minimum 
                frequency and methodology to be used by a State 
                in reviewing such programs' compliance with the 
                requirements for such programs; and
                    ``(D) requirements, under both such 
                programs, that--
                            ``(i) provide procedures for 
                        determining competency that permit a 
                        nurse aide, at the nurse aide's option, 
                        to establish competency through 
                        procedures or methods other than the 
                        passing of a written examination and to 
                        have the competency evaluation 
                        conducted at the nursing facility at 
                        which the aide is (or will be) 
                        employed, and
                            ``(ii) prohibit the imposition on a 
                        nurse aide who is employed by (or who 
                        has received an offer of employment 
                        from) a facility on the date on which 
                        the aide begins either such program of 
                        any charges (including any charges for 
                        textbooks and other required course 
                        materials and any charges for the 
                        competency evaluation) for either such 
                        program.
            ``(3) Qualification of administrators.--For 
        purposes of subsections (d)(1)(C) and (e)(4), the State 
        shall develop standards to be applied in assuring the 
        qualifications of administrators of nursing facilities. 
        Any such standards must apply to administrators of 
        hospital-based facilities as well as administrators of 
        freestanding facilities.
    ``(g) Survey and Certification Process.--
            ``(1) State and federal responsibility.--
                    ``(A) In general.--Under each State 
                MediGrant plan under this title, the State 
                shall be responsible for certifying, in 
                accordance with surveys conducted under 
                paragraph (2), the compliance of nursing 
                facilities with the requirements of subsections 
                (b), (c), and (d). The Secretary shall be 
                responsible for certifying, in accordance with 
                surveys conducted under paragraph (2), the 
                compliance of State nursing facilities with the 
                requirements of such subsections.
                    ``(B) Investigation of allegations of 
                resident neglect and abuse and misappropriation 
                of resident property.--The State shall provide, 
                through the agency responsible for surveys and 
                certification of nursing facilities under this 
                subsection, for a process for the receipt and 
                timely review and investigation of allegations 
                of neglect and abuse and misappropriation of 
                resident property by a nurse aide of a resident 
                in a nursing facility or by another individual 
                used by the facility in providing services to 
                such a resident. The State shall, after notice 
                to the individual involved and a reasonable 
                opportunity for a hearing for the individual to 
                rebut allegations, make a finding as to the 
                accuracy of the allegations. If the State finds 
                that a nurse aide has neglected or abused a 
                resident or misappropriated resident property 
                in a facility, the State shall notify the nurse 
                aide and the registry of such finding. If the 
                State finds that any other individual used by 
                the facility has neglected or abused a resident 
                or misappropriated resident property in a 
                facility, the State shall notify the 
                appropriate licensure authority. A State shall 
                not make a finding that an individual has 
                neglected a resident if the individual 
                demonstrates that such neglect was caused by 
                factors beyond the control of the individual.
            ``(2) Surveys.--
                    ``(A) Annual standard survey.--
                            ``(i) In general.--Each nursing 
                        facility shall be subject to a standard 
                        survey, to be conducted without any 
                        prior notice to the facility. Any 
                        individual who notifies (or causes to 
                        be notified) a nursing facility of the 
                        time or date on which such a survey is 
                        scheduled to be conducted is subject to 
                        a civil money penalty of not to exceed 
                        $2,000. The provisions of section 1128A 
                        (other than subsections (a) and (b)) 
                        shall apply to a civil money penalty 
                        under the previous sentence in the same 
                        manner as such provisions apply to a 
                        penalty or proceeding under section 
                        1128A(a). The State shall take all 
                        reasonable steps to avoid giving notice 
                        of such a survey through the scheduling 
                        procedures and the conduct of the 
                        surveys themselves.
                            ``(ii) Contents.--Each standard 
                        survey shall include, for a case-mix 
                        stratified sample of residents--
                                    ``(I) a survey of the 
                                quality of care furnished, as 
                                measured by indicators of 
                                medical, nursing, and 
                                rehabilitative care, dietary 
                                and nutrition services, 
                                activities and social 
                                participation, and sanitation, 
                                infection control, and the 
                                physical environment,
                                    ``(II) written plans of 
                                care provided under subsection 
                                (b)(2) and an audit of the 
                                residents' assessments under 
                                subsection (b)(3) to determine 
                                the accuracy of such 
                                assessments and the adequacy of 
                                such plans of care, and
                                    ``(III) a review of 
                                compliance with residents' 
                                rights under subsection (c).
                            ``(iii) Frequency.--
                                    ``(I) In general.--Each 
                                nursing facility shall be 
                                subject to a standard survey 
                                not later than 24 months after 
                                the date of the previous 
                                standard survey conducted under 
                                this subparagraph, except that 
                                in the case of a facility which 
                                has been subjected to an 
                                extended survey under 
                                subparagraph (B), a standard 
                                survey shall be conducted not 
                                later than 12 months after the 
                                date of the preceding extended 
                                survey.
                                    ``(II) Special surveys.--If 
                                not otherwise conducted under 
                                subclause (I), a standard 
                                survey (or an abbreviated 
                                standard survey) may be 
                                conducted within 4 months of 
                                any change of ownership, 
                                administration, management of a 
                                nursing facility, or director 
                                of nursing in order to 
                                determine whether the change 
                                has resulted in any decline in 
                                the quality of care furnished 
                                in the facility.
                    ``(B) Extended surveys.--
                            ``(i) In general.--Each nursing 
                        facility which is found, under a 
                        standard survey, to have provided 
                        substandard quality of care shall be 
                        subject to an extended survey. Any 
                        other facility may, at the State's 
                        discretion, be subject to such an 
                        extended survey (or a partial extended 
                        survey).
                            ``(ii) Timing.--The extended survey 
                        shall be conducted immediately after 
                        the standard survey (or, if not 
                        practicable, not later than 2 weeks 
                        after the date of completion of the 
                        standard survey).
                            ``(iii) Contents.--In such an 
                        extended survey, the survey team shall 
                        review and identify the policies and 
                        procedures which produced such 
                        substandard quality of care and shall 
                        determine whether the facility has 
                        complied with all the requirements 
                        described in subsections (b), (c), and 
                        (d). Such review shall include an 
                        expansion of the size of the sample of 
                        residents' assessments reviewed and a 
                        review of the staffing, of in-service 
                        training, and, if appropriate, of 
                        contracts with consultants.
                            ``(iv) Construction.--Nothing in 
                        this paragraph shall be construed as 
                        requiring an extended or partial 
                        extended survey as a prerequisite to 
                        imposing a sanction against a facility 
                        under subsection (h) on the basis of 
                        findings in a standard survey.
                    ``(C) Survey protocol.--Standard and 
                extended surveys shall be conducted--
                            ``(i) based upon the protocol which 
                        the Secretary has developed, tested, 
                        and validated, as of the date of the 
                        enactment of this title, and
                            ``(ii) by individuals, of a survey 
                        team, who meet such minimum 
                        qualifications as the State 
                        establishes.
                    ``(D) Consistency of surveys.--Each State 
                shall implement programs to measure and reduce 
                inconsistency in the application of survey 
                results among surveyors.
                    ``(E) Survey teams.--
                            ``(i) In general.--Surveys under 
                        this subsection shall be conducted by a 
                        multidisciplinary team of professionals 
                        (including a registered professional 
                        nurse).
                            ``(ii) Prohibition of conflicts of 
                        interest.--A State may not use as a 
                        member of a survey team under this 
                        subsection an individual who is serving 
                        (or has served within the previous 2 
                        years) as a member of the staff of, or 
                        as a consultant to, the facility 
                        surveyed respecting compliance with the 
                        requirements of subsections (b), (c), 
                        and (d), or who has a personal or 
                        familial financial interest in the 
                        facility being surveyed.
            ``(3) Validation surveys.--
                    ``(A) In general.--The Secretary shall 
                conduct onsite surveys of a representative 
                sample of nursing facilities in each State, 
                within 4 months of the date of surveys 
                conducted under paragraph (2) by the State, in 
                a sufficient number to allow inferences about 
                the adequacies of each State's surveys 
                conducted under paragraph (2). In conducting 
                such surveys, the Secretary shall use the same 
                survey protocols as the State is required to 
                use under paragraph (2). If the State has 
                determined that an individual nursing facility 
                meets the requirements of subsections (b), (c), 
                and (d), but the Secretary determines that the 
                facility does not meet such requirements, the 
                Secretary's determination as to the facility's 
                noncompliance with such requirements is binding 
                and supersedes that of the State survey.
                    ``(B) Scope.--With respect to each State, 
                the Secretary shall conduct surveys under 
                subparagraph (A) at least every third year with 
                respect to at least 5 percent of the number of 
                nursing facilities surveyed by the State in the 
                year, but in no case less than 5 nursing 
                facilities in the State.
                    ``(C) Special surveys of compliance.--Where 
                the Secretary has found substantial evidence of 
                a pattern of noncompliance by a nursing 
                facility with any of the requirements of 
                subsections (b), (c), and (d), the Secretary 
                may conduct a survey of the facility and, on 
                the basis of that survey, make determinations 
                concerning the extent to which the nursing 
                facility meets such requirements.
            ``(4) Investigation of complaints and monitoring 
        nursing facility compliance.--Each State shall maintain 
        procedures and adequate staff to--
                    ``(A) investigate complaints of violations 
                of requirements by nursing facilities, and
                    ``(B) monitor, on-site, on a regular, as 
                needed basis, a nursing facility's compliance 
                with the requirements of subsections (b), (c), 
                and (d), if--
                            ``(i) the facility has been found 
                        not to be in compliance with such 
                        requirements and is in the process of 
                        correcting deficiencies to achieve such 
                        compliance;
                            ``(ii) the facility was previously 
                        found not to be in compliance with such 
                        requirements, has corrected 
                        deficiencies to achieve such 
                        compliance, and verification of 
                        continued compliance is indicated; or
                            ``(iii) the State has reason to 
                        question the compliance of the facility 
                        with such requirements.
            ``(5) Disclosure of results of inspections and 
        activities.--
                    ``(A) Public information.--Each State, and 
                the Secretary, shall make available to the 
                public--
                            ``(i) information respecting all 
                        surveys and certifications made 
                        respecting nursing facilities, 
                        including statements of deficiencies, 
                        within a reasonable time after such 
                        information is made available to those 
                        facilities, and approved plans of 
                        correction,
                            ``(ii) copies of cost reports of 
                        such facilities filed under this title 
                        or under title XVIII,
                            ``(iii) copies of statements of 
                        ownership under section 1124, and
                            ``(iv) information disclosed under 
                        section 1126.
                    ``(B) Notice to ombudsman.--Each State 
                shall notify the State long-term care ombudsman 
                (established under title III or VII of the 
                Older Americans Act of 1965 in accordance with 
                section 712 of the Act) of the State's findings 
                of noncompliance with any of the requirements 
                of subsections (b), (c), and (d), or of any 
                adverse action taken against a nursing facility 
                under paragraphs (1), (2), or (3) of subsection 
                (h), with respect to a nursing facility in the 
                State.
                    ``(C) Notice to physicians and nursing 
                facility administrator licensing board.--If a 
                State finds that a nursing facility has 
                provided substandard quality of care, the State 
                shall notify--
                            ``(i) the attending physician of 
                        each resident with respect to which 
                        such finding is made, and
                            ``(ii) any State board responsible 
                        for the licensing of the nursing 
                        facility administrator of the facility.
                    ``(D) Access to fraud control units.--Each 
                State shall provide its State MediGrant fraud 
                and abuse control unit (established under 
                section 2134) with access to all information of 
                the State agency responsible for surveys and 
                certifications under this subsection.
    ``(h) Enforcement Process.--
            ``(1) In general.--If a State finds, on the basis 
        of a standard, extended, or partial extended survey 
        under subsection (g)(2) or otherwise, that a nursing 
        facility no longer meets a requirement of subsection 
        (b), (c), or (d)--
                    ``(A) the State shall require the facility 
                to correct the deficiency involved;
                    ``(B) if the State finds that the 
                facility's deficiencies immediately jeopardize 
                the health or safety of its residents, the 
                State shall take immediate action to remove the 
                jeopardy and correct the deficiencies through 
                the remedy specified in paragraph (2)(A)(iii), 
                or terminate the facility's participation under 
                the State MediGrant plan and may provide, in 
                addition, for one or more of the other remedies 
                described in paragraph (2); and
                    ``(C) if the State finds that the 
                facility's deficiencies do not immediately 
                jeopardize the health or safety of its 
                residents, the State may--
                            ``(i) terminate the facility's 
                        participation under the State MediGrant 
                        plan,
                            ``(ii) provide for one or more of 
                        the remedies described in paragraph 
                        (2), or
                            ``(iii) do both.
            ``(2) Specified remedies.--
                    ``(A) Listing.--Except as provided in 
                subparagraph (B), each State shall establish by 
                law (whether statute or regulation) at least 
                the following remedies:
                            ``(i) Denial of payment under the 
                        State MediGrant plan with respect to 
                        any individual admitted to the nursing 
                        facility involved after such notice to 
                        the public and to the facility as may 
                        be provided for by the State.
                            ``(ii) A civil money penalty 
                        assessed and collected, with interest, 
                        for each day in which the facility is 
                        or was out of compliance with a 
                        requirement of subsection (b), (c), or 
                        (d).
                            ``(iii) The appointment of 
                        temporary management to oversee the 
                        operation of the facility and to assure 
                        the health and safety of the facility's 
                        residents, where there is a need for 
                        temporary management while--
                                    ``(I) there is an orderly 
                                closure of the facility, or
                                    ``(II) improvements are 
                                made in order to bring the 
                                facility into compliance with 
                                all the requirements of 
                                subsections (b), (c), and (d).
                        The temporary management under this 
                        clause shall not be terminated under 
                        subclause (II) until the State has 
                        determined that the facility has the 
                        management capability to ensure 
                        continued compliance with all the 
                        requirements of subsections (b), (c), 
                        and (d).
                            ``(iv) The authority, in the case 
                        of an emergency, to close the facility, 
                        to transfer residents in that facility 
                        to other facilities, or both.
                The State also shall specify criteria, as to 
                when and how each of such remedies is to be 
                applied, the amounts of any fines, and the 
                severity of each of these remedies, to be used 
                in the imposition of such remedies.
                    ``(B) Alternative remedies.--A State may 
                establish alternative remedies to the remedies 
                described in subparagraph (A), if the State 
                demonstrates to the Secretary's satisfaction 
                that the alternative remedies are as effective 
                in deterring noncompliance and correcting 
                deficiencies as those described in such 
                subparagraph.
                    ``(C) Assuring prompt compliance.--If a 
                nursing facility has not complied with any of 
                the requirements of subsections (b), (c), and 
                (d), within 3 months after the date the 
                facility is found to be out of compliance with 
                such requirements, the State may impose the 
                remedy described in subparagraph (A)(i) for all 
                individuals who are admitted to the facility 
                after such date.
                    ``(D) Repeated noncompliance.--In the case 
                of a nursing facility which, on 3 consecutive 
                standard surveys conducted under subsection 
                (g)(2), has been found to have provided 
                substandard quality of care, the State shall 
                (regardless of what other remedies are 
                provided)--
                            ``(i) impose the remedy described 
                        in subparagraph (A)(i), and
                            ``(ii) monitor the facility under 
                        subsection (g)(4)(B),
                until the facility has demonstrated, to the 
                satisfaction of the State, that it is in 
                compliance with the requirements of subsections 
                (b), (c), and (d), and that it will remain in 
                compliance with such requirements.
            ``(3) Secretarial authority.--
                    ``(A) For state nursing facilities.--With 
                respect to a State nursing facility, the 
                Secretary shall have the authority and duties 
                of a State under this subsection. Nothing in 
                this subparagraph shall be construed as 
                restricting the remedies available to the 
                Secretary to remedy a nursing facility's 
                deficiencies.
                    ``(B) Other nursing facilities.--With 
                respect to any other nursing facility in a 
                State, if the Secretary finds that a nursing 
                facility no longer meets a requirement of 
                subsection (b), (c), or (d), the Secretary 
                shall notify the State of such deficiency. If, 
                after a reasonable period of time after such 
                notification is given, the Secretary finds that 
                the State has failed to carry out the 
                requirements of paragraph (1)(A) or paragraph 
                (1)(B) (if appropriate) with respect to the 
                deficiency involved, or that the deficiency 
                remains uncorrected--
                            ``(i) the Secretary shall require 
                        the facility to correct the deficiency 
                        involved;
                            ``(ii) if the Secretary finds that 
                        the deficiency involved immediately 
                        jeopardizes the health or safety of its 
                        residents, the Secretary shall, in 
                        consultation with the State, take 
                        action to remove the jeopardy and 
                        correct the deficiencies through the 
                        remedy specified in subparagraph 
                        (C)(iii), or terminate the facility's 
                        participation under the State MediGrant 
                        plan and may provide, in addition, for 
                        one or more of the other remedies 
                        described in subparagraph (C); and
                            ``(iii) in the case of a deficiency 
                        that remains uncorrected, if the 
                        Secretary finds that the deficiency 
                        involved does not immediately 
                        jeopardize the health or safety of its 
                        residents, the Secretary may impose any 
                        of the remedies described in 
                        subparagraph (C).
                    ``(C) Specified remedies.--The remedies 
                specified in this subparagraph are as follows:
                            ``(i) Denial of payment.--Denial of 
                        any further payments to the State in 
                        accordance with section 2154(f) for 
                        medical assistance furnished by the 
                        facility to all individuals in the 
                        facility or to individuals admitted to 
                        the facility after the effective date 
                        of the finding.
                            ``(ii) Authority with respect to 
                        civil money penalties.--Imposition of a 
                        civil money penalty against the 
                        facility in an amount not to exceed 
                        $5,000 for each day of noncompliance. 
                        The provisions of section 1128A (other 
                        than subsections (a) and (b)) shall 
                        apply to a civil money penalty under 
                        the previous sentence in the same 
                        manner as such provisions apply to a 
                        penalty or proceeding under section 
                        1128A(a).
                            ``(iii) Appointment of temporary 
                        management.--Appointment of temporary 
                        management (in consultation with the 
                        State) to oversee the operation of the 
                        facility and to assure the health and 
                        safety of the facility's residents, 
                        where there is a need for temporary 
                        management while--
                                    ``(I) there is an orderly 
                                closure of the facility, or
                                    ``(II) improvements are 
                                made in order to bring the 
                                facility into compliance with 
                                all the requirements of 
                                subsections (b), (c), and (d).
                        The temporary management under this 
                        clause shall not be terminated under 
                        subclause (II) until the Secretary has 
                        determined that the facility has the 
                        management capability to ensure 
                        continued compliance with all the 
                        requirements of subsections (b), (c), 
                        and (d).
                The Secretary shall specify criteria, as to 
                when and how each of such remedies is to be 
                applied, the amounts of any fines, and the 
                severity of each of these remedies, to be used 
                in the imposition of such remedies.
            ``(4) Special rules regarding payments to 
        facilities.--
                    ``(A) Continuation of payments pending 
                remediation.--The State or the Secretary, as 
                appropriate, may continue payments, over a 
                period of not longer than 6 months after the 
                effective date of the findings, under this 
                title with respect to a nursing facility not in 
                compliance with a requirement of subsection 
                (b), (c), or (d).
                    ``(B) Effective period of denial of 
                payment.--A finding to deny payment under this 
                subsection shall terminate when the State or 
                Secretary (as the case may be) finds that the 
                facility is in substantial compliance with all 
                the requirements of subsections (b), (c), and 
                (d).
            ``(5) Construction.--The remedies provided under 
        this subsection are in addition to those otherwise 
        available under Federal or State law and shall not be 
        construed as limiting such other remedies, including 
        any remedy available to an individual at common law. 
        The provisions of this subsection shall apply to a 
        nursing facility (or portion thereof) notwithstanding 
        that the facility (or portion thereof) also is a 
        skilled nursing facility for purposes of title XVIII or 
        is accredited by an entity pursuant to subsection 
        (i)(2).
            ``(6) Sharing of information.--Notwithstanding any 
        other provision of law, all information concerning 
        nursing facilities required by this section to be filed 
        with the Secretary or a State agency shall be made 
        available by such facilities to Federal or State 
        employees for purposes consistent with the effective 
        administration of programs established under this title 
        and title XVIII, including investigations by State 
        MediGrant fraud control units.
    ``(i) Construction.--
            ``(1) Medicare requirements.--Where requirements or 
        obligations under this section are identical to those 
        provided under section 1819 of this Act, the 
        fulfillment of those requirements or obligations under 
        section 1819 shall be considered to be the fulfillment 
        of the corresponding requirements or obligations under 
        this section.
            ``(2) Effect of accreditation.--
                    ``(A) In general.--At the option of a 
                State, or the Secretary, as appropriate, if a 
                nursing facility in the State is accredited by 
                a national accrediting entity meeting such 
                standards as the State or the Secretary may 
                impose, such facility shall be deemed to have 
                met the requirements of this section and the 
                State shall be deemed to have met the survey 
                and certification requirements under subsection 
                (g).
                    ``(B) Requirement for accrediting entity.--
                A State or the Secretary, as appropriate, may 
                not find that an accrediting entity meets 
                standards under subparagraph (A) unless such 
                entity applies standards for accreditation for 
                facilities that meet or exceed the requirements 
                of this section.

``SEC. 2138. OTHER PROVISIONS PROMOTING PROGRAM INTEGRITY.

    ``(a) Public Access to Survey Results.--Each MediGrant plan 
shall provide that upon completion of a survey of any health 
care facility or organization by a State agency to carry out 
the plan, the agency shall make public in readily available 
form and place the pertinent findings of the survey relating to 
the compliance of the facility or organization with 
requirements of law.
    ``(b) Record Keeping.--Each MediGrant plan shall provide 
for agreements with persons or institutions providing services 
under the plan under which the person or institution agrees--
            ``(1) to keep such records, including ledgers, 
        books, and original evidence of costs, as are necessary 
        to fully disclose the extent of the services provided 
        to individuals receiving assistance under the plan, and
            ``(2) to furnish the State agency with such 
        information regarding any payments claimed by such 
        person or institution for providing services under the 
        plan, as the State agency may from time to time 
        request.
    ``(c) Quality Assurance.--Each MediGrant plan shall provide 
a program to assure the quality of services provided under the 
plan, including such services provided to individuals with 
chronic mental or physical illness.

        ``Part E--Establishment and Amendment of MediGrant Plans

``SEC. 2151. SUBMITTAL AND APPROVAL OF MEDIGRANT PLANS.

    ``(a) Submittal.--As a condition of receiving funding under 
part C, each State shall submit to the Secretary a MediGrant 
plan that meets the applicable requirements of this title.
    ``(b) Approval.--Except as the Secretary may provide under 
section 2154, a MediGrant plan submitted under subsection (a)--
            ``(1) shall be approved for purposes of this title, 
        and
            ``(2) shall be effective beginning with a calendar 
        quarter that is specified in the plan, but in no case 
        earlier than the first calendar quarter that begins at 
        least 60 days after the date the plan is submitted.

``SEC. 2152. SUBMITTAL AND APPROVAL OF PLAN AMENDMENTS.

    ``(a) Submittal of Amendments.--A State may amend, in whole 
or in part, its MediGrant plan at any time through transmittal 
of a plan amendment under this section.
    ``(b) Approval.--Except as the Secretary may provide under 
section 2154, an amendment to a MediGrant plan submitted under 
subsection (a)--
            ``(1) shall be approved for purposes of this title, 
        and
            ``(2) shall be effective as provided in subsection 
        (c).
    ``(c) Effective Dates for Amendments.--
            ``(1) In general.--Subject to the succeeding 
        provisions of this subsection, an amendment to a 
        MediGrant plan shall take effect on one or more 
        effective dates specified in the amendment.
            ``(2) Amendments relating to eligibility or 
        benefits.--Except as provided in paragraph (4)--
                    ``(A) Notice requirement.--Any plan 
                amendment that eliminates or restricts 
                eligibility or benefits under the plan may not 
                take effect unless the State certifies that it 
                has provided prior or contemporaneous public 
                notice of the change, in a form and manner 
                provided under applicable State law.
                    ``(B) Timely transmittal.--Any plan 
                amendment that eliminates or restricts 
                eligibility or benefits under the plan shall 
                not be effective for longer than a 60 day 
                period unless the amendment has been 
                transmitted to the Secretary before the end of 
                such period.
            ``(3) Other amendments.--Subject to paragraph (4), 
        any plan amendment that is not described in paragraph 
        (2) becomes effective in a State fiscal year may not 
        remain in effect after the end of such fiscal year (or, 
        if later, the end of the 90-day period on which it 
        becomes effective) unless the amendment has been 
        transmitted to the Secretary.
            ``(4) Exception.--The requirements of paragraphs 
        (2) and (3) shall not apply to a plan amendment that is 
        submitted on a timely basis pursuant to a court order 
        or an order of the Secretary.

``SEC. 2153. PROCESS FOR STATE WITHDRAWAL FROM PROGRAM.

    ``(a) In General.--A State may rescind its MediGrant plan 
and discontinue participation in the program under this title 
at any time after providing--
            ``(1) the public with 90 days prior notice in a 
        publication in one or more daily newspapers of general 
        circulation in the State or in any publication used by 
        the State to publish State statutes or rules, and
            ``(2) the Secretary with 90 days prior written 
        notice.
    ``(b) Effective Date.--Such discontinuation shall not apply 
to payments under part C for expenditures made for items and 
services furnished under the MediGrant plan before the 
effective date of the discontinuation.
    ``(c) Proration of Allotments.--In the case of any 
withdrawal under this section other than at the end of a 
Federal fiscal year, notwithstanding any provision of section 
2121 to the contrary, the Secretary shall provide for such 
appropriate proration of the application of allotments under 
section 2121 as is appropriate.

``SEC. 2154. SANCTIONS FOR NONCOMPLIANCE.

    ``(a) Prompt Review of Plan Submittals.--The Secretary 
shall promptly review MediGrant plans and plan amendments 
submitted under this part to determine if they substantially 
comply with the requirements of this title.
    ``(b) Determinations of Substantial Noncompliance.--
            ``(1) At time of plan or amendment submittal.--
                    ``(A) In general.--If the Secretary, during 
                the 30-day period beginning on the date of 
                submittal of a MediGrant plan or plan 
                amendment--
                            ``(i) determines that the plan or 
                        amendment substantially violates 
                        (within the meaning of subsection (c)) 
                        a requirement of this title, and
                            ``(ii) provides written notice of 
                        such determination to the State,
                the Secretary shall issue an order specifying 
                that the plan or amendment, insofar as it is in 
                substantial violation of such a requirement, 
                shall not be effective, except as provided in 
                subsection (c), beginning at the end of a 
                period of not less than 30 days (or 120 days in 
                the case of the initial submission of the 
                MediGrant plan) specified in the order 
                beginning on the date of the notice of the 
                determination.
                    ``(B) Extension of time periods.--The time 
                periods specified in subparagraph (A) may be 
                extended by written agreement of the Secretary 
                and the State involved.
            ``(2) Violations in administration of plan.--
                    ``(A) In general.--If the Secretary 
                determines, after reasonable notice and 
                opportunity for a hearing for the State, that 
                in the administration of a MediGrant plan there 
                is a substantial violation of a requirement of 
                this title, the Secretary shall provide the 
                State with written notice of the determination 
                and with an order to remedy such violation. 
                Such an order shall become effective 
                prospectively, as specified in the order, after 
                the date of receipt of such written notice. 
                Such an order may include the withholding of 
                funds, consistent with subsection (f), for 
                parts of the MediGrant plan affected by such 
                violation, until the Secretary is satisfied 
                that the violation has been corrected.
                    ``(B) Effectiveness.--If the Secretary 
                issues an order under paragraph (1), the order 
                shall become effective, except as provided in 
                subsection (c), beginning at the end of a 
                period (of not less than 30 days) specified in 
                the order beginning on the date of the notice 
                of the determination to the State.
                    ``(C) Timeliness of determinations relating 
                to report-based compliance.--The Secretary 
                shall make determinations under this paragraph 
                respecting violations relating to information 
                contained in an annual report under section 
                2102, an independent evaluation under section 
                2103, or an audit report under section 2131 not 
                later than 30 days after the date of 
                transmittal of the report or evaluation to the 
                Secretary.
            ``(3) Consultation with state.--Before making a 
        determination adverse to a State under this section, 
        the Secretary shall (within any time periods provided 
        under this section)--
                    ``(A) reasonably consult with the State 
                involved,
                    ``(B) offer the State a reasonable 
                opportunity to clarify the submission and 
                submit further information to substantiate 
                compliance with the requirements of this title, 
                and
                    ``(C) reasonably consider any such 
                clarifications and information submitted.
            ``(4) Justification of any inconsistencies in 
        determinations.--If the Secretary makes a determination 
        under this section that is, in whole or in part, 
        inconsistent with any previous determination issued by 
        the Secretary under this title, the Secretary shall 
        include in the determination a detailed explanation and 
        justification for any such difference.
            ``(5) Substantial violation defined.--For purposes 
        of this title, a MediGrant plan (or amendment to such a 
        plan) or the administration of the MediGrant plan is 
        considered to `substantially violate' a requirement of 
        this title if a provision of the plan or amendment (or 
        an omission from the plan or amendment) or the 
        administration of the plan--
                    ``(A) is material and substantial in nature 
                and effect, and
                    ``(B) is inconsistent with an express 
                requirement of this title.
        A failure to meet a strategic objective or performance 
        goal (as described in section 2101) shall not be 
        considered to substantially violate a requirement of 
        this title.
    ``(c) State Response to Orders.--
            ``(1) State response by revising plan.--
                    ``(A) In general.--Insofar as an order 
                under subsection (b)(1) relates to a 
                substantial violation by a MediGrant plan or 
                plan amendment, a State may respond (before the 
                date the order becomes effective) to such an 
                order by submitting a written revision of the 
                MediGrant plan or plan amendment to 
                substantially comply with the requirements of 
                this part.
                    ``(B) Review of revision.--In the case of 
                submission of such a revision, the Secretary 
                shall promptly review the submission and shall 
                withhold any action on the order during the 
                period of such review.
                    ``(C) Secretarial response.--The revision 
                shall be considered to have corrected the 
                deficiency (and the order rescinded insofar as 
                it relates to such deficiency) unless the 
                Secretary determines and notifies the State in 
                writing, within 15 days after the date the 
                Secretary receives the revision, that the 
                MediGrant plan or amendment, as proposed to be 
                revised, still substantially violates a 
                requirement of this title. In such case the 
                State may respond by seeking reconsideration or 
                a hearing under paragraph (2).
                    ``(D) Revision retroactive.--If the 
                revision provides for substantial compliance, 
                the revision may be treated, at the option of 
                the State, as being effective either as of the 
                effective date of the provision to which it 
                relates or such later date as the State and 
                Secretary may agree.
            ``(2) State response by seeking reconsideration or 
        an administrative hearing.--A State may respond to an 
        order under subsection (b) by filing a request with the 
        Secretary for--
                    ``(A) a reconsideration of the 
                determination, pursuant to subsection (d)(1), 
                or
                    ``(B) a review of the determination through 
                an administrative hearing, pursuant to 
                subsection (d)(2).
        In such case, the order shall not take effect before 
        the completion of the reconsideration or hearing.
            ``(3) State response by corrective action plan.--
                    ``(A) In general.--In the case of an order 
                described in subsection (b)(2) that relates to 
                a substantial violation in the administration 
                of the MediGrant plan, a State may respond to 
                such an order by submitting a corrective action 
                plan with the Secretary to correct deficiencies 
                in the administration of the plan which are the 
                subject of the order.
                    ``(B) Review of corrective action plan.--In 
                such case, the Secretary shall withhold any 
                action on the order for a period (not to exceed 
                30 days) during which the Secretary reviews the 
                corrective action plan.
                    ``(C) Secretarial response.--The corrective 
                action plan shall be considered to have 
                corrected the deficiency (and the order 
                rescinded insofar as it relates to such 
                deficiency) unless the Secretary determines and 
                notifies the State in writing, within 15 days 
                after the date the Secretary receives the 
                corrective action plan, that the State's 
                administration of the MediGrant plan, as 
                proposed to be corrected in the plan, will 
                still substantially violate a requirement of 
                this title. In such case the State may respond 
                by seeking reconsideration or a hearing under 
                paragraph (2).
            ``(4) State response by withdrawal of plan 
        amendment; failure to respond.--Insofar as an order 
        relates to a substantial violation in a plan amendment 
        submitted, a State may respond to such an order by 
        withdrawing the plan amendment and the MediGrant plan 
        shall be treated as though the amendment had not been 
        made.
    ``(d) Administrative Review and Hearing.--
            ``(1) Reconsideration.--Within 30 days after the 
        date of receipt of a request under subsection 
        (b)(2)(A), the Secretary shall notify the State of the 
        time and place at which a hearing will be held for the 
        purpose of reconsidering the Secretary's determination. 
        The hearing shall be held not less than 20 days nor 
        more than 60 days after the date notice of the hearing 
        is furnished to the State, unless the Secretary and the 
        State agree in writing to holding the hearing at 
        another time. The Secretary shall affirm, modify, or 
        reverse the original determination within 60 days of 
        the conclusion of the hearing.
            ``(2) Administrative hearing.--Within 30 days after 
        the date of receipt of a request under subsection 
        (b)(2)(B), an administrative law judge shall schedule a 
        hearing for the purpose of reviewing the Secretary's 
        determination. The hearing shall be held not less than 
        20 days nor more than 60 days after the date notice of 
        the hearing is furnished to the State, unless the 
        Secretary and the State agree in writing to holding the 
        hearing at another time. The administrative law judge 
        shall affirm, modify, or reverse the determination 
        within 60 days of the conclusion of the hearing.
    ``(e) Judicial Review.--
            ``(1) In general.--A State which is dissatisfied 
        with a final determination made by the Secretary under 
        subsection (d)(1) or a final determination of an 
        administrative law judge under subsection (d)(2) may, 
        within 60 days after it has been notified of such 
        determination, file with the United States court of 
        appeals for the circuit in which the State is located a 
        petition for review of such determination. A copy of 
        the petition shall be forthwith transmitted by the 
        clerk of the court to the Secretary and, in the case of 
        a determination under subsection (d)(2), to the 
        administrative law judge involved. The Secretary (or 
        judge involved) thereupon shall file in the court the 
        record of the proceedings on which the final 
        determination was based, as provided in section 2112 of 
        title 28, United States Code. Only the Secretary, in 
        accordance with this title, may compel a State under 
        Federal law to comply with the provisions of this title 
        or a MediGrant plan, or otherwise enforce a provision 
        of this title against a State, and no action may be 
        filed under Federal law against a State in relation to 
        the State's compliance, or failure to comply, with the 
        provisions of this title or of a MediGrant plan except 
        by the Secretary as provided under this subsection.
            ``(2) Standard for review.--The findings of fact by 
        the Secretary or administrative law judge, if supported 
        by substantial evidence, shall be conclusive, but the 
        court, for good cause shown, may remand the case to the 
        Secretary or judge to take further evidence, and the 
        Secretary or judge may thereupon make new or modified 
        findings of fact and may modify a previous 
        determination, and shall certify to the court the 
        transcript and record of the further proceedings. Such 
        new or modified findings of fact shall likewise be 
        conclusive if supported by substantial evidence.
            ``(3) Jurisdiction of appellate court.--The court 
        shall have jurisdiction to affirm the action of the 
        Secretary or judge or to set it aside, in whole or in 
        part. The judgment of the court shall be subject to 
        review by the Supreme Court of the United States upon 
        certiorari or certification as provided in section 1254 
        of title 28, United States Code.
    ``(f) Withholding of Funds.--
            ``(1) In general.--Any order under this section 
        relating to the withholding of funds shall be effective 
        not earlier than the effective date of the order and 
        shall only relate to the portions of a MediGrant plan 
        or administration thereof which substantially violate a 
        requirement of this title. In the case of a failure to 
        meet a set-aside requirement under section 2112, any 
        withholding shall only apply to the extent of such 
        failure.
            ``(2) Suspension of withholding.--The Secretary may 
        suspend withholding of funds under paragraph (1) during 
        the period reconsideration or administrative and 
        judicial review is pending under subsection (d) or (e).
            ``(3) Restoration of funds.--Any funds withheld 
        under this subsection under an order shall be 
        immediately restored to a State--
                    ``(A) to the extent and at the time the 
                order is--
                            ``(i) modified or withdrawn by the 
                        Secretary upon reconsideration,
                            ``(ii) modified or reversed by an 
                        administrative law judge, or
                            ``(iii) set aside (in whole or in 
                        part) by an appellate court; or
                    ``(B) when the Secretary determines that 
                the deficiency which was the basis for the 
                order is corrected;
                    ``(C) when the Secretary determines that 
                violation which was the basis for the order is 
                resolved or the amendment which was the basis 
                for the order is withdrawn; or
                    ``(D) at any time upon the initiative of 
                the Secretary.
    ``(g) Individual Complaint Process.--The Secretary shall 
provide for a process under which an individual may notify the 
Secretary concerning a State's failure to provide medical 
assistance as required under the State MediGrant plan or 
otherwise comply with the requirements of this title or such 
plan. If the Secretary finds that there is a pattern of 
complaints with respect to a State or that a particular failure 
or finding of noncompliance is egregious, the Secretary shall 
notify the chief executive officer of the State of such finding 
and shall notify the Congress if the State fails to respond to 
such notification within a reasonable period of time.

``SEC. 2155. SECRETARIAL AUTHORITY.

    ``(a) Negotiated Agreement and Dispute Resolution.--
            ``(1) Negotiations.--Nothing in this part shall be 
        construed as preventing the Secretary and a State from 
        at any time negotiating a satisfactory resolution to 
        any dispute concerning the approval of a MediGrant plan 
        (or amendments to a MediGrant plan) or the compliance 
        of a MediGrant plan (including its administration) with 
        requirements of this title.
            ``(2) Cooperation.--The Secretary shall act in a 
        cooperative manner with the States in carrying out this 
        title. In the event of a dispute between a State and 
        the Secretary, the Secretary shall, whenever 
        practicable, engage in informal dispute resolution 
        activities in lieu of formal enforcement or sanctions 
        under section 2154.
    ``(b) Limitations on Delegation of Decision-making 
Authority.--The Secretary may not delegate (other than to the 
Administrator of the Health Care Financing Administration) the 
authority to make determinations or reconsiderations respecting 
the approval of MediGrant plans (or amendments to such plans) 
or the compliance of a MediGrant plan (including its 
administration) with requirements of this title. Such 
Administrator may not further delegate such authority to any 
individual, including any regional official of such 
Administration.
    ``(c) Requiring Formal Rulemaking for Changes in 
Secretarial Administration.--The Secretary shall carry out the 
administration of the program under this title only through a 
prospective formal rulemaking process, including issuing 
notices of proposed rulemaking, publishing proposed rules or 
modifications to rules in the Federal Register, and soliciting 
public comment.

                      ``Part F--General Provisions

``SEC. 2171. DEFINITIONS.

    ``(a) Medical Assistance.--For purposes of this title, the 
term `medical assistance' means payment of part or all of the 
cost of any of the following, or assistance in the purchase, in 
whole or in part, of health benefit coverage that includes any 
of the following, for eligible low-income individuals (as 
defined in subsection (b)) as specified under the MediGrant 
plan:
            ``(1) Inpatient hospital services.
            ``(2) Outpatient hospital services.
            ``(3) Physician services.
            ``(4) Surgical services.
            ``(5) Clinic services and other ambulatory health 
        care services.
            ``(6) Nursing facility services.
            ``(7) Intermediate care facility services for the 
        mentally retarded.
            ``(8) Prescription drugs and biologicals and the 
        administration of such drugs and biologicals, only if 
        such drugs and biologicals are not furnished for the 
        purpose of causing, or assisting in causing, the death, 
        suicide, euthanasia, or mercy killing of a person.
            ``(9) Over-the-counter medications.
            ``(10) Laboratory and radiological services.
            ``(11) Family planning services and supplies.
            ``(12) Inpatient mental health services, including 
        services furnished in a State-operated mental hospital 
        and including residential or other 24-hour 
        therapeutically planned structured services in the case 
        of a child.
            ``(13) Outpatient mental health services, including 
        services furnished in a State-operated mental hospital 
        and including community-based services in the case of a 
        child.
            ``(14) Durable medical equipment and other 
        medically-related or remedial devices (such as 
        prosthetic devices, implants, eyeglasses, hearing aids, 
        dental devices, and adaptive devices).
            ``(15) Disposable medical supplies.
            ``(16) Home and community-based health care 
        services and related supportive services (such as home 
        health nursing services, home health aide services, 
        personal care, assistance with activities of daily 
        living, chore services, day care services, respite care 
        services, training for family members, and minor 
        modifications to the home).
            ``(17) Community supported living arrangements.
            ``(18) Nursing care services (such as nurse 
        practitioner services, nurse midwife services, advanced 
        practice nurse services, private duty nursing care, 
        pediatric nurse services, and respiratory care 
        services) in a home, school, or other setting.
            ``(19) Abortion only if necessary to save the life 
        of the mother or if the pregnancy is the result of an 
        act of rape or incest.
            ``(20) Dental services.
            ``(21) Inpatient substance abuse treatment services 
        and residential substance abuse treatment services.
            ``(22) Outpatient substance abuse treatment 
        services.
            ``(23) Case management services.
            ``(24) Care coordination services.
            ``(25) Physical therapy, occupational therapy, and 
        services for individuals with speech, hearing, and 
        language disorders.
            ``(26) Hospice care.
            ``(27) Any other medical, diagnostic, screening, 
        preventive, restorative, remedial, therapeutic, or 
        rehabilitative services (whether in a facility, home, 
        school, or other setting) if recognized by State law 
        and only if the service is--
                    ``(A) prescribed by or furnished by a 
                physician or other licensed or registered 
                practitioner within the scope of practice as 
                defined by State law,
                    ``(B) performed under the general 
                supervision or at the direction of a physician, 
                or
                    ``(C) furnished by a health care facility 
                that is operated by a State or local government 
                or is licensed under State law and operating 
                within the scope of the license.
            ``(28) Premiums for private health care insurance 
        coverage, including private long-term care insurance 
        coverage.
            ``(29) Medical transportation.
            ``(30) Medicare cost-sharing (as defined in 
        subsection (c)).
            ``(31) Enabling services (such as transportation, 
        translation, and outreach services) only if designed to 
        increase the accessibility of primary and preventive 
        health care services for eligible low-income 
        individuals.
            ``(32) Any other health care services or items 
        specified by the Secretary and not excluded under this 
        section.
    ``(b) Eligible Low-Income Individual.--
            ``(1) In general.--The term `eligible low-income 
        individual' means an individual--
                    ``(A) who has been determined eligible by 
                the State for medical assistance under the 
                MediGrant plan and is not an inmate of a public 
                institution (except as a patient in a State 
                psychiatric hospital), and
                    ``(B) whose family income (as determined 
                under the plan) does not exceed a percentage 
                (specified in the MediGrant plan and not to 
                exceed 275 percent) of the poverty line for a 
                family of the size involved.
            ``(2) Amount of income.--In determining the amount 
        of income under paragraph (1)(B), a State may exclude 
        costs incurred for medical care or other types of 
        remedial care recognized by the State.
    ``(c) Medicare Cost-Sharing.--For purposes of this title, 
the term `medicare cost-sharing' means any of the following:
            ``(1)(A) Premiums under section 1839.
            ``(B) Premiums under section 1818 or 1818A.
            ``(2) Coinsurance under title XVIII (including 
        coinsurance described in section 1813).
            ``(3) Deductibles established under title XVIII 
        (including those described in sections 1813 and 
        1833(b)).
            ``(4) The difference between the amount that is 
        paid under section 1833(a) and the amount that would be 
        paid under such section if any reference to `80 
        percent' therein were deemed a reference to `100 
        percent'.
            ``(5) Premiums for enrollment of an individual with 
        an eligible organization under section 1876 or with a 
        MedicarePlus organization under part C of title XVIII.
    ``(d) Additional Definitions.--For purposes of this title:
            ``(1) Child.--The term `child' means an individual 
        under 19 years of age.
            ``(2) Elderly individual.--The term `elderly 
        individual' means an individual who has attained 
        retirement age, as defined under section 216(l)(1).
            ``(3) Poverty line defined.--The term `poverty 
        line' has the meaning given such term in section 673(2) 
        of the Community Services Block Grant Act (42 U.S.C. 
        9902(2)), including any revision required by such 
        section).
            ``(4) Pregnant woman.--The term `pregnant woman' 
        includes a woman during the 60-day period beginning on 
        the last day of the pregnancy.

``SEC. 2172. TREATMENT OF TERRITORIES.

    ``Notwithstanding any other requirement of this title, the 
Secretary may waive or modify any requirement of this title 
with respect to the medical assistance program for a State 
other than the 50 States and the District of Columbia, other 
than a waiver of--
            ``(1) the applicable Federal medical assistance 
        percentage,
            ``(2) the limitation on total payments in a fiscal 
        year to the amount of the allotment under section 
        2121(c), or
            ``(3) the requirement that payment may be made for 
        medical assistance only with respect to amounts 
        expended by the State for care and services described 
        in section 2171(a) and medically-related services (as 
        defined in section 2112(e)(2)).

``SEC. 2173. DESCRIPTION OF TREATMENT OF INDIAN HEALTH SERVICE 
                    FACILITIES.

    ``In the case of a State in which one or more facilities of 
the Indian Health Service are located, the MediGrant plan shall 
include a description of--
            ``(1) what provision (if any) has been made for 
        payment for items and services furnished by such 
        facilities, and
            ``(2) the manner in which medical assistance for 
        low-income eligible individuals who are Indians will be 
        provided, as determined by the State in consultation 
        with the appropriate Indian tribes and tribal 
        organizations.

``SEC. 2174. APPLICATION OF CERTAIN GENERAL PROVISIONS.

    ``The following sections in part A of title XI shall apply 
to States under this title in the same manner as they applied 
to a State under title XIX:
            ``(1) Section 1101(a)(1) (relating to definition of 
        State).
            ``(2) Section 1116 (relating to administrative and 
        judicial review), but only insofar as consistent with 
        the provisions of part C.
            ``(3) Section 1124 (relating to disclosure of 
        ownership and related information).
            ``(4) Section 1126 (relating to disclosure of 
        information about certain convicted individuals).
            ``(5) Section 1128B(d) (relating to criminal 
        penalties for certain additional charges).
            ``(6) Section 1132 (relating to periods within 
        which claims must be filed).

``SEC. 2175. MEDIGRANT MASTER DRUG REBATE AGREEMENTS.

    ``(a) Requirement for Manufacturer To Enter Into 
Agreement.--
            ``(1) In general.--Pursuant to section 2123(f), in 
        order for payment to be made to a State under part C 
        for medical assistance for covered outpatient drugs of 
        a manufacturer, the manufacturer shall enter into and 
        have in effect a MediGrant master rebate agreement 
        described in subsection (b) with the Secretary on 
        behalf of States electing to participate in the 
        agreement.
            ``(2) Coverage of drugs not covered under rebate 
        agreements.--Nothing in this section shall be construed 
        to prohibit a State in its discretion from providing 
        coverage under its MediGrant plan of a covered 
        outpatient drug for which no rebate agreement is in 
        effect under this section.
            ``(3) Effect on existing agreements.--If a State 
        has a rebate agreement in effect with a manufacturer on 
        the date of the enactment of this section which 
        provides for a minimum aggregate rebate equal to or 
        greater than the minimum aggregate rebate which would 
        otherwise be paid under the MediGrant master agreement 
        under this section, at the option of the State--
                    ``(A) such agreement shall be considered to 
                meet the requirements of the MediGrant master 
                rebate agreement, and
                    ``(B) the State shall be considered to have 
                elected to participate in the MediGrant master 
                rebate agreement.
            ``(4) Limitation on prices of drugs purchased by 
        covered entities.--
                    ``(A) Agreement with secretary.--A 
                manufacturer meets the requirements of this 
                paragraph if the manufacturer has entered into 
                an agreement with the Secretary that meets the 
                requirements of section 340B of the Public 
                Health Service Act with respect to covered 
                outpatient drugs purchased by a covered entity 
                on or after the first day of the first month 
                that begins after the date of the enactment of 
                title VI of the Veterans Health Care Act of 
                1992.
                    ``(B) Covered entity defined.--In this 
                subsection, the term `covered entity' means an 
                entity described in section 340B(a)(4) of the 
                Public Health Service Act provided that--
                            ``(i) an entity is licensed by the 
                        State to purchase and take possession 
                        of covered outpatient drugs and 
                        furnishes the drugs to patients at a 
                        cost no greater than acquisition plus 
                        such dispensing fee as may be allowable 
                        under a State pharmaceutical assistance 
                        program, and
                            ``(ii) such entity is certified 
                        pursuant to section 340B(a)(7) of such 
                        Act.
                    ``(C) Establishment of alternative 
                mechanism to ensure against duplicate discounts 
                or rebates.--If the Secretary does not 
                establish a mechanism under section 
                340B(a)(5)(A) of the Public Health Service Act 
                within 12 months of the date of the enactment 
                of such section, the following requirements 
                shall apply:
                            ``(i) Each covered entity shall 
                        inform the single State agency under 
                        this title when it is seeking 
                        reimbursement from the medicaid plan 
                        for medical assistance with respect to 
                        a unit of any covered outpatient drug 
                        which is subject to an agreement under 
                        section 340B(a) of such Act.
                            ``(ii) Each such single State 
                        agency shall provide a means by which a 
                        covered entity shall indicate on any 
                        drug reimbursement claims form (or 
                        format, where electronic claims 
                        management is used) that a unit of the 
                        drug that is the subject of the form is 
                        subject to an agreement under section 
                        340B of such Act, and not submit to any 
                        manufacturer a claim for a rebate 
                        payment under subsection (b) with 
                        respect to such a drug.
                    ``(D) Effect of subsequent amendments.--In 
                determining whether an agreement under 
                subparagraph (A) meets the requirements of 
                section 340B of the Public Health Service Act, 
                the Secretary shall not take into account any 
                amendments to such section that are enacted 
                after the enactment of title VI of the Veterans 
                Health Care Act of 1992.
                    ``(E) Determination of compliance.--A 
                manufacturer is deemed to meet the requirements 
                of this paragraph if the manufacturer 
                establishes to the satisfaction of the 
                Secretary that the manufacturer would comply 
                (and has offered to comply) with the provisions 
                of section 340B of the Public Health Service 
                Act (as in effect immediately after the 
                enactment title VI of the Veterans Health Care 
                Act of 1992, and would have entered into an 
                agreement under such section (as such section 
                was in effect at such time), but for a 
                legislative change in such section after such 
                enactment.
    ``(b) Terms of Rebate Agreement.--
            ``(1) Periodic rebates.--The MediGrant master 
        rebate agreement under this section shall require the 
        manufacturer to provide, to the MediGrant plan of each 
        State participating in the agreement, a rebate for a 
        rebate period in an amount specified in subsection (c) 
        for covered outpatient drugs of the manufacturer 
        dispensed after the effective date of the agreement, 
        for which payment was made under the plan for such 
        period. Such rebate shall be paid by the manufacturer 
        not later than 30 days after the date of receipt of the 
        information described in paragraph (2) for the period 
        involved.
            ``(2) State provision of information.--
                    ``(A) State responsibility.--Each State 
                participating in the MediGrant master rebate 
                agreement shall report to each manufacturer not 
                later than 60 days after the end of each rebate 
                period and in a form consistent with a standard 
                reporting format established by the Secretary, 
                information on the total number of units of 
                each dosage form and strength and package size 
                of each covered outpatient drug, for which 
                payment was made under the MediGrant plan for 
                the period, and shall promptly transmit a copy 
                of such report to the Secretary.
                    ``(B) Audits.--A manufacturer may audit the 
                information provided (or required to be 
                provided) under subparagraph (A). Adjustments 
                to rebates shall be made to the extent that 
                information indicates that utilization was 
                greater or less than the amount previously 
                specified.
            ``(3) Manufacturer provision of price 
        information.--
                    ``(A) In general.--Each manufacturer which 
                is subject to the MediGrant master rebate 
                agreement under this section shall report to 
                the Secretary--
                            ``(i) not later than 30 days after 
                        the last day of each rebate period 
                        under the agreement, on the average 
                        manufacturer price (as defined in 
                        subsection (i)(1)) and, for single 
                        source drugs and innovator multiple 
                        source drugs, the manufacturer's best 
                        price (as defined in subsection 
                        (c)(1)(C)) for each covered outpatient 
                        drug for the rebate period under the 
                        agreement, and
                            ``(ii) not later than 30 days after 
                        the date of entering into an agreement 
                        under this section, on the average 
                        manufacturer price (as defined in 
                        subsection (i)(1)) as of October 1, 
                        1990, for each of the manufacturer's 
                        covered outpatient drugs.
                    ``(B) Verification surveys of average 
                manufacturer price.--The Secretary may survey 
                wholesalers and manufacturers that directly 
                distribute their covered outpatient drugs, when 
                necessary, to verify manufacturer prices 
                reported under subparagraph (A). The Secretary 
                may impose a civil monetary penalty in an 
                amount not to exceed $10,000 on a wholesaler, 
                manufacturer, or direct seller, if the 
                wholesaler, manufacturer, or direct seller of a 
                covered outpatient drug refuses a request for 
                information by the Secretary in connection with 
                a survey under this subparagraph. The 
                provisions of section 1128A (other than 
                subsections (a) (with respect to amounts of 
                penalties or additional assessments) and (b)) 
                shall apply to a civil money penalty under this 
                subparagraph in the same manner as such 
                provisions apply to a penalty or proceeding 
                under section 1128A(a).
                    ``(C) Penalties.--
                            ``(i) Failure to provide timely 
                        information.--In the case of a 
                        manufacturer which is subject to the 
                        MediGrant master rebate agreement that 
                        fails to provide information required 
                        under subparagraph (A) on a timely 
                        basis, the amount of the penalty shall 
                        be $10,000 for each day in which such 
                        information has not been provided and 
                        such amount shall be paid to the 
                        Treasury. If such information is not 
                        reported within 90 days of the deadline 
                        imposed, the agreement shall be 
                        suspended for services furnished after 
                        the end of such 90-day period and until 
                        the date such information is reported 
                        (but in no case shall such suspension 
                        be for a period of less than 30 days).
                            ``(ii) False information.--Any 
                        manufacturer which is subject to the 
                        MediGrant master rebate agreement, or a 
                        wholesaler or direct seller, that 
                        knowingly provides false information 
                        under subparagraph (A) or (B) is 
                        subject to a civil money penalty in an 
                        amount not to exceed $100,000 for each 
                        item of false information. Any such 
                        civil money penalty shall be in 
                        addition to other penalties as may be 
                        prescribed by law. The provisions of 
                        section 1128A (other than subsections 
                        (a) and (b)) shall apply to a civil 
                        money penalty under this subparagraph 
                        in the same manner as such provisions 
                        apply to a penalty or proceeding under 
                        section 1128A(a).
                    ``(D) Confidentiality of information.--
                Notwithstanding any other provision of law, 
                information disclosed by manufacturers or 
                wholesalers under this paragraph or under an 
                agreement with the Secretary of Veterans 
                Affairs described in section 2123(f) is 
                confidential and shall not be disclosed by the 
                Secretary or the Secretary of Veterans Affairs 
                or a State agency (or contractor therewith) in 
                a form which discloses the identity of a 
                specific manufacturer or wholesaler or the 
                prices charged for drugs by such manufacturer 
                or wholesaler, except--
                            ``(i) as the Secretary determines 
                        to be necessary to carry out this 
                        section,
                            ``(ii) to permit the Comptroller 
                        General to review the information 
                        provided, and
                            ``(iii) to permit the Director of 
                        the Congressional Budget Office to 
                        review the information provided.
            ``(4) Length of agreement.--
                    ``(A) In general.--The MediGrant master 
                rebate agreement under this section shall be 
                effective for an initial period of not less 
                than 1 year and shall be automatically renewed 
                for a period of not less than one year unless 
                terminated under subparagraph (B).
                    ``(B) Termination.--
                            ``(i) By the secretary.--The 
                        Secretary may provide for termination 
                        of the MediGrant master rebate 
                        agreement with respect to a 
                        manufacturer for violation of the 
                        requirements of the agreement or other 
                        good cause shown. Such termination 
                        shall not be effective earlier than 60 
                        days after the date of notice of such 
                        termination. The Secretary shall 
                        provide, upon request, a manufacturer 
                        with a hearing concerning such a 
                        termination, but such hearing shall not 
                        delay the effective date of the 
                        termination. Failure of a State to 
                        provide any advance notice of such a 
                        termination as required by regulation 
                        shall not affect the State's right to 
                        terminate coverage of the drugs 
                        affected by such termination as of the 
                        effective date of such termination.
                            ``(ii) By a manufacturer.--A 
                        manufacturer may terminate its 
                        participation in the MediGrant master 
                        rebate agreement under this section for 
                        any reason. Any such termination shall 
                        not be effective until the calendar 
                        quarter beginning at least 60 days 
                        after the date the manufacturer 
                        provides notice to the Secretary.
                            ``(iii) Effectiveness of 
                        termination.--Any termination under 
                        this subparagraph shall not affect 
                        rebates due under the agreement before 
                        the effective date of its termination.
                            ``(iv) Notice to states.--In the 
                        case of a termination under this 
                        subparagraph, the Secretary shall 
                        provide notice of such termination to 
                        the States within not less than 30 days 
                        before the effective date of such 
                        termination.
                            ``(v) Application to terminations 
                        of other agreements.--The provisions of 
                        this subparagraph shall apply to the 
                        terminations of master agreements 
                        described in section 8126(a) of title 
                        38, United States Code.
                    ``(C) Delay before reentry.--In the case of 
                any rebate agreement with a manufacturer under 
                this section which is terminated, another such 
                agreement with the manufacturer (or a successor 
                manufacturer) may not be entered into until a 
                period of 1 calendar quarter has elapsed since 
                the date of the termination, unless the 
                Secretary finds good cause for an earlier 
                reinstatement of such an agreement.
            ``(5) Settlement of disputes.--
                    ``(A) Secretary.--The Secretary shall have 
                the authority to resolve, settle, and 
                compromise disputes regarding the amounts of 
                rebates owed under this section and section 
                1927.
                    ``(B) State.--Each State, with respect to 
                covered outpatient drugs paid for under the 
                State's MediGrant plan, shall have authority, 
                independent of the Secretary' authority under 
                subparagraph (A), to resolve, settle, and 
                compromise disputes regarding the amounts of 
                rebates owed under this section. Any such 
                action shall be deemed to comply with the 
                requirements of this title, and such covered 
                outpatient drugs shall be eligible for payment 
                under the MediGrant plan under this title.
                    ``(C) Amount of rebate.--The Secretary 
                shall limit the amount of the rebate payable in 
                any case in which the Secretary determines 
                that, because of unusual circumstances or 
                questionable data, the provisions of subsection 
                (c) result in a rebate amount that is 
                inequitable or otherwise inconsistent with the 
                purposes of this section.
    ``(c) Determination of Amount of Rebate.--
            ``(1) Basic rebate for single source drugs and 
        innovator multiple source drugs.--
                    ``(A) In general.--Except as provided in 
                paragraph (2), the amount of the rebate 
                specified in this subsection with respect to a 
                State participating in the MediGrant master 
                rebate agreement for a rebate period (as 
                defined in subsection (i)(7)) with respect to 
                each dosage form and strength of a single 
                source drug or an innovator multiple source 
                drug shall be equal to the product of--
                            ``(i) the total number of units of 
                        each dosage form and strength paid for 
                        under the State MediGrant plan in the 
                        rebate period (as reported by the 
                        State); and
                            ``(ii) the greater of--
                                    ``(I) the difference 
                                between the average 
                                manufacturer price and the best 
                                price (as defined in 
                                subparagraph (C)) for the 
                                dosage form and strength of the 
                                drug, or
                                    ``(II) the minimum rebate 
                                percentage (specified in 
                                subparagraph (B)) of such 
                                average manufacturer price,
                        for the rebate period.
                    ``(B) Minimum rebate percentage.--For 
                purposes of subparagraph (A)(ii)(II), the 
                `minimum rebate percentage' is 15 percent.
                    ``(C) Best price defined.--For purposes of 
                this section--
                            ``(i) In general.--The term `best 
                        price' means, with respect to a single 
                        source drug or innovator multiple 
                        source drug of a manufacturer, the 
                        lowest price available from the 
                        manufacturer during the rebate period 
                        to any wholesaler, retailer, provider, 
                        health maintenance organization, 
                        nonprofit entity, or governmental 
                        entity within the United States, 
                        excluding--
                                    ``(I) any prices charged on 
                                or after October 1, 1992, to 
                                the Indian Health Service, the 
                                Department of Veterans Affairs, 
                                a State home receiving funds 
                                under section 1741 of title 38, 
                                United States Code, the 
                                Department of Defense, the 
                                Public Health Service, or a 
                                covered entity described in 
                                section 340B(a)(4) of the 
                                Public Health Service Act,
                                    ``(II) any prices charged 
                                under the Federal Supply 
                                Schedule of the General 
                                Services Administration,
                                    ``(III) any prices used 
                                under a State pharmaceutical 
                                assistance program, and
                                    ``(IV) any depot prices and 
                                single award contract prices, 
                                as defined by the Secretary, of 
                                any agency of the Federal 
                                Government.
                            ``(ii) Special rules.--The term 
                        `best price'--
                                    ``(I) shall be inclusive of 
                                cash discounts, free goods that 
                                are contingent on any purchase 
                                requirement, volume discounts, 
                                and rebates (other than rebates 
                                under this section),
                                    ``(II) shall be determined 
                                without regard to special 
                                packaging, labeling, or 
                                identifiers on the dosage form 
                                or product or package,
                                    ``(III) shall not take into 
                                account prices that are merely 
                                nominal in amount, and
                                    ``(IV) shall exclude 
                                rebates paid under this section 
                                or any other rebates paid to a 
                                State participating in the 
                                MediGrant master rebate 
                                agreement.
            ``(2) Additional rebate for single source and 
        innovator multiple source drugs.--
                    ``(A) In general.--The amount of the rebate 
                specified in this subsection with respect to a 
                State participating in the MediGrant master 
                rebate agreement for a rebate period, with 
                respect to each dosage form and strength of a 
                single source drug or an innovator multiple 
                source drug, shall be increased by an amount 
                equal to the product of--
                            ``(i) the total number of units of 
                        such dosage form and strength dispensed 
                        after December 31, 1990, for which 
                        payment was made under the MediGrant 
                        plan for the rebate period; and
                            ``(ii) the amount (if any) by 
                        which--
                                    ``(I) the average 
                                manufacturer price for the 
                                dosage form and strength of the 
                                drug for the period, exceeds
                                    ``(II) the average 
                                manufacturer price for such 
                                dosage form and strength for 
                                the calendar quarter beginning 
                                July 1, 1990 (without regard to 
                                whether or not the drug has 
                                been sold or transferred to an 
                                entity, including a division or 
                                subsidiary of the manufacturer, 
                                after the first day of such 
                                quarter), increased by the 
                                percentage by which the 
                                Consumer Price Index for All 
                                Urban Consumers (United States 
                                city average) for the month 
                                before the month in which the 
                                rebate period begins exceeds 
                                such index for September 1990.
                    ``(B) Treatment of subsequently approved 
                drugs.--In the case of a covered outpatient 
                drug approved by the Food and Drug 
                Administration after October 1, 1990, clause 
                (ii)(II) of subparagraph (A) shall be applied 
                by substituting `the first full calendar 
                quarter after the day on which the drug was 
                first marketed' for `the calendar quarter 
                beginning July 1, 1990' and `the month prior to 
                the first month of the first full calendar 
                quarter after the day on which the drug was 
                first marketed' for `September 1990'.
            ``(3) Rebate for other drugs.--
                    ``(A) In general.--The amount of the rebate 
                paid to a State participating in the MediGrant 
                master rebate agreement for a rebate period 
                with respect to each dosage form and strength 
                of covered outpatient drugs (other than single 
                source drugs and innovator multiple source 
                drugs) shall be equal to the product of--
                            ``(i) the applicable percentage (as 
                        described in subparagraph (B)) of the 
                        average manufacturer price for the 
                        dosage form and strength for the rebate 
                        period, and
                            ``(ii) the total number of units of 
                        such dosage form and strength dispensed 
                        after December 31, 1990, for which 
                        payment was made under the MediGrant 
                        plan for the rebate period.
                    ``(B) Applicable percentage defined.--For 
                purposes of subparagraph (A)(i), the 
                `applicable percentage' is 11 percent.
            ``(4) Limitation on amount of rebate to amounts 
        paid for certain drugs.--
                    ``(A) In general.--Upon request of the 
                manufacturer of a covered outpatient drug, the 
                Secretary shall limit, in accordance with 
                subparagraph (B), the amount of the rebate 
                under this subsection with respect to a dosage 
                form and strength of such drug if the majority 
                of the estimated number of units of such dosage 
                form and strength that are subject to rebates 
                under this section were dispensed to inpatients 
                of nursing facilities.
                    ``(B) Amount of rebate.--In the case of a 
                covered outpatient drug subject to subparagraph 
                (A), the amount of the rebate specified in this 
                subsection for a rebate period, with respect to 
                each dosage form and strength of such drug, 
                shall not exceed the amount paid under the 
                MediGrant plan with respect to such dosage form 
                and strength of the drug in the rebate period 
                (without consideration of any dispensing fees 
                paid).
            ``(5) Supplemental rebates prohibited.--No rebates 
        shall be required to be paid by manufacturers with 
        respect to covered outpatient drugs furnished to 
        individuals in any State that provides for the 
        collection of such rebates in excess of the rebate 
        amount payable under this section.
    ``(d) Limitations on Coverage of Drugs by States 
Participating in Master Agreement.--
            ``(1) Permissible restrictions.--A State 
        participating in the MediGrant master rebate agreement 
        under this section may--
                    ``(A) subject to prior authorization under 
                its MediGrant plan any covered outpatient drug 
                so long as any such prior authorization program 
                complies with the requirements of paragraph 
                (5); and
                    ``(B) exclude or otherwise restrict 
                coverage under its plan of a covered outpatient 
                drug if--
                            ``(i) the drug is contained in the 
                        list referred to in paragraph (2);
                            ``(ii) the drug is subject to such 
                        restrictions pursuant to the MediGrant 
                        master rebate agreement or any 
                        agreement described in subsection 
                        (a)(4); or
                            ``(iii) the State has excluded 
                        coverage of the drug from its formulary 
                        established in accordance with 
                        paragraph (4).
            ``(2) List of drugs subject to restriction.--The 
        following drugs or classes of drugs, or their medical 
        uses, may be excluded from coverage or otherwise 
        restricted by a State participating in the MediGrant 
        master rebate agreement:
                    ``(A) Agents when used for anorexia, weight 
                loss, or weight gain.
                    ``(B) Agents when used to promote 
                fertility.
                    ``(C) Agents when used for cosmetic 
                purposes or hair growth.
                    ``(D) Agents when used for the symptomatic 
                relief of cough and colds.
                    ``(E) Agents when used to promote smoking 
                cessation.
                    ``(F) Prescription vitamins and mineral 
                products, except prenatal vitamins and fluoride 
                preparations.
                    ``(G) Nonprescription drugs.
                    ``(H) Covered outpatient drugs which the 
                manufacturer seeks to require as a condition of 
                sale that associated tests or monitoring 
                services be purchased exclusively from the 
                manufacturer or its designee.
                    ``(I) Barbiturates.
                    ``(J) Benzodiazepines.
            ``(3) Additions to drug listings.--The Secretary 
        shall, by regulation, periodically update the list of 
        drugs or classes of drugs described in paragraph (2), 
        or their medical uses, which the Secretary has 
        determined to be subject to clinical abuse or 
        inappropriate use.
            ``(4) Requirements for formularies.--A State 
        participating in the MediGrant master rebate agreement 
        may establish a formulary if the formulary meets the 
        following requirements:
                    ``(A) The formulary is developed by a 
                committee consisting of physicians, 
                pharmacists, and other appropriate individuals 
                appointed by the Governor of the State.
                    ``(B) Except as provided in subparagraph 
                (C), the formulary includes the covered 
                outpatient drugs of any manufacturer which has 
                entered into and complies with the agreement 
                under subsection (a) (other than any drug 
                excluded from coverage or otherwise restricted 
                under paragraph (2)).
                    ``(C) A covered outpatient drug may be 
                excluded with respect to the treatment of a 
                specific disease or condition for an identified 
                population (if any) only if, based on the 
                drug's labeling (or, in the case of a drug the 
                prescribed use of which is not approved under 
                the Federal Food, Drug, and Cosmetic Act but is 
                a medically accepted indication, based on 
                information from the appropriate compendia 
                described in subsection (i)(5)), the excluded 
                drug does not have a significant, clinically 
                meaningful therapeutic advantage in terms of 
                safety, effectiveness, or clinical outcome of 
                such treatment for such population over other 
                drugs included in the formulary and there is a 
                written explanation (available to the public) 
                of the basis for the exclusion.
                    ``(D) The State MediGrant plan permits 
                coverage of a drug excluded from the formulary 
                (other than any drug excluded from coverage or 
                otherwise restricted under paragraph (2)) 
                pursuant to a prior authorization program that 
                is consistent with paragraph (5).
                    ``(E) The formulary meets such other 
                requirements as the Secretary may impose in 
                order to achieve program savings consistent 
                with protecting the health of program 
                beneficiaries.
        A prior authorization program established by a State 
        under paragraph (5) is not a formulary subject to the 
        requirements of this paragraph.
            ``(5) Requirements of prior authorization 
        programs.--The MediGrant plan of a State participating 
        in the MediGrant master rebate agreement may require, 
        as a condition of coverage or payment for a covered 
        outpatient drug for which Federal financial 
        participation is available in accordance with this 
        section, the approval of the drug before its dispensing 
        for any medically accepted indication (as defined in 
        subsection (i)(5)) only if the system providing for 
        such approval--
                    ``(A) provides response by telephone or 
                other telecommunication device within 24 hours 
                of a request for prior authorization, and
                    ``(B) except with respect to the drugs on 
                the list referred to in paragraph (2), provides 
                for the dispensing of at least a 72-hour supply 
                of a covered outpatient prescription drug in an 
                emergency situation (as defined by the 
                Secretary).
            ``(6) Other permissible restrictions.--A State 
        participating in the MediGrant master rebate agreement 
        may impose limitations, with respect to all such drugs 
        in a therapeutic class, on the minimum or maximum 
        quantities per prescription or on the number of 
        refills, if such limitations are necessary to 
        discourage waste, and may address instances of fraud or 
        abuse by individuals in any manner authorized under 
        this Act.
    ``(e) Drug Use Review.--
            ``(1) In general.--A State participating in the 
        MediGrant master rebate agreement may provide for a 
        drug use review program to educate physicians and 
        pharmacists to identify and reduce the frequency of 
        patterns of fraud, abuse, gross overuse, or 
        inappropriate or medically unnecessary care, among 
        physicians, pharmacists, and patients, or associated 
        with specific drugs or groups of drugs, as well as 
        potential and actual severe adverse reactions to drugs.
            ``(2) Application of state standards.--Except as 
        provided in subparagraph (B), a State with a drug use 
        review program under this subsection shall establish 
        and operate the program under such standards as it may 
        establish.
    ``(f) Electronic Claims Management.--In accordance with 
chapter 35 of title 44, United States Code (relating to 
coordination of Federal information policy), the Secretary 
shall encourage each State to establish, as its principal means 
of processing claims for covered outpatient drugs under its 
MediGrant plan, a point-of-sale electronic claims management 
system, for the purpose of performing on-line, real time 
eligibility verifications, claims data capture, adjudication of 
claims, and assisting pharmacists (and other authorized 
persons) in applying for and receiving payment.
    ``(g) Annual Report.--
            ``(1) In general.--Not later than May 1 of each 
        year, the Secretary shall transmit to the Committee on 
        Finance of the Senate, and the Committee on Commerce of 
        the House of Representatives, a report on the operation 
        of this section in the preceding fiscal year.
            ``(2) Details.--Each report shall include 
        information on--
                    ``(A) ingredient costs paid under this 
                title for single source drugs, multiple source 
                drugs, and nonprescription covered outpatient 
                drugs,
                    ``(B) the total value of rebates received 
                and number of manufacturers providing such 
                rebates,
                    ``(C) the effect of inflation on the value 
                of rebates required under this section,
                    ``(D) trends in prices paid under this 
                title for covered outpatient drugs, and
                    ``(E) Federal and State administrative 
                costs associated with compliance with the 
                provisions of this title.
    ``(h) Exemption for Capitated Health Care Organizations, 
Hospitals, and Nursing Facilities.--
            ``(1) In general.--Except as provided in paragraph 
        (2), the requirements of the MediGrant master rebate 
        agreement under this section shall not apply with 
        respect to covered outpatient drugs dispensed by or 
        through--
                    ``(A) a capitated health care organization 
                (as defined in section 2114(c)(1)), or
                    ``(B) a hospital or nursing facility that 
                dispenses covered outpatient drugs using a drug 
                formulary system and bills the State no more 
                than the hospital's or facility's purchasing 
                costs for covered outpatient drugs.
            ``(2) Construction in determining best price.--
        Nothing in paragraph (1) shall be construed as 
        excluding amounts paid by the entities described in 
        such paragraph for covered outpatient drugs from the 
        determination of the best price (as defined in 
        subsection (c)(1)(C)) for such drugs.
    ``(i) Definitions.--In the section--
            ``(1) Average manufacturer price.--The term 
        `average manufacturer price' means, with respect to a 
        covered outpatient drug of a manufacturer for a rebate 
        period, the average price paid to the manufacturer for 
        the drug in the United States by wholesalers for drugs 
        distributed to the retail pharmacy class of trade, 
        after deducting customary prompt pay discounts.
            ``(2) Covered outpatient drug.--Subject to the 
        exceptions in paragraph (3), the term `covered 
        outpatient drug' means--
                    ``(A) of those drugs which are treated as 
                prescribed drugs for purposes of section 
                2171(a)(8), a drug which may be dispensed only 
                upon prescription (except as provided in 
                subparagraph (D)), and--
                            ``(i) which is approved as a 
                        prescription drug under section 505 or 
                        507 of the Federal Food, Drug, and 
                        Cosmetic Act;
                            ``(ii)(I) which was commercially 
                        used or sold in the United States 
                        before the date of the enactment of the 
                        Drug Amendments of 1962 or which is 
                        identical, similar, or related (within 
                        the meaning of section 310.6(b)(1) of 
                        title 21 of the Code of Federal 
                        Regulations) to such a drug, and (II) 
                        which has not been the subject of a 
                        final determination by the Secretary 
                        that it is a `new drug' (within the 
                        meaning of section 201(p) of the 
                        Federal Food, Drug, and Cosmetic Act) 
                        or an action brought by the Secretary 
                        under section 301, 302(a), or 304(a) of 
                        such Act to enforce section 502(f) or 
                        505(a) of such Act; or
                            ``(iii)(I) which is described in 
                        section 107(c)(3) of the Drug 
                        Amendments of 1962 and for which the 
                        Secretary has determined there is a 
                        compelling justification for its 
                        medical need, or is identical, similar, 
                        or related (within the meaning of 
                        section 310.6(b)(1) of title 21 of the 
                        Code of Federal Regulations) to such a 
                        drug, and (II) for which the Secretary 
                        has not issued a notice of an 
                        opportunity for a hearing under section 
                        505(e) of the Federal Food, Drug, and 
                        Cosmetic Act on a proposed order of the 
                        Secretary to withdraw approval of an 
                        application for such drug under such 
                        section because the Secretary has 
                        determined that the drug is less than 
                        effective for some or all conditions of 
                        use prescribed, recommended, or 
                        suggested in its labeling;
                    ``(B) a biological product, other than a 
                vaccine which--
                            ``(i) may only be dispensed upon 
                        prescription,
                            ``(ii) is licensed under section 
                        351 of the Public Health Service Act, 
                        and
                            ``(iii) is produced at an 
                        establishment licensed under such 
                        section to produce such product;
                    ``(C) insulin certified under section 506 
                of the Federal Food, Drug, and Cosmetic Act; 
                and
                    ``(D) a drug which may be sold without a 
                prescription (commonly referred to as an `over-
                the-counter drug'), if the drug is prescribed 
                by a physician (or other person authorized to 
                prescribe under State law).
            ``(3) Limiting definition.--The term `covered 
        outpatient drug' does not include any drug, biological 
        product, or insulin provided as part of, or as incident 
        to and in the same setting as, any of the following 
        (and for which payment may be made under a MediGrant 
        plan as part of payment for the following and not as 
        direct reimbursement for the drug):
                    ``(A) Inpatient hospital services.
                    ``(B) Hospice services.
                    ``(C) Dental services, except that drugs 
                for which the MediGrant plan authorizes direct 
                reimbursement to the dispensing dentist are 
                covered outpatient drugs.
                    ``(D) Physicians' services.
                    ``(E) Outpatient hospital services.
                    ``(F) Nursing facility services and 
                services provided by an intermediate care 
                facility for the mentally retarded.
                    ``(G) Other laboratory and x-ray services.
                    ``(H) Renal dialysis services.
        Such term also does not include any such drug or 
        product for which a National Drug Code number is not 
        required by the Food and Drug Administration or a drug 
        or biological used for a medical indication which is 
        not a medically accepted indication. Any drug, 
        biological product, or insulin excluded from the 
        definition of such term as a result of this paragraph 
        shall be treated as a covered outpatient drug for 
        purposes of determining the best price (as defined in 
        subsection (c)(1)(C)) for such drug, biological 
        product, or insulin.
            ``(4) Manufacturer.--The term `manufacturer' means, 
        with respect to a covered outpatient drug, the entity 
        holding legal title to or possession of the National 
        Drug Code number for such drug.
            ``(5) Medically accepted indication.--The term 
        `medically accepted indication' means any use for a 
        covered outpatient drug which is approved under the 
        Federal Food, Drug, and Cosmetic Act, or the use of 
        which is supported by one or more citations included or 
        approved for inclusion in any of the following 
        compendia:
                    ``(A) American Hospital Formulary Service 
                Drug Information.
                    ``(B) United States Pharmacopeia-Drug 
                Information.
                    ``(C) American Medical Association Drug 
                Evaluations.
                    ``(D) The DRUGDEX Information System.
                    ``(E) The peer-reviewed medical literature.
            ``(6) Multiple source drug; innovator multiple 
        source drug; noninnovator multiple source drug; single 
        source drug.--
                    ``(A) Defined.--
                            ``(i) Multiple source drug.--The 
                        term `multiple source drug' means, with 
                        respect to a rebate period, a covered 
                        outpatient drug (not including any drug 
                        described in paragraph (2)(D)) for 
                        which there are 2 or more drug products 
                        which--
                                    ``(I) are rated as 
                                therapeutically equivalent 
                                (under the Food and Drug 
                                Administration's most recent 
                                publication of `Approved Drug 
                                Products with Therapeutic 
                                Equivalence Evaluations'),
                                    ``(II) except as provided 
                                in subparagraph (B), are 
                                pharmaceutically equivalent and 
                                bioequivalent, as defined in 
                                subparagraph (C) and as 
                                determined by the Food and Drug 
                                Administration, and
                                    ``(III) are sold or 
                                marketed in the State during 
                                the period.
                            ``(ii) Innovator multiple source 
                        drug.--The term `innovator multiple 
                        source drug' means a multiple source 
                        drug that was originally marketed under 
                        an original new drug application or 
                        product licensing application approved 
                        by the Food and Drug Administration.
                            ``(iii) Noninnovator multiple 
                        source drug.--The term `noninnovator 
                        multiple source drug' means a multiple 
                        source drug that is not an innovator 
                        multiple source drug.
                            ``(iv) Single source drug.--The 
                        term `single source drug' means a 
                        covered outpatient drug which is 
                        produced or distributed under an 
                        original new drug application approved 
                        by the Food and Drug Administration, 
                        including a drug product marketed by 
                        any cross-licensed producers or 
                        distributors operating under the new 
                        drug application or product licensing 
                        application.
                    ``(B) Exception.--Subparagraph (A)(i)(II) 
                shall not apply if the Food and Drug 
                Administration changes by regulation the 
                requirement that, for purposes of the 
                publication described in subparagraph 
                (A)(i)(I), in order for drug products to be 
                rated as therapeutically equivalent, they must 
                be pharmaceutically equivalent and 
                bioequivalent, as defined in subparagraph (C).
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) drug products are 
                        pharmaceutically equivalent if the 
                        products contain identical amounts of 
                        the same active drug ingredient in the 
                        same dosage form and meet compendial or 
                        other applicable standards of strength, 
                        quality, purity, and identity,
                            ``(ii) drugs are bioequivalent if 
                        they do not present a known or 
                        potential bioequivalence problem, or, 
                        if they do present such a problem, they 
                        are shown to meet an appropriate 
                        standard of bioequivalence, and
                            ``(iii) a drug product is 
                        considered to be sold or marketed in a 
                        State if it appears in a published 
                        national listing of average wholesale 
                        prices selected by the Secretary, if 
                        the listed product is generally 
                        available to the public through retail 
                        pharmacies in that State.
            ``(7) Rebate period.--The term `rebate period' 
        means, with respect to an agreement under subsection 
        (a), a calendar quarter or other period specified by 
        the Secretary with respect to the payment of rebates 
        under such agreement.''.

SEC. 7002. TERMINATION OF CURRENT PROGRAM AND TRANSITION.

    (a) Termination of Current Program; Limitation on Medicaid 
Payments in Fiscal Year 1996.--
            (1) Repeal of title.--Title XIX of the Social 
        Security Act is repealed effective October 1, 1996, 
        except that the repeal of section 1928 of such Act is 
        effective on the date of the enactment of this Act and 
        the succeeding two sections of such title shall be 
        effective during fiscal year 1996 in the same manner 
        and to the same extent as such sections were effective 
        during fiscal year 1995.
            (2) Limitation on obligation authority.--
        Notwithstanding any other provision of such title--
                    (A) Post-enactment, pre-medigrant.--Subject 
                to subparagraph (B), the Secretary of Health 
                and Human Services (in this section referred to 
                as the ``Secretary'') may enter into 
                obligations under such title with any State (as 
                defined for purposes of such title) for 
                expenses incurred after the date of the 
                enactment of this Act and during fiscal year 
                1996, but not in excess of the obligation 
                allotment for that State for fiscal year 1996 
                under section 2121(a)(4) of the Social Security 
                Act (as added by section 7001).
                    (B) None after medigrant.--The Secretary is 
                not authorized to enter into any obligation 
                with any State under title XIX of such Act for 
                expenses incurred on or after the earlier of--
                            (i) October 1, 1996, or
                            (ii) the first day of the first 
                        quarter on which the State MediGrant 
                        plan under title XXI of such Act (as 
                        added by section 7001) is first 
                        effective.
                    (C) Agreement.--A State's submission of 
                claims for payment under section 1903 of such 
                Act after the date of the enactment of this Act 
                with respect to which the limitation described 
                in subparagraph (A) applies is deemed to 
                constitute the State's acceptance of the 
                obligation limitation under such subparagraph 
                (including the formula for computing the amount 
                of such obligation limitation).
                    (D) Effect on medical assistance.--
                Effective on the date of the enactment of this 
                section--
                            (i) except as provided in this 
                        paragraph, the Federal Government has 
                        no obligation to provide payment with 
                        respect to items and services provided 
                        under title XIX of the Social Security 
                        Act, and
                            (ii) such title and title XXI of 
                        such Act shall not be construed as 
                        providing for an entitlement, under 
                        Federal law in relation to the Federal 
                        Government, in an individual or person 
                        (including any provider) at the time of 
                        provision or receipt of services.
            (3) Requirement for timely submittal of claims.--No 
        payment shall be made to a State under title XIX of 
        such Act with respect to an obligation incurred before 
        the date of the enactment of this Act, unless the State 
        has submitted to the Secretary, by not later than June 
        30, 1996, a claim for Federal financial participation 
        for expenses paid by the State with respect to such 
        obligations. Nothing in paragraph (2) shall be 
        construed as affecting the obligation of the Federal 
        Government to pay claims described in the previous 
        sentence.
    (b) Medicaid-to-MediGrant Transition Provisions.--
            (1) Notwithstanding any provision of law, in the 
        case where payment has been made under section 1903(a) 
        of the Social Security Act to a State before October 1, 
        1995, and for which a disallowance has not been taken 
        as of such date (or, if so taken, has not been 
        completed, including judicial review, by such date), 
        the Secretary of Health and Human Services shall 
        discontinue the disallowance proceeding and, if such 
        disallowance has been taken as of the date of the 
        enactment of this Act, any payment reductions effected 
        shall be rescinded and the payments returned to the 
        State.
            (2) The repeal under subsection (a)(1) of section 
        1928 of the Social Security Act shall not affect the 
        distribution of vaccines purchased and delivered to the 
        States before the date of the enactment of this Act. No 
        vaccine may be purchased after such date by the Federal 
        Government or any State under any contract under 
        section 1928(d) of the Social Security Act.
            (3) No judicial or administrative decision rendered 
        regarding requirements imposed under title XIX of the 
        Social Security Act with respect to a State shall have 
        any application to the MediGrant plan of the State 
        title under XXI of such Act. A State may, pursuant to 
        the previous sentence, seek the abrogation or 
        modification of any such decision after the date of 
        termination of the State plan under title XIX of such 
        Act.
            (4) No cause of action under title XIX of the 
        Social Security Act which seeks to require a State to 
        establish or maintain minimum payment rates under such 
        title or claim which seeks reimbursement for any period 
        before the date of the enactment of this Act based on 
        the alleged failure of the State to comply with such 
        title and which has not become final as of such date 
        shall be brought or continued.
            (5) Section 6408(a)(3) of the Omnibus Budget 
        Reconciliation Act of 1989 (as amended by section 13642 
        of the Omnibus Budget Reconciliation Act of 1993) and 
        section 2 of Public Law 102-276 (as amended by section 
        13644 of the Omnibus Budget Reconciliation Act of 1993) 
        are each amended by striking ``December 31, 1995'' and 
        inserting ``October 1, 1996''.
    (c) Anti-Fraud Provisions.--Section 1128(h)(1) of the 
Social Security Act (42 U.S.C. 1320a-7(h)(1)) is amended by 
inserting ``or a MediGrant plan under title XXI'' after ``title 
XIX''.
    (d) Technical and Conforming Amendments.--
            (1) Secretarial submission of legislative 
        proposal.--Not later than 90 days after the date of the 
        enactment of this Act, the Secretary of Health and 
        Human Services, in consultation, as appropriate, with 
        heads of other Federal agencies and the States (as 
        defined in section 1101(a)(8) of the Social Security 
        Act for purposes of title XIX of such Act), shall 
        submit to the appropriate committees of Congress a 
        legislative proposal providing for such technical and 
        conforming amendments in the law as are required by the 
        provisions of, and amendments made by, this title.
            (2) Transitional rule.--Any reference in any 
        provision of law to title XIX of the Social Security 
        Act or any provision thereof shall be deemed to be a 
        reference to such title or provision as in effect on 
        the day before the date of the enactment of this Act.

SEC. 7003. MEDICARE/MEDIGRANT INTEGRATION DEMONSTRATION PROJECT.

    (a) Description of Projects.--
            (1) In general.--The Secretary of Health and Human 
        Services (in this section referred to as the 
        ``Secretary'') shall conduct demonstration projects 
        under this section to demonstrate the manner in which 
        States may use funds from the medicare program under 
        title XVIII of the Social Security Act and the 
        MediGrant program under title XXI of such Act (in this 
        section referred to as the ``medicare and MediGrant 
        programs'') for the purpose of providing a more cost-
        effective full continuum of care for delivering 
        services to meet the needs of chronically-ill elderly 
        and disabled beneficiaries who are eligible for items 
        and services under such programs, through integrated 
        systems of care, with an emphasis on case management, 
        prevention, and interventions designed to avoid 
        institutionalization whenever possible. The Secretary 
        shall use funds from the amounts appropriated for the 
        medicare and MediGrant programs to make the payments 
        required under subsection (d)(1).
            (2) Option to participate.--A State may not require 
        an individual eligible to receive items and services 
        under the medicare and MediGrant programs to 
        participate in a demonstration project under this 
        section.
    (b) Establishment.--The Secretary shall make payments in 
accordance with subsection (d) for the conduct of demonstration 
projects that provide for integrated systems of care in 
accordance with subsection (a). Not more than 10 demonstration 
projects shall be conducted under this section.
    (c) Applications.--Each State, or a coalition of States, 
desiring to conduct a demonstration project under this section 
shall prepare and submit to the Secretary an application at 
such time, in such manner, and containing such information as 
the Secretary may require, including an explanation of a plan 
for evaluating the project. The Secretary shall approve or deny 
an application not later than 90 days after the receipt of such 
application.
    (d) Payments.--
            (1) In general.--For each calendar quarter 
        occurring during a demonstration project conducted 
        under this section, the Secretary shall pay to each 
        entity designated under paragraph (3) an amount equal 
        to the Federal capitated payment rate determined under 
        paragraph (2).
            (2) Federal capitated payment rate.--The Secretary 
        shall determine the Federal capitated payment rate for 
        purposes of this section based on the anticipated 
        Federal quarterly cost of providing care to 
        chronically-ill elderly and disabled beneficiaries who 
        are eligible for items and services under the medicare 
        and MediGrant programs and who have elected to 
        participate in a demonstration project under this 
        section.
            (3) Designation of entity.--
                    (A) In general.--Each State, or coalition 
                of States, shall designate entities to directly 
                receive the payments described in paragraph 
                (1).
                    (B) Requirement.--A State, or a coalition 
                of States, may not designate an entity under 
                subparagraph (A) unless such entity meets the 
                quality, solvency, and coverage standards 
                applicable to providers of items and services 
                under the medicare and MediGrant programs.
            (4) State payments.--Each State conducting, or in 
        the case of a coalition of States, participating in a 
        demonstration project under this section shall pay to 
        the entities designated under paragraph (3) an amount 
        equal to the product of (A) 100 percent minus the 
        applicable Federal medical assistance percentage (as 
        defined in section 2122(e) of the Social Security Act) 
        for the State, and (B) the expenditures under the 
        project attributable to the MediGrant program for items 
        and services provided to chronically-ill elderly and 
        disabled beneficiaries who have elected to participate 
        in the demonstration.
            (5) Budget neutrality.--The aggregate amount of 
        Federal payments to entities designated by a State, or 
        coalition of States, under paragraph (3) for a fiscal 
        year shall not exceed the aggregate amount of such 
        payments that would otherwise have been made under the 
        medicare and MediGrant programs for such fiscal year 
        for items and services provided to beneficiaries under 
        such programs but for the election of such 
        beneficiaries to participate in a demonstration project 
        under this section.
    (e) Duration.--
            (1) In general.--The demonstration projects 
        conducted under this section shall be conducted for a 
        5-year period, subject to annual review and approval by 
        the Secretary.
            (2) Termination.--The Secretary may, with 90 days' 
        notice, terminate any demonstration project conducted 
        under this section that is not in substantial 
        compliance with the terms of the application approved 
        by the Secretary under this section.
    (f) Oversight.--The Secretary shall establish quality 
standards for evaluating and monitoring the demonstration 
projects conducted under this section. Such quality standards 
shall include reporting requirements which contain the 
following:
            (1) A description of the demonstration project.
            (2) An analysis of beneficiary satisfaction under 
        such project.
            (3) An analysis of the quality of the services 
        delivered under the project.
            (4) A description of the savings to the MediGrant 
        and medicare programs as a result of the demonstration 
        project.

                          TITLE VIII--MEDICARE

SEC. 8000. SHORT TITLE OF TITLE; AMENDMENTS AND REFERENCES TO OBRA; 
                    TABLE OF CONTENTS OF TITLE.

    (a) Short Title.--This title may be cited as the ``Medicare 
Preservation Act of 1995''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this title an amendment is 
expressed in terms of an amendment to or repeal of a section or 
other provision, the reference shall be considered to be made 
to that section or other provision of the Social Security Act.
    (c) References to OBRA.--In this title, the terms ``OBRA-
1986'', ``OBRA-1987'', ``OBRA-1989'', ``OBRA-1990'', and 
``OBRA-1993'' refer to the Omnibus Budget Reconciliation Act of 
1986 (Public Law 99-509), the Omnibus Budget Reconciliation Act 
of 1987 (Public Law 100-203), the Omnibus Budget Reconciliation 
Act of 1989 (Public Law 101-239), the Omnibus Budget 
Reconciliation Act of 1990 (Public Law 101-508), and the 
Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66), 
respectively.
    (d) Table of Contents of Title.--The table of contents of 
this title is as follows:

Sec. 8000. Short title of title; amendments and references to OBRA; 
          table of contents of title.

                    Subtitle A--MedicarePlus Program

                     ``Part C--MedicarePlus Program

                     Chapter 1--MedicarePlus Program

Sec. 8001. Establishment of MedicarePlus program.

                     ``Part C--MedicarePlus Program

    ``Sec. 1851. Eligibility, election, and enrollment.
    ``Sec. 1852. Benefits and beneficiary protections.
    ``Sec. 1853. Organizational and financial requirements for 
              MedicarePlus organizations; provider-sponsored 
              organizations.
    ``Sec. 1854. Payments to MedicarePlus organizations.
    ``Sec. 1855. Premiums and rebates.
    ``Sec. 1856. Establishment of standards; certification of 
              organizations and plans.
    ``Sec. 1857. Contracts with MedicarePlus organizations.
    ``Sec. 1858. Standards for MedicarePlus and medicare information 
              transactions and data elements.
    ``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 8002. Duplication and coordination of medicare-related plans.
Sec. 8003. Transitional rules for current medicare HMO program.

   Chapter 2--Special Rules for MedicarePlus Medical Savings Accounts

Sec. 8011. MedicarePlus MSA.
Sec. 8012. Certain rebates excluded from gross income.

              Chapter 3--Medicare Payment Review Commission

Sec. 8021. Medicare Payment Review Commission.

    Chapter 4--Treatment Of Hospitals Which Participate in Provider-
                         Sponsored Organizations

Sec. 8031. Treatment of hospitals which participate in provider-
          sponsored organizations.

           Subtitle B--Health Care Fraud and Abuse Prevention

               Chapter 1--Fraud And Abuse Control Program

Sec. 8101. Fraud and abuse control program.
Sec. 8102. Medicare integrity program.
Sec. 8103. Beneficiary incentive programs.
Sec. 8104. Application of certain health anti-fraud and abuse sanctions 
          to fraud and abuse against Federal health care programs.
Sec. 8105. Guidance regarding application of health care fraud and abuse 
          sanctions.

      Chapter 2--Revisions To Current Sanctions for Fraud and Abuse

Sec. 8111. Mandatory exclusion from participation in medicare and State 
          health care programs.
Sec. 8112. Establishment of minimum period of exclusion for certain 
          individuals and entities subject to permissive exclusion from 
          medicare and State health care programs.
Sec. 8113. Permissive exclusion of individuals with ownership or control 
          interest in sanctioned entities.
Sec. 8114. Sanctions against practitioners and persons for failure to 
          comply with statutory obligations.
Sec. 8115. Intermediate sanctions for medicare health maintenance 
          organizations.
Sec. 8116. Additional exception to anti-kickback penalties for 
          discounting and managed care arrangements.
Sec. 8117. Penalties for the fraudulent conversion of assets in order to 
          obtain State health care program benefits.
Sec. 8118. Effective date.

         Chapter 3--Administrative And Miscellaneous Provisions

Sec. 8121. Establishment of the health care fraud and abuse data 
          collection program.

                   Chapter 4--Civil Monetary Penalties

Sec. 8131. Social Security Act civil monetary penalties.
Sec. 8132. Clarification of level of intent required for imposition of 
          sanctions.
Sec. 8133. Penalty for false certification for home health services.

                  Chapter 5--Amendments To Criminal Law

Sec. 8141. Health care fraud.
Sec. 8142. Forfeitures for Federal health care offenses.
Sec. 8143. Injunctive relief relating to Federal health care offenses.
Sec. 8144. False Statements.
Sec. 8145. Obstruction of criminal investigations of Federal health care 
          offenses.
Sec. 8146. Theft or embezzlement.
Sec. 8147. Laundering of monetary instruments.
Sec. 8148. Authorized investigative demand procedures.

            Chapter 6--State Health Care Fraud Control Units

Sec. 8151. State health care fraud control units.

                      Subtitle C--Regulatory Relief

Sec. 8201. Repeal of physician ownership referral prohibitions based on 
          compensation arrangements.
Sec. 8202. Revision of designated health services subject to ownership 
          referral prohibition.
Sec. 8203. Delay in implementation of 1993 ownership referral changes 
          until promulgation of regulations.
Sec. 8204. Exceptions to ownership referral prohibitions.
Sec. 8205. Effective date.

Subtitle D--Modification in Payment Policies Regarding Graduate Medical 
                                Education

Sec. 8301. Indirect medical education payments.
Sec. 8302. Direct graduate medical education.

                Subtitle E--Provisions Relating to Part A

            Chapter 1--General Provisions Relating to Part A

Sec. 8401. PPS hospital payment update.
Sec. 8402. PPS-exempt hospital payments.
Sec. 8403. Reductions in disproportionate share payment adjustments.
Sec. 8404. Capital payments for PPS hospitals.
Sec. 8405. Reduction in payments to hospitals for enrollees' bad debts.
Sec. 8406. Increase in update for certain hospitals with a high 
          proportion of medicare patients.

            Chapter 2--Payments To Skilled Nursing Facilities

                 SUBCHAPTER A--PROSPECTIVE PAYMENT SYSTEM

Sec. 8410. Prospective payment system for skilled nursing facilities.

                   SUBCHAPTER B--INTERIM PAYMENT SYSTEM

Sec. 8411. Payments for routine service costs.
Sec. 8412. Cost-effective management of covered non-routine services.
Sec. 8413. Payments for routine service costs.
Sec. 8414. Reductions in payment for capital-related costs.
Sec. 8415. Treatment of items and services paid for under part B.
Sec. 8416. Medical review process.
Sec. 8417. Report by medicare payment review commission.
Sec. 8418. Effective date.

             Chapter 3--Other Provisions Relating to Part A

Sec. 8421. Payments for hospice services.
Sec. 8422. Permanent extension of hemophilia pass-through.

                Subtitle F--Provisions Relating to Part B

                       Chapter 1--Payment Reforms

Sec. 8501. Payments for physicians' services.
Sec. 8502. Elimination of formula-driven overpayments for certain 
          outpatient hospital services.
Sec. 8503. Extension of reductions in payments for costs of hospital 
          outpatient services.
Sec. 8504. Reduction in updates to payment amounts for clinical 
          diagnostic laboratory tests.
Sec. 8505. Payments for durable medical equipment.
Sec. 8506. Updates for ambulatory surgical services.
Sec. 8507. Payments for ambulance services.
Sec. 8508. Ensuring payment for physician and nurse for jointly 
          furnished anesthesia services.

                        Chapter 2--Part B Premium

Sec. 8511. Promoting solvency of part a trust fund through part b 
          premium.
Sec. 8512. Income-related reduction in medicare subsidy.

            Subtitle G--Provisions Relating to Parts A and B

              Chapter 1--Payments For Home Health Services

Sec. 8601. Payment for home health services.
Sec. 8602. Maintaining savings resulting from temporary freeze on 
          payment increases for home health services.
Sec. 8603. Extension of waiver of presumption of lack of knowledge of 
          exclusion from coverage for home health agencies.
Sec. 8604. Extension of period of home health agency certification.

              Part 2--Medicare Secondary Payer Improvements

Sec. 8611. Extension and expansion of existing requirements.
Sec. 8612. Improvements in recovery of payments.

         Chapter 3--Other Items and Services Under Parts A and B

Sec. 8621. Medicare coverage of certain anti-cancer drug treatments.
Sec. 8622. Administrative provisions.

                           Chapter 4--Failsafe

Sec. 8631. Failsafe budget mechanism.

                         Subtitle H--Rural Areas

Sec. 8701. Medicare-dependent, small, rural hospital payment extension.
Sec. 8702. Medicare rural hospital flexibility program.
Sec. 8703. Establishment of rural emergency access care hospitals.
Sec. 8704. Classification of rural referral centers.
Sec. 8705. Floor on area wage index.
Sec. 8706. Additional payments for physicians' services furnished in 
          shortage areas.
Sec. 8707. Payments to physician assistants and nurse practitioners for 
          services furnished in outpatient or home settings.
Sec. 8708. Expanding access to nurse aide training in underserved areas.

                    Subtitle A--MedicarePlus Program

                    CHAPTER 1--MEDICAREPLUS PROGRAM

SEC. 8001. ESTABLISHMENT OF MEDICAREPLUS PROGRAM.

    (a) In General.--Title XVIII is amended by redesignating 
part C as part D and by inserting after part B the following 
new part:

                     ``Part C--MedicarePlus Program


                ``eligibility, election, and enrollment


    ``Sec. 1851. (a) Choice of Medicare Benefits Through 
MedicarePlus Plans.--
            ``(1) In general.--Subject to the provisions of 
        this section, every MedicarePlus eligible individual 
        (as defined in paragraph (3)) is entitled to elect to 
        receive benefits under this title--
                    ``(A) through the Medicare fee-for-service 
                program under parts A and B, or
                    ``(B) through enrollment in a MedicarePlus 
                plan under this part.
            ``(2) Types of medicareplus plans that may be 
        available.--A MedicarePlus plan may be any of the 
        following types of plans of health insurance:
                    ``(A) Coordinated care plans.--Private 
                coordinated care plans which provide health 
                care services, including health maintenance 
                organization plans and preferred provider 
                organization plans.
                    ``(B) Combination of high deductible plan 
                and contributions to high deductible medicare 
                msa.--A high deductible plan, as defined in 
                section 1859(b)(2), and a contribution into a 
                High Deductible MedicarePlus medical savings 
                account (MSA).
                    ``(C) Plans offered by provider-sponsored 
                organization.--A MedicarePlus plan offered by a 
                provider-sponsored organization, as defined in 
                section 1853(i).
                    ``(D) Union, taft-hartley, and association 
                plans.--A MedicarePlus organization plan 
                offered by a MedicarePlus organization that is 
                a union sponsor, Taft-Hartley sponsor, or 
                qualified association sponsor, as defined in 
                section 1859(a).
                    ``(E) Fee-for-service plans.--Plans that 
                reimburse hospitals, physicians, and other 
                providers on the basis of a privately 
                determined fee schedule or other basis.
                    ``(F) Other health care plans.--Any other 
                private plan for the delivery of health care 
                items and services that is not described in a 
                previous subparagraph.
            ``(3) MedicarePlus eligible individual.--
                    ``(A) In general.--In this title, subject 
                to subparagraph (B), the term `MedicarePlus 
                eligible individual' means an individual who is 
                entitled to benefits under part A and enrolled 
                under part B.
                    ``(B) Special rule for end-stage renal 
                disease.--Such term shall not include an 
                individual medically determined to have end-
                stage renal disease, except that an individual 
                who develops end-stage renal disease while 
                enrolled in a MedicarePlus plan may continue to 
                be enrolled in that plan.
    ``(b) Special Rules.--
            ``(1) Residence requirement.--
                    ``(A) In general.--Except as the Secretary 
                may otherwise provide, an individual is 
                eligible to elect a MedicarePlus plan offered 
                by a MedicarePlus organization only if the 
                organization serves the geographic area in 
                which the individual resides under the plan.
                    ``(B) Continuation of enrollment 
                permitted.--Pursuant to rules specified by the 
                Secretary, the Secretary shall provide that an 
                individual may continue enrollment in a plan, 
                notwithstanding that the individual no longer 
                resides in the service area of the plan, so 
                long as the plan provides benefits for 
                providers located in the area in which the 
                individual resides.
            ``(2) Affiliation requirements for certain plans.--
                    ``(A) In general.--Subject to subparagraph 
                (B), an individual is eligible to elect a 
                MedicarePlus plan offered by--
                            ``(i) a union sponsor only if (I) 
                        the individual is a member of the 
                        sponsor and affiliated with the sponsor 
                        through an employment relationship with 
                        any employer or is the spouse of such a 
                        member, and (II) the individual elected 
                        under this section a MedicarePlus plan 
                        offered by the sponsor during the first 
                        enrollment period in which the 
                        individual was eligible to make such 
                        election with respect to such sponsor;
                            ``(ii) a Taft-Hartley sponsor only 
                        if (I) the individual is entitled to 
                        obtain benefits through such plans 
                        under the terms of an applicable 
                        collective bargaining agreement, and 
                        (II) the individual elected under this 
                        section a MedicarePlus plan offered by 
                        the sponsor during the first enrollment 
                        period in which the individual was 
                        eligible to make such election with 
                        respect to such sponsor; and
                            ``(iii) a qualified association 
                        sponsor only if the individual is a 
                        member of the association (or is a 
                        spouse of such a member).
                    ``(B) Limitation on enrollment.--Subject to 
                subparagraph (C)--
                            ``(i) a union sponsor may not 
                        enroll an individual under this part 
                        unless the individual is described in 
                        subparagraph (A)(i)(I),
                            ``(ii) a Taft-Hartley sponsor may 
                        not enroll an individual under this 
                        part unless the individual is described 
                        in subparagraph (A)(ii)(I), and
                            ``(iii) a qualified association 
                        sponsor may not enroll an individual 
                        under this part unless the individual 
                        is described in subparagraph (A)(iii).
                    ``(C) Limitation on termination of 
                coverage.--A qualified association sponsor 
                offering a MedicarePlus plan to an individual 
                may not terminate coverage of the individual on 
                the basis that the individual is no longer a 
                member of the association except pursuant to a 
                change of election during an open election 
                period occurring on or after the date of the 
                termination of membership.
            ``(3) Special rules for union, taft-hartley, and 
        qualified association sponsors.--
                    ``(A) Unions.--Subject to subparagraph (D), 
                a union sponsor (as defined in section 
                1859(a)(5)) shall limit eligibility of 
                enrollees under this part for MedicarePlus 
                plans it offers to individuals who are members 
                of the sponsor and affiliated with the sponsor 
                through an employment relationship with any 
                employer or are the spouses of such members.
                    ``(B) Taft-hartley sponsors.--Subject to 
                subparagraph (D), a MedicarePlus organization 
                that is a Taft-Hartley sponsor (as defined in 
                section 1859(a)(4)) shall limit eligibility of 
                enrollees under this part for MedicarePlus 
                plans it offers to individuals who are entitled 
                to obtain benefits through such plans under the 
                terms of an applicable collective bargaining 
                agreement.
                    ``(C) Qualified association sponsors.--
                            ``(i) In general.--Subject to 
                        subparagraph (D), a MedicarePlus 
                        organization that is a qualified 
                        association sponsor (as defined in 
                        section 1859(a)(3)) shall limit 
                        eligibility of individuals under this 
                        part for plans it offers to individuals 
                        who are members of the association (or 
                        who are spouses of such individuals).
                            ``(ii) Limitation on termination of 
                        coverage.--Such a qualifying 
                        association sponsor offering a 
                        MedicarePlus plan to an individual may 
                        not terminate coverage of the 
                        individual on the basis that the 
                        individual is no longer a member of the 
                        association except pursuant to a change 
                        of election during an open election 
                        period occurring on or after the date 
                        of the termination of membership.
                    ``(D) Limitation.--Rules of eligibility to 
                carry out the previous subparagraphs of this 
                paragraph shall not have the effect of denying 
                eligibility to individuals on the basis of 
                health status, claims experience, receipt of 
                health care, medical history, or lack of 
                evidence of insurability.
                    ``(E) No reelection after disenrollment for 
                certain plans.--An individual is not eligible 
                to elect a MedicarePlus plan offered by a 
                MedicarePlus organization that is a union 
                sponsor or a Taft-Hartley sponsor if the 
                individual previously had elected a 
                MedicarePlus plan offered by the organization 
                and had subsequently discontinued election of 
                such a plan offered by the organization.
            ``(4) Special rule for certain individuals covered 
        under fehbp.--An individual who is enrolled in a health 
        benefit plan under chapter 89 of title 5, United States 
        Code, is not eligible to enroll in a high deductible 
        plan until such time as the Director of the Office of 
        Management and Budget certifies to the Secretary that 
        the Office of Personnel Management has adopted policies 
        which will ensure that the enrollment of such 
        individuals in such plans will not result in increased 
        expenditures for the Federal Government for health 
        benefit plans under such chapter.
    ``(c) Process for Exercising Choice.--
            ``(1) In general.--The Secretary shall establish a 
        process through which elections described in subsection 
        (a) are made and changed, including the form and manner 
        in which such elections are made and changed. Such 
        elections shall be made or changed only during coverage 
        election periods specified under subsection (e) and 
        shall become effective as provided in subsection (f).
            ``(2) Expedited implementation.--The Secretary 
        shall establish the process of electing coverage under 
        this section during the transition period (as defined 
        in subsection (e)(1)(B)) in such an expedited manner as 
        will permit such an election for MedicarePlus plans in 
        an area as soon as such plans become available in that 
        area.
            ``(3) Coordination through medicareplus 
        organizations.--
                    ``(A) Enrollment.--Such process shall 
                permit an individual who wishes to elect a 
                MedicarePlus plan offered by a MedicarePlus 
                organization to make such election through the 
                filing of an appropriate election form with the 
                organization.
                    ``(B) Disenrollment.--Such process shall 
                permit an individual, who has elected a 
                MedicarePlus plan offered by a MedicarePlus 
                organization and who wishes to terminate such 
                election, to terminate such election through 
                the filing of an appropriate election form with 
                the organization.
            ``(4) Default.--
                    ``(A) Initial election.--
                            ``(i) In general.--Subject to 
                        clause (ii), an individual who fails to 
                        make an election during an initial 
                        election period under subsection (e)(1) 
                        is deemed to have chosen the Medicare 
                        fee-for-service program option.
                            ``(ii) Seamless continuation of 
                        coverage.--The Secretary shall 
                        establish procedures under which 
                        individuals who are enrolled with a 
                        MedicarePlus organization at the time 
                        of the initial election period and who 
                        fail to elect to receive coverage other 
                        than through the organization are 
                        deemed to have elected the MedicarePlus 
                        plan offered by the organization (or, 
                        if the organization offers more than 
                        one such plan, the MedicarePlus plan 
                        offered by the organization with the 
                        lowest net monthly premium).
                    ``(B) Continuing periods.--An individual 
                who has made (or is deemed to have made) an 
                election under this section is considered to 
                have continued to make such election until such 
                time as--
                            ``(i) the individual changes the 
                        election under this section, or
                            ``(ii) a MedicarePlus plan is 
                        discontinued, if the individual had 
                        elected such plan at the time of the 
                        discontinuation.
    ``(d) Providing Information To Promote Informed Choice.--
            ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective 
        medicare beneficiaries) on the coverage options 
        provided under this section in order to promote an 
        active, informed selection among such options.
            ``(2) Provision of notice.--
                    ``(A) Open season notification.--At least 
                15 days before the beginning of each annual, 
                coordinated election period, the Secretary 
                shall mail to each MedicarePlus eligible 
                individual residing in an area the following:
                            ``(i) General election information 
                        and information about medicare fee-for-
                        service program.--The general 
                        information regarding election, 
                        benefits coverage, and procedures 
                        described in paragraph (3).
                            ``(ii) List of plans and comparison 
                        of plan options.--A list identifying 
                        the MedicarePlus plans that are (or 
                        will be) available to residents of the 
                        area (and their service areas) and 
                        information, described in paragraph (4) 
                        and in comparative form, concerning 
                        such plans.
                            ``(iii) Medicareplus monthly 
                        capitation rate.--The amount of the 
                        monthly MedicarePlus capitation rate 
                        for the area.
                            ``(iv) Additional information.--Any 
                        other information that the Secretary 
                        determines will assist the individual 
                        in making the election under this 
                        section.
                The mailing of such information shall be 
                coordinated with the mailing of any annual 
                notice under section 1804.
                    ``(B) Notification to newly medicareplus 
                eligible individuals.--To the extent 
                practicable, the Secretary shall, not later 
                than 2 months before the beginning of the 
                initial MedicarePlus enrollment period for an 
                individual described in subsection (e)(1)(A), 
                mail to the individual the information 
                described in subparagraph (A).
                    ``(C) Form.--The information disseminated 
                under this paragraph shall be written and 
                formatted in the most easily understandable 
                manner possible.
                    ``(D) Periodic updating.--The information 
                described in subparagraph (A) shall be updated 
                on at least an annual basis to reflect changes 
                in the availability of MedicarePlus plans and 
                the benefits and monthly premiums (and net 
                monthly premiums) for such plans.
            ``(3) General election information and information 
        about medicare fee-for-service program.--General 
        information under this paragraph, with respect to 
        coverage under this part during a year, shall include 
        the following:
                    ``(A) Benefits.--A general description of 
                the benefits covered (and not covered) under 
                the medicare fee-for-service program under 
                parts A and B, including--
                            ``(i) covered items and services, 
                        and
                            ``(ii) beneficiary cost sharing, 
                        such as deductibles, coinsurance, and 
                        copayment amounts, and the beneficiary 
                        liability for balance billing.
                    ``(B) Part b premium.--The part B premium 
                rates that will be charged for part B coverage.
                    ``(C) Election procedures.--Information and 
                instructions on how to exercise election 
                options under this section.
                    ``(D) Procedural rights.--The general 
                description of procedural rights (including 
                grievance procedures) of beneficiaries under 
                the medicare fee-for-service program and the 
                MedicarePlus program.
                    ``(E) Right of organization to terminate 
                contract.--The right of each MedicarePlus 
                organization by law to terminate or refuse to 
                renew its contract and the effect the 
                termination or nonrenewal of its contract may 
                have on individuals enrolled with the 
                MedicarePlus plan under this part.
                    ``(F) Use of 911 emergency number.--A 
                statement that the use of the 911 emergency 
                telephone number is appropriate in emergency 
                situations and an explanation of what 
                constitutes an emergency situation.
            ``(4) Information comparing plan options.--
        Information under this paragraph, with respect to a 
        MedicarePlus plan for a year, shall include the 
        following:
                    ``(A) Benefits.--The benefits covered under 
                the plan, including covered items and services 
                beyond those provided under the medicare fee-
                for-service program, any reductions in 
                beneficiary cost sharing, and any maximum 
                limitations on out-of-pocket losses.
                    ``(B) Premiums.--The monthly premium (and 
                net monthly premium, including any rebate) for 
                the plan.
                    ``(C) Quality.--(i) To the extent 
                available, quality indicators for the benefits 
                under the plan (in comparison with quality 
                indicators under the Medicare fee-for-service 
                program under parts A and B in the area 
                involved), including--
                            ``(I) disenrollment rates for 
                        medicare enrollees electing to receive 
                        benefits through the plan for the 
                        previous 2 years (excluding 
                        disenrollment due to death or moving 
                        outside the plan's service area),
                            ``(II) information on medicare 
                        enrollee satisfaction and health 
                        outcomes, and
                            ``(III) whether the plan is out of 
                        compliance with any requirements of 
                        this part (as determined by the 
                        Secretary).
                    ``(D) Supplemental coverage options.--
                Whether the organization offering the plan 
                offers optional supplemental coverage.
            ``(5) Maintaining a toll-free number.--The 
        Secretary shall maintain a toll-free number for 
        inquiries regarding MedicarePlus options and the 
        operation of part C in all areas in which MedicarePlus 
        plans are offered.
            ``(6) Use of nonfederal entities.--The Secretary 
        shall, to the maximum extent feasible, enter into 
        contracts with appropriate non-Federal entities to 
        carry out activities under this subsection.
            ``(7) Provision of information.--A MedicarePlus 
        organization shall provide the Secretary with such 
        information on the organization and each MedicarePlus 
        plan it offers as may be required for the preparation 
        of the information referred to in paragraph (2)(A).
    ``(e) Coverage Election Periods.--
            ``(1) Initial choice upon eligibility to make 
        election.--
                    ``(A) In general.--In the case of an 
                individual who first becomes entitled to 
                benefits under part A and enrolled under part B 
                after the beginning of the transition period 
                (as defined in subparagraph (B)), the 
                individual shall make the election under this 
                section during a period (of a duration and 
                beginning at a time specified by the Secretary) 
                at the first time the individual both is 
                entitled to benefits under part A and enrolled 
                under part B. Such period shall be specified in 
                a manner so that, in the case of an individual 
                who elects a MedicarePlus plan during the 
                period, coverage under the plan becomes 
                effective as of the first date on which the 
                individual may receive such coverage.
                    ``(B) Transition period defined.--In this 
                subsection, the term `transition period' means, 
                with respect to an individual in an area, the 
                period beginning on the first day of the first 
                month in which a MedicarePlus plan is first 
                made available to individuals in the area and 
                ending with the month preceding the beginning 
                of the first annual, coordinated election 
                period under paragraph (3).
            ``(2) During transition period.--Subject to 
        paragraph (6)--
                    ``(A) Continuous open enrollment into a 
                medicareplus option.--During the transition 
                period, a MedicarePlus eligible individual who 
                has elected the Medicare fee-for-service 
                program option described in subsection 
                (a)(1)(A) may change such election to a 
                MedicarePlus option described in subsection 
                (a)(1)(B) at any time.
                    ``(B) Open disenrollment before end of 
                transition period.--
                            ``(i) In general.--During the 
                        transition period, an individual who 
                        has elected a MedicarePlus option 
                        described in subsection (a)(1)(B) for a 
                        MedicarePlus plan may change such 
                        election to another MedicarePlus plan 
                        or to the Medicare fee-for-service 
                        program option described in subsection 
                        (a)(1)(A).
                            ``(ii) Special rule.--During the 
                        transition period, an individual who 
                        has elected a high deductible plan may 
                        not change such election to a 
                        MedicarePlus plan that is not a high 
                        deductible plan unless the individual 
                        has had such election in effect for 12 
                        consecutive months.
            ``(3) Annual, coordinated election period.--
                    ``(A) In general.--Subject to paragraph 
                (5), each individual who is eligible to make an 
                election under this section may change such 
                election during an annual, coordinated election 
                period.
                    ``(B) Annual, coordinated election 
                period.--For purposes of this section, the term 
                `annual, coordinated election period' means, 
                with respect to a calendar year (beginning with 
                1998), the month of October before such year.
                    ``(C) Medicareplus health fair during 
                october, 1996.--In the month of October, 1996, 
                the Secretary shall provide for a nationally 
                coordinated educational and publicity campaign 
                to inform MedicarePlus eligible individuals 
                about such plans and the election process 
                provided under this section (including the 
                annual, coordinated election periods that occur 
                in subsequent years).
            ``(4) Special 90-day disenrollment option.--
                    ``(A) In general.--In the case of the first 
                time an individual elects any MedicarePlus plan 
                (other than a high deductible plan) offered by 
                a particular MedicarePlus organization under 
                this section, the individual may change such 
                election through the filing of an appropriate 
                notice during the 90-day period beginning on 
                the first day on which the individual's 
                coverage under the MedicarePlus plan under such 
                option becomes effective.
                    ``(B) Limitation.--Subparagraph (A)--
                            ``(i) shall only apply once for an 
                        individual with respect to any 
                        particular organization, and
                            ``(ii) may not apply more than 
                        twice for any individual in a calendar 
                        year.
                    ``(C) Effect of discontinuation of 
                election.--An individual who discontinues an 
                election under subparagraph (A) may, during the 
                period specified by the Secretary, make a new 
                election under this subsection (a) (or, in the 
                absence of such an election, is deemed at the 
                time of such discontinuation to have elected 
                the Medicare fee-for-service program option 
                described in subsection (a)(1)(A)).
            ``(5) Special election periods.--An individual may 
        discontinue an election of a MedicarePlus plan offered 
        by a MedicarePlus organization other than during an 
        annual, coordinated election period and make a new 
        election under this section if--
                    ``(A) the organization's or plan's 
                certification under part C has been terminated 
                or the organization has terminated or otherwise 
                discontinued providing the plan;
                    ``(B) the individual is no longer eligible 
                to elect the plan because of a change in the 
                individual's place of residence or other change 
                in circumstances (specified by the Secretary, 
                but not including termination of membership in 
                a qualified association in the case of a plan 
                offered by a qualified association sponsor or 
                termination of the individual's enrollment on 
                the basis described in clause (i) or (ii) 
                section 1851(g)(3)(B));
                    ``(C) the individual demonstrates (in 
                accordance with guidelines established by the 
                Secretary) that--
                            ``(i) the organization offering the 
                        plan substantially violated a material 
                        provision of the organization's 
                        contract under part C in relation to 
                        the individual and the plan; or
                            ``(ii) the organization (or an 
                        agent or other entity acting on the 
                        organization's behalf) materially 
                        misrepresented the plan's provisions in 
                        marketing the plan to the individual; 
                        or
                    ``(D) the individual meets such other 
                conditions as the Secretary may provide.
            ``(6) Special rule for high deductible plans.--
        Notwithstanding the previous provisions of this 
        subsection, an individual may elect a high deductible 
        plan only during an annual, coordinated election period 
        described in paragraph (3)(B) or during the month of 
        October, 1996.
    ``(f) Effectiveness of Elections.--
            ``(1) During initial coverage election period.--An 
        election of coverage made during the initial coverage 
        election period under subsection (e)(1)(A) shall take 
        effect upon the date the individual becomes entitled to 
        benefits under part A and enrolled under part B, except 
        as the Secretary may provide (consistent with section 
        1838) in order to prevent retroactive coverage.
            ``(2) During transition; 90-day disenrollment 
        option.--An election of coverage made under subsection 
        (e)(2) and an election to discontinue a MedicarePlus 
        option under subsection (e)(4) at any time shall take 
        effect with the first calendar month following the date 
        on which the election is made.
            ``(3) Annual, coordinated election period and high 
        deductible plan election.--An election of coverage made 
        during an annual, coordinated election period (as 
        defined in subsection (e)(3)(B)) in a year or for a 
        high deductible plan shall take effect as of the first 
        day of the following year.
            ``(4) Other periods.--An election of coverage made 
        during any other period under subsection (e)(5) shall 
        take effect in such manner as the Secretary provides in 
        a manner consistent (to the extent practicable) with 
        protecting continuity of health benefit coverage.
    ``(g) Guaranteed Issue and Renewal.--
            ``(1) In general.--Except as provided in this 
        subsection, a MedicarePlus organization shall provide 
        that at any time during which elections are accepted 
        under this section with respect to a MedicarePlus plan 
        offered by the organization, the organization will 
        accept without restrictions individuals who are 
        eligible to make such election.
            ``(2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a 
        MedicarePlus plan it offers, has a capacity limit and 
        the number of MedicarePlus eligible individuals who 
        elect the plan under this section exceeds the capacity 
        limit, the organization may limit the election of 
        individuals of the plan under this section but only if 
        priority in election is provided--
                    ``(A) first to such individuals as have 
                elected the plan at the time of the 
                determination, and
                    ``(B) then to other such individuals in 
                such a manner that does not discriminate among 
                the individuals (who seek to elect the plan) on 
                a basis described in section 1852(b).
        The preceding sentence shall not apply if it would 
        result in the enrollment of enrollees substantially 
        nonrepresentative, as determined in accordance with 
        regulations of the Secretary, of the medicare 
        population in the service area of the plan.
            ``(3) Limitation on termination of election.--
                    ``(A) In general.--Subject to subparagraph 
                (B), a MedicarePlus organization may not for 
                any reason terminate the election of any 
                individual under this section for a 
                MedicarePlus plan it offers.
                    ``(B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an 
                individual's election under this section with 
                respect to a MedicarePlus plan it offers if--
                            ``(i) any net monthly premiums 
                        required with respect to such plan are 
                        not paid on a timely basis (consistent 
                        with standards under section 1856 that 
                        provide for a grace period for late 
                        payment of net monthly premiums),
                            ``(ii) the individual has engaged 
                        in disruptive behavior (as specified in 
                        such standards), or
                            ``(iii) the plan is terminated with 
                        respect to all individuals under this 
                        part.
                Any individual whose election is so terminated 
                is deemed to have elected the Medicare fee-for-
                service program option described in subsection 
                (a)(1)(A).
                    ``(C) Limitation on termination of 
                coverage.--A qualified association sponsor 
                offering a MedicarePlus plan to an individual 
                may not terminate coverage of the individual on 
                the basis that the individual is no longer a 
                member of the association except pursuant to a 
                change of election during an open election 
                period occurring on or after the date of the 
                termination of membership.
                    ``(D) Organization obligation with respect 
                to election forms.--Pursuant to a contract 
                under section 1857, each MedicarePlus 
                organization receiving an election form under 
                subsection (c)(3) shall transmit to the 
                Secretary (at such time and in such manner as 
                the Secretary may specify) a copy of such form 
                or such other information respecting the 
                election as the Secretary may specify.
    ``(h) Approval of Marketing Materials.--
            ``(1) Submission.--No marketing materials may be 
        distributed by a MedicarePlus organization to (or for 
        the use of) MedicarePlus eligible individuals unless--
                    ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material to the Secretary for review, and
                    ``(B) the Secretary has not disapproved the 
                distribution of such material.
            ``(2) Review.--The standards established under 
        section 1856 shall include guidelines for the review of 
        all such material submitted and under such guidelines 
        the Secretary shall disapprove such material if the 
        material is materially inaccurate or misleading or 
        otherwise makes a material misrepresentation.
            ``(3) Deemed approval (1-stop shopping).--In the 
        case of material that is submitted under paragraph 
        (1)(A) to the Secretary or a regional office of the 
        Department of Health and Human Services and the 
        Secretary or the office has not disapproved the 
        distribution of marketing materials under paragraph 
        (1)(B) with respect to a MedicarePlus plan in an area, 
        the Secretary is deemed not to have disapproved such 
        distribution in all other areas covered by the plan and 
        organization.
            ``(4) Prohibition of certain marketing practices.--
        Each MedicarePlus organization shall conform to fair 
        marketing standards in relation to MedicarePlus plans 
        offered under this part, included in the standards 
        established under section 1856. Such standards shall 
        include a prohibition against an organization (or agent 
        of such an organization) completing any portion of any 
        election form used to carry out elections under this 
        section on behalf of any individual.
    ``(i) Effect of Election of MedicarePlus Plan Option.--
Subject to section 1852(a)(5)--
            ``(1) payments under a contract with a MedicarePlus 
        organization under section 1854(a) with respect to an 
        individual electing a MedicarePlus plan offered by the 
        organization shall be instead of the amounts which (in 
        the absence of the contract) would otherwise be payable 
        under parts A and B for items and services furnished to 
        the individual, and
            ``(2) subject to subsections (e) and (f) of section 
        1854, only the MedicarePlus organization shall be 
        entitled to receive payments from the Secretary under 
        this title for services furnished to the individual.
    ``(j) Administration.--
            ``(1) In general.--This part and section 1876 shall 
        be administered through an operating division (A) that 
        is established or identified by the Secretary and is in 
        the Department of Health and Human Services, (B) that 
        is separate from the Health Care Financing 
        Administration, and (C) the primary function of which 
        is the administration of this part and such section. 
        The director of such division shall be of equal pay and 
        rank to that of the individual responsible for overall 
        administration of parts A and B.
            ``(2) Transfer authority.--The Secretary shall 
        transfer such personnel, administrative support 
        systems, assets, records, funds, and other resources in 
        the Health Care Financing Administration to the 
        operating division referred to in paragraph (1) as are 
        used in the administration of section 1876 and as may 
        be required to implement the provisions of this part 
        promptly and efficiently.


                 ``benefits and beneficiary protections


    ``Sec. 1852. (a) Basic Benefits.--
            ``(1) In general.--Except as provided in section 
        1859(b)(2) for high deductible plans, each MedicarePlus 
        plan shall provide to members enrolled under this part, 
        through providers and other persons that meet the 
        applicable requirements of this title and part A of 
        title XI--
                    ``(A) those items and services for which 
                benefits are available under parts A and B to 
                individuals residing in the area served by the 
                plan, and
                    ``(B) additional health services as the 
                Secretary may approve.
        The Secretary shall approve any such additional health 
        care services which the plan proposes to offer to such 
        members, unless the Secretary determines that including 
        such additional services will substantially discourage 
        enrollment by MedicarePlus eligible individuals with 
        the plan.
            ``(2) Satisfaction of requirement.--A MedicarePlus 
        plan (other than a high deductible plan) offered by a 
        MedicarePlus organization satisfies paragraph (1)(A) 
        with respect to benefits for items and services if the 
        following requirements are met:
                    ``(A) Fee for service providers.--In the 
                case of benefits furnished through a provider 
                that does not have a contract with the 
                organization, the plan provides for at least 
                the dollar amount of payment for such items and 
                services as would otherwise be provided under 
                parts A and B.
                    ``(B) Participating providers.--In the case 
                of benefits furnished through a provider that 
                has such a contract, the individual's liability 
                for payment for such items and services does 
                not exceed (after taking into account any 
                deductible, which does not exceed any 
                deductible under parts A and B) the lesser of 
                the following:
                            ``(i) Individual's liability under 
                        medicare fee-for-service program.--The 
                        amount of the liability that the 
                        individual would have had (based on the 
                        provider being a participating 
                        provider) if the individual had not 
                        elected coverage under a MedicarePlus 
                        plan.
                            ``(ii) Medicare coinsurance applied 
                        to plan payment rates.--The applicable 
                        coinsurance or copayment rate (that 
                        would have applied under the Medicare 
                        fee-for-service program option 
                        described in section 1851(a)(1)(A)) of 
                        the payment rate provided under the 
                        contract.
            ``(3) Supplemental optional benefits.--Each 
        MedicarePlus organization may offer under a 
        MedicarePlus plan optional supplemental benefits to 
        each individual enrolled in the plan under this part 
        for an additional premium amount. If the supplemental 
        benefits are offered only to individuals enrolled in 
        the sponsor's plan under this part, the additional 
        premium amount shall be the same for all enrolled 
        individuals in the MedicarePlus payment area. Such 
        benefits may be marketed and sold by the MedicarePlus 
        organization outside of the enrollment process 
        described in section 1851(c).
            ``(4) Organization as secondary payer.--
        Notwithstanding any other provision of law, a 
        MedicarePlus organization may (in the case of the 
        provision of items and services to an individual under 
        a MedicarePlus plan under circumstances in which 
        payment under this title is made secondary pursuant to 
        section 1862(b)(2)) charge or authorize the provider of 
        such services to charge, in accordance with the charges 
        allowed under such a law, plan, or policy--
                    ``(A) the insurance carrier, employer, or 
                other entity which under such law, plan, or 
                policy is to pay for the provision of such 
                services, or
                    ``(B) such individual to the extent that 
                the individual has been paid under such law, 
                plan, or policy for such services.
            ``(5) National coverage determinations.--If there 
        is a national coverage determination made in the period 
        beginning on the date of an announcement under section 
        1854(b) and ending on the date of the next announcement 
        under such section and the Secretary projects that the 
        determination will result in a significant change in 
        the costs to a MedicarePlus organization of providing 
        the benefits that are the subject of such national 
        coverage determination and that such change in costs 
        was not incorporated in the determination of the annual 
        MedicarePlus capitation rate under section 1854 
        included in the announcement made at the beginning of 
        such period--
                    ``(A) such determination shall not apply to 
                contracts under this part until the first 
                contract year that begins after the end of such 
                period, and
                    ``(B) if such coverage determination 
                provides for coverage of additional benefits or 
                coverage under additional circumstances, 
                section 1851(i) shall not apply to payment for 
                such additional benefits or benefits provided 
                under such additional circumstances until the 
                first contract year that begins after the end 
                of such period,
        unless otherwise required by law.
    ``(b) Antidiscrimination.--A MedicarePlus organization may 
not deny, limit, or condition the coverage or provision of 
benefits under this part based on the health status, claims 
experience, receipt of health care, medical history, or lack of 
evidence of insurability, of an individual. A MedicarePlus 
organization shall notify each enrollee under this part of 
provisions of this subsection at the time of the individual's 
enrollment.
    ``(c) Detailed Description of Plan Provisions.--A 
MedicarePlus organization shall disclose, in clear, accurate, 
and standardized form to each enrollee with a MedicarePlus plan 
offered by the organization under this part at the time of 
enrollment and at least annually thereafter, the following 
information regarding such plan:
            ``(1) Service area.--The plan's service area.
            ``(2) Benefits.--Benefits under the plan offered, 
        including information described in section 
        1851(d)(3)(A) and exclusions from coverage and, if it 
        is a high deductible plan, a comparison of benefits 
        under such a plan with benefits under other 
        MedicarePlus plans.
            ``(3) Access.--The number, mix, and distribution of 
        participating providers.
            ``(4) Out-of-area coverage.-- Out-of-area coverage 
        provided by the plan.
            ``(5) Emergency coverage.--Coverage of emergency 
        services and urgently needed care.
            ``(6) Optional supplemental coverage.-- Optional 
        supplemental coverage available from the organization 
        offering the plan, including--
                    ``(A) supplemental items and services 
                covered, and
                    ``(B) the premium price for the optional 
                supplemental benefits.
            ``(7) Prior authorization rules.--Rules regarding 
        prior authorization or other review requirements that 
        could result in nonpayment.
            ``(8) Plan grievance procedures.-- Any plan-
        specific appeal or grievance rights and procedures.
            ``(9) Quality assurance program.--A description of 
        the organization's quality assurance program under 
        subsection (e).
    ``(d) Access to Services.--
            ``(1) In general.--A MedicarePlus organization 
        offering a MedicarePlus plan may restrict the providers 
        from whom the benefits under the plan are provided so 
        long as--
                    ``(A) the organization makes such benefits 
                available and accessible to each individual 
                electing the plan within the plan service area 
                with reasonable promptness and in a manner 
                which assures continuity in the provision of 
                benefits;
                    ``(B) when medically necessary the 
                organization makes such benefits available and 
                accessible 24 hours a day and 7 days a week;
                    ``(C) the plan provides for reimbursement 
                with respect to services which are covered 
                under subparagraphs (A) and (B) and which are 
                provided to such an individual other than 
                through the organization, if--
                            ``(i) the services were medically 
                        necessary and immediately required 
                        because of an unforeseen illness, 
                        injury, or condition, and
                            ``(ii) it was not reasonable given 
                        the circumstances to obtain the 
                        services through the organization;
                    ``(D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for medically necessary treatment 
                and services, and
                    ``(E) coverage is provided for emergency 
                services (as defined in paragraph (3)) without 
                regard to prior authorization or the emergency 
                care provider's contractual relationship with 
                the organization.
            ``(2) Protection of enrollees for certain emergency 
        services.--
                    ``(A) Participating providers.--In the case 
                of emergency services described in subparagraph 
                (C) which are furnished by a participating 
                physician or provider of services to an 
                individual enrolled with a MedicarePlus 
                organization under this section, the applicable 
                participation agreement is deemed to provide 
                that the physician or provider of services will 
                accept as payment in full from the organization 
                for such emergency services described in 
                subparagraph (C) the amount that would be 
                payable to the physician or provider of 
                services under part B and from the individual 
                under such part, if the individual were not 
                enrolled with such an organization under this 
                part.
                    ``(B) Nonparticipating providers.--In the 
                case of emergency services described in 
                subparagraph (C) which are furnished by a 
                nonparticipating physician, the limitations on 
                actual charges for such services otherwise 
                applicable under part B (to services furnished 
                by individuals not enrolled with a MedicarePlus 
                organization under this section) shall apply in 
                the same manner as such limitations apply to 
                services furnished to individuals not enrolled 
                with such an organization.
                    ``(C) Emergency services described.--The 
                emergency services described in this 
                subparagraph are emergency services which are 
                furnished to an enrollee of a MedicarePlus 
                organization under this part by a physician or 
                provider of services that is not under a 
                contract with the organization.
                    ``(D) Exception for unrestricted fee-for-
                service plans.--The previous provisions of this 
                paragraph shall not apply in the case of a 
                MedicarePlus organization in relation to a 
                MedicarePlus unrestricted fee-for-service plan 
                (as defined in section 1859(b)(3)).
            ``(3) Definition of emergency services.--In this 
        subsection, the term `emergency services' means, with 
        respect to an individual enrolled with an organization, 
        covered inpatient and outpatient services that--
                    ``(A) are furnished by an appropriate 
                source other than the organization,
                    ``(B) are needed immediately because of an 
                injury or sudden illness, and
                    ``(C) are needed because the time required 
                to reach the organization's providers or 
                suppliers would have meant risk of serious 
                damage to the patient's health.
    ``(e) Quality Assurance Program.--
            ``(1) In general.--Each MedicarePlus organization 
        must have arrangements, established in accordance with 
        regulations of the Secretary, for an ongoing quality 
        assurance program for health care services it provides 
        to individuals enrolled with MedicarePlus plans of the 
        organization.
            ``(2) Elements of program.--The quality assurance 
        program shall--
                    ``(A) stress health outcomes;
                    ``(B) provide for the establishment of 
                written protocols for utilization review, based 
                on current standards of medical practice;
                    ``(C) provide review by physicians and 
                other health care professionals of the process 
                followed in the provision of such health care 
                services;
                    ``(D) monitor and evaluate high volume and 
                high risk services and the care of acute and 
                chronic conditions;
                    ``(E) evaluate the continuity and 
                coordination of care that enrollees receive;
                    ``(F) have mechanisms to detect both 
                underutilization and overutilization of 
                services;
                    ``(G) after identifying areas for 
                improvement, establish or alter practice 
                parameters;
                    ``(H) take action to improve quality and 
                assesses the effectiveness of such action 
                through systematic follow-up;
                    ``(I) make available information on quality 
                and outcomes measures to facilitate beneficiary 
                comparison and choice of health coverage 
                options (in such form and on such quality and 
                outcomes measures as the Secretary determines 
                to be appropriate); and
                    ``(J) be evaluated on an ongoing basis as 
                to its effectiveness.
            ``(3) External review.--Each MedicarePlus 
        organization shall, for each MedicarePlus plan it 
        operates, have an agreement with an independent quality 
        review and improvement organization approved by the 
        Secretary.
            ``(4) Exception for unrestricted fee-for-service 
        plans.--Paragraphs (1) and (3) and subsection (h)(2) 
        (relating to maintaining medical records) shall not 
        apply in the case of a MedicarePlus organization in 
        relation to a MedicarePlus unrestricted fee-for-service 
        plan.
            ``(5) Treatment of accreditation.--The Secretary 
        shall provide that a MedicarePlus organization is 
        deemed to meet the requirements of paragraphs (1) 
        through (3) of this subsection and subsection (h) 
        (relating to confidentiality and accuracy of medical 
        records) if the organization is accredited (and 
        periodically reaccredited) by a private organization 
        under a process that the Secretary has determined 
        assures that the organization meets standards that are 
        no less stringent than the standards established under 
        section 1856 to carry out this subsection and such 
        subsection.
    ``(f) Coverage Determinations.--
            ``(1) Decisions on nonemergency care.--A 
        MedicarePlus organization shall make determinations 
        regarding authorization requests for nonemergency care 
        on a timely basis, depending on the urgency of the 
        situation.
            ``(2) Appeals.--
                    ``(A) In general.--Appeals from a 
                determination of an organization denying 
                coverage shall be decided within 30 days of the 
                date of receipt of medical information, but not 
                later than 60 days after the date of the 
                decision.
                    ``(B) Physician decision on certain 
                appeals.--Appeal decisions relating to a 
                determination to deny coverage based on a lack 
                of medical necessity shall be made only by a 
                physician.
                    ``(C) Emergency cases.--Appeals from such a 
                determination involving a life-threatening or 
                emergency situation shall be decided on an 
                expedited asis.
    ``(g) Grievances and Appeals.--
            ``(1) Grievance mechanism.--Each MedicarePlus 
        organization must provide meaningful procedures for 
        hearing and resolving grievances between the 
        organization (including any entity or individual 
        through which the organization provides health care 
        services) and enrollees with MedicarePlus plans of the 
        organization under this part.
            ``(2) Appeals.--An enrollee with a MedicarePlus 
        plan of a MedicarePlus organization under this part who 
        is dissatisfied by reason of the enrollee's failure to 
        receive any health service to which the enrollee 
        believes the enrollee is entitled and at no greater 
        charge than the enrollee believes the enrollee is 
        required to pay is entitled, if the amount in 
        controversy is $100 or more, to a hearing before the 
        Secretary to the same extent as is provided in section 
        205(b), and in any such hearing the Secretary shall 
        make the organization a party. If the amount in 
        controversy is $1,000 or more, the individual or 
        organization shall, upon notifying the other party, be 
        entitled to judicial review of the Secretary's final 
        decision as provided in section 205(g), and both the 
        individual and the organization shall be entitled to be 
        parties to that judicial review. In applying sections 
        205(b) and 205(g) as provided in this subparagraph, and 
        in applying section 205(l) thereto, any reference 
        therein to the Commissioner of Social Security or the 
        Social Security Administration shall be considered a 
        reference to the Secretary or the Department of Health 
        and Human Services, respectively.
            ``(3) Independent review of certain coverage 
        denials.--The Secretary shall contract with an 
        independent, outside entity to review and resolve 
        appeals of denials of coverage related to urgent or 
        emergency services with respect to MedicarePlus plans.
            ``(4) Coordination with secretary of labor.--The 
        Secretary shall consult with the Secretary of Labor so 
        as to ensure that the requirements of this subsection, 
        as they apply in the case of grievances referred to in 
        paragraph (1) to which section 503 of the Employee 
        Retirement Income Security Act of 1974 applies, are 
        applied in a manner consistent with the requirements of 
        such section 503, so long as such requirements provide 
        at least as much protection for beneficiaries as would 
        apply if this paragraph did not apply.
    ``(h) Confidentiality and Accuracy of Enrollee Records.--
Each MedicarePlus organization shall establish procedures--
            ``(1) to safeguard the privacy of individually 
        identifiable enrollee information, and
            ``(2) to maintain accurate and timely medical 
        records for enrollees.
    ``(i) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) 
(relating to maintaining written policies and procedures 
respecting advance directives).
    ``(j) Rules Regarding Physician Participation.--
            ``(1) Procedures.--Each MedicarePlus organization 
        shall establish reasonable procedures relating to the 
        participation (under an agreement etween a physician 
        and the organization) of physicians under MedicarePlus 
        plans offered by the organization under this part. Such 
        procedures shall include--
                    ``(A) providing notice of the rules 
                regarding participation,
                    ``(B) providing written notice of 
                participation decisions that are adverse to 
                physicians, and
                    ``(C) providing a process within the 
                organization for appealing adverse decisions, 
                including the presentation of information and 
                views of the physician regarding such decision.
            ``(2) Consultation in medical policies.--A 
        MedicarePlus organization shall consult with physicians 
        who have entered into participation agreements with the 
        organization regarding the organization's medical 
        policy, quality, and medical management procedures.
            ``(3) Limitations on physician incentive plans.--
                    ``(A) In general.--No MedicarePlus 
                organization may operate any physician 
                incentive plan (as defined in subparagraph (B)) 
                unless the following requirements are met:
                            ``(i) No specific payment is made 
                        directly or indirectly under the plan 
                        to a physician or physician group as an 
                        inducement to reduce or limit medically 
                        necessary services provided with 
                        respect to a specific individual 
                        enrolled with the organization.
                          ``(ii) If the plan places a physician 
                        or physician group at substantial 
                        financial risk (as determined by the 
                        Secretary) for services not provided by 
                        the physician or physician group, the 
                        organization--
                                    ``(I) provides stop-loss 
                                protection for the physician or 
                                group that is adequate and 
                                appropriate, based on standards 
                                developed by the Secretary that 
                                take into account the number of 
                                physicians placed at such 
                                substantial financial risk in 
                                the group or under the plan and 
                                the number of individuals 
                                enrolled with the organization 
                                who receive services from the 
                                physician or the physician 
                                group, and
                                    ``(II) conducts periodic 
                                surveys of both individuals 
                                enrolled and individuals 
                                previously enrolled with the 
                                organization to determine the 
                                degree of access of such 
                                individuals to services 
                                provided by the organization 
                                and satisfaction with the 
                                quality of such services.
                            ``(iii) The organization provides 
                        the Secretary with descriptive 
                        information regarding the plan, 
                        sufficient to permit the Secretary to 
                        determine whether the plan is in 
                        compliance with the requirements of 
                        this subparagraph.
                    ``(B) Physician incentive plan defined.--In 
                this paragraph, the term `physician incentive 
                plan' means any compensation arrangement 
                between a MedicarePlus organization and a 
                physician or physician group that may directly 
                or indirectly have the effect of reducing or 
                limiting services provided with respect to 
                individuals enrolled with the organization 
                under this part.
            ``(4) Limitation on provider indemnification.--A 
        MedicarePlus organization may not provide (directly or 
        indirectly) for a provider (or group of providers) to 
        indemnify the organization against any liability 
        resulting from a civil action brought by or on behalf 
        of an enrollee under this part for any damage caused to 
        an enrollee with a MedicarePlus plan of the 
        organization by the organization's denial of medically 
        necessary care.
            ``(5) Exception for unrestricted fee-for-service 
        plans.--The previous provisions of this subsection 
        shall not apply in the case of a MedicarePlus 
        organization in relation to a MedicarePlus unrestricted 
        fee-for-service plan.


     ``organizational and financial requirements for medicareplus 
            organizations; provider-sponsored organizations


    ``Sec. 1853. (a) Organized and Licensed Under State Law.--
            ``(1) In general.--A MedicarePlus organization 
        shall be organized and licensed under State law as a 
        risk-bearing entity eligible to offer health insurance 
        or health benefits coverage in each State in which it 
        offers a MedicarePlus plan.
            ``(2) Exception for certain union sponsors and 
        taft-hartley sponsors.--Paragraph (1) shall not apply 
        to a MedicarePlus organization that is a union sponsor 
        or Taft-Hartley sponsor.
            ``(3) Exception for qualified associations 
        sponsor.--Paragraph (1) shall not apply to a 
        MedicarePlus organization that is a qualified 
        association sponsor.
            ``(4) Special rules for provider-sponsored 
        organizations.--
                    ``(A) In general.--A provider-sponsored 
                organization that seeks to offer a MedicarePlus 
                plan in a State may apply for a waiver of the 
                requirement of paragraph (1) for that 
                organization operating in that State.
                    ``(B) Standard.--The Secretary shall act on 
                such an application within 60 days after the 
                date it is filed and shall grant such a waiver 
                for an organization with respect to a State if 
                the Secretary determines that--
                            ``(i) the State has failed to 
                        complete action on a licensing 
                        application of the organization within 
                        90 days of the date of the State's 
                        receipt of the completed application; 
                        or
                            ``(ii) the State denied such a 
                        licensing application and--
                                    ``(I) the State's licensing 
                                standards or review process 
                                imposes any requirements, 
                                procedures, or other standards 
                                to such organizations that are 
                                not generally applicable to any 
                                other entities engaged in 
                                substantially similar business,
                                    ``(II) such standards or 
                                review process applies solvency 
                                standards for the organization 
                                and the State is not approved 
                                under subsection (e)(2)(B), or
                                    ``(III) the State has used 
                                solvency standards to deny or 
                                discriminate against such an 
                                organization that has been 
                                provided a certificate of 
                                solvency under subsection 
                                (e)(2).
                No period before the date of the enactment of 
                this section shall be included in determining 
                the 90-day period described in clause (i).
                    ``(C) Treatment of waiver.--In the case of 
                a waiver granted under this paragraph for a 
                provider-sponsored organization--
                            ``(i) the waiver shall be effective 
                        for a 36-month period, except it may be 
                        renewed based on a subsequent 
                        application filed during the last 6 
                        months of such period,
                            ``(ii) the waiver is conditioned 
                        upon the pendency of the licensure 
                        application during the period the 
                        waiver is in effect, and
                            ``(iii) any provisions of State law 
                        which relate to the licensing of the 
                        organization and which prohibit the 
                        organization from providing coverage 
                        pursuant to a contract under this part 
                        shall be superseded.
                Nothing in this subparagraph shall be construed 
                as limiting the number of times such a waiver 
                may be renewed.
                    ``(D) Construction.--Nothing in this 
                paragraph shall be construed as affecting the 
                operation of section 514 of the Employee 
                Retirement Income Security Act of 1974.
            ``(5) Exception if required to offer more than 
        medicareplus plans.--Paragraph (1) shall not apply to a 
        MedicarePlus organization in a State if the State 
        requires the organization, as a condition of licensure, 
        to offer any product or plan other than a MedicarePlus 
        plan.
            ``(6) Exception in cases of unreasonable barriers 
        to market entry.--
                    ``(A) In general.--A MedicarePlus 
                organization that seeks to offer a MedicarePlus 
                plan in a State may apply for a waiver of the 
                requirement of paragraph (1) for that 
                organization operating in that State.
                    ``(B) Standard.--The Secretary shall act on 
                such an application within 60 days after the 
                date it is filed and shall grant such a waiver 
                for an organization with respect to a State if 
                the Secretary determines that--
                            ``(i) the State (I) denied such a 
                        licensing application or (II) 
                        unreasonably delayed in acting upon the 
                        application, and
                            ``(ii) the State's licensing 
                        standards or review process imposes 
                        unreasonable barriers to market entry, 
                        including through the imposition of any 
                        requirements, procedures, or other 
                        standards to such organizations that 
                        are not generally applicable to any 
                        other entities engaged in substantially 
                        similar business.
                    ``(C) Application of certain rules.--The 
                provisions of subparagraphs (C) and (D) of 
                paragraph (4) shall apply to this paragraph in 
                the same manner as they apply under such 
                paragraph, except that for this purpose any 
                reference in paragraph (4)(C)(i) to 36-month 
                period is deemed a reference to a 24-month 
                period.
    ``(b) Prepaid Payment.--A MedicarePlus organization shall 
be compensated (except for deductibles, coinsurance, and 
copayments) for the provision of health care services to 
enrolled members by a payment which is paid on a periodic basis 
without regard to the date the health care services are 
provided and which is fixed without regard to the frequency, 
extent, or kind of health care service actually provided to a 
member.
    ``(c) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective 
basis for the provision of the health care services (except, at 
the election of the organization, hospice care) for which 
benefits are required to be provided under section 1852(a)(1), 
except that the organization--
            ``(1) may obtain insurance or make other 
        arrangements for the cost of providing to any enrolled 
        member such services the aggregate value of which 
        exceeds $5,000 in any year,
            ``(2) may obtain insurance or make other 
        arrangements for the cost of such services provided to 
        its enrolled members other than through the 
        organization because medical necessity required their 
        provision before they could be secured through the 
        organization,
            ``(3) may obtain insurance or make other 
        arrangements for not more than 90 percent of the amount 
        by which its costs for any of its fiscal years exceed 
        115 percent of its income for such fiscal year, and
            ``(4) may make arrangements with physicians or 
        other health professionals, health care institutions, 
        or any combination of such individuals or institutions 
        to assume all or part of the financial risk on a 
        prospective basis for the provision of basic health 
        services by the physicians or other health 
        professionals or through the institutions.
In the case of a MedicarePlus organization that is a union 
sponsor, Taft-Hartley sponsor, or a qualified association 
sponsor, this subsection shall not apply with respect to 
MedicarePlus plans offered by such organization and issued by 
an organization to which subsection (b)(1) applies or by a 
provider-sponsored organization (as defined in section 
1854(a)).
    ``(d) Provision Against Risk of Insolvency.--
            ``(1) In general.--Each MedicarePlus organization 
        shall meet standards under section 1856 relating to the 
        financial solvency and capital adequacy of the 
        organization and including provision to prevent 
        enrollees from being held liable to any person or 
        entity for the plan sponsor's debts in the event of the 
        plan sponsor's insolvency. Such standards shall take 
        into account the nature and type of MedicarePlus plans 
        offered by the organization.
            ``(2) Treatment of provider-sponsored 
        organizations.--
                    ``(A) In general.--In the case of an entity 
                that is a provider-sponsored organization that 
                is operating--
                            ``(i) in a State approved under 
                        subparagraph (B), the organization 
                        shall meet the standards described in 
                        paragraph (1) through licensure by the 
                        State, or
                            ``(ii) in a State that is not so 
                        approved, the organization shall meet 
                        the standards described in paragraph 
                        (1) through application and 
                        certification licensure by the 
                        Secretary.
                    ``(B) Approved states.--
                            ``(i) Application process.--For 
                        purposes of subparagraph (A), the 
                        Secretary shall establish a process 
                        under which a State may apply to the 
                        Secretary for a determination that the 
                        State is applying to provider-sponsored 
                        organizations, through its process for 
                        licensing provider-sponsored 
                        organizations, solvency standards that 
                        are identical with the solvency 
                        standards established under section 
                        1856(c) for such organizations.
                            ``(ii) Determination.--The 
                        Secretary shall approve such a State if 
                        the Secretary determines that the State 
                        is so applying such standards. If the 
                        Secretary denies such an approval, the 
                        State may reapply for such a 
                        determination.
                            ``(iii) Publication.--The Secretary 
                        shall publish a list of States that are 
                        approved under this subparagraph.
            ``(3) Treatment of union and taft-hartley 
        sponsors.--An entity that is a union sponsor or a Taft-
        Hartley sponsor is deemed to meet the requirement of 
        paragraph (1).
            ``(4) Treatment of certain qualified association 
        sponsors.--An entity that is a qualified association 
        sponsor is deemed to meet the requirement of paragraph 
        (1) with respect to MedicarePlus plans offered by such 
        association and issued by an organization to which 
        subsection (b)(1) applies or by a provider-sponsored 
        organization.
    ``(e) Provider-Sponsored Organization Defined.--
            ``(1) In general.--In this part, the term 
        `provider-sponsored organization' means a public or 
        private entity--
                    ``(A) that is established or organized by a 
                health care provider, or group of affiliated 
                health care providers,
                    ``(B) that provides a substantial 
                proportion (as defined by the Secretary) of the 
                health care items and services under the 
                contract under this part directly through the 
                provider or affiliated group of providers, and
                    ``(C) with respect to which those 
                affiliated providers that share, directly or 
                indirectly, substantial financial risk with 
                respect to the provision of such items and 
                services have at least a majority financial 
                interest in the entity.
            ``(2) Substantial proportion.--In defining what is 
        a `substantial proportion' for purposes of paragraph 
        (1)(A), the Secretary--
                    ``(A) shall take into account the need for 
                such an organization to assume responsibility 
                for a substantial proportion of services in 
                order to assure financial stability and the 
                practical difficulties in such an organization 
                integrating a very wide range of service 
                providers; and
                    ``(B) may vary such proportion based upon 
                relevant differences among organizations, such 
                as their location in an urban or rural area.
            ``(3) Affiliation.--For purposes of this 
        subsection, a provider is `affiliated' with another 
        provider if, through contract, ownership, or 
        otherwise--
                    ``(A) one provider, directly or indirectly, 
                controls, is controlled by, or is under common 
                control with the other,
                    ``(B) both providers are part of a 
                controlled group of corporations under section 
                1563 of the Internal Revenue Code of 1986, or
                    ``(C) both providers are part of an 
                affiliated service group under section 414 of 
                such Code.
            ``(4) Control.--For purposes of paragraph (3), 
        control is presumed to exist if one party, directly or 
        indirectly, owns, controls, or holds the power to vote, 
        or proxies for, not less than 51 percent of the voting 
        rights or governance rights of another.
            ``(5) Health care provider defined.--In this 
        subsection and subsection (f), the term `health care 
        provider' means--
                    ``(A) any individual who is engaged in the 
                delivery of health care services in a State and 
                who is required by State law or regulation to 
                be licensed or certified by the State to engage 
                in the delivery of such services in the State, 
                and
                    ``(B) any entity that is engaged in the 
                delivery of health care services in a State and 
                that, if it is required by State law or 
                regulation to be licensed or certified by the 
                State to engage in the delivery of such 
                services in the State, is so licensed.
            ``(6) Regulations.--The Secretary shall issue 
        regulations to carry out this subsection.
    ``(f) Application of Antitrust Rule of Reason to Provider-
Sponsored Organizations.--
            ``(1) Rule of reason standard.--In any action under 
        the antitrust laws, or under any law of a State (as 
        defined in section 4G(2) of the Clayton Act) similar to 
        the antitrust laws, the following conduct shall not be 
        deemed illegal per se:
                    ``(A) The conduct of a provider-sponsored 
                organization, and affiliated providers of the 
                organization, in negotiating, making, or 
                performing a contract (including the 
                establishment and modification of a fee 
                schedule and the development of a panel of 
                physicians), to the extent such contract is for 
                the purpose of providing health care services 
                to individuals under the terms of a 
                MedicarePlus plan offered by such an 
                organization.
                    ``(B) The exchange of information among 
                health care providers relating to costs, sales, 
                profitability, marketing, prices, or fees of 
                any health care product or service if--
                            ``(i) the exchange of such 
                        information was solely for the purpose 
                        of establishing a provider-sponsored 
                        organization and was reasonably 
                        required for such purpose, and
                            ``(ii) such information was not 
                        used for any other purpose.
        Such conduct shall be judged on the basis of its 
        reasonableness, taking into account all relevant 
        factors affecting competition, including the effects on 
        competition in properly defined markets.
                    ``(C) The conduct of a group of health care 
                providers, and provider members of such a 
                group, in negotiating, making, or performing a 
                contract (including the establishment and 
                modification of a fee schedule and the 
                development of a panel of physicians) with a 
                provider-sponsored organization, to the extent 
                such contract is for the purpose of providing 
                health care services to individuals under the 
                terms of a MedicarePlus plan of the 
                organization, but only if the group meets the 
                requirements of paragraph (2).
        Such conduct shall be judged on the basis of its 
        reasonableness, taking into account all relevant 
        factors affecting competition, including the effects on 
        competition in properly defined markets.
            ``(2) Requirements for group.--A group of health 
        care providers meets the requirements of this paragraph 
        with respect to a MedicarePlus plan of a provider-
        sponsored organization if the group--
                            ``(i) is not a provider-sponsored 
                        organization,
                            ``(ii) is organized by, operated 
                        by, and composed only of members who 
                        are health care providers and for 
                        purposes that include providing health 
                        care services,
                            ``(iii) is funded in part by 
                        capital contributions made by the 
                        members of such group,
                            ``(iv) with respect to each 
                        contract made by such group for the 
                        purpose of providing a type of health 
                        care service to individuals under the 
                        terms of the plan--
                                    ``(I) requires all members 
                                of such group who engage in 
                                providing such type of health 
                                care service to agree to 
                                provide health care services of 
                                such type under such contract,
                                    ``(II) receives the 
                                compensation paid for the 
                                health care services of such 
                                type provided under such 
                                contract by such members, and
                                    ``(III) provides for the 
                                distribution of such 
                                compensation,
                            ``(v) has established, consistent 
                        with the requirements of this part, a 
                        program to review, pursuant to written 
                        guidelines, the quality, efficiency, 
                        and appropriateness of treatment 
                        methods and setting of services for all 
                        health care providers and all patients 
                        participating in the plan, along with 
                        internal procedures to correct 
                        identified deficiencies relating to 
                        such methods and such services,
                            ``(vi) has established, consistent 
                        with the requirements of this part, a 
                        program to monitor and control 
                        utilization of health care services 
                        provided under the plan, for the 
                        purpose of improving efficient, 
                        appropriate care and eliminating the 
                        provision of unnecessary health care 
                        services,
                            ``(vii) has established a 
                        management program to coordinate the 
                        delivery of health care services for 
                        all health care providers and all 
                        patients participating in the plan, for 
                        the purpose of achieving efficiencies 
                        and enhancing the quality of health 
                        care services provided, and
                            ``(viii) has established, 
                        consistent with the requirements of 
                        this part, a grievance and appeal 
                        process for such group designed to 
                        review and promptly resolve beneficiary 
                        or patient grievances and complaints.
            ``(3) Definitions.--For purposes of this 
        subsection:
                    ``(A) Antitrust laws.--The term `antitrust 
                laws' has the meaning given it in subsection 
                (a) of the first section of the Clayton Act (15 
                U.S.C. 12), except that such term includes 
                section 5 of the Federal Trade Commission Act 
                (15 U.S.C. 45) to the extent that such section 
                5 applies to unfair methods of competition.
                    ``(B) Health care service.--The term 
                `health care service' means any service for 
                which payment may be made under a MedicarePlus 
                plan including services related to the delivery 
                or administration of such service.
            ``(3) Issuance of guidelines.--Not later than 120 
        days after the date of the enactment of this part, the 
        Attorney General and the Federal Trade Commission shall 
        issue jointly guidelines specifying the enforcement 
        policies and analytical principles that will be applied 
        by the Department of Justice and the Commission with 
        respect to the operation of this subsection.
    ``(g) Organizations Treated as MedicarePlus Organizations 
During Transition.--Any of the following organizations shall be 
considered to qualify as a MedicarePlus organization for 
contract years beginning before January 1, 1998:
            ``(1) Health maintenance organizations.--An 
        organization that is organized under the laws of any 
        State and that is a qualified health maintenance 
        organization (as defined in section 1310(d) of the 
        Public Health Service Act), an organization recognized 
        under State law as a health maintenance organization, 
        or a similar organization regulated under State law for 
        solvency in the same manner and to the same extent as 
        such a health maintenance organization.
            ``(2) Licensed insurers.--An organization that is 
        organized under the laws of any State and--
                    ``(A) is licensed by a State agency as an 
                insurer for the offering of health benefit 
                coverage, or
                    ``(B) is licensed by a State agency as a 
                service benefit plan,
        but only for individuals residing in an area in which 
        the organization is licensed to offer health insurance 
        coverage.
            ``(3) Current risk-contractors.--An organization 
        that is an eligible organization (as defined in section 
        1876(b)) and that has a risk-sharing contract in effect 
        under section 1876 as of the date of the enactment of 
        this section.


                ``payments to medicareplus organizations


    ``Sec. 1854. (a) Payments to Organizations.--
            ``(1) Monthly payments.--
                    ``(A) In general.--Under a contract under 
                section 1857 and subject to subsections (e) and 
                (f), the Secretary shall make monthly payments 
                under this section in advance to each 
                MedicarePlus organization, with respect to 
                coverage of an individual under this part in a 
                MedicarePlus payment area for a month, in an 
                amount equal to \1/12\ of the annual 
                MedicarePlus capitation rate (as calculated 
                under subsection (c)) with respect to that 
                individual for that area, adjusted for such 
                risk factors as age, disability status, gender, 
                institutional status, and such other factors as 
                the Secretary determines to be appropriate, so 
                as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for 
                such factors, if such changes will improve the 
                determination of actuarial equivalence.
                    ``(B) Special rule for end-stage renal 
                disease.--The Secretary shall establish a 
                separate rate of payment to a MedicarePlus 
                organization with respect to any individual 
                determined to have end-stage renal disease and 
                enrolled in a MedicarePlus plan of the 
                organization. Such rate of payment shall be 
                actuarially equivalent to rates paid to other 
                enrollees in the MedicarePlus payment area (or 
                such other area as specified by the Secretary).
            ``(2) Adjustment to reflect number of enrollees.--
                    ``(A) In general.--The amount of payment 
                under this subsection may be retroactively 
                adjusted to take into account any difference 
                between the actual number of individuals 
                enrolled with an organization under this part 
                and the number of such individuals estimated to 
                be so enrolled in determining the amount of the 
                advance payment.
                    ``(B) Special rule for certain enrollees.--
                            ``(i) In general.--Subject to 
                        clause (ii), the Secretary may make 
                        retroactive adjustments under 
                        subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the 
                        individual enrolls with a MedicarePlus 
                        organization under a plan operated, 
                        sponsored, or contributed to by the 
                        individual's employer or former 
                        employer (or the employer or former 
                        employer of the individual's spouse) 
                        and ending on the date on which the 
                        individual is enrolled in the 
                        organization under this part, except 
                        that for purposes of making such 
                        retroactive adjustments under this 
                        subparagraph, such period may not 
                        exceed 90 days.
                            ``(ii) Exception.--No adjustment 
                        may be made under clause (i) with 
                        respect to any individual who does not 
                        certify that the organization provided 
                        the individual with the disclosure 
                        statement described in section 1852(c) 
                        at the time the individual enrolled 
                        with the organization.
    ``(b) Annual Announcement of Payment Rates.--
            ``(1) Annual announcement.--The Secretary shall 
        annually determine, and shall announce (in a manner 
        intended to provide notice to interested parties) not 
        later than August 1 before the calendar year 
        concerned--
                    ``(A) the annual MedicarePlus capitation 
                rate for each MedicarePlus payment area for the 
                year, and
                    ``(B) the risk and other factors to be used 
                in adjusting such rates under subsection 
                (a)(1)(A) for payments for months in that year.
            ``(2) Advance notice of methodological changes.--At 
        least 45 days before making the announcement under 
        paragraph (2) for a year, the Secretary shall provide 
        for notice to MedicarePlus organizations of proposed 
        changes to be made in the methodology from the 
        methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
            ``(3) Explanation of assumptions.--In each 
        announcement made under paragraph (1) for a year, the 
        Secretary shall include an explanation of the 
        assumptions and changes in methodology used in the 
        announcement in sufficient detail so that MedicarePlus 
        organizations can compute monthly adjusted MedicarePlus 
        capitation rates for individuals in each MedicarePlus 
        payment area which is in whole or in part within the 
        service area of such an organization.
    ``(c) Calculation of Annual MedicarePlus Capitation 
Rates.--
            ``(1) In General.--For purposes of this part, the 
        annual MedicarePlus capitation rate, for a MedicarePlus 
        payment area for a contract year consisting of a 
        calendar year, is equal to the greatest of the 
        following:
                    ``(A) Blended capitation rate.--The sum 
                of--
                            ``(i) area-specific percentage for 
                        the year (as specified under paragraph 
                        (2) for the year) of the annual area-
                        specific MedicarePlus capitation rate 
                        for the year for the MedicarePlus 
                        payment area, as determined under 
                        paragraph (3), and
                            ``(ii) national percentage (as 
                        specified under paragraph (2) for the 
                        year) of the input-price-adjusted 
                        annual national MedicarePlus capitation 
                        rate for the year, as determined under 
                        paragraph (4),
                multiplied by a budget neutrality adjustment 
                factor determined under paragraph (5).
                    ``(B) Minimum amount.--
                            ``(i) For 1996, $300.
                            ``(ii) For 1997, $350.
                            ``(iii) For a succeeding year, is 
                        the minimum amount specified in this 
                        subparagraph for the preceding year 
                        increased by national average per 
                        capita growth percentage, specified 
                        under paragraph (6) for that succeeding 
                        year.
                    ``(C) Minimum increase of 2 percent over 
                previous year's rate.--
                            ``(i) For 1996, 102 percent of the 
                        annual per capita rate of payment for 
                        1995 determined under section 
                        1876(a)(1)(C) for the MedicarePlus 
                        payment area.
                            ``(ii) For a subsequent year, 102 
                        percent of the annual MedicarePlus 
                        capitation rate under this subsection 
                        for the area for the previous year.
            ``(2) Area-specific and national percentages.--For 
        purposes of paragraph (1)(A)--
                    ``(A) for 1996 and 1997, the `area-specific 
                percentage' is 90 percent and the `national 
                percentage' is 10 percent,
                    ``(B) for 1998, the `area-specific 
                percentage' is 85 percent and the `national 
                percentage' is 15 percent,
                    ``(C) for 1999, the `area-specific 
                percentage' is 80 percent and the `national 
                percentage' is 20 percent,
                    ``(D) for 2000, the `area-specific 
                percentage' is 75 percent and the `national 
                percentage' is 25 percent, and
                    ``(E) for a year after 2000, the `area-
                specific percentage' is 70 percent and the 
                `national percentage' is 30 percent.
            ``(3) Annual area-specific medicareplus capitation 
        rate.--For purposes of paragraph (1)(A), the annual 
        area-specific MedicarePlus capitation rate for a 
        MedicarePlus payment area--
                    ``(A) for 1996 is the annual per capita 
                rate of payment for 1995 determined under 
                section 1876(a)(1)(C) for the MedicarePlus 
                payment area, increased by the national average 
                per capita growth percentage for 1996 (as 
                defined in paragraph (6)); or
                    ``(B) for a subsequent year is the annual 
                area-specific MedicarePlus capitation rate for 
                the previous year determined under this 
                paragraph for the MedicarePlus payment area, 
                increased by the national average per capita 
                growth percentage for such subsequent year.
            ``(4) Input-price-adjusted annual national 
        MedicarePlus capitation rate.--
                    ``(A) In general.--For purposes of 
                paragraph (1)(A), the input-price-adjusted 
                annual national MedicarePlus capitation rate 
                for a MedicarePlus payment area for a year is 
                equal to the sum, for all the types of medicare 
                services (as classified by the Secretary), of 
                the plan (for each such type) of--
                            ``(i) the national standardized 
                        annual MedicarePlus capitation rate 
                        (determined under subparagraph (B)) for 
                        the year,
                            ``(ii) the proportion of such rate 
                        for the year which is attributable to 
                        such type of services, and
                            ``(iii) an index that reflects (for 
                        that year and that type of services) 
                        the relative input price of such 
                        services in the area compared to the 
                        national average input price of such 
                        services.
                In applying clause (iii), the Secretary shall, 
                subject to subparagraph (C), apply those 
                indices under this title that are used in 
                applying (or updating) national payment rates 
                for specific areas and localities.
                    ``(B) National standardized annual 
                medicareplus capitation rate.--In subparagraph 
                (A)(i), the `national standardized annual 
                MedicarePlus capitation rate' for a year is 
                equal to--
                            ``(i) the sum (for all MedicarePlus 
                        payment areas) of the product of (I) 
                        the annual area-specific MedicarePlus 
                        capitation rate for that year for the 
                        area under paragraph (3), and (II) the 
                        average number of medicare 
                        beneficiaries residing in that area in 
                        the year; divided by
                            ``(ii) the total average number of 
                        medicare beneficiaries residing in all 
                        the MedicarePlus payment areas for that 
                        year.
                    ``(C) Special rules for 1996.--In applying 
                this paragraph for 1996--
                            ``(i) medicare services shall be 
                        divided into 2 types of services: part 
                        A services and part B services;
                            ``(ii) the proportions described in 
                        subparagraph (A)(ii) for such types of 
                        services shall be--
                                    ``(I) for part A services, 
                                the ratio (expressed as a 
                                percentage) of the average 
                                annual per capita rate of 
                                payment for the area for part A 
                                for 1995 to the total average 
                                annual per capita rate of 
                                payment for the area for parts 
                                A and B for 1995, and
                                    ``(II) for part B services, 
                                100 percent minus the ratio 
                                described in subclause (I);
                            ``(iii) for the part A services, 70 
                        percent of payments attributable to 
                        such services shall be adjusted by the 
                        index used under section 1886(d)(3)(E) 
                        to adjust payment rates for relative 
                        hospital wage levels for hospitals 
                        located in the payment area involved;
                            ``(iv) for part B services--
                                    ``(I) 66 percent of 
                                payments attributable to such 
                                services shall be adjusted by 
                                the index of the geographic 
                                area factors under section 
                                1848(e) used to adjust payment 
                                rates for physicians' services 
                                furnished in the payment area, 
                                and
                                    ``(II) of the remaining 34 
                                percent of the amount of such 
                                payments, 70 percent shall be 
                                adjusted by the index described 
                                in clause (iii);
                            ``(v) the index values shall be 
                        computed based only on the beneficiary 
                        population who are 65 years of age or 
                        older who are not determined to have 
                        end stage renal disease.
                The Secretary may continue to apply the rules 
                described in this subparagraph (or similar 
                rules) for 1997.
            ``(5) Budget neutrality adjustment factor.--For 
        each year, the Secretary shall compute a budget 
        neutrality adjustment factor so that the aggregate of 
        the payments under this part shall not exceed the 
        aggregate payments that would have been made under this 
        part if the area-specific percentage for the year had 
        been 100 percent and the national percentage had been 0 
        percent.
            ``(6) National average per capita growth percentage 
        defined.--In this part, the `national average per 
        capita growth percentage' for--
                    ``(A) 1996 is 8.0 percent,
                    ``(B) 1997 is 3.8 percent,
                    ``(C) 1998 is 4.6 percent,
                    ``(D) 1999 is 4.3 percent,
                    ``(E) 2000 is 3.8 percent,
                    ``(F) 2001 is 5.5 percent,
                    ``(G) 2002 is 5.6 percent, and
                    ``(H) each subsequent year is 5.0 percent.
    ``(d) Medicareplus Payment Area Defined.--
            ``(1) In general.--In this part, except as provided 
        in paragraph (3), the term `MedicarePlus payment area' 
        means a county, or equivalent area specified by the 
        Secretary.
            ``(2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal 
        disease, the MedicarePlus payment area shall be each 
        State.
            ``(3) Geographic adjustment.--
                    ``(A) In general.--Upon request of a State 
                for a contract year (beginning after 1996) made 
                at least 7 months before the beginning of the 
                year, the Secretary shall make a geographic 
                adjustment to a MedicarePlus payment areas in 
                the State otherwise determined under paragraph 
                (1)--
                            ``(i) to a single statewide 
                        MedicarePlus payment area,
                            ``(ii) to the metropolitan based 
                        system described in subparagraph (C), 
                        or
                            ``(iii) to consolidating into a 
                        single MedicarePlus payment area 
                        noncontinuous counties (or equivalent 
                        areas described in paragraph (1)) 
                        within a State.
                Such adjustment shall be effective for payments 
                for months beginning with January of the year 
                following the year in which the request is 
                received.
                    ``(B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Secretary shall adjust the 
                payment rates otherwise established under this 
                paragraph for MedicarePlus payment areas in the 
                State in a manner so that the aggregate of the 
                payments under this section in the State shall 
                not exceed the aggregate payments that would 
                have been made under this section for 
                MedicarePlus payment areas in the State in the 
                absence of the adjustment under this paragraph.
                    ``(C) Metropolitan based system.--The 
                metropolitan based system described in this 
                subparagraph is one in which--
                            ``(i) all the portions of each 
                        metropolitan statistical area in the 
                        State or in the case of a consolidated 
                        metropolitan statistical area, all of 
                        the portions of each primary 
                        metropolitan statistical area within 
                        the consolidated area within the State, 
                        are treated as a single MedicarePlus 
                        payment area, and
                            ``(ii) all areas in the State that 
                        do not fall within a metropolitan 
                        statistical area are treated as a 
                        single MedicarePlus payment area.
                    ``(D) Areas.--In subparagraph (C), the 
                terms `metropolitan statistical area', 
                `consolidated metropolitan statistical area', 
                and `primary metropolitan statistical area' 
                mean any area designated as such by the 
                Secretary of Commerce.
    ``(e) Special Rules for Individuals Electing High 
Deductible Plans.--
            ``(1) In general.--In the case of an individual who 
        has elected a high deductible plan, notwithstanding the 
        preceding provisions of this section--
                    ``(A) the amount of the monthly payment to 
                the MedicarePlus organization offering the high 
                deductible plan shall not exceed the monthly 
                premium for the plan, and
                    ``(B) subject to paragraph (2), the 
                difference between the amount of payment that 
                would otherwise be made and the amount of 
                payment to such organization shall be made 
                directly into a High Deductible MedicarePlus 
                MSA established (and, if applicable, 
                designated) by the individual under paragraph 
                (2).
            ``(2) Establishment and designation of medicareplus 
        medical savings account as requirement for payment of 
        contribution.--In the case of an individual who has 
        elected coverage under a high deductible plan, no 
        payment shall be made under paragraph (1)(B) on behalf 
        of an individual for a month unless the individual--
                    ``(A) has established before the beginning 
                of the month (or by such other deadline as the 
                Secretary may specify) a High Deductible 
                MedicarePlus MSA (as defined in section 
                137(b)(2) of the Internal Revenue Code of 
                1986), and
                    ``(B) if the individual has established 
                more than one High Deductible MedicarePlus MSA, 
                has designated one of such accounts as the 
                individual's High Deductible MedicarePlus MSA 
                for purposes of this part.
        Under rules under this section, such an individual may 
        change the designation of such account under 
        subparagraph (B) for purposes of this part.
            ``(3) Lump sum deposit of medical savings account 
        contribution.--In the case of an individual electing a 
        high deductible plan effective beginning with a month 
        in a year, the amount of the contribution to the High 
        Deductible MedicarePlus MSA on behalf of the individual 
        for that month and all successive months in the year 
        shall be deposited during that first month. In the case 
        of a termination of such an election as of a month 
        before the end of a year, the Secretary shall provide 
        for a procedure for the recovery of deposits 
        attributable to the remaining months in the year.
            ``(4) Permitting contributions into medicareplus 
        msa.--Effective January 1, 1997, if a member of a 
        Federally-qualified health maintenance organization 
        certifies that a Rebate MedicarePlus MSA (as defined in 
        section 137(c) of the Internal Revenue Code of 1986) 
        has been established for the benefit of such member, 
        the health maintenance organization may reduce the 
        basic health services payment otherwise determined 
        under otherwise applicable law by requiring the payment 
        of a deductible by the member for basic health 
        services.
    ``(f) Payments of Rebates.--
            ``(1) In general.--If the amount of the monthly 
        premium for a MedicarePlus plan (other than a high 
        deductible plan) for an MedicarePlus payment area for a 
        year is less than \1/12\ of the annual MedicarePlus 
        capitation rate applied under this section 1854 for the 
        area and year involved, at the election of an 
        individual enrolled under the plan the Secretary shall 
        either--
                    ``(A) in the case of an individual who has 
                a Rebate MedicarePlus MSA account (as defined 
                in section 137(b)(3) of the Internal Revenue 
                Code of 1986), to deposit 100 percent of such 
                difference in such an account specified by the 
                individual; or
                    ``(B)(i) pay to the MedicarePlus 
                organization on behalf of such individual the 
                monthly amount equal to 100 percent of such 
                difference up to the amount of the premium 
                amount of such individual for supplemental 
                benefits described in section 1895H(b),
                    ``(ii) pay to such individual an amount 
                equal to 75 percent of the remainder of such 
                difference, and
                    ``(iii) deposit any remainder of such 
                difference in the Federal Hospital Insurance 
                Trust Fund.
            ``(2) Time for payment.--
                    ``(A) In general.--Subject to subparagraph 
                (B), payments and deposits described in 
                paragraph (1) shall be made on a monthly basis.
                    ``(B) Cash rebates.--A rebate under 
                paragraph (1)(B)(ii) shall be paid as of the 
                close of the calendar year to which the 
                enrollment applied.
    ``(g) Payments From Trust Fund.--The payment to a 
MedicarePlus organization under this section for individuals 
enrolled under this part with the organization, and payments to 
a High Deductible or Rebate MedicarePlus MSA under subsection 
(e)(1)(B) or subsection (f), shall be made from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund in such proportion as the 
Secretary determines reflects the relative weight that benefits 
under part A and under part B represents of the actuarial value 
of the total benefits under this title.
    ``(h) Special Rule for Certain Inpatient Hospital Stays.--
In the case of an individual who is receiving inpatient 
hospital services from a subsection (d) hospital (as defined in 
section 1886(d)(1)(B)) as of the effective date of the 
individual's--
            ``(1) election under this part of a MedicarePlus 
        plan offered by a MedicarePlus organization--
                    ``(A) payment for such services until the 
                date of the individual's discharge shall be 
                made under this title through the MedicarePlus 
                plan or the Medicare fee-for-service program 
                option described in section 1851(a)(1)(A) (as 
                the case may be) elected before the election 
                with such organization,
                    ``(B) the elected organization shall not be 
                financially responsible for payment for such 
                services until the date after the date of the 
                individual's discharge, and
                    ``(C) the organization shall nonetheless be 
                paid the full amount otherwise payable to the 
                organization under this part; or
            ``(2) termination of election with respect to a 
        MedicarePlus organization under this part--
                    ``(A) the organization shall be financially 
                responsible for payment for such services after 
                such date and until the date of the 
                individual's discharge,
                    ``(B) payment for such services during the 
                stay shall not be made under section 1886(d) or 
                by any succeeding MedicarePlus organization, 
                and
                    ``(C) the terminated organization shall not 
                receive any payment with respect to the 
                individual under this part during the period 
                the individual is not enrolled.


                         ``premiums and rebates


    ``Sec. 1855. (a) Submission and Charging of Premiums.--
            ``(1) In general.--Subject to paragraph (3), each 
        MedicarePlus organization shall file with the Secretary 
        each year, in a form and manner and at a time specified 
        by the Secretary--
                    ``(A) the amount of the monthly premium for 
                coverage for services under section 1852(a) 
                under each MedicarePlus plan it offers under 
                this part in each MedicarePlus payment area (as 
                defined in section 1854(d)) in which the plan 
                is being offered; and
                    ``(B) the enrollment capacity in relation 
                to the plan in each such area.
            ``(2) Terminology.--In this part--
                    ``(A) the term `monthly premium' means, 
                with respect to a MedicarePlus plan offered by 
                a MedicarePlus organization, the monthly 
                premium filed under paragraph (1), not taking 
                into account the amount of any payment made 
                toward the premium under section 1854; and
                    ``(B) the term `net monthly premium' means, 
                with respect to such a plan and an individual 
                enrolled with the plan, the premium (as defined 
                in subparagraph (A)) for the plan reduced by 
                the amount of payment made toward such premium 
                under section 1854.
            ``(3) Limitation on portion of monthly premium 
        attributable to required coverage.--In no case may the 
        portion of the monthly premium for a MedicarePlus plan 
        for an area and year attributable to required services 
        under section 1852(a)(1) exceed the adjusted community 
        rate for the plan (as defined in subsection (f)(5)).
    ``(b) Net Monthly Premium.--The amount of the net monthly 
premium charged by a MedicarePlus organization for a 
MedicarePlus plan offered in a MedicarePlus payment area to an 
individual under this part shall be equal to the amount (if 
any) by which--
            ``(1) the amount of the monthly premium for the 
        plan for the period involved, exceeds
            ``(2) \1/12\ of the annual MedicarePlus capitation 
        rate applied under section 1854 for the area and year 
        involved.
    ``(c) Uniform Premium.--The monthly premium and net monthly 
premium (including rebates offered) by a MedicarePlus 
organization under this part may not vary among individuals who 
reside in the same MedicarePlus payment area.
    ``(d) Terms and Conditions of Imposing Premiums.--Each 
MedicarePlus organization shall permit the payment of net 
monthly premiums on a monthly basis and may terminate election 
of individuals for a MedicarePlus plan for failure to make 
premium payments only in accordance with section 
1851(g)(3)(B)(i).
    ``(e) Relation of Premiums and Cost-sharing to Benefits.--
In no case may the portion of a MedicarePlus organization's 
monthly premium and the actuarial value of its deductibles, 
coinsurance, and copayments charged for (to the extent 
attributable to the required benefits described in section 
1852(a)(1) and not counting any amount attributable to balance 
billing) to individuals who are enrolled under this part with 
the organization exceed the actuarial value of the coinsurance 
and deductibles that would be applicable on the average to 
individuals enrolled under this part with the organization (or, 
if the Secretary finds that adequate data are not available to 
determine that actuarial value, the actuarial value of the 
coinsurance and deductibles applicable on the average to 
individuals in the area, in the State, or in the United States, 
eligible to enroll under this part with the organization, or 
other appropriate data) and entitled to benefits under part A 
and enrolled under part B if they were not members of a 
MedicarePlus organization.
    ``(f) Requirement for Additional Benefits, Rebates, or 
Both.--
            ``(1) Requirement.--
                    ``(A) In general.--Each MedicarePlus 
                organization (in relation to a MedicarePlus 
                plan it offers) shall provide that if there is 
                an excess amount (as defined in subparagraph 
                (B)) for the plan for a contract year, subject 
                to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify), a monetary rebate 
                (paid on a monthly basis), or a combination 
                thereof, in a total value which is at least 
                equal to the adjusted excess amount (as defined 
                in subparagraph (C)).
                    ``(B) Excess amount.--For purposes of this 
                paragraph, the `excess amount', for an 
                organization for a plan, is the amount (if any) 
                by which--
                            ``(i) the average of the capitation 
                        payments made to the organization under 
                        section 1854 for the plan at the 
                        beginning of contract year, exceeds
                            ``(ii) the actuarial value of the 
                        required benefits described in section 
                        1852(a)(1) under the plan for 
                        individuals under this part, as 
                        determined based upon an adjusted 
                        community rate described in paragraph 
                        (5) (as reduced for the actuarial value 
                        of the coinsurance and deductibles 
                        under parts A and B).
                    ``(C) Adjusted excess amount.--For purposes 
                of this paragraph, the `adjusted excess 
                amount', for an organization for a plan, is the 
                excess amount reduced to reflect any amount 
                withheld and reserved for the organization for 
                the year under paragraph (3).
                    ``(D) No application to high deductible 
                plans.--Subparagraph (A) shall not apply to a 
                high deductible plan.
                    ``(E) Uniform application.--This paragraph 
                shall be applied uniformly for all enrollees 
                for a plan in a MedicarePlus payment area.
                    ``(F) Construction.--Nothing in this 
                subsection shall be construed as preventing a 
                MedicarePlus organization from providing health 
                care benefits that are in addition to the 
                benefits otherwise required to be provided 
                under this paragraph and from imposing a 
                premium for such additional benefits.
            ``(2) Rules in relation to rebates.--To the extent 
        that the adjusted excess amount for a plan exceeds the 
        value of additional benefits provided under 
        subparagraph (A) by the MedicarePlus organization in 
        relation to the plan for a month, then the organization 
        shall provide for payment of the amount of such excess 
        as follows:
                    ``(A) Rebate medicareplus msa.--If the 
                individual has a Rebate MedicarePlus MSA and 
                elects treatment under this subparagraph, the 
                organization shall provide for payment of such 
                excess into such MSA.
                    ``(B) Additional amount.--The organization 
                shall provide for payment of the amount of any 
                additional excess as follows:
                            ``(i) 75 percent of such excess to 
                        the individual.
                            ``(ii) 25 percent to the Federal 
                        Hospital Insurance Trust Fund.
            ``(3) Stabilization fund.--A MedicarePlus 
        organization may provide that a part of the value of an 
        excess actuarial amount described in paragraph (1) be 
        withheld and reserved in the Federal Hospital Insurance 
        Trust Fund and in the Federal Supplementary Medical 
        Insurance Trust Fund (in such proportions as the 
        Secretary determines to be appropriate) by the 
        Secretary for subsequent annual contract periods, to 
        the extent required to stabilize and prevent undue 
        fluctuations in the additional benefits and rebates 
        offered in those subsequent periods by the organization 
        in accordance with such paragraph. Any of such value of 
        the amount reserved which is not provided as additional 
        benefits described in paragraph (1)(A) to individuals 
        electing the MedicarePlus plan of the organization in 
        accordance with such paragraph prior to the end of such 
        periods, shall revert for the use of such trust funds.
            ``(4) Determination based on insufficient data.--
        For purposes of this subsection, if the Secretary finds 
        that there is insufficient enrollment experience 
        (including no enrollment experience in the case of a 
        provider-sponsored organization) to determine an 
        average of the capitation payments to be made under 
        this part at the beginning of a contract period, the 
        Secretary may determine such an average based on the 
        enrollment experience of other contracts entered into 
        under this part.
            ``(5) Adjusted community rate.--
                    ``(A) In general.--For purposes of this 
                subsection, subject to subparagraph (B), the 
                term `adjusted community rate' for a service or 
                services means, at the election of a 
                MedicarePlus organization, either--
                            ``(i) the rate of payment for that 
                        service or services which the Secretary 
                        annually determines would apply to an 
                        individual electing a MedicarePlus plan 
                        under this part if the rate of payment 
                        were determined under a `community 
                        rating system' (as defined in section 
                        1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                            ``(ii) such portion of the weighted 
                        aggregate premium, which the Secretary 
                        annually estimates would apply to such 
                        an individual, as the Secretary 
                        annually estimates is attributable to 
                        that service or services,
                but adjusted for differences between the 
                utilization characteristics of the individuals 
                electing coverage under this part and the 
                utilization characteristics of the other 
                enrollees with the organization (or, if the 
                Secretary finds that adequate data are not 
                available to adjust for those differences, the 
                differences between the utilization 
                characteristics of individuals selecting other 
                MedicarePlus coverage, or MedicarePlus eligible 
                individuals in the area, in the State, or in 
                the United States, eligible to elect 
                MedicarePlus coverage under this part and the 
                utilization characteristics of the rest of the 
                population in the area, in the State, or in the 
                United States, respectively).
                    ``(B) Special rule for provider-sponsored 
                organizations.--In the case of a MedicarePlus 
                organization that is a provider-sponsored 
                organization, the adjusted community rate under 
                subparagraph (A) for a MedicarePlus plan of the 
                organization may be computed (in a manner 
                specified by the Secretary) using data in the 
                general commercial marketplace or (during a 
                transition period) based on the costs incurred 
                by the organization in providing such a plan.
    ``(g) Transitional File and Use for Certain Requirements.--
            ``(1) In general.--In the case of a MedicarePlus 
        plan proposed to be offered before the end of the 
        transition period (as defined in section 1851(e)(1)(B)) 
        by a MedicarePlus organization described in section 
        1853(f)(3) or by a MedicarePlus organization with a 
        contract in effect under section 1857, if the 
        organization submits complete information to the 
        Secretary regarding the plan demonstrating that the 
        plan meets the requirements and standards under section 
        1852(a) and subsections (a) through (f) of this section 
        (relating to benefits and premiums), the plan shall be 
        deemed as meeting such requirements and standards under 
        such provisions unless the Secretary disapproves the 
        plan within 60 days after the date of submission of the 
        complete information.
            ``(2) Construction.--Nothing in paragraph (1) shall 
        be construed as waiving the requirement of a contract 
        under section 1857 or waiving requirements and 
        standards not referred to in paragraph (1).


 ``establishment of standards; certification of organizations and plans


    ``Sec. 1856. (a) Establishment of Standards.--
            ``(1)  Standards applicable to state-regulated 
        organizations and plans and non-solvency standards for 
        provider-Sponsored organizations.--
                    ``(A) Recommendations of naic.--The 
                Secretary shall request the National 
                Association of Insurance Commissioners to 
                develop and submit to the Secretary, not later 
                than 12 months after the date of the enactment 
                of the Medicare Preservation Act of 1995, 
                proposed standards consistent with the 
                requirements of this part for MedicarePlus 
                organizations (other than union sponsors and 
                Taft-Hartley sponsors, and other than solvency 
                standards described in subsection (b) for 
                provider-sponsored organizations) and 
                MedicarePlus plans offered by such 
                organizations, except that such proposed 
                standards may relate to MedicarePlus 
                organizations that are qualified association 
                sponsors only with respect to MedicarePlus 
                plans offered by them and only if such plans 
                are issued by organizations to which section 
                1853(a)(1) applies.
                    ``(B) Review.--If the Association submits 
                such standards on a timely basis, the Secretary 
                shall review such standards to determine if the 
                standards meet the requirements of this part. 
                The Secretary shall complete the review of the 
                standards not later than 90 days after the date 
                of their submission. The Secretary shall 
                promulgate such proposed standards to apply to 
                organizations and plans described in 
                subparagraph (A) except to the extent that the 
                Secretary modifies such proposed standards 
                because they do not meet such requirements.
                    ``(C) Failure to submit.--If the 
                Association does not submit such standards on a 
                timely basis, the Secretary shall promulgate 
                such standards by not later than the date the 
                Secretary would otherwise have been required to 
                promulgate standards under subparagraph (B).
                    ``(D) Use of interim rules.--For the period 
                in which this part is in effect and standards 
                are being developed and established under the 
                preceding provisions of this subsection, the 
                Secretary shall provide by not later than June 
                1, 1996, for the application of such interim 
                standards (without regard to any requirements 
                for notice and public comment) as may be 
                appropriate to provide for the expedited 
                implementation of this part. Such interim 
                standards shall not apply after the date 
                standards are established under the preceding 
                provisions of this paragraph.
            ``(2) Establishment of standards for union and 
        taft-hartley sponsors, qualified association sponsors, 
        and plans.--
                    ``(A) In general.--The Secretary shall 
                develop and promulgate by regulation standards 
                consistent with the requirements of this part 
                for union and Taft-Hartley sponsors, for 
                qualified association sponsors, and for 
                MedicarePlus plans offered by such 
                organizations (other than MedicarePlus plans 
                offered by qualified association sponsors that 
                are issued by organizations to which section 
                1853(a)(1) applies).
                    ``(B) Consultation with secretary of 
                labor.--The Secretary shall consult with the 
                Secretary of Labor with respect to such 
                standards for such sponsors and plans.
                    ``(C) Timing.--Standards under this 
                paragraph shall be promulgated at or about the 
                time standards are promulgated under paragraph 
                (1).
            ``(3) Coordination among final standards.--In 
        establishing standards (other than on an interim basis) 
        under this subsection and subsection (b), the Secretary 
        shall seek to provide for consistency (as appropriate) 
        across the different types of MedicarePlus 
        organizations, in order to promote equitable treatment 
        of different types of organizations and consistent 
        protection for individuals who elect plans offered by 
        the different types of MedicarePlus organizations.
            ``(4) Use of current standards for interim 
        standards.--To the extent practicable and consistent 
        with the requirements of this part, standards 
        established on an interim basis to carry out 
        requirements of this part may be based on currently 
        applicable standards, such as the rules established 
        under section 1876 (as in effect as of the date of the 
        enactment of this section) to carry out analogous 
        provisions of such section or standards established or 
        developed for application in the private health 
        insurance market.
            ``(5) Application of new standards to entities with 
        a contract.--In the case of a MedicarePlus organization 
        with a contract in effect under this part at the time 
        standards applicable to the organization under this 
        section are changed, the organization may elect not to 
        have such changes apply to the organization until the 
        end of the current contract year (or, if there is less 
        than 6 months remaining in the contract year, until 1 
        year after the end of the current contract year).
            ``(6) Relation to state laws.--The standards 
        established under this subsection shall supersede any 
        State law or regulation with respect to MedicarePlus 
        plans which are offered by MedicarePlus organizations 
        under this part and are issued by organizations to 
        which section 1853(a)(1) applies, to the extent such 
        law or regulation is inconsistent with such standards.
    ``(b) Establishment of Solvency Standards for Provider-
Sponsored Organizations.--
            ``(1) Establishment.--
                    ``(A) In general.--The Secretary shall 
                establish, on an expedited basis and using a 
                negotiated rulemaking process under subchapter 
                3 of chapter 5 of title 5, United States Code, 
                standards described in section 1853(e) 
                (relating to the financial solvency and capital 
                adequacy of the organization) that entities 
                must meet to qualify as provider-sponsored 
                organizations under this part.
                    ``(B) Factors to consider.--In establishing 
                solvency standards under subparagraph (A) for 
                provider-sponsored organizations, the Secretary 
                shall consult with interested parties and shall 
                take into account--
                            ``(i) the delivery system assets of 
                        such an organization and ability of 
                        such an organization to provide 
                        services directly to enrollees through 
                        affiliated providers, and
                            ``(ii) alternative means of 
                        protecting against insolvency, 
                        including reinsurance, unrestricted 
                        surplus, letters of credit, guarantees, 
                        organizational insurance coverage, 
                        partnerships with other licensed 
                        entities, and valuation attributable to 
                        the ability of such an organization to 
                        meet its service obligations through 
                        direct delivery of care.
            ``(2) Publication of notice.--In carrying out the 
        rulemaking process under this subsection, the 
        Secretary, after consultation with the National 
        Association of Insurance Commissioners, the American 
        Academy of Actuaries, organizations representative of 
        medicare beneficiaries, and other interested parties, 
        shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later 
        than 45 days after the date of the enactment of 
        Medicare Preservation Act of 1995.
            ``(3) Target date for publication of rule.--As part 
        of the notice under paragraph (2), and for purposes of 
        this subsection, the `target date for publication' 
        (referred to in section 564(a)(5) of such title) shall 
        be September 1, 1996.
            ``(4) Abbreviated period for submission of 
        comments.--In applying section 564(c) of such title 
        under this subsection, `15 days' shall be substituted 
        for `30 days'.
            ``(5) Appointment of negotiated rulemaking 
        committee and facilitator.--The Secretary shall provide 
        for--
                    ``(A) the appointment of a negotiated 
                rulemaking committee under section 565(a) of 
                such title by not later than 30 days after the 
                end of the comment period provided for under 
                section 564(c) of such title (as shortened 
                under paragraph (4)), and
                    ``(B) the nomination of a facilitator under 
                section 566(c) of such title by not later than 
                10 days after the date of appointment of the 
                committee.
            ``(6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) 
        shall report to the Secretary, by not later than June 
        1, 1996, regarding the committee's progress on 
        achieving a consensus with regard to the rulemaking 
        proceeding and whether such consensus is likely to 
        occur before one month before the target date for 
        publication of the rule. If the committee reports that 
        the committee has failed to make significant progress 
        towards such consensus or is unlikely to reach such 
        consensus by the target date, the Secretary may 
        terminate such process and provide for the publication 
        of a rule under this subsection through such other 
        methods as the Secretary may provide.
            ``(7) Final committee report.--If the committee is 
        not terminated under paragraph (6), the rulemaking 
        committee shall submit a report containing a proposed 
        rule by not later than one month before the target 
        publication date.
            ``(8) Interim, final effect.--The Secretary shall 
        publish a rule under this subsection in the Federal 
        Register by not later than the target publication date. 
        Such rule shall be effective and final immediately on 
        an interim basis, but is subject to change and revision 
        after public notice and opportunity for a period (of 
        not less than 60 days) for public comment. In 
        connection with such rule, the Secretary shall specify 
        the process for the timely review and approval of 
        applications of entities to be certified as provider-
        sponsored organizations pursuant to such rules and 
        consistent with this subsection.
            ``(9) Publication of rule after public comment.--
        The Secretary shall provide for consideration of such 
        comments and republication of such rule by not later 
        than 1 year after the target publication date.
            ``(10) Process for approval of applications for 
        certification of solvency.--
                    ``(A) In general.--The Secretary shall 
                establish a process for the receipt and 
                approval of applications of entities for 
                certification of solvency of provider-sponsored 
                organizations under this part. Under such 
                process, the Secretary shall act upon a 
                complete application submitted within 60 days 
                after the date it is received.
                    ``(B) Circulation of proposed application 
                form.--By March 1, 1996, the Secretary, after 
                consultation with the negotiated rulemaking 
                committee, shall circulate a proposed 
                application form that could be used by entities 
                considering being certified for solvency under 
                this part.
    ``(c) Certification Process.--
            ``(1) State certification process for state-
        regulated organizations and non-solvency standards for 
        provider-sponsored organizations.--
                    ``(A) Approval of state process.--The 
                Secretary shall approve a MedicarePlus 
                certification and enforcement program 
                established by a State for applying the 
                standards established under this section to 
                MedicarePlus organizations (other than union 
                sponsors and Taft-Hartley sponsors and other 
                than solvency standards for provider-sponsored 
                organizations) and MedicarePlus plans offered 
                by such organizations if the Secretary 
                determines that the program effectively 
                provides for the application and enforcement of 
                such standards in the State with respect to 
                such organizations and plans and does not 
                discriminate in its application by type of 
                organization or plan. Such program shall 
                provide for certification of compliance of 
                MedicarePlus organizations and plans with the 
                applicable requirements of this part not less 
                often than once every 3 years.
                    ``(B) Effect of certification under state 
                process.--A MedicarePlus organization and 
                MedicarePlus plan offered by such an 
                organization that is certified under such 
                program is considered to have been certified 
                under this paragraph with respect to the 
                offering of the plan to individuals residing in 
                the State.
                    ``(C) User fees.--The State may impose user 
                fees on organizations seeking certification 
                under this paragraph in such amounts as the 
                State deems sufficient to finance the costs of 
                such certification. Nothing in this 
                subparagraph shall be construed as restricting 
                a State's authority to impose premium taxes, 
                other taxes, or other levies.
                    ``(D) Review.--The Secretary periodically 
                shall review State programs approved under 
                subparagraph (A) to determine if they continue 
                to provide for certification and enforcement 
                described in such paragraph. If the Secretary 
                finds that a State program no longer so 
                provides, before making a final determination, 
                the Secretary shall provide the State an 
                opportunity to adopt such a plan of correction 
                as would permit the State program to meet the 
                requirements of paragraph (1). If the Secretary 
                makes a final determination that the State 
                program, after such an opportunity, fails to 
                meet such requirements, the provisions of 
                subsection (b) shall apply to MedicarePlus 
                organizations and plans in the State.
                    ``(E) Effect of no state program.--
                Beginning on the date standards are established 
                under section 1856, in the case of 
                organizations and plans in States in which a 
                certification program has not been approved and 
                in operation under subparagraph (A), the 
                Secretary shall establish a process for the 
                certification of MedicarePlus organizations 
                (other than union sponsors and Taft-Hartley 
                sponsors and other than solvency standards for 
                provider-sponsored organizations) and plans of 
                such organizations as meeting such standards.
                    ``(F) Publication of list of approved state 
                programs.--The Secretary shall publish (and 
                periodically update) a list of those State 
                programs which are approved for purposes of 
                this paragraph.
            ``(2) Federal certification process for union 
        sponsors and taft-hartley sponsors.--
                    ``(A) Establishment.--The Secretary shall 
                establish a process for the certification of 
                union sponsors and Taft-Hartley sponsors and 
                MedicarePlus plans offered by such sponsors and 
                organizations as meeting the applicable 
                standards established under this section.
                    ``(B) Involvement of secretary of labor.--
                Such process shall be established and operated 
                in cooperation with the Secretary of Labor with 
                respect to union sponsors and Taft-Hartley 
                sponsors.
                    ``(C) Use of state licensing and private 
                accreditation processes.--
                            ``(i) In general.--The process 
                        under this paragraph shall, to the 
                        maximum extent practicable, provide 
                        that MedicarePlus organizations and 
                        plans that are licensed or certified 
                        through a qualified private 
                        accreditation process that the 
                        Secretary finds applies standards that 
                        are no less stringent than the 
                        requirements of this part are deemed to 
                        meet the corresponding requirements of 
                        this part for such an organization or 
                        plan.
                            ``(ii) Periodic accreditation.--The 
                        use of an accreditation under clause 
                        (i) shall be valid only for such period 
                        as the Secretary specifies.
                    ``(D) User fees.--The Secretary may impose 
                user fees on entities seeking certification 
                under this paragraph in such amounts as the 
                Secretary deems sufficient to finance the costs 
                of such certification.
            ``(3) Notice to enrollees in case of 
        decertification.--If a MedicarePlus organization or 
        plan is decertified under this subsection, the 
        organization shall notify each enrollee with the 
        organization and plan under this part of such 
        decertification.
            ``(4) Qualified association sponsors.--In the case 
        of MedicarePlus plans offered by a MedicarePlus 
        organization that is a qualified association sponsor 
        and issued by an organization to which section 
        1853(a)(1) applies or by a provider-sponsored 
        organization, nothing in this subsection shall be 
        construed as limiting the authority of States to 
        regulate such plans.


              ``contracts with medicareplus organizations


    ``Sec. 1857. (a) In General.--The Secretary shall not 
permit the election under section 1851 of a MedicarePlus plan 
offered by a MedicarePlus organization under this part, and no 
payment shall be made under section 1854 to an organization, 
unless the Secretary has entered into a contract under this 
section with an organization with respect to the offering of 
such plan. Such a contract with an organization may cover more 
than one MedicarePlus plan. Such contract shall provide that 
the organization agrees to comply with the applicable 
requirements and standards of this part and the terms and 
conditions of payment as provided for in this part.
    ``(b) Minimum Enrollment Requirements.--
            ``(1) In general.--Subject to paragraphs (2) and 
        (3), the Secretary may not enter into a contract under 
        this section with a MedicarePlus organization (other 
        than a union sponsor or Taft-Hartley sponsor) unless 
        the organization has at least 5,000 individuals (or 
        1,500 individuals in the case of an organization that 
        is a provider-sponsored organization) who are receiving 
        health benefits through the organization, except that 
        the standards under section 1856 may permit the 
        organization to have a lesser number of beneficiaries 
        (but not less than 500 in the case of an organization 
        that is a provider-sponsored organization) if the 
        organization primarily serves individuals residing 
        outside of urbanized areas.
            ``(2) Exception for high deductible plan.--
        Paragraph (1) shall not apply with respect to a 
        contract that relates only to a high deductible plan.
            ``(3) Allowing transition.--The Secretary may waive 
        the requirement of paragraph (1) during the first 3 
        contract years with respect to an organization.
    ``(c) Contract Period and Effectiveness.--
            ``(1) Period.--Each contract under this section 
        shall be for a term of at least one year, as determined 
        by the Secretary, and may be made automatically 
        renewable from term to term in the absence of notice by 
        either party of intention to terminate at the end of 
        the current term.
            ``(2) Termination authority.--In accordance with 
        procedures established under subsection (h), the 
        Secretary may at any time terminate any such contract 
        or may impose the intermediate sanctions described in 
        an applicable paragraph of subsection (g) on the 
        MedicarePlus organization if the Secretary determines 
        that the organization--
                    ``(A) has failed substantially to carry out 
                the contract;
                    ``(B) is carrying out the contract in a 
                manner inconsistent with the efficient and 
                effective administration of this part; and
                    ``(C) no longer substantially meets the 
                applicable conditions of this part.
            ``(3) Effective date of contracts.--The effective 
        date of any contract executed pursuant to this section 
        shall be specified in the contract, except that in no 
        case shall a contract under this section which provides 
        for coverage under a high deductible account be 
        effective before January 1997 with respect to such 
        coverage.
            ``(4) Previous terminations.--The Secretary may not 
        enter into a contract with a MedicarePlus organization 
        if a previous contract with that organization under 
        this section was terminated at the request of the 
        organization within the preceding five-year period, 
        except in circumstances which warrant special 
        consideration, as determined by the Secretary.
            ``(5) No contracting authority.--The authority 
        vested in the Secretary by this part may be performed 
        without regard to such provisions of law or regulations 
        relating to the making, performance, amendment, or 
        modification of contracts of the United States as the 
        Secretary may determine to be inconsistent with the 
        furtherance of the purpose of this title.
    ``(d) Protections Against Fraud and Beneficiary 
Protections.--
            ``(1) Inspection and audit.--Each contract under 
        this section shall provide that the Secretary, or any 
        person or organization designated by the Secretary--
                    ``(A) shall have the right to inspect or 
                otherwise evaluate (i) the quality, 
                appropriateness, and timeliness of services 
                performed under the contract and (ii) the 
                facilities of the organization when there is 
                reasonable evidence of some need for such 
                inspection, and
                    ``(B) shall have the right to audit and 
                inspect any books and records of the 
                MedicarePlus organization that pertain (i) to 
                the ability of the organization to bear the 
                risk of potential financial losses, or (ii) to 
                services performed or determinations of amounts 
                payable under the contract.
            ``(2) Enrollee notice at time of termination.--Each 
        contract under this section shall require the 
        organization to provide (and pay for) written notice in 
        advance of the contract's termination, as well as a 
        description of alternatives for obtaining benefits 
        under this title, to each individual enrolled with the 
        organization under this part.
            ``(3) Disclosure.--
                    ``(A) In general.--Each MedicarePlus 
                organization shall, in accordance with 
                regulations of the Secretary, report to the 
                Secretary financial information which shall 
                include the following:
                            ``(i) Such information as the 
                        Secretary may require demonstrating 
                        that the organization has a fiscally 
                        sound operation.
                            ``(ii) A copy of the report, if 
                        any, filed with the Health Care 
                        Financing Administration containing the 
                        information required to be reported 
                        under section 1124 by disclosing 
                        entities.
                            ``(iii) A description of 
                        transactions, as specified by the 
                        Secretary, between the organization and 
                        a party in interest. Such transactions 
                        shall include--
                                    ``(I) any sale or exchange, 
                                or leasing of any property 
                                between the organization and a 
                                party in interest;
                                    ``(II) any furnishing for 
                                consideration of goods, 
                                services (including management 
                                services), or facilities 
                                between the organization and a 
                                party in interest, but not 
                                including salaries paid to 
                                employees for services provided 
                                in the normal course of their 
                                employment and health services 
                                provided to members by 
                                hospitals and other providers 
                                and by staff, medical group (or 
                                groups), individual practice 
                                association (or associations), 
                                or any combination thereof; and
                                    ``(III) any lending of 
                                money or other extension of 
                                credit between an organization 
                                and a party in interest.
                The Secretary may require that information 
                reported respecting an organization which 
                controls, is controlled by, or is under common 
                control with, another entity be in the form of 
                a consolidated financial statement for the 
                organization and such entity.
                    ``(B) Party in interest defined.--For the 
                purposes of this paragraph, the term `party in 
                interest' means--
                            ``(i) any director, officer, 
                        partner, or employee responsible for 
                        management or administration of a 
                        MedicarePlus organization, any person 
                        who is directly or indirectly the 
                        beneficial owner of more than 5 percent 
                        of the equity of the organization, any 
                        person who is the beneficial owner of a 
                        mortgage, deed of trust, note, or other 
                        interest secured by, and valuing more 
                        than 5 percent of the organization, 
                        and, in the case of a MedicarePlus 
                        organization organized as a nonprofit 
                        corporation, an incorporator or member 
                        of such corporation under applicable 
                        State corporation law;
                            ``(ii) any entity in which a person 
                        described in clause (i)--
                                    ``(I) is an officer or 
                                director;
                                    ``(II) is a partner (if 
                                such entity is organized as a 
                                partnership);
                                    ``(III) has directly or 
                                indirectly a beneficial 
                                interest of more than 5 percent 
                                of the equity; or
                                    ``(IV) has a mortgage, deed 
                                of trust, note, or other 
                                interest valuing more than 5 
                                percent of the assets of such 
                                entity;
                            ``(iii) any person directly or 
                        indirectly controlling, controlled by, 
                        or under common control with an 
                        organization; and
                            ``(iv) any spouse, child, or parent 
                        of an individual described in clause 
                        (i).
                    ``(C) Access to information.--Each 
                MedicarePlus organization shall make the 
                information reported pursuant to subparagraph 
                (A) available to its enrollees upon reasonable 
                request.
            ``(4) Loan information.--The contract shall require 
        the organization to notify the Secretary of loans and 
        other special financial arrangements which are made 
        between the organization and subcontractors, 
        affiliates, and related parties.
    ``(e) Additional Contract Terms.--The contract shall 
contain such other terms and conditions not inconsistent with 
this part (including requiring the organization to provide the 
Secretary with such information) as the Secretary may find 
necessary and appropriate.
    ``(f) Intermediate Sanctions.--
            ``(1) In general.--If the Secretary determines that 
        a MedicarePlus organization with a contract under this 
        section--
                    ``(A) fails substantially to provide 
                medically necessary items and services that are 
                required (under law or under the contract) to 
                be provided to an individual covered under the 
                contract, if the failure has adversely affected 
                (or has substantial likelihood of adversely 
                affecting) the individual;
                    ``(B) imposes net monthly premiums on 
                individuals enrolled under this part in excess 
                of the net monthly premiums permitted;
                    ``(C) acts to expel or to refuse to re-
                enroll an individual in violation of the 
                provisions of this part;
                    ``(D) engages in any practice that would 
                reasonably be expected to have the effect of 
                denying or discouraging enrollment (except as 
                permitted by this part) by eligible individuals 
                with the organization whose medical condition 
                or history indicates a need for substantial 
                future medical services;
                    ``(E) misrepresents or falsifies 
                information that is furnished--
                            ``(i) to the Secretary under this 
                        part, or
                            ``(ii) to an individual or to any 
                        other entity under this part;
                    ``(F) fails to comply with the requirements 
                of section 1852(j)(3); or
                    ``(G) employs or contracts with any 
                individual or entity that is excluded from 
                participation under this title under section 
                1128 or 1128A for the provision of health care, 
                utilization review, medical social work, or 
                administrative services or employs or contracts 
                with any entity for the provision (directly or 
                indirectly) through such an excluded individual 
                or entity of such services;
        the Secretary may provide, in addition to any other 
        remedies authorized by law, for any of the remedies 
        described in paragraph (2).
            ``(2) Remedies.--The remedies described in this 
        paragraph are--
                    ``(A) civil money penalties of not more 
                than $25,000 for each determination under 
                paragraph (1) or, with respect to a 
                determination under subparagraph (D) or (E)(i) 
                of such paragraph, of not more than $100,000 
                for each such determination, plus, with respect 
                to a determination under paragraph (1)(B), 
                double the excess amount charged in violation 
                of such paragraph (and the excess amount 
                charged shall be deducted from the penalty and 
                returned to the individual concerned), and 
                plus, with respect to a determination under 
                paragraph (1)(D), $15,000 for each individual 
                not enrolled as a result of the practice 
                involved,
                    ``(B) suspension of enrollment of 
                individuals under this part after the date the 
                Secretary notifies the organization of a 
                determination under paragraph (1) and until the 
                Secretary is satisfied that the basis for such 
                determination has been corrected and is not 
                likely to recur, or
                    ``(C) suspension of payment to the 
                organization under this part for individuals 
                enrolled after the date the Secretary notifies 
                the organization of a determination under 
                paragraph (1) and until the Secretary is 
                satisfied that the basis for such determination 
                has been corrected and is not likely to recur.
            ``(3) Other intermediate sanctions.--In the case of 
        a MedicarePlus organization for which the Secretary 
        makes a determination under subsection (c)(2) the basis 
        of which is not described in paragraph (1), the 
        Secretary may apply the following intermediate 
        sanctions:
                    ``(A) civil money penalties of not more 
                than $25,000 for each determination under 
                subsection (c)(2) if the deficiency that is the 
                basis of the determination has directly 
                adversely affected (or has the substantial 
                likelihood of adversely affecting) an 
                individual covered under the organization's 
                contract;
                    ``(B) civil money penalties of not more 
                than $10,000 for each week beginning after the 
                initiation of procedures by the Secretary under 
                subsection (h) during which the deficiency that 
                is the basis of a determination under 
                subsection (c)(2) exists; and
                    ``(C) suspension of enrollment of 
                individuals under this part after the date the 
                Secretary notifies the organization of a 
                determination under subsection (c)(2) and until 
                the Secretary is satisfied that the deficiency 
                that is the basis for the determination has 
                been corrected and is not likely to recur.
            ``(4) Proceedings.--The provisions of section 1128A 
        (other than subsections (a) and (b)) shall apply to a 
        civil money penalty under paragraph (1) or (2) in the 
        same manner as they apply to a civil money penalty or 
        proceeding under section 1128A(a).
    ``(g) Procedures for Imposing Sanctions.--The Secretary may 
terminate a contract with a MedicarePlus organization under 
this section or may impose the intermediate sanctions described 
in subsection (f) on the organization in accordance with formal 
investigation and compliance procedures established by the 
Secretary under which--
            ``(1) the Secretary provides the organization with 
        the reasonable opportunity to develop and implement a 
        corrective action plan to correct the deficiencies that 
        were the basis of the Secretary's determination under 
        subsection (c)(2);
            ``(2) the Secretary shall impose more severe 
        sanctions on organizations that have a history of 
        deficiencies or that have not taken steps to correct 
        deficiencies the Secretary has brought to their 
        attention;
            ``(3) there are no unreasonable or unnecessary 
        delays between the finding of a deficiency and the 
        imposition of sanctions; and
            ``(4) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing 
        (including the right to appeal an initial decision) 
        before imposing any sanction or terminating the 
        contract.


``standards for medicareplus and medicare information transactions and 
                             data elements


    ``Sec. 1858. (a) Adoption of Standards for Data Elements.--
            ``(1) In general.--Pursuant to subsection (b), the 
        Secretary shall adopt standards for information 
        transactions and data elements of MedicarePlus and 
        medicare information and modifications to the standards 
        under this section that are--
                    ``(A) consistent with the objective of 
                reducing the administrative costs of providing 
                and paying for health care; and
                    ``(B) developed or modified by a standard 
                setting organization (as defined in subsection 
                (h)(8)).
            ``(2) Special rule relating to data elements.--The 
        Secretary may adopt or modify a standard relating to 
        data elements that is different from the standard 
        developed by a standard setting organization, if--
                    ``(A) the different standard or 
                modification will substantially reduce 
                administrative costs to health care providers 
                and health plans compared to the alternative; 
                and
                    ``(B) the standard or modification is 
                promulgated in accordance with the rulemaking 
                procedures of subchapter III of chapter 5 of 
                title 5, United States Code.
            ``(3) Security standards for health information 
        network.--
                    ``(A) In general.--Each person, who 
                maintains or transmits MedicarePlus and 
                medicare information or data elements of 
                MedicarePlus and medicare information and is 
                subject to this section, shall maintain 
                reasonable and appropriate administrative, 
                technical, and physical safeguards--
                            ``(i) to ensure the integrity and 
                        confidentiality of the information;
                            ``(ii) to protect against any 
                        reasonably anticipated--
                                    ``(I) threats or hazards to 
                                the security or integrity of 
                                the information; and
                                    ``(II) unauthorized uses or 
                                disclosures of the information; 
                                and
                            ``(iii) to otherwise ensure 
                        compliance with this section by the 
                        officers and employees of such person.
                    ``(B) Security standards.--The Secretary 
                shall establish security standards and 
                modifications to such standards with respect to 
                MedicarePlus and medicare information network 
                services, health plans, and health care 
                providers that--
                            ``(i) take into account--
                                    ``(I) the technical 
                                capabilities of record systems 
                                used to maintain MedicarePlus 
                                and medicare information;
                                    ``(II) the costs of 
                                security measures;
                                    ``(III) the need for 
                                training persons who have 
                                access to MedicarePlus and 
                                medicare information; and
                                    ``(IV) the value of audit 
                                trails in computerized record 
                                systems; and
                            ``(ii) ensure that a MedicarePlus 
                        and medicare information network 
                        service, if it is part of a larger 
                        organization, has policies and security 
                        procedures which isolate the activities 
                        of such service with respect to 
                        processing information in a manner that 
                        prevents unauthorized access to such 
                        information by such larger 
                        organization.
                The security standards established by the 
                Secretary shall be based on the standards 
                developed or modified by standard setting 
                organizations. If such standards do not exist, 
                the Secretary shall rely on the recommendations 
                of the MedicarePlus and Medicare Information 
                Advisory Committee (established under 
                subsection (g)) and shall consult with 
                appropriate government agencies and private 
                organizations in accordance with paragraph (5).
            ``(4) Implementation specifications.--The Secretary 
        shall establish specifications for implementing each of 
        the standards and the modifications to the standards 
        adopted pursuant to paragraph (1) or (3).
            ``(5) Assistance to the secretary.--In complying 
        with the requirements of this section, the Secretary 
        shall rely on recommendations of the MedicarePlus and 
        Medicare Information Advisory Committee established 
        under subsection (g) and shall consult with appropriate 
        Federal and State agencies and private organizations. 
        The Secretary shall publish in the Federal Register the 
        recommendations of the MedicarePlus and Medicare 
        Information Advisory Committee regarding the adoption 
        of a standard under this section.
    ``(b) Standards for Information Transactions and Data 
Elements.--
            ``(1) In general.--The Secretary shall adopt 
        standards for transactions and data elements to make 
        MedicarePlus and medicare information uniformly 
        available to be exchanged electronically, that is--
                    ``(A) appropriate for the following 
                financial and administrative transactions: 
                claims (including coordination of benefits) or 
                equivalent encounter information, enrollment 
                and disenrollment, eligibility, premium 
                payments, and referral certification and 
                authorization; and
                    ``(B) related to other financial and 
                administrative transactions determined 
                appropriate by the Secretary consistent with 
                the goals of improving the operation of the 
                health care system and reducing administrative 
                costs.
            ``(2) Unique health identifiers.--
                    ``(A) Adoption of standards.--The Secretary 
                shall adopt standards providing for a standard 
                unique health identifier for each individual, 
                employer, health plan, and health care provider 
                for use in the MedicarePlus and medicare 
                information system. In developing unique health 
                identifiers for each health plan and health 
                care provider, the Secretary shall take into 
                account multiple uses for identifiers and 
                multiple locations and specialty 
                classifications for health care providers.
                    ``(B) Penalty for improper disclosure.--A 
                person who knowingly uses or causes to be used 
                a unique health identifier under subparagraph 
                (A) for a purpose that is not authorized by the 
                Secretary shall--
                            ``(i) be fined not more than 
                        $50,000, imprisoned not more than 1 
                        year, or both; or
                            ``(ii) if the offense is committed 
                        under false pretenses, be fined not 
                        more than $100,000, imprisoned not more 
                        than 5 years, or both.
            ``(3) Code sets.--
                    ``(A) In general.--The Secretary, in 
                consultation with the MedicarePlus and Medicare 
                Information Advisory Committee, experts from 
                the private sector, and Federal and State 
                agencies, shall--
                            ``(i) select code sets for 
                        appropriate data elements from among 
                        the code sets that have been developed 
                        by private and public entities; or
                            ``(ii) establish code sets for such 
                        data elements if no code sets for the 
                        data elements have been developed.
                    ``(B) Distribution.--The Secretary shall 
                establish efficient and low-cost procedures for 
                distribution (including electronic 
                distribution) of code sets and modifications 
                made to such code sets under subsection (c)(2).
            ``(4) Electronic signature.--
                    ``(A) In general.--The Secretary, after 
                consultation with the MedicarePlus and Medicare 
                Information Advisory Committee, shall 
                promulgate regulations specifying procedures 
                for the electronic transmission and 
                authentication of signatures, compliance with 
                which will be deemed to satisfy Federal and 
                State statutory requirements for written 
                signatures with respect to information 
                transactions required by this section and 
                written signatures on enrollment and 
                disenrollment forms.
                    ``(B) Payments for services and premiums.--
                Nothing in this section shall be construed to 
                prohibit the payment of health care services or 
                health plan premiums by debit, credit, payment 
                card or numbers, or other electronic means.
            ``(5) Transfer of information between health 
        plans.--The Secretary shall develop rules and 
        procedures--
                    ``(A) for determining the financial 
                liability of health plans when health care 
                benefits are payable under two or more health 
                plans; and
                    ``(B) for transferring among health plans 
                appropriate standard data elements needed for 
                the coordination of benefits, the sequential 
                processing of claims, and other data elements 
                for individuals who have more than one health 
                plan.
            ``(6) Coordination of benefits.--If, at the end of 
        the 5-year period beginning on the date of the 
        enactment of this section, the Secretary determines 
        that additional transaction standards for coordinating 
        benefits are necessary to reduce administrative costs 
        or duplicative (or inappropriate) payment of claims, 
        the Secretary shall establish further transaction 
        standards for the coordination of benefits between 
        health plans.
            ``(7) Protection of trade secrets.--Except as 
        otherwise required by law, the standards adopted under 
        this section shall not require disclosure of trade 
        secrets or confidential commercial information by an 
        entity operating a MedicarePlus and medicare 
        information network.
    ``(c) Timetables for Adoption of Standards.--
            ``(1) Initial standards.--Not later than 18 months 
        after the date of the enactment of this section, the 
        Secretary shall adopt standards relating to the 
        information transactions, data elements of MedicarePlus 
        and medicare information and security described in 
        subsections (a) and (b).
            ``(2) Additions and modifications to standards.--
                    ``(A) In general.--The Secretary shall 
                review the standards adopted under this section 
                and shall adopt additional or modified 
                standards, that have been developed or modified 
                by a standard setting organization, as 
                determined appropriate, but not more frequently 
                than once every 12 months. Any addition or 
                modification to such standards shall be 
                completed in a manner which minimizes the 
                disruption and cost of compliance.
                    ``(B) Additions and modifications to code 
                sets.--
                            ``(i) In general.--The Secretary 
                        shall ensure that procedures exist for 
                        the routine maintenance, testing, 
                        enhancement, and expansion of code 
                        sets.
                            ``(ii) Additional rules.--If a code 
                        set is modified under this paragraph, 
                        the modified code set shall include 
                        instructions on how data elements of 
                        MedicarePlus and medicare information 
                        that were encoded prior to the 
                        modification may be converted or 
                        translated so as to preserve the 
                        informational value of the data 
                        elements that existed before the 
                        modification. Any modification to a 
                        code set under this paragraph shall be 
                        implemented in a manner that minimizes 
                        the disruption and cost of complying 
                        with such modification.
    ``(d) Requirements for Health Plans.--
            ``(1) In general.--If a person desires to conduct 
        any of the information transactions described in 
        subsection (b)(1) with a health plan as a standard 
        transaction, the health plan shall conduct such 
        standard transaction in a timely manner and the 
        information transmitted or received in connection with 
        such transaction shall be in the form of standard data 
        elements of MedicarePlus and medicare information.
            ``(2) Satisfaction of requirements.--A health plan 
        may satisfy the requirement imposed on such plan under 
        paragraph (1) by directly transmitting standard data 
        elements of MedicarePlus and medicare information or 
        submitting nonstandard data elements to a MedicarePlus 
        and medicare information network service for processing 
        into standard data elements and transmission.
            ``(3) Timetables for compliance with 
        requirements.--Not later than 24 months after the date 
        on which standards are adopted under subsections (a) 
        and (b) with respect to any type of information 
        transaction or data element of MedicarePlus and 
        medicare information or with respect to security, a 
        health plan shall comply with the requirements of this 
        section with respect to such transaction or data 
        element.
            ``(4) Compliance with modified standards.--If the 
        Secretary adopts a modified standard under subsection 
        (a) or (b), a health plan shall be required to comply 
        with the modified standard at such time as the 
        Secretary determines appropriate taking into account 
        the time needed to comply due to the nature and extent 
        of the modification. However, the time determined 
        appropriate under the preceding sentence shall be not 
        earlier than the last day of the 180-day period 
        beginning on the date such modified standard is 
        adopted. The Secretary may extend the time for 
        compliance for small health plans, if the Secretary 
        determines such extension is appropriate.
    ``(e) General Penalty for Failure To Comply With 
Requirements and Standards.--
            ``(1) General penalty.--
                    ``(A) In general.--Except as provided in 
                paragraph (2), the Secretary shall impose on 
                any person that violates a requirement or 
                standard--
                            ``(i) with respect to MedicarePlus 
                        and medicare information transactions, 
                        data elements of MedicarePlus and 
                        medicare information, or security 
                        imposed under subsection (a) or (b); or
                            ``(ii) with respect to health plans 
                        imposed under subsection (d);
                a penalty of not more than $100 for each such 
                violation of a specific standard or 
                requirement, but the total amount imposed for 
                all such violations of a specific standard or 
                requirement during the calendar year shall not 
                exceed $25,000.
                    ``(B) Procedures.--The provisions of 
                section 1128A (other than subsections (a) and 
                (b) and the second sentence of subsection (f)) 
                shall apply to the imposition of a civil money 
                penalty under this paragraph in the same manner 
                as such provisions apply to the imposition of a 
                penalty under such section 1128A.
                    ``(C) Denial of payment.--Except as 
                provided in paragraph (2), the Secretary may 
                deny payment under this title for an item or 
                service furnished by a person if the person 
                fails to comply with an applicable requirement 
                or standard for MedicarePlus and medicare 
                information relating to that item or service.
            ``(2) Limitations.--
                    ``(A) Noncompliance not discovered.--A 
                penalty may not be imposed under paragraph (1) 
                if it is established to the satisfaction of the 
                Secretary that the person liable for the 
                penalty did not know, and by exercising 
                reasonable diligence would not have known, that 
                such person failed to comply with the 
                requirement or standard described in paragraph 
                (1).
                    ``(B) Failures due to reasonable cause.--
                            ``(i) In general.--Except as 
                        provided in clause (ii), a penalty may 
                        not be imposed under paragraph (1) if--
                                    ``(I) the failure to comply 
                                was due to reasonable cause and 
                                not to willful neglect; and
                                    ``(II) the failure to 
                                comply is corrected during the 
                                30-day period beginning on the 
                                first date the person liable 
                                for the penalty knew, or by 
                                exercising reasonable diligence 
                                would have known, that the 
                                failure to comply occurred.
                            ``(ii) Extension of period.--
                                    ``(I) No penalty.--The 
                                period referred to in clause 
                                (i)(II) may be extended as 
                                determined appropriate by the 
                                Secretary based on the nature 
                                and extent of the failure to 
                                comply.
                                    ``(II) Assistance.--If the 
                                Secretary determines that a 
                                health plan failed to comply 
                                because such plan was unable to 
                                comply, the Secretary may 
                                provide technical assistance to 
                                such plan during the period 
                                described in clause (i)(II). 
                                Such assistance shall be 
                                provided in any manner 
                                determined appropriate by the 
                                Secretary.
                    ``(C) Reduction.--In the case of a failure 
                to comply which is due to reasonable cause and 
                not to willful neglect, any penalty under 
                paragraph (1) that is not entirely waived under 
                subparagraph (B) may be waived to the extent 
                that the payment of such penalty would be 
                excessive relative to the compliance failure 
                involved.
    ``(f) Effect on State Law.--
            ``(1) General effect.--
                    ``(A) General rule.--Except as provided in 
                subparagraph (B), a provision, requirement, or 
                standard under this section shall supersede any 
                contrary provision of State law, including a 
                provision of State law that requires medical or 
                health plan records (including billing 
                information) to be maintained or transmitted in 
                written rather than electronic form.
                    ``(B) Exceptions.--A provision, 
                requirement, or standard under this section 
                shall not supersede a contrary provision of 
                State law if the Secretary determines that the 
                provision of State law should be continued for 
                any reason, including for reasons relating to 
                prevention of fraud and abuse or regulation of 
                controlled substances.
            ``(2) Public health reporting.--Nothing in this 
        section shall be construed to invalidate or limit the 
        authority, power, or procedures established under any 
        law providing for the reporting of disease or injury, 
        child abuse, birth, or death, public health 
        surveillance, or public health investigation or 
        intervention.
    ``(g) MedicarePlus and Medicare Information Advisory 
Committee.--
            ``(1) Establishment.--There is established a 
        committee to be known as the MedicarePlus and Medicare 
        Information Advisory Committee (in this subsection 
        referred to as the `committee').
            ``(2) Duties.--The committee shall--
                    ``(A) advise the Secretary in the 
                development of standards under this section; 
                and
                    ``(B) be generally responsible for advising 
                the Secretary and the Congress on the status 
                and the future of the MedicarePlus and medicare 
                information network.
            ``(3) Membership.--
                    ``(A) In general.--The committee shall 
                consist of 9 members of whom--
                            ``(i) 3 shall be appointed by the 
                        President;
                            ``(ii) 3 shall be appointed by the 
                        Speaker of the House of Representatives 
                        after consultation with the minority 
                        leader of the House of Representatives; 
                        and
                            ``(iii) 3 shall be appointed by the 
                        President pro tempore of the Senate 
                        after consultation with the minority 
                        leader of the Senate.
                The appointments of the members shall be made 
                not later than 60 days after the date of the 
                enactment of this section. The President shall 
                designate 1 member as the Chair.
                    ``(B) Expertise.--The membership of the 
                committee shall consist of individuals who are 
                of recognized standing and distinction in the 
                areas of information systems, information 
                networking and integration, consumer health, or 
                health care financial management, and who 
                possess the demonstrated capacity to discharge 
                the duties imposed on the committee.
                    ``(C) Terms.--Each member of the committee 
                shall be appointed for a term of 5 years, 
                except that the members first appointed shall 
                serve staggered terms such that the terms of 
                not more than 3 members expire at one time.
                    ``(D) Initial meeting.--Not later than 30 
                days after the date on which a majority of the 
                members have been appointed, the committee 
                shall hold its first meeting.
            ``(4) Reports.--Not later than 1 year after the 
        date of the enactment of this section, and annually 
        thereafter, the committee shall submit to Congress and 
        the Secretary a report regarding--
                    ``(A) the extent to which entities using 
                the MedicarePlus and medicare information 
                network are meeting the standards adopted under 
                this section and working together to form an 
                integrated network that meets the needs of its 
                users;
                    ``(B) the extent to which such entities are 
                meeting the security standards established 
                pursuant to this section and the types of 
                penalties assessed for noncompliance with such 
                standards;
                    ``(C) any problems that exist with respect 
                to implementation of the MedicarePlus and 
                medicare information network; and
                    ``(D) the extent to which timetables under 
                this section are being met.
        Reports made under this subsection shall be made 
        available to health care providers, health plans, and 
        other entities that use the MedicarePlus and medicare 
        information network to exchange MedicarePlus and 
        medicare information.
    ``(h) Definitions.--For purposes of this section:
            ``(1) Code set.--The term `code set' means any set 
        of codes used for encoding data elements, such as 
        tables of terms, enrollment information, and encounter 
        data.
            ``(2) Coordination of benefits.--The term 
        `coordination of benefits' means determining and 
        coordinating the financial obligations of health plans 
        when health care benefits are payable under such a plan 
        and under this title (including under a MedicarePlus 
        plan).
            ``(3) MedicarePlus and medicare information.--The 
        term `MedicarePlus and medicare information' means any 
        information that relates to the enrollment of 
        individuals under this title (including information 
        relating to elections of MedicarePlus plans under 
        section 1851) and the provision of health benefits 
        (including benefits provided under such plans) under 
        this title.
            ``(4) MedicarePlus and medicare information 
        network.--The term `MedicarePlus and medicare 
        information network' means the MedicarePlus and 
        medicare information system that is formed through the 
        application of the requirements and standards 
        established under this section.
            ``(5) MedicarePlus and medicare information network 
        service.--The term `MedicarePlus and medicare 
        information network service' means a public or private 
        entity that--
                    ``(A) processes or facilitates the 
                processing of nonstandard data elements of 
                MedicarePlus and medicare information into 
                standard data elements;
                    ``(B) provides the means by which persons 
                may meet the requirements of this section; or
                    ``(C) provides specific information 
                processing services.
            ``(6) Health plan.--The term `health plan' means a 
        plan which provides, or pays the cost of, health 
        benefits. Such term includes the following, or any 
        combination thereof:
                    ``(A) Part A or part B of this title, and 
                includes a MedicarePlus plan.
                    ``(B) The medicaid program under title XIX 
                and the MediGrant program under title XXI.
                    ``(C) A medicare supplemental policy (as 
                defined in section 1882(g)(1)).
                    ``(D) Worker's compensation or similar 
                insurance.
                    ``(E) Automobile or automobile medical-
                payment insurance.
                    ``(F) A long-term care policy, other than a 
                fixed indemnity policy.
                    ``(G) The Federal Employees Health Benefit 
                Plan under chapter 89 of title 5, United States 
                Code.
                    ``(H) An employee welfare benefit plan, as 
                defined in section 3(1) of the Employee 
                Retirement Income Security Act of 1974 (29 
                U.S.C. 1002(1)), but only to the extent the 
                plan is established or maintained for the 
                purpose of providing health benefits.
            ``(7) Individually identifiable MedicarePlus and 
        medicare information.--The term `individually 
        identifiable MedicarePlus and medicare information' 
        means MedicarePlus and medicare enrollment information, 
        including demographic information collected from an 
        individual, that--
                    ``(A) is created or received by a health 
                care provider, health plan, employer, or 
                MedicarePlus and medicare information network 
                service, and
                    ``(B) identifies an individual.
            ``(8) Standard setting organization.--The term 
        `standard setting organization' means a standard 
        setting organization accredited by the American 
        National Standards Institute and includes the National 
        Council for Prescription Drug Program.
            ``(9) Standard transaction.--The term `standard 
        transaction' means, when referring to an information 
        transaction or to data elements of MedicarePlus and 
        medicare information, any transaction that meets the 
        requirements and implementation specifications adopted 
        by the Secretary under subsections (a) and (b).


                ``definitions; miscellaneous provisions


    ``Sec. 1859. (a) Definitions Relating to MedicarePlus 
Organizations.--In this part--
            ``(1) MedicarePlus organization.--The term 
        `MedicarePlus organization' means a public or private 
        entity that is certified under section 1857 as meeting 
        the requirements and standards of this part for such an 
        organization.
            ``(2) Provider-sponsored organization.--The term 
        `provider-sponsored organization' is defined in section 
        1853(e).
            ``(3) Qualified association sponsor.--The term 
        `qualified association sponsor' means an association, 
        religious fraternal organization, or other organization 
        (which may be a trade, industry, or professional 
        association, a chamber of commerce, or a public entity 
        association) that the Secretary finds--
                    ``(A) is organized for purposes other than 
                to market a health plan,
                    ``(B) may not condition its membership on 
                health status, health claims experience, 
                receipt of health care, medical history, or 
                lack of evidence of insurability of a potential 
                member,
                    ``(C) may not exclude a member or spouse of 
                a member from health plan coverage based on 
                factors described in clause (ii);
                    ``(D) does not exist solely or principally 
                for the purpose of selling insurance,
                    ``(E) has at least 1,000 individual members 
                or 200 employer members,
                    ``(F) is a permanent entity which receives 
                a substantial proportion of its financial 
                support from active members; and
                    ``(G) is not owned or controlled by an 
                insurance company.
        Such term includes a subsidiary or corporation that is 
        wholly owned by one or more qualified organizations.
            ``(4) Taft-hartley sponsor.--The term `Taft-Hartley 
        sponsor' means, in relation to a group health plan that 
        is established or maintained by two or more employers 
        or jointly by one or more employers and one or more 
        employee organizations, the association, committee, 
        joint board of trustees, or other similar group of 
        representatives of parties who establish or maintain 
        the plan.
            ``(5) Union sponsor.--The term `union sponsor' 
        means an employee organization in relation to a group 
        health plan that is established or maintained by the 
        organization other than pursuant to a collective 
        bargaining agreement.
            ``(6) Employer, etc.--In this subsection and 
        section 1851(b), the terms `employer', `employee 
        organization', and `group health plan' have the 
        meanings given such terms for purposes of part 6 of 
        subtitle B of title I of the Employee Retirement Income 
        Security Act of 1974.
    ``(b) Definitions Relating to MedicarePlus Plans.--
            ``(1) MedicarePlus plan.--The term `MedicarePlus 
        plan' means health benefits coverage offered under a 
        policy, contract, or plan by a MedicarePlus 
        organization pursuant to and in accordance with a 
        contract under section 1857.
            ``(2) High deductible plan.--
                    ``(A) In general.--The term `high 
                deductible plan' means a MedicarePlus plan 
                that--
                            ``(i) provides reimbursement for at 
                        least the items and services described 
                        in section 1852(a)(1) in a year but 
                        only after the enrollee incurs 
                        countable expenses (as specified under 
                        the plan) equal to the amount of a 
                        deductible (described in subparagraph 
                        (B));
                            ``(ii) counts as such expenses (for 
                        purposes of such deductible) at least 
                        all amounts that would have been 
                        payable under parts A and B or by the 
                        enrollee if the enrollee had elected to 
                        receive benefits through the provisions 
                        of such parts; and
                            ``(iii) provides, after such 
                        deductible is met for a year and for 
                        all subsequent expenses for benefits 
                        referred to in clause (i) in the year, 
                        for a level of reimbursement that is 
                        not less than--
                                    ``(I) 100 percent of such 
                                expenses, or
                                    ``(II) 100 percent of the 
                                amounts that would have been 
                                paid (without regard to any 
                                deductibles or coinsurance) 
                                under parts A and B with 
                                respect to such expenses,
                        whichever is less.
                    ``(B) Deductible.--The amount of deductible 
                under a high deductible plan--
                            ``(i) for contract year 1997 shall 
                        be not more than $6,000; and
                            ``(ii) for a subsequent contract 
                        year shall be not more than the maximum 
                        amount of such deductible for the 
                        previous contract year under this 
                        subparagraph increased by the national 
                        average per capita growth percentage 
                        under section 1854(c)(6) for the year.
                If the amount of the deductible under clause 
                (ii) is not a multiple of $50, the amount shall 
                be rounded to the nearest multiple of $50.
            ``(3) MedicarePlus unrestricted fee-for-service 
        plan.--The term `MedicarePlus unrestricted fee-for-
        service plan' means a MedicarePlus plan that provides 
        for coverage of benefits without restrictions relating 
        to utilization and without regard to whether the 
        provider has a contract or other arrangement with the 
        organization offering the plan for the provision of 
        such benefits.
    ``(c) Other References to Other Terms.--
            ``(1) MedicarePlus eligible individual.--The term 
        `MedicarePlus eligible individual' is defined in 
        section 1851(a)(3).
            ``(2) MedicarePlus payment area.--The term 
        `MedicarePlus payment area' is defined in section 
        1854(d).
            ``(3) National average per capita growth 
        percentage.--The `national average per capita growth 
        percentage' is defined in section 1854(c)(6).
            ``(4) Monthly premium; net monthly premium.--The 
        terms `monthly premium' and `net monthly premium' are 
        defined in section 1855(a)(2).
    ``(d) Coordinated Acute and Long-term Care Benefits Under a 
MedicarePlus Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under its 
MediGrant program under title XXI with those provided under a 
MedicarePlus plan in a manner that assures continuity of a 
full-range of acute care and long-term care services to poor 
elderly or disabled individuals eligible for benefits under 
this title and under such program.''.
    (b) Conforming References to Previous Part C.--Any 
reference in law (in effect before the date of the enactment of 
this Act) to part C of title XVIII of the Social Security Act 
is deemed a reference to part D of such title (as in effect 
after such date).
    (c) Use of Interim, Final Regulations.--In order to carry 
out the amendment made by subsection (a) in a timely manner, 
the Secretary of Health and Human Services may promulgate 
regulations that take effect on an interim basis, after notice 
and pending opportunity for public comment.
    (d) Advance Directives.--Section 1866(f)(1) (42 U.S.C. 
1395cc(f)(1)) is amended--
            (1) by inserting ``1853(g),'' after ``1833(s),'', 
        and
            (2) by inserting ``, MedicarePlus organization,'' 
        after ``provider of services''.
    (e) Conforming Amendment.--Section 1866(a)(1)(O) (42 U.S.C. 
1395cc(a)(1)(O)) is amended by inserting before the semicolon 
at the end the following: ``and in the case of hospitals to 
accept as payment in full for inpatient hospital services that 
are emergency services (as defined in section 1853(b)(4)) that 
are covered under this title and are furnished to any 
individual enrolled under part C with a MedicarePlus 
organization which does not have a contract establishing 
payment amounts for services furnished to members of the 
organization the amounts that would be made as a payment in 
full under this title if the individuals were not so 
enrolled''.
    (f) Secretarial Submission of Legislative Proposal.--Not 
later than 90 days after the date of the enactment of this Act, 
the Secretary of Health and Human Services shall submit to the 
appropriate committees of Congress a legislative proposal 
providing for such technical and conforming amendments in the 
law as are required by the provisions of this chapter.

SEC. 8002. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PLANS.

    (a) Treatment of Certain Health Insurance Policies as 
Nonduplicative.--
            (1) In general.--Section 1882(d)(3)(A) (42 U.S.C. 
        1395ss(d)(3)(A)) is amended--
                    (A) by amending clause (i) to read as 
                follows:
    ``(i) It is unlawful for a person to sell or issue to an 
individual entitled to benefits under part A or enrolled under 
part B of this title or electing a MedicarePlus plan under 
section 1851--
            ``(I) a health insurance policy (other than a 
        medicare supplemental policy) with knowledge that the 
        policy duplicates health benefits to which the 
        individual is otherwise entitled under this title or 
        title XIX,
            ``(II) in the case of an individual not electing a 
        MedicarePlus plan, a medicare supplemental policy with 
        knowledge that the individual is entitled to benefits 
        under another medicare supplemental policy, or
            ``(III) in the case of an individual electing a 
        MedicarePlus plan, a medicare supplemental policy with 
        knowledge that the policy duplicates health benefits to 
        which the individual is otherwise entitled under this 
        title or under another medicare supplemental policy.'';
                    (B) in clause (iii), by striking ``clause 
                (i)'' and inserting ``clause (i)(II)''; and
                    (C) by adding at the end the following new 
                clauses:
    ``(iv) For purposes of this subparagraph a health insurance 
policy shall be considered to `duplicate' benefits under this 
title only when, under its terms, the policy provides specific 
reimbursement for identical items and services to the extent 
paid for under this title, and a health insurance policy 
providing for benefits which are payable to or on behalf of an 
individual without regard to other health benefit coverage of 
such individual is not considered to `duplicate' any health 
benefits under this title.
    ``(v) For purposes of this subparagraph, a health insurance 
policy (or a rider to an insurance contract which is not a 
health insurance policy), including a policy (such as a 
qualified long-term care insurance contract described in 
section 7702B(b) of the Internal Revenue Code of 1986, as added 
by the Revenue Reconciliation Act of 1995) providing benefits 
for long-term care, nursing home care, home health care, or 
community-based care, that coordinates against or excludes 
items and services available or paid for under this title and 
(for policies sold or issued after January 1, 1996) that 
discloses such coordination or exclusion in the policy's 
outline of coverage, is not considered to `duplicate' health 
benefits under this title. For purposes of this clause, the 
terms `coordinates' and `coordination' mean, with respect to a 
policy in relation to health benefits under this title, that 
the policy under its terms is secondary to, or excludes from 
payment, items and services to the extent available or paid for 
under this title.
    ``(vi) A State may not impose, with respect to the sale or 
issuance of a policy (or rider) that meets the requirements of 
this title pursuant to clause (iv) or (v) to an individual 
entitled to benefits under part A or enrolled under part B or 
enrolled under a MedicarePlus plan under part C, any 
requirement based on the premise that such a policy or rider 
duplicates health benefits to which the individual is otherwise 
entitled under this title.''.
            (2) Conforming amendments.--Section 1882(d)(3) (42 
        U.S.C. 1395ss(d)(3)) is amended--
                    (A) in subparagraph (B), by inserting 
                ``(including any MedicarePlus plan)'' after 
                ``health insurance policies'';
                    (B) in subparagraph (C)--
                            (i) by striking ``with respect to 
                        (i)'' and inserting ``with respect 
                        to'', and
                            (ii) by striking ``, (ii) the 
                        sale'' and all that follows up to the 
                        period at the end; and
                    (C) by striking subparagraph (D).
            (3) Medicareplus plans not treated as medicare 
        supplementary policies.--Section 1882(g)(1) (42 U.S.C. 
        1395ss(g)(1)) is amended by inserting ``a MedicarePlus 
        plan or'' after ``and does not include''.
    (b) Additional Rules Relating to Individuals Enrolled in 
MedicarePlus Plans.--Section 1882 (42 U.S.C. 1395ss) is further 
amended by adding at the end the following new subsection:
    ``(u)(1) Notwithstanding the previous provisions of this 
section, this section shall not apply to the sale or issuance 
of a medicare supplemental policy to an individual who has 
elected to enroll in a MedicarePlus plan under section 1851.
    ``(2)(A) It is unlawful for a person to sell or issue a 
policy described in subparagraph (B) to an individual with 
knowledge that the individual has in effect under section 1851 
an election of a high deductible plan.
    ``(B) A policy described in this subparagraph is a health 
insurance policy that provides for coverage of expenses that 
are otherwise required to be counted toward meeting the annual 
deductible amount provided under the high deductible plan.''.

SEC. 8003. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

    (a) In General.--Section 1876 (42 U.S.C. 1395mm) is 
amended--
            (1) in subsection (c)(3)(A)(i), by striking ``would 
        result in failure to meet the requirements of 
        subsection (f) or'';
            (2) by amending subsection (f) to read as follows:
    ``(f)(1) Except as provided in paragraph (3), the Secretary 
shall not enter into, renew, or continue any risk-sharing 
contract under this section with an eligible organization for 
any contract year beginning on or after--
            ``(A) the date standards for MedicarePlus 
        organizations and plans are first established under 
        section 1856(a) with respect to MedicarePlus 
        organizations that are insurers or health maintenance 
        organizations, or
            ``(B) in the case of in the case of such an 
        organization with such a contract in effect as of the 
        date such standards were first established, 1 year 
        after such date.
    ``(2) The Secretary shall not enter into, renew, or 
continue any risk-sharing contract under this section with an 
eligible organization for any contract year beginning on or 
after January 1, 2000.
    ``(3) An individual who is enrolled in part B only and is 
enrolled in an eligible organization with a risk-sharing 
contract under this section on December 31, 1996, may continue 
enrollment in such organization. Not later then July 1, 1996, 
the Secretary shall issue regulations relating to such 
individuals and such organizations.
    ``(4) Notwithstanding subsection (a), the Secretary shall 
provide that payment amounts under risk-sharing contracts under 
this section for months in a year (beginning with January 1996) 
shall be computed--
            ``(A) with respect to individuals entitled to 
        benefits under both parts A and B, by substituting 
        payment rates under section 1854(a) for the payment 
        rates otherwise established under subsection 1876(a), 
        and
            ``(B) with respect to individuals only entitled to 
        benefits under part B, by substituting an appropriate 
        proportion of such rates (reflecting the relative 
        proportion of payments under this title attributable to 
        such part) for the payment rates otherwise established 
        under subsection (a).
For purposes of carrying out this paragraph for payments for 
months in 1996, the Secretary shall compute, announce, and 
apply the payment rates under section 1854(a) (notwithstanding 
any deadlines specified in such section) in as timely a manner 
as possible and may (to the extent necessary) provide for 
retroactive adjustment in payments made under this section not 
in accordance with such rates.''; and
            (3) in subsection (i)(1)(C), by striking ``(e), and 
        (f)'' and inserting ``and (e)''.

   CHAPTER 2--SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS

SEC. 8011. MEDICAREPLUS MSA.

    (a) In General.--Part III of subchapter B of chapter 1 of 
the Internal Revenue Code of 1986 (relating to amounts 
specifically excluded from gross income) is amended by 
redesignating section 137 as section 138 and by inserting after 
section 136 the following new section:

``SEC. 137. MEDICAREPLUS MSA.

    ``(a) Exclusion.--Gross income shall not include any 
payment to the MedicarePlus MSA of an individual by the 
Secretary of Health and Human Services under part C of title 
XVIII of the Social Security Act.
    ``(b) MedicarePlus MSA.--For purposes of this section--
            ``(1) Medicareplus msa.--The term `MedicarePlus 
        MSA' means a medical savings account (as defined in 
        section 222(d))--
                    ``(A) which is designated as a MedicarePlus 
                MSA,
                    ``(B) notwithstanding section 222(f)(5), 
                with respect to which no contribution may be 
                made other than--
                            ``(i) a contribution made by the 
                        Secretary of Health and Human Services 
                        pursuant to part C of title XVIII of 
                        the Social Security Act, or
                            ``(ii) a trustee-to-trustee 
                        transfer described in subsection 
                        (c)(4), and
                    ``(C) the governing instrument of which 
                provides that trustee-to-trustee transfers 
                described in subsection (c)(4) may be made to 
                and from such account.
            ``(2) High deductible msa.--The term `High 
        Deductible MedicarePlus MSA' means a MedicarePlus MSA 
        which is established in connection with a high 
        deductible plan described in section 1859(b)(2) of the 
        Social Security Act.
            ``(3) Rebate medicareplus msa.--The term `Rebate 
        MedicarePlus MSA' means a MedicarePlus MSA other than a 
        High Deductible MedicarePlus MSA.
    ``(c) Special Rules for Distributions.--
            ``(1) Distributions for qualified medical 
        expenses.--In applying section 222--
                    ``(A) to a High Deductible MedicarePlus 
                MSA, qualified medical expenses shall include 
                only expenses for medical care of the account 
                holder, and
                    ``(B) to a Rebate MedicarePlus MSA, 
                qualified medical expenses shall include only 
                expenses for medical care of the account holder 
                and of the spouse of the account holder if such 
                spouse is entitled to benefits under part A of 
                title XVIII of the Social Security Act and is 
                enrolled under part B of such title.
            ``(2) Penalty for distributions from high 
        deductible msa not used for qualified medical expenses 
        if minimum balance not maintained.--
                    ``(A) In general.--The tax imposed by this 
                chapter for any taxable year in which there is 
                a payment or distribution from a High 
                Deductible MedicarePlus MSA which is not used 
                exclusively to pay the qualified medical 
                expenses of the account holder shall be 
                increased by 50 percent of the excess (if any) 
                of--
                            ``(i) the amount of such payment or 
                        distribution, over
                            ``(ii) the excess (if any) of--
                                    ``(I) the fair market value 
                                of the assets in such MSA as of 
                                the close of the calendar year 
                                preceding the calendar year in 
                                which the taxable year begins, 
                                over
                                    ``(II) an amount equal to 
                                60 percent of the deductible 
                                under the high deductible plan 
                                covering the account holder as 
                                of January 1 of the calendar 
                                year in which the taxable year 
                                begins.
                Section 222(f)(2) shall not apply to any 
                payment or distribution from a High Deductible 
                MedicarePlus MSA.
                    ``(B) Exceptions.--Subparagraph (A) shall 
                not apply if the payment or distribution is 
                made on or after the date the account holder--
                            ``(i) becomes disabled within the 
                        meaning of section 72(m)(7), or
                            ``(ii) dies.
                    ``(C) Special rules.--For purposes of 
                subparagraph (A)--
                            ``(i) all High Deductible 
                        MedicarePlus MSAs of the account holder 
                        shall be treated as 1 account,
                            ``(ii) all payments and 
                        distributions not used exclusively to 
                        pay the qualified medical expenses of 
                        the account holder during any taxable 
                        year shall be treated as 1 
                        distribution, and
                            ``(iii) any distribution of 
                        property shall be taken into account at 
                        its fair market value on the date of 
                        the distribution.
            ``(3) Withdrawal of erroneous contributions.--
        Section 222(f)(2) and paragraph (2) of this subsection 
        shall not apply to any payment or distribution from a 
        MedicarePlus MSA to the Secretary of Health and Human 
        Services of an erroneous contribution to such MSA and 
        of the net income attributable to such contribution.
            ``(4) Trustee-to-trustee transfers.--Section 
        222(f)(2) and paragraph (2) of this subsection shall 
        not apply to--
                    ``(A) any trustee-to-trustee transfer from 
                a High Deductible MedicarePlus MSA of an 
                account holder to another High Deductible 
                MedicarePlus MSA of such account holder, and
                    ``(B) any trustee-to-trustee transfer from 
                a Rebate MedicarePlus MSA of an account holder 
                to another Rebate MedicarePlus MSA of such 
                account holder.
    ``(d) Special Rules for Treatment of Account After Death of 
Account Holder.--Notwithstanding section 222(f)(1)(B), if, as 
of the date of the death of the account holder, the spouse of 
such holder is not entitled to benefits under title XVIII of 
the Social Security Act, then after the date of such death--
            ``(1) the Secretary of Health and Human Services 
        may not make any payments to such MedicarePlus MSA, 
        other than payments attributable to periods before such 
        date, and
            ``(2) such MSA shall be treated as medical savings 
        account which is not a MedicarePlus MSA.
    ``(e) Reports.--In the case of a MedicarePlus MSA, the 
report under section 222(h)--
            ``(1) shall include the fair market value of the 
        assets in such MedicarePlus MSA as of the close of each 
        calendar year, and
            ``(2) shall be furnished to the account holder--
                    ``(A) not later than January 31 of the 
                calendar year following the calendar year to 
                which such reports relate, and
                    ``(B) in such manner as the Secretary 
                prescribes in such regulations.''
    (b) Conforming Amendments.--
            (1) The last sentence of section 4973(d) of such 
        Code, as added by section 11066(f)(4), is amended by 
        ``or section 137(c)(3)'' after ``section 222(f)(3)''.
            (2) The table of sections for part III of 
        subchapter B of chapter 1 of such Code is amended by 
        striking the last item and inserting the following:

        ``Sec. 137. MedicarePlus MSA.
        ``Sec. 138. Cross references to other Acts.''
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1996.

SEC. 8012. CERTAIN REBATES EXCLUDED FROM GROSS INCOME.

    (a) In General.--Section 105 of the Internal Revenue Code 
of 1986 (relating to amounts received under accident and health 
plans) is amended by adding at the end the following new 
subsection:
    ``(j) Certain Rebates Under Social Security Act.--Gross 
income does not include any rebate received under part C of 
title XVIII of the Social Security Act during the taxable 
year.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to amounts received after the date of the enactment 
of this Act.

             CHAPTER 3--MEDICARE PAYMENT REVIEW COMMISSION

SEC. 8021. MEDICARE PAYMENT REVIEW COMMISSION.

    (a) In General.--Title XVIII is amended by inserting after 
section 1804 the following new section:


                  ``medicare payment review commission


    ``Sec. 1805. (a) Establishment.--There is hereby 
established the Medicare Payment Review Commission (in this 
section referred to as the `Commission').
    ``(b) Duties.--
            ``(1) General duties and reports.--
                    ``(A) In general.--The Commission shall 
                review, and make recommendations to Congress 
                concerning, payment policies under this title.
                    ``(B) Annual reports.--By not later than 
                June 1 of each year, the Commission shall 
                submit a report to Congress containing an 
                examination of issues affecting the medicare 
                program, including the implications of changes 
                in health care delivery in the United States 
                and in the market for health care services on 
                the medicare program.
                    ``(C) Additional reports.--The Commission 
                may submit to Congress from time to time such 
                other reports as the Commission deems 
                appropriate. By not later than May 1, 1997, the 
                Commission shall submit to Congress a report on 
                the matter described in paragraph (2)(G).
                    ``(D) Availability of reports.--The 
                Commission shall transmit to the Secretary a 
                copy of each report submitted to Congress under 
                this subsection and shall make such reports 
                available to the public.
            ``(2) Specific duties relating to medicareplus 
        program.--Specifically, the Commission shall review, 
        with respect to the MedicarePlus program under part C--
                    ``(A) the methodology for making payment to 
                plans under such program, including the making 
                of differential payments and the distribution 
                of differential updates among different payment 
                areas;
                    ``(B) the mechanisms used to adjust 
                payments for risk and the need to adjust such 
                mechanisms to take into account health status 
                of beneficiaries;
                    ``(C) the implications of risk selection 
                both among MedicarePlus organizations and 
                between the MedicarePlus option and the 
                Medicare fee-for-service option;
                    ``(D) in relation to payment under part C, 
                the development and implementation of 
                mechanisms to assure the quality of care for 
                those enrolled with MedicarePlus organizations;
                    ``(E) the impact of the MedicarePlus 
                program on access to care for medicare 
                beneficiaries;
                    ``(F) the feasibility and desirability of 
                extending the rules for open enrollment that 
                apply during the transition period to apply in 
                each county during the first 2 years in which 
                MedicarePlus plans are made available to 
                individuals residing in the county; and
                    ``(G) other major issues in implementation 
                and further development of the MedicarePlus 
                program.
            ``(3) Specific duties relating to the fee-for-
        service system.--Specifically, the Commission shall 
        review payment policies under parts A and B, 
        including--
                    ``(A) the factors affecting expenditures 
                for services in different sectors, including 
                the process for updating hospital, physician, 
                and other fees,
                    ``(B) payment methodologies; and
                    ``(C) the impact of payment policies on 
                access and quality of care for medicare 
                beneficiaries.
            ``(4) Specific duties relating to interaction of 
        payment policies with health care delivery generally.--
        Specifically the Commission shall review the effect of 
        payment policies under this title on the delivery of 
        health care services under this title and assess the 
        implications of changes in the health services market 
        on the medicare program.
    ``(c) Membership.--
            ``(1) Number and appointment.--The Commission shall 
        be composed of 15 members appointed by the Comptroller 
        General.
            ``(2) Qualifications.--The membership of the 
        Commission shall include individuals with national 
        recognition for their expertise in health finance and 
        economics, actuarial science, health facility 
        management, health plans and integrated delivery 
        systems, reimbursement of health facilities, allopathic 
        and osteopathic physicians, and other providers of 
        services, and other related fields, who provide a mix 
        of different professionals, broad geographic 
        representation, and a balance between urban and rural 
        representatives, including physicians and other health 
        professionals, employers, third party payors, 
        individuals skilled in the conduct and interpretation 
        of biomedical, health services, and health economics 
        research and expertise in outcomes and effectiveness 
        research and technology assessment. Such membership 
        shall also include representatives of consumers and the 
        elderly.
            ``(3) Terms.--
                    ``(A) In general.--The terms of members of 
                the Commission shall be for 3 years except that 
                the Comptroller General shall designate 
                staggered terms for the members first 
                appointed.
                    ``(B) Vacancies.--Any member appointed to 
                fill a vacancy occurring before the expiration 
                of the term for which the member's predecessor 
                was appointed shall be appointed only for the 
                remainder of that term. A member may serve 
                after the expiration of that member's term 
                until a successor has taken office. A vacancy 
                in the Commission shall be filled in the manner 
                in which the original appointment was made.
            ``(4) Compensation.--While serving on the business 
        of the Commission (including traveltime), a member of 
        the Commission shall be entitled to compensation at the 
        per diem equivalent of the rate provided for level IV 
        of the Executive Schedule under section 5315 of title 
        5, United States Code; and while so serving away from 
        home and member's regular place of business, a member 
        may be allowed travel expenses, as authorized by the 
        Chairman of the Commission. Physicians serving as 
        personnel of the Commission may be provided a physician 
        comparability allowance by the Commission in the same 
        manner as Government physicians may be provided such an 
        allowance by an agency under section 5948 of title 5, 
        United States Code, and for such purpose subsection (i) 
        of such section shall apply to the Commission in the 
        same manner as it applies to the Tennessee Valley 
        Authority. For purposes of pay (other than pay of 
        members of the Commission) and employment benefits, 
        rights, and privileges, all personnel of the Commission 
        shall be treated as if they were employees of the 
        United States Senate.
            ``(5) Chairman; vice chairman.--The Comptroller 
        General shall designate a member of the Commission, at 
        the time of appointment of the member, as Chairman and 
        a member as Vice Chairman for that term of appointment.
            ``(6) Meetings.--The Commission shall meet at the 
        call of the Chairman.
    ``(d) Director and Staff; Experts and Consultants.--Subject 
to such review as the Comptroller General deems necessary to 
assure the efficient administration of the Commission, the 
Commission may--
            ``(1) employ and fix the compensation of an 
        Executive Director (subject to the approval of the 
        Comptroller General) and such other personnel as may be 
        necessary to carry out its duties (without regard to 
        the provisions of title 5, United States Code, 
        governing appointments in the competitive service);
            ``(2) seek such assistance and support as may be 
        required in the performance of its duties from 
        appropriate Federal departments and agencies;
            ``(3) enter into contracts or make other 
        arrangements, as may be necessary for the conduct of 
        the work of the Commission (without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5));
            ``(4) make advance, progress, and other payments 
        which relate to the work of the Commission;
            ``(5) provide transportation and subsistence for 
        persons serving without compensation; and
            ``(6) prescribe such rules and regulations as it 
        deems necessary with respect to the internal 
        organization and operation of the Commission.
    ``(e) Powers.--
            ``(1) Obtaining official data.--The Commission may 
        secure directly from any department or agency of the 
        United States information necessary to enable it to 
        carry out this section. Upon request of the Chairman, 
        the head of that department or agency shall furnish 
        that information to the Commission on an agreed upon 
        schedule.
            ``(2) Data collection.--In order to carry out its 
        functions, the Commission shall collect and assess 
        information to--
                    ``(A) utilize existing information, both 
                published and unpublished, where possible, 
                collected and assessed either by its own staff 
                or under other arrangements made in accordance 
                with this section,
                    ``(B) carry out, or award grants or 
                contracts for, original research and 
                experimentation, where existing information is 
                inadequate, and
                    ``(C) adopt procedures allowing any 
                interested party to submit information for the 
                Commission's use in making reports and 
                recommendations.
            ``(3) Access of gao to information.--The 
        Comptroller General shall have unrestricted access to 
        all deliberations, records, and data of the Commission, 
        immediately upon request.
            ``(4) Periodic audit.--The Commission shall be 
        subject to periodic audit by the General Accounting 
        Office.
            ``(5) Open meetings, etc..--Pursuant to regulations 
        of the Comptroller General, rules based upon the 
        requirements of section 10 of the Federal Advisory 
        Committee Act shall apply with respect to the 
        Commission.
    ``(f) Authorization of Appropriations.--
            ``(1) Request for appropriations.--The Commission 
        shall submit requests for appropriations in the same 
        manner as the Comptroller General submits requests for 
        appropriations, but amounts appropriated for the 
        Commission shall be separate from amounts appropriated 
        for the Comptroller General.
            ``(2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out 
        the provisions of this section. 60 percent of such 
        appropriation shall be payable from the Federal 
        Hospital Insurance Trust Fund, and 40 percent of such 
        appropriation shall be payable from the Federal 
        Supplementary Medical Insurance Trust Fund.''.
    (b) Abolition of ProPAC and PPRC.--
            (1) Propac.--
                    (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                            (i) by striking paragraphs (2) and 
                        (6); and
                            (ii) in paragraph (3), by striking 
                        ``(A) The Commission'' and all that 
                        follows through ``(B)''.
                    (B) Conforming amendment.--Section 1862 (42 
                U.S.C. 1395y) is amended by striking 
                ``Prospective Payment Assessment Commission'' 
                each place it appears in subsection (a)(1)(D) 
                and subsection (i) and inserting ``Medicare 
                Payment Review Commission''.
            (2) PPRC.--
                    (A) In general.--Title XVIII is amended by 
                striking section 1845 (42 U.S.C. 1395w-1).
                    (B) Conforming amendments.--
                            (i) Section 1834(b)(2) (42 U.S.C. 
                        1395m(b)(2)) is amended by striking 
                        ``Physician Payment Review Commission'' 
                        and inserting ``Medicare Payment Review 
                        Commission''.
                            (ii) Section 1842(b) (42 U.S.C. 
                        1395u(b)) is amended by striking 
                        ``Physician Payment Review Commission'' 
                        each place it appears in paragraphs 
                        (9)(D) and (14)(C)(i) and inserting 
                        ``Medicare Payment Review Commission''.
                            (iii) Section 1848 (42 U.S.C. 
                        1395w-4) is amended by striking 
                        ``Physician Payment Review Commission'' 
                        and inserting ``Medicare Payment Review 
                        Commission'' each place it appears in 
                        paragraph (2)(A)(ii), (2)(B)(iii), and 
                        (5) of subsection (c), subsection 
                        (d)(2)(F), paragraphs (1)(B), (3), and 
                        (4)(A) of subsection (f), and 
                        paragraphs (6)(C) and (7)(C) of 
                        subsection (g).
    (c) Effective Date; Transition.--
            (1) In general.--The Comptroller General shall 
        first provide for appointment of members to the 
        Medicare Payment Review Commission (in this subsection 
        referred to as ``MPRC'') by not later than September 
        30, 1996.
            (2) Transition.--Effective January 1, 1997, the 
        Prospective Payment Assessment Commission (in this 
        subsection referred to as ``ProPAC'') and the Physician 
        Payment Review Commission (in this subsection referred 
        to as ``PPRC'') are terminated and amendments made by 
        subsection (b) shall become effective. The Comptroller 
        General, to the maximum extent feasible, shall provide 
        for the transfer to the MPRC of assets and staff of 
        ProPAC and PPRC, without any loss of benefits or 
        seniority by virtue of such transfers. Fund balances 
        available to the ProPAC or PPRC for any period shall be 
        available to the MPRC for such period for like 
        purposes.
            (3) Continuing responsibility for reports.--The 
        MPRC shall be responsible for the preparation and 
        submission of reports required by law to be submitted 
        (and which have not been submitted by the date of 
        establishment of the MPRC) by the ProPAC and PPRC, and, 
        for this purpose, any reference in law to either such 
        Commission is deemed, after the appointment of the 
        MPRC, to refer to the MPRC.

    CHAPTER 4--TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
                        SPONSORED ORGANIZATIONS

SEC. 8031. TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
                    SPONSORED ORGANIZATIONS.

    (a) In General.--Section 501 of the Internal Revenue Code 
of 1986 (relating to exemption from tax on corporations, 
certain trusts, etc.), as amended by title XI, is amended by 
redesignating subsection (o) as subsection (p) and by inserting 
after subsection (n) the following new subsection:
    ``(o) Treatment of Hospitals Participating in Provider-
Sponsored Organizations.--An organization shall not fail to be 
treated as organized and operated exclusively for a charitable 
purpose for purposes of subsection (c)(3) solely because a 
hospital which is owned and operated by such organization 
participates in a provider-sponsored organization (as defined 
in section 1853 of the Social Security Act), whether or not the 
provider-sponsored organization is exempt from tax. For 
purposes of subsection (c)(3), any person with a material 
financial interest in such a provider-sponsored organization 
shall be treated as a private shareholder or individual with 
respect to the hospital.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

           Subtitle B--Health Care Fraud and Abuse Prevention

               CHAPTER 1--FRAUD AND ABUSE CONTROL PROGRAM

SEC. 8101. FRAUD AND ABUSE CONTROL PROGRAM.

    (a) Establishment of Program.--Title XI (42 U.S.C. 1301 et 
seq.) is amended by inserting after section 1128B the following 
new section:


                   ``fraud and abuse control program


    ``Sec. 1128C. (a) Establishment of Program.--
            ``(1) In general.--Not later than January 1, 1996, 
        the Secretary, acting through the Office of the 
        Inspector General of the Department of Health and Human 
        Services, and the Attorney General shall establish a 
        program--
                    ``(A) to coordinate Federal, State, and 
                local law enforcement programs to control fraud 
                and abuse with respect to health plans,
                    ``(B) to conduct investigations, audits, 
                evaluations, and inspections relating to the 
                delivery of and payment for health care in the 
                United States,
                    ``(C) to facilitate the enforcement of the 
                provisions of sections 1128, 1128A, and 1128B 
                and other statutes applicable to health care 
                fraud and abuse,
                    ``(D) to provide for the modification and 
                establishment of safe harbors and to issue 
                interpretative rulings and special fraud alerts 
                pursuant to section 1128D, and
                    ``(E) to provide for the reporting and 
                disclosure of certain final adverse actions 
                against health care providers, suppliers, or 
                practitioners pursuant to the data collection 
                system established under section 1128E.
            ``(2) Coordination with health plans.--In carrying 
        out the program established under paragraph (1), the 
        Secretary and the Attorney General shall consult with, 
        and arrange for the sharing of data with 
        representatives of health plans.
            ``(3) Guidelines.--
                    ``(A) In general.--The Secretary and the 
                Attorney General shall issue guidelines to 
                carry out the program under paragraph (1). The 
                provisions of sections 553, 556, and 557 of 
                title 5, United States Code, shall not apply in 
                the issuance of such guidelines.
                    ``(B) Information guidelines.--
                            ``(i) In general.--Such guidelines 
                        shall include guidelines relating to 
                        the furnishing of information by health 
                        plans, providers, and others to enable 
                        the Secretary and the Attorney General 
                        to carry out the program (including 
                        coordination with health plans under 
                        paragraph (2)).
                            ``(ii) Confidentiality.--Such 
                        guidelines shall include procedures to 
                        assure that such information is 
                        provided and utilized in a manner that 
                        appropriately protects the 
                        confidentiality of the information and 
                        the privacy of individuals receiving 
                        health care services and items.
                            ``(iii) Qualified immunity for 
                        providing information.--The provisions 
                        of section 1157(a) (relating to 
                        limitation on liability) shall apply to 
                        a person providing information to the 
                        Secretary or the Attorney General in 
                        conjunction with their performance of 
                        duties under this section.
            ``(4) Ensuring access to documentation.--The 
        Inspector General of the Department of Health and Human 
        Services is authorized to exercise such authority 
        described in paragraphs (3) through (9) of section 6 of 
        the Inspector General Act of 1978 (5 U.S.C. App.) as 
        necessary with respect to the activities under the 
        fraud and abuse control program established under this 
        subsection.
            ``(5) Authority of inspector general.--Nothing in 
        this Act shall be construed to diminish the authority 
        of any Inspector General, including such authority as 
        provided in the Inspector General Act of 1978 (5 U.S.C. 
        App.).
    ``(b) Additional Use of Funds by Inspector General.--
            ``(1) Reimbursements for investigations.--The 
        Inspector General of the Department of Health and Human 
        Services is authorized to receive and retain for 
        current use reimbursement for the costs of conducting 
        investigations and audits and for monitoring compliance 
        plans when such costs are ordered by a court, 
        voluntarily agreed to by the payer, or otherwise.
            ``(2) Crediting.--Funds received by the Inspector 
        General under paragraph (1) as reimbursement for costs 
        of conducting investigations shall be deposited to the 
        credit of the appropriation from which initially paid, 
        or to appropriations for similar purposes currently 
        available at the time of deposit, and shall remain 
        available for obligation for 1 year from the date of 
        the deposit of such funds.
    ``(c) Health Plan Defined.--For purposes of this section, 
the term `health plan' means a plan or program that provides 
health benefits, whether directly, through insurance, or 
otherwise, and includes--
            ``(1) a policy of health insurance;
            ``(2) a contract of a service benefit organization; 
        and
            ``(3) a membership agreement with a health 
        maintenance organization or other prepaid health 
        plan.''.
    (b) Establishment of Health Care Fraud and Abuse Control 
Account in Federal Hospital Insurance Trust Fund.--Section 1817 
(42 U.S.C. 1395i) is amended by adding at the end the following 
new subsection:
    ``(k) Health Care Fraud and Abuse Control Account.--
            ``(1) Establishment.--There is hereby established 
        in the Trust Fund an expenditure account to be known as 
        the `Health Care Fraud and Abuse Control Account' (in 
        this subsection referred to as the `Account').
            ``(2) Appropriated amounts to trust fund.--
                    ``(A) In general.--There are hereby 
                appropriated to the Trust Fund--
                            ``(i) such gifts and bequests as 
                        may be made as provided in subparagraph 
                        (B);
                            ``(ii) such amounts as may be 
                        deposited in the Trust Fund as provided 
                        in sections 8141(b) and 8142(c) of the 
                        Medicare Preservation Act of 1995, and 
                        title XI; and
                            ``(iii) such amounts as are 
                        transferred to the Trust Fund under 
                        subparagraph (C).
                    ``(B) Authorization to accept gifts.--The 
                Trust Fund is authorized to accept on behalf of 
                the United States money gifts and bequests made 
                unconditionally to the Trust Fund, for the 
                benefit of the Account or any activity financed 
                through the Account.
                    ``(C) Transfer of amounts.--The Managing 
                Trustee shall transfer to the Trust Fund, under 
                rules similar to the rules in section 9601 of 
                the Internal Revenue Code of 1986, an amount 
                equal to the sum of the following:
                            ``(i) Criminal fines recovered in 
                        cases involving a Federal health care 
                        offense (as defined in section 
                        982(a)(6)(B) of title 18, United States 
                        Code).
                            ``(ii) Civil monetary penalties and 
                        assessments imposed in health care 
                        cases, including amounts recovered 
                        under titles XI, XVIII, and XXI, and 
                        chapter 38 of title 31, United States 
                        Code (except as otherwise provided by 
                        law).
                            ``(iii) Amounts resulting from the 
                        forfeiture of property by reason of a 
                        Federal health care offense.
                            ``(iv) Penalties and damages 
                        obtained and otherwise creditable to 
                        miscellaneous receipts of the general 
                        fund of the Treasury obtained under 
                        sections 3729 through 3733 of title 31, 
                        United States Code (known as the False 
                        Claims Act), in cases involving claims 
                        related to the provision of health care 
                        items and services (other than funds 
                        awarded to a relator, for restitution 
                        or otherwise authorized by law).
            ``(3) Appropriated amounts to account for fraud and 
        abuse control program, etc.--
                    ``(A) Departments of health and human 
                services and justice.--
                            ``(i) In general.--There are hereby 
                        appropriated to the Account from the 
                        Trust Fund such sums as the Secretary 
                        and the Attorney General certify are 
                        necessary to carry out the purposes 
                        described in subparagraph (C), to be 
                        available without further 
                        appropriation, in an amount not to 
                        exceed--
                                    ``(I) for fiscal year 1996, 
                                $104,000,000, and
                                    ``(II) for each of the 
                                fiscal years 1997 through 2002, 
                                the limit for the preceding 
                                fiscal year, increased by 15 
                                percent; and
                                    ``(III) for each fiscal 
                                year after fiscal year 2002, 
                                the limit for fiscal year 2002.
                            ``(ii) Medicare and medigrant 
                        activities.--For each fiscal year, of 
                        the amount appropriated in clause (i), 
                        the following amounts shall be 
                        available only for the purposes of the 
                        activities of the Office of the 
                        Inspector General of the Department of 
                        Health and Human Services with respect 
                        to the medicare and MediGrant 
                        programs--
                                    ``(I) for fiscal year 1996, 
                                not less than $60,000,000 and 
                                not more than $70,000,000;
                                    ``(II) for fiscal year 
                                1997, not less than $80,000,000 
                                and not more than $90,000,000;
                                    ``(III) for fiscal year 
                                1998, not less than $90,000,000 
                                and not more than $100,000,000;
                                    ``(IV) for fiscal year 
                                1999, not less than 
                                $110,000,000 and not more than 
                                $120,000,000;
                                    ``(V) for fiscal year 2000, 
                                not less than $120,000,000 and 
                                not more than $130,000,000;
                                    ``(VI) for fiscal year 
                                2001, not less than 
                                $140,000,000 and not more than 
                                $150,000,000; and
                                    ``(VII) for each fiscal 
                                year after fiscal year 2001, 
                                not less than $150,000,000 and 
                                not more than $160,000,000.
                    ``(B) Federal bureau of investigations.--
                There are hereby appropriated from the general 
                fund of the United States Treasury and hereby 
                appropriated to the Account for transfer to the 
                Federal Bureau of Investigations to carry out 
                the purposes described in subparagraph (C)(i), 
                to be available without further appropriation--
                            ``(i) for fiscal year 1996, 
                        $47,000,000;
                            ``(ii) for fiscal year 1997, 
                        $56,000,000;
                            ``(iii) for fiscal year 1998, 
                        $66,000,000;
                            ``(iv) for fiscal year 1999, 
                        $76,000,000;
                            ``(v) for fiscal year 2000, 
                        $88,000,000;
                            ``(vi) for fiscal year 2001, 
                        $101,000,000; and
                            ``(vii) for each fiscal year after 
                        fiscal year 2001, $114,000,000.
                    ``(C) Use of funds.--The purposes described 
                in this subparagraph are as follows:
                            ``(i) General use.--To cover the 
                        costs (including equipment, salaries 
                        and benefits, and travel and training) 
                        of the administration and operation of 
                        the health care fraud and abuse control 
                        program established under section 
                        1128C(a), including the costs of--
                                    ``(I) prosecuting health 
                                care matters (through criminal, 
                                civil, and administrative 
                                proceedings);
                                    ``(II) investigations;
                                    ``(III) financial and 
                                performance audits of health 
                                care programs and operations;
                                    ``(IV) inspections and 
                                other evaluations; and
                                    ``(V) provider and consumer 
                                education regarding compliance 
                                with the provisions of title 
                                XI.
                    ``(ii) Use by state medigrant fraud control 
                units for investigation reimbursements.--To 
                reimburse the various State MediGrant fraud 
                control units established under section 2134(a) 
                upon request to the Secretary for the costs of 
                the activities authorized under section 
                2134(b).
            ``(4) Appropriated amounts to account for medicare 
        integrity program.--
                    ``(A) In general.--There are hereby 
                appropriated to the Account from the Trust Fund 
                for each fiscal year such amounts as are 
                necessary to carry out the Medicare Integrity 
                Program under section 1893, subject to 
                subparagraph (B) and to be available without 
                further appropriation.
                    ``(B) Amounts specified.--The amount 
                appropriated under subparagraph (A) for a 
                fiscal year is as follows:
                            ``(i) For fiscal year 1996, such 
                        amount shall be not less than 
                        $430,000,000 and not more than 
                        $440,000,000.
                            ``(ii) For fiscal year 1997, such 
                        amount shall be not less than 
                        $490,000,000 and not more than 
                        $500,000,000.
                            ``(iii) For fiscal year 1998, such 
                        amount shall be not less than 
                        $550,000,000 and not more than 
                        $560,000,000.
                            ``(iv) For fiscal year 1999, such 
                        amount shall be not less than 
                        $620,000,000 and not more than 
                        $630,000,000.
                            ``(v) For fiscal year 2000, such 
                        amount shall be not less than 
                        $670,000,000 and not more than 
                        $680,000,000.
                            ``(vi) For fiscal year 2001, such 
                        amount shall be not less than 
                        $690,000,000 and not more than 
                        $700,000,000.
                            ``(vii) For each fiscal year after 
                        fiscal year 2001, such amount shall be 
                        not less than $710,000,000 and not more 
                        than $720,000,000.
            ``(5) Annual report.--The Secretary and the 
        Attorney General shall submit jointly an annual report 
        to Congress on the amount of revenue which is generated 
        and disbursed, and the justification for such 
        disbursements, by the Account in each fiscal year.''.

SEC. 8102. MEDICARE INTEGRITY PROGRAM.

    (a) Establishment of Medicare Integrity Program.--Title 
XVIII is amended by adding at the end the following new 
section:


                      ``medicare integrity program


    ``Sec. 1893. (a) Establishment of Program.--There is hereby 
established the Medicare Integrity Program (in this section 
referred to as the `Program') under which the Secretary shall 
promote the integrity of the medicare program by entering into 
contracts in accordance with this section with eligible private 
entities to carry out the activities described in subsection 
(b).
    ``(b) Activities Described.--The activities described in 
this subsection are as follows:
            ``(1) Review of activities of providers of services 
        or other individuals and entities furnishing items and 
        services for which payment may be made under this title 
        (including skilled nursing facilities and home health 
        agencies), including medical and utilization review and 
        fraud review (employing similar standards, processes, 
        and technologies used by private health plans, 
        including equipment and software technologies which 
        surpass the capability of the equipment and 
        technologies used in the review of claims under this 
        title as of the date of the enactment of this section).
            ``(2) Audit of cost reports.
            ``(3) Determinations as to whether payment should 
        not be, or should not have been, made under this title 
        by reason of section 1862(b), and recovery of payments 
        that should not have been made.
            ``(4) Education of providers of services, 
        beneficiaries, and other persons with respect to 
        payment integrity and benefit quality assurance issues.
            ``(5) Developing (and periodically updating) a list 
        of items of durable medical equipment in accordance 
        with section 1834(a)(15) which are subject to prior 
        authorization under such section.
    ``(c) Eligibility of Entities.--An entity is eligible to 
enter into a contract under the Program to carry out any of the 
activities described in subsection (b) if--
            ``(1) the entity has demonstrated capability to 
        carry out such activities;
            ``(2) in carrying out such activities, the entity 
        agrees to cooperate with the Inspector General of the 
        Department of Health and Human Services, the Attorney 
        General of the United States, and other law enforcement 
        agencies, as appropriate, in the investigation and 
        deterrence of fraud and abuse in relation to this title 
        and in other cases arising out of such activities;
            ``(3) the entity demonstrates to the Secretary that 
        the entity's financial holdings, interests, or 
        relationships will not interfere with its ability to 
        perform the functions to be required by the contract in 
        an effective and impartial manner; and
            ``(4) the entity meets such other requirements as 
        the Secretary may impose.
In the case of the activity described in subsection (b)(5), an 
entity shall be deemed to be eligible to enter into a contract 
under the Program to carry out the activity if the entity is a 
carrier with a contract in effect under section 1842.
    ``(d) Process for Entering Into Contracts.--The Secretary 
shall enter into contracts under the Program in accordance with 
such procedures as the Secretary shall by regulation establish, 
except that such procedures shall include the following:
            ``(1) The Secretary shall determine the appropriate 
        number of separate contracts which are necessary to 
        carry out the Program and the appropriate times at 
        which the Secretary shall enter into such contracts.
            ``(2)(A) Except as provided in subparagraph (B), 
        the provisions of section 1153(e)(1) shall apply to 
        contracts and contracting authority under this section.
            ``(B) Competitive procedures must be used when 
        entering into new contracts under this section, or at 
        any other time considered appropriate by the Secretary, 
        except that the Secretary may contract with entities 
        that are carrying out the activities described in this 
        section pursuant to agreements under section 1816 or 
        contracts under section 1842 in effect on the date of 
        the enactment of this section.
            ``(3) A contract under this section may be renewed 
        without regard to any provision of law requiring 
        competition if the contractor has met or exceeded the 
        performance requirements established in the current 
        contract.
    ``(e) Limitation on Contractor Liability.--The Secretary 
shall by regulation provide for the limitation of a 
contractor's liability for actions taken to carry out a 
contract under the Program, and such regulation shall, to the 
extent the Secretary finds appropriate, employ the same or 
comparable standards and other substantive and procedural 
provisions as are contained in section 1157.''.
    (b) Elimination of FI and Carrier Responsibility for 
Carrying Out Activities Subject to Program.--
            (1) Responsibilities of fiscal intermediaries under 
        part a.--Section 1816 (42 U.S.C. 1395h) is amended by 
        adding at the end the following new subsection:
    ``(l) No agency or organization may carry out (or receive 
payment for carrying out) any activity pursuant to an agreement 
under this section to the extent that the activity is carried 
out pursuant to a contract under the Medicare Integrity Program 
under section 1893.''.
            (2) Responsibilities of carriers under part b.--
        Section 1842(c) (42 U.S.C. 1395u(c)) is amended by 
        adding at the end the following new paragraph:
    ``(6) No carrier may carry out (or receive payment for 
carrying out) any activity pursuant to a contract under this 
subsection to the extent that the activity is carried out 
pursuant to a contract under the Medicare Integrity Program 
under section 1893. The previous sentence shall not apply with 
respect to the activity described in section 1893(b)(5) 
(relating to prior authorization of certain items of durable 
medical equipment under section 1834(a)(15)).''.

SEC. 8103. BENEFICIARY INCENTIVE PROGRAMS.

    (a) Clarification of Requirement To Provide Explanation of 
Medicare Benefits.--The Secretary of Health and Human Services 
(in this section referred to as the ``Secretary'') shall 
provide an explanation of benefits under the medicare program 
under title XVIII of the Social Security Act with respect to 
each item or service for which payment may be made under the 
program which is furnished to an individual, without regard to 
whether or not a deductible or coinsurance may be imposed 
against the individual with respect to the item or service.
    (b) Program To Collect Information on Fraud and Abuse.--
            (1) Establishment of program.--Not later than 3 
        months after the date of the enactment of this Act, the 
        Secretary shall establish a program under which the 
        Secretary shall encourage individuals to report to the 
        Secretary information on individuals and entities who 
        are engaging or who have engaged in acts or omissions 
        which constitute grounds for the imposition of a 
        sanction under section 1128, section 1128A, or section 
        1128B of the Social Security Act, or who have otherwise 
        engaged in fraud and abuse against the medicare program 
        for which there is a sanction provided under law. The 
        program shall discourage provision of, and not 
        consider, information which is frivolous or otherwise 
        not relevant or material to the imposition of such a 
        sanction.
            (2) Payment of portion of amounts collected.--If an 
        individual reports information to the Secretary under 
        the program established under paragraph (1) which 
        serves as the basis for the collection by the Secretary 
        or the Attorney General of any amount of at least $100 
        (other than any amount paid as a penalty under section 
        1128B of the Social Security Act), the Secretary may 
        pay a portion of the amount collected to the individual 
        (under procedures similar to those applicable under 
        section 7623 of the Internal Revenue Code of 1986 to 
        payments to individuals providing information on 
        violations of such Code).
    (c) Program to Collect Information on Program Efficiency.--
            (1) Establishment of program.--Not later than 3 
        months after the date of the enactment of this Act, the 
        Secretary shall establish a program under which the 
        Secretary shall encourage individuals to submit to the 
        Secretary suggestions on methods to improve the 
        efficiency of the medicare program.
            (2) Payment of portion of program savings.--If an 
        individual submits a suggestion to the Secretary under 
        the program established under paragraph (1) which is 
        adopted by the Secretary and which results in savings 
        to the program, the Secretary may make a payment to the 
        individual of such amount as the Secretary considers 
        appropriate.

SEC. 8104. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD AND ABUSE SANCTIONS 
                    TO FRAUD AND ABUSE AGAINST FEDERAL HEALTH CARE 
                    PROGRAMS.

    (a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is 
amended as follows:
            (1) In the heading, by striking ``medicare or state 
        health care programs'' and inserting ``federal health 
        care programs''.
            (2) In subsection (a)(1), by striking ``a program 
        under title XVIII or a State health care program (as 
        defined in section 1128(h))'' and inserting ``a Federal 
        health care program''.
            (3) In subsection (a)(5), by striking ``a program 
        under title XVIII or a State health care program'' and 
        inserting ``a Federal health care program''.
            (4) In the second sentence of subsection (a)--
                    (A) by striking ``a State plan approved 
                under title XIX'' and inserting ``a Federal 
                health care program'', and
                    (B) by striking ``the State may at its 
                option (notwithstanding any other provision of 
                that title or of such plan)'' and inserting 
                ``the administrator of such program may at its 
                option (notwithstanding any other provision of 
                such program)''.
            (5) In subsection (b), by striking ``title XVIII or 
        a State health care program'' each place it appears and 
        inserting ``a Federal health care program''.
            (6) In subsection (c), by inserting ``(as defined 
        in section 1128(h))'' after ``a State health care 
        program''.
            (7) By adding at the end the following new 
        subsection:
    ``(f) For purposes of this section, the term `Federal 
health care program' means--
            ``(1) any plan or program that provides health 
        benefits, whether directly, through insurance, or 
        otherwise, which is funded directly, in whole or in 
        part, by the United States Government; or
            ``(2) any State health care program, as defined in 
        section 1128(h).''.
    (b) Effective Date.--The amendments made by this section 
shall take effect on January 1, 1996.

SEC. 8105. GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND 
                    ABUSE SANCTIONS.

    Title XI (42 U.S.C. 1301 et seq.), as amended by section 
8101, is amended by inserting after section 1128C the following 
new section:


    ``guidance regarding application of health care fraud and abuse 
                               sanctions


    ``Sec. 1128D. (a) Solicitation and Publication of 
Modifications to Existing Safe Harbors and New Safe Harbors.--
            ``(1) In general.--
                    ``(A) Solicitation of proposals for safe 
                harbors.--Not later than January 1, 1996, and 
                not less than annually thereafter, the 
                Secretary shall publish a notice in the Federal 
                Register soliciting proposals, which will be 
                accepted during a 60-day period, for--
                            ``(i) modifications to existing 
                        safe harbors issued pursuant to section 
                        14(a) of the Medicare and Medicaid 
                        Patient and Program Protection Act of 
                        1987 (42 U.S.C. 1320a-7b note);
                            ``(ii) additional safe harbors 
                        specifying payment practices that shall 
                        not be treated as a criminal offense 
                        under section 1128B(b) and shall not 
                        serve as the basis for an exclusion 
                        under section 1128(b)(7);
                            ``(iii) interpretive rulings to be 
                        issued pursuant to subsection (b); and
                            ``(iv) special fraud alerts to be 
                        issued pursuant to subsection (c).
                    ``(B) Publication of proposed modifications 
                and proposed additional safe harbors.--After 
                considering the proposals described in clauses 
                (i) and (ii) of subparagraph (A), the 
                Secretary, in consultation with the Attorney 
                General, shall publish in the Federal Register 
                proposed modifications to existing safe harbors 
                and proposed additional safe harbors, if 
                appropriate, with a 60-day comment period. 
                After considering any public comments received 
                during this period, the Secretary shall issue 
                final rules modifying the existing safe harbors 
                and establishing new safe harbors, as 
                appropriate.
                    ``(C) Report.--The Inspector General of the 
                Department of Health and Human Services (in 
                this section referred to as the `Inspector 
                General') shall, in an annual report to 
                Congress or as part of the year-end semiannual 
                report required by section 5 of the Inspector 
                General Act of 1978 (5 U.S.C. App.), describe 
                the proposals received under clauses (i) and 
                (ii) of subparagraph (A) and explain which 
                proposals were included in the publication 
                described in subparagraph (B), which proposals 
                were not included in that publication, and the 
                reasons for the rejection of the proposals that 
                were not included.
            ``(2) Criteria for modifying and establishing safe 
        harbors.--In modifying and establishing safe harbors 
        under paragraph (1)(B), the Secretary may consider the 
        extent to which providing a safe harbor for the 
        specified payment practice may result in any of the 
        following:
                    ``(A) An increase or decrease in access to 
                health care services.
                    ``(B) An increase or decrease in the 
                quality of health care services.
                    ``(C) An increase or decrease in patient 
                freedom of choice among health care providers.
                    ``(D) An increase or decrease in 
                competition among health care providers.
                    ``(E) An increase or decrease in the 
                ability of health care facilities to provide 
                services in medically underserved areas or to 
                medically underserved populations.
                    ``(F) An increase or decrease in the cost 
                to Federal health care programs (as defined in 
                section 1128B(f)).
                    ``(G) An increase or decrease in the 
                potential overutilization of health care 
                services.
                    ``(H) The existence or nonexistence of any 
                potential financial benefit to a health care 
                professional or provider which may vary based 
                on their decisions of--
                            ``(i) whether to order a health 
                        care item or service; or
                            ``(ii) whether to arrange for a 
                        referral of health care items or 
                        services to a particular practitioner 
                        or provider.
                    ``(I) Any other factors the Secretary deems 
                appropriate in the interest of preventing fraud 
                and abuse in Federal health care programs (as 
                so defined).
    ``(b) Interpretive Rulings.--
            ``(1) In general.--
                    ``(A) Request for interpretive ruling.--Any 
                person may present, at any time, a request to 
                the Inspector General for a statement of the 
                Inspector General's current interpretation of 
                the meaning of a specific aspect of the 
                application of sections 1128A and 1128B (in 
                this section referred to as an `interpretive 
                ruling').
                    ``(B) Issuance and effect of interpretive 
                ruling.--
                            ``(i) In general.--If appropriate, 
                        the Inspector General shall in 
                        consultation with the Attorney General, 
                        issue an interpretive ruling not later 
                        than 90 days after receiving a request 
                        described in subparagraph (A). 
                        Interpretive rulings shall not have the 
                        force of law and shall be treated as an 
                        interpretive rule within the meaning of 
                        section 553(b) of title 5, United 
                        States Code. All interpretive rulings 
                        issued pursuant to this clause shall be 
                        published in the Federal Register or 
                        otherwise made available for public 
                        inspection.
                            ``(ii) Reasons for denial.--If the 
                        Inspector General does not issue an 
                        interpretive ruling in response to a 
                        request described in subparagraph (A), 
                        the Inspector General shall notify the 
                        requesting party of such decision not 
                        later than 60 days after receiving such 
                        a request and shall identify the 
                        reasons for such decision.
            ``(2) Criteria for interpretive rulings.--
                    ``(A) In general.--In determining whether 
                to issue an interpretive ruling under paragraph 
                (1)(B), the Inspector General may consider--
                            ``(i) whether and to what extent 
                        the request identifies an ambiguity 
                        within the language of the statute, the 
                        existing safe harbors, or previous 
                        interpretive rulings; and
                            ``(ii) whether the subject of the 
                        requested interpretive ruling can be 
                        adequately addressed by interpretation 
                        of the language of the statute, the 
                        existing safe harbor rules, or previous 
                        interpretive rulings, or whether the 
                        request would require a substantive 
                        ruling (as defined in section 552 of 
                        title 5, United States Code) not 
                        authorized under this subsection.
                    ``(B) No rulings on factual issues.--The 
                Inspector General shall not give an 
                interpretive ruling on any factual issue, 
                including the intent of the parties or the fair 
                market value of particular leased space or 
                equipment.
    ``(c) Special Fraud Alerts.--
            ``(1) In general.--
                    ``(A) Request for special fraud alerts.--
                Any person may present, at any time, a request 
                to the Inspector General for a notice which 
                informs the public of practices which the 
                Inspector General considers to be suspect or of 
                particular concern under the medicare program 
                or a State health care program, as defined in 
                section 1128(h) (in this subsection referred to 
                as a `special fraud alert').
                    ``(B) Issuance and publication of special 
                fraud alerts.--Upon receipt of a request 
                described in subparagraph (A), the Inspector 
                General shall investigate the subject matter of 
                the request to determine whether a special 
                fraud alert should be issued. If appropriate, 
                the Inspector General shall issue a special 
                fraud alert in response to the request. All 
                special fraud alerts issued pursuant to this 
                subparagraph shall be published in the Federal 
                Register.
            ``(2) Criteria for special fraud alerts.--In 
        determining whether to issue a special fraud alert upon 
        a request described in paragraph (1), the Inspector 
        General may consider--
                    ``(A) whether and to what extent the 
                practices that would be identified in the 
                special fraud alert may result in any of the 
                consequences described in subsection (a)(2); 
                and
                    ``(B) the volume and frequency of the 
                conduct that would be identified in the special 
                fraud alert.''.

     CHAPTER 2--REVISIONS TO CURRENT SANCTIONS FOR FRAUD AND ABUSE

SEC. 8111. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE AND STATE 
                    HEALTH CARE PROGRAMS.

    (a) Individual Convicted of Felony Relating to Health Care 
Fraud.--
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-
        7(a)) is amended by adding at the end the following new 
        paragraph:
            ``(3) Felony conviction relating to health care 
        fraud.--Any individual or entity that has been 
        convicted after the date of the enactment of the 
        Medicare Preservation Act of 1995, under Federal or 
        State law, in connection with the delivery of a health 
        care item or service or with respect to any act or 
        omission in a health care program (other than those 
        specifically described in paragraph (1)) operated by or 
        financed in whole or in part by any Federal, State, or 
        local government agency, of a criminal offense 
        consisting of a felony relating to fraud, theft, 
        embezzlement, breach of fiduciary responsibility, or 
        other financial misconduct.''.
            (2) Conforming amendment.--Paragraph (1) of section 
        1128(b) (42 U.S.C. 1320a-7(b)) is amended to read as 
        follows:
            ``(1) Conviction relating to fraud.--Any individual 
        or entity that has been convicted after the date of the 
        enactment of the Medicare Preservation Act of 1995, 
        under Federal or State law--
                    ``(A) of a criminal offense consisting of a 
                misdemeanor relating to fraud, theft, 
                embezzlement, breach of fiduciary 
                responsibility, or other financial misconduct--
                            ``(i) in connection with the 
                        delivery of a health care item or 
                        service, or
                            ``(ii) with respect to any act or 
                        omission in a health care program 
                        (other than those specifically 
                        described in subsection (a)(1)) 
                        operated by or financed in whole or in 
                        part by any Federal, State, or local 
                        government agency; or
                    ``(B) of a criminal offense relating to 
                fraud, theft, embezzlement, breach of fiduciary 
                responsibility, or other financial misconduct 
                with respect to any act or omission in a 
                program (other than a health care program) 
                operated by or financed in whole or in part by 
                any Federal, State, or local government 
                agency.''.
    (b) Individual Convicted of Felony Relating to Controlled 
Substance.--
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-
        7(a)), as amended by subsection (a), is amended by 
        adding at the end the following new paragraph:
            ``(4) Felony conviction relating to controlled 
        substance.--Any individual or entity that has been 
        convicted after the date of the enactment of the 
        Medicare Preservation Act of 1995, under Federal or 
        State law, of a criminal offense consisting of a felony 
        relating to the unlawful manufacture, distribution, 
        prescription, or dispensing of a controlled 
        substance.''.
            (2) Conforming amendment.--Section 1128(b)(3) (42 
        U.S.C. 1320a-7(b)(3)) is amended--
                    (A) in the heading, by striking 
                ``Conviction'' and inserting ``Misdemeanor 
                conviction''; and
                    (B) by striking ``criminal offense'' and 
                inserting ``criminal offense consisting of a 
                misdemeanor''.

SEC. 8112. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR CERTAIN 
                    INDIVIDUALS AND ENTITIES SUBJECT TO PERMISSIVE 
                    EXCLUSION FROM MEDICARE AND STATE HEALTH CARE 
                    PROGRAMS.

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by 
adding at the end the following new subparagraphs:
    ``(D) In the case of an exclusion of an individual or 
entity under paragraph (1), (2), or (3) of subsection (b), the 
period of the exclusion shall be 3 years, unless the Secretary 
determines in accordance with published regulations that a 
shorter period is appropriate because of mitigating 
circumstances or that a longer period is appropriate because of 
aggravating circumstances.
    ``(E) In the case of an exclusion of an individual or 
entity under subsection (b)(4) or (b)(5), the period of the 
exclusion shall not be less than the period during which the 
individual's or entity's license to provide health care is 
revoked, suspended, or surrendered, or the individual or the 
entity is excluded or suspended from a Federal or State health 
care program.
    ``(F) In the case of an exclusion of an individual or 
entity under subsection (b)(6)(B), the period of the exclusion 
shall be not less than 1 year.''.

SEC. 8113. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP OR 
                    CONTROL INTEREST IN SANCTIONED ENTITIES.

    Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding 
at the end the following new paragraph:
            ``(15) Individuals controlling a sanctioned 
        entity.--(A) Any individual--
                    ``(i) who has a direct or indirect 
                ownership or control interest in a sanctioned 
                entity and who knows or should know (as defined 
                in section 1128A(i)(6)) of the action 
                constituting the basis for the conviction or 
                exclusion described in subparagraph (B); or
                    ``(ii) who is an officer or managing 
                employee (as defined in section 1126(b)) of 
                such an entity.
            ``(B) For purposes of subparagraph (A), the term 
        `sanctioned entity' means an entity--
                    ``(i) that has been convicted of any 
                offense described in subsection (a) or in 
                paragraph (1), (2), or (3) of this subsection; 
                or
                    ``(ii) that has been excluded from 
                participation under a program under title XVIII 
                or under a State health care program.''.

SEC. 8114. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE TO 
                    COMPLY WITH STATUTORY OBLIGATIONS.

    (a) Minimum Period of Exclusion for Practitioners and 
Persons Failing To Meet Statutory Obligations.--
            (1) In general.--The second sentence of section 
        1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) is amended by 
        striking ``may prescribe)'' and inserting ``may 
        prescribe, except that such period may not be less than 
        1 year)''.
            (2) Conforming amendment.--Section 1156(b)(2) (42 
        U.S.C. 1320c-5(b)(2)) is amended by striking ``shall 
        remain'' and inserting ``shall (subject to the minimum 
        period specified in the second sentence of paragraph 
        (1)) remain''.
    (b) Repeal of ``Unwilling or Unable'' Condition for 
Imposition of Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-
5(b)(1)) is amended--
            (1) in the second sentence, by striking ``and 
        determines'' and all that follows through ``such 
        obligations,''; and
            (2) by striking the third sentence.

SEC. 8115. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE 
                    ORGANIZATIONS.

    (a) Application of Intermediate Sanctions for Any Program 
Violations.--
            (1) In general.--Section 1876(i)(1) (42 U.S.C. 
        1395mm(i)(1)) is amended by striking ``the Secretary 
        may terminate'' and all that follows and inserting ``in 
        accordance with procedures established under paragraph 
        (9), the Secretary may at any time terminate any such 
        contract or may impose the intermediate sanctions 
        described in paragraph (6)(B) or (6)(C) (whichever is 
        applicable) on the eligible organization if the 
        Secretary determines that the organization--
                    ``(A) has failed substantially to carry out 
                the contract;
                    ``(B) is carrying out the contract in a 
                manner substantially inconsistent with the 
                efficient and effective administration of this 
                section; or
                    ``(C) no longer substantially meets the 
                applicable conditions of subsections (b), (c), 
                (e), and (f).''.
            (2) Other intermediate sanctions for miscellaneous 
        program violations.--Section 1876(i)(6) (42 U.S.C. 
        1395mm(i)(6)) is amended by adding at the end the 
        following new subparagraph:
    ``(C) In the case of an eligible organization for which the 
Secretary makes a determination under paragraph (1) the basis 
of which is not described in subparagraph (A), the Secretary 
may apply the following intermediate sanctions:
            ``(i) Civil money penalties of not more than 
        $25,000 for each determination under paragraph (1) if 
        the deficiency that is the basis of the determination 
        has directly adversely affected (or has the substantial 
        likelihood of adversely affecting) an individual 
        covered under the organization's contract.
            ``(ii) Civil money penalties of not more than 
        $10,000 for each week beginning after the initiation of 
        procedures by the Secretary under paragraph (9) during 
        which the deficiency that is the basis of a 
        determination under paragraph (1) exists.
            ``(iii) Suspension of enrollment of individuals 
        under this section after the date the Secretary 
        notifies the organization of a determination under 
        paragraph (1) and until the Secretary is satisfied that 
        the deficiency that is the basis for the determination 
        has been corrected and is not likely to recur.''.
            (3) Procedures for imposing sanctions.--Section 
        1876(i) (42 U.S.C. 1395mm(i)) is amended by adding at 
        the end the following new paragraph:
    ``(9) The Secretary may terminate a contract with an 
eligible organization under this section or may impose the 
intermediate sanctions described in paragraph (6) on the 
organization in accordance with formal investigation and 
compliance procedures established by the Secretary under 
which--
            ``(A) the Secretary first provides the organization 
        with the reasonable opportunity to develop and 
        implement a corrective action plan to correct the 
        deficiencies that were the basis of the Secretary's 
        determination under paragraph (1) and the organization 
        fails to develop or implement such a plan;
            ``(B) in deciding whether to impose sanctions, the 
        Secretary considers aggravating factors such as whether 
        an organization has a history of deficiencies or has 
        not taken action to correct deficiencies the Secretary 
        has brought to the organization's attention;
            ``(C) there are no unreasonable or unnecessary 
        delays between the finding of a deficiency and the 
        imposition of sanctions; and
            ``(D) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing 
        (including the right to appeal an initial decision) 
        before imposing any sanction or terminating the 
        contract.''.
            (4) Conforming amendments.--Section 1876(i)(6)(B) 
        (42 U.S.C. 1395mm(i)(6)(B)) is amended by striking the 
        second sentence.
    (b) Agreements With Peer Review Organizations.--Section 
1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by 
striking ``an agreement'' and inserting ``a written 
agreement''.
    (c) Effective Date.--The amendments made by this section 
shall apply with respect to contract years beginning on or 
after January 1, 1996.

SEC. 8116. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR 
                    DISCOUNTING AND MANAGED CARE ARRANGEMENTS.

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-
7b(b)(3)) is amended--
            (1) by striking ``and'' at the end of subparagraph 
        (D);
            (2) by striking the period at the end of 
        subparagraph (E) and inserting ``; and''; and
            (3) by adding at the end the following new 
        subparagraph:
            ``(F) any remuneration between an organization and 
        an individual or entity providing items or services, or 
        a combination thereof, pursuant to a written agreement 
        between the organization and the individual or entity 
        if the organization is a MedicarePlus organization 
        under part C of title XVIII or if the written agreement 
        places the individual or entity at substantial 
        financial risk for the cost or utilization of the items 
        or services, or a combination thereof, which the 
        individual or entity is obligated to provide, whether 
        through a withhold, capitation, incentive pool, per 
        diem payment, or any other similar risk arrangement 
        which places the individual or entity at substantial 
        financial risk.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to written agreements entered into on or after 
January 1, 1996.

SEC. 8117. PENALTIES FOR THE FRAUDULENT CONVERSION OF ASSETS IN ORDER 
                    TO OBTAIN STATE HEALTH CARE PROGRAM BENEFITS.

    Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended by 
striking ``or'' at the end of paragraph (4), by inserting 
``or'' at the end of paragraph (5), and by inserting after 
paragraph (5) the following new paragraph:
            ``(6) knowingly and willfully converts assets, by 
        transfer (including any transfer in trust), aiding in 
        such a transfer, or otherwise, in order for an 
        individual to become eligible for benefits under a 
        State health care program,''.

SEC. 8118. EFFECTIVE DATE.

    Except as otherwise provided, the amendments made by this 
chapter shall take effect January 1, 1996.

         CHAPTER 3--ADMINISTRATIVE AND MISCELLANEOUS PROVISIONS

SEC. 8121. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE DATA 
                    COLLECTION PROGRAM.

    (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as 
amended by sections 8101 and 8105, is amended by inserting 
after section 1128D the following new section:


         ``health care fraud and abuse data collection program


    ``Sec. 1128E. (a) General Purpose.--Not later than January 
1, 1996, the Secretary shall establish a national health care 
fraud and abuse data collection program for the reporting of 
final adverse actions (not including settlements in which no 
findings of liability have been made) against health care 
providers, suppliers, or practitioners as required by 
subsection (b), with access as set forth in subsection (c).
    ``(b) Reporting of Information.--
            ``(1) In general.--Each government agency and 
        health plan shall report any final adverse action (not 
        including settlements in which no findings of liability 
        have been made) taken against a health care provider, 
        supplier, or practitioner.
            ``(2) Information to be reported.--The information 
        to be reported under paragraph (1) includes:
                    ``(A) The name and TIN (as defined in 
                section 7701(a)(41) of the Internal Revenue 
                Code of 1986) of any health care provider, 
                supplier, or practitioner who is the subject of 
                a final adverse action.
                    ``(B) The name (if known) of any health 
                care entity with which a health care provider, 
                supplier, or practitioner is affiliated or 
                associated.
                    ``(C) The nature of the final adverse 
                action and whether such action is on appeal.
                    ``(D) A description of the acts or 
                omissions and injuries upon which the final 
                adverse action was based, and such other 
                information as the Secretary determines by 
                regulation is required for appropriate 
                interpretation of information reported under 
                this section.
            ``(3) Confidentiality.--In determining what 
        information is required, the Secretary shall include 
        procedures to assure that the privacy of individuals 
        receiving health care services is appropriately 
        protected.
            ``(4) Timing and form of reporting.--The 
        information required to be reported under this 
        subsection shall be reported regularly (but not less 
        often than monthly) and in such form and manner as the 
        Secretary prescribes. Such information shall first be 
        required to be reported on a date specified by the 
        Secretary.
            ``(5) To whom reported.--The information required 
        to be reported under this subsection shall be reported 
        to the Secretary.
    ``(c) Disclosure and Correction of Information.--
            ``(1) Disclosure.--With respect to the information 
        about final adverse actions (not including settlements 
        in which no findings of liability have been made) 
        reported to the Secretary under this section respecting 
        a health care provider, supplier, or practitioner, the 
        Secretary shall, by regulation, provide for--
                    ``(A) disclosure of the information, upon 
                request, to the health care provider, supplier, 
                or licensed practitioner, and
                    ``(B) procedures in the case of disputed 
                accuracy of the information.
            ``(2) Corrections.--Each Government agency and 
        health plan shall report corrections of information 
        already reported about any final adverse action taken 
        against a health care provider, supplier, or 
        practitioner, in such form and manner that the 
        Secretary prescribes by regulation.
    ``(d) Access to Reported Information.--
            ``(1) Availability.--The information in this 
        database shall be available to Federal and State 
        government agencies and health plans pursuant to 
        procedures that the Secretary shall provide by 
        regulation.
            ``(2) Fees for disclosure.--The Secretary may 
        establish or approve reasonable fees for the disclosure 
        of information in this database (other than with 
        respect to requests by Federal agencies). The amount of 
        such a fee shall be sufficient to recover the full 
        costs of operating the database. Such fees shall be 
        available to the Secretary or, in the Secretary's 
        discretion to the agency designated under this section 
        to cover such costs.
    ``(e) Protection From Liability for Reporting.--No person 
or entity, including the agency designated by the Secretary in 
subsection (b)(5) shall be held liable in any civil action with 
respect to any report made as required by this section, without 
knowledge of the falsity of the information contained in the 
report.
    ``(f) Definitions and Special Rules.--For purposes of this 
section:
            ``(1) Final adverse action.--
                    ``(A) In general.--The term `final adverse 
                action' includes:
                            ``(i) Civil judgments against a 
                        health care provider, supplier, or 
                        practitioner in Federal or State court 
                        related to the delivery of a health 
                        care item or service.
                            ``(ii) Federal or State criminal 
                        convictions related to the delivery of 
                        a health care item or service.
                            ``(iii) Actions by Federal or State 
                        agencies responsible for the licensing 
                        and certification of health care 
                        providers, suppliers, and licensed 
                        health care practitioners, including--
                                    ``(I) formal or official 
                                actions, such as revocation or 
                                suspension of a license (and 
                                the length of any such 
                                suspension), reprimand, censure 
                                or probation,
                                    ``(II) any other loss of 
                                license or the right to apply 
                                for, or renew, a license of the 
                                provider, supplier, or 
                                practitioner, whether by 
                                operation of law, voluntary 
                                surrender, non-renewability, or 
                                otherwise, or
                                    ``(III) any other negative 
                                action or finding by such 
                                Federal or State agency that is 
                                publicly available information.
                            ``(iv) Exclusion from participation 
                        in Federal or State health care 
                        programs.
                            ``(v) Any other adjudicated actions 
                        or decisions that the Secretary shall 
                        establish by regulation.
                    ``(B) Exception.--The term does not include 
                any action with respect to a malpractice claim.
            ``(2) Practitioner.--The terms `licensed health 
        care practitioner', `licensed practitioner', and 
        `practitioner' mean, with respect to a State, an 
        individual who is licensed or otherwise authorized by 
        the State to provide health care services (or any 
        individual who, without authority holds himself or 
        herself out to be so licensed or authorized).
            ``(3) Government agency.--The term `Government 
        agency' shall include:
                    ``(A) The Department of Justice.
                    ``(B) The Department of Health and Human 
                Services.
                    ``(C) Any other Federal agency that either 
                administers or provides payment for the 
                delivery of health care services, including, 
                but not limited to the Department of Defense 
                and the Veterans' Administration.
                    ``(D) State law enforcement agencies.
                    ``(E) State MediGrant fraud control units.
                    ``(F) Federal or State agencies responsible 
                for the licensing and certification of health 
                care providers and licensed health care 
                practitioners.
            ``(4) Health plan.--The term `health plan' has the 
        meaning given such term by section 1128C(c).
            ``(5) Determination of conviction.--For purposes of 
        paragraph (1), the existence of a conviction shall be 
        determined under paragraph (4) of section 1128(i).''.
    (b) Improved Prevention in Issuance of Medicare Provider 
Numbers.--Section 1842(r) (42 U.S.C. 1395u(r)) is amended by 
adding at the end the following new sentence: ``Under such 
system, the Secretary may impose appropriate fees on such 
physicians to cover the costs of investigation and 
recertification activities with respect to the issuance of the 
identifiers.''.

                  CHAPTER 4--CIVIL MONETARY PENALTIES

SEC. 8131. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

    (a) General Civil Monetary Penalties.--Section 1128A (42 
U.S.C. 1320a-7a) is amended as follows:
            (1) In the third sentence of subsection (a), by 
        striking ``programs under title XVIII'' and inserting 
        ``Federal health care programs (as defined in section 
        1128B(f)(1))''.
            (2) In subsection (f)--
                    (A) by redesignating paragraph (3) as 
                paragraph (4); and
                    (B) by inserting after paragraph (2) the 
                following new paragraph:
            ``(3) With respect to amounts recovered arising out 
        of a claim under a Federal health care program (as 
        defined in section 1128B(f)), the portion of such 
        amounts as is determined to have been paid by the 
        program shall be repaid to the program, and the portion 
        of such amounts attributable to the amounts recovered 
        under this section by reason of the amendments made by 
        the Medicare Preservation Act of 1995 (as estimated by 
        the Secretary) shall be deposited into the Federal 
        Hospital Insurance Trust Fund pursuant to section 
        1817(k)(2)(C).''.
            (3) In subsection (i)--
                    (A) in paragraph (2), by striking ``title 
                V, XVIII, XIX, or XX of this Act'' and 
                inserting ``a Federal health care program (as 
                defined in section 1128B(f))'',
                    (B) in paragraph (4), by striking ``a 
                health insurance or medical services program 
                under title XVIII or XIX of this Act'' and 
                inserting ``a Federal health care program (as 
                so defined)'', and
                    (C) in paragraph (5), by striking ``title 
                V, XVIII, XIX, or XX'' and inserting ``a 
                Federal health care program (as so defined)''.
            (4) By adding at the end the following new 
        subsection:
    ``(m)(1) For purposes of this section, with respect to a 
Federal health care program not contained in this Act, 
references to the Secretary in this section shall be deemed to 
be references to the Secretary or Administrator of the 
department or agency with jurisdiction over such program and 
references to the Inspector General of the Department of Health 
and Human Services in this section shall be deemed to be 
references to the Inspector General of the applicable 
department or agency.
    ``(2)(A) The Secretary and Administrator of the departments 
and agencies referred to in paragraph (1) may include in any 
action pursuant to this section, claims within the jurisdiction 
of other Federal departments or agencies as long as the 
following conditions are satisfied:
            ``(i) The case involves primarily claims submitted 
        to the Federal health care programs of the department 
        or agency initiating the action.
            ``(ii) The Secretary or Administrator of the 
        department or agency initiating the action gives notice 
        and an opportunity to participate in the investigation 
        to the Inspector General of the department or agency 
        with primary jurisdiction over the Federal health care 
        programs to which the claims were submitted.
    ``(B) If the conditions specified in subparagraph (A) are 
fulfilled, the Inspector General of the department or agency 
initiating the action is authorized to exercise all powers 
granted under the Inspector General Act of 1978 with respect to 
the claims submitted to the other departments or agencies to 
the same manner and extent as provided in that Act with respect 
to claims submitted to such departments or agencies.''.
    (b) Excluded Individual Retaining Ownership or Control 
Interest in Participating Entity.--Section 1128A(a) (42 U.S.C. 
1320a-7a(a)) is amended--
            (1) by striking ``or'' at the end of paragraph 
        (1)(D);
            (2) by striking ``, or'' at the end of paragraph 
        (2) and inserting a semicolon;
            (3) by striking the semicolon at the end of 
        paragraph (3) and inserting ``; or''; and
            (4) by inserting after paragraph (3) the following 
        new paragraph:
            ``(4) in the case of a person who is not an 
        organization, agency, or other entity, is excluded from 
        participating in a program under title XVIII or a State 
        health care program in accordance with this subsection 
        or under section 1128 and who, at the time of a 
        violation of this subsection--
                    ``(i) retains a direct or indirect 
                ownership or control interest in an entity that 
                is participating in a program under title XVIII 
                or a State health care program, and who knows 
                or should know of the action constituting the 
                basis for the exclusion; or
                    ``(ii) is an officer or managing employee 
                (as defined in section 1126(b)) of such an 
                entity;''.
    (c) Modifications of Amounts of Penalties and 
Assessments.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as 
amended by subsection (b), is amended in the matter following 
paragraph (4)--
            (1) by striking ``$2,000'' and inserting 
        ``$10,000'';
            (2) by inserting ``; in cases under paragraph (4), 
        $10,000 for each day the prohibited relationship 
        occurs'' after ``false or misleading information was 
        given''; and
            (3) by striking ``twice the amount'' and inserting 
        ``3 times the amount''.
    (d) Claim for Item or Service Based on Incorrect Coding or 
Medically Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C. 
1320a-7a(a)(1)) is amended--
            (1) in subparagraph (A) by striking ``claimed,'' 
        and inserting ``claimed, including any person who 
        engages in a pattern or practice of presenting or 
        causing to be presented a claim for an item or service 
        that is based on a code that the person knows or should 
        know will result in a greater payment to the person 
        than the code the person knows or should know is 
        applicable to the item or service actually provided,'';
            (2) in subparagraph (C), by striking ``or'' at the 
        end;
            (3) in subparagraph (D), by striking ``; or'' and 
        inserting ``, or''; and
            (4) by inserting after subparagraph (D) the 
        following new subparagraph:
                    ``(E) is for a medical or other item or 
                service that a person knows or should know is 
                not medically necessary; or''.
    (e) Sanctions Against Practitioners and Persons for Failure 
To Comply With Statutory Obligations.--Section 1156(b)(3) (42 
U.S.C. 1320c-5(b)(3)) is amended by striking ``the actual or 
estimated cost'' and inserting ``up to $10,000 for each 
instance''.
    (f) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C. 
1395mm(i)(6)), as amended by section 8115(a)(2), is amended by 
adding at the end the following new subparagraph:
    ``(D) The provisions of section 1128A (other than 
subsections (a) and (b)) shall apply to a civil money penalty 
under subparagraph (B)(i) or (C)(i) in the same manner as such 
provisions apply to a civil money penalty or proceeding under 
section 1128A(a).''.
    (g) Prohibition Against Offering Inducements to Individuals 
Enrolled Under Programs or Plans.--
            (1) Offer of remuneration.--Section 1128A(a) (42 
        U.S.C. 1320a-7a(a)) is amended--
                    (A) by striking ``or'' at the end of 
                paragraph (1)(D);
                    (B) by striking ``, or'' at the end of 
                paragraph (2) and inserting a semicolon;
                    (C) by striking the semicolon at the end of 
                paragraph (3) and inserting ``; or''; and
                    (D) by inserting after paragraph (3) the 
                following new paragraph:
            ``(4) offers to or transfers remuneration to any 
        individual eligible for benefits under title XVIII of 
        this Act, or under a State health care program (as 
        defined in section 1128(h)) that such person knows or 
        should know is likely to influence such individual to 
        order or receive from a particular provider, 
        practitioner, or supplier any item or service for which 
        payment may be made, in whole or in part, under title 
        XVIII, or a State health care program (as so 
        defined);''.
            (2) Remuneration defined.--Section 1128A(i) (42 
        U.S.C. 1320a-7a(i)) is amended by adding the following 
        new paragraph:
            ``(6) The term `remuneration' includes the waiver 
        of coinsurance and deductible amounts (or any part 
        thereof), and transfers of items or services for free 
        or for other than fair market value. The term 
        `remuneration' does not include--
                    ``(A) the waiver of coinsurance and 
                deductible amounts by a person, if--
                            ``(i) the waiver is not offered as 
                        part of any advertisement or 
                        solicitation;
                            ``(ii) the person does not 
                        routinely waive coinsurance or 
                        deductible amounts; and
                            ``(iii) the person--
                                    ``(I) waives the 
                                coinsurance and deductible 
                                amounts after determining in 
                                good faith that the individual 
                                is in financial need;
                                    ``(II) fails to collect 
                                coinsurance or deductible 
                                amounts after making reasonable 
                                collection efforts; or
                                    ``(III) provides for any 
                                permissible waiver as specified 
                                in section 1128B(b)(3) or in 
                                regulations issued by the 
                                Secretary;
                    ``(B) differentials in coinsurance and 
                deductible amounts as part of a benefit plan 
                design as long as the differentials have been 
                disclosed in writing to all beneficiaries, 
                third party payers, and providers, to whom 
                claims are presented and as long as the 
                differentials meet the standards as defined in 
                regulations promulgated by the Secretary not 
                later than 180 days after the date of the 
                enactment of the Medicare Preservation Act of 
                1995; or
                    ``(C) incentives given to individuals to 
                promote the delivery of preventive care as 
                determined by the Secretary in regulations so 
                promulgated.''.
    (h) Effective Date.--The amendments made by this section 
shall take effect January 1, 1996.

SEC. 8132. CLARIFICATION OF LEVEL OF INTENT REQUIRED FOR IMPOSITION OF 
                    SANCTIONS.

    (a) Clarification of Level of Knowledge Required for 
Imposition of Civil Monetary Penalties.--
            (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-
        7a(a)) is amended--
                    (A) in paragraphs (1) and (2), by inserting 
                ``knowingly'' before ``presents'' each place it 
                appears; and
                    (B) in paragraph (3), by striking ``gives'' 
                and inserting ``knowingly gives or causes to be 
                given''.
            (2) Definition of standard.--Section 1128A(i) (42 
        U.S.C. 1320a-7a(i)) is amended by adding at the end the 
        following new paragraph:
            ``(6) The term `should know' means that a person, 
        with respect to information--
                    ``(A) acts in deliberate ignorance of the 
                truth or falsity of the information; or
                    ``(B) acts in reckless disregard of the 
                truth or falsity of the information,
        and no proof of specific intent to defraud is 
        required.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to acts or omissions occurring on or after January 
1, 1996.

SEC. 8133. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH SERVICES.

    (a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b)) 
is amended by adding at the end the following new paragraph:
    ``(3)(A) Any physician who executes a document described in 
subparagraph (B) with respect to an individual knowing that all 
of the requirements referred to in such subparagraph are not 
met with respect to the individual shall be subject to a civil 
monetary penalty of not more than the greater of--
            ``(i) $5,000, or
            ``(ii) three times the amount of the payments under 
        title XVIII for home health services which are made 
        pursuant to such certification.
    ``(B) A document described in this subparagraph is any 
document that certifies, for purposes of title XVIII, that an 
individual meets the requirements of section 1814(a)(2)(C) or 
1835(a)(2)(A) in the case of home health services furnished to 
the individual.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to certifications made on or after the date of the 
enactment of this Act.

                 CHAPTER 5--AMENDMENTS TO CRIMINAL LAW

SEC. 8141. HEALTH CARE FRAUD.

    (a) In General.--
            (1)  Fines and imprisonment for health care fraud 
        violations.--Chapter 63 of title 18, United States 
        Code, is amended by adding at the end the following new 
        section:

``Sec. 1347. Health care fraud

    ``(a) Whoever knowingly and willfully executes, or attempts 
to execute, a scheme or artifice--
            ``(1) to defraud any Federal health care program, 
        in connection with the delivery of or payment for 
        health care benefits, items, or services; or
            ``(2) to obtain, by means of false or fraudulent 
        pretenses, representations, or promises, any of the 
        money or property owned by, or under the custody or 
        control of, any Federal health care program in 
        connection with the delivery of or payment for health 
        care benefits, items, or services;
shall be fined under this title or imprisoned not more than 10 
years, or both. If the violation results in serious bodily 
injury (as defined in section 1365(g)(3) of this title), such 
person may be imprisoned for any term of years.
    ``(b) For purposes of this section, the term `Federal 
health care program' has the same meaning given such term in 
section 1128B(f) of the Social Security Act.''.
            (2) Clerical amendment.--The table of sections at 
        the beginning of chapter 63 of title 18, United States 
        Code, is amended by adding at the end the following:

``1347. Health care fraud.''.

    (b) Criminal Fines Deposited in Federal Hospital Insurance 
Trust Fund.--The Secretary of the Treasury shall deposit into 
the Federal Hospital Insurance Trust Fund pursuant to section 
1817(k)(2)(C) of the Social Security Act, as added by section 
8101(b), an amount equal to the criminal fines imposed under 
section 1347 of title 18, United States Code (relating to 
health care fraud).

SEC. 8142. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

    (a) In General.--Section 982(a) of title 18, United States 
Code, is amended by adding after paragraph (5) the following 
new paragraph:
    ``(6)(A) The court, in imposing sentence on a person 
convicted of a Federal health care offense, shall order the 
person to forfeit property, real or personal, that constitutes 
or is derived, directly or indirectly, from gross proceeds 
traceable to the commission of the offense.
    ``(B) For purposes of this paragraph, the term `Federal 
health care offense' means a violation of, or a criminal 
conspiracy to violate--
            ``(i) section 1347 of this title;
            ``(ii) section 1128B of the Social Security Act; 
        and
            ``(iii) sections 287, 371, 664, 666, 669, 1001, 
        1027, 1341, 1343, 1920, or 1954 of this title if the 
        violation or conspiracy relates to health care 
        fraud.''.
    (b) Conforming Amendment.--Section 982(b)(1)(A) of title 
18, United States Code, is amended by inserting ``or (a)(6)'' 
after ``(a)(1)''.
    (c) Property Forfeited Deposited in Federal Hospital 
Insurance Trust Fund.--
            (1) In general.--After the payment of the costs of 
        asset forfeiture has been made, and notwithstanding any 
        other provision of law, the Secretary of the Treasury 
        shall deposit into the Federal Hospital Insurance Trust 
        Fund pursuant to section 1817(k)(2)(C) of the Social 
        Security Act, as added by section 8101(b), an amount 
        equal to the net amount realized from the forfeiture of 
        property by reason of a Federal health care offense 
        pursuant to section 982(a)(6) of title 18, United 
        States Code.
            (2) Costs of asset forfeiture.--For purposes of 
        paragraph (1), the term ``payment of the costs of asset 
        forfeiture'' means--
                    (A) the payment, at the discretion of the 
                Attorney General, of any expenses necessary to 
                seize, detain, inventory, safeguard, maintain, 
                advertise, sell, or dispose of property under 
                seizure, detention, or forfeited, or of any 
                other necessary expenses incident to the 
                seizure, detention, forfeiture, or disposal of 
                such property, including payment for--
                            (i) contract services,
                            (ii) the employment of outside 
                        contractors to operate and manage 
                        properties or provide other specialized 
                        services necessary to dispose of such 
                        properties in an effort to maximize the 
                        return from such properties; and
                            (iii) reimbursement of any Federal, 
                        State, or local agency for any 
                        expenditures made to perform the 
                        functions described in this 
                        subparagraph;
                    (B) at the discretion of the Attorney 
                General, the payment of awards for information 
                or assistance leading to a civil or criminal 
                forfeiture involving any Federal agency 
                participating in the Health Care Fraud and 
                Abuse Control Account;
                    (C) the compromise and payment of valid 
                liens and mortgages against property that has 
                been forfeited, subject to the discretion of 
                the Attorney General to determine the validity 
                of any such lien or mortgage and the amount of 
                payment to be made, and the employment of 
                attorneys and other personnel skilled in State 
                real estate law as necessary;
                    (D) payment authorized in connection with 
                remission or mitigation procedures relating to 
                property forfeited; and
                    (E) the payment of State and local property 
                taxes on forfeited real property that accrued 
                between the date of the violation giving rise 
                to the forfeiture and the date of the 
                forfeiture order.

SEC. 8143. INJUNCTIVE RELIEF RELATING TO FEDERAL HEALTH CARE OFFENSES.

    (a) In General.--Section 1345(a)(1) of title 18, United 
States Code, is amended--
            (1) by striking ``or'' at the end of subparagraph 
        (A);
            (2) by inserting ``or'' at the end of subparagraph 
        (B); and
            (3) by adding at the end the following new 
        subparagraph:
                    ``(C) committing or about to commit a 
                Federal health care offense (as defined in 
                section 982(a)(6)(B) of this title);''.
    (b) Freezing of Assets.--Section 1345(a)(2) of title 18, 
United States Code, is amended by inserting ``or a Federal 
health care offense (as defined in section 982(a)(6)(B))'' 
after ``title)''.

SEC. 8144. FALSE STATEMENTS.

    (a) In General.--Chapter 47 of title 18, United States 
Code, is amended by adding at the end the following new 
section:

``Sec. 1033. False statements relating to health care matters

    ``(a) Whoever, in any matter involving a Federal health 
care program, knowingly and willfully--
            ``(1) falsifies, conceals, or covers up by any 
        trick, scheme, or device a material fact, or
            ``(2) makes any materially false, fictitious, or 
        fraudulent statement or representation, or makes or 
        uses any materially false writing or document knowing 
        the same to contain any materially false, fictitious, 
        or fraudulent statement or entry,
shall be fined under this title or imprisoned not more than 5 
years, or both.
    ``(b) For purposes of this section, the term `Federal 
health care program' has the same meaning given such term in 
section 1128B(f) of the Social Security Act.''.
    (b) Clerical Amendment.--The table of sections at the 
beginning of chapter 47 of title 18, United States Code, in 
amended by adding at the end the following:

``1033. False statements relating to health care matters.''.

SEC. 8145. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF FEDERAL HEALTH 
                    CARE OFFENSES.

    (a) In General.--Chapter 73 of title 18, United States 
Code, is amended by adding at the end the following new 
section:

``Sec. 1518. Obstruction of criminal investigations of Federal health 
                    care offenses

    ``(a) Whoever willfully prevents, obstructs, misleads, 
delays or attempts to prevent, obstruct, mislead, or delay the 
communication of information or records relating to a Federal 
health care offense to a criminal investigator shall be fined 
under this title or imprisoned not more than 5 years, or both.
    ``(b) As used in this section the term `Federal health care 
offense' has the same meaning given such term in section 
982(a)(6)(B) of this title.
    ``(c) As used in this section the term `criminal 
investigator' means any individual duly authorized by a 
department, agency, or armed force of the United States to 
conduct or engage in investigations for prosecutions for 
violations of health care offenses.''.
    (b) Clerical Amendment.--The table of sections at the 
beginning of chapter 73 of title 18, United States Code, is 
amended by adding at the end the following:

``1518. Obstruction of Criminal Investigations of Federal Health Care 
          Offenses.''.

SEC. 8146. THEFT OR EMBEZZLEMENT.

    (a) In General.--Chapter 31 of title 18, United States 
Code, is amended by adding at the end the following new 
section:

``Sec. 669. Theft or embezzlement in connection with health care

    ``(a) Whoever willfully embezzles, steals, or otherwise 
willfully and unlawfully converts to the use of any person 
other than the rightful owner, or intentionally misapplies any 
of the moneys, funds, securities, premiums, credits, property, 
or other assets of a Federal health care program, shall be 
fined under this title or imprisoned not more than 10 years, or 
both.
    ``(b) As used in this section the term `Federal health care 
program' has the same meaning given such term in section 
1128B(f) of the Social Security Act.''.
    (b) Clerical Amendment.--The table of sections at the 
beginning of chapter 31 of title 18, United States Code, is 
amended by adding at the end the following:

``669. Theft or Embezzlement in Connection with Health Care.''.

SEC. 8147. LAUNDERING OF MONETARY INSTRUMENTS.

    Section 1956(c)(7) of title 18, United States Code, is 
amended by adding at the end the following new subparagraph:
                    ``(F) Any act or activity constituting an 
                offense involving a Federal health care offense 
                as that term is defined in section 982(a)(6)(B) 
                of this title.''.

SEC. 8148. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

    (a) In General.--Chapter 233 of title 18, United States 
Code, is amended by adding after section 3485 the following new 
section:

``Sec. 3486. Authorized investigative demand procedures

    ``(a)(1)(A) In any investigation relating to functions set 
forth in paragraph (2), the Attorney General or designee may 
issue in writing and cause to be served a subpoena compelling 
production of any records (including any books, papers, 
documents, electronic media, or other objects or tangible 
things), which may be relevant to an authorized law enforcement 
inquiry, that a person or legal entity may possess or have 
care, custody, or control.
    ``(B) A custodian of records may be required to give 
testimony concerning the production and authentication of such 
records.
    ``(C) The production of records may be required from any 
place in any State or in any territory or other place subject 
to the jurisdiction of the United States at any designated 
place; except that such production shall not be required more 
than 500 miles distant from the place where the subpoena is 
served.
    ``(D) Witnesses summoned under this section shall be paid 
the same fees and mileage that are paid witnesses in the courts 
of the United States.
    ``(E) A subpoena requiring the production of records shall 
describe the objects required to be produced and prescribe a 
return date within a reasonable period of time within which the 
objects can be assembled and made available.
    ``(2) Investigative demands utilizing an administrative 
subpoena are authorized for any investigation with respect to 
any act or activity constituting or involving health care 
fraud, including a scheme or artifice--
            ``(A) to defraud any Federal health care program, 
        in connection with the delivery of or payment for 
        health care benefits, items, or services; or
            ``(B) to obtain, by means of false or fraudulent 
        pretenses, representations, or promises, any of the 
        money or property owned by, or under the custody or 
        control or, any Federal health care program in 
        connection with the delivery of or payment for health 
        care benefits, items, or services.
    ``(b)(1) A subpoena issued under this section may be served 
by any person designated in the subpoena to serve it.
    ``(2) Service upon a natural person may be made by personal 
delivery of the subpoena to such person.
    ``(3) Service may be made upon a domestic or foreign 
association which is subject to suit under a common name, by 
delivering the subpoena to an officer, to a managing or general 
agent, or to any other agent authorized by appointment or by 
law to receive service of process.
    ``(4) The affidavit of the person serving the subpoena 
entered on a true copy thereof by the person serving it shall 
be proof of service.
    ``(c)(1) In the case of contumacy by or refusal to obey a 
subpoena issued to any person, the Attorney General may invoke 
the aid of any court of the United States within the 
jurisdiction of which the investigation is carried on or of 
which the subpoenaed person is an inhabitant, or in which such 
person carries on business or may be found, to compel 
compliance with the subpoena.
    ``(2) The court may issue an order requiring the subpoenaed 
person to appear before the Attorney General to produce 
records, if so ordered, or to give testimony required under 
subsection (a)(1)(B).
    ``(3) Any failure to obey the order of the court may be 
punished by the court as a contempt thereof.
    ``(4) All process in any such case may be served in any 
judicial district in which such person may be found.
    ``(d) Notwithstanding any Federal, State, or local law, any 
person, including officers, agents, and employees, receiving a 
subpoena under this section, who complies in good faith with 
the subpoena and thus produces the materials sought, shall not 
be liable in any court of any State or the United States to any 
customer or other person for such production or for 
nondisclosure of that production to the customer.
    ``(e)(1) Health information about an individual that is 
disclosed under this section may not be used in, or disclosed 
to any person for use in, any administrative, civil, or 
criminal action or investigation directed against the 
individual who is the subject of the information unless the 
action or investigation arises out of and is directly related 
to receipt of health care or payment for health care or action 
involving a fraudulent claim related to health; or if 
authorized by an appropriate order of a court of competent 
jurisdiction, granted after application showing good cause 
therefore.
    ``(2) In assessing good cause, the court shall weigh the 
public interest and the need for disclosure against the injury 
to the patient, to the physician-patient relationship, and to 
the treatment services.
    ``(3) Upon the granting of such order, the court, in 
determining the extent to which any disclosure of all or any 
part of any record is necessary, shall impose appropriate 
safeguards against unauthorized disclosure.
    ``(f) As used in this section the term `Federal health care 
program' has the same meaning given such term in section 
1128B(f) of the Social Security Act.''.
    (b) Clerical Amendment.--The table of sections for chapter 
223 of title 18, United States Code, is amended by inserting 
after the item relating to section 3405 the following new item:

``Sec. 3486. Authorized investigative demand procedures''.

    (c) Conforming Amendment.--Section 1510(b)(3)(B) of title 
18, United States Code, is amended by inserting ``or a 
Department of Justice subpoena (issued under section 3486),'' 
after ``subpoena''.

            CHAPTER 6--STATE HEALTH CARE FRAUD CONTROL UNITS

SEC. 8151. STATE HEALTH CARE FRAUD CONTROL UNITS.

    (a) Extension of Concurrent Authority To Investigate and 
Prosecute Fraud in Other Federal Programs.--Paragraph (3) of 
section 2134(b), as added by section 7001 of this Act, is 
amended--
            (1) by inserting ``(A)'' after ``in connection 
        with''; and
            (2) by striking ``plan.'' and inserting ``plan; and 
        (B) upon the approval of the relevant Federal agency 
        and the chief executive officer of the State or such 
        officer's designee, any aspect of the provision of 
        health care services and activities of providers of 
        such services under any Federal health care program (as 
        defined in section 1128B(f)(1)).''.
    (b) Extension of Authority To Investigate and Prosecute 
Patient Abuse in Non-MediGrant Board and Care Facilities.--
Paragraph (4) of section 2134(b), as added by section 7001 of 
this Act, is amended to read as follows:
            ``(4)(A) The entity has--
                    ``(i) procedures for reviewing complaints 
                of abuse or neglect of patients in health care 
                facilities which receive payments under the 
                MediGrant plan funded under this title;
                    ``(ii) at the option of the entity, 
                procedures for reviewing complaints of abuse or 
                neglect of patients residing in board and care 
                facilities; and
                    ``(iii) where appropriate, procedures for 
                acting upon such complaints under the criminal 
                laws of the State or for referring such 
                complaints to other State agencies for action.
            ``(B) For purposes of this paragraph, the term 
        `board and care facility' means a residential setting 
        which receives payment from or on behalf of two or more 
        unrelated adults who reside in such facility, and for 
        whom one or both of the following is provided:
                    ``(i) Nursing care services provided by, or 
                under the supervision of, a registered nurse, 
                licensed practical nurse, or licensed nursing 
                assistant.
                    ``(ii) Personal care services that assist 
                residents with the activities of daily living, 
                including personal hygiene, dressing, bathing, 
                eating, toileting, ambulation, transfer, 
                positioning, self-medication, body care, travel 
                to medical services, essential shopping, meal 
                preparation, laundry, and housework.''.

                     Subtitle C--Regulatory Relief

SEC. 8201. REPEAL OF PHYSICIAN OWNERSHIP REFERRAL PROHIBITIONS BASED ON 
                    COMPENSATION ARRANGEMENTS.

    (a) In General.--Section 1877(a)(2) (42 U.S.C. 
1395nn(a)(2)) is amended by striking ``is--'' and all that 
follows through ``equity,'' and inserting the following: ``is 
(except as provided in subsection (c)) an ownership or 
investment interest in the entity through equity,''.
    (b) Conforming Amendments.--Section 1877 (42 U.S.C. 1395nn) 
is amended as follows:
            (1) In subsection (b)--
                    (A) in the heading, by striking ``to Both 
                Ownership and Compensation Arrangement 
                Prohibitions'' and inserting ``Where Financial 
                Relationship Exists''; and
                    (B) by redesignating paragraph (4) as 
                paragraph (7).
            (2) In subsection (c)--
                    (A) by amending the heading to read as 
                follows: ``Exception for Ownership or 
                Investment Interest in Publicly Traded 
                Securities and Mutual Funds''; and
                    (B) in the matter preceding paragraph (1), 
                by striking ``subsection (a)(2)(A)'' and 
                inserting ``subsection (a)(2)''.
            (3) In subsection (d)--
                    (A) by striking the matter preceding 
                paragraph (1);
                    (B) in paragraph (3), by striking 
                ``paragraph (1)'' and inserting ``paragraph 
                (4)''; and
                    (C) by redesignating paragraphs (1), (2), 
                and (3) as paragraphs (4), (5), and (6), and by 
                transferring and inserting such paragraphs 
                after paragraph (3) of subsection (b).
            (4) By striking subsection (e).
            (5) In subsection (f)(2)--
                    (A) in the matter preceding paragraph (1), 
                by striking ``ownership, investment, and 
                compensation'' and inserting ``ownership and 
                investment'';
                    (B) in paragraph (2), by striking 
                ``subsection (a)(2)(A)'' and all that follows 
                through ``subsection (a)(2)(B)),'' and 
                inserting ``subsection (a)(2),''; and
                    (C) in paragraph (2), by striking ``or who 
                have such a compensation relationship with the 
                entity''.
            (6) In subsection (h)--
                    (A) by striking paragraphs (1), (2), and 
                (3);
                    (B) in paragraph (4)(A), by striking 
                clauses (iv) and (vi);
                    (C) in paragraph (4)(B), by striking 
                ``rules.--'' and all that follows through 
                ``(ii) Faculty'' and inserting ``rules for 
                faculty''; and
                    (D) by adding at the end of paragraph (4) 
                the following new subparagraph:
                    ``(C) Member of a group.--A physician is a 
                `member' of a group if the physician is an 
                owner or a bona fide employee, or both, of the 
                group.''.

SEC. 8202. REVISION OF DESIGNATED HEALTH SERVICES SUBJECT TO OWNERSHIP 
                    REFERRAL PROHIBITION.

    (a) In General.--Section 1877(h)(6) (42 U.S.C. 
1395nn(h)(6)) is amended by striking subparagraphs (B) through 
(K) and inserting the following:
                    ``(B) Parenteral and enteral nutrients, 
                equipment, and supplies.
                    ``(C) Radiology services, including 
                magnetic resonance imaging, computerized 
                tomography, and ultrasound services.
                    ``(D) Outpatient physical or occupational 
                therapy services.''.
    (b) Conforming Amendments.--
            (1) Section 1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is 
        amended in the matter preceding subparagraph (A) by 
        striking ``services'' and all that follows through 
        ``supplies)--'' and inserting ``services--''.
            (2) Section 1877(h)(5)(C) (42 U.S.C. 
        1395nn(h)(5)(C)) is amended--
                    (A) by striking ``, a request by a 
                radiologist for diagnostic radiology services, 
                and a request by a radiation oncologist for 
                radiation therapy,'' and inserting ``and a 
                request by a radiologist for magnetic resonance 
                imaging or for computerized tomography'', and
                    (B) by striking ``radiologist, or radiation 
                oncologist'' and inserting ``or radiologist''.

SEC. 8203. DELAY IN IMPLEMENTATION OF 1993 OWNERSHIP REFERRAL CHANGES 
                    UNTIL PROMULGATION OF REGULATIONS.

    (a) In General.--Section 13562(b) of OBRA-1993 (42 U.S.C. 
1395nn note) is amended--
            (1) in paragraph (1), by striking ``paragraph (2)'' 
        and inserting ``paragraphs (2) and (3)''; and
            (2) by adding at the end the following new 
        paragraph:
            ``(3) Promulgation of regulations.--Notwithstanding 
        paragraphs (1) and (2), the amendments made by this 
        section shall not apply to any referrals made before 
        the effective date of final regulations promulgated by 
        the Secretary of Health and Human Services to carry out 
        such amendments.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall take effect as if included in the enactment of OBRA-1993.

SEC. 8204. EXCEPTIONS TO OWNERSHIP REFERRAL PROHIBITIONS.

    (a) Revisions to Exception for In-office Ancillary 
Services.--
            (1) Repeal of site-of-service requirement.--Section 
        1877 (42 U.S.C. 1395nn) is amended--
                    (A) by amending subparagraph (A) of 
                subsection (b)(2) to read as follows:
                    ``(A) that are furnished personally by the 
                referring physician, personally by a physician 
                who is a member of the same group practice as 
                the referring physician, or personally by 
                individuals who are under the general 
                supervision of the physician or of another 
                physician in the group practice, and'', and
                    (B) by adding at the end of subsection (h) 
                the following new paragraph:
            ``(7) General supervision.--An individual is 
        considered to be under the `general supervision' of a 
        physician if the physician (or group practice of which 
        the physician is a member) is legally responsible for 
        the services performed by the individual and for 
        ensuring that the individual meets licensure and 
        certification requirements, if any, applicable under 
        other provisions of law, regardless of whether or not 
        the physician is physically present when the individual 
        furnishes an item or service.''.
            (2) Clarification of treatment of physician owners 
        of group practice.--Section 1877(b)(2)(B) (42 U.S.C. 
        1395nn(b)(2)(B)) is amended by striking ``physician or 
        such group practice'' and inserting ``physician, such 
        group practice, or the physician owners of such group 
        practice''.
            (3) Conforming amendment.--Section 1877(b)(2) (42 
        U.S.C. 1395nn(b)(2)) is amended by amending the heading 
        to read as follows: ``Ancillary services furnished 
        personally or through group practice.--''.
    (b) Clarification of Exception for Services Furnished in a 
Rural Area.--Paragraph (5) of section 1877(b) (42 U.S.C. 
1395nn(b)), as transferred by section 8201(b)(3)(C), is amended 
by striking ``substantially all'' and inserting ``not less than 
75 percent''.
    (c) Revision of Exception for Certain Managed Care 
Arrangements.--Section 1877(b)(3) (42 U.S.C. 1395nn(b)(3)) is 
amended--
            (1) in the heading by inserting ``managed care 
        arrangements'' after ``Prepaid plans'';
            (2) in the matter preceding subparagraph (A), by 
        striking ``organization--'' and inserting 
        ``organization, directly or through contractual 
        arrangements with other entities, to individuals 
        enrolled with the organization--'';
            (3) in subparagraph (A), by inserting ``or part C'' 
        after ``section 1876'';
            (4) by striking ``or'' at the end of subparagraph 
        (C);
            (5) by striking the period at the end of 
        subparagraph (D) and inserting a comma; and
            (6) by adding at the end the following new 
        subparagraphs:
                    ``(E) with a contract with a State to 
                provide services under the State plan under 
                title XIX (in accordance with section 1903(m)) 
                or a State MediGrant plan under title XXI; or
                    ``(F) which is a MedicarePlus organization 
                under part C or which provides or arranges for 
                the provision of health care items or services 
                pursuant to a written agreement between the 
                organization and an individual or entity if the 
                written agreement places the individual or 
                entity at substantial financial risk for the 
                cost or utilization of the items or services 
                which the individual or entity is obligated to 
                provide, whether through a withhold, 
                capitation, incentive pool, per diem payment, 
                or any other similar risk arrangement which 
                places the individual or entity at substantial 
                financial risk.''.
    (d) New Exception for Shared Facility Services.--
            (1) In general.--Section 1877(b) (42 U.S.C. 
        1395nn(b)), as amended by section 8201(b)(3)(C), is 
        amended--
                    (A) by redesignating paragraphs (4) through 
                (7) as paragraphs (5) through (8); and
                    (B) by inserting after paragraph (3) the 
                following new paragraph:
            ``(4) Shared facility services.--In the case of a 
        designated health service consisting of a shared 
        facility service of a shared facility--
                    ``(A) that is furnished--
                            ``(i) personally by the referring 
                        physician who is a shared facility 
                        physician or personally by an 
                        individual directly employed or under 
                        the general supervision of such a 
                        physician,
                            ``(ii) by a shared facility in a 
                        building in which the referring 
                        physician furnishes substantially all 
                        of the services of the physician that 
                        are unrelated to the furnishing of 
                        shared facility services, and
                            ``(iii) to a patient of a shared 
                        facility physician; and
                    ``(B) that is billed by the referring 
                physician or a group practice of which the 
                physician is a member.''.
            (2) Definitions.--Section 1877(h) (42 U.S.C. 
        1395nn(h)), as amended by section 8201(b)(6), is 
        amended by inserting before paragraph (4) the following 
        new paragraph:
            ``(1) Shared facility related definitions.--
                    ``(A) Shared facility service.--The term 
                `shared facility service' means, with respect 
                to a shared facility, a designated health 
                service furnished by the facility to patients 
                of shared facility physicians.
                    ``(B) Shared facility.--The term `shared 
                facility' means an entity that furnishes shared 
                facility services under a shared facility 
                arrangement.
                    ``(C) Shared facility physician.--The term 
                `shared facility physician' means, with respect 
                to a shared facility, a physician (or a group 
                practice of which the physician is a member) 
                who has a financial relationship under a shared 
                facility arrangement with the facility.
                    ``(D) Shared facility arrangement.--The 
                term `shared facility arrangement' means, with 
                respect to the provision of shared facility 
                services in a building, a financial 
                arrangement--
                            ``(i) which is only between 
                        physicians who are providing services 
                        (unrelated to shared facility services) 
                        in the same building,
                            ``(ii) in which the overhead 
                        expenses of the facility are shared, in 
                        accordance with methods previously 
                        determined by the physicians in the 
                        arrangement, among the physicians in 
                        the arrangement, and
                            ``(iii) which, in the case of a 
                        corporation, is wholly owned and 
                        controlled by shared facility 
                        physicians.''.
    (e) New Exception for Services Furnished in Communities 
With No Alternative Providers.--Section 1877(b) (42 U.S.C. 
1395nn(b)), as amended by section 8201(b)(3)(C) and subsection 
(d)(1), is amended--
            (1) by redesignating paragraphs (5) through (8) as 
        paragraphs (6) through (9); and
            (2) by inserting after paragraph (4) the following 
        new paragraph:
            ``(5) No alternative providers in area.--In the 
        case of a designated health service furnished in any 
        area with respect to which the Secretary determines 
        that individuals residing in the area do not have 
        reasonable access to such a designated health service 
        for which subsection (a)(1) does not apply.''.
    (f) New Exception for Services Furnished in Ambulatory 
Surgical Centers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
amended by section 8201(b)(3)(C), subsection (d)(1), and 
subsection (e)(1), is amended--
            (1) by redesignating paragraphs (6) through (9) as 
        paragraphs (7) through (10); and
            (2) by inserting after paragraph (5) the following 
        new paragraph:
            ``(6) Services furnished in ambulatory surgical 
        centers.--In the case of a designated health service 
        furnished in an ambulatory surgical center described in 
        section 1832(a)(2)(F)(i).''.
    (g) New Exception for Services Furnished in Renal Dialysis 
Facilities.--Section 1877(b) (42 U.S.C. 1395nn(b)), as amended 
by section 8201(b)(3)(C), subsection (d)(1), subsection (e)(1), 
and subsection (f), is amended--
            (1) by redesignating paragraphs (7) through (10) as 
        paragraphs (8) through (11); and
            (2) by inserting after paragraph (6) the following 
        new paragraph:
            ``(7) Services furnished in renal dialysis 
        facilities.--In the case of a designated health service 
        furnished in a renal dialysis facility under section 
        1881.''.
    (h) New Exception for Services Furnished in a Hospice.--
Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by section 
8201(b)(3)(C), subsection (d)(1), subsection (e)(1), subsection 
(f), and subsection (g), is amended--
            (1) by redesignating paragraphs (8) through (11) as 
        paragraphs (9) through (12); and
            (2) by inserting after paragraph (7) the following 
        new paragraph:
            ``(8) Services furnished by a hospice program.--In 
        the case of a designated health service furnished by a 
        hospice program under section 1861(dd)(2).''.
    (i) New Exception for Services Furnished in a Comprehensive 
Outpatient Rehabilitation Facility.--Section 1877(b) (42 U.S.C. 
1395nn(b)), as amended by section 8201(b)(3)(C), subsection 
(d)(1), subsection (e)(1), subsection (f), subsection (g), and 
subsection (h), is amended--
            (1) by redesignating paragraphs (9) through (12) as 
        paragraphs (10) through (13); and
            (2) by inserting after paragraph (8) the following 
        new paragraph:
            ``(9) Services furnished in a comprehensive 
        outpatient rehabilitation facility.--In the case of a 
        designated health service furnished in a comprehensive 
        outpatient rehabilitation facility (as defined in 
        section 1861(cc)(2)).''.
    (j) Definition of Referral.--Section 1877(h)(5)(A) (42 
U.S.C. 1395nn(h)(5)(A)) is amended--
            (1) by striking ``an item or service'' and 
        inserting ``a designated health service'', and
            (2) by striking ``the item or service'' and 
        inserting ``the designated health service''.

SEC. 8205. EFFECTIVE DATE.

    Except as provided in section 8203(b), the amendments made 
by this subtitle shall apply to referrals made on or after the 
date of the enactment of this Act, regardless of whether or not 
regulations are promulgated to carry out such amendments.

Subtitle D--Modification in Payment Policies Regarding Graduate Medical 
                               Education

SEC. 8301. INDIRECT MEDICAL EDUCATION PAYMENTS.

      (a) Multiyear Transition Regarding Percentages; 6.7 for 
1996 to 5.0 for 2001 and Afterwards.--Section 1886(D)(5)(B)(ii) 
(42 U.S.C. 1395ww(d)(5)(B)(ii)) us amended to read as follows:
            ``(ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor is equal to c  
        (((1+r) to the nth power)-1), where `r' is the ratio of 
        the hospital's full-time equivalent interns and 
        residents to beds and `n' equal .405. For discharges 
        occurring on or after--
                    ``(I) May 1, 1986, and before October 1, 
                1995, `c' is equal to 1.89;
                    ``(II) October 1, 1995, and before October 
                1, 1996, `c' is equal to 1.654;
                    ``(III) October 1, 1996, and before October 
                1, 1998, `c' is equal to 1.481;
                    ``(IV) October 1, 1998, and before October 
                1, 1999, `c' is equal to 1.383;
                    ``(V) October 1, 1999, and before October 
                1, 2000, `c' is equal to 1.309; and
                    ``(VI) October 1, 2000, `c' is equal to 
                1.235.''.
      (b) No Restandardization of Payment Amounts Required.--
Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is 
amended by striking ``of 1985'' and inserting ``of 1985, but 
not taking into account the amendments made by section 8301(a) 
of Medicate Preservation Act of 1995''.

SEC. 8302. DIRECT GRADUATE MEDICAL EDUCATION.

      (a) Weighting Factors for Residents.--
            (1) In general.--Section 1886(h)(4)(C)(iv) (42 
        U.S.C. 1395ww(h)(4)(C)(iv)) is amended by striking 
        ``50'' and inserting ``0.25''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply with respect to cost 
        reporting periods beginning on or after October 1, 
        1997.
      (b) Limitation on Aggregate Number of Full-Time 
Residents.--
      Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by 
adding at the end the following new subparagraph:
            ``(F) Adjustments for certain fiscal years in 
        payments for programs in allopathic and osteopathic 
        medicine.--
                    ``(i) In general.--With respect to a cost 
                reporting period, the Secretary shall in 
                accordance with clause (ii) adjust the payments 
                for approved medical residency training 
                programs in the fields of allopathic medicine 
                and osteopathic medicine if, in the fiscal year 
                in which such cost reporting period begins, the 
                number of full-time-equivalent residents 
                determined under this paragraph with respect to 
                all such programs exceeds the number of full-
                time-equivalent residents determined with 
                respect to all such programs as of August 1, 
                1995.
                    ``(ii) Adjustment described.--Adjustments 
                under clause (i) shall be made with respect to 
                cost reporting periods such that the total 
                amount of payments under this subsection for 
                the fiscal year involved does not exceed the 
                amount that would have been paid under this 
                subsection for such year if the number of full-
                time-equivalent residents determined under 
                clause (i) for the year had not exceeded the 
                number of full-time-equivalent residents with 
                respect to all such programs as of August 1, 
                1995.
                    ``(iii) Hold harmless.--The Secretary may 
                provide that approved medical residency 
                training programs that reduced or did not 
                expand the number of full-time-equivalent 
                residents determined under this paragraph for a 
                cost reporting period shall not be subject to 
                the adjustment described in clause (i).
                    ``(iv) Effective date.--The adjustment 
                described in clause (i) shall apply with 
                respect to cost reporting periods beginning on 
                or after October 1, 1995, and on or before 
                September 30, 2002.''.

               Subtitle E--Provisions Relating to Part A

            CHAPTER 1--GENERAL PROVISIONS RELATING TO PART A

SEC. 8401. PPS HOSPITAL PAYMENT UPDATE.

    Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is 
amended by striking subclauses (XI), (XII), and (XIII) and 
inserting the following new subclauses:
            ``(XI) for fiscal year 1996 for hospitals in all 
        areas, the market basket percentage increase minus 2.5 
        percentage points,
            ``(XII) for fiscal years 1997 through 2002 for 
        hospitals in all areas, the market basket percentage 
        increase minus 2.0 percentage points, and
            ``(XIII) for fiscal year 2003 and each subsequent 
        fiscal year for hospitals in all areas, the market 
        basket percentage increase.''.

SEC. 8402. PPS-EXEMPT HOSPITAL PAYMENTS.

    (a) Update.--
            (1) In general.--Section 1886(b)(3)(B)(ii) (42 
        U.S.C. 1395ww(b)(3)(B)(ii)) is amended--
                    (A) in subclause (V)--
                            (i) by striking ``1997'' and 
                        inserting ``1995'', and
                            (ii) by striking ``and'' at the 
                        end,
                    (B) by redesignating subclause (VI) as 
                subclause (VII); and
                    (C) by inserting after subclause (V), the 
                following subclause:
            ``(VI) except as provided in clause (vi), for 
        fiscal years 1996 through 2002, the market basket 
        percentage increase minus the applicable reduction (as 
        defined in clause (vii)(II)); and''.
            (2) Special rules for certain hospitals.--Section 
        1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B))) is amended 
        by adding at the end the following new clause:
    ``(vi) For purposes of clause (ii)(VI), the `applicable 
percentage increase' for a hospital--
            ``(I) for a fiscal year for which the hospital's 
        update adjustment percentage (as defined in clause 
        (vii)(I)) is at least 10 percent, is the market basket 
        percentage increase, and
            ``(II) for which 150 percent of the hospital's 
        allowable operating costs of inpatient hospital 
        services recognized under this title for the most 
        recent cost reporting period for which information is 
        available is less than the hospital's target amount (as 
        determined under subparagraph (A)) for such cost 
        reporting period, is 0 percent.''.
            (3) Definitions.--Section 1886(b)(3)(B) (42 U.S.C. 
        1395ww(b)(3)(B)), as amended by paragraph (2), is 
        amended by adding at the end the following new clause:
    ``(vii) For purposes of clauses (ii)(VI) and (vi)--
            ``(I) a hospital's `update adjustment percentage' 
        for a fiscal year is the percentage by which the 
        hospital's allowable operating costs of inpatient 
        hospital services recognized under this title for the 
        most recent cost reporting period for which information 
        is available exceeds the hospital's target amount (as 
        determined under subparagraph (A)) for such cost 
        reporting period, and
            ``(II) the `applicable reduction' with respect to a 
        hospital for a fiscal year is 2.5 percentage points, 
        reduced by 0.25 percentage point for each percentage 
        point (if any) the hospital's update adjustment 
        percentage for the fiscal year is less than 10 
        percentage points.''.
            (3) Effect of payment reduction on exceptions and 
        adjustments.--Section 1886(b)(4)(A)(ii) (42 U.S.C. 
        1395ww(b)(4)(A)(ii)) is amended by striking ``paragraph 
        (3)(B)(ii)(V)'' and inserting ``subclause (V) or (VI) 
        of paragraph (3)(B)(ii)''.
    (b) Target Amounts for Rehabilitation Hospitals and Long-
Term Care Hospitals.--Section 1886(b)(3) (42 U.S.C. 
1395ww(b)(3)) is amended--
            (1) in subparagraph (A), in the matter preceding 
        clause (i), by striking ``and (E)'' and inserting 
        ``(E), (F), and (G)''; and
            (2) by adding at the end the following new 
        subparagraphs:
    ``(F) In the case of a rehabilitation hospital (or unit 
thereof) (as described in clause (ii) of subsection (d)(1)(B)), 
for cost reporting periods beginning on or after October 1, 
1995,--
            ``(i) in the case of a hospital which first 
        receives payments under this section before October 1, 
        1995, the target amount determined under subparagraph 
        (A) for such hospital or unit for a cost reporting 
        period beginning during a fiscal year shall not be less 
        than 50 percent of the national mean of the target 
        amounts determined under this paragraph for all such 
        hospitals for cost reporting periods beginning during 
        such fiscal year (determined without regard to this 
        subparagraph); and
            ``(ii) in the case of a hospital which first 
        receives payments under this section on or after 
        October 1, 1995, such target amount may not be greater 
        than 130 percent of the national mean of the target 
        amounts for such hospitals (and units thereof) for cost 
        reporting periods beginning during fiscal year 1991.
    ``(G) In the case of a hospital which has an average 
inpatient length of stay of greater than 25 days (as described 
in clause (iv) of subsection (d)(1)(B)), for cost reporting 
periods beginning on or after October 1, 1995--
            ``(i) in the case of a hospital which first 
        receives payments under this section as a hospital that 
        is not a subsection (d) hospital or a subsection (d) 
        Puerto Rico hospital before October 1, 1995, the target 
        amount determined under subparagraph (A) for such 
        hospital for a cost reporting period beginning during a 
        fiscal year shall not be less than 50 percent of the 
        national mean of the target amounts determined under 
        such subparagraph for all such hospitals for cost 
        reporting periods beginning during such fiscal year 
        (determined without regard to this subparagraph); and
            ``(ii) in the case of any other hospital which 
        first receives payment under this section as a hospital 
        described in clause (i) on or after October 1, 1995, 
        such target amount may not be greater than 130 percent 
        (or, if the Secretary determines it is appropriate, 
        such alternative percentage based on case-mix and DRG 
        category) of such national mean of the target amounts 
        for such hospitals for cost reporting periods beginning 
        during fiscal year 1991.''.
    (c) Rebasing for Certain Long-Term Care Hospitals.--
            (1) In general.--Section 1886(b)(3) (42 U.S.C. 
        1395ww(b)(3)), as amended by subsection (b), is 
        amended--
                    (A) in subparagraph (A) in the matter 
                preceding clause (i), by striking ``and (G)'' 
                and inserting ``(G), and (H)'';
                    (B) in subparagraph (B)(ii), by striking 
                ``(A) and (E)'' and inserting ``(A), (E), and 
                (G)''; and
                    (C) by adding at the end the following new 
                subparagraph:
    ``(H)(i) In the case of a qualified long-term care hospital 
(as defined in clause (ii)), the term `target amount' means--
            ``(I) with respect to the first 12-month cost 
        reporting period in which this subparagraph is applied 
        to the hospital, the allowable operating costs of 
        inpatient hospital services (as defined in subsection 
        (a)(4)) recognized under this title for the hospital 
        for the 12-month cost reporting period beginning during 
        fiscal year 1994; or
            ``(II) with respect to a later cost reporting 
        period, the target amount for the preceding cost 
        reporting period, increased by the applicable 
        percentage increase under subparagraph (B)(ii) for that 
        later cost reporting period.
    ``(ii) In clause (i), a `qualified long-term care hospital' 
means, with respect to a cost reporting period, a hospital 
described in clause (iv) of subsection (d)(1)(B) during fiscal 
year 1995 for which the hospital's allowable operating costs of 
inpatient hospital services recognized under this title for 
each of the two most recent previous 12-month cost reporting 
periods exceeded 115 percent of the hospital's target amount 
determined under this paragraph for such cost reporting 
periods, if the hospital has a disproportionate patient 
percentage during such cost reporting period (as determined by 
the Secretary under subsection (d)(5)(F)(vi) as if the hospital 
were a subsection (d) hospital) of at least 70 percent.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to discharges occurring 
        during cost reporting periods beginning on or after 
        October 1, 1995.
    (d) Treatment of Certain Long-Term Care Hospitals Located 
Within Other Hospitals.--
            (1) In general.--Section 1886(d)(1)(B) (42 U.S.C. 
        1395ww(d)(1)(B)) is amended in the matter following 
        clause (v) by striking the period and inserting the 
        following: ``, or a hospital classified by the 
        Secretary as a long-term care hospital on or before 
        September 30, 1995, and located in the same building 
        as, or on the same campus as, another hospital.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to discharges occurring on or 
        after October 1, 1995.
    (e) Capital Payments for PPS-Exempt Hospitals.--Section 
1886(g) (42 U.S.C. 1395ww(g)) is amended by adding at the end 
the following new paragraph:
    ``(4) In determining the amount of the payments that may be 
made under this title with respect to all the capital-related 
costs of inpatient hospital services furnished during fiscal 
years 1996 through 2002 of a hospital which is not a subsection 
(d) hospital or a subsection (d) Puerto Rico hospital, the 
Secretary shall reduce the amounts of such payments otherwise 
determined under this title by 10 percent.''.

SEC. 8403. REDUCTIONS IN DISPROPORTIONATE SHARE PAYMENT ADJUSTMENTS.

    (a) In General.--Section 1886(d)(5)(F) (42 U.S.C. 
1395ww(d)(5)(F)) is amended--
            (1) in clause (ii), by striking ``The amount'' and 
        inserting ``Subject to clause (ix), the amount''; and
            (2) by adding at the end the following new clause:
    ``(ix) In the case of discharges occurring on or after 
October 1, 1995, the additional payment amount otherwise 
determined under clause (ii) shall be reduced as follows:
            ``(I) For discharges occurring on or after October 
        1, 1995, and on or before September 30, 1996, by 5 
        percent.
            ``(II) For discharges occurring on or after October 
        1, 1996, and on or before September 30, 1997, by 10 
        percent.
            ``(III) For discharges occurring on or after 
        October 1, 1997, and on or before September 30, 1998, 
        by 17.5 percent.
            ``(IV) For discharges occurring on or after October 
        1, 1998, and on or before September 30, 1999, by 25 
        percent.
            ``(V) For discharges occurring on or after October 
        1, 1999, and on or before September 30, 2002, by 30 
        percent.''.
    (b) Conforming Amendment Relating to Determination of 
Standardized Amounts.--Section 1886(d)(2)(C)(iv) (42 U.S.C. 
1395ww(d)(2)(C)(iv)) is amended by striking the period at the 
end and inserting the following: ``, and the Secretary shall 
not take into account any reductions in the amount of such 
additional payments resulting from the amendments made by 
section 8403(a) of the Medicare Preservation Act of 1995.''.
    (c) Effective Date.--The amendments made by subsections (a) 
and (b) shall apply to discharges occurring on or after October 
1, 1995.

SEC. 8404. CAPITAL PAYMENTS FOR PPS HOSPITALS.

    (a) Reduction in Payments.--
            (1) Continuation of current reductions.--Section 
        1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended in 
        the second sentence--
                    (A) by striking ``through 1995'' and 
                inserting ``through 2002''; and
                    (B) by inserting after ``10 percent 
                reduction'' the following: ``(or a 15 percent 
                reduction in the case of payments during fiscal 
                years 1996 through 2002)''.
            (2) Reduction in base payment rates.--Section 
        1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended by 
        adding at the end the following new sentence: ``In 
        addition to the reduction described in the preceding 
        sentence, for discharges occurring after September 30, 
        1995, the Secretary shall reduce by 7.47 percent the 
        unadjusted standard Federal capital payment rate (as 
        described in 42 CFR 412.308(c), as in effect on the 
        date of the enactment of the Medicare Preservation Act 
        of 1995) and shall reduce by 8.27 percent the 
        unadjusted hospital-specific rate (as described in 42 
        CFR 412.328(e)(1), as in effect on such date of 
        enactment).''.
    (b) Hospital-Specific Adjustment for Capital-Related Tax 
Costs.--Section 1886(g)(1) (42 U.S.C. 1395ww(g)(1)) is 
amended--
            (1) by redesignating subparagraph (C) as 
        subparagraph (D), and
            (2) by inserting after subparagraph (B) the 
        following subparagraph:
                    ``(C)(i) For discharges occurring after 
                September 30, 1995, such system shall provide 
                for an adjustment in an amount equal to the 
                amount determined under clause (iv) for 
                capital-related tax costs for each hospital 
                that is eligible for such adjustment.
                    ``(ii) Subject to clause (iii), a hospital 
                is eligible for an adjustment under this 
                subparagraph, with respect to discharges 
                occurring in a fiscal year, if the hospital--
                            ``(I) is a hospital that may 
                        otherwise receive payments under this 
                        subsection,
                            ``(II) is not a public hospital, 
                        and
                            ``(III) incurs capital-related tax 
                        costs for the fiscal year.
                    ``(iii)(I) In the case of a hospital that 
                first incurs capital-related tax costs in a 
                fiscal year after fiscal year 1992 because of a 
                change from nonproprietary to proprietary 
                status or because the hospital commenced 
                operation after such fiscal year, the first 
                fiscal year for which the hospital shall be 
                eligible for such adjustment is the second full 
                fiscal year following the fiscal year in which 
                the hospital first incurs such costs.
                    ``(II) In the case of a hospital that first 
                incurs capital-related tax costs in a fiscal 
                year after fiscal year 1992 because of a change 
                in State or local tax laws, the first fiscal 
                year for which the hospital shall be eligible 
                for such adjustment is the fourth full fiscal 
                year following the fiscal year in which the 
                hospital first incurs such costs.
                    ``(iv) The per discharge adjustment under 
                this clause shall be equal to the hospital-
                specific capital-related tax costs per 
                discharge of a hospital for fiscal year 1992 
                (or, in the case of a hospital that first 
                incurs capital-related tax costs for a fiscal 
                year after fiscal year 1992, for the first full 
                fiscal year for which such costs are incurred), 
                updated to the fiscal year to which the 
                adjustment applies. Such per discharge 
                adjustment shall be added to the Federal 
                capital rate, after such rate has been adjusted 
                as described in 42 CFR 412.312 (as in effect on 
                the date of the enactment of the Medicare 
                Preservation Act of 1995), and before such rate 
                is multiplied by the applicable Federal rate 
                percentage.
                    ``(v) For purposes of this subparagraph, 
                capital-related tax costs include--
                            ``(I) the costs of taxes on land 
                        and depreciable assets owned by a 
                        hospital and used for patient care,
                            ``(II) payments in lieu of such 
                        taxes (made by hospitals that are 
                        exempt from taxation), and
                            ``(III) the costs of taxes paid by 
                        a hospital as lessee of land, 
                        buildings, or fixed equipment from a 
                        lessor that is unrelated to the 
                        hospital under the terms of a lease 
                        that requires the lessee to pay all 
                        expenses (including mortgage, interest, 
                        and amortization) and leaves the lessor 
                        with an amount free of all claims 
                        (sometimes referred to as a `net net 
                        net' or `triple net' lease).
                In determining the adjustment required under 
                clause (i), the Secretary shall not take into 
                account any capital-related tax costs of a 
                hospital to the extent that such costs are 
                based on tax rates and assessments that exceed 
                those for similar commercial properties.
                    ``(vi) The system shall provide that the 
                Federal capital rate for any fiscal year after 
                September 30, 1995, shall be reduced by a 
                percentage sufficient to ensure that the 
                adjustments required to be paid under clause 
                (i) for a fiscal year neither increase nor 
                decrease the total amount that would have been 
                paid under this system but for the payment of 
                such adjustments for such fiscal year.''.
    (d) Revision of Exceptions Process Under Prospective 
Payment System for Certain Projects.--
            (1) In general.--Section 1886(g)(1) (42 U.S.C. 
        1395ww(g)(1)), as amended by subsection (c), is 
        amended--
                    (A) by redesignating subparagraph (D) as 
                subparagraph (E), and
                    (B) by inserting after subparagraph (C) the 
                following subparagraph:
    ``(D) The exceptions under the system provided by the 
Secretary under subparagraph (B)(iii) shall include the 
provision of exception payments under the special exceptions 
process provided under 42 CFR 412.348(g) (as in effect on 
September 1, 1995), except that the Secretary shall revise such 
process as follows:
            ``(i) A hospital with at least 100 beds which is 
        located in an urban area shall be eligible under such 
        process without regard to its disproportionate patient 
        percentage under subsection (d)(5)(F) or whether it 
        qualifies for additional payment amounts under such 
        subsection.
            ``(ii) The minimum payment level for qualifying 
        hospitals shall be 85 percent.
            ``(iii) A hospital shall be considered to meet the 
        requirement that it completes the project involved no 
        later than the end of the hospital's last cost 
        reporting period beginning after October 1, 2001, if--
                    ``(I) the hospital has obtained a 
                certificate of need for the project approved by 
                the State or a local planning authority by 
                September 1, 1995, and
                    ``(II) by September 1, 1995, the hospital 
                has expended on the project at least $750,000 
                or 10 percent of the estimated cost of the 
                project.
            ``(iv) Offsetting amounts, as described in 42 CFR 
        412.348(g)(8)(ii), shall apply except that subparagraph 
        (B) of such section shall be revised to require that 
        the additional payment that would otherwise be payable 
        for the cost reporting period shall be reduced by the 
        amount (if any) by which the hospital's current year 
        medicare capital payments (excluding, if applicable, 75 
        percent of the hospital's capital-related 
        disproportionate share payments) exceeds its medicare 
        capital costs for such year.''.
            (2) Limit to additional payments.--The amendment 
        made by paragraph (1) shall not result in aggregate 
        additional payments under the special exception process 
        described in section 1886(b)(1)(D) for fiscal years 
        1996 through 2000 in excess of an amount equal to the 
        sum of $50,000,000 per year more than would have been 
        paid in such fiscal years if such amendment had not 
        been enacted.
            (3) Conforming amendment.--Section 
        1886(g)(1)(B)(iii) (42 U.S.C. 1395ww(g)(1)(B)(iii)) is 
        amended by striking ``may provide'' and inserting 
        ``shall provide (in accordance with subparagraph (D)''.

SEC. 8405. REDUCTION IN PAYMENTS TO HOSPITALS FOR ENROLLEES' BAD DEBTS.

    (a) In General.--Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) 
is amended by adding at the end the following new subparagraph:
    ``(T)(i) In determining such reasonable costs for 
hospitals, the amount of bad debts otherwise treated as 
allowable costs which are attributable to the deductibles and 
coinsurance amounts under this title shall be reduced by--
            ``(I) 75 percent for cost reporting periods 
        beginning during fiscal year 1996,
            ``(II) 60 percent for cost reporting periods 
        beginning during fiscal year 1997, and
            ``(III) 50 percent for subsequent cost reporting 
        periods.
    ``(ii) Clause (i) shall not apply with respect to bad debt 
of a hospital described in section 1886(d)(1)(B)(iv) if the 
debt is attributable to uncollectable deductible and 
coinsurance payments owed by individuals enrolled in a State 
plan under title XIX or under the MediGrant program under title 
XXI.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to hospital cost reporting periods beginning on or 
after October 1, 1995.

SEC. 8406. INCREASE IN UPDATE FOR CERTAIN HOSPITALS WITH A HIGH 
                    PROPORTION OF MEDICARE PATIENTS.

    Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended by 
subsections (b) and (c)(1) of section 8402, is amended by 
adding at the end the following new subparagraph:
    ``(I)(i) For purposes of subsection (d), in the case of a 
medicare-dependent hospital described in clause (ii), the 
applicable percentage increase otherwise determined under 
subparagraph (B)(i) shall be increased by--
            ``(I) 0.5 percentage points for discharges 
        occurring during cost reporting periods beginning 
        during fiscal year 1996, and
            ``(II) 0.3 percentage points for discharges 
        occurring during cost reporting periods beginning 
        during fiscal year 1997.
    ``(ii) A hospital described in this clause with respect to 
a cost reporting period is a subsection (d) hospital meeting 
the following requirements:
            ``(I) Not less than 60 percent of the hospital's 
        inpatient days during the most recent cost reporting 
        period for which data is available were attributable to 
        inpatients entitled to benefits under part A.
            ``(II) The hospital does not receive any additional 
        payment amount under subsection (d)(5)(F) (relating to 
        payments for hospitals serving a disproportionate 
        number of low-income patients) with respect to 
        discharges occurring during the fiscal year.
            ``(III) The hospital does not receive any 
        additional payment amount under subsection (d)(5)(B) 
        (relating to payment for the indirect costs of medical 
        education) or subsection (h) (relating to payment for 
        direct medical education costs).
            ``(IV) In the case of a hospital located in a rural 
        area, the hospital has more than 100 beds.''.

           CHAPTER 2--PAYMENTS TO SKILLED NURSING FACILITIES

                Subchapter A--Prospective Payment System

SEC. 8410. PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING FACILITIES.

    Title XVIII (42 U.S.C. 1395 et seq.) is amended by adding 
the following new section after section 1888:


      ``prospective payment system for skilled nursing facilities


    ``Sec. 1889. (a) Establishment of System.--Notwithstanding 
any other provision of this title, the Secretary shall 
establish a prospective payment system under which fixed 
payments for episodes of care shall be made, instead of 
payments determined under section 1861(v), section 1888, or 
section 1888A, to skilled nursing facilities for all extended 
care services furnished during the benefit period established 
under section 1812(a)(2). Such payments shall constitute 
payment for capital costs and all routine and non-routine 
service costs covered under this title that are furnished to 
individuals who are inpatients of skilled nursing facilities 
during such benefit period, except for physicians' services. 
The payment amounts shall vary depending on case-mix, patient 
acuity, and such other factors as the Secretary determines are 
appropriate. The prospective payment system shall apply for 
cost reporting periods (or portions of cost reporting periods) 
beginning on or after October 1, 1997.
    ``(b) 90 Percent of Levels Otherwise In Effect.--The 
Secretary shall establish the prospective payment amounts under 
subsection (a) at levels such that, in the Secretary's 
estimation, the amount of total payments under this title shall 
not exceed 90 percent of the amount of payments that would have 
been made under this title for all routine and non-routine 
services and capital expenditures if this section had not been 
enacted.
    ``(c) Adjustment in Rates to Take Into Account Beneficiary 
Cost-Sharing.--The Secretary shall reduce the prospective 
payment rates established under this section to take into 
account the beneficiary coinsurance amount required under 
section 1813(a)(3).''.

                  Subchapter B--Interim Payment System

SEC. 8411. PAYMENTS FOR ROUTINE SERVICE COSTS.

    (a) Clarification of Definition of Routine Service Costs.--
Section 1888 (42 U.S.C. 1395yy) is amended by adding at the end 
the following new subsection:
    ``(e) For purposes of this section, the `routine service 
costs' of a skilled nursing facility are all costs which are 
attributable to nursing services, room and board, 
administrative costs, other overhead costs, and all other 
ancillary services (including supplies and equipment), 
excluding costs attributable to covered non-routine services 
subject to payment amounts under section 1888A.''.
    (b) Conforming Amendment.--Section 1888 (42 U.S.C. 1395yy) 
is amended in the heading by inserting ``and certain 
ancillary'' after ``service''.

SEC. 8412. COST-EFFECTIVE MANAGEMENT OF COVERED NON-ROUTINE SERVICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) is 
amended by inserting after section 1888 the following new 
section:


``cost-effective management of covered non-routine services of skilled 
                           nursing facilities


    ``Sec. 1888A. (a) Definitions.--For purposes of this 
section:
            ``(1) Covered non-routine services.--The term 
        `covered non-routine services' means post-hospital 
        extended care services consisting of any of the 
        following:
                    ``(A) Physical or occupational therapy or 
                speech-language pathology services, or 
                respiratory therapy, including
        supplies and support services directly related to such 
        services and therapy.
                    ``(B) Prescription drugs.
                    ``(C) Complex medical equipment.
                    ``(D) Intravenous therapy and solutions 
                (including enteral and parenteral nutrients, 
                supplies, and equipment).
                    ``(E) Radiation therapy.
                    ``(F) Diagnostic services, including 
                laboratory, radiology (including computerized 
                tomography services and imaging services), and 
                pulmonary services.
            ``(2) SNF market basket percentage increase.--The 
        term `SNF market basket percentage increase' for a 
        fiscal year means a percentage equal to input price 
        changes in routine service costs for the year under 
        section 1888(a).
            ``(3) Stay.--The term `stay' means, with respect to 
        an individual who is a resident of a skilled nursing 
        facility, a period of continuous days during which the 
        facility provides extended care services for which 
        payment may be made under this title for the individual 
        during the individual's spell of illness.
    ``(b) New Payment Method for Covered Non-Routine Services 
Beginning in Fiscal Year 1996.--
            ``(1) In general.--The payment method established 
        under this section shall apply with respect to covered 
        non-routine services furnished during cost reporting 
        periods (or portions of cost reporting periods) 
        beginning on or after October 1, 1995.
            ``(2) Interim payments.--Subject to subsection (c), 
        a skilled nursing facility shall receive interim 
        payments under this title for covered non-routine 
        services furnished to an individual during cost 
        reporting periods (or portions of cost reporting 
        periods) described in paragraph (1) in an amount equal 
        to the reasonable cost of providing such services in 
        accordance with section 1861(v). The Secretary may 
        adjust such payments if the Secretary determines (on 
        the basis of such estimated information as the 
        Secretary considers appropriate) that payments to the 
        facility under this paragraph for a cost reporting 
        period would substantially exceed the cost reporting 
        period amount determined under subsection (c)(2).
            ``(3) Responsibility of skilled nursing facility to 
        manage billings.--
                    ``(A) Clarification relating to part a 
                billing.--In the case of a covered non-routine 
                service furnished to an individual who (at the 
                time the service is furnished) is a resident of 
                a skilled nursing facility who is entitled to 
                coverage under section 1812(a)(2) for such 
                service, the skilled nursing facility shall 
                submit a claim for payment under this title for 
                such service under part A (without regard to 
                whether or not the item or service was 
                furnished by the facility, by others under 
                arrangement with them made by the facility, 
                under any other contracting or consulting 
                arrangement, or otherwise).
                    ``(B) Part b billing.--In the case of a 
                covered non-routine service other than a 
                portable X-ray or portable electrocardiogram 
                treated as a physician's service for purposes 
                of section 1848(j)(3)) furnished to an 
                individual who (at the time the service is 
                furnished) is a resident of a skilled nursing 
                facility who is not entitled to coverage under 
                section 1812(a)(2) for such service but is 
                entitled to coverage under part B for such 
                service, the skilled nursing facility shall 
                submit a claim for payment under this title for 
                such service under part B (without regard to 
                whether or not the item or service was 
                furnished by the facility, by others under 
                arrangement with them made by the facility, 
                under any other contracting or consulting 
                arrangement, or otherwise). This subparagraph 
                shall not apply to physician's services 
                furnished by a physician (as defined in section 
                1861(r)(1)) to a resident of a skilled nursing 
                facility if such services are not covered non-
                routine services (as defined in section 
                1888A(a)(1)) or services for which routine 
                service costs (as defined in section 1888(e)) 
                are determined.
                    ``(C) Maintaining records on services 
                furnished to residents.--Each skilled nursing 
                facility receiving payments for extended care 
                services under this title shall document on the 
                facility's cost report all covered non-routine 
                services furnished to all residents of the 
                facility to whom the facility provided extended 
                care services for which payment was made under 
                part A or B (including a portable X-ray or 
                portable electrocardiogram treated as a 
                physician's service for purposes of section 
                1848(j)(3)) during a fiscal year (beginning 
                with fiscal year 1996) (without regard to 
                whether or not the services were furnished by 
                the facility, by others under arrangement with 
                them made by the facility, under any other 
                contracting or consulting arrangement, or 
                otherwise).
    ``(c) No Payment in Excess of Product of Per Stay Amount 
and Number of Stays.--
            ``(1) In general.--If a skilled nursing facility 
        has received aggregate payments under subsection (b) 
        for covered non-routine services during a cost 
        reporting period beginning during a fiscal year in 
        excess of an amount equal to the cost reporting period 
        amount determined under paragraph (2), the Secretary 
        shall reduce the payments made to the facility with 
        respect to such services for cost reporting periods 
        beginning during the following fiscal year in an amount 
        equal to such excess. The Secretary shall reduce 
        payments under this subparagraph at such times and in 
        such manner during a fiscal year as the Secretary finds 
        necessary to meet the requirement of this subparagraph.
            ``(2) Cost reporting period amount.--The cost 
        reporting period amount determined under this 
        subparagraph is an amount equal to the product of--
                    ``(A) the per stay amount applicable to the 
                facility under subsection (d) for the period; 
                and
                    ``(B) the number of stays beginning during 
                the period for which payment was made to the 
                facility for such services.
            ``(3) Prospective reduction in payments.--In 
        addition to the process for reducing payments described 
        in paragraph (1), the Secretary may reduce payments 
        made to a facility under this section during a cost 
        reporting period if the Secretary determines (on the 
        basis of such estimated information as the Secretary 
        considers appropriate) that payments to the facility 
        under this section for the period will substantially 
        exceed the cost reporting period amount for the period 
        determined under this paragraph.
    ``(d) Determination of Facility Per Stay Amount.--
            ``(1) Amount for fiscal year 1996.--
                    ``(A) In general.--
                            ``(i) Establishment.--Except as 
                        provided in subparagraph (B) and clause 
                        (ii), the Secretary shall establish a 
                        per stay amount for each nursing 
                        facility for the 12-month cost 
                        reporting period beginning during 
                        fiscal year 1996 that is the facility-
                        specific stay amount for the facility 
                        (as determined under subsection (e)) 
                        for the last 12-month cost reporting 
                        period ending on or before December 31, 
                        1994, increased (in a compounded 
                        manner) by the SNF market basket 
                        percentage increase (as defined in 
                        subsection (a)(2)) for each fiscal year 
                        through fiscal year 1996.
                            ``(ii) Adjustment if implementation 
                        delayed.--If the amount under clause 
                        (i) is not established prior to the 
                        cost reporting period described in 
                        clause (i), the Secretary shall adjust 
                        such amount for stays after such amount 
                        is established in such a manner so as 
                        to recover any amounts in excess of the 
                        amounts which would have been paid for 
                        stays before such date if the amount 
                        had been in effect for such stays.
                    ``(B) Facilities not having 1994 cost 
                reporting period.--In the case of a skilled 
                nursing facility for which payments were not 
                made under this title for covered non-routine 
                services for the last 12-month cost reporting 
                period ending on or before December 31, 1994, 
                the per stay amount for the 12-month cost 
                reporting period beginning during fiscal year 
                1996 shall be the average of all per stay 
                amounts determined under subparagraph (A).
            ``(2) Amount for fiscal year 1997 and subsequent 
        fiscal years.--The per stay amount for a skilled 
        nursing facility for a 12-month cost reporting period 
        beginning during a fiscal year after 1996 is equal to 
        the per stay amount established under this subsection 
        for the 12-month cost reporting period beginning during 
        the preceding fiscal year (without regard to any 
        adjustment under paragraph (1)(A)(ii)), increased by 
        the SNF market basket percentage increase for such 
        subsequent fiscal year minus 2.0 percentage points.
    ``(e) Determination of Facility-Specific Stay Amounts.--The 
`facility-specific stay amount' for a skilled nursing facility 
for a cost reporting period is--
            ``(1) the sum of--
                    ``(A) the amount of payments made to the 
                facility under part A during the period which 
                are attributable to covered non-routine 
                services furnished during a stay; and
                    ``(B) the Secretary's best estimate of the 
                amount of payments made under part B during the 
                period for covered non-routine services 
                furnished to all residents of the facility to 
                whom the facility provided extended care 
                services for which payment was made under part 
                A during the period (without regard to whether 
                or not the services were furnished by the 
                facility, by others under arrangement with them 
                made by the facility under any other 
                contracting or consulting arrangement, or 
                otherwise), as estimated by the Secretary; 
                divided by
            ``(2) the average number of days per stay for all 
        residents of the skilled nursing facility receiving 
        extended care services furnished during the benefit 
        period established under section 1812(a)(2).
    ``(f) Intensive Nursing or Therapy Needs.--
            ``(1) In general.--In applying subsection (b) to 
        covered non-routine services furnished during a stay 
        beginning during a cost reporting period to a resident 
        of a skilled nursing facility who requires intensive 
        nursing or therapy services, the per stay amount for 
        such resident shall be the per stay amount developed 
        under paragraph (2) instead of the per stay amount 
        determined under subsection (d)(1)(A).
            ``(2) Per stay amount for intensive need 
        residents.--Upon the implementation of the payment 
        method established under this section, the Secretary, 
        after consultation with the Medicare Payment Review 
        Commission and skilled nursing facility experts, shall 
        develop and publish a per stay amount for residents of 
        a skilled nursing facility who require intensive 
        nursing or therapy services..
            ``(3) Budget neutrality.--The Secretary shall 
        adjust payments under subsection (b) in a manner that 
        ensures that total payments for covered non-routine 
        services under this section are not greater or less 
        than total payments for such services would have been 
        but for the application of paragraph (1).
    ``(g) Exceptions and Adjustments to Amounts.--
            ``(1) In general.--The Secretary may make 
        exceptions and adjustments to the cost reporting period 
        amounts applicable to a skilled nursing facility under 
        subsection (c)(2) for a cost reporting period, except 
        that the total amount of any additional payments made 
        under this section for covered non-routine services 
        during the cost reporting period as a result of such 
        exceptions and adjustments may not exceed 5 percent of 
        the aggregate payments made to all skilled nursing 
        facilities for covered non-routine services during the 
        cost reporting period (determined without regard to 
        this paragraph).
            ``(2) Budget neutrality.--The Secretary shall 
        adjust payments under subsection (b) in a manner that 
        ensures that total payments for covered non-routine 
        services under this section are not greater or less 
        than total payments for such services would have been 
        but for the application of paragraph (1).
    ``(h) Special Treatment for Medicare Low Volume Skilled 
Nursing Facilities.--The Secretary shall determine an 
appropriate manner in which to apply this section, taking into 
account the purposes of this section, to non-routine costs of a 
skilled nursing facility for which payment is made for routine 
service costs during a cost reporting period on the basis of 
prospective payments under section 1888(d).
    ``(i) Special Rule for X-Ray Services.--Before furnishing a 
covered non-routine service consisting of an X-ray service for 
which payment may be made under part A or part B to a resident, 
a skilled nursing facility shall consider whether furnishing 
the service through a provider of portable X-ray service 
services would be appropriate, taking into account the cost 
effectiveness of the service and the convenience to the 
resident.
    ``(j) Maintaining Savings From Payment System.--The 
prospective payment system established under section 1889 shall 
reflect the payment methodology established under this section 
for covered non-routine services.''.
    (b) Conforming Amendment.--Section 1814(b) (42 U.S.C. 
1395f(b)) is amended in the matter preceding paragraph (1) by 
striking ``1813 and 1886'' and inserting ``1813, 1886, 1888, 
1888A, and 1889''.

SEC. 8413. PAYMENTS FOR ROUTINE SERVICE COSTS.

    (a) Maintaining Savings Resulting From Temporary Freeze on 
Payment Increases.--
            (1) Basing updates to per diem cost limits on 
        limits for fiscal year 1993.--
                    (A) In general.--The last sentence of 
                section 1888(a) (42 U.S.C. 1395yy(a)) is 
                amended by adding at the end the following: 
                ``(except that such updates may not take into 
                account any changes in the routine service 
                costs of skilled nursing facilities occurring 
                during cost reporting periods which began 
                during fiscal year 1994 or fiscal year 
                1995).''.
                    (B) No exceptions permitted based on 
                amendment.--The Secretary of Health and Human 
                Services shall not consider the amendment made 
                by subparagraph (A) in making any adjustments 
                pursuant to section 1888(c) of the Social 
                Security Act.
            (2) Payments to low medicare volume skilled nursing 
        facilities.--Any change made by the Secretary of Health 
        and Human Services in the amount of any prospective 
        payment paid to a skilled nursing facility under 
        section 1888(d) of the Social Security Act for cost 
        reporting periods beginning on or after October 1, 
        1995, may not take into account any changes in the 
        costs of services occurring during cost reporting 
        periods which began during fiscal year 1994 or fiscal 
        year 1995.
    (b) Basing 1996 Limits on New Definition of Routine 
Costs.--The Secretary of Health and Human Services shall take 
into account the new definition of routine service costs under 
section 1888(e) of the Social Security Act, as added by section 
8411, in determining the routine per diem cost limits under 
section 1888(a) for fiscal year 1996 and each fiscal year 
thereafter.
    (c) Establishment of Schedule for Making Adjustments to 
Limits.--Section 1888(c) (42 U.S.C. 1395yy(c)) is amended by 
striking the period at the end of the second sentence and 
inserting ``, and may only make adjustments under this 
subsection with respect to a facility which applies for an 
adjustment during an annual application period established by 
the Secretary.''.
    (d) Limitation to Exceptions Process of the Secretary.--
Section 1888(c) (42 U.S.C. 1395yy(c)) is amended--
            (1) by striking ``(c) The Secretary'' and inserting 
        ``(c)(1) Subject to paragraph (2), the Secretary''; and
            (2) by adding at the end the following new 
        paragraph:
    ``(2) The Secretary may not make any adjustments under this 
subsection in the limits set forth in subsection (a) for a cost 
reporting period beginning during a fiscal year to the extent 
that the total amount of the additional payments made under 
this title as a result of such adjustments is greater than an 
amount equal to--
            ``(A) for cost reporting periods beginning during 
        fiscal year 1996, the total amount of the additional 
        payments made under this title as a result of 
        adjustments under this subsection for cost reporting 
        periods beginning during fiscal year 1994 increased (on 
        a compounded basis) by the SNF market basket percentage 
        increase (as defined in section 1888A(a)(2)) for each 
        fiscal year; and
            ``(B) for cost reporting periods beginning during a 
        subsequent fiscal year, the amount determined under 
        this paragraph for the preceding fiscal year, increased 
        by the SNF market basket percentage increase (as 
        defined in section 1888A(a)(2)) for each fiscal 
        year.''.
    (e) Maintaining Savings From Payment System.--The 
prospective payment system established under section 1889 of 
the Social Security Act, as added by section 8410, shall 
reflect the routine per diem cost limits under section 1888(a) 
of such Act.

SEC. 8414. REDUCTIONS IN PAYMENT FOR CAPITAL-RELATED COSTS.

    (a) In General.--Section 1861(v)(1) (42 U.S.C. 
1395x(v)(1)), as amended by section 8405(a), is amended by 
adding at the end the following new subparagraph:
    ``(U) Such regulations shall provide that, in determining 
the amount of the payments that may be made under this title 
with respect to all the capital-related costs of skilled 
nursing facilities, the Secretary shall reduce the amounts of 
such payments otherwise established under this title by 10 
percent for payments attributable to portions of cost reporting 
periods occurring beginning in fiscal years 1996 through 
2002.''.
    (b) Maintaining Savings Resulting From 10 Percent Capital 
Reduction.--The prospective payment system established under 
section 1889 of the Social Security Act, as added by section 
8410 of this Act, shall reflect the 10 percent reduction in 
payments for capital-related costs of skilled nursing 
facilities as such reduction is in effect under section 
1861(v)(1)(U) of the Social Security Act, as added by 
subsection (a).

SEC. 8415. TREATMENT OF ITEMS AND SERVICES PAID FOR UNDER PART B.

    (a) Requiring Payment for All Items and Services To Be Made 
to Facility.--
            (1) In general.--The first sentence of section 
        1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended--
                    (A) by striking ``and (D)'' and inserting 
                ``(D)''; and
                    (B) by striking the period at the end and 
                inserting the following: ``, and (E) in the 
                case of an item or service (other than a 
                portable X-ray or portable electrocardiogram 
                treated as a physician's service for purposes 
                of section 1848(j)(3)) furnished to an 
                individual who (at the time the item or service 
                is furnished) is a resident of a skilled 
                nursing facility, payment shall be made to the 
                facility (without regard to whether or not the 
                item or service was furnished by the facility, 
                by others under arrangement with them made by 
                the facility, under any other contracting or 
                consulting arrangement, or otherwise), except 
                that this subparagraph shall not preclude a 
                physician (as defined in section 1861(r)(1)) 
                from receiving payment for physician's services 
                provided to a resident of a skilled nursing 
                facility if such services are not covered non-
                routine services (as defined in section 
                1888A(a)(1)) or services for which routine 
                service costs (as defined in section 1888(e)) 
                are determined.''.
            (2) Exclusion for items and services not billed by 
        facility.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
        amended--
                    (A) by striking ``or'' at the end of 
                paragraph (14);
                    (B) by striking the period at the end of 
                paragraph (15) and inserting ``; or''; and
                    (C) by inserting after paragraph (15) the 
                following new paragraph:
            ``(16) where such expenses are for covered non-
        routine services (as defined in section 1888A(a)(1)) 
        (other than a portable X-ray or portable 
        electrocardiogram treated as a physician's service for 
        purposes of section 1848(j)(3)) furnished to an 
        individual who is a resident of a skilled nursing 
        facility and for which the claim for payment under this 
        title is not submitted by the facility.''.
            (3) Conforming amendment.--Section 1832(a)(1) (42 
        U.S.C. 1395k(a)(1)) is amended by striking ``(2);'' and 
        inserting ``(2) and section 1842(b)(6)(E);''.
    (b) Reduction in Payments for Items and Services Furnished 
by or Under Arrangements With Facilities.--Section 1861(v)(1) 
(42 U.S.C. 1395x(v)(1)), as amended by section 8405(a) and 
section 8414(a), is amended by adding at the end the following 
new subparagraph:
    ``(V) In the case of an item or service furnished by a 
skilled nursing facility (or by others under arrangement with 
them made by a skilled nursing facility or under any other 
contracting or consulting arrangement or otherwise) for which 
payment is made under part B in an amount determined in 
accordance with section 1833(a)(2)(B), the Secretary shall 
reduce the reasonable cost for such item or service otherwise 
determined under clause (i)(I) of such section by 5.8 percent 
for payments attributable to portions of cost reporting periods 
occurring during fiscal years 1996 through 2002.''.

SEC. 8416. MEDICAL REVIEW PROCESS.

    In order to ensure that medicare beneficiaries are 
furnished appropriate extended care services, the Secretary of 
Health and Human Services shall establish and implement a 
thorough medical review process to examine the effects of the 
amendments made by this subchapter on the quality of extended 
care services furnished to medicare beneficiaries. In 
developing such a medical review process, the Secretary shall 
place a particular emphasis on the quality of non-routine 
covered services for which payment is made under section 1888A 
of the Social Security Act.

SEC. 8417. REPORT BY MEDICARE PAYMENT REVIEW COMMISSION.

    Not later than October 1, 1997, the Medicare Payment Review 
Commission shall submit to Congress a report on the system 
under which payment is made under the medicare program for 
extended care services furnished by skilled nursing facilities, 
and shall include in the report the following:
            (1) An analysis of the effect of the methodology 
        established under section 1888A of the Social Security 
        Act (as added by section 8412) on the payments for, and 
        the quality of, extended care services under the 
        medicare program.
            (2) An analysis of the advisability of determining 
        the amount of payment for covered non-routine services 
        of facilities (as described in such section) on the 
        basis of the amounts paid for such services when 
        furnished by suppliers under part B of the medicare 
        program.
            (3) An analysis of the desirability of maintaining 
        separate routine cost-limits for hospital-based and 
        freestanding facilities in the costs of extended care 
        services recognized as reasonable under the medicare 
        program.
            (4) An analysis of the quality of services 
        furnished by skilled nursing facilities.
            (5) An analysis of the adequacy of the process and 
        standards used to provide exceptions to the limits 
        described in paragraph (3).
            (6) An analysis of the effect of the prospective 
        payment methodology established under section 1889 of 
        the Social Security Act (as added by section 8410) on 
        the payments for, and the quality of, extended care 
        services under the medicare program, including an 
        evaluation of the baseline used in establishing a 
        system for payment for extended care services furnished 
        by skilled nursing facilities.

SEC. 8418. EFFECTIVE DATE.

    Except as otherwise provided in this subchapter, the 
amendments made by this subchapter shall apply to services 
furnished during cost reporting periods (or portions of cost 
reporting periods) beginning on or after October 1, 1995.

             CHAPTER 3--OTHER PROVISIONS RELATING TO PART A

SEC. 8421. PAYMENTS FOR HOSPICE SERVICES.

    Section 1814(i)(1)(C)(ii) (42 U.S.C. 1395f(i)(1)(C)(ii)) is 
amended by striking subclauses (IV), (V), and (VI), and 
inserting the following subclauses:
            ``(IV) for fiscal years 1996 through 2002, the 
        market basket percentage increase for the fiscal year 
        minus 2.0 percentage points; and
            ``(V) for a subsequent fiscal year, the market 
        basket percentage increase for the fiscal year.''.

SEC. 8422. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH.

    Effective as if included in the enactment of OBRA-1989, 
section 6011(d) of such Act (as amended by section 13505 of 
OBRA-1993) is amended by striking ``and shall expire September 
30, 1994''.

               Subtitle F--Provisions Relating to Part B

                       CHAPTER 1--PAYMENT REFORMS

SEC. 8501. PAYMENTS FOR PHYSICIANS' SERVICES.

    (a) Establishing Update to Conversion Factor To Match 
Spending Under Sustainable Growth Rate.--
            (1) Update.--
                    (A) In general.--Section 1848(d)(3) (42 
                U.S.C. 1395w-4(d)(3)) is amended to read as 
                follows:
            ``(3) Update.--
                    ``(A) In general.--Unless Congress 
                otherwise provides, subject to subparagraph 
                (E), for purposes of this section the update 
                for a year (beginning with 1997) is equal to 
                the product of--
                            ``(i) 1 plus the Secretary's 
                        estimate of the percentage increase in 
                        the medicare economic index (described 
                        in the fourth sentence of section 
                        1842(b)(3)) for the year (divided by 
                        100), and
                            ``(ii) 1 plus the Secretary's 
                        estimate of the update adjustment 
                        factor for the year (divided by 100),
                minus 1 and multiplied by 100.
                    ``(B) Update adjustment factor.--The 
                `update adjustment factor' for a year is equal 
                to the quotient of--
                            ``(i) the difference between (I) 
                        the sum of the allowed expenditures for 
                        physicians' services furnished during 
                        each of the years 1995 through the year 
                        involved and (II) the sum of the amount 
                        of actual expenditures for physicians' 
                        services furnished during each of the 
                        years 1995 through the previous year; 
                        divided by
                            ``(ii) the Secretary's estimate of 
                        allowed expenditures for physicians' 
                        services furnished during the year.
                    ``(C) Determination of allowed 
                expenditures.--For purposes of subparagraph 
                (B), allowed expenditures for physicians' 
                services shall be determined as follows (as 
                estimated by the Secretary):
                            ``(i) In the case of allowed 
                        expenditures for 1995, such 
                        expenditures shall be equal to actual 
                        expenditures for services furnished 
                        during the 12-month period ending with 
                        June 30, 1995.
                            ``(ii) In the case of allowed 
                        expenditures for 1996 and each 
                        subsequent year, such expenditures 
                        shall be equal to allowed expenditures 
                        for the previous year, increased by the 
                        sustainable growth rate under 
                        subsection (f) for the fiscal year 
                        which begins during the year.
                    ``(D) Determination of actual 
                expenditures.--For purposes of subparagraph 
                (B), the amount of actual expenditures for 
                physicians' services furnished during a year 
                shall be equal to the amount of expenditures 
                for such services during the 12-month period 
                ending with June of the previous year.
                    ``(E) Restriction on variation from 
                medicare economic index.--Notwithstanding the 
                amount of the update adjustment factor 
                determined under subparagraph (B) for a year, 
                the update in the conversion factor under this 
                paragraph for the year may not be--
                            ``(i) greater than 103 percent of 1 
                        plus the Secretary's estimate of the 
                        percentage increase in the medicare 
                        economic index (described in the fourth 
                        sentence of section 1842(b)(3)) for the 
                        year (divided by 100), minus 1 and 
                        multiplied by 100; or
                            ``(ii) less than 93 percent of 1 
                        plus the Secretary's estimate of the 
                        percentage increase in the medicare 
                        economic index (described in the fourth 
                        sentence of section 1842(b)(3)) for the 
                        year (divided by 100), minus 1 and 
                        multiplied by 100.''.
                    (B) Effective date.--The amendments made by 
                subparagraph (A) shall apply to physicians' 
                services furnished on or after January 1, 1997.
            (2) Conforming amendments.--(A) Section 
        1848(d)(2)(A) (42 U.S.C. 1395w-4(d)(2)(A)) is amended--
                    (i) in the matter preceding clause (i)--
                            (I) by striking ``(or updates) in 
                        the conversion factor (or factors)'' 
                        and inserting ``in the conversion 
                        factor'';
                            (II) by striking ``(beginning with 
                        1991)'' and inserting ``(beginning with 
                        1996)''; and
                            (III) by striking the second 
                        sentence;
                    (ii) by amending clause (ii) to read as 
                follows:
                            ``(ii) such factors as enter into 
                        the calculation of the update 
                        adjustment factor as described in 
                        paragraph (3)(B); and'';
                    (iii) by amending clause (iii) to read as 
                follows:
                            ``(iii) access to services.'';
                    (iv) by striking clauses (iv), (v), and 
                (vi); and
                    (v) by striking the last sentence.
            (B) Section 1848(d)(2)(B) (42 U.S.C. 1395w-
        4(d)(2)(B)) is amended--
                    (i) by striking ``and'' at the end of 
                clause (iii);
                    (ii) by striking the period at the end of 
                clause (iv) and inserting ``; and''; and
                    (iii) by adding at the end the following 
                new clause:
                            ``(v) changes in volume or 
                        intensity of services.''.
            (C) Section 1848(d)(2) (42 U.S.C. 1395w4-(d)(2)) is 
        further amended--
                    (i) by striking subparagraphs (C), (D), and 
                (E);
                    (ii) by redesignating subparagraph (F) as 
                subparagraph (C); and
                    (iii) in subparagraph (C), as redesignated, 
                by striking ``(or updates) in the conversion 
                factor (or factors)'' and inserting ``in the 
                conversion factor''.
    (b) Replacement of Volume Performance Standard With 
Sustainable Growth Rate.--
            (1) In general.--Section 1848(f) (42 U.S.C. 1395w-
        4(f)) is amended by striking paragraphs (2) through (5) 
        and inserting the following:
            ``(2) Specification of growth rate.--
                    ``(A) Fiscal year 1996.--The sustainable 
                growth rate for all physicians' services for 
                fiscal year 1996 shall be equal to the product 
                of--
                            ``(i) 1 plus the Secretary's 
                        estimate of the percentage change in 
                        the medicare economic index for 1996 
                        (described in the fourth sentence of 
                        section 1842(b)(3)) (divided by 100),
                            ``(ii) 1 plus the Secretary's 
                        estimate of the percentage change 
                        (divided by 100) in the average number 
                        of individuals enrolled under this part 
                        (other than private plan enrollees) 
                        from fiscal year 1995 to fiscal year 
                        1996,
                            ``(iii) 1 plus the Secretary's 
                        estimate of the projected percentage 
                        growth in real gross domestic product 
                        per capita (divided by 100) from fiscal 
                        year 1995 to fiscal year 1996, plus 2 
                        percentage points, and
                            ``(iv) 1 plus the Secretary's 
                        estimate of the percentage change 
                        (divided by 100) in expenditures for 
                        all physicians' services in fiscal year 
                        1996 (compared with fiscal year 1995) 
                        which will result from changes in law 
                        (including the Medicare Preservation 
                        Act of 1995), determined without taking 
                        into account estimated changes in 
                        expenditures due to changes in the 
                        volume and intensity of physicians' 
                        services or changes in expenditures 
                        resulting from changes in the update to 
                        the conversion factor under subsection 
                        (d),
                minus 1 and multiplied by 100.
                    ``(B) Subsequent fiscal years.--The 
                sustainable growth rate for all physicians' 
                services for fiscal year 1997 and each 
                subsequent fiscal year shall be equal to the 
                product of--
                            ``(i) 1 plus the Secretary's 
                        estimate of the percentage change in 
                        the medicare economic index for the 
                        fiscal year involved (described in the 
                        fourth sentence of section 1842(b)(3)) 
                        (divided by 100),
                            ``(ii) 1 plus the Secretary's 
                        estimate of the percentage change 
                        (divided by 100) in the average number 
                        of individuals enrolled under this part 
                        (other than private plan enrollees) 
                        from the previous fiscal year to the 
                        fiscal year involved,
                            ``(iii) 1 plus the Secretary's 
                        estimate of the projected percentage 
                        growth in real gross domestic product 
                        per capita (divided by 100) from the 
                        previous fiscal year to the fiscal year 
                        involved, plus 2 percentage points, and
                            ``(iv) 1 plus the Secretary's 
                        estimate of the percentage change 
                        (divided by 100) in expenditures for 
                        all physicians' services in the fiscal 
                        year (compared with the previous fiscal 
                        year) which will result from changes in 
                        law (including changes made by the 
                        Secretary in response to section 1895), 
                        determined without taking into account 
                        estimated changes in expenditures due 
                        to changes in the volume and intensity 
                        of physicians' services or changes in 
                        expenditures resulting from changes in 
                        the update to the conversion factor 
                        under subsection (d)(3),
                minus 1 and multiplied by 100.
            ``(3) Definitions.--In this subsection:
                    ``(A) Services included in physicians' 
                services.--The term `physicians' services' 
                includes other items and services (such as 
                clinical diagnostic laboratory tests and 
                radiology services), specified by the 
                Secretary, that are commonly performed or 
                furnished by a physician or in a physician's 
                office, but does not include services furnished 
                to a private plan enrollee.
                    ``(B) Private plan enrollee.--The term 
                `private plan enrollee' means, with respect to 
                a fiscal year, an individual enrolled under 
                this part who has elected to receive benefits 
                under this title for the fiscal year through a 
                MedicarePlus plan offered under part C or 
                through enrollment with an eligible 
                organization with a risk-sharing contract under 
                section 1876.''.
            (2) Conforming amendments.--Section 1848(f) (42 
        U.S.C. 1395w-4(f)) is amended--
                    (A) in the heading, by striking ``Volume 
                Performance Standard Rates of Increase'' and 
                inserting ``Sustainable Growth Rate'';
                    (B) in paragraph (1)--
                            (i) in the heading, by striking 
                        ``volume performance standard rates of 
                        increase'' and inserting ``Sustainable 
                        Growth Rate'';
                            (ii) in subparagraph (A), in the 
                        matter preceding clause (i), by 
                        striking ``performance standard rates 
                        of increase'' and inserting 
                        ``sustainable growth rate''; and
                            (iii) in subparagraph (A), by 
                        striking ``HMO enrollees'' each place 
                        such term appears and inserting 
                        ``private plan enrollees'';
                    (C) in subparagraph (B), by striking 
                ``performance standard rates of increase'' and 
                inserting ``sustainable growth rate''; and
                    (D) in subparagraph (C)--
                            (i) in the heading, by striking 
                        ``performance standard rates of 
                        increase'' and inserting ``sustainable 
                        growth rate'';
                            (ii) in the first sentence, by 
                        striking ``with 1991), the performance 
                        standard rates of increase'' and all 
                        that follows through the first period 
                        and inserting ``with 1997), the 
                        sustainable growth rate for the fiscal 
                        year beginning in that year.''; and
                            (iii) in the second sentence, by 
                        striking ``January 1, 1990, the 
                        performance standard rate of increase 
                        under subparagraph (D) for fiscal year 
                        1990'' and inserting ``January 1, 1997, 
                        the sustainable growth rate for fiscal 
                        year 1997''.
    (c) Establishment of Single Conversion Factor for 1996.--
            (1) In general.--Section 1848(d)(1) (42 U.S.C. 
        1395w-4(d)(1)) is amended--
                    (A) by redesignating subparagraph (C) as 
                subparagraph (D); and
                    (B) by inserting after subparagraph (B) the 
                following new subparagraph:
                    ``(C) Special rule for 1996.--For 1996, the 
                conversion factor under this subsection shall 
                be $35.42 for all physicians' services.''.
            (2) Conforming amendments.--Section 1848 (42 U.S.C. 
        1395w-4) is amended--
                    (A) by striking ``(or factors)'' each place 
                it appears in subsection (d)(1)(A) and 
                (d)(1)(D)(ii) (as redesignated by paragraph 
                (1)(a));
                    (B) in subsection (d)(1)(A), by striking 
                ``or updates'';
                    (C) in subsection (d)(1)(D)(ii) (as 
                redesignated by paragraph (1)(a)), by striking 
                ``(or updates)''; and
                    (D) in subsection (i)(1)(C), by striking 
                ``conversion factors'' and inserting ``the 
                conversion factor''.

SEC. 8502. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS FOR CERTAIN 
                    OUTPATIENT HOSPITAL SERVICES.

    (a) Ambulatory Surgical Center Procedures.--Section 
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is 
amended--
            (1) by striking ``of 80 percent''; and
            (2) by striking the period at the end and inserting 
        the following: ``, less the amount a provider may 
        charge as described in clause (ii) of section 
        1866(a)(2)(A).''.
    (b) Radiology Services and Diagnostic Procedures.--Section 
1833(n)(1)(B)(i)(II) (42 U.S.C. 1395l(n)(1)(B)(i)(II)) is 
amended--
            (1) by striking ``of 80 percent''; and
            (2) by striking the period at the end and inserting 
        the following: ``, less the amount a provider may 
        charge as described in clause (ii) of section 
        1866(a)(2)(A).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to services furnished during portions of cost 
reporting periods occurring on or after October 1, 1995.

SEC. 8503. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
                    OUTPATIENT SERVICES.

    (a) Reduction in Payments for Capital-Related Costs.--
Section 1861(v)(1)(S)(ii)(I) (42 U.S.C. 1395x(v)(1)(S)(ii)(I)) 
is amended by striking ``through 1998'' and inserting ``through 
2002''.
    (b) Reduction in Payments for Other Costs.--Section 
1861(v)(1)(S)(ii)(II) (42 U.S.C. 1395x(v)(1)(S)(ii)(II)) is 
amended by striking ``through 1998'' and inserting ``through 
2002''.

SEC. 8504. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
                    DIAGNOSTIC LABORATORY TESTS.

    (a) Change in Update.--Section 1833(h)(2)(A)(ii)(IV) (42 
U.S.C. 1395l(h)(2)(A)(ii)(IV)) is amended by striking ``1994 
and 1995'' and inserting ``1994 through 2002''.
    (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) 
(42 U.S.C. 1395l(h)(4)(B)) is amended--
            (1) in clause (vi), by striking ``and'' at the end;
            (2) in clause (vii)--
                    (A) by inserting ``and before January 1, 
                1997,'' after ``1995,'', and
                    (B) by striking the period at the end and 
                inserting ``, and''; and
            (3) by adding at the end the following new clause:
            ``(viii) after December 31, 1996, is equal to 65 
        percent of such median.''.

SEC. 8505. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

    (a) Reduction in Payment Amounts for Items of Durable 
Medical Equipment.--
            (1) Freeze in update for covered items.--Section 
        1834(a)(14) (42 U.S.C. 1395m(a)(14)) is amended--
                    (A) by striking ``and'' at the end of 
                subparagraph (A);
                    (B) in subparagraph (B)--
                            (i) by striking ``a subsequent 
                        year'' and inserting ``1993, 1994, and 
                        1995'', and
                            (ii) by striking the period at the 
                        end and inserting a semicolon; and
                    (C) by adding at the end the following:
                    ``(C) for each of the years 1996 through 
                2002, 0 percentage points; and
                    ``(D) for a subsequent year, the percentage 
                increase in the consumer price index for all 
                urban consumers (U.S. urban average) for the 
                12-month period ending with June of the 
                previous year.''.
            (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
                    (A) by striking ``and'' at the end of 
                clause (iii);
                    (B) by redesignating clause (iv) as clause 
                (v); and
                    (C) by inserting after clause (iii) the 
                following new clause:
                            ``(iv) for each of the years 1996 
                        through 2002, 1 percent, and''.
    (b) Oxygen and Oxygen Equipment.--
            (1) In general.--Section 1834(a)(9)(C) (42 U.S.C. 
        1395m(a)(9)(C)) is amended--
                    (A) by striking ``and'' at the end of 
                clause (iii);
                    (B) in clause (iv)--
                            (i) by striking ``a subsequent 
                        year'' and inserting ``1993, 1994, and 
                        1995'', and
                            (ii) by striking the period at the 
                        end and inserting a semicolon; and
                    (C) by adding at the end the following new 
                clauses:
                            ``(v) in each of the years 1996 
                        through 2002, is the national limited 
                        monthly payment rate computed under 
                        subparagraph (B) for the item for the 
                        year reduced by the applicable 
                        percentage described in subparagraph 
                        (D) (but in no case may the amount 
                        determined under this clause be less 
                        than 70 percent of such national 
                        limited payment rate); and
                            ``(vi) in a subsequent year, is the 
                        national limited monthly payment rate 
                        computed under subparagraph (B) for the 
                        item for the year.''.
            (2) Applicable percentage described.--Section 
        1834(a)(9) (42 1395m(a)(9)) is amended by adding at the 
        end the following new subparagraph:
                    ``(D) Applicable percentage described.--In 
                clause (v) of subparagraph (C), the `applicable 
                percentage' with respect to a year described in 
                such clause is--
                            ``(i) for 1996, 20 percent,
                            ``(ii) for 1997, 21\2/3\ percent,
                            ``(iii) for 1998, 23\1/3\ percent,
                            ``(iv) for 1999, 25 percent,
                            ``(v) for 2000, 26\2/3\ percent,
                            ``(vi) for 2001, 28\1/3\ percent, 
                        and
                            ``(vii) for 2002, 30 percent.''.
    (c) Payment Freeze for Parenteral and Enteral Nutrients, 
Supplies, and Equipment.--In determining the amount of payment 
under part B of title XVIII of the Social Security Act with 
respect to parenteral and enteral nutrients, supplies, and 
equipment during each of the years 1996 through 2002, the 
charges determined to be reasonable with respect to such 
nutrients, supplies, and equipment may not exceed the charges 
determined to be reasonable with respect to such nutrients, 
supplies, and equipment during 1993.

SEC. 8506. UPDATES FOR AMBULATORY SURGICAL SERVICES.

    Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is 
amended--
            (1) by striking ``1996'' and inserting ``2003''; 
        and
            (2) by inserting before the first sentence the 
        following new sentence: ``Notwithstanding the second 
        sentence of subparagraph (A) or the second sentence of 
        subparagraph (B), the Secretary shall not update 
        amounts established under such subparagraphs for fiscal 
        years 1996 through 2002.''

SEC. 8507. PAYMENTS FOR AMBULANCE SERVICES.

    Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)), as amended by 
section 8405(a), section 8414(a), and section 8415(b), is 
amended by adding at the end the following new subparagraph:
            ``(W) In determining the reasonable cost or charge 
        of ambulance services for fiscal years 1996 through 
        2002, the Secretary shall not recognize any costs in 
        excess of costs recognized as reasonable for fiscal 
        year 1995.''.

SEC. 8508. ENSURING PAYMENT FOR PHYSICIAN AND NURSE FOR JOINTLY 
                    FURNISHED ANESTHESIA SERVICES.

    (a) Payment for Jointly Furnished Single Case.--
            (1) Payment to physician.--Section 1848(a)(4) (42 
        U.S.C. 1395w-4(a)(4)) is amended by adding at the end 
        the following new subparagraph:
                    ``(C) Payment for single case.--
                Notwithstanding section 1862(a)(1)(A), with 
                respect to physicians' services consisting of 
                the furnishing of anesthesia services for a 
                single case that are furnished jointly with a 
                certified registered nurse anesthetist, if the 
                carrier determines that the use of both the 
                physician and the nurse anesthetist to furnish 
                the anesthesia service was not medically 
                necessary, the fee schedule amount for the 
                physicians' services shall be equal to 50 
                percent (or 55 percent, in the case of services 
                furnished during 1996 or 1997) of the fee 
                schedule amount applicable under this section 
                for anesthesia services personally performed by 
                the physician alone (without regard to this 
                subparagraph). Nothing in this subparagraph may 
                be construed to affect the application of any 
                provision of law regarding balance billing.''.
            (2) Payment to crna.--Section 1833(l)(4)(B) (42 
        U.S.C. 1395l(l)(4)(B)) is amended by adding at the end 
        the following new clause:
    ``(iv) Notwithstanding section 1862(a)(1)(A), in the case 
of services of a certified registered nurse anesthetist 
consisting of the furnishing of anesthesia services for a 
single case that are furnished jointly with a physician, if the 
carrier determines that the use of both the physician and the 
nurse anesthetist to furnish the anesthesia service was not 
medically necessary, the fee schedule amount for the services 
furnished by the certified registered nurse anesthetist shall 
be equal to 50 percent (or 40 percent, in the case of services 
furnished during 1996 or 1997) of the fee schedule amount 
applicable under section 1848 for anesthesia services 
personally performed by the physician alone (without regard to 
this clause).''.
    (b) Effective Date.--The amendments made by subsections (a) 
shall apply to services furnished on or after July 1, 1996.

                       CHAPTER 2--PART B PREMIUM

SEC. 8511. PROMOTING SOLVENCY OF PART A TRUST FUND THROUGH PART B 
                    PREMIUM.

    (a) In General.--Section 1839(e)(1) (42 U.S.C. 1395r(e)(1)) 
is amended--
            (1) in subparagraph (A), by striking ``1999'' and 
        inserting ``2003'', and
            (2) by adding at the end the following new 
        subparagraph:
    ``(C)(i) For each month beginning with January 1996 through 
December 2002, the amount of the monthly premium under this 
part shall be increased by an amount equal to 13 percent of the 
monthly actuarial rate for enrollees age 65 and over, as 
determined under subsection (a)(1) and applicable to such 
month.
    ``(ii) The Secretary shall transfer amounts received 
pursuant to clause (i) to the Federal Hospital Insurance Trust 
Fund.
    ``(iii) In applying section 1844(a), amounts attributable 
to clause (i) shall not be counted in determining the dollar 
amount of the premium per enrollee under paragraph (1)(A) or 
(1)(B).''.
    (b) Effective Date.--The amendments made by subsection (a) 
apply to premiums for months beginning with January 1996.

SEC. 8512. INCOME-RELATED REDUCTION IN MEDICARE SUBSIDY.

    (a) In General.--Section 1839 (42 U.S.C. 1395r) is amended 
by adding at the end the following:
    ``(h)(1) Notwithstanding the previous subsections of this 
section, in the case of an individual whose modified adjusted 
gross income for a taxable year ending with or within a 
calendar year (as initially determined by the Secretary in 
accordance with paragraph (3)) exceeds the threshold amount 
described in paragraph (5)(B), the Secretary shall increase the 
amount of the monthly premium for months in the calendar year 
by an amount equal to the difference between--
            ``(A) 200 percent of the monthly actuarial rate for 
        enrollees age 65 and over as determined under 
        subsection (a)(1) for that calendar year; and
            ``(B) the total of the monthly premiums paid by the 
        individual under this section (determined without 
        regard to subsection (b)) during such calendar year.
    ``(2) In the case of an individual described in paragraph 
(1) whose modified adjusted gross income exceeds the threshold 
amount by less than $50,000, the amount of the increase in the 
monthly premium applicable under paragraph (1) shall be an 
amount which bears the same ratio to the amount of the increase 
described in paragraph (1) (determined without regard to this 
paragraph) as such excess bears to $50,000. In the case of a 
joint return filed under section 6013 of the Internal Revenue 
Code of 1986 by spouses both of whom are enrolled under this 
part, the previous sentence shall be applied by substituting 
`$60,000' for `$50,000'. The preceding provisions of this 
paragraph shall not apply to any individual whose threshold 
amount is zero.
    ``(3) The Secretary shall make an initial determination of 
the amount of an individual's modified adjusted gross income 
for a taxable year ending with or within a calendar year for 
purposes of this subsection as follows:
            ``(A) Not later than September 1 of the year 
        preceding the year, the Secretary shall provide notice 
        to each individual whom the Secretary finds (on the 
        basis of the individual's actual modified adjusted 
        gross income for the most recent taxable year for which 
        such information is available or other information 
        provided to the Secretary by the Secretary of the 
        Treasury) will be subject to an increase under this 
        subsection that the individual will be subject to such 
        an increase, and shall include in such notice the 
        Secretary's estimate of the individual's modified 
        adjusted gross income for the year.
            ``(B) If, during the 30-day period beginning on the 
        date notice is provided to an individual under 
        subparagraph (A), the individual provides the Secretary 
        with information on the individual's anticipated 
        modified adjusted gross income for the year, the amount 
        initially determined by the Secretary under this 
        paragraph with respect to the individual shall be based 
        on the information provided by the individual.
            ``(C) If an individual does not provide the 
        Secretary with information under subparagraph (B), the 
        amount initially determined by the Secretary under this 
        paragraph with respect to the individual shall be the 
        amount included in the notice provided to the 
        individual under subparagraph (A).
    ``(4)(A) If the Secretary determines (on the basis of final 
information provided by the Secretary of the Treasury) that the 
amount of an individual's actual modified adjusted gross income 
for a taxable year ending with or within a calendar year is 
less than or greater than the amount initially determined by 
the Secretary under paragraph (3), the Secretary shall increase 
or decrease the amount of the individual's monthly premium 
under this section (as the case may be) for months during the 
following calendar year by an amount equal to \1/12\ of the 
difference between--
            ``(i) the total amount of all monthly premiums paid 
        by the individual under this section during the 
        previous calendar year; and
            ``(ii) the total amount of all such premiums which 
        would have been paid by the individual during the 
        previous calendar year if the amount of the 
        individual's modified adjusted gross income initially 
        determined under paragraph (3) were equal to the actual 
        amount of the individual's modified adjusted gross 
        income determined under this paragraph.
    ``(B)(i) In the case of an individual for whom the amount 
initially determined by the Secretary under paragraph (3) is 
based on information provided by the individual under 
subparagraph (B) of such paragraph, if the Secretary determines 
under subparagraph (A) that the amount of the individual's 
actual modified adjusted gross income for a taxable year is 
greater than the amount initially determined under paragraph 
(3), the Secretary shall increase the amount otherwise 
determined for the year under subparagraph (A) by interest in 
an amount equal to the sum of the amounts determined under 
clause (ii) for each of the months described in clause (ii).
    ``(ii) Interest shall be computed for any month in an 
amount determined by applying the underpayment rate established 
under section 6621 of the Internal Revenue Code of 1986 
(compounded daily) to any portion of the difference between the 
amount initially determined under paragraph (3) and the amount 
determined under subparagraph (A) for the period beginning on 
the first day of the month beginning after the individual 
provided information to the Secretary under subparagraph (B) of 
paragraph (3) and ending 30 days before the first month for 
which the individual's monthly premium is increased under this 
paragraph.
    ``(iii) Interest shall not be imposed under this 
subparagraph if the amount of the individual's modified 
adjusted gross income provided by the individual under 
subparagraph (B) of paragraph (3) was not less than the 
individual's modified adjusted gross income determined on the 
basis of information shown on the return of tax imposed by 
chapter 1 of the Internal Revenue Code of 1986 for the taxable 
year involved.
    ``(C) In the case of an individual who is not enrolled 
under this part for any calendar year for which the 
individual's monthly premium under this section for months 
during the year would be increased pursuant to subparagraph (A) 
if the individual were enrolled under this part for the year, 
the Secretary may take such steps as the Secretary considers 
appropriate to recover from the individual the total amount by 
which the individual's monthly premium for months during the 
year would have been increased under subparagraph (A) if the 
individual were enrolled under this part for the year.
    ``(D) In the case of a deceased individual for whom the 
amount of the monthly premium under this section for months in 
a year would have been decreased pursuant to subparagraph (A) 
if the individual were not deceased, the Secretary shall make a 
payment to the individual's surviving spouse (or, in the case 
of an individual who does not have a surviving spouse, to the 
individual's estate) in an amount equal to the difference 
between--
            ``(i) the total amount by which the individual's 
        premium would have been decreased for all months during 
        the year pursuant to subparagraph (A); and
            ``(ii) the amount (if any) by which the 
        individual's premium was decreased for months during 
        the year pursuant to subparagraph (A).
    ``(5) In this subsection, the following definitions apply:
            ``(A) The term `modified adjusted gross income' 
        means adjusted gross income (as defined in section 62 
        of the Internal Revenue Code of 1986)--
                    ``(i) determined without regard to sections 
                135, 911, 931, and 933 of such Code, and
                    ``(ii) increased by the amount of interest 
                received or accrued by the taxpayer during the 
                taxable year which is exempt from tax under 
                such Code.
            ``(B) The term `threshold amount' means--
                    ``(i) except as otherwise provided in this 
                paragraph, $60,000,
                    ``(ii) $90,000, in the case of a joint 
                return (as defined in section 7701(a)(38) of 
                such Code), and
                    ``(iii) zero in the case of a taxpayer 
                who--
                            ``(I) is married at the close of 
                        the taxable year but does not file a 
                        joint return (as so defined) for such 
                        year, and
                            ``(II) does not live apart from his 
                        spouse at all times during the taxable 
                        year.
    ``(6)(A) The Secretary shall transfer amounts received 
pursuant to this subsection to the Federal Hospital Insurance 
Trust Fund.
    ``(B) In applying section 1844(a), amounts attributable to 
clause (i) shall not be counted in determining the dollar 
amount of the premium per enrollee under paragraph (1)(A) or 
(1)(B).''.
    (b) Conforming Amendments.--(1) Section 1839 (42 U.S.C. 
1395r) is amended--
            (A) in subsection (a)(2), by inserting ``or section 
        1839A'' after ``subsections (b) and (e)'';
            (B) in subsection (a)(3) of section 1839(a), by 
        inserting ``or section 1839A'' after ``subsection 
        (e)'';
            (C) in subsection (b), inserting ``(and as 
        increased under section 1839A)'' after ``subsection (a) 
        or (e)''; and
            (D) in subsection (f), by striking ``if an 
        individual'' and inserting the following: ``if an 
        individual (other than an individual subject to an 
        increase in the monthly premium under this section 
        pursuant to subsection (h))''.
    (2) Section 1840(c) (42 U.S.C. 1395r(c)) is amended by 
inserting ``or an individual determines that the estimate of 
modified adjusted gross income used in determining whether the 
individual is subject to an increase in the monthly premium 
under section 1839 pursuant to subsection (h) of such section 
(or in determining the amount of such increase) is too low and 
results in a portion of the premium not being deducted,'' 
before ``he may''.
    (c) Reporting Requirements for Secretary of the Treasury.--
            (1) In general.--Subsection (l) of section 6103 of 
        the Internal Revenue Code of 1986 (relating to 
        confidentiality and disclosure of returns and return 
        information) is amended by adding at the end the 
        following new paragraph:
            ``(15) Disclosure of return information to carry 
        out income-related reduction in medicare part b 
        premium.--
                    ``(A) In general.--The Secretary may, upon 
                written request from the Secretary of Health 
                and Human Services, disclose to officers and 
                employees of the Health Care Financing 
                Administration return information with respect 
                to a taxpayer who is required to pay a monthly 
                premium under section 1839 of the Social 
                Security Act. Such return information shall be 
                limited to--
                            ``(i) taxpayer identity information 
                        with respect to such taxpayer,
                            ``(ii) the filing status of such 
                        taxpayer,
                            ``(iii) the adjusted gross income 
                        of such taxpayer,
                            ``(iv) the amounts excluded from 
                        such taxpayer's gross income under 
                        sections 135 and 911,
                            ``(v) the interest received or 
                        accrued during the taxable year which 
                        is exempt from the tax imposed by 
                        chapter 1 to the extent such 
                        information is available, and
                            ``(vi) the amounts excluded from 
                        such taxpayer's gross income by 
                        sections 931 and 933 to the extent such 
                        information is available.
                    ``(B) Restriction on use of disclosed 
                information.--Return information disclosed 
                under subparagraph (A) may be used by officers 
                and employees of the Health Care Financing 
                Administration only for the purposes of, and to 
                the extent necessary in, establishing the 
                appropriate monthly premium under section 1839 
                of the Social Security Act.''
            (2) Conforming amendment.--Paragraphs (3)(A) and 
        (4) of section 6103(p) of such Code are each amended by 
        striking ``or (14)'' each place it appears and 
        inserting ``(14), or (15)''.
    (d) Effective Date.--
            (1) In general.--The amendments made by subsections 
        (a) and (b) shall apply to the monthly premium under 
        section 1839 of the Social Security Act for months 
        beginning with January 1997.
            (2) Information for prior years.--The Secretary of 
        Health and Human Services may request information under 
        section 6013(l)(15) of the Social Security Act (as 
        added by subsection (c)) for taxable years beginning 
        after December 31, 1993.

            Subtitle G--Provisions Relating to Parts A and B

              CHAPTER 1--PAYMENTS FOR HOME HEALTH SERVICES

SEC. 8601. PAYMENT FOR HOME HEALTH SERVICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395x et seq.), as 
amended by section 8102, is amended by adding at the end the 
following new section:


                   ``payment for home health services


    ``Sec. 1894. (a) In General.--
            ``(1) Per visit payments.--Subject to subsection 
        (c), the Secretary shall make per visit payments 
        beginning with fiscal year 1997 to a home health agency 
        in accordance with this section for each type of home 
        health service described in paragraph (2) furnished to 
        an individual who at the time the service is furnished 
        is under a plan of care by the home health agency under 
        this title (without regard to whether or not the item 
        or service was furnished by the agency or by others 
        under arrangement with them made by the agency, under 
        any other contracting or consulting arrangement, or 
        otherwise).
            ``(2) Types of services.--The types of home health 
        services described in this paragraph are the following:
                    ``(A) Part-time or intermittent nursing 
                care provided by or under the supervision of a 
                registered professional nurse.
                    ``(B) Physical therapy.
                    ``(C) Occupational therapy.
                    ``(D) Speech-language pathology services.
                    ``(E) Medical social services under the 
                direction of a physician.
                    ``(F) To the extent permitted in 
                regulations, part-time or intermittent services 
                of a home health aide who has successfully 
                completed a training program approved by the 
                Secretary.
    ``(b) Establishment of Per Visit Rate for Each Type of 
Services.--
            ``(1) In general.--The Secretary shall, subject to 
        paragraph (3), establish a per visit payment rate for a 
        home health agency in an area (which shall be the same 
        area used to determine the area wage index applicable 
        to hospitals under section 1886(d)(3)(E)) for each type 
        of home health service described in subsection (a)(2). 
        Such rate shall be equal to the national per visit 
        payment rate determined under paragraph (2) for each 
        such type, except that the labor-related portion of 
        such rate shall be adjusted by the area wage index 
        applicable under section 1886(d)(3)(E) for the area in 
        which the agency is located (as determined without 
        regard to any reclassification of the area under 
        section 1886(d)(8)(B) or a decision of the Medicare 
        Geographic Classification Review Board or the Secretary 
        under section 1886(d)(10) for cost reporting periods 
        beginning after October 1, 1995).
            ``(2) National per visit payment rate.--The 
        national per visit payment rate for each type of 
        service described in subsection (a)(2)--
                    ``(A) for fiscal year 1997, is an amount 
                equal to the national average amount paid per 
                visit under this title to home health agencies 
                for such type of service during the most recent 
                12-month cost reporting period ending on or 
                before June 30, 1994; and
                    ``(B) for each subsequent fiscal year, is 
                an amount equal to the national per visit 
                payment rate in effect for the preceding fiscal 
                year, increased by the home health market 
                basket percentage increase for such subsequent 
                fiscal year minus 2.0 percentage points.
            ``(3) Rebasing of rates.--The Secretary shall 
        adjust the national per visit payment rates under this 
        subsection for cost reporting periods beginning on or 
        after October 1, 1999, and every 5 years thereafter, to 
        reflect the most recent available data.
            ``(4) Home health market basket percentage 
        increase.--For purposes of this subsection, the term 
        `home health market basket percentage increase' means, 
        with respect to a fiscal year, a percentage (estimated 
        by the Secretary before the beginning of the fiscal 
        year) determined and applied with respect to the types 
        of home health services described in subsection (a)(2) 
        in the same manner as the market basket percentage 
        increase under section 1886(b)(3)(B)(iii) is determined 
        and applied to inpatient hospital services for the 
        fiscal year.
    ``(c) Per Episode Limit.--
            ``(1) Aggregate limit.--
                    ``(A) In general.--Except as provided in 
                paragraph (2), a home health agency may not 
                receive aggregate per visit payments under 
                subsection (a) for a fiscal year in excess of 
                an amount equal to the sum of the following 
                products determined for each case-mix category 
                for which the agency receives payments:
                            ``(i) The number of episodes of 
                        each such case-mix category during the 
                        fiscal year; multiplied by
                            ``(ii) the per episode limit 
                        determined for such case-mix category 
                        for such fiscal year.
                    ``(B) Establishment of per episode 
                limits.--
                            ``(i) In general.--The per episode 
                        limit for a fiscal year for any case-
                        mix category for the area in which a 
                        home health agency is located (which 
                        shall be the same area used to 
                        determine the area wage index 
                        applicable to hospitals under section 
                        1886(d)(3)(E)) is equal to--
                                    ``(I) the mean number of 
                                visits for each type of home 
                                health service described in 
                                subsection (a)(2) furnished 
                                during an episode of such case-
                                mix category in such area 
                                during fiscal year 1994, 
                                adjusted by the case-mix 
                                adjustment factor determined in 
                                clause (ii) for the fiscal year 
                                involved; multiplied by
                                    ``(II) the per visit 
                                payment rate established under 
                                subsection (b) for such type of 
                                home health service for the 
                                fiscal year for which the 
                                determination is being made.
                            ``(ii) Case-mix adjustment 
                        factor.--For purposes of clause (i), 
                        the case-mix adjustment factor for a 
                        year for--
                                    ``(I) each of fiscal years 
                                1997 through 2000 is the factor 
                                determined by the Secretary to 
                                assure that aggregate payments 
                                for home health services under 
                                this section during the year 
                                will not exceed the payment for 
                                such services during the 
                                previous year as a result of 
                                changes in the number and type 
                                of home health visits within 
                                case-mix categories over the 
                                previous year; and
                                    ``(II) each subsequent 
                                fiscal year, is the factor 
                                determined by the Secretary 
                                necessary to remove the effects 
                                of case-mix increases due to 
                                reporting improvements instead 
                                of real changes in patients' 
                                resource usage.
                            ``(iii) Rebasing of per episode 
                        limits.--Beginning with fiscal year 
                        1999 and every 5 years thereafter, the 
                        Secretary shall revise the mean number 
                        of home health visits determined under 
                        clause (i)(I) for each type of home 
                        health service visit described in 
                        subsection (a)(2) furnished during an 
                        episode in a case-mix category to 
                        reflect the most recently available 
                        data on the number of visits.
                            ``(iv) Determination of area.--In 
                        the case of an area which the Secretary 
                        determines has an insufficient number 
                        of home health agencies to establish an 
                        appropriate per episode limit, the 
                        Secretary may establish an area other 
                        than the area used to determine the 
                        area wage under section 1886(d)(3)(E)) 
                        for purposes of establishing an 
                        appropriate per episode limit.
                    ``(C) Case-mix category.--For purposes of 
                this paragraph, the term `case-mix category' 
                means each of the 18 case-mix categories 
                established under the Home Health Agency 
                Prospective Payment Demonstration Project 
                conducted by the Health Care Financing 
                Administration. The Secretary may develop an 
                alternate methodology for determining case-mix 
                categories.
                    ``(D) Episode.--
                            ``(i) In general.--For purposes of 
                        this paragraph, the term `episode' 
                        means the continuous 120-day period 
                        that--
                                    ``(I) begins on the date of 
                                an individual's first visit for 
                                a type of home health service 
                                described in subsection (a)(2) 
                                for a case-mix category, and
                                    ``(II) is immediately 
                                preceded by a 60-day period in 
                                which the individual did not 
                                receive visits for a type of 
                                home health service described 
                                in subsection (a)(2).
                            ``(ii) Treatment of episodes 
                        spanning cost reporting periods.--The 
                        Secretary shall provide for such rules 
                        as the Secretary considers appropriate 
                        regarding the treatment of episodes 
                        under this paragraph which begin during 
                        a cost reporting period and end in a 
                        subsequent cost reporting period.
                    ``(E) Exemptions and exceptions.--The 
                Secretary may provide for exemptions and 
                exceptions to the limits established under this 
                paragraph for a fiscal year as the Secretary 
                deems appropriate, to the extent such 
                exemptions and exceptions do not result in 
                greater payments under this section than the 
                exemptions and exceptions provided under 
                section 1861(v)(1)(L)(ii) in fiscal year 1994, 
                increased by the home health market basket 
                percentage increase for the fiscal year 
                involved (as defined in subsection (b)(4)).
            ``(2) Reconciliation of amounts.--
                    ``(A) Payments in excess of limits.--
                Subject to subparagraph (B), if a home health 
                agency has received aggregate per visit 
                payments under subsection (a) for a fiscal year 
                in excess of the amount determined under 
                paragraph (1) with respect to such home health 
                agency for such fiscal year, the Secretary 
                shall reduce payments under this section to the 
                home health agency in the following fiscal year 
                in such manner as the Secretary considers 
                appropriate (including on an installment basis) 
                to recapture the amount of such excess.
                    ``(B) Exception for home health services 
                furnished over a period greater than 165 
                days.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the amount of 
                        aggregate per visit payments determined 
                        under subsection (a) shall not include 
                        payments for home health visits 
                        furnished to an individual on or after 
                        a continuous period of more than 165 
                        days after an individual begins an 
                        episode described in subsection 
                        (c)(1)(D) (if such period is not 
                        interrupted by the beginning of a new 
                        episode).
                            ``(ii) Requirement of 
                        certification.--Clause (i) shall not 
                        apply if the agency has not obtained a 
                        physician's certification with respect 
                        to the individual requiring such visits 
                        that includes a statement that the 
                        individual requires such continued 
                        visits, the reason for the need for 
                        such visits, and a description of such 
                        services furnished during such visits.
                    ``(C) Share of savings.--
                            ``(i) Bonus payments.--If a home 
                        health agency has received aggregate 
                        per visit payments under subsection (a) 
                        for a fiscal year in an amount less 
                        than the amount determined under 
                        paragraph (1) with respect to such home 
                        health agency for such fiscal year, the 
                        Secretary shall pay such home health 
                        agency a bonus payment equal to 50 
                        percent of the difference between such 
                        amounts in the following fiscal year, 
                        except that the bonus payment may not 
                        exceed 5 percent of the aggregate per 
                        visit payments made to the agency for 
                        the year.
                            ``(ii) Installment bonus 
                        payments.--The Secretary may make 
                        installment payments during a fiscal 
                        year to a home health agency based on 
                        the estimated bonus payment that the 
                        agency would be eligible to receive 
                        with respect to such fiscal year.
    ``(d) Medical Review Process.--The Secretary shall 
implement a medical review process (with a particular emphasis 
on fiscal years 1997 and 1998) for the system of payments 
described in this section that shall provide an assessment of 
the pattern of care furnished to individuals receiving home 
health services for which payments are made under this section 
to ensure that such individuals receive appropriate home health 
services. Such review process shall focus on low-cost episodes 
(as defined by the Secretary under section (e)(3)(C)) and cases 
described in subsection (c)(2)(B) and shall require 
recertification by intermediaries at 60 and 165 days into an 
episode described in subsection (c)(1)(D).
    ``(e) Adjustment of Payments To Avoid Circumvention of 
Limits.--
            ``(1) In general.--The Secretary shall provide for 
        appropriate adjustments to payments to home health 
        agencies under this section to ensure that agencies do 
        not circumvent the purpose of this section by--
                    ``(A) discharging patients to another home 
                health agency or similar provider;
                    ``(B) altering corporate structure or name 
                to avoid being subject to this section or for 
                the purpose of increasing payments under this 
                title; or
                    ``(C) undertaking other actions considered 
                unnecessary for effective patient care and 
                intended to achieve maximum payments under this 
                title.
            ``(2) Tracking of patients that switch home health 
        agencies during episode.--
                    ``(A) Development of system.--The Secretary 
                shall develop a system that tracks home health 
                patients that receive home health services 
                described in subsection (a)(2) from more than 1 
                home health agency during an episode described 
                in subsection (c)(1)(D).
                    ``(B) Adjustment of payments.--The 
                Secretary shall adjust payments under this 
                section to each home health agency that 
                furnishes an individual with a type of home 
                health service described in subsection (a)(2) 
                to ensure that aggregate payments on behalf of 
                such individual during such episode do not 
                exceed the amount that would be paid under this 
                section if the individual received such 
                services from a single home health agency.
            ``(3) Low-cost cases.--
                    ``(A) In general.--The Secretary shall 
                develop and implement a system designed to 
                adjust payments to a home health agency for a 
                fiscal year to eliminate any increase in growth 
                of the percentage distribution of low-cost 
                episodes for which home health services are 
                furnished by the agency over such percentage 
                distribution determined for the agency under 
                subparagraph (B).
                    ``(B) Distribution.--The Secretary shall 
                profile each home health agency to determine 
                the distribution of all episodes by length of 
                stay for each agency during the agency's first 
                12-month cost reporting period beginning during 
                fiscal year 1994.
                    ``(C) Low-cost episode.--For purposes of 
                this paragraph, the Secretary shall define a 
                low-cost episode in a manner that provides that 
                a home health agency has an incentive to be 
                cost efficient in delivering home health 
                services and that the volume of such services 
                does not increase as a result of factors other 
                than patient needs.
    ``(f) Special Rule for Christian Science Providers.--
            ``(1) Payment permitted for services.--
        Notwithstanding any other provision of this title, 
        payment shall be made under this title for home health 
        services furnished by Christian Science providers who 
        meet applicable requirements of the First Church of 
        Christ, Scientist, Boston, Massachusetts, and are 
        certified for purposes of this title under criteria 
        established by the Secretary, in accordance with a 
        payment methodology established by the Secretary.
            ``(2) Effective date.--Paragraph (1) shall apply to 
        services furnished during cost reporting periods which 
        begin after the earlier of--
                    ``(A) the date on which the Secretary 
                establishes the payment methodology and the 
                certification criteria described in paragraph 
                (1), or
                    ``(B) July 1, 1996.
    ``(g) Report by Medicare Payment Review Commission.--During 
the first 3 years in which payments are made under this 
section, the Medicare Payment Review Commission shall annually 
submit a report to Congress on the effectiveness of the payment 
methodology established under this section that shall include 
recommendations regarding the following:
            ``(1) Case-mix and volume increases.
            ``(2) Quality monitoring of home health agency 
        practices.
            ``(3) Whether a capitated payment for home care 
        patients receiving care during a continuous period 
        exceeding 165 days is warranted.
            ``(4) Whether public providers of service are 
        adequately reimbursed.
            ``(5) On the adequacy of the exemptions and 
        exceptions to the limits provided under subsection 
        (c)(1)(E).
            ``(6) The appropriateness of the methods provided 
        under this section to adjust the per episode limits and 
        annual payment updates to reflect changes in the mix of 
        services, number of visits, and assignment to case 
        categories to reflect changing patterns of home health 
        care.
            ``(7) The geographic areas used to determine the 
        per episode limits.''.
    (b) Payment for Prosthetics and Orthotics Under Part A.--
Section 1814(k) (42 U.S.C. 1395f(k)) is amended--
            (1) by inserting ``and prosthetics and orthotics'' 
        after ``durable medical equipment''; and
            (2) by inserting ``and 1834(h), respectively'' 
        after ``1834(a)(1)''.
    (c) Conforming Amendments.--
            (1) Payments under part a.--Section 1814(b) (42 
        U.S.C. 1395f(b)), as amended by section 8412(b), is 
        amended in the matter preceding paragraph (1) by 
        striking ``1888 and 1888A'' and inserting ``1888, 
        1888A, and 1894''.
            (2) Treatment of items and services paid under part 
        b.--
                    (A) Payments under part b.--Section 
                1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended--
                            (i) by amending subparagraph (A) to 
                        read as follows:
                    ``(A) with respect to home health 
                services--
                            ``(i) that are a type of home 
                        health service described in section 
                        1894(a)(2), and which are furnished to 
                        an individual who (at the time the item 
                        or service is furnished) is under a 
                        plan of care of a home health agency, 
                        the amount determined under section 
                        1894;
                            ``(ii) that are not described in 
                        clause (i) (other than a covered 
                        osteoporosis drug) (as defined in 
                        section 1861(kk)), the lesser of--
                                    ``(I) the reasonable cost 
                                of such services, as determined 
                                under section 1861(v), or
                                    ``(II) the customary 
                                charges with respect to such 
                                services;''.
                            (ii) by striking ``and'' at the end 
                        of subparagraph (E);
                            (iii) by adding ``and'' at the end 
                        of subparagraph (F); and
                            (iv) by adding at the end the 
                        following new subparagraph:
                    ``(G) with respect to items and services 
                described in section 1861(s)(10)(A), the lesser 
                of--
                            ``(i) the reasonable cost of such 
                        services, as determined under section 
                        1861(v), or
                            ``(ii) the customary charges with 
                        respect to such services,
                or, if such services are furnished by a public 
                provider of services, or by another provider 
                which demonstrates to the satisfaction of the 
                Secretary that a significant portion of its 
                patients are low-income (and requests that 
                payment be made under this provision), free of 
                charge or at nominal charges to the public, the 
                amount determined in accordance with section 
                1814(b)(2);''.
                    (B) Requiring payment for all items and 
                services to be made to agency.--
                            (i) In general.--The first sentence 
                        of section 1842(b)(6) (42 U.S.C. 
                        1395u(b)(6)), as amended by section 
                        8415(a)(1), is amended--
                                    (I) by striking ``and (E)'' 
                                and inserting ``(E)''; and
                                    (II) by striking the period 
                                at the end and inserting the 
                                following: ``, and (F) in the 
                                case of types of home health 
                                services described in section 
                                1894(a)(2) furnished to an 
                                individual who (at the time the 
                                item or service is furnished) 
                                is under a plan of care of a 
                                home health agency, payment 
                                shall be made to the agency 
                                (without regard to whether or 
                                not the item or service was 
                                furnished by the agency, by 
                                others under arrangement with 
                                them made by the agency, or 
                                when any other contracting or 
                                consulting arrangement, or 
                                otherwise).''.
                            (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)) is 
                        amended by striking ``(2);'' and 
                        inserting ``(2) and section 
                        1842(b)(6)(F);''.
                    (C) Exclusions from coverage.--Section 
                1862(a) (42 U.S.C. 1395y(a)), as amended by 
                section 8415(a)(2), is amended--
                            (i) by striking ``or'' at the end 
                        of paragraph (15);
                            (ii) by striking the period at the 
                        end of paragraph (16) and inserting 
                        ``or''; and
                            (iii) by adding at the end the 
                        following new paragraph:
            ``(17) where such expenses are for home health 
        services furnished to an individual who is under a plan 
        of care of the home health agency if the claim for 
        payment for such services is not submitted by the 
        agency.''.
            (3) Sunset of reasonable cost limitations.--Section 
        1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)) is amended by 
        adding at the end the following new clause:
    ``(iv) This subparagraph shall apply only to services 
furnished by home health agencies during cost reporting periods 
ending on or before September 30, 1996.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to cost reporting periods beginning on or after 
October 1, 1996.

SEC. 8602. MAINTAINING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
                    PAYMENT INCREASES FOR HOME HEALTH SERVICES.

    (a) Basing Updates to Per Visit Cost Limits on Limits for 
Fiscal Year 1993.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by adding at the end the 
following sentence: ``In establishing limits under this 
subparagraph, the Secretary may not take into account any 
changes in the costs of the provision of services furnished by 
home health agencies with respect to cost reporting periods 
which began on or after July 1, 1994, and before July 1, 
1996.''.
    (b) No Exceptions Permitted Based on Amendment.--The 
Secretary of Health and Human Services shall not consider the 
amendment made by subsection (a) in making any exemptions and 
exceptions pursuant to section 1861(v)(1)(L)(ii) of the Social 
Security Act.

SEC. 8603. EXTENSION OF WAIVER OF PRESUMPTION OF LACK OF KNOWLEDGE OF 
                    EXCLUSION FROM COVERAGE FOR HOME HEALTH AGENCIES.

    Section 9305(g)(3) of OBRA-1986, as amended by section 
426(d) of the Medicare Catastrophic Coverage Act of 1988 and 
section 4207(b)(3) of the OBRA-1990 (as renumbered by section 
160(d)(4) of the Social Security Act Amendments of 1994), is 
amended by striking ``December 31, 1995'' and inserting 
``September 30, 1996.''.

SEC. 8604. EXTENSION OF PERIOD OF HOME HEALTH AGENCY CERTIFICATION.

    Section 1891(c)(2)(A) (42 U.S.C. 1395bbb(c)(2)(A)) is 
amended--
            (1) by striking ``15 months'' and inserting ``36 
        months''; and
            (2) by striking the second sentence and inserting 
        the following: ``The Secretary shall establish a 
        frequency for surveys of home health agencies within 
        this 36-month interval commensurate with the need to 
        assure the delivery of quality home health services.''.

             PART 2--MEDICARE SECONDARY PAYER IMPROVEMENTS

SEC. 8611. EXTENSION AND EXPANSION OF EXISTING REQUIREMENTS.

    (a) Data Match.--
            (1) Section 1862(b)(5)(C) (42 U.S.C. 
        1395y(b)(5)(C)) is amended by striking clause (iii).
            (2) Section 6103(l)(12) of the Internal Revenue 
        Code of 1986 is amended by striking subparagraph (F).
    (b) Application to Disabled Individuals in Large Group 
Health Plans.--
            (1) In general.--Section 1862(b)(1)(B) (42 U.S.C. 
        1395y(b)(1)(B)) is amended--
                    (A) in clause (i), by striking ``clause 
                (iv)'' and inserting ``clause (iii)'',
                    (B) by striking clause (iii), and
                    (C) by redesignating clause (iv) as clause 
                (iii).
            (2) Conforming amendments.--Paragraphs (1) through 
        (3) of section 1837(i) (42 U.S.C. 1395p(i)) and the 
        second sentence of section 1839(b) (42 U.S.C. 1395r(b)) 
        are each amended by striking ``1862(b)(1)(B)(iv)'' each 
        place it appears and inserting ``1862(b)(1)(B)(iii)''.
    (c) Individuals With End Stage Renal Disease.--Section 
1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is amended--
            (1) in the last sentence by striking ``October 1, 
        1998'' and inserting ``the date of the enactment of the 
        Medicare Preservation Act of 1995''; and
            (2) by adding at the end the following new 
        sentence: ``Effective for items and services furnished 
        on or after the date of the enactment of the Medicare 
        Preservation Act of 1995, (with respect to periods 
        beginning on or after the date that is 18 months prior 
        to such date), clauses (i) and (ii) shall be applied by 
        substituting `30-month' for `12-month' each place it 
        appears.''.

SEC. 8612. IMPROVEMENTS IN RECOVERY OF PAYMENTS.

    (a) Permitting Recovery Against Third Party Administrators 
of Primary Plans.--Section 1862(b)(2)(B)(ii) (42 U.S.C. 
1395y(b)(2)(B)(ii)) is amended--
            (1) by striking ``under this subsection to pay'' 
        and inserting ``(directly, as a third-party 
        administrator, or otherwise) to make payment'', and
            (2) by adding at the end the following: ``The 
        United States may not recover from a third-party 
        administrator under this clause in cases where the 
        third-party administrator would not be able to recover 
        the amount at issue from the employer or group health 
        plan for whom it provides administrative services due 
        to the insolvency or bankruptcy of the employer or 
        plan.''.
    (b) Extension of Claims Filing Period.--Section 
1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B)) is amended by adding 
at the end the following new clause:
                            ``(v) Claims-filing period.--
                        Notwithstanding any other time limits 
                        that may exist for filing a claim under 
                        an employer group health plan, the 
                        United States may seek to recover 
                        conditional payments in accordance with 
                        this subparagraph where the request for 
                        payment is submitted to the entity 
                        required or responsible under this 
                        subsection to pay with respect to the 
                        item or service (or any portion 
                        thereof) under a primary plan within 
                        the 3-year period beginning on the date 
                        on which the item or service was 
                        furnished.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after the 
date of the enactment of this Act.

        CHAPTER 3--OTHER ITEMS AND SERVICES UNDER PARTS A AND B

SEC. 8621. MEDICARE COVERAGE OF CERTAIN ANTI-CANCER DRUG TREATMENTS.

    (a) Coverage of Certain Self-Administered Anticancer 
Drugs.--Section 1861(s)(2)(Q) (42 U.S.C. 1395x(s)(2)(Q)) is 
amended--
            (1) by striking ``(Q)'' and inserting ``(Q)(i)''; 
        and
            (2) by striking the semicolon at the end and 
        inserting ``, and''; and
            (3) by adding at the end the following:
    ``(ii) an oral drug (which is approved by the Federal Food 
and Drug Administration) prescribed for use as an anticancer 
nonsteroidal antiestrogen for the treatment of breast cancer, 
but only if the manufacturer of such drug has in effect a 
rebate agreement with the Secretary with respect to such drug 
which has substantially similar terms and conditions to the 
terms and conditions for such agreements under section 1927 (as 
such section is in effect on the date of the enactment of this 
clause);''.
    (b) Uniform Coverage of Anticancer Drugs in All Settings.--
Section 1861(t)(2)(A) (42 U.S.C. 1395x(t)(2)(A)) is amended by 
inserting ``(including a nonsteroidal antiestrogen regimen)'' 
after ``regimen''.
    (c) Conforming Amendment.--Section 1834(j)(5)(F)(iv) (42 
U.S.C. 1395m(j)(5)(F)(iv)) is amended by striking ``prescribed 
for use'' and all that follows through ``1861(s)(2)(Q))'' and 
inserting ``described in section 1861(s)(2)(Q)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to drugs furnished on or after January 1, 1996.

SEC. 8622. ADMINISTRATIVE PROVISIONS.

    (a) Indian Health Service Facilities.--Nothing in this Act 
shall be construed to change the status under title XVIII of 
the Social Security Act (42 U.S.C. 1395 et seq.) of--
            (1) a Federally qualified health center (as defined 
        in section 1861(aa)(4) of such Act) which is an 
        outpatient health program or facility operated by a 
        tribe or tribal organization under the Indian Self-
        Determination Act or by an urban Indian organization 
        receiving funds under title V of the Indian Health Care 
        Improvement Act; or
            (2) hospitals or skilled nursing facilities of the 
        Indian Health Service, whether operated by such Service 
        or by an Indian tribe or tribal organization (as those 
        terms are defined in section 4 of the Indian Health 
        Care Improvement Act), that are eligible for payments 
        under title XVIII of the Social Security Act, in 
        accordance with section 1880 of such Act (42 U.S.C. 
        1395qq).
    (b) Conforming Amendment to Certification of Christian 
Science Providers.--
            (1) Hospitals.--Section 1861(e) (42 U.S.C. 
        1395x(e)) is amended in the sixth sentence by striking 
        ``the First Church of Christ, Scientist, Boston, 
        Massachusetts,'' and inserting ``the Commission for 
        Accreditation of Christian Science Nursing 
        Organizations/Facilities, Inc.,''.
            (2) Skilled nursing facilities.--Section 1861(y)(1) 
        (42 U.S.C. 1395x(y)(1)) is amended by striking ``the 
        First Church of Christ, Scientist, Boston, 
        Massachusetts,'' and inserting ``the Commission for 
        Accreditation of Christian Science Nursing 
        Organizations/Facilities, Inc.,''.
            (3) General provisions.--
                    (A) Uniform reporting systems.--Section 
                1122(h) (42 U.S.C. 1320a-1(h)) is amended by 
                striking ``the First Church of Christ, 
                Scientist, Boston, Massachusetts'' and 
                inserting ``the Commission for Accreditation of 
                Christian Science Nursing Organizations/
                Facilities, Inc.''.
                    (B) Peer review.--Section 1162 (42 U.S.C. 
                1320c-11) is amended by striking ``the First 
                Church of Christ, Scientist, Boston, 
                Massachusetts'' and inserting ``the Commission 
                for Accreditation of Christian Science Nursing 
                Organizations/Facilities, Inc.''.
            (4) Effective date.--The amendments made by this 
        subsection shall take effect on January 1, 1997.

                          CHAPTER 4--FAILSAFE

SEC. 8631. FAILSAFE BUDGET MECHANISM.

      (a) In General.--Title XVIII, as amended by sections 
8102(a) and 8601(a), is amended by adding at the end the 
following new section:


                      ``failsafe budget mechanism


      ``Sec. 1895. (a) Requirement of Payment Adjustments To 
Achieve Medicare Budget Targets.--
            ``(1) In general.--If the Secretary determines 
        under subsection (e)(3)(C) before a fiscal year 
        (beginning with fiscal year 1998) that--
                    ``(A) the fee-for-service expenditures (as 
                defined in subsection (f) for all sectors of 
                medicare services (as defined in subsection 
                (b)) for the fiscal year, will exceed
                    ``(B) the sum of the allotments specified 
                under subsection (c)(2) for such fiscal year 
                (taking into account any adjustment in the 
                allotment under subsection (g) for that fiscal 
                year) for all sectors,
        then, notwithstanding any other provisions of this 
        title, there shall be an adjustment (consistent with 
        subsection (d)) in applicable payment rates or payments 
        for items and services included in each excess spending 
        sector in the fiscal year. In this section, the term 
        `aggregate excess spending' means, for a fiscal year, 
        the amount by which the amount described in 
        subparagraph (A) (for the fiscal year) exceeds the 
        amount described in subparagraph (B) for such year.
            ``(2) Excess spending sector.--In this section, the 
        term `excess spending sector' means, for a fiscal year, 
        a sector of medicare services for which the Secretary 
        determines under subsection (e)(3)(C)--
                    ``(A) the fee-for-service expenditures (as 
                defined in subsection (f)) for all the fiscal 
                year, will exceed
                    ``(B) the allotment specified under 
                subsection (c)(2) for such fiscal year (taking 
                into account any adjustment in the allotment 
                under subsection (g) for that fiscal year).
        In this section, the term `excess spending' means, for 
        a fiscal year with respect to such a sector, the amount 
        by which the amount described in subparagraph (A) (for 
        the fiscal year and sector) exceeds the amount 
        described in subparagraph (B) for such year and sector.
      ``(b) Sectors of Medicare Services Described.--
            ``(1) In general.--For purposes of this section, 
        items and services included under each of the following 
        subparagraphs shall be considered to be a separate 
        `sector' of medicare services:
                    ``(A) Inpatient hospital services.
                    ``(B) Home health services.
                    ``(C) Extended care services (for 
                inpatients of skilled nursing facilities).
                    ``(D) Hospice care.
                    ``(E) Physicians' services (including 
                services and supplies described in section 
                1861(s)(2)(A)) and services of other health 
                care professionals (including certified 
                registered nurse anesthetists, nurse 
                practitioners, physician assistants, and 
                clinical psychologists) for which separate 
                payment is made under this title.
                    ``(F) Outpatient hospital services and 
                ambulatory facility services.
                    ``(G) Durable medical equipment and 
                supplies, including prosthetic devices and 
                orthotics.
                    ``(H) Diagnostic tests (including clinical 
                laboratory services and x-ray services).
                    ``(I) Other items and services.
            ``(2) Classification of items and services.--The 
        Secretary shall classify each type of items and 
        services covered and paid for separately under this 
        title into one of the sectors specified in paragraph 
        (1). After publication of such classification under 
        subsection (e)(1), the Secretary is not authorized to 
        make substantive changes in such classification.
      ``(c) Allotment.--
            ``(1) Allotments for each sector.--For purposes of 
        this section, subject to subsection (g)(1), the 
        allotment for a sector of medicare services for a 
        fiscal year is equal to the product of--
                    ``(A) the total allotment for the fiscal 
                year established under paragraph (2), and
                    ``(B) the allotment proportion (specified 
                under paragraph (3)) for the sector and fiscal 
                year involved.
            ``(2) Total allotment.--
                    ``(A) In general.--For purposes of this 
                section, the total allotment for a fiscal year 
                is equal to--
                            ``(i) the medicare benefit budget 
                        for the fiscal year (as specified under 
                        subparagraph (B)), reduced by
                            ``(ii) the amount of payments the 
                        Secretary estimates will be made in the 
                        fiscal year under the MedicarePlus 
                        program under part C.
                In making the estimate under clause (ii), the 
                Secretary shall take into account estimated 
                enrollment and demographic profile of 
                individuals electing MedicarePlus products.
                    ``(B) Medicare benefit budget.--For 
                purposes of this subsection, subject to 
                subparagraph (C), the `medicare benefit 
                budget'--
                            ``(i) for fiscal year 1996 is 
                        $194.2 billion;
                            ``(i) for fiscal year 1997 is 
                        $206.3 billion;
                            ``(ii) for fiscal year 1998 is 
                        $217.8 billion;
                            ``(iii) for fiscal year 1999 is 
                        $229.2 billion;
                            ``(iv) for fiscal year 2000 is 
                        $247.2 billion;
                            ``(v) for fiscal year 2001 is 
                        $266.4 billion;
                            ``(vi) for fiscal year 2002 is 
                        $289.0 billion; and
                            ``(vii) for a subsequent fiscal 
                        year is equal to the medicare benefit 
                        budget under this subparagraph for the 
                        preceding fiscal year multiplied by the 
                        product of (I) 1.05, and (II) 1 plus 
                        the annual percentage increase in the 
                        average number of medicare 
                        beneficiaries from the previous fiscal 
                        year to the fiscal year involved.
            ``(3) Medicare allotment proportions defined.--
                    ``(A) In general.--For purposes of this 
                section and with respect to a sector of 
                medicare services for a fiscal year, the term 
                `medicare allotment proportion' means the ratio 
                of--
                            ``(i) the baseline-projected 
                        medicare expenditures (as determined 
                        under subparagraph (B)) for the sector 
                        for the fiscal year, to
                            ``(ii) the sum of such baseline 
                        expenditures for all such sectors for 
                        the fiscal year.
                    ``(B) Baseline-projected medicare 
                expenditures.--In this paragraph, the 
                `baseline, projected medicare expenditures' for 
                a sector of medicare services--
                            ``(i) for fiscal year 1996 is equal 
                        to fee-for-service expenditures for 
                        such sector during fiscal year 1995, 
                        increased by the baseline annual growth 
                        rate for such sector of medicare 
                        services for fiscal year 1996 (as 
                        specified in table in subparagraph 
                        (C)); and
                            ``(ii) for a subsequent fiscal year 
                        is equal to the baseline-projected 
                        medicare expenditures under this 
                        subparagraph for the sector for the 
                        previous fiscal year increased by the 
                        baseline annual growth rate for such 
                        sector for the fiscal year involved (as 
                        specified in such table).
                    ``(C) Baseline annual growth rates.--The 
                following table specifies the baseline annual 
                growth rates for each of the sectors for 
                different fiscal years:

----------------------------------------------------------------------------------------------------------------
                                                               Baseline annual growth rates for fiscal year--   
                                                           -----------------------------------------------------
               ``For the following sector--                                                            2002 and 
                                                             1996   1997   1998   1999   2000   2001  thereafter
----------------------------------------------------------------------------------------------------------------
(A) Inpatient hospital services...........................    5.7    5.6    6.0    6.1    5.7    5.5       5.2  
(B) Home health services..................................   17.2   15.1   11.7    9.1    8.4    8.1       7.9  
(C) Extended care services................................   19.7   12.3    9.3    8.7    8.6    8.4       8.0  
(D) Hospice care..........................................   32.0   24.0   18.0   15.0   12.0   10.0       9.0  
(E) Physicians' services..................................   12.4    9.7    8.7    9.0    9.3    9.6      10.1  
(F) Outpatient hospital services..........................   14.7   13.9   14.5   15.0   14.1   13.9      14.0  
(G) Durable medical equipment and supplies................   16.1   15.5   13.7   12.4   13.2   13.9      14.5  
(H) Diagnostic tests......................................   13.1   11.3   11.0   11.4   11.4   11.5      11.9  
(I) Other items and services..............................   11.2   10.2   10.9   12.0   11.6   11.6      11.8  
----------------------------------------------------------------------------------------------------------------

      ``(d) Manner of Payment Adjustment.--
            ``(1) Payment reductions.--
                    ``(A) In general.--Subject to the 
                succeeding provisions of this subsection, the 
                Secretary shall apply a payment reduction for 
                each excess spending sector for a fiscal year 
                in such a manner as to--
                            ``(i) make a change in payment 
                        rates (to the maximum extent 
                        practicable) at the time payment rates 
                        are otherwise changed or subject to 
                        change for that fiscal year; and
                            ``(ii) provide for the full 
                        appropriate adjustment so that the fee-
                        for-service expenditures for the sector 
                        for the fiscal year will be reduced by 
                        133\1/3\ percent of the amount of the 
                        sector reduction target for that 
                        sector.
                    ``(B) Sector reduction target.--In 
                paragraph (1), the `sector reduction target' 
                for an excess spending sector for a fiscal year 
                is equal to the product of--
                            ``(i) the amount of the excess 
                        spending for such sector and year (as 
                        defined in subsection (a)(2)); and
                            ``(ii) the ratio of--
                                    ``(I) the aggregate excess 
                                spending for the year (as 
                                defined in subsection (a)(1)), 
                                to
                                    ``(II) the sum of the 
                                amounts of the excess spending 
                                for all excess spending 
                                sectors.
            ``(2) Taking into account volume and cash flow.--In 
        providing for an adjustment in payments under this 
        subsection for a sector for a fiscal year, the 
        Secretary shall take into account (in a manner 
        consistent with actuarial projections)--
                    ``(A) the impact of such an adjustment on 
                the volume or type of services provided in such 
                sector (and other sectors), and
                    ``(B) the fact that an adjustment may apply 
                to items and services furnished in a fiscal 
                year (payment for which may occur in a 
                subsequent fiscal year),
        in a manner that is consistent with assuring that total 
        fee-for-services expenditures for each sector for the 
        fiscal year will not exceed the allotment under 
        subsection (c)(1) for such sector for such year.
            ``(3) Proportionality of reductions within a 
        sector.--In making adjustments under this subsection in 
        payment for items and services included within a sector 
        of medicare services for a fiscal year, the Secretary 
        shall provide for such an adjustment that results (to 
        the maximum extent feasible) in the same percentage 
        reductions in aggregate Federal payments under parts A 
        and B for the different classes of items and services 
        included within the sector for the fiscal year.
            ``(4) Application to payments made based on 
        prospective payment rates determined on a fiscal year 
        basis.--
                    ``(A) In general.--In applying subsection 
                (a) with respect to items and services for 
                which payment is made under part A or B on the 
                basis of rates that are established on a 
                prospective basis for (and in advance of) a 
                fiscal year, the Secretary shall provide for 
                the payment adjustment under such subsection 
                through an appropriate reduction in such rates 
                established for items and services furnished 
                (or, in the case of payment for operating costs 
                of inpatient hospital services of subsection 
                (d) hospitals and subsection (d) Puerto Rico 
                hospitals (as defined in paragraphs (1)(B) and 
                (9)(A) of section 1886(d)), discharges 
                occurring) during such year.
                    ``(B) Description of application to 
                specific services.--The payment adjustment 
                described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                            ``(i) Update factor for payment for 
                        operating costs of inpatient hospital 
                        services of pps hospitals.--To the 
                        computation of the applicable 
                        percentage increase specified in 
                        section 1886(d)(3)(B)(i) for discharges 
                        occurring in the fiscal year.
                            ``(ii) Home health services.--To 
                        the extent payment amounts for home 
                        health services are based on per visit 
                        payment rates under section 1894, to 
                        the computation of the increase in the 
                        national per visit payment rates 
                        established for the year under section 
                        1894(b)(2)(B).
                            ``(iii) Hospice care.--To the 
                        update of payment rates for hospice 
                        care under section 1814(i) for services 
                        furnished during the fiscal year.
                            ``(iv) Update factor for payment of 
                        operating costs of inpatient hospital 
                        services of pps-exempt hospitals.--To 
                        the computation of the target amount 
                        under section 1886(b)(3) for discharges 
                        occurring during the fiscal year.
                            ``(v) Covered non-routine services 
                        of skilled nursing facilities.--To the 
                        computation of the facility per stay 
                        limits for the year under section 
                        1888A(d) for covered non-routine 
                        services of a skilled nursing facility 
                        (as described in such section).
            ``(5) Application to payments made based on 
        prospective payment rates determined on a calendar year 
        basis.--
                    ``(A) In general.--In applying subsection 
                (a) for a fiscal year with respect to items and 
                services for which payment is made under part A 
                or B on the basis of rates that are established 
                on a prospective basis for (and in advance of) 
                a calendar year, the Secretary shall provide 
                for the payment adjustment under such 
                subsection through an appropriate reduction in 
                such rates established for items and services 
                furnished at any time during such calendar year 
                as follows:
                            ``(i) For fiscal year 1997, the 
                        reduction shall be made for payment 
                        rates during calendar year 1997 in a 
                        manner so as to achieve the necessary 
                        payment reductions for such fiscal year 
                        for items and services furnished during 
                        the first 3 quarters of calendar year 
                        1997.
                            ``(ii) For a subsequent fiscal 
                        year, the reduction shall be made for 
                        payment rates during the calendar year 
                        in which the fiscal year ends in a 
                        manner so as to achieve the necessary 
                        payment reductions for such fiscal year 
                        for items and services furnished during 
                        the first 3 quarters of the calendar 
                        year, but also taking into account the 
                        payment reductions made in the first 
                        quarter of the fiscal year resulting 
                        from payment reductions made under this 
                        paragraph for the previous calendar 
                        year.
                            ``(iii) Payment rate reductions 
                        effected under this subparagraph for a 
                        calendar year and applicable to the 
                        last 3 quarters of the fiscal year in 
                        which the calendar year ends shall 
                        continue to apply during the first 
                        quarter of the succeeding fiscal year.
                    ``(B) Application in specific cases.--The 
                payment adjustment described in subparagraph 
                (A) applies for a fiscal year to at least the 
                following:
                            ``(i) Update in conversion factor 
                        for physicians' services.--To the 
                        computation of the conversion factor 
                        under subsection (d) of section 1848 
                        used in the fee schedule established 
                        under subsection (b) of such section 
                        for items and services furnished during 
                        the calendar year in which the fiscal 
                        year ends.
                            ``(ii) Payment rates for other 
                        health care professionals.--To the 
                        computation of payments for 
                        professional services, furnished during 
                        the calendar year in which the fiscal 
                        year ends, of certified registered 
                        nurse anesthetists under section 
                        1833(l), nurse midwives, physician 
                        assistants, nurse practitioners and 
                        clinical nurse specialists under 
                        section 1833(r), clinical 
                        psychologists, clinical social workers, 
                        physical or occupational therapists, 
                        and any other health professionals for 
                        which payment rates are based (in whole 
                        or in part) on payments for physicians' 
                        services.
                            ``(iii) Update in lab fee 
                        schedule.--To the computation of the 
                        fee schedule amount under section 
                        1833(h)(2) for clinical diagnostic 
                        laboratory services furnished during 
                        the calendar year in which the fiscal 
                        year ends.
                            ``(iv) Update in reasonable charges 
                        for vaccines.--To the computation of 
                        the reasonable charge for vaccines 
                        described in section 1861(s)(10) for 
                        vaccines furnished during the calendar 
                        year in which the fiscal year ends.
                            ``(v) Durable medical equipment-
                        related items.--To the computation of 
                        the payment basis under section 
                        1834(a)(1)(B) for covered items 
                        described in section 1834(a)(13), for 
                        services furnished during the calendar 
                        year in which the fiscal year ends.
                            ``(vi) Radiologist services.--To 
                        the computation of conversion factors 
                        for radiologist services under section 
                        1834(b), for services furnished during 
                        the calendar year in which the fiscal 
                        year ends.
                            ``(vii) Screening mammography.--To 
                        the computation of payment rates for 
                        screening mammography under section 
                        1834(c)(1)(C)(ii), for screening 
                        mammography performed during the 
                        calendar year in which the fiscal year 
                        ends.
                            ``(viii) Prosthetics and 
                        orthotics..--To the computation of the 
                        amount to be recognized under section 
                        1834(h) for payment for prosthetic 
                        devices and orthotics and prosthetics, 
                        for items furnished during the calendar 
                        year in which the fiscal year ends.
                            ``(ix) Surgical dressings.--To the 
                        computation of the payment amount 
                        referred to in section 1834(i)(1)(B) 
                        for surgical dressings, for items 
                        furnished during the calendar year in 
                        which the fiscal year ends.
                            ``(x) Parenteral and enteral 
                        nutrition.--To the computation of 
                        reasonable charge screens for payment 
                        for parenteral and enteral nutrition 
                        under section 1834(h), for nutrients 
                        furnished during the calendar year in 
                        which the fiscal year ends.
                            ``(xi) Ambulance services.--To the 
                        computation of limits on reasonable 
                        charges for ambulance services, for 
                        services furnished during the calendar 
                        year in which the fiscal year ends.
            ``(6) Application to payments made based on costs 
        during a cost reporting period.--
                    ``(A) In general.--In applying subsection 
                (a) for a fiscal year with respect to items and 
                services for which payment is made under part A 
                or B on the basis of costs incurred for items 
                and services in a cost reporting period, the 
                Secretary shall provide for the payment 
                adjustment under such subsection for a fiscal 
                year through an appropriate proportional 
                reduction in the payment for costs for such 
                items and services incurred at any time during 
                each cost reporting period any part of which 
                occurs during the fiscal year involved, but 
                only (for each such cost reporting period) in 
                the same proportion as the fraction of the cost 
                reporting period that occurs during the fiscal 
                year involved.
                    ``(B) Application in specific cases.--The 
                payment adjustment described in subparagraph 
                (A) applies for a fiscal year to at least the 
                following:
                            ``(i) Capital-related costs of 
                        hospital services.--To the computation 
                        of payment amounts for inpatient and 
                        outpatient hospital services under 
                        sections 1886(g) and 1861(v) for 
                        portions of cost reporting periods 
                        occurring during the fiscal year.
                            ``(ii) Operating costs for pps-
                        exempt hospitals.--To the computation 
                        of payment amounts under section 
                        1886(b) for operating costs of 
                        inpatient hospital services of PPS-
                        exempt hospitals for portions of cost 
                        reporting periods occurring during the 
                        fiscal year.
                            ``(iii) Direct graduate medical 
                        education.--To the computation of 
                        payment amounts under section 1886(h) 
                        for reasonable costs of direct graduate 
                        medical education costs for portions of 
                        cost reporting periods occurring during 
                        the fiscal year.
                            ``(iv) Inpatient rural primary care 
                        hospital services.--To the computation 
                        of payment amounts under section 
                        1814(j) for inpatient rural primary 
                        care hospital services for portions of 
                        cost reporting periods occurring during 
                        the fiscal year.
                            ``(v) Extended care services of a 
                        skilled nursing facility.--To the 
                        computation of payment amounts under 
                        section 1861(v) for post-hospital 
                        extended care services of a skilled 
                        nursing facility (other than covered 
                        non-routine services subject to section 
                        1888A) for portions of cost reporting 
                        periods occurring during the fiscal 
                        year.
                            ``(vi) Reasonable cost contracts.--
                        To the computation of payment amounts 
                        under section 1833(a)(1)(A) for 
                        organizations for portions of cost 
                        reporting periods occurring during the 
                        fiscal year.
                            ``(vii) Home health services.--
                        Subject to paragraph (4)(B)(ii), for 
                        payment amounts for home health 
                        services, for portions of cost 
                        reporting periods occurring during such 
                        fiscal year.
            ``(7) Other.--In applying subsection (a) for a 
        fiscal year with respect to items and services for 
        which payment is made under part A or B on a basis not 
        described in a previous paragraph of this subsection, 
        the Secretary shall provide for the payment adjustment 
        under such subsection through an appropriate 
        proportional reduction in the payments (or payment 
        bases for items and services furnished) during the 
        fiscal year.
            ``(8) Adjustment of payment limits.--The Secretary 
        shall provide for such proportional adjustment in any 
        limits on payment established under part A or B for 
        items and services within a sector as may be 
        appropriate based on (and in order to properly carry 
        out) the adjustment to the amount of payment under this 
        subsection in the sector.
            ``(9) References to payment rates.--Except as the 
        Secretary may provide, any reference in this title 
        (other than this section) to a payment rate is deemed a 
        reference to such a rate as adjusted under this 
        subsection.
      ``(e) Publication of Determinations; Judicial Review.--
            ``(1) One-time publication of sectors and general 
        payment adjustment methodology.--Not later than October 
        1, 1996, the Secretary shall publish in the Federal 
        Register the classification of medicare items and 
        services into the sectors of medicare services under 
        subsection (b) and the general methodology to be used 
        in applying payment adjustments to the different 
        classes of items and services within the sectors.
            ``(2) Inclusion of information in president's 
        budget.--
                    ``(A) In general.--With respect to fiscal 
                years beginning with fiscal year 1999, the 
                President shall include in the budget submitted 
                under section 1105 of title 31, United States 
                Code, information on--
                            ``(i) the fee-for-service 
                        expenditures, within each sector, for 
                        the second previous fiscal year, and 
                        how such expenditures compare to the 
                        adjusted sector allotment for that 
                        sector for that fiscal year, and
                            ``(ii) actual annual growth rates 
                        for fee-for-service expenditures in the 
                        different sectors in the second 
                        previous fiscal year.
                    ``(B) Recommendation regarding growth 
                factors.--The President may include in such 
                budget for a fiscal year (beginning with fiscal 
                year 1998) recommendations regarding 
                percentages that should be applied (for one or 
                more fiscal years beginning with that fiscal 
                year) instead of the baseline annual growth 
                rates under subsection (c)(3)(C). Such 
                recommendations shall take into account 
                medically appropriate practice patterns.
            ``(3) Determinations concerning payment 
        adjustments.--
                    ``(A) Recommendations of commission.--By 
                not later than March 1 of each year (beginning 
                with 1997), the Medicare Payment Review 
                Commission shall submit to the Secretary and 
                the Congress a report that analyzes the 
                previous operation (if any) of this section and 
                that includes recommendations concerning the 
                manner in which this section should be applied 
                for the following fiscal year:
                    ``(B) Preliminary notice by secretary.--Not 
                later than May 15 preceding the beginning of 
                each fiscal year (beginning with fiscal year 
                1998), the Secretary shall publish in the 
                Federal Register a notice containing the 
                Secretary's preliminary determination, for each 
                sector of medicare services, concerning the 
                following:
                            ``(i) the projected allotment under 
                        subsection (c) for such sector for the 
                        fiscal year.
                            ``(ii) Whether there will be a 
                        payment adjustment for items and 
                        services included in such sector for 
                        the fiscal year under subsection (a).
                            ``(iii) If there will be such an 
                        adjustment, the size of such adjustment 
                        and the methodology to be used in 
                        making such a payment adjustment for 
                        classes of items and services included 
                        in such sector.
                            ``(iv) Beginning with fiscal year 
                        1999, the fee-for-service expenditures 
                        for such sector for the second 
                        preceding fiscal year.
                Such notice shall include an explanation of the 
                basis for such determination. Determinations 
                under this subparagraph and subparagraph (C) 
                shall be based on the best data available at 
                the time of such determinations.
                    ``(C) Final determination.--Not later than 
                September 1 preceding the beginning of each 
                fiscal year (beginning with fiscal year 1998), 
                the Secretary shall publish in the Federal 
                Register a final determination, for each, 
                sector of medicare services, concerning the 
                matters described in subparagraph (B) and an 
                explanation of the reasons for any differences 
                between such determination and the preliminary 
                determination for such fiscal year published 
                under subparagraph (B).
            ``(4) Limitation on administrative or judicial 
        review.--There shall be no administrative or judicial 
        review under section 1878 or otherwise of--
                    ``(A) the classification of items and 
                services among the sectors of medicare services 
                under subsection (b),
                    ``(B) the determination of the amounts of 
                allotments for the different sectors of 
                medicare services under subsection (c),
                    ``(C) the determination of the amount (or 
                method of application) of any payment 
                adjustment under subsection (d), or
                    ``(D) any adjustment in an allotment 
                effected under subsection (g).
      ``(f) Fee-for-Service Expenditures Defined.--In this 
section, the term ``fee-for-service expenditures', for items 
and services within a sector of medicare services in a fiscal 
year, means amounts payable for such items and services which 
are furnished during the fiscal year, and--
            ``(1) includes types of expenses otherwise 
        reimbursable under parts A and B (including 
        administrative costs incurred by organizations 
        described in sections 1816 and 1842) with respect to 
        such items and services, and
            ``(2) does not include amounts paid under part C.
      ``(g) Look-Back Adjustment in Allotments To Reflect 
Actual Expenditures.--
            ``(1) Determinations.--
                    ``(A) In general.--If the Secretary 
                estimates under subsection (e)(3)(B) with 
                respect to a particular fiscal year (beginning 
                with fiscal year 1998) that--
                            ``(i) the fee-for-service 
                        expenditures for all sectors of 
                        medicare services for the second 
                        preceding fiscal year, exceeded
                            ``(ii) the sum of the adjusted 
                        allotments for all sectors for such 
                        year (as defined in paragraph (2)),
                    then the allotment for each final excess 
                spending sector (as defined in subparagraph 
                (B)(i)) for the particular fiscal year shall be 
                reduced by the look-back sector reduction 
                amount determined under subparagraph (B)(ii) 
                for such sector and year.
                    ``(B) Final excess spending sectors.--
                            ``(i) In general.--In this 
                        paragraph, the term final excess 
                        spending sector' means, for a fiscal 
                        year, a sector of medicare services for 
                        which the Secretary determines under 
                        subsection (e)(B) that--
                                    ``(I) the fee-for-service 
                                expenditures (as defined in 
                                subsection (f) for the fiscal 
                                year, exceeded
                                    ``(II) the adjusted 
                                allotment for such fiscal year.
                        For purposes of clause (ii), the term 
                        `final excess spending' means, for a 
                        fiscal year with respect to such a 
                        sector, the amount by which the amount 
                        described in subclause (I) (for the 
                        fiscal year and sector) exceeds the 
                        amount described in subclause (II) for 
                        such year and sector.
                            ``(ii) Look back sector reduction 
                        amount.--In subparagraph (A)(i), the 
                        `look back sector reduction amount' for 
                        a final excess spending sector for a 
                        fiscal year is equal to the product 
                        of--
                                    ``(I) the amount of the 
                                final excess spending for such 
                                sector and year (as defined in 
                                clause (i)); and
                                    ``(II) the ratio of--
                                            ``(a) the aggregate 
                                        final excess spending 
                                        for the year (described 
                                        in subparagraph 
                                        (A)(i)), to
                                            ``(b) the sum of 
                                        the amounts of the 
                                        final excess spending 
                                        for all final excess 
                                        spending sectors.
            ``(2) Adjusted allotment.--The adjusted allotment 
        under this paragraph for a sector for a fiscal year 
        is--
                    ``(A) the amount that would be computed as 
                the allotment under subsection (c) for the 
                sector for the fiscal year if the actual amount 
                of payments made in the fiscal year under the 
                MedicarePlus program under part C in the fiscal 
                year were substituted for the amount described 
                in subsection (c)(2)(A)(ii) for that fiscal 
                year,
                    ``(B) adjusted to take into account the 
                amount of any adjustment under paragraph (1) 
                for that fiscal year (based on expenditures in 
                the second preceding fiscal year).''.
      (b) Report of Trustees on Growth Rate in Part A 
Expenditures.--Section 1817 (42 U.S.C. 1395i) is amended by 
adding at the end the following new subsection:
      ``(k) Each annual report provided in subsection (b)(2) 
shall include information regarding the annual rate of growth 
in program expenditures that would be required to maintain the 
financial solvency of the Trust Fund and the extent to which 
the provisions of section 1895 restrain the rate of growth of 
expenditures under this part in order to achieve such 
solvency.''.

                        Subtitle H--Rural Areas

SEC. 8701. MEDICARE-DEPENDENT, SMALL, RURAL HOSPITAL PAYMENT EXTENSION.

    (a) Special Treatment Extended.--
            (1) Payment methodology.--Section 1886(d)(5)(G) (42 
        U.S.C. 1395ww(d)(5)(G)) is amended--
                    (A) in clause (i), by striking ``October 1, 
                1994,'' and inserting ``October 1, 1994, or 
                beginning on or after September 1, 1995, and 
                before October 1, 2000,''; and
                    (B) in clause (ii)(II), by striking 
                ``October 1, 1994,'' and inserting ``October 1, 
                1994, or beginning on or after September 1, 
                1995, and before October 1, 2000,''.
            (2) Extension of target amount.--Section 
        1886(b)(3)(D) (42 U.S.C. 1395ww(b)(3)(D)) is amended--
                    (A) in the matter preceding clause (i), by 
                striking ``September 30, 1994,'' and inserting 
                ``September 30, 1994, and for cost reporting 
                periods beginning on or after September 1, 
                1995, and before October 1, 2000,'';
                    (B) in clause (ii), by striking ``and'' at 
                the end;
                    (C) in clause (iii), by striking the period 
                at the end and inserting ``, and''; and
                    (D) by adding at the end the following new 
                clause:
            ``(iv) with respect to discharges occurring during 
        September 1995 through fiscal year 1999, the target 
        amount for the preceding year increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv).''.
            (3) Permitting hospitals to decline 
        reclassification.--Section 13501(e)(2) of OBRA-93 (42 
        U.S.C. 1395ww note) is amended by striking ``or fiscal 
        year 1994'' and inserting ``, fiscal year 1994, fiscal 
        year 1995, fiscal year 1996, fiscal year 1997, fiscal 
        year 1998, or fiscal year 1999''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply with respect to discharges occurring on or after 
September 1, 1995.

SEC. 8702. MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM.

    (a) Medicare Rural Hospital Flexibility Program.--Section 
1820 (42 U.S.C. 1395i-4) is amended to read as follows:


             ``medicare rural hospital flexibility program


    ``Sec. 1820. (a) Establishment.--Any State that submits an 
application in accordance with subsection (b) may establish a 
medicare rural hospital flexibility program described in 
subsection (c).
    ``(b) Application.--A State may establish a medicare rural 
hospital flexibility program described in subsection (c) if the 
State submits to the Secretary at such time and in such form as 
the Secretary may require an application containing--
            ``(1) assurances that the State--
                    ``(A) has developed, or is in the process 
                of developing, a State rural health care plan 
                that--
                            ``(i) provides for the creation of 
                        one or more rural health networks (as 
                        defined in subsection (d)) in the 
                        State,
                            ``(ii) promotes regionalization of 
                        rural health services in the State, and
                            ``(iii) improves access to hospital 
                        and other health services for rural 
                        residents of the State;
                    ``(B) has developed the rural health care 
                plan described in subparagraph (A) in 
                consultation with the hospital association of 
                the State, rural hospitals located in the 
                State, and the State Office of Rural Health 
                (or, in the case of a State in the process of 
                developing such plan, that assures the 
                Secretary that the State will consult with its 
                State hospital association, rural hospitals 
                located in the State, and the State Office of 
                Rural Health in developing such plan);
            ``(2) assurances that the State has designated 
        (consistent with the rural health care plan described 
        in paragraph (1)(A)), or is in the process of so 
        designating, rural nonprofit or public hospitals or 
        facilities located in the State as critical access 
        hospitals; and
            ``(3) such other information and assurances as the 
        Secretary may require.
    ``(c) Medicare Rural Hospital Flexibility Program 
Described.--
            ``(1) In general.--A State that has submitted an 
        application in accordance with subsection (b), may 
        establish a medicare rural hospital flexibility program 
        that provides that--
                    ``(A) the State shall develop at least one 
                rural health network (as defined in subsection 
                (d)) in the State; and
                    ``(B) at least one facility in the State 
                shall be designated as a critical access 
                hospital in accordance with paragraph (2).
            ``(2) State designation of facilities.--
                    ``(A) In general.--A State may designate 
                one or more facilities as a critical access 
                hospital in accordance with subparagraph (B).
                    ``(B) Criteria for designation as critical 
                access hospital.--A State may designate a 
                facility as a critical access hospital if the 
                facility--
                            ``(i) is located in a county (or 
                        equivalent unit of local government) in 
                        a rural area (as defined in section 
                        1886(d)(2)(D)) that--
                                    ``(I) is located more than 
                                a 35-mile drive from a 
                                hospital, or another facility 
                                described in this subsection, 
                                or
                                    ``(II) is certified by the 
                                State as being a necessary 
                                provider of health care 
                                services to residents in the 
                                area;
                            ``(ii) makes available 24-hour 
                        emergency care services that a State 
                        determines are necessary for ensuring 
                        access to emergency care services in 
                        each area served by a critical access 
                        hospital;
                            ``(iii) provides not more than 6 
                        acute care inpatient beds (meeting such 
                        standards as the Secretary may 
                        establish) for providing inpatient care 
                        for a period not to exceed 72 hours 
                        (unless a longer period is required 
                        because transfer to a hospital is 
                        precluded because of inclement weather 
                        or other emergency conditions), except 
                        that a peer review organization or 
                        equivalent entity may, on request, 
                        waive the 72-hour restriction on a 
                        case-by-case basis;
                            ``(iv) meets such staffing 
                        requirements as would apply under 
                        section 1861(e) to a hospital located 
                        in a rural area, except that--
                                    ``(I) the facility need not 
                                meet hospital standards 
                                relating to the number of hours 
                                during a day, or days during a 
                                week, in which the facility 
                                must be open and fully staffed, 
                                except insofar as the facility 
                                is required to make available 
                                emergency care services as 
                                determined under clause (ii) 
                                and must have nursing services 
                                available on a 24-hour basis, 
                                but need not otherwise staff 
                                the facility except when an 
                                inpatient is present,
                                    ``(II) the facility may 
                                provide any services otherwise 
                                required to be provided by a 
                                full-time, on-site dietitian, 
                                pharmacist, laboratory 
                                technician, medical 
                                technologist, and radiological 
                                technologist on a part-time, 
                                off-site basis under 
                                arrangements as defined in 
                                section 1861(w)(1), and
                                    ``(III) the inpatient care 
                                described in clause (iii) may 
                                be provided by a physician's 
                                assistant, nurse practitioner, 
                                or clinical nurse specialist 
                                subject to the oversight of a 
                                physician who need not be 
                                present in the facility; and
                            ``(v) meets the requirements of 
                        subparagraph (I) of paragraph (2) of 
                        section 1861(aa).
    ``(d) Rural Health Network Defined.--
            ``(1) In general.--For purposes of this section, 
        the term `rural health network' means, with respect to 
        a State, an organization consisting of--
                    ``(A) at least 1 facility that the State 
                has designated or plans to designate as a 
                critical access hospital, and
                    ``(B) at least 1 hospital that furnishes 
                acute care services.
            ``(2) Agreements.--
                    ``(A) In general.--Each critical access 
                hospital that is a member of a rural health 
                network shall have an agreement with respect to 
                each item described in subparagraph (B) with at 
                least 1 hospital that is a member of the 
                network.
                    ``(B) Items described.--The items described 
                in this subparagraph are the following:
                            ``(i) Patient referral and 
                        transfer.
                            ``(ii) The development and use of 
                        communications systems including (where 
                        feasible)--
                                    ``(I) telemetry systems, 
                                and
                                    ``(II) systems for 
                                electronic sharing of patient 
                                data.
                            ``(iii) The provision of emergency 
                        and non-emergency transportation among 
                        the facility and the hospital.
                    ``(C) Credentialing and quality 
                assurance.--Each critical access hospital that 
                is a member of a rural health network shall 
                have an agreement with respect to credentialing 
                and quality assurance with at least 1--
                            ``(i) hospital that is a member of 
                        the network;
                            ``(ii) peer review organization or 
                        equivalent entity; or
                            ``(iii) other appropriate and 
                        qualified entity identified in the 
                        State rural health care plan.
    ``(e) Certification by the Secretary.--The Secretary shall 
certify a facility as a critical access hospital if the 
facility--
            ``(1) is located in a State that has established a 
        medicare rural hospital flexibility program in 
        accordance with subsection (c);
            ``(2) is designated as a critical access hospital 
        by the State in which it is located; and
            ``(3) meets such other criteria as the Secretary 
        may require.
    ``(f) Permitting Maintenance of Swing Beds.--Nothing in 
this section shall be construed to prohibit a State from 
designating or the Secretary from certifying a facility as a 
critical access hospital solely because, at the time the 
facility applies to the State for designation as a critical 
access hospital, there is in effect an agreement between the 
facility and the Secretary under section 1883 under which the 
facility's inpatient hospital facilities are used for the 
furnishing of extended care services, except that the number of 
beds used for the furnishing of such services may not exceed 12 
beds (minus the number of inpatient beds used for providing 
inpatient care in the facility pursuant to subsection 
(c)(2)(B)(iii)). For purposes of the previous sentence, the 
number of beds of the facility used for the furnishing of 
extended care services shall not include any beds of a unit of 
the facility that is licensed as a distinct-part skilled 
nursing facility at the time the facility applies to the State 
for designation as a critical access hospital.
    ``(g) Waiver of Conflicting Part A Provisions.--The 
Secretary is authorized to waive such provisions of this part 
and part C as are necessary to conduct the program established 
under this section.''.
    (b) Part A Amendments Relating to Rural Primary Care 
Hospitals and Critical Access Hospitals.--
            (1) Definitions.--Section 1861(mm) (42 U.S.C. 
        1395x(mm)) is amended to read as follows:


     ``critical access hospital; critical access hospital services


    ``(mm)(1) The term `critical access hospital' means a 
facility certified by the Secretary as a critical access 
hospital under section 1820(e).
    ``(2) The term `inpatient critical access hospital 
services' means items and services, furnished to an inpatient 
of a critical access hospital by such facility, that would be 
inpatient hospital services if furnished to an inpatient of a 
hospital by a hospital.''.
            (2) Coverage and payment.--(A) Section 1812(a)(1) 
        (42 U.S.C. 1395d(a)(1)) is amended by striking ``or 
        inpatient rural primary care hospital services'' and 
        inserting ``or inpatient critical access hospital 
        services''.
            (B) Sections 1813(a) and section 1813(b)(3)(A) (42 
        U.S.C. 1395e(a), 1395e(b)(3)(A)) are each amended by 
        striking ``inpatient rural primary care hospital 
        services'' each place it appears, and inserting 
        ``inpatient critical access hospital services''.
            (C) Section 1813(b)(3)(B) (42 U.S.C. 
        1395e(b)(3)(B)) is amended by striking ``inpatient 
        rural primary care hospital services'' and inserting 
        ``inpatient critical access hospital services''.
            (D) Section 1814 (42 U.S.C. 1395f) is amended--
                    (i) in subsection (a)(8) by striking 
                ``rural primary care hospital'' each place it 
                appears and inserting ``critical access 
                hospital''; and
                    (ii) in subsection (b), by striking ``other 
                than a rural primary care hospital providing 
                inpatient rural primary care hospital 
                services,'' and inserting ``other than a 
                critical access hospital providing inpatient 
                critical access hospital services,''; and
                    (iii) by amending subsection (l) to read as 
                follows:
    ``(l) Payment for Inpatient Critical Access Hospital 
Services.--The amount of payment under this part for inpatient 
critical access hospital services is the reasonable costs of 
the critical access hospital in providing such services.''.
            (3) Treatment of critical access hospitals as 
        providers of services.--(A) Section 1861(u) (42 U.S.C. 
        1395x(u)) is amended by striking ``rural primary care 
        hospital'' and inserting ``critical access hospital''.
            (B) The first sentence of section 1864(a) (42 
        U.S.C. 1395aa(a)) is amended by striking ``a rural 
        primary care hospital'' and inserting ``a critical 
        access hospital''.
            (4) Conforming amendments.--(A) Section 1128A(b)(1) 
        (42 U.S.C. 1320a-7a(b)(1)) is amended by striking 
        ``rural primary care hospital'' each place it appears 
        and inserting ``critical access hospital''.
            (B) Section 1128B(c) (42 U.S.C. 1320a-7b(c)) is 
        amended by striking ``rural primary care hospital'' and 
        inserting ``critical access hospital''.
            (C) Section 1134 (42 U.S.C. 1320b-4) is amended by 
        striking ``rural primary care hospitals'' each place it 
        appears and inserting ``critical access hospitals''.
            (D) Section 1138(a)(1) (42 U.S.C. 1320b-8(a)(1)) is 
        amended--
                    (i) in the matter preceding subparagraph 
                (A), by striking ``rural primary care 
                hospital'' and inserting ``critical access 
                hospital''; and
                    (ii) in the matter preceding clause (i) of 
                subparagraph (A), by striking ``rural primary 
                care hospital'' and inserting ``critical access 
                hospital''.
            (E) Section 1816(c)(2)(C) (42 U.S.C. 
        1395h(c)(2)(C)) is amended by striking ``rural primary 
        care hospital'' and inserting ``critical access 
        hospital''.
            (F) Section 1833 (42 U.S.C. 1395l) is amended--
                    (i) in subsection (h)(5)(A)(iii), by 
                striking ``rural primary care hospital'' and 
                inserting ``critical access hospital'';
                    (ii) in subsection (i)(1)(A), by striking 
                ``rural primary care hospital'' and inserting 
                ``critical access hospital'';
                    (iii) in subsection (i)(3)(A), by striking 
                ``rural primary care hospital services'' and 
                inserting ``critical access hospital 
                services'';
                    (iv) in subsection (l)(5)(A), by striking 
                ``rural primary care hospital'' each place it 
                appears and inserting ``critical access 
                hospital''; and
                    (v) in subsection (l)(5)(B), by striking 
                ``rural primary care hospital'' each place it 
                appears and inserting ``critical access 
                hospital''.
            (G) Section 1835(c) (42 U.S.C. 1395n(c)) is amended 
        by striking ``rural primary care hospital'' each place 
        it appears and inserting ``critical access hospital''.
            (H) Section 1842(b)(6)(A)(ii) (42 U.S.C. 
        1395u(b)(6)(A)(ii)) is amended by striking ``rural 
        primary care hospital'' and inserting ``critical access 
        hospital''.
            (I) Section 1861 (42 U.S.C. 1395x) is amended--
                    (i) in subsection (a)--
                            (I) in paragraph (1), by striking 
                        ``inpatient rural primary care hospital 
                        services'' and inserting ``inpatient 
                        critical access hospital services''; 
                        and
                            (II) in paragraph (2), by striking 
                        ``rural primary care hospital'' and 
                        inserting ``critical access hospital'';
                    (ii) in the last sentence of subsection 
                (e), by striking ``rural primary care 
                hospital'' and inserting ``critical access 
                hospital'';
                    (iii) in subsection (v)(1)(S)(ii)(III), by 
                striking ``rural primary care hospital'' and 
                inserting ``critical access hospital'';
                    (iv) in subsection (w)(1), by striking 
                ``rural primary care hospital'' and inserting 
                ``critical access hospital''; and
                    (v) in subsection (w)(2), by striking 
                ``rural primary care hospital'' each place it 
                appears and inserting ``critical access 
                hospital''.
            (J) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is 
        amended by striking ``rural primary care hospital'' 
        each place it appears and inserting ``critical access 
        hospital''.
            (K) Section 1866(a)(1) (42 U.S.C 1395cc(a)(1)) is 
        amended--
                    (i) in subparagraph (F)(ii), by striking 
                ``rural primary care hospitals'' and inserting 
                ``critical access hospitals'';
                    (ii) in subparagraph (H), in the matter 
                preceding clause (i), by striking ``rural 
                primary care hospitals'' and ``rural primary 
                care hospital services'' and inserting 
                ``critical access hospitals'' and ``critical 
                access hospital services'', respectively;
                    (iii) in subparagraph (I), in the matter 
                preceding clause (i), by striking ``rural 
                primary care hospital'' and inserting 
                ``critical access hospital''; and
                    (iv) in subparagraph (N)--
                            (I) in the matter preceding clause 
                        (i), by striking ``rural primary care 
                        hospitals'' and inserting ``critical 
                        access hospitals'', and
                            (II) in clause (i), by striking 
                        ``rural primary care hospital'' and 
                        inserting ``critical access hospital''.
            (L) Section 1866(a)(3) (42 U.S.C 1395cc(a)(3)) is 
        amended--
                    (i) by striking ``rural primary care 
                hospital'' each place it appears in 
                subparagraphs (A) and (B) and inserting 
                ``critical access hospital''; and
                    (ii) in subparagraph (C)(ii)(II), by 
                striking ``rural primary care hospitals'' each 
                place it appears and inserting ``critical 
                access hospitals''.
            (M) Section 1867(e)(5) (42 U.S.C. 1395dd(e)(5)) is 
        amended by striking ``rural primary care hospital'' and 
        inserting ``critical access hospital''.
    (c) Payment Continued to Designated EACHs.--Section 
1886(d)(5)(D) (42 U.S.C. 1395ww(d)(5)(D)) is amended--
            (1) in clause (iii)(III), by inserting ``as in 
        effect on September 30, 1995'' before the period at the 
        end; and
            (2) in clause (v)--
                    (A) by inserting ``as in effect on 
                September 30, 1995'' after ``1820 (i)(1)''; and
                    (B) by striking ``1820(g)'' and inserting 
                ``1820(e)''.
    (d) Part B Amendments Relating to Critical Access 
Hospitals.--
            (1) Coverage.--(A) Section 1861(mm) (42 U.S.C. 
        1395x(mm)) as amended by subsection (d)(1), is amended 
        by adding at the end the following new paragraph:
    ``(3) The term `outpatient critical access hospital 
services' means medical and other health services furnished by 
a critical access hospital on an outpatient basis.''.
            (B) Section 1832(a)(2)(H) (42 U.S.C. 
        1395k(a)(2)(H)) is amended by striking ``rural primary 
        care hospital services'' and inserting ``critical 
        access hospital services''.
            (2) Payment.--(A) Section 1833(a) (42 U.S.C. 
        1395l(a)) is amended in paragraph (6), by striking 
        ``outpatient rural primary care hospital services'' and 
        inserting ``outpatient critical access hospital 
        services''.
            (B) Section 1834(g) (42 U.S.C. 1395m(g)) is amended 
        to read as follows:
    ``(g) Payment for Outpatient Critical Access Hospital 
Services.--The amount of payment under this part for outpatient 
critical access hospital services is the reasonable costs of 
the critical access hospital in providing such services.''.
    (e) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after October 1, 1995.

SEC. 8703. ESTABLISHMENT OF RURAL EMERGENCY ACCESS CARE HOSPITALS.

    (a) In General.--Section 1861 (42 U.S.C. 1395x) is amended 
by adding at the end the following new subsection:

  ``Rural Emergency Access Care Hospital; Rural Emergency Access Care 
                           Hospital Services

    ``(oo)(1) The term `rural emergency access care hospital' 
means, for a fiscal year, a facility with respect to which the 
Secretary finds the following:
            ``(A) The facility is located in a rural area (as 
        defined in section 1886(d)(2)(D)).
            ``(B) The facility was a hospital under this title 
        at any time during the 5-year period that ends on the 
        date of the enactment of this subsection.
            ``(C) The facility is in danger of closing due to 
        low inpatient utilization rates and operating losses, 
        and the closure of the facility would limit the access 
        to emergency services of individuals residing in the 
        facility's service area.
            ``(D) The facility has entered into (or plans to 
        enter into) an agreement with a hospital with a 
        participation agreement in effect under section 
        1866(a), and under such agreement the hospital shall 
        accept patients transferred to the hospital from the 
        facility and receive data from and transmit data to the 
        facility.
            ``(E) There is a practitioner who is qualified to 
        provide advanced cardiac life support services (as 
        determined by the State in which the facility is 
        located) on-site at the facility on a 24-hour basis.
            ``(F) A physician is available on-call to provide 
        emergency medical services on a 24-hour basis.
            ``(G) The facility meets such staffing requirements 
        as would apply under section 1861(e) to a hospital 
        located in a rural area, except that--
                    ``(i) the facility need not meet hospital 
                standards relating to the number of hours 
                during a day, or days during a week, in which 
                the facility must be open, except insofar as 
                the facility is required to provide emergency 
                care on a 24-hour basis under subparagraphs (E) 
                and (F); and
                    ``(ii) the facility may provide any 
                services otherwise required to be provided by a 
                full-time, on-site dietitian, pharmacist, 
                laboratory technician, medical technologist, or 
                radiological technologist on a part-time, off-
                site basis.
            ``(H) The facility meets the requirements 
        applicable to clinics and facilities under 
        subparagraphs (C) through (J) of paragraph (2) of 
        section 1861(aa) and of clauses (ii) and (iv) of the 
        second sentence of such paragraph (or, in the case of 
        the requirements of subparagraph (E), (F), or (J) of 
        such paragraph, would meet the requirements if any 
        reference in such subparagraph to a `nurse 
        practitioner' or to `nurse practitioners' were deemed 
        to be a reference to a `nurse practitioner or nurse' or 
        to `nurse practitioners or nurses'); except that in 
        determining whether a facility meets the requirements 
        of this subparagraph, subparagraphs (E) and (F) of that 
        paragraph shall be applied as if any reference to a 
        `physician' is a reference to a physician as defined in 
        section 1861(r)(1).
    ``(2) The term `rural emergency access care hospital 
services' means the following services provided by a rural 
emergency access care hospital and furnished to an individual 
over a continuous period not to exceed 24 hours (except that 
such services may be furnished over a longer period in the case 
of an individual who is unable to leave the hospital because of 
inclement weather):
            ``(A) An appropriate medical screening examination 
        (as described in section 1867(a)).
            ``(B) Necessary stabilizing examination and 
        treatment services for an emergency medical condition 
        and labor (as described in section 1867(b)).''.
    (b) Requiring Rural Emergency Access Care Hospitals To Meet 
Hospital Anti-Dumping Requirements.--Section 1867(e)(5) (42 
U.S.C. 1395dd(e)(5)) is amended by striking ``1861(mm)(1))'' 
and inserting ``1861(mm)(1)) and a rural emergency access care 
hospital (as defined in section 1861(oo)(1))''.
    (c) Coverage and Payment for Services.--
            (1) Coverage.--Section 1832(a)(2) (42 U.S.C. 
        1395k(a)(2)) is amended--
                    (A) by striking ``and'' at the end of 
                subparagraph (I);
                    (B) by striking the period at the end of 
                subparagraph (J) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(K) rural emergency access care hospital 
                services (as defined in section 
                1861(oo)(2)).''.
            (2) Payment based on payment for outpatient 
        critical access hospital services.--
                    (A) In general.--Section 1833(a)(6) (42 
                U.S.C. 1395l(a)(6)), as amended by section 
                8702(f)(2), is amended by striking 
                ``services,'' and inserting ``services and 
                rural emergency access care hospital 
                services,''.
                    (B) Payment methodology described.--Section 
                1834(g) (42 U.S.C. 1395m(g)), as amended by 
                section 8702(f)(2)(B), is amended--
                            (i) in the heading, by striking 
                        ``Services'' and inserting ``Services 
                        and Rural Emergency Access Care 
                        Hospital Services''; and
                            (ii) by adding at the end the 
                        following new sentence: ``The amount of 
                        payment for rural emergency access care 
                        hospital services provided during a 
                        year shall be determined using the 
                        applicable method provided under this 
                        subsection for determining payment for 
                        outpatient rural primary care hospital 
                        services during the year.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to fiscal years beginning on or after October 1, 
1995.

SEC. 8704. CLASSIFICATION OF RURAL REFERRAL CENTERS.

    (a) Prohibiting Denial of Request for Reclassification on 
Basis of Comparability of Wages.--
            (1) In general.--Section 1886(d)(10)(D) (42 U.S.C. 
        1395ww(d)(10)(D)) is amended--
                    (A) by redesignating clause (iii) as clause 
                (iv); and
                    (B) by inserting after clause (ii) the 
                following new clause:
    ``(iii) Under the guidelines published by the Secretary 
under clause (i), in the case of a hospital which is classified 
by the Secretary as a rural referral center under paragraph 
(5)(C), the Board may not reject the application of the 
hospital under this paragraph on the basis of any comparison 
between the average hourly wage of the hospital and the average 
hourly wage of hospitals in the area in which it is located.''.
            (2) Effective date.--Notwithstanding section 
        1886(d)(10)(C)(ii) of the Social Security Act, a 
        hospital may submit an application to the Medicare 
        Geographic Classification Review Board during the 30-
        day period beginning on the date of the enactment of 
        this Act requesting a change in its classification for 
        purposes of determining the area wage index applicable 
        to the hospital under section 1886(d)(3)(D) of such Act 
        for fiscal year 1997, if the hospital would be eligible 
        for such a change in its classification under the 
        standards described in section 1886(d)(10)(D) (as 
        amended by paragraph (1)) but for its failure to meet 
        the deadline for applications under section 
        1886(d)(10)(C)(ii).
    (b) Continuing Treatment of Previously Designated 
Centers.--Any hospital classified as a rural referral center by 
the Secretary of Health and Human Services under section 
1886(d)(5)(C) of the Social Security Act for fiscal year 1994 
shall be classified as such a rural referral center for fiscal 
year 1996 and each subsequent fiscal year.

SEC. 8705. FLOOR ON AREA WAGE INDEX.

    (a) In General.--For purposes of section 1886(d)(3)(E) of 
the Social Security Act for discharges occurring on or after 
October 1, 1995, the area wage index applicable under such 
section to any hospital which is not located in a rural area 
(as defined in section 1886(d)(2)(D) of such Act) may not be 
less than the average of the area wage indices applicable under 
such section to hospitals located in rural areas in the State 
in which the hospital is located.
    (b) Implementation.--The Secretary of Health and Human 
Services shall adjust the area wage indices referred to in 
subsection (a) for hospitals not described in such subsection 
in a manner which assures that the aggregate payments made 
under section 1886(d) of the Social Security Act in a fiscal 
year for the operating costs of inpatient hospital services are 
not greater or less than those which would have been made in 
the year if this section did not apply.

SEC. 8706. ADDITIONAL PAYMENTS FOR PHYSICIANS' SERVICES FURNISHED IN 
                    SHORTAGE AREAS.

    (a) Increase in Amount of Additional Payment.--Section 
1833(m) (42 U.S.C. 1395l(m)) is amended by striking ``10 
percent'' and inserting ``20 percent''.
    (b) Restriction to Primary Care Services.--Section 1833(m) 
(42 U.S.C. 1395l(m)) is amended by inserting after 
``physicians' services'' the following: ``consisting of primary 
care services (as defined in section 1842(i)(4))''.
    (c) Extension of Payment for Former Shortage Areas.--
            (1) In general.--Section 1833(m) (42 U.S.C. 
        1395l(m)) is amended by striking ``area,'' and 
        inserting ``area (or, in the case of an area for which 
        the designation as a health professional shortage area 
        under such section is withdrawn, in the case of 
        physicians' services furnished to such an individual 
        during the 3-year period beginning on the effective 
        date of the withdrawal of such designation),''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to physicians' services 
        furnished in an area for which the designation as a 
        health professional shortage area under section 
        332(a)(1)(A) of the Public Health Service Act is 
        withdrawn on or after January 1, 1996.
    (d) Requiring Carriers to Report on Services Provided.--
Section 1842(b)(3) (42 U.S.C. 1395u(b)(3)) is amended--
            (1) by striking ``and'' at the end of subparagraph 
        (I); and
            (2) by inserting after subparagraph (I) the 
        following new subparagraph:
            ``(J) will provide information to the Secretary (on 
        such periodic basis as the Secretary may require) on 
        the types of providers to whom the carrier makes 
        additional payments for certain physicians' services 
        pursuant to section 1833(m), together with a 
        description of the services furnished by such 
        providers; and''.
    (e) Effective Date.--The amendments made by subsections 
(a), (b), and (d) shall apply to physicians' services furnished 
on or after October 1, 1995.

SEC. 8707. PAYMENTS TO PHYSICIAN ASSISTANTS AND NURSE PRACTITIONERS FOR 
                    SERVICES FURNISHED IN OUTPATIENT OR HOME SETTINGS.

    (a) Coverage in Outpatient or Home Settings for Physician 
Assistants and Nurse Practitioners.--Section 1861(s)(2)(K) (42 
U.S.C. 1395x(s)(2)(K)) is amended--
            (1) in clause (i)--
                    (A) by striking ``or'' at the end of 
                subclause (II); and
                    (B) by inserting ``or (IV) in an outpatient 
                or home setting as defined by the Secretary'' 
                following ``shortage area,''; and
            (2) in clause (ii)--
                    (A) by striking ``in a skilled'' and 
                inserting ``in (I) a skilled''; and
                    (B) by inserting ``, or (II) in an 
                outpatient or home setting (as defined by the 
                Secretary),'' after ``(as defined in section 
                1919(a))''.
    (b) Payments to Physician Assistants and Nurse 
Practitioners in Outpatient or Home Settings.--
            (1) In general.--Section 1833(r)(1) (42 U.S.C. 
        1395l(r)(1)) is amended--
                    (A) by inserting ``services described in 
                section 1861(s)(2)(K)(ii)(II) (relating to 
                nurse practitioner services furnished in 
                outpatient or home settings), and services 
                described in section 1861(s)(2)(K)(i)(IV) 
                (relating to physician assistant services 
                furnished in an outpatient or home setting'' 
                after ``rural area),''; and
                    (B) by striking ``or clinical nurse 
                specialist'' and inserting ``clinical nurse 
                specialist, or physician assistant''.
            (2) Conforming amendment.--Section 1842(b)(6)(C) 
        (42 U.S.C. 1395u(b)(6)(C)) is amended by striking 
        ``clauses (i), (ii), or (iv)'' and inserting 
        ``subclauses (I), (II), or (III) of clause (i), clause 
        (ii)(I), or clause (iv)''.
    (c) Payment Under the Fee Schedule to Physician Assistants 
and Nurse Practitioners in Outpatient or Home Settings.--
            (1) Physician assistants.--Section 1842(b)(12) (42 
        U.S.C. 1395u(b)(12)) is amended by adding at the end 
        the following new subparagraph:
    ``(C) With respect to services described in clauses 
(i)(IV), (ii)(II), and (iv) of section 1861(s)(2)(K) (relating 
to physician assistants and nurse practitioners furnishing 
services in outpatient or home settings)--
            ``(i) payment under this part may only be made on 
        an assignment-related basis; and
            ``(ii) the amounts paid under this part shall be 
        equal to 80 percent of (I) the lesser of the actual 
        charge or 85 percent of the fee schedule amount 
        provided under section 1848 for the same service 
        provided by a physician who is not a specialist; or 
        (II) in the case of services as an assistant at 
        surgery, the lesser of the actual charge or 85 percent 
        of the amount that would otherwise be recognized if 
        performed by a physician who is serving as an assistant 
        at surgery.''.
            (2) Conforming amendment.--Section 1842(b)(12)(A) 
        (42 U.S.C. 1395u(b)(12)(A)) is amended in the matter 
        preceding clause (i) by striking ``(i), (ii),'' and 
        inserting ``subclauses (I), (II), or (III) of clause 
        (i), or subclause (I) of clause (ii)''.
            (3) Technical amendment.--Section 1842(b)(12)(A) 
        (42 U.S.C. 1395u(b)(12)(A)) is amended in the matter 
        preceding clause (i) by striking ``a physician 
        assistants'' and inserting ``physician assistants''.
    (d) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after October 1, 1995.

SEC. 8708. EXPANDING ACCESS TO NURSE AIDE TRAINING IN UNDERSERVED 
                    AREAS.

    (a) In General.--Section 1819(f)(2)(B)(iii)(I) (42 U.S.C. 
1396r(f)(2)(B)(iii)(I)) is amended in the matter preceding item 
(a), by striking ``by or in a nursing facility'' and inserting 
``by a nursing facility (or in such a facility, unless the 
State determines that there is no other such program offered 
within a reasonable distance, provides notice of the approval 
to the State long term care ombudsman, and assures, through an 
oversight effort, that an adequate environment exists for such 
a program)''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to nurse aide training and competency evaluation 
programs under section 1819 of the Social Security Act which 
are offered on or after October 1, 1995.

            TITLE IX--TRANSPORTATION AND RELATED PROVISIONS

SEC. 9001. MINIMUM ALLOCATION FOR HIGHWAY PROGRAMS.

    (a) Technical Correction.--With respect to fiscal year 
1996--
            (1) the Secretary of Transportation shall 
        determine, in accordance with the policies established 
        by the Intermodal Surface Transportation Efficiency Act 
        of 1991 (105 Stat. 1914)--
                    (A) which of the States will no longer 
                require an apportionment under section 
                157(a)(4) of title 23, United States Code; and
                    (B) which of the States will require 
                decreased funding under such section 157(a)(4);
        as a result of the termination of the Interstate 
        construction program; and
            (2) as a result of the reduced number of States 
        that may require an apportionment under such section 
        157(a)(4), and the decrease in the amount of funds some 
        States will require under such section 157(a)(4), the 
        maximum amount available for apportionment under such 
        section 157(a)(4) shall be reduced from the amount 
        apportioned under such section 157(a)(4) for fiscal 
        year 1995 by 60.4 percent.
    (b) Effect on Certain Calculations.--The correction made by 
subsection (a) shall be made after the reduction required under 
section 1003(c) of the Intermodal Surface Transportation 
Efficiency Act of 1991 (105 Stat. 1921) and shall not be taken 
into account in making the calculations under sections 1003(c), 
1013(c), and 1015 of such Act (105 Stat. 1921, 1940, and 1943).

SEC. 9002. EXTENSION OF HIGHER VESSEL TONNAGE DUTIES.

    (a) Extension of Duties.--Section 36 of the Act of August 
5, 1909 (36 Stat. 111; 46 U.S.C. App. 121), is amended by 
striking ``for fiscal years 1991, 1992, 1993, 1994, 1995, 1996, 
1997, 1998,'' each place it appears and inserting ``for fiscal 
years through fiscal year 2002,''.
    (b) Conforming Amendment.--The Act entitled ``An Act 
concerning tonnage duties on vessels entering otherwise than by 
sea'', approved March 8, 1910 (36 Stat. 234; 46 U.S.C. App. 
132), is amended by striking ``for fiscal years 1991, 1992, 
1993, 1994, 1995, 1996, 1997, and 1998,'' and inserting ``for 
fiscal years through fiscal year 2002,''.

SEC. 9003. FEMA RADIOLOGICAL EMERGENCY PREPAREDNESS FEES.

    (a) In General.--The Director of the Federal Emergency 
Management Agency may assess and collect fees applicable to 
persons subject to radiological emergency preparedness 
regulations issued by the Director.
    (b) Requirements.--The assessment and collection of fees by 
the Director under subsection (a) shall be fair and equitable 
and shall reflect the full amount of costs to the Agency of 
providing radiological emergency planning, preparedness, 
response, and associated services. Such fees shall be assessed 
by the Director in a manner that reflects the use of resources 
of the Agency for classes of regulated persons and the 
administrative costs of collecting such fees.
    (c) Amount of Fees.--The aggregate amount of fees assessed 
under subsection (a) in a fiscal year shall approximate, but 
not be less than, 100 percent of the amounts anticipated by the 
Director to be obligated for the radiological emergency 
preparedness program of the Agency for such fiscal year.
    (d) Deposit of Fees in Treasury.--Fees received pursuant to 
subsection (a) shall be deposited in the general fund of the 
Treasury as offsetting receipts.
    (e) Expiration of Authority.--The authority of the Director 
to assess and collect fees under subsection (a) shall expire on 
September 30, 2002.

                TITLE X--VETERANS AND RELATED PROVISIONS

SEC. 10001. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This title may be cited as the ``Veterans 
Reconciliation Act of 1995''.
    (b) Table of Contents.--The table of contents for this 
title is as follows:

Sec. 10001. Short title; table of contents.

             Subtitle A--Extension of Temporary Authorities

Sec. 10011. Authority to require that certain veterans make copayments 
          in exchange for receiving health-care benefits.
Sec. 10012. Medical care cost recovery authority.
Sec. 10013. Income verification authority.
Sec. 10014. Limitation on pension for certain recipients of medicaid-
          covered nursing home care.
Sec. 10015. Home loan fees.
Sec. 10016. Procedures applicable to liquidation sales on defaulted home 
          loans guaranteed by the Department of Veterans Affairs.
Sec. 10017. Enhanced loan asset sale authority.

                        Subtitle B--Other Matters

Sec. 10021. Revision to prescription drug copayment.
Sec. 10022. Rounding down of cost-of-living adjustments in compensation 
          and DIC rates.
Sec. 10023. Revised standard for liability for injuries resulting from 
          Department of Veterans Affairs treatment.
Sec. 10024. Withholding of payments and benefits.

             Subtitle A--Extension of Temporary Authorities

SEC. 10011. AUTHORITY TO REQUIRE THAT CERTAIN VETERANS MAKE COPAYMENTS 
                    IN EXCHANGE FOR RECEIVING HEALTH-CARE BENEFITS.

    (a) Hospital and Medical Care.--Section 8013(e) of the 
Omnibus Budget Reconciliation Act of 1990 (38 U.S.C. 1710 note) 
is amended by striking out ``September 30, 1998'' and inserting 
in lieu thereof ``September 30, 2002''.
    (b) Outpatient Medications.--Section 1722A(c) of title 38, 
United States Code, is amended by striking out ``September 30, 
1998'' and inserting in lieu thereof ``September 30, 2002''.

SEC. 10012. MEDICAL CARE COST RECOVERY AUTHORITY.

    Section 1729(a)(2)(E) of title 38, United States Code, is 
amended by striking out ``before October 1, 1998,'' and 
inserting ``before October 1, 2002,''.

SEC. 10013. INCOME VERIFICATION AUTHORITY.

    Section 5317(g) of title 38, United States Code, is amended 
by striking out ``September 30, 1998'' and inserting in lieu 
thereof ``September 30, 2002''.

SEC. 10014. LIMITATION ON PENSION FOR CERTAIN RECIPIENTS OF MEDICAID-
                    COVERED NURSING HOME CARE.

    Section 5503(f)(7) of title 38, United States Code, is 
amended by striking out ``September 30, 1998'' and inserting in 
lieu thereof ``September 30, 2002''.

SEC. 10015. HOME LOAN FEES.

    Section 3729(a) of title 38, United States Code, is 
amended--
            (1) in paragraph (4), by striking out ``October 1, 
        1998'' and inserting in lieu thereof ``October 1, 
        2002''; and
            (2) in paragraph (5)(C), by striking out ``October 
        1, 1998'' and inserting in lieu thereof ``October 1, 
        2002''.

SEC. 10016. PROCEDURES APPLICABLE TO LIQUIDATION SALES ON DEFAULTED 
                    HOME LOANS GUARANTEED BY THE DEPARTMENT OF VETERANS 
                    AFFAIRS.

    Section 3732(c)(11) of title 38, United States Code, is 
amended by striking out ``October 1, 1998'' and inserting 
``October 1, 2002''.

SEC. 10017. ENHANCED LOAN ASSET SALE AUTHORITY.

    Section 3720(h)(2) of title 38, United States Code, is 
amended by striking out ``December 31, 1995'' and inserting in 
lieu thereof ``September 30, 2002''.

                       Subtitle B--Other Matters

SEC. 10021. REVISION TO PRESCRIPTION DRUG COPAYMENT.

    (a) Increase in Amount of Copayment.--Section 1722A(a) of 
title 38, United States Code, is amended--
            (1) in paragraph (1), by striking out ``$2'' and 
        inserting in lieu thereof ``$4'';
            (2) by striking out paragraph (2); and
            (3) by redesignating paragraph (3) as paragraph (2) 
        and in that paragraph--
                    (A) striking out ``or'' at the end of 
                subparagraph (A);
                    (B) striking out the period at the end of 
                subparagraph (B) and inserting in lieu thereof 
                ``; or''; and
                    (C) adding at the end the following new 
                subparagraph:
            ``(C) to a veteran who is a former prisoner of 
        war.''.
    (b) Recovery of Indebtedness.--(1) Section 5302 of such 
title is amended by adding at the end the following new 
subsection:
    ``(f) The Secretary may not waive under this section the 
recovery of any payment or the collection of any indebtedness 
owed under section 1722A of this title.''.
    (2) The amendment made by paragraph (1) shall apply with 
respect to amounts that become due to the United States under 
section 1722A of title 38, United States Code, on or after the 
date of the enactment of this Act.

SEC. 10022. ROUNDING DOWN OF COST-OF-LIVING ADJUSTMENTS IN COMPENSATION 
                    AND DIC RATES.

    (a) Fiscal Year 1996 COLA.--(1) Effective as of December 1, 
1995, the Secretary of Veterans Affairs shall recompute any 
increase in an adjustment that is otherwise provided by law to 
be effective during fiscal year 1996 in the rates of disability 
compensation and dependency and indemnity compensation paid by 
the Secretary as such rates were in effect on November 30, 
1995. The recomputation shall provide for the same percentage 
increase as provided under such law, but with amounts so 
recomputed (if not a whole dollar amount) rounded down to the 
next lower whole dollar amount (rather than to the nearest 
whole dollar amount) and with each old-law DIC rate increased 
by the amount by which the new-law DIC rate is increased 
(rather than by a uniform percentage).
    (2) For purposes of paragraph (1):
            (A) The term ``old-law DIC rate'' means a dollar 
        amount in effect under section 1311(a)(3) of title 38, 
        United States Code.
            (B) The term ``new-law DIC rate'' means the dollar 
        amount in effect under section 1311(a)(1) of title 38, 
        United States Code.
    (b) Out-Year Compensation COLAs.--(1) Chapter 11 of title 
38, United States Code, is amended by inserting after section 
1102 the following new section:

``Sec. 1103. Cost-of-living adjustments

    ``(a) In the computation of cost-of-living adjustments for 
fiscal years 1997 through 2002 in the rates of, and dollar 
limitations applicable to, compensation payable under this 
chapter, such adjustments shall be made by a uniform percentage 
that is no more than the percentage equal to the social 
security increase for that fiscal year, with all increased 
monthly rates and limitations (other than increased rates or 
limitations equal to a whole dollar amount) rounded down to the 
next lower whole dollar amount.
    ``(b) For purposes of this section, the term `social 
security increase' means the percentage by which benefit 
amounts payable under title II of the Social Security Act (42 
U.S.C. 401 et seq.) are increased for any fiscal year as a 
result of a determination under section 215(i) of such Act (42 
U.S.C. 415(i)).''.
    (2) The table of sections at the beginning of such chapter 
is amended by inserting after the item relating to section 1102 
the following new item:

``1103. Cost-of-living adjustments.''.

    (c) Out-Year DIC COLAs.--(1) Chapter 13 of title 38, United 
States Code, is amended by inserting after section 1302 the 
following new section:

``Sec. 1303. Cost-of-living adjustments

    ``(a) In the computation of cost-of-living adjustments for 
fiscal years 1997 through 2002 in the rates of dependency and 
indemnity compensation payable under this chapter, such 
adjustments (except as provided in subsection (b)) shall be 
made by a uniform percentage that is no more than the 
percentage equal to the social security increase for that 
fiscal year, with all increased monthly rates (other than 
increased rates equal to a whole dollar amount) rounded down to 
the next lower whole dollar amount.
    ``(b)(1) Cost-of-living adjustments for each of fiscal 
years 1997 through 2002 in old-law DIC rates shall be in a 
whole dollar amount that is no greater than the amount by which 
the new-law DIC rate is increased for that fiscal year as 
determined under subsection (a).
    ``(2) For purposes of paragraph (1):
            ``(A) The term `old-law DIC rates' means the dollar 
        amounts in effect under section 1311(a)(3) of this 
        title.
            ``(B) The term `new-law DIC rate' means the dollar 
        amount in effect under section 1311(a)(1) of this 
        title.
    ``(c) For purposes of this section, the term `social 
security increase' means the percentage by which benefit 
amounts payable under title II of the Social Security Act (42 
U.S.C. 401 et seq.) are increased for any fiscal year as a 
result of a determination under section 215(i) of such Act (42 
U.S.C. 415(i)).''.
    (2) The table of sections at the beginning of such chapter 
is amended by inserting after the item relating to section 1302 
the following new item:

``1303. Cost-of-living adjustments.''.

SEC. 10023. REVISED STANDARD FOR LIABILITY FOR INJURIES RESULTING FROM 
                    DEPARTMENT OF VETERANS AFFAIRS TREATMENT.

    (a) Revised Standard.--Section 1151 of title 38, United 
States Code, is amended--
            (1) by designating the second sentence as 
        subsection (c);
            (2) by striking out the first sentence and 
        inserting in lieu thereof the following:
    ``(a) Compensation under this chapter and dependency and 
indemnity compensation under chapter 13 of this title shall be 
awarded for a qualifying additional disability of a veteran or 
the qualifying death of a veteran in the same manner as if such 
disability or death were service-connected.
    ``(b)(1) For purposes of this section, a disability or 
death is a qualifying additional disability or a qualifying 
death only if the disability or death--
            ``(A) was caused by Department health care and was 
        a proximate result of--
                    ``(i) negligence on the part of the 
                Department in furnishing the Department health 
                care; or
                    ``(ii) an event not reasonably foreseeable; 
                or
            ``(B) was incurred as a proximate result of the 
        provision of training and rehabilitation services by 
        the Secretary (including by a service-provider used by 
        the Secretary for such purpose under section 3115 of 
        this title) as part of an approved rehabilitation 
        program under chapter 31 of this title.
    ``(2) For purposes of this section, the term `Department 
health care' means hospital care, medical or surgical 
treatment, or an examination that is furnished under any law 
administered by the Secretary to a veteran by a Department 
employee or in a facility over which the Secretary has direct 
jurisdiction.
    ``(3) A disability or death of a veteran which is the 
result of the veteran's willful misconduct is not a qualifying 
disability or death for purposes of this section.''; and
            (3) by adding at the end the following:
    ``(d) Effective with respect to injuries, aggravations of 
injuries, and deaths occurring after September 30, 2002, a 
disability or death is a qualifying additional disability or a 
qualifying death for purposes of this section (notwithstanding 
the provisions of subsection (b)(1)) if the disability or 
death--
            ``(1) was the result of Department health care; or
            ``(2) was the result of the pursuit of a course of 
        vocational rehabilitation under chapter 31 of this 
        title.''.
    (b) Conforming Amendments.--Subsection (c) of such section, 
as designated by subsection (a)(1), is amended--
            (1) by striking out ``, aggravation,'' both places 
        it appears; and
            (2) by striking out ``sentence'' and inserting in 
        lieu thereof ``subsection''.
    (c) Effective Date.--The amendments made by this section 
shall apply to any administrative or judicial determination of 
eligibility for benefits under section 1151 of title 38, United 
States Code, based on a claim that is received by the Secretary 
on or after October 1, 1995, including any such determination 
based on an original application or an application seeking to 
reopen, revise, reconsider, or otherwise readjudicate any claim 
for benefits under section 1151 of that title or any 
predecessor provision of law.

SEC. 10024. WITHHOLDING OF PAYMENTS AND BENEFITS.

    (a) Notice Required in Lieu of Consent or Court Order.--
Section 3726 of title 38, United States Code, is amended by 
striking out ``unless'' and all that follows and inserting in 
lieu thereof the following: ``unless the Secretary provides 
such veteran or surviving spouse with notice by certified mail 
with return receipt requested of the authority of the Secretary 
to waive the payment of indebtedness under section 5302(b) of 
this title. If the Secretary does not waive the entire amount 
of the liability, the Secretary shall then determine whether 
the veteran or surviving spouse should be released from 
liability under section 3713(b) of this title. If the Secretary 
determines that the veteran or surviving spouse should not be 
released from liability, the Secretary shall notify the veteran 
or surviving spouse of that determination and provide a notice 
of the procedure for appealing that determination, unless the 
Secretary has previously made such determination and notified 
the veteran or surviving spouse of the procedure for appealing 
the determination.''.
    (b) Conforming Amendment.--Section 5302(b) of such title is 
amended by inserting ``with return receipt requested'' after 
``certified mail''.
    (c) Effective Date.--The amendments made by this section 
shall apply with respect to any indebtedness to the United 
States arising pursuant to chapter 37 of title 38, United 
States Code, before, on, or after the date of the enactment of 
this Act.

                      TITLE XI--REVENUE PROVISIONS

SEC. 11000. SHORT TITLES; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Revenue Reconciliation Act.--This title may be cited as 
the ``Revenue Reconciliation Act of 1995''.
    (b) Contract With America.--Subtitles A, B, C, and D of 
this title may be cited as the ``Contract With America Tax 
Relief Act of 1995''.
    (c) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this title an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue 
Code of 1986.
    (d) Table of Contents.--The table of contents for this 
title is as follows:


                      TITLE XI--REVENUE PROVISIONS

Sec. 11000. Short titles; amendment of 1986 Code; table of contents.

                      Subtitle A--Family Tax Relief

Sec. 11001. Child tax credit.
Sec. 11002. Reduction in marriage penalty.
Sec. 11003. Credit for adoption expenses.
Sec. 11004. Deduction for interest on education loans.
Sec. 11005. Deduction for taxpayers with certain persons requiring 
          custodial care in their households.

              Subtitle B--Savings and Investment Incentives

                Chapter 1--Retirement Savings Incentives

                 SUBCHAPTER A--INDIVIDUAL RETIREMENT PLANS

                  Part I--Restoration of IRA Deduction

Sec. 11011. Restoration of IRA deduction.
Sec. 11012. Inflation adjustment for deductible amount.
Sec. 11013. Homemakers eligible for full IRA deduction.

                  Part II--Nondeductible Tax-Free IRAs

Sec. 11015. Establishment of American Dream IRA.

                 SUBCHAPTER B--PENALTY-FREE DISTRIBUTIONS

Sec. 11016. Distributions from certain plans may be used without penalty 
          to purchase first homes or to pay higher education or 
          financially devastating medical expenses.

                    SUBCHAPTER C--SIMPLE SAVINGS PLANS

Sec. 11018. Establishment of savings incentive match plans for employees 
          of small employers.
Sec. 11019. Extension of simple plan to 401(k) arrangements.

                     Chapter 2--Capital Gains Reform

              SUBCHAPTER A--TAXPAYERS OTHER THAN CORPORATIONS

Sec. 11021. Capital gains deduction.
Sec. 11022. Indexing of certain assets acquired after December 31, 2000, 
          for purposes of determining gain.
Sec. 11023. Modifications to exclusion of gain on certain small business 
          stock.

                   SUBCHAPTER B--CORPORATE CAPITAL GAINS

Sec. 11025. Reduction of alternative capital gain tax for corporations.

   SUBCHAPTER C--CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE OR 
                     EXCHANGE OF PRINCIPAL RESIDENCE

Sec. 11026. Capital loss deduction allowed with respect to sale or 
          exchange of principal residence.

           Chapter 3--Corporate Alternative Minimum Tax Reform

Sec. 11031. Modification of depreciation rules under minimum tax.
Sec. 11032. Long-term unused credits allowed against minimum tax.

                   Chapter 4--Cost Recovery Provisions

Sec. 11035. Treatment of abandonment of lessor improvements at 
          termination of lease.
Sec. 11036. Increase in expense treatment for small businesses.

                  Subtitle C--Health Related Provisions

                  Chapter 1--Long-Term Care Provisions

            SUBCHAPTER A--LONG-TERM CARE SERVICES AND CONTRACTS

                       Part I--General Provisions

Sec. 11041. Treatment of long-term care insurance.
Sec. 11042. Qualified long-term care services treated as medical care.
Sec. 11043. Certain exchanges of life insurance contracts for qualified 
          long-term care insurance contracts not taxable.
Sec. 11044. Exception from penalty tax for amounts withdrawn from 
          certain retirement plans for qualified long-term care 
          insurance.
Sec. 11045. Reporting requirements.

                 Part II--Consumer Protection Provisions

Sec. 11051. Policy requirements.
Sec. 11052. Requirements for issuers of long-term care insurance 
          policies.
Sec. 11053. Coordination with State requirements.
Sec. 11054. Effective dates.

           SUBCHAPTER B--TREATMENT OF ACCELERATED DEATH BENEFITS

Sec. 11061. Treatment of accelerated death benefits by recipient.
Sec. 11062. Tax treatment of companies issuing qualified accelerated 
          death benefit riders.

                   Chapter 2--Medical Savings Accounts

Sec. 11066. Medical savings accounts.

  Chapter 3--Increase in Deduction for Health Insurance Costs of Self-
                          Employed Individuals

Sec. 11068. Increase in deduction for health insurance costs of self-
          employed individuals.

                 Subtitle D--Estate and Gift Provisions

Sec. 11071. Cost-of-living adjustments relating to estate and gift tax 
          provisions.
Sec. 11072. Family-owned business exclusion.
Sec. 11073. Treatment of land subject to a qualified conservation 
          easement.
Sec. 11074. Expansion of exception from generation-skipping transfer tax 
          for transfers to individuals with deceased parents.
Sec. 11075. Extension of treatment of certain rents under section 2032A 
          to lineal descendants.

              Subtitle E--Extension of Expiring Provisions

                     Chapter 1--Temporary Extensions

Sec. 11111. Work opportunity tax credit.
Sec. 11112. Employer-provided educational assistance programs.
Sec. 11113. Research credit.
Sec. 11114. Orphan drug tax credit.
Sec. 11115. Contributions of stock to private foundations.
Sec. 11116. Delay of tax on fuel used in commercial aviation.
Sec. 11117. Extension of airport and airway trust fund excise taxes.
Sec. 11118. Extension of Internal Revenue Service user fees.

             Chapter 2--Sunset of Low-Income Housing Credit

Sec. 11121. Sunset of low-income housing credit.

    Chapter 3--Extensions of Superfund and Oil Spill Liability Taxes

Sec. 11131. Extension of Hazardous Substance Superfund taxes.
Sec. 11132. Extension of oil spill liability tax.

              Chapter 4--Extensions Relating to Fuel Taxes

Sec. 11141. Ethanol blender refunds.
Sec. 11142. Extension of binding contract date for biomass and coal 
          facilities.
Sec. 11143. Exemption from diesel fuel dyeing requirements with respect 
          to certain States.
Sec. 11144. Moratorium for excise tax on diesel fuel sold for use or 
          used in diesel-powered motorboats.

Chapter 5--Permanent Extension of FUTA Exemption for Alien Agricultural 
                                 Workers

Sec. 11151. FUTA exemption for alien agricultural workers.

   Chapter 6--Disclosure of Return Information for Administration of 
                        Certain Veterans Programs

Sec. 11161. Disclosure of return information for administration of 
          certain veterans programs.

            Subtitle F--Taxpayer Bill of Rights 2 Provisions

Sec. 11201. Expansion of authority to abate interest.
Sec. 11202. Extension of interest-free period for payment of tax after 
          notice and demand.
Sec. 11203. Joint return may be made after separate returns without full 
          payment of tax.
Sec. 11204. Modifications to certain levy exemption amounts.
Sec. 11205. Offers-in-compromise.
Sec. 11206. Increased limit on attorney fees.
Sec. 11207. Award of litigation costs permitted in declaratory judgment 
          proceedings.
Sec. 11208. Increase in limit on recovery of civil damages for 
          unauthorized collection actions.
Sec. 11209. Enrolled agents included as third-party recordkeepers.
Sec. 11210. Annual reminders to taxpayers with outstanding delinquent 
          accounts.

       Subtitle G--Casualty and Involuntary Conversion Provisions

Sec. 11251. Basis adjustment to property held by corporation where stock 
          in corporation is replacement property under involuntary 
          conversion rules.
Sec. 11252. Expansion of requirement that involuntarily converted 
          property be replaced with property acquired from an unrelated 
          person.
Sec. 11253. Special rule for crop insurance proceeds and disaster 
          payments.
Sec. 11254. Application of involuntary exclusion rules to presidentially 
          declared disasters.

         Subtitle H--Exempt Organizations and Charitable Reforms

       Chapter 1--Excise Tax on Amounts of Private Excess Benefits

Sec. 11271. Excise taxes for failure by certain charitable organizations 
          to meet certain qualification requirements.
Sec. 11272. Reporting of certain excise taxes and other information.
Sec. 11273. Increase in penalties on exempt organizations for failure to 
          file complete and timely annual returns.

                       Chapter 2--Other Provisions

Sec. 11276. Cooperative service organizations for certain foundations.
Sec. 11277. Exclusion from unrelated business taxable income for certain 
          sponsorship payments.
Sec. 11278. Treatment of dues paid to agricultural or horticultural 
          organizations.
Sec. 11279. Repeal of credit for contributions to community development 
          corporations.

               Subtitle I--Tax Reform and Other Provisions

              Chapter 1--Provisions Relating to Businesses

Sec. 11301. Tax treatment of certain extraordinary dividends.
Sec. 11302. Registration of confidential corporate tax shelters.
Sec. 11303. Denial of deduction for interest on loans with respect to 
          company-owned insurance.
Sec. 11304. Termination of suspense accounts for family corporations 
          required to use accrual method of accounting.
Sec. 11305. Termination of Puerto Rico and possession tax credit.
Sec. 11306. Depreciation under income forecast method.
Sec. 11307. Transfers of excess pension assets.
Sec. 11308. Repeal of exclusion for interest on loans used to acquire 
          employer securities.

                        Chapter 2--Legal Reforms

Sec. 11311. Repeal of exclusion for punitive damages and for damages not 
          attributable to physical injuries or sickness.
Sec. 11312. Reporting of certain payments made to attorneys.

        Chapter 3--Reforms Relating to Nonrecognition Provisions

Sec. 11321. No rollover or exclusion of gain on sale of principal 
          residence which is attributable to depreciation deductions.
Sec. 11322. Nonrecognition of gain on sale of principal residence by 
          noncitizens limited to new residences located in the United 
          States.

          Chapter 4--Excise Tax and Tax-Exempt Bond Provisions

Sec. 11331. Repeal of diesel fuel tax rebate to purchasers of diesel-
          powered automobiles and light trucks.
Sec. 11332. Modifications to excise tax on ozone-depleting chemicals.
Sec. 11333. Election to avoid tax-exempt bond penalties for local 
          furnishers of electricity and gas.
Sec. 11334. Tax-exempt bonds for sale of Alaska Power Administration 
          Facility.

                 Chapter 5--Foreign Trust Tax Compliance

Sec. 11341. Improved information reporting on foreign trusts.
Sec. 11342. Modifications of rules relating to foreign trusts having one 
          or more United States beneficiaries.
Sec. 11343. Foreign persons not to be treated as owners under grantor 
          trust rules.
Sec. 11344. Information reporting regarding foreign gifts.
Sec. 11345. Modification of rules relating to foreign trusts which are 
          not grantor trusts.
Sec. 11346. Residence of estates and trusts, etc.

 Chapter 6--Treatment of Individuals Who Lose United States Citizenship

Sec. 11348. Revision of income, estate, and gift taxes on individuals 
          who lose United States citizenship.
Sec. 11349. Information on individuals losing United States citizenship.

          Chapter 7--Financial Asset Securitization Investments

Sec. 11351. Financial Asset Securitization Investment Trusts.

                   Chapter 8--Depreciation Provisions

Sec. 11361. Treatment of contributions in aid of construction.
Sec. 11362. Deduction for certain operating authority.
Sec. 11363. Class life for gas station convenience stores and similar 
          structures.

                       Chapter 9--Other Provisions

Sec. 11371. Application of failure-to-pay penalty to substitute returns.
Sec. 11372. Extension of withholding to certain gambling winnings.
Sec. 11373. Losses from foreclosure property.
Sec. 11374. Nonrecognition treatment for certain transfers by common 
          trust funds to regulated investment companies.
Sec. 11375. Exclusion for energy conservation subsidies limited to 
          subsidies with respect to dwelling units.
Sec. 11376. Election to cease status as qualified scholarship funding 
          corporation.
Sec. 11377. Certain amounts derived from foreign corporations treated as 
          unrelated business taxable income.
Sec. 11378. Repeal of financial institution transition rule to interest 
          allocation rules.
Sec. 11379. Repeal of bad debt reserve method for thrift savings 
          associations.
Sec. 11380. Newspaper distributors treated as direct sellers.

                     Subtitle J--Tax Simplification

              Chapter 1--Provisions Relating to Individuals

     SUBCHAPTER A--PROVISIONS RELATING TO ROLLOVER OF GAIN ON SALE OF 
                           PRINCIPAL RESIDENCE

Sec. 11401. Multiple sales within rollover period.
Sec. 11402. Special rules in case of divorce.
Sec. 11403. One-time exclusion of gain from sale of principal residence 
          for certain spouses.

                      SUBCHAPTER B--OTHER PROVISIONS

Sec. 11411. Treatment of certain reimbursed expenses of rural mail 
          carriers.
Sec. 11412. Treatment of traveling expenses of certain Federal employees 
          engaged in criminal investigations.

                    Chapter 2--Pension Simplification

                SUBCHAPTER A--SIMPLIFIED DISTRIBUTION RULES

Sec. 11421. Repeal of 5-year income averaging for lump-sum 
          distributions.
Sec. 11422. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 11423. Simplified method for taxing annuity distributions under 
          certain employer plans.
Sec. 11424. Required distributions.

              SUBCHAPTER B--INCREASED ACCESS TO PENSION PLANS

Sec. 11431. Tax-exempt organizations eligible under section 401(k).

                SUBCHAPTER C--NONDISCRIMINATION PROVISIONS

Sec. 11441. Definition of highly compensated employees; repeal of family 
          aggregation.
Sec. 11442. Modification of additional participation requirements.
Sec. 11443. Nondiscrimination rules for qualified cash or deferred 
          arrangements and matching contributions.
Sec. 11444. Definition of compensation for section 415 purposes.

                  SUBCHAPTER D--MISCELLANEOUS PROVISIONS

Sec. 11451. Plans covering self-employed individuals.
Sec. 11452. Elimination of special vesting rule for multiemployer plans.
Sec. 11453. Distributions under rural cooperative plans.
Sec. 11454. Treatment of governmental plans under section 415.
Sec. 11455. Uniform retirement age.
Sec. 11456. Contributions on behalf of disabled employees.
Sec. 11457. Treatment of deferred compensation plans of State and local 
          governments and tax-exempt organizations.
Sec. 11458. Trust requirement for deferred compensation plans of State 
          and local governments.
Sec. 11459. Transition rule for computing maximum benefits under section 
          415 limitations.
Sec. 11460. Modifications of section 403(b).
Sec. 11461. Waiver of minimum period for joint and survivor annuity 
          explanation before annuity starting date.
Sec. 11462. Repeal of limitation in case of defined benefit plan and 
          defined contribution plan for same employee; excess 
          distributions.
Sec. 11463. Tax on prohibited transactions.
Sec. 11464. Treatment of leased employees.

               Chapter 3--Treatment Of Large Partnerships

Sec. 11471. Simplified flow-through for electing large partnerships.
Sec. 11472. Returns may be required on magnetic media.

                      Chapter 4--Foreign Provisions

  SUBCHAPTER A--MODIFICATIONS TO TREATMENT OF PASSIVE FOREIGN INVESTMENT 
                                COMPANIES

Sec. 11481. United States shareholders of controlled foreign 
          corporations not subject to PFIC inclusion.
Sec. 11482. Election of mark to market for marketable stock in passive 
          foreign investment company.
Sec. 11483. Modifications to definition of passive income.
Sec. 11484. Effective date.

        SUBCHAPTER B--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS

Sec. 11486. Gain on certain stock sales by controlled foreign 
          corporations treated as dividends.
Sec. 11487. Miscellaneous modifications to subpart F.
Sec. 11488. Indirect foreign tax credit allowed for certain lower tier 
          companies.
Sec. 11489. Repeal of inclusion of certain earnings invested in excess 
          passive assets.

                 Chapter 5--Other Income Tax Provisions

            SUBCHAPTER A--PROVISIONS RELATING TO S CORPORATIONS

Sec. 11501. S corporations permitted to have 75 shareholders.
Sec. 11502. Electing small business trusts.
Sec. 11503. Expansion of post-death qualification for certain trusts.
Sec. 11504. Financial institutions permitted to hold safe harbor debt.
Sec. 11505. Rules relating to inadvertent terminations and invalid 
          elections.
Sec. 11506. Agreement to terminate year.
Sec. 11507. Expansion of post-termination transition period.
Sec. 11508. S corporations permitted to hold subsidiaries.
Sec. 11509. Treatment of distributions during loss years.
Sec. 11510. Treatment of S corporations under subchapter C.
Sec. 11511. Elimination of certain earnings and profits.
Sec. 11512. Carryover of disallowed losses and deductions under at-risk 
          rules allowed.
Sec. 11513. Adjustments to basis of inherited S stock to reflect certain 
          items of income.
Sec. 11514. S corporations eligible for rules applicable to real 
          property subdivided for sale by noncorporate taxpayers.
Sec. 11515. Effective date.

      SUBCHAPTER B--REPEAL OF 30-PERCENT GROSS INCOME LIMITATION ON 
                     REGULATED INVESTMENT COMPANIES

Sec. 11521. Repeal of 30-percent gross income limitation.

                    SUBCHAPTER C--ACCOUNTING PROVISIONS

Sec. 11551. Modifications to look-back method for long-term contracts.
Sec. 11552. Application of mark to market accounting method to traders 
          in securities.
Sec. 11553. Modification of ruling amounts for nuclear decommissioning 
          costs.

                  SUBCHAPTER D--TAX-EXEMPT BOND PROVISION

Sec. 11561. Repeal of debt service-based limitation on investment in 
          certain nonpurpose investments.

                    SUBCHAPTER E--INSURANCE PROVISIONS

Sec. 11571. Treatment of certain insurance contracts on retired lives.
Sec. 11572. Treatment of modified guaranteed contracts.

                      SUBCHAPTER F--OTHER PROVISIONS

Sec. 11581. Closing of partnership taxable year with respect to deceased 
          partner, etc.
Sec. 11582. Credit for social security taxes paid with respect to 
          employee cash tips.
Sec. 11583. Due date for first quarter estimated tax payments by private 
          foundations.

                      Chapter 6--Estates and Trusts

                    SUBCHAPTER A--INCOME TAX PROVISIONS

Sec. 11601. Certain revocable trusts treated as part of estate.
Sec. 11602. Distributions during first 65 days of taxable year of 
          estate.
Sec. 11603. Separate share rules available to estates.
Sec. 11604. Executor of estate and beneficiaries treated as related 
          persons for disallowance of losses, etc.
Sec. 11605. Limitation on taxable year of estates.
Sec. 11606. Treatment of funeral trusts.

               SUBCHAPTER B--ESTATE AND GIFT TAX PROVISIONS

Sec. 11611. Clarification of waiver of certain rights of recovery.
Sec. 11612. Adjustments for gifts within 3 years of decedent's death.
Sec. 11613. Clarification of qualified terminable interest rules.
Sec. 11614. Transitional rule under section 2056A.
Sec. 11615. Opportunity to correct certain failures under section 2032A.
Sec. 11616. Gifts may not be revalued for estate tax purposes after 
          expiration of statute of limitations.
Sec. 11617. Clarifications relating to disclaimers.
Sec. 11618. Clarification of treatment of survivor annuities under 
          qualified terminable interest rules.
Sec. 11619. Treatment under qualified domestic trust rules of forms of 
          ownership which are not trusts.

             SUBCHAPTER C--GENERATION-SKIPPING TAX PROVISIONS

Sec. 11631. Taxable termination not to include direct skips.

                  Chapter 7--Excise Tax Simplification

  SUBCHAPTER A--PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER

Sec. 11641. Credit or refund for imported bottled distilled spirits 
          returned to distilled spirits plant.
Sec. 11642. Fermented material from any brewery may be received at a 
          distilled spirits plant.
Sec. 11643. Refund of tax on wine returned to bond not limited to 
          unmerchantable wine.
Sec. 11644. Beer may be withdrawn free of tax for destruction.
Sec. 11645. Transfer to brewery of beer imported in bulk without payment 
          of tax.

         SUBCHAPTER B--CONSOLIDATION OF TAXES ON AVIATION GASOLINE

Sec. 11651. Consolidation of taxes on aviation gasoline.

                 SUBCHAPTER C--OTHER EXCISE TAX PROVISIONS

Sec. 11661. Certain combinations not treated as manufacture under retail 
          sales tax on heavy trucks.

                   Chapter 8--Administrative Provision

Sec. 11671. Certain notices disregarded under provision increasing 
          interest rate on large corporate underpayments.

                  Subtitle K--Miscellaneous Provisions

Sec. 11701. Treatment of storage of product samples.
Sec. 11702. Adjustment of death benefit limits for certain policies.
Sec. 11703. Organizations subject to section 833.
Sec. 11704. Correction of inflation adjustment in luxury excise tax on 
          automobiles.
Sec. 11705. Extension and phasedown of luxury passenger automobile tax.

              Subtitle L--Generalized System of Preferences

Sec. 11801. Short title.
Sec. 11802. Generalized System of Preferences.
Sec. 11803. Retroactive application for certain liquidations and 
          reliquidations.
Sec. 11804. Conforming amendments.

                Subtitle M--Increase in Public Debt Limit

Sec. 11901. Increase in public debt limit.

                     Subtitle A--Family Tax Relief

SEC. 11001. CHILD TAX CREDIT.

    (a) In General.--Subpart A of part IV of subchapter A of 
chapter 1 (relating to nonrefundable personal credits) is 
amended by inserting after section 22 the following new 
section:

``SEC. 23. CHILD TAX CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a 
credit against the tax imposed by this chapter for the taxable 
year an amount equal to $500 multiplied by the number of 
qualifying children of the taxpayer.
    ``(b) Limitation.--
            ``(1) In general.--The amount of the credit which 
        would (but for this subsection) be allowed by 
        subsection (a) shall be reduced (but not below zero) by 
        $25 for each $1,000 (or fraction thereof) by which the 
        taxpayer's adjusted gross income exceeds the threshold 
        amount.
            ``(2) Threshold amount.--For purposes of paragraph 
        (1), the term `threshold amount' means--
                    ``(A) $110,000 in the case of a joint 
                return,
                    ``(B) $75,000 in the case of an individual 
                who is not married, and
                    ``(C) $55,000 in the case of a married 
                individual filing a separate return.
        For purposes of this paragraph, marital status shall be 
        determined under section 7703.
    ``(c) Qualifying Child.--For purposes of this section--
            ``(1) In general.--The term `qualifying child' 
        means any individual if--
                    ``(A) the taxpayer is allowed a deduction 
                under section 151 with respect to such 
                individual for such taxable year,
                    ``(B) such individual has not attained the 
                age of 18 as of the close of the calendar year 
                in which the taxable year of the taxpayer 
                begins, and
                    ``(C) such individual bears a relationship 
                to the taxpayer described in section 
                32(c)(3)(B) (determined without regard to 
                clause (ii) thereof).
            ``(2) Exception for certain noncitizens.--The term 
        `qualifying child' shall not include any individual who 
        would not be a dependent if the first sentence of 
        section 152(b)(3) were applied without regard to all 
        that follows `resident of the United States'.
    ``(d) Taxable Year Must Be Full Taxable Year.--Except in 
the case of a taxable year closed by reason of the death of the 
taxpayer, no credit shall be allowable under this section in 
the case of a taxable year covering a period of less than 12 
months.''.
    (b) Notice of Credit.--The Secretary of the Treasury shall 
transmit to all individual taxpayers by a separate mailing made 
on or before February 1, 1996, a notice which states only the 
following: ``The Balanced Budget Act of 1995 was recently 
passed by the Congress. The Act's child tax credit allows 
taxpayers to reduce their taxes by $500 per child. The credit 
is effective October 1, 1995. You may wish to check with your 
employer about changing your tax withholding to take immediate 
advantage of the credit to which you are entitled for the 
current tax year. In addition, the Internal Revenue Service 
will be sending you a form in June of this year which you may 
use to claim the credit to which you are entitled for the 
period from October 1 through December 31, 1995 ($125 per child 
for 1995). In order to obtain your 1995 credit, you should file 
this form by August 15, 1996. Your refund will be sent to you 
sometime after October 1, 1996.''
    (c) Clerical Amendment.--The table of sections for subpart 
A of part IV of subchapter A of chapter 1 is amended by 
inserting after the item relating to section 22 the following 
new item:

        ``Sec. 23. Child tax credit.''.

    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.
    (e) Payment of 1995 Child Credit Amount.--
            (1) In general.--The Secretary shall take such 
        actions as are necessary to ensure that the 1995 child 
        credit amount is paid to taxpayers entitled to payment 
        of such credit amount.
            (2) Payments generally during october 1996.--In the 
        case of taxpayers submitting the form referred to in 
        paragraph (4) before August 16, 1996, the Secretary 
        shall take such actions as are necessary to ensure that 
        payments required by paragraph (1) are mailed after 
        September 30, 1996, and before October 16, 1996.
            (3) 1995 child credit amount.--For purposes of 
        paragraph (1), the 1995 child credit amount is an 
        amount equal to 25 percent of the amount of the credit 
        which would be allowed to the taxpayer under section 23 
        of the Internal Revenue Code of 1986 (as added by this 
        section) if such section were in effect for the 
        taxpayer's taxable year beginning in 1995.
            (4) Entitlement to credit.--A taxpayer shall be 
        entitled to a 1995 child credit amount if (and only if) 
        the taxpayer submits to the Secretary a form which the 
        Secretary shall prescribe for purposes of determining 
        such amount. The Secretary shall mail such form to 
        taxpayers on or before June 1, 1996.
            (5) Payment treated as overpayment.--The 1995 child 
        credit amount shall be treated for purposes of subtitle 
        F of such Code as a payment of tax for the taxpayer's 
        taxable year beginning in 1995 which was made on August 
        15, 1996, or, if later, the date the form referred to 
        in paragraph (4) is filed, and shall be refunded or 
        credited in the same manner as if it were an 
        overpayment of tax for such taxable year. No interest 
        shall be paid under section 6611 of such Code on 
        amounts paid under paragraph (1) before October 16, 
        1996.
            (6) Secretary.--For purposes of this subsection, 
        the term ``Secretary'' means the Secretary of the 
        Treasury or his delegate.

SEC. 11002. REDUCTION IN MARRIAGE PENALTY.

    (a) Increase in Basic Standard Deduction for Married 
Individuals.--Section 63(c) (relating to standard deduction) is 
amended--
            (1) by striking ``$5,000'' in paragraph (2)(A) and 
        inserting ``the applicable dollar amount'',
            (2) by striking ``$2,500'' in paragraph (2)(D) and 
        inserting ``\1/2\ of the applicable dollar amount'', 
        and
            (3) by inserting after paragraph (6) the following 
        new paragraph:
            ``(7) Applicable dollar amount.--For purposes of 
        paragraph (2), the applicable dollar amount for any 
        taxable year shall be the product of the dollar amount 
        in effect under paragraph (2)(C) for such year 
        multiplied by the applicable factor determined under 
        the following table:

``For taxable years beginning in calendar year--          The applicable
                                                             factor is--
    1996......................................................     1.68 
    1997......................................................     1.71 
    1998......................................................     1.72 
    1999......................................................     1.73 
    2000......................................................     1.75 
    2001......................................................     1.77 
    2002......................................................     1.78 
    2003......................................................     1.88 
    2004......................................................     1.91 
    2005 and thereafter.......................................     2.00.

        If the amount determined under the preceding sentence 
        is not a multiple of $50, such amount shall be rounded 
        to the nearest multiple of $50.''
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11003. CREDIT FOR ADOPTION EXPENSES.

    (a) In General.--Subpart A of part IV of subchapter A of 
chapter 1 (relating to nonrefundable personal credits), as 
amended by section 11001, is amended by inserting after section 
23 the following new section:

``SEC. 24. ADOPTION EXPENSES.

    ``(a) Allowance of Credit.--In the case of an individual, 
there shall be allowed as a credit against the tax imposed by 
this chapter for the taxable year the amount of the qualified 
adoption expenses paid or incurred by the taxpayer during such 
taxable year.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The aggregate amount of 
        qualified adoption expenses which may be taken into 
        account under subsection (a) with respect to the 
        adoption of a child shall not exceed $5,000.
            ``(2) Income limitation.--The amount allowable as a 
        credit under subsection (a) for any taxable year shall 
        be reduced (but not below zero) by an amount which 
        bears the same ratio to the amount so allowable 
        (determined without regard to this paragraph but with 
        regard to paragraph (1)) as--
                    ``(A) the amount (if any) by which the 
                taxpayer's adjusted gross income (determined 
                without regard to sections 911, 931, and 933) 
                exceeds $75,000, bears to
                    ``(B) $40,000.
            ``(3) Denial of double benefit.--
                    ``(A) In general.--No credit shall be 
                allowed under subsection (a) for any expense 
                for which a deduction or credit is allowable 
                under any other provision of this chapter.
                    ``(B) Grants.--No credit shall be allowed 
                under subsection (a) for any expense to the 
                extent that funds for such expense are received 
                under any Federal, State, or local program. The 
                preceding sentence shall not apply to expenses 
                for the adoption of a child with special needs.
                    ``(C) Reimbursement.--No credit shall be 
                allowed under subsection (a) for any expense to 
                the extent that such expense is reimbursed and 
                the reimbursement is excluded from gross income 
                under section 138.
    ``(c) Carryforwards of Unused Credit.--If the credit 
allowable under subsection (a) for any taxable year exceeds the 
limitation imposed by section 26(a) for such taxable year 
reduced by the sum of the credits allowable under this subpart 
(other than this section), such excess shall be carried to the 
succeeding taxable year and added to the credit allowable under 
subsection (a) for such taxable year. No credit may be carried 
forward under this subsection to any taxable year following the 
fifth taxable year after the taxable year in which the credit 
arose. For purposes of the preceding sentence, credits shall be 
treated as used on a first-in first-out basis.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified adoption expenses.--The term 
        `qualified adoption expenses' means reasonable and 
        necessary adoption fees, court costs, attorney fees, 
        and other expenses--
                    ``(A) which are directly related to, and 
                the principal purpose of which is for, the 
                legal adoption of an eligible child by the 
                taxpayer, and
                    ``(B) which are not incurred in violation 
                of State or Federal law or in carrying out any 
                surrogate parenting arrangement.
        Such term shall not include expenses for a foreign 
        adoption unless the child is actually adopted.
            ``(2) Expenses for adoption of spouse's child not 
        eligible.--The term `qualified adoption expenses' shall 
        not include any expenses in connection with the 
        adoption by an individual of a child who is the child 
        of such individual's spouse.
            ``(3) Eligible child.--The term `eligible child' 
        means any individual--
                    ``(A) who has not attained age 18 as of the 
                time of the adoption, or
                    ``(B) who is physically or mentally 
                incapable of caring for himself.
            ``(4) Child with special needs.--The term `child 
        with special needs' means any child if--
                    ``(A) a State has determined that the child 
                cannot or should not be returned to the home of 
                his parents, and
                    ``(B) such State has determined that there 
                exists with respect to the child a specific 
                factor or condition (such as his ethnic 
                background, age, or membership in a minority or 
                sibling group, or the presence of factors such 
                as medical conditions or physical, mental, or 
                emotional handicaps) because of which it is 
                reasonable to conclude that such child cannot 
                be placed with adoptive parents without 
                providing adoption assistance.
    ``(e) Married Couples Must File Joint Returns.--Rules 
similar to the rules of paragraphs (2), (3), and (4) of section 
21(e) shall apply for purposes of this section.''.
    (b) Exclusion of Amounts Received Under Employer's Adoption 
Assistance Programs.--Part III of subchapter B of chapter 1 
(relating to items specifically excluded from gross income), as 
amended by title VIII, is amended by redesignating section 138 
as section 139 and by inserting after section 137 the following 
new section:

``SEC. 138. ADOPTION ASSISTANCE PROGRAMS.

    ``(a) In General.--Gross income of an employee does not 
include amounts paid or expenses incurred by the employer for 
qualified adoption expenses in connection with the adoption of 
a child by an employee if such amounts are furnished pursuant 
to an adoption assistance program.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The aggregate amount 
        excludable from gross income under subsection (a) for 
        all taxable years with respect to the adoption of any 
        single child by the taxpayer shall not exceed $5,000.
            ``(2) Income limitation.--The amount excludable 
        from gross income under subsection (a) for any taxable 
        year shall be reduced (but not below zero) by an amount 
        which bears the same ratio to the amount so excludable 
        (determined without regard to this paragraph but with 
        regard to paragraph (1)) as--
                    ``(A) the amount (if any) by which the 
                taxpayer's adjusted gross income (determined 
                without regard to this section and sections 
                911, 931, and 933) exceeds $75,000, bears to
                    ``(B) $40,000.
    ``(c) Adoption Assistance Program.--For purposes of this 
section, an adoption assistance program is a plan of an 
employer--
            ``(1) under which the employer provides employees 
        with adoption assistance, and
            ``(2) which meets requirements similar to the 
        requirements of paragraphs (2), (3), and (5) of section 
        127(b).
An adoption reimbursement program operated under section 1052 
of title 10, United States Code (relating to armed forces) or 
section 514 of title 14, United States Code (relating to 
members of the Coast Guard) shall be treated as an adoption 
assistance program for purposes of this section.
    ``(d) Qualified Adoption Expenses.--For purposes of this 
section, the term `qualified adoption expenses' has the meaning 
given such term by section 24(d).''.
    (c) Conforming Amendments.--
            (1) The table of sections for subpart A of part IV 
        of subchapter A of chapter 1, as amended by section 
        11001, is amended by inserting after the item relating 
        to section 23 the following new item:

        ``Sec. 24. Adoption expenses.''.

            (2) The table of sections for part III of 
        subchapter B of chapter 1 is amended by striking the 
        item relating to section 138 and inserting the 
        following:

        ``Sec. 138. Adoption assistance programs.
        ``Sec. 139. Cross reference to other Acts.''.

    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11004. DEDUCTION FOR INTEREST ON EDUCATION LOANS.

    (a) In General.--Part VII of subchapter B of chapter 1 
(relating to additional itemized deductions for individuals) is 
amended by redesignating section 220 as section 221 and by 
inserting after section 219 the following new section:

``SEC. 220. INTEREST ON EDUCATION LOANS.

    ``(a) Allowance of Deduction.--In the case of an 
individual, there shall be allowed as a deduction for the 
taxable year an amount equal to the interest paid by the 
taxpayer during the taxable year on any qualified education 
loan.
    ``(b) Maximum Deduction.--
            ``(1) In general.--Except as provided in paragraph 
        (2), the deduction allowed by subsection (a) for the 
        taxable year shall not exceed $2,500.
            ``(2) Limitation based on modified adjusted gross 
        income.--
                    ``(A) In general.--If the modified adjusted 
                gross income of the taxpayer for the taxable 
                year exceeds $45,000 ($65,000 in the case of a 
                joint return), the amount which would (but for 
                this paragraph) be allowable as a deduction 
                under this section shall be reduced (but not 
                below zero) by the amount which bears the same 
                ratio to the amount which would be so allowable 
                as such excess bears to $20,000.
                    ``(B) Modified adjusted gross income.--The 
                term `modified adjusted gross income' means 
                adjusted gross income determined--
                            ``(i) without regard to this 
                        section and sections 135, 911, 931, and 
                        933, and
                            ``(ii) after application of 
                        sections 86, 219, and 469.
                For purposes of sections 86, 135, 219, and 469, 
                adjusted gross income shall be determined 
                without regard to the deduction allowed under 
                this section.
                    ``(C) Inflation adjustment.--In the case of 
                any taxable year beginning after 1996, the 
                $45,000 and $65,000 amounts referred to in 
                subparagraph (A) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under section 
                        (1)(f)(3) for the calendar year in 
                        which the taxable year begins, by 
                        substituting `1995' for `1992'.
                    ``(D) Rounding.--If any amount as adjusted 
                under subparagraph (C) is not a multiple of 
                $50, such amount shall be rounded to the 
                nearest multiple of $50.
    ``(c) Dependents Not Eligible for Deduction.--No deduction 
shall be allowed by this section to an individual for the 
taxable year if a deduction under section 151 with respect to 
such individual is allowed to another taxpayer for the taxable 
year beginning in the calendar year in which such individual's 
taxable year begins.
    ``(d) Limit on Period Deduction Allowed.--A deduction shall 
be allowed under this section only with respect to interest 
paid on any qualified education loan during the first 60 months 
(whether or not consecutive) in which interest payments are 
required. For purposes of this paragraph, any loan and all 
refinancings of such loan shall be treated as 1 loan.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Qualified education loan.--The term 
        `qualified education loan' means any indebtedness 
        incurred to pay qualified higher education expenses--
                    ``(A) which are incurred on behalf of the 
                taxpayer or the taxpayer's spouse,
                    ``(B) which are paid or incurred within a 
                reasonable period of time before or after the 
                indebtedness is incurred, and
                    ``(C) which are attributable to education 
                furnished during a period during which the 
                recipient was at least a half-time student.
        Such term includes indebtedness used to refinance 
        indebtedness which qualifies as a qualified education 
        loan. The term `qualified education loan' shall not 
        include any indebtedness owed to a person who is 
        related (within the meaning of section 267(b) or 
        707(b)(1)) to the taxpayer.
            ``(2) Qualified higher education expenses.--The 
        term `qualified higher education expenses' means the 
        cost of attendance (as defined in section 472 of the 
        Higher Education Act of 1965, 20 U.S.C. 1087ll, as in 
        effect on the day before the date of the enactment of 
        this Act) of the taxpayer or the taxpayer's spouse at 
        an eligible educational institution, reduced by the sum 
        of--
                    ``(A) the amount excluded from gross income 
                under section 135 by reason of such expenses, 
                and
                    ``(B) the amount of the reduction described 
                in section 135(d)(1).
        For purposes of the preceding sentence, the term 
        `eligible educational institution' has the same meaning 
        given such term by section 135(c)(3), except that such 
        term shall also include an institution conducting an 
        internship or residency program leading to a degree or 
        certificate awarded by an institution of higher 
        education, a hospital, or a health care facility which 
        offers postgraduate training.
            ``(3) Half-time student.--The term `half-time 
        student' means any individual who would be a student as 
        defined in section 151(c)(4) if `half-time' were 
        substituted for `full-time' each place it appears in 
        such section.
            ``(4) Dependent.--The term `dependent' has the 
        meaning given such term by section 152.
    ``(f) Special Rules.--
            ``(1) Denial of double benefit.--No deduction shall 
        be allowed under this section for any amount for which 
        a deduction is allowable under any other provision of 
        this chapter.
            ``(2) Married couples must file joint return.--If 
        the taxpayer is married at the close of the taxable 
        year, the deduction shall be allowed under subsection 
        (a) only if the taxpayer and the taxpayer's spouse file 
        a joint return for the taxable year.
            ``(3) Marital status.--Marital status shall be 
        determined in accordance with section 7703.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
Other Deductions.--Subsection (a) of section 62 is amended by 
inserting after paragraph (15) the following new paragraph:
            ``(16) Interest on education loans.--The deduction 
        allowed by section 220.''
    (c) Reporting Requirement.--
            (1) In general.--Subpart B of part III of 
        subchapter A of chapter 61 (relating to information 
        concerning transactions with other persons) is amended 
        by inserting after section 6050P the following new 
        section:

``SEC. 6050Q. RETURNS RELATING TO EDUCATION LOAN INTEREST RECEIVED IN 
                    TRADE OR BUSINESS FROM INDIVIDUALS.

    ``(a) Education Loan Interest of $600 or More.--Any 
person--
            ``(1) who is engaged in a trade or business, and
            ``(2) who, in the course of such trade or business, 
        receives from any individual interest aggregating $600 
        or more for any calendar year on 1 or more qualified 
        education loans,
shall make the return described in subsection (b) with respect 
to each individual from whom such interest was received at such 
time as the Secretary may by regulations prescribe.
    ``(b) Form and Manner of Returns.--A return is described in 
this subsection if such return--
            ``(1) is in such form as the Secretary may 
        prescribe,
            ``(2) contains--
                    ``(A) the name, address, and TIN of the 
                individual from whom the interest described in 
                subsection (a)(2) was received,
                    ``(B) the amount of such interest received 
                for the calendar year, and
                    ``(C) such other information as the 
                Secretary may prescribe.
    ``(c) Application to Governmental Units.--For purposes of 
subsection (a)--
            ``(1) Treated as persons.--The term `person' 
        includes any governmental unit (and any agency or 
        instrumentality thereof).
            ``(2) Special rules.--In the case of a governmental 
        unit or any agency or instrumentality thereof--
                    ``(A) subsection (a) shall be applied 
                without regard to the trade or business 
                requirement contained therein, and
                    ``(B) any return required under subsection 
                (a) shall be made by the officer or employee 
                appropriately designated for the purpose of 
                making such return.
    ``(d) Statements To Be Furnished to Individuals With 
Respect to Whom Information Is Required.--Every person required 
to make a return under subsection (a) shall furnish to each 
individual whose name is required to be set forth in such 
return a written statement showing--
            ``(1) the name and address of the person required 
        to make such return, and
            ``(2) the aggregate amount of interest described in 
        subsection (a)(2) received by the person required to 
        make such return from the individual to whom the 
        statement is required to be furnished.
The written statement required under the preceding sentence 
shall be furnished on or before January 31 of the year 
following the calendar year for which the return under 
subsection (a) was required to be made.
    ``(e) Qualified Education Loan Defined.--For purposes of 
this section, except as provided in regulations prescribed by 
the Secretary, the term `qualified education loan' has the 
meaning given such term by section 220(e)(1).
    ``(f) Returns Which Would Be Required To Be Made by 2 or 
More Persons.--Except to the extent provided in regulations 
prescribed by the Secretary, in the case of interest received 
by any person on behalf of another person, only the person 
first receiving such interest shall be required to make the 
return under subsection (a).''.
            (2) Assessable penalties.--Section 6724(d) 
        (relating to definitions) is amended--
                    (A) by redesignating clauses (ix) through 
                (xiv) as clauses (x) through (xv), 
                respectively, in paragraph (1)(B) and by 
                inserting after clause (viii) of such paragraph 
                the following new clause:
                            ``(ix) section 6050Q (relating to 
                        returns relating to education loan 
                        interest received in trade or business 
                        from individuals),'', and
                    (B) by redesignating subparagraphs (Q) 
                through (T) as subparagraphs (R) through (U), 
                respectively, in paragraph (2) and by inserting 
                after subparagraph (P) of such paragraph the 
                following new subparagraph:
                    ``(Q) section 6050Q (relating to returns 
                relating to education loan interest received in 
                trade or business from individuals),''.
    (d) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the last 
item and inserting the following new items:

        ``Sec. 220. Interest on education loans.
        ``Sec. 221. Cross reference.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to any qualified education loan (as defined in 
section 220(e)(1) of the Internal Revenue Code of 1986, as 
added by this section) incurred on, before, or after the date 
of the enactment of this Act, but only with respect to any loan 
interest payment due after December 31, 1995.

SEC. 11005. DEDUCTION FOR TAXPAYERS WITH CERTAIN PERSONS REQUIRING 
                    CUSTODIAL CARE IN THEIR HOUSEHOLDS.

    (a) In General.--Part VII of subchapter B of chapter 1 is 
amended by redesignating section 221 as section 222 and by 
inserting after section 220 the following new section:

``SEC. 221. TAXPAYERS WITH CERTAIN PERSONS REQUIRING CUSTODIAL CARE IN 
                    THEIR HOUSEHOLDS.

    ``(a) Allowance of Deduction.--In the case of an individual 
who maintains a household which includes as a member one or 
more qualified persons, there shall be allowed as a deduction 
for the taxable year an amount equal to $1,000 for each such 
person.
    ``(b) Qualified Person.--For purposes of this section, the 
term `qualified person' means any individual--
            ``(1) who is a father or mother of the taxpayer, 
        his spouse, or his former spouse or who is an ancestor 
        of such a father or mother,
            ``(2) who is physically or mentally incapable of 
        caring for himself,
            ``(3) who has as his principal place of abode for 
        more than half of the taxable year the home of the 
        taxpayer,
            ``(4) over half of whose support, for the calendar 
        year in which the taxable year of the taxpayer begins, 
        was received from the taxpayer, and
            ``(5) whose name and TIN are included on the 
        taxpayer's return for the taxable year.
For purposes of paragraph (1), a stepfather or stepmother shall 
be treated as a father or mother.
    ``(c) Special Rules.--For purposes of this section, rules 
similar to the rules of paragraphs (1), (2), (3), and (4) of 
section 21(e) shall apply.''
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
Other Deductions.--Subsection (a) of section 62 is amended by 
inserting after paragraph (16) the following new paragraph:
            ``(17) Taxpayers with certain persons requiring 
        custodial care in their households.--The deduction 
        allowed by section 221.''
    (c) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the last 
item and inserting the following new items:

        ``Sec. 221. Taxpayers with certain persons requiring custodial 
                  care in their households.
        ``Sec. 222. Cross reference.''

    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

             Subtitle B--Savings and Investment Incentives

                CHAPTER 1--RETIREMENT SAVINGS INCENTIVES

               Subchapter A--Individual Retirement Plans

                  PART I--RESTORATION OF IRA DEDUCTION

SEC. 11011. RESTORATION OF IRA DEDUCTION.

    (a) Increase in Income Limits for Active Participants.--
            (1) In general.--Subparagraph (B) of section 
        219(g)(3) (relating to applicable dollar amount) is 
        amended to read as follows:
                    ``(B) Applicable dollar amount.--The term 
                `applicable dollar amount' means the following:
                            ``(i) In the case of a taxpayer 
                        filing a joint return:

                                                          The applicable
``For taxable years beginning in:                      dollar amount is:
    1996......................................................  $45,000 
    1997......................................................  $50,000 
    1998......................................................  $55,000 
    1999......................................................  $60,000 
    2000......................................................  $65,000 
    2001......................................................  $70,000 
    2002......................................................  $75,000 
    2003......................................................  $80,000 
    2004......................................................  $85,000 
    2005......................................................  $90,000 
    2006......................................................  $95,000 
    2007 and thereafter....................................... $100,000.

                            ``(ii) In the case of any other 
                        taxpayer (other than a married 
                        individual filing a separate return):

                                                          The applicable
``For taxable years beginning in:                      dollar amount is:
    1996......................................................  $30,000 
    1997......................................................  $35,000 
    1998......................................................  $40,000 
    1999......................................................  $45,000 
    2000......................................................  $50,000 
    2001......................................................  $55,000 
    2002......................................................  $60,000 
    2003......................................................  $65,000 
    2004......................................................  $70,000 
    2005......................................................  $75,000 
    2006......................................................  $80,000 
    2007 and thereafter.......................................  $85,000.

                            ``(iii) In the case of a married 
                        individual filing a separate return, 
                        zero.''
            (2) Increase in phaseout range for joint returns.--
                    (A) In general.--Clause (ii) of section 
                219(g)(2)(A) is amended by inserting ``(the 
                phaseout amount in the case of a joint 
                return)'' after ``$10,000''.
                    (B) Phaseout amount.--Paragraph (3) of 
                section 219(g) is amended--
                            (i) by adding at the end the 
                        following new subparagraph:
                    ``(C) Phaseout amount.--The phaseout amount 
                is:

                                                          The applicable
``For taxable years beginning in:                      dollar amount is:
    1996......................................................  $12,500 
    1997......................................................  $15,000 
    1998......................................................  $17,500 
    1999 and thereafter......................................$20,000.'',

                        and
                            (ii) by inserting ``; phaseout 
                        amount'' after ``amount'' in the 
                        heading.
            (3) Cost-of-living adjustments.--Section 219(h), as 
        added by section 11012(a), is amended--
                    (A) by adding at the end the following new 
                paragraph:
            ``(2) Phase-out ranges.--In the case of any taxable 
        year beginning in a calendar year after 2007, the 
        $100,000 and $85,000 amounts in clauses (i) and (ii) of 
        subsection (g)(3)(B) shall each be increased by an 
        amount equal to the product of such dollar amount and 
        the cost-of-living adjustment determined under section 
        1(f)(3) for the calendar year, except that subparagraph 
        (B) thereof shall be applied by substituting `2006' for 
        `1992'. If any amount to which either such amount is 
        increased is not a multiple of $1,000, such amount 
        shall be rounded to the next lower multiple of 
        $1,000.'', and
                    (B) by striking ``In the case'' and 
                inserting:
            ``(1) Deductible amount.--In the case''.
    (b) Individual Not Disqualified by Spouse's 
Participation.--Paragraph (1) of section 219(g) (relating to 
limitation on deduction for active participants in certain 
pension plans) is amended by striking ``or the individual's 
spouse''.
    (c) Reporting Requirements.--Section 408(i) is amended by 
striking ``under regulations'' and ``in such regulations'' each 
place such terms appear.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11012. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT.

    (a) In General.--Section 219 is amended by redesignating 
subsection (h) as subsection (i) and by inserting after 
subsection (g) the following new subsection:
    ``(h) Cost-of-Living Adjustments.--In the case of any 
taxable year beginning in a calendar year after 1996, the 
$2,000 amount under subsection (b)(1)(A) shall be increased by 
an amount equal to the product of $2,000 and the cost-of-living 
adjustment determined under section 1(f)(3) for the calendar 
year in which the taxable year begins, except that subparagraph 
(B) thereof shall be applied by substituting `1995' for `1992'. 
If the amount to which $2,000 would be increased under the 
preceding sentence is not a multiple of $500, such amount shall 
be rounded to the next lower multiple of $500.''
    (b) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in 
        excess of $2,000 on behalf of any individual'' and 
        inserting ``on behalf of any individual in excess of 
        the amount in effect for such taxable year under 
        section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking 
        ``$2,000'' and inserting ``the dollar amount in effect 
        under section 219(b)(1)(A)''.
            (3) Section 408(j) is amended by striking 
        ``$2,000''.

SEC. 11013. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.

    (a) Spousal IRA Computed on Basis of Compensation of Both 
Spouses.--Subsection (c) of section 219 (relating to special 
rules for certain married individuals) is amended to read as 
follows:
    ``(c) Special Rules for Certain Married Individuals.--
            ``(1) In general.--In the case of an individual to 
        whom this paragraph applies for the taxable year, the 
        limitation of paragraph (1) of subsection (b) shall be 
        equal to the lesser of--
                    ``(A) the dollar amount in effect under 
                subsection (b)(1)(A) for the taxable year, or
                    ``(B) the sum of--
                            ``(i) the compensation includible 
                        in such individual's gross income for 
                        the taxable year, plus
                            ``(ii) the compensation includible 
                        in the gross income of such 
                        individual's spouse for the taxable 
                        year reduced by--
                                    ``(I) the amount allowed as 
                                a deduction under subsection 
                                (a) to such spouse for such 
                                taxable year, and
                                    ``(II) the amount of any 
                                contribution on behalf of such 
                                spouse to an AD IRA under 
                                section 408A for such taxable 
                                year.
            ``(2) Individuals to whom paragraph (1) applies.--
        Paragraph (1) shall apply to any individual if--
                    ``(A) such individual files a joint return 
                for the taxable year, and
                    ``(B) the amount of compensation (if any) 
                includible in such individual's gross income 
                for the taxable year is less than the 
                compensation includible in the gross income of 
                such individual's spouse for the taxable 
                year.''
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 219(f) (relating to 
        other definitions and special rules) is amended by 
        striking ``subsections (b) and (c)'' and inserting 
        ``subsection (b)''.
            (2) Section 408(d)(5) is amended by striking 
        ``$2,250'' and inserting ``the dollar amount in effect 
        under section 219(b)(1)(A)''.
            (3) Section 219(g)(1) is amended by striking 
        ``(c)(2)'' and inserting ``(c)(1)(A)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

                  PART II--NONDEDUCTIBLE TAX-FREE IRAS

SEC. 11015. ESTABLISHMENT OF AMERICAN DREAM IRA.

    (a) In General.--Subpart A of part I of subchapter D of 
chapter 1 (relating to pension, profit-sharing, stock bonus 
plans, etc.) is amended by inserting after section 408 the 
following new section:

``SEC. 408A. AMERICAN DREAM IRA.

    ``(a) General Rule.--Except as provided in this section, an 
American Dream IRA shall be treated for purposes of this title 
in the same manner as an individual retirement plan.
    ``(b) American Dream IRA.--For purposes of this title, the 
term `American Dream IRA' or `AD IRA' means an individual 
retirement plan (as defined in section 7701(a)(37)) which is 
designated at the time of the establishment of the plan as an 
American Dream IRA. Such designation shall be made in such 
manner as the Secretary may prescribe.
    ``(c) Treatment of Contributions.--
            ``(1) No deduction allowed.--No deduction shall be 
        allowed under section 219 for a contribution to an AD 
        IRA.
            ``(2) Contribution limit.--The aggregate amount of 
        contributions for any taxable year to all AD IRAs 
        maintained for the benefit of an individual shall not 
        exceed the excess (if any) of--
                    ``(A) the maximum amount allowable as a 
                deduction under section 219 with respect to 
                such individual for such taxable year (computed 
                without regard to subsection (g) of such 
                section), over
                    ``(B) the amount so allowed.
            ``(3) Contributions permitted after age 70\1/2\.--
        Contributions to an AD IRA may be made even after the 
        individual for whom the account is maintained has 
        attained age 70\1/2\.
            ``(4) Mandatory distribution rules not to apply, 
        etc.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), subsections (a)(6) and (b)(3) 
                of section 408 (relating to required 
                distributions) and section 4974 (relating to 
                excise tax on certain accumulations in 
                qualified retirement plans) shall not apply to 
                any AD IRA.
                    ``(B) Post-death distributions.--Rules 
                similar to the rules of section 401(a)(9) 
                (other than subparagraph (A) thereof) shall 
                apply for purposes of this section.
            ``(5) Rules relating to rollover contributions.--
                    ``(A) In general.--No rollover contribution 
                may be made to an AD IRA unless it is a 
                qualified rollover contribution.
                    ``(B) Coordination with limit.--A qualified 
                rollover contribution shall not be taken into 
                account for purposes of paragraph (2).
            ``(6) Time when contributions made.--For purposes 
        of this section, the rule of section 219(f)(3) shall 
        apply.
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) General rules.--
                    ``(A) Exclusions from gross income.--Any 
                qualified distribution from an AD IRA shall not 
                be includible in gross income.
                    ``(B) Nonqualified distributions.--In 
                applying section 72 to any distribution from an 
                AD IRA which is not a qualified distribution, 
                such distribution shall be treated as made from 
                contributions to the AD IRA to the extent that 
                such distribution, when added to all previous 
                distributions from the AD IRA, does not exceed 
                the aggregate amount of contributions to the AD 
                IRA. For purposes of the preceding sentence, 
                all AD IRAs maintained for the benefit of an 
                individual shall be treated as 1 account.
                    ``(C) Exception from penalty tax.--Section 
                72(t) shall not apply to--
                            ``(i) any qualified distribution 
                        from an AD IRA, and
                            ``(ii) any qualified special 
                        purpose distribution (whether or not a 
                        qualified distribution) from an AD IRA.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' means any payment or 
                distribution--
                            ``(i) made on or after the date on 
                        which the individual attains age 59\1/
                        2\,
                            ``(ii) made to a beneficiary (or to 
                        the estate of the individual) on or 
                        after the death of the individual,
                            ``(iii) attributable to the 
                        individual's being disabled (within the 
                        meaning of section 72(m)(7)), or
                            ``(iv) which is a qualified special 
                        purpose distribution.
                    ``(B) Distributions within 5 years.--No 
                payment or distribution shall be treated as a 
                qualified distribution if--
                            ``(i) it is made within the 5-
                        taxable year period beginning with the 
                        1st taxable year for which the 
                        individual made a contribution to an AD 
                        IRA (or such individual's spouse made a 
                        contribution to an AD IRA) established 
                        for such individual, or
                            ``(ii) in the case of a payment or 
                        distribution properly allocable (as 
                        determined in the manner prescribed by 
                        the Secretary) to a qualified rollover 
                        contribution (or income allocable 
                        thereto), it is made within the 5-
                        taxable year period beginning with the 
                        taxable year in which the rollover 
                        contribution was made.
                Clause (ii) shall not apply to a qualified 
                rollover contribution from an AD IRA.
            ``(3) Rollovers.--
                    ``(A) In general.--Paragraph (1) shall not 
                apply to any distribution which is transferred 
                in a qualified rollover contribution to an AD 
                IRA.
                    ``(B) Income inclusion for rollovers from 
                non-ad iras.--In the case of any qualified 
                rollover contribution from an individual 
                retirement plan (other than an AD IRA) to an AD 
                IRA established for the benefit of the payee or 
                distributee, as the case may be--
                            ``(i) sections 72(t) and 408(d)(3) 
                        shall not apply, and
                            ``(ii) in any case where such 
                        contribution is made before January 1, 
                        1998, any amount required to be 
                        included in gross income by reason of 
                        this paragraph shall be so included 
                        ratably over the 4-taxable year period 
                        beginning with the taxable year in 
                        which the payment or distribution is 
                        made.
                    ``(C) Additional reporting requirements.--
                The Secretary shall require that trustees of AD 
                IRAs, trustees of individual retirement plans, 
                or both, whichever is appropriate, shall 
                include such additional information in reports 
                required under section 408(i) as is necessary 
                to ensure that amounts required to be included 
                in gross income under subparagraph (B) are so 
                included.
            ``(4) Qualified special purpose distribution.--For 
        purposes of this section, the term `qualified special 
        purpose distribution' means any distribution to which 
        subparagraph (B), (D), or (E) of section 72(t)(2) 
        applies.
    ``(e) Qualified Rollover Contribution.--For purposes of 
this section--
            ``(1) In general.--The term `qualified rollover 
        contribution' means a rollover contribution to an AD 
        IRA from another such account, or from an individual 
        retirement plan, but only if such rollover contribution 
        meets the requirements of section 408(d)(3). For 
        purposes of section 408(d)(3)(B), there shall be 
        disregarded any qualified rollover contribution from an 
        individual retirement plan to an AD IRA.
            ``(2) Conversions.--The conversion of an individual 
        retirement plan to an AD IRA shall be treated as if it 
        were a qualified rollover contribution.''
    (b) Repeal of Nondeductible Contributions.--
            (1) Subsection (f) of section 219 is amended by 
        striking paragraph (7).
            (2) Paragraph (5) of section 408(d) is amended by 
        striking the last sentence.
            (3) Section 408(o) is amended by adding at the end 
        the following new paragraph:
            ``(5) Termination.--This subsection shall not apply 
        to any designated nondeductible contribution for any 
        taxable year beginning after December 31, 1995.''
            (4) Subsection (b) of section 4973 is amended by 
        striking the last sentence.
    (c) Excess Distributions Tax Not To Apply.--Subparagraph 
(B) of section 4980A(e)(1) is amended by inserting ``other than 
an AD IRA (as defined in section 408A(b))'' after ``retirement 
plan''.
    (d) Excess Contributions.--Section 4973(b) is amended to 
read as follows:
    ``(b) Excess Contributions.--For purposes of this section--
            ``(1) In general.--In the case of individual 
        retirement accounts or individual retirement annuities, 
        the term `excess contributions' means the sum of--
                    ``(A) the amount determined under paragraph 
                (2) for the taxable year, plus
                    ``(B) the carryover amount determined under 
                paragraph (3) for the taxable year.
            ``(2) Current year.--The amount determined under 
        this paragraph for any taxable year is an amount equal 
        to the sum of--
                    ``(A) the excess (if any) of--
                            ``(i) the amount contributed for 
                        the taxable year to the accounts or for 
                        the annuities or bonds (other than AD 
                        IRAs), over
                            ``(ii) the amount allowable as a 
                        deduction under section 219 for the 
                        taxable year, plus
                    ``(B) the excess (if any) of--
                            ``(i) the amount described in 
                        clause (i) (taking into account 
                        contributions to AD IRAs) contributed 
                        for the taxable year, over
                            ``(ii) the amount allowable as a 
                        deduction under section 219 for the 
                        taxable year (computed without regard 
                        to section 219(g)).
            ``(3) Carryover amount.--The carryover amount 
        determined under this paragraph for any taxable year is 
        the amount determined under paragraph (2) for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the account 
                for the taxable year which were included in the 
                gross income of the payee under section 
                408(d)(1),
                    ``(B) the distributions out of the account 
                for the taxable year to which section 408(d)(5) 
                applies, and
                    ``(C) the excess (if any) of the amount 
                determined under paragraph (2)(B)(ii) over the 
                amount determined under paragraph (2)(B)(i).
            ``(4) Special rules.--For purposes of this 
        subsection--
                    ``(A) Rollover contributions.--Rollover 
                distributions described in sections 402(c), 
                403(a)(4), 403(b)(8), 408(d)(3), and 408A(e) 
                shall not be taken into account.
                    ``(B) Contributions returned before due 
                date.--Any contribution which is distributed 
                from an individual retirement plan in a 
                distribution to which section 408(d)(4) applies 
                shall not be taken into account.
                    ``(C) Excess contributions treated as 
                contributions.--In applying paragraph (3)(C), 
                the determination as to amounts contributed for 
                a taxable year shall be made without regard to 
                section 219(f)(6).''
    (e) Clerical Amendment.--The table of sections for subpart 
A of part I of subchapter D of chapter 1 is amended by 
inserting after the item relating to section 408 the following 
new item:

        ``Sec. 408A. American Dream IRA.''

    (f) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

                Subchapter B--Penalty-Free Distributions

SEC. 11016. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT 
                    PENALTY TO PURCHASE FIRST HOMES OR TO PAY HIGHER 
                    EDUCATION OR FINANCIALLY DEVASTATING MEDICAL 
                    EXPENSES.

    (a) In General.--Paragraph (2) of section 72(t) (relating 
to exceptions to 10-percent additional tax on early 
distributions from qualified retirement plans) is amended by 
adding at the end the following new subparagraph:
            ``(D) Distributions from individual retirement 
        plans for first-time homebuyers or educational 
        expenses.--Distributions to an individual from an 
        individual retirement plan--
                    ``(i) which are qualified first-time 
                homebuyer distributions (as defined in 
                paragraph (6)), or
                    ``(ii) to the extent such distributions do 
                not exceed the qualified higher education 
                expenses (as defined in paragraph (7)) of the 
                taxpayer for the taxable year.
    (b) Financially Devastating Medical Expenses.--
            (1) In general.--Section 72(t)(3)(A) is amended by 
        striking ``(B),''.
            (2) Certain lineal descendants and ancestors 
        treated as dependents.--Subparagraph (B) of section 
        72(t)(2) is amended by striking ``medical care'' and 
        all that follows and inserting ``medical care 
        determined--
                            ``(i) without regard to whether the 
                        employee itemizes deductions for such 
                        taxable year, and
                            ``(ii) in the case of an individual 
                        retirement plan, by treating such 
                        employee's dependents as including--
                                    ``(I) all children and 
                                grandchildren of the employee 
                                or such employee's spouse, and
                                    ``(II) all ancestors of the 
                                employee or such employee's 
                                spouse.''
            (3) Conforming amendment.--Subparagraph (B) of 
        section 72(t)(2) is amended by striking ``or (C)'' and 
        inserting ``, (C), (D), or (E)''.
    (c) Definitions.--Section 72(t) is amended by adding at the 
end the following new paragraphs:
            ``(6) Qualified first-time homebuyer 
        distributions.--For purposes of paragraph (2)(D)(i)--
                    ``(A) In general.--The term `qualified 
                first-time homebuyer distribution' means any 
                payment or distribution received by an 
                individual to the extent such payment or 
                distribution is used by the individual before 
                the close of the 60th day after the day on 
                which such payment or distribution is received 
                to pay qualified acquisition costs with respect 
                to a principal residence of a first-time 
                homebuyer who is such individual, the spouse of 
                such individual, or any child, grandchild, or 
                ancestor of such individual or the individual's 
                spouse.
                    ``(B) Lifetime dollar limitation.--The 
                aggregate amount of payments or distributions 
                received by an individual which may be treated 
                as qualified first-time homebuyer distributions 
                for any taxable year shall not exceed the 
                excess (if any) of--
                            ``(i) $10,000, over
                            ``(ii) the aggregate amounts 
                        treated as qualified first-time 
                        homebuyer distributions with respect to 
                        such individual for all prior taxable 
                        years.
                    ``(C) Qualified acquisition costs.--For 
                purposes of this paragraph, the term `qualified 
                acquisition costs' means the costs of 
                acquiring, constructing, or reconstructing a 
                residence. Such term includes any usual or 
                reasonable settlement, financing, or other 
                closing costs.
                    ``(D) First-time homebuyer; other 
                definitions.--For purposes of this paragraph--
                            ``(i) First-time homebuyer.--The 
                        term `first-time homebuyer' means any 
                        individual if--
                                    ``(I) such individual (and 
                                if married, such individual's 
                                spouse) had no present 
                                ownership interest in a 
                                principal residence during the 
                                2-year period ending on the 
                                date of acquisition of the 
                                principal residence to which 
                                this paragraph applies, and
                                    ``(II) subsection (h) or 
                                (k) of section 1034 did not 
                                suspend the running of any 
                                period of time specified in 
                                section 1034 with respect to 
                                such individual on the day 
                                before the date the 
                                distribution is applied 
                                pursuant to subparagraph (A).
                            ``(ii) Principal residence.--The 
                        term `principal residence' has the same 
                        meaning as when used in section 1034.
                            ``(iii) Date of acquisition.--The 
                        term `date of acquisition' means the 
                        date--
                                    ``(I) on which a binding 
                                contract to acquire the 
                                principal residence to which 
                                subparagraph (A) applies is 
                                entered into, or
                                    ``(II) on which 
                                construction or reconstruction 
                                of such a principal residence 
                                is commenced.
                    ``(E) Special rule where delay in 
                acquisition.--If any distribution from any 
                individual retirement plan fails to meet the 
                requirements of subparagraph (A) solely by 
                reason of a delay or cancellation of the 
                purchase or construction of the residence, the 
                amount of the distribution may be contributed 
                to an individual retirement plan as provided in 
                section 408(d)(3)(A)(i) (determined by 
                substituting `120 days' for `60 days' in such 
                section), except that--
                            ``(i) section 408(d)(3)(B) shall 
                        not be applied to such contribution, 
                        and
                            ``(ii) such amount shall not be 
                        taken into account in determining 
                        whether section 408(d)(3)(A)(i) applies 
                        to any other amount.
            ``(7) Qualified higher education expenses.--For 
        purposes of paragraph (2)(D)(ii)--
                    ``(A) In general.--The term `qualified 
                higher education expenses' means tuition, fees, 
                books, supplies, and equipment required for the 
                enrollment or attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any child (as defined in 
                        section 151(c)(3)), grandchild, or 
                        ancestor of the taxpayer or the 
                        taxpayer's spouse,
                at an eligible educational institution (as 
                defined in section 135(c)(3)).
                    ``(B) Coordination with savings bond 
                provisions.--The amount of qualified higher 
                education expenses for any taxable year shall 
                be reduced by any amount excludable from gross 
                income under section 135.''
    (d) Penalty-Free Distributions for Certain Unemployed 
Individuals.--Paragraph (2) of section 72(t) is amended by 
adding at the end the following new subparagraph:
                    ``(E) Distributions to unemployed 
                individuals.--A distribution from an individual 
                retirement plan to an individual after 
                separation from employment, if--
                            ``(i) such individual has received 
                        unemployment compensation for 12 
                        consecutive weeks under any Federal or 
                        State unemployment compensation law by 
                        reason of such separation, and
                            ``(ii) such distributions are made 
                        during any taxable year during which 
                        such unemployment compensation is paid 
                        or the succeeding taxable year.
                To the extent provided in regulations, a self-
                employed individual shall be treated as meeting 
                the requirements of clause (i) if, under 
                Federal or State law, the individual would have 
                received unemployment compensation but for the 
                fact the individual was self-employed.''.
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

                   Subchapter C--Simple Savings Plans

SEC. 11018. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS FOR 
                    EMPLOYEES OF SMALL EMPLOYERS.

    (a) In General.--Section 408 (relating to individual 
retirement accounts) is amended by redesignating subsection (p) 
as subsection (q) and by inserting after subsection (o) the 
following new subsection:
    ``(p) Simple Retirement Accounts.--
            ``(1) In general.--For purposes of this title, the 
        term `simple retirement account' means an individual 
        retirement plan (as defined in section 7701(a)(37))--
                    ``(A) with respect to which the 
                requirements of paragraphs (3), (4), and (5) 
                are met; and
                    ``(B) with respect to which the only 
                contributions allowed are contributions under a 
                qualified salary reduction arrangement.
            ``(2) Qualified salary reduction arrangement.--
                    ``(A) In general.--For purposes of this 
                subsection, the term `qualified salary 
                reduction arrangement' means a written 
                arrangement of an eligible employer under 
                which--
                            ``(i) an employee eligible to 
                        participate in the arrangement may 
                        elect to have the employer make 
                        payments--
                                    ``(I) as elective employer 
                                contributions to a simple 
                                retirement account on behalf of 
                                the employee, or
                                    ``(II) to the employee 
                                directly in cash,
                            ``(ii) the amount which an employee 
                        may elect under clause (i) for any year 
                        is required to be expressed as a 
                        percentage of compensation and may not 
                        exceed a total of $6,000 for any year,
                            ``(iii) the employer is required to 
                        make a matching contribution to the 
                        simple retirement account for any year 
                        in an amount equal to so much of the 
                        amount the employee elects under clause 
                        (i)(I) as does not exceed the 
                        applicable percentage of compensation 
                        for the year, and
                            ``(iv) no contributions may be made 
                        other than contributions described in 
                        clause (i) or (iii).
                    ``(B) Definitions.--For purposes of this 
                subsection--
                            ``(i) Eligible employer.--The term 
                        `eligible employer' means an employer 
                        who employs 100 or fewer employees on 
                        any day during the year.
                            ``(ii) Applicable percentage.--
                                    ``(I) In general.--The term 
                                `applicable percentage' means 3 
                                percent.
                                    ``(II) Election of lower 
                                percentage.--An employer may 
                                elect to apply a lower 
                                percentage (not less than 1 
                                percent) for any year for all 
                                employees eligible to 
                                participate in the plan for 
                                such year if the employer 
                                notifies the employees of such 
                                lower percentage within a 
                                reasonable period of time 
                                before the 60-day election 
                                period for such year under 
                                paragraph (5)(C). An employer 
                                may not elect a lower 
                                percentage under this subclause 
                                for any year if that election 
                                would result in the applicable 
                                percentage being lower than 3 
                                percent in more than 2 of the 
                                years in the 5-year period 
                                ending with such year.
                                    ``(III) Special rule for 
                                years arrangement not in 
                                effect.--If any year in the 5-
                                year period described in 
                                subclause (II) is a year prior 
                                to the first year for which any 
                                qualified salary reduction 
                                arrangement is in effect with 
                                respect to the employer (or any 
                                predecessor), the employer 
                                shall be treated as if the 
                                level of the employer matching 
                                contribution was at 3 percent 
                                of compensation for such prior 
                                year.
                    ``(C) Arrangement may be only plan of 
                employer.--
                            ``(i) In general.--An arrangement 
                        shall not be treated as a qualified 
                        salary reduction arrangement for any 
                        year if the employer (or any 
                        predecessor employer) maintained a 
                        qualified plan with respect to which 
                        contributions were made, or benefits 
                        were accrued, for service in any year 
                        in the period beginning with the year 
                        such arrangement became effective and 
                        ending with the year for which the 
                        determination is being made.
                            ``(ii) Qualified plan.--For 
                        purposes of this subparagraph, the term 
                        `qualified plan' means a plan, 
                        contract, pension, or trust described 
                        in subparagraph (A) or (B) of section 
                        219(g)(5).
                    ``(D) Cost-of-living adjustment.--The 
                Secretary shall adjust the $6,000 amount under 
                subparagraph (A)(ii) at the same time and in 
                the same manner as under section 415(d), except 
                that the base period taken into account shall 
                be the calendar quarter ending September 30, 
                1995, and any increase under this subparagraph 
                which is not a multiple of $500 shall be 
                rounded to the next lower multiple of $500.
            ``(3) Vesting requirements.--The requirements of 
        this paragraph are met with respect to a simple 
        retirement account if the employee's rights to any 
        contribution to the simple retirement account are 
        nonforfeitable. For purposes of this paragraph, rules 
        similar to the rules of subsection (k)(4) shall apply.
            ``(4) Participation requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any simple 
                retirement account for a year only if, under 
                the qualified salary reduction arrangement, all 
                employees of the employer who--
                            ``(i) received at least $5,000 in 
                        compensation from the employer during 
                        any 2 preceding years, and
                            ``(ii) are reasonably expected to 
                        receive at least $5,000 in compensation 
                        during the year,
                are eligible to make the election under 
                paragraph (2)(A)(i).
                    ``(B) Excludable employees.--An employer 
                may elect to exclude from the requirement under 
                subparagraph (A) employees described in section 
                410(b)(3).
            ``(5) Administrative requirements.--The 
        requirements of this paragraph are met with respect to 
        any simplified retirement account if, under the 
        qualified salary reduction arrangement--
                    ``(A) an employer must--
                            ``(i) make the elective employer 
                        contributions under paragraph (2)(A)(i) 
                        not later than the close of the 30-day 
                        period following the last day of the 
                        month with respect to which the 
                        contributions are to be made, and
                            ``(ii) make the matching 
                        contributions under  paragraph  
                        (2)(A)(iii)  not  later than the date 
                        described in section 404(m)(2)(B),
                    ``(B) an employee may elect to terminate 
                participation in such arrangement at any time 
                during the year, except that if an employee so 
                terminates, the arrangement may provide that 
                the employee may not elect to resume 
                participation until the beginning of the next 
                year, and
                    ``(C) each employee eligible to participate 
                may elect, during the 60-day period before the 
                beginning of any year, to participate in the 
                arrangement, or to modify the amounts subject 
                to such arrangement, for such year.
            ``(6) Definitions.--For purposes of this 
        subsection--
                    ``(A) Compensation.--
                            ``(i) In general.--The term 
                        `compensation' means amounts described 
                        in paragraphs (3) and (8) of section 
                        6051(a).
                            ``(ii) Self-employed.--In the case 
                        of an employee described in 
                        subparagraph (B), the term 
                        `compensation' means net earnings from 
                        self-employment determined under 
                        section 1402(a) without regard to any 
                        contribution under this subsection.
                    ``(B) Employee.--The term `employee' 
                includes an employee as defined in section 
                401(c)(1).
                    ``(C) Year.--The term `year' means the 
                calendar year.''
    (b) Tax Treatment of Simple Retirement Accounts.--
            (1) Deductibility of contributions by employees.--
                    (A) Section 219(b) (relating to maximum 
                amount of deduction) is amended by adding at 
                the end the following new paragraph:
            ``(4) Special rule for simple retirement 
        accounts.--This section shall not apply with respect to 
        any amount contributed to a simple retirement account 
        established under section 408(p).''
                    (B) Section 219(g)(5)(A) (defining active 
                participant) is amended by striking ``or'' at 
                the end of clause (iv) and by adding at the end 
                the following new clause:
                            ``(vi) any simple retirement 
                        account (within the meaning of section 
                        408(p)), or''.
            (2) Deductibility of employer contributions.--
        Section 404 (relating to deductions for contributions 
        of an employer to pension, etc. plans) is amended by 
        adding at the end the following new subsection:
    ``(m) Special Rules for Simple Retirement Accounts.--
            ``(1) In general.--Employer contributions to a 
        simple retirement account shall be treated as if they 
        are made to a plan subject to the requirements of this 
        section.
            ``(2) Timing.--
                    ``(A) Deduction.--Contributions described 
                in paragraph (1) shall be deductible in the 
                taxable year of the employer with or within 
                which the calendar year for which the 
                contributions were made ends.
                    ``(B) Contributions after end of year.--For 
                purposes of this subsection, contributions 
                shall be treated as made for a taxable year if 
                they are made on account of the taxable year 
                and are made not later than the time prescribed 
                by law for filing the return for the taxable 
                year (including extensions thereof).''
            (3) Contributions and distributions.--
                    (A) Section 402 (relating to taxability of 
                beneficiary of employees' trust) is amended by 
                adding at the end the following new subsection:
    ``(k) Treatment of Simple Retirement Accounts.--Rules 
similar to the rules of paragraphs (1) and (3) of subsection 
(h) shall apply to contributions and distributions with respect 
to a simple retirement account under section 408(p).''
                    (B) Section 408(d)(3) is amended by adding 
                at the end the following new subparagraph:
                    ``(G) Simple retirement accounts.--This 
                paragraph shall not apply to any amount paid or 
                distributed out of a simple retirement account 
                (as defined in section 408(p)) unless--
                            ``(i) it is paid into another 
                        simple retirement account, or
                            ``(ii) in the case of any payment 
                        or distribution to which section 
                        72(t)(8) does not apply, it is paid 
                        into an individual retirement plan.''
                    (C) Clause (i) of section 457(c)(2)(B) is 
                amended by striking ``section 402(h)(1)(B)'' 
                and inserting ``section 402(h)(1)(B) or (k)''.
            (4) Penalties.--
                    (A) Early withdrawals.--Section 72(t) 
                (relating to additional tax in early 
                distributions), as amended by this Act, is 
                amended by adding at the end the following new 
                paragraph:
            ``(8) Special rules for simple retirement 
        accounts.--In the case of any amount received from a 
        simple retirement account (within the meaning of 
        section 408(p)) during the 2-year period beginning on 
        the date such individual first participated in any 
        qualified salary reduction arrangement maintained by 
        the individual's employer under section 408(p)(2), 
        paragraph (1) shall be applied by substituting `25 
        percent' for `10 percent'.''
                    (B) Failure to report.--Section 6693 is 
                amended by redesignating subsection (c) as 
                subsection (d) and by inserting after 
                subsection (b) the following new subsection:
    ``(c) Penalties Relating to Simple Retirement Accounts.--
            ``(1) Employer penalties.--An employer who fails to 
        provide 1 or more notices required by section 
        408(l)(2)(C) shall pay a penalty of $50 for each day on 
        which such failures continue.
            ``(2) Trustee penalties.--A trustee who fails--
                    ``(A) to provide 1 or more statements 
                required by the last sentence of section 408(i) 
                shall pay a penalty of $50 for each day on 
                which such failures continue, or
                    ``(B) to provide 1 or more summary 
                descriptions required by section 408(l)(2)(B) 
                shall pay a penalty of $50 for each day on 
                which such failures continue.
            ``(3) Reasonable cause exception.--No penalty shall 
        be imposed under this subsection with respect to any 
        failure which the taxpayer shows was due to reasonable 
        cause.''
            (5) Reporting requirements.--
                    (A)(i) Section 408(l) is amended by adding 
                at the end the following new paragraph:
            ``(2) Simple retirement accounts.--
                    ``(A) No employer reports.--Except as 
                provided in this paragraph, no report shall be 
                required under this section by an employer 
                maintaining a qualified salary reduction 
                arrangement under subsection (p).
                    ``(B) Summary description.--The trustee of 
                any simple retirement account established 
                pursuant to a qualified salary reduction 
                arrangement under subsection (p) shall provide 
                to the employer maintaining the arrangement, 
                each year a description containing the 
                following information:
                            ``(i) The name and address of the 
                        employer and the trustee.
                            ``(ii) The requirements for 
                        eligibility for participation.
                            ``(iii) The benefits provided with 
                        respect to the arrangement.
                            ``(iv) The time and method of 
                        making elections with respect to the 
                        arrangement.
                            ``(v) The procedures for, and 
                        effects of, withdrawals (including 
                        rollovers) from the arrangement.
                    ``(C) Employee notification.--The employer 
                shall notify each employee immediately before 
                the period for which an election described in 
                subsection (p)(5)(C) may be made of the 
                employee's opportunity to make such election. 
                Such notice shall include a copy of the 
                description described in subparagraph (B).''
                    (ii) Section 408(l) is amended by striking 
                ``An employer'' and inserting--
            ``(1) In general.--An employer''.
            (5) Reporting requirements.--Section 408(i) is 
        amended by adding at the end the following new flush 
        sentence:
``In the case of a simple retirement account under subsection 
(p), only one report under this subsection shall be required to 
be submitted each calendar year to the Secretary (at the time 
provided under paragraph (2)) but, in addition to the report 
under this subsection, there shall be furnished, within 30 days 
after each calendar year, to the individual on whose behalf the 
account is maintained a statement with respect to the account 
balance as of the close of, and the account activity during, 
such calendar year.''
            (6) Exemption from top-heavy plan rules.--Section 
        416(g)(4) (relating to special rules for top-heavy 
        plans) is amended by adding at the end the following 
        new subparagraph:
                    ``(G) Simple retirement accounts.--The term 
                `top-heavy plan' shall not include a simple 
                retirement account under section 408(p).''
            (7) Conforming amendments.--
                    (A) Section 280G(b)(6) is amended by 
                striking ``or'' at the end of subparagraph (B), 
                by striking the period at the end of 
                subparagraph (C) and inserting ``, or'' and by 
                adding after subparagraph (C) the following new 
                subparagraph:
                    ``(D) a simple retirement account described 
                in section 408(p).''
                    (B) Section 402(g)(3) is amended by 
                striking ``and'' at the end of subparagraph 
                (B), by striking the period at the end of 
                subparagraph (C) and inserting ``, and'', and 
                by adding after subparagraph (C) the following 
                new subparagraph:
                    ``(D) any elective employer contribution 
                under section 408(p)(2)(A)(i).''
                    (C) Subsections (b), (c), (m)(4)(B), and 
                (n)(3)(B) of section 414 are each amended by 
                inserting ``408(p),'' after ``408(k),''.
                    (D) Section 4972(d)(1)(A) is amended by 
                striking ``and'' at the end of clause (ii), by 
                striking the period at the end of clause (iii) 
                and inserting ``, and'', and by adding after 
                clause (iii) the following new clause:
                            ``(iv) any simple retirement 
                        account (within the meaning of section 
                        408(p)).''
    (c) Repeal of Simplified Employee Pensions.--Section 408(k) 
is amended by adding at the end the following new paragraph:
            ``(10) Termination.--This subsection shall not 
        apply to any years beginning after December 31, 1995. 
        This paragraph shall not apply to a simplified employee 
        pension established before January 1, 1996.''
    (d) Modifications of ERISA.--
            (1) Reporting requirements.--Section 101 of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1021) is amended by redesignating subsection (g) 
        as subsection (h) and by inserting after subsection (f) 
        the following new subsection:
    ``(g) Simple Retirement Accounts.--
            ``(1) No employer reports.--Except as provided in 
        this subsection, no report shall be required under this 
        section by an employer maintaining a qualified salary 
        reduction arrangement under section 408(p) of the 
        Internal Revenue Code of 1986.
            ``(2) Summary description.--The trustee of any 
        simple retirement account established pursuant to a 
        qualified salary reduction arrangement under section 
        408(p) of such Code shall provide to the employer 
        maintaining the arrangement each year a description 
        containing the following information:
                    ``(A) The name and address of the employer 
                and the trustee.
                    ``(B) The requirements for eligibility for 
                participation.
                    ``(C) The benefits provided with respect to 
                the arrangement.
                    ``(D) The time and method of making 
                elections with respect to the arrangement.
                    ``(E) The procedures for, and effects of, 
                withdrawals (including rollovers) from the 
                arrangement.
            ``(3) Employee notification.--The employer shall 
        notify each employee immediately before the period for 
        which an election described in section 408 (p)(5)(C) of 
        such Code may be made of the employee's opportunity to 
        make such election. Such notice shall include a copy of 
        the description described in paragraph (2).''
            (2) Fiduciary duties.--Section 404 (c) of such Act 
        (29 U.S.C. 1104(c)) is amended by inserting ``(1)'' 
        after ``(c)'', by redesignating paragraphs (1) and (2) 
        as subparagraphs (A) and (B), respectively, and by 
        adding at the end the following new paragraph:
            ``(2) In the case of a simple retirement account 
        established pursuant to a qualified salary reduction 
        arrangement under section 408(p) of the Internal 
        Revenue Code of 1986, a participant or beneficiary 
        shall, for purposes of paragraph (1), be treated as 
        exercising control over the assets in the account upon 
        the earliest of--
                    ``(A) an affirmative election with respect 
                to the initial investment of any contribution,
                    ``(B) a rollover to any other simple 
                retirement account or individual retirement 
                plan, or
                    ``(C) one year after the simple retirement 
                account is established.
        No reports, other than those required under section 
        101(g), shall be required with respect to a simple 
        retirement account established pursuant to such a 
        qualified salary reduction arrangement.''
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11019. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.

    (a) Alternative Method of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or 
deferred arrangements) is amended by adding at the end the 
following new paragraph:
            ``(11) Adoption of simple plan to meet 
        nondiscrimination tests.--
                    ``(A) In general.--A cash or deferred 
                arrangement maintained by an eligible employer 
                shall be treated as meeting the requirements of 
                paragraph (3)(A)(ii) if such arrangement 
                meets--
                            ``(i) the contribution requirements 
                        of subparagraph (B),
                            ``(ii) the exclusive benefit 
                        requirements of subparagraph (C), and
                            ``(iii) the vesting requirements of 
                        section 408(p)(3).
                    ``(B) Contribution requirements.--The 
                requirements of this subparagraph are met if, 
                under the arrangement--
                            ``(i) an employee may elect to have 
                        the employer make elective 
                        contributions for the year on behalf of 
                        the employee to a trust under the plan 
                        in an amount which is expressed as a 
                        percentage of compensation of the 
                        employee but which in no event exceeds 
                        $6,000,
                            ``(ii) the employer is required to 
                        make a matching contribution to the 
                        trust for the year in an amount equal 
                        to so much of the amount the employee 
                        elects under clause (i) as does not 
                        exceed 3 percent of compensation for 
                        the year, and
                            ``(iii) no other contributions may 
                        be made other than contributions 
                        described in clause (i) or (ii).
                    ``(C) Exclusive benefit.--The requirements 
                of this subparagraph are met for any year to 
                which this paragraph applies if no 
                contributions were made, or benefits were 
                accrued, for services during such year under 
                any qualified plan of the employer on behalf of 
                any employee eligible to participate in the 
                cash or deferred arrangement, other than 
                contributions described in subparagraph (B).
                    ``(D) Definitions and special rule.--
                            ``(i) Definitions.--For purposes of 
                        this paragraph, any term used in this 
                        paragraph which is also used in section 
                        408(p) shall have the meaning given 
                        such term by such section.
                            ``(ii) Coordination with top-heavy 
                        rules.--A plan meeting the requirements 
                        of this paragraph for any year shall 
                        not be treated as a top-heavy plan 
                        under section 416 for such year.''
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to 
nondiscrimination test for matching contributions and employee 
contributions) is amended by redesignating paragraph (10) as 
paragraph (11) and by adding after paragraph (9) the following 
new paragraph:
            ``(10) Alternative method of satisfying tests.--A 
        defined contribution plan shall be treated as meeting 
        the requirements of paragraph (2) with respect to 
        matching contributions if the plan--
                    ``(A) meets the contribution requirements 
                of subparagraph (B) of subsection (k)(11),
                    ``(B) meets the exclusive benefit 
                requirements of subsection (k)(11)(C), and
                    ``(C) meets the vesting requirements of 
                section 408(p)(3).''
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 1995.

                    CHAPTER 2--CAPITAL GAINS REFORM

            Subchapter A--Taxpayers Other Than Corporations

SEC. 11021. CAPITAL GAINS DEDUCTION.

    (a) In General.--Part I of subchapter P of chapter 1 
(relating to treatment of capital gains) is amended by 
redesignating section 1202 as section 1203 and by inserting 
after section 1201 the following new section:

``SEC. 1202. CAPITAL GAINS DEDUCTION.

    ``(a) General Rule.--If for any taxable year a taxpayer 
other than a corporation has a net capital gain, 50 percent of 
such gain shall be a deduction from gross income.
    ``(b) Estates and Trusts.--In the case of an estate or 
trust, the deduction shall be computed by excluding the portion 
(if any) of the gains for the taxable year from sales or 
exchanges of capital assets which, under sections 652 and 662 
(relating to inclusions of amounts in gross income of 
beneficiaries of trusts), is includible by the income 
beneficiaries as gain derived from the sale or exchange of 
capital assets.
    ``(c) Coordination With Treatment of Capital Gain Under 
Limitation on Investment Interest.--For purposes of this 
section, the net capital gain for any taxable year shall be 
reduced (but not below zero) by the amount which the taxpayer 
takes into account as investment income under section 
163(d)(4)(B)(iii).
    ``(d) Special Rule for Collectibles.--
            ``(1) In general.--The rate of tax imposed by 
        section 1 on the excess of--
                    ``(A) the net capital gain for the taxable 
                year determined as if section 1222(12) had not 
                applied to any collectible which is sold or 
                exchanged during the taxable year and the basis 
                of which was not adjusted under section 
                1022(a), over
                    ``(B) the net capital gain for the taxable 
                year,
        shall not exceed 28 percent.
            ``(2) Election.--A taxpayer may elect to treat any 
        collectible specified in such election as not being an 
        indexed asset for purposes of section 1022. Any such 
        election, and any specification therein, once made, 
        shall be irrevocable.
    ``(e) Transitional Rule.--
            ``(1) In general.--In the case of a taxable year 
        which includes January 1, 1995--
                    ``(A) the amount taken into account as the 
                net capital gain under subsection (a) shall not 
                exceed the net capital gain determined by only 
                taking into account gains and losses properly 
                taken into account for the portion of the 
                taxable year on or after January 1, 1995, and
                    ``(B) the amount of the net capital gain 
                taken into account in applying section 1(h) for 
                such year shall be reduced by the amount taken 
                into account under subparagraph (A) for such 
                year.
            ``(2) Special rules for pass-thru entities.--
                    ``(A) In general.--In applying paragraph 
                (1) with respect to any pass-thru entity, the 
                determination of when gains and losses are 
                properly taken into account shall be made at 
                the entity level.
                    ``(B) Pass-thru entity defined.--For 
                purposes of subparagraph (A), the term `pass-
                thru entity' means--
                            ``(i) a regulated investment 
                        company,
                            ``(ii) a real estate investment 
                        trust,
                            ``(iii) an S corporation,
                            ``(iv) a partnership,
                            ``(v) an estate or trust, and
                            ``(vi) a common trust fund.''.
    (b) Deduction Allowable in Computing Adjusted Gross 
Income.--Subsection (a) of section 62, as amended by sections 
11004 and 11005, is amended by inserting after paragraph (17) 
the following new paragraph:
            ``(18) Long-term capital gains.--The deduction 
        allowed by section 1202.''.
    (c) Treatment of Collectibles.--
            (1) In general.--Section 1222 is amended by 
        inserting after paragraph (11) the following new 
        paragraph:
            ``(12) Special rule for collectibles.--
                    ``(A) In general.--Any gain or loss from 
                the sale or exchange of a collectible shall be 
                treated as a short-term capital gain or loss 
                (as the case may be), without regard to the 
                period such asset was held. The preceding 
                sentence shall apply only to the extent the 
                gain or loss is taken into account in computing 
                taxable income.
                    ``(B) Treatment of certain sales of 
                interest in partnership, etc.--For purposes of 
                subparagraph (A), any gain from the sale or 
                exchange of an interest in a partnership, S 
                corporation, or trust which is attributable to 
                unrealized appreciation in the value of 
                collectibles held by such entity shall be 
                treated as gain from the sale or exchange of a 
                collectible. Rules similar to the rules of 
                section 751(f) shall apply for purposes of the 
                preceding sentence.
                    ``(C) Collectible.--For purposes of this 
                paragraph, the term `collectible' means any 
                capital asset which is a collectible (as 
                defined in section 408(m) without regard to 
                paragraph (3) thereof).''.
            (2) Charitable deduction not affected.--
                    (A) Paragraph (1) of section 170(e) is 
                amended by adding at the end the following new 
                sentence: ``For purposes of this paragraph, 
                section 1222 shall be applied without regard to 
                paragraph (12) thereof (relating to special 
                rule for collectibles).''.
                    (B) Clause (iv) of section 170(b)(1)(C) is 
                amended by inserting before the period at the 
                end the following: ``and section 1222 shall be 
                applied without regard to paragraph (12) 
                thereof (relating to special rule for 
                collectibles)''.
    (d) Technical and Conforming Changes.--
            (1) Section 1 is amended by striking subsection 
        (h).
            (2) Paragraph (1) of section 170(e) is amended by 
        striking ``the amount of gain'' in the material 
        following subparagraph (B)(ii) and inserting ``50 
        percent (80 percent in the case of a corporation) of 
        the amount of gain''.
            (3) Subparagraph (B) of section 172(d)(2) is 
        amended to read as follows:
                    ``(B) the deduction under section 1202 
                shall not be allowed.''.
            (4) The last sentence of section 453A(c)(3) is 
        amended by striking all that follows ``long-term 
        capital gain,'' and inserting ``the maximum rate on net 
        capital gain under section 1201 or the deduction under 
        section 1202 (whichever is appropriate) shall be taken 
        into account.''.
            (5) Paragraph (4) of section 642(c) is amended to 
        read as follows:
            ``(4) Adjustments.--To the extent that the amount 
        otherwise allowable as a deduction under this 
        subsection consists of gain from the sale or exchange 
        of capital assets held for more than 1 year, proper 
        adjustment shall be made for any deduction allowable to 
        the estate or trust under section 1202 (relating to 
        capital gains deduction). In the case of a trust, the 
        deduction allowed by this subsection shall be subject 
        to section 681 (relating to unrelated business 
        income).''.
            (6) The last sentence of section 643(a)(3) is 
        amended to read as follows: ``The deduction under 
        section 1202 (relating to capital gains deduction) 
        shall not be taken into account.''.
            (7) Subparagraph (C) of section 643(a)(6) is 
        amended by inserting ``(i)'' before ``there shall'' and 
        by inserting before the period ``, and (ii) the 
        deduction under section 1202 (relating to capital gains 
        deduction) shall not be taken into account''.
            (8)(A) Paragraph (2) of section 904(b) is amended 
        by striking subparagraph (A), by redesignating 
        subparagraph (B) as subparagraph (A), and by inserting 
        after subparagraph (A) (as so redesignated) the 
        following new subparagraph:
                    ``(B) Other taxpayers.--In the case of a 
                taxpayer other than a corporation, taxable 
                income from sources outside the United States 
                shall include gain from the sale or exchange of 
                capital assets only to the extent of foreign 
                source capital gain net income.''.
            (B) Subparagraph (A) of section 904(b)(2), as so 
        redesignated, is amended--
                    (i) by striking all that precedes clause 
                (i) and inserting the following:
                    ``(A) Corporations.--In the case of a 
                corporation--'', and
                    (ii) by striking in clause (i) ``in lieu of 
                applying subparagraph (A),''.
            (C) Paragraph (3) of section 904(b) is amended by 
        striking subparagraphs (D) and (E) and inserting the 
        following new subparagraph:
                    ``(D) Rate differential portion.--The rate 
                differential portion of foreign source net 
                capital gain, net capital gain, or the excess 
                of net capital gain from sources within the 
                United States over net capital gain, as the 
                case may be, is the same proportion of such 
                amount as the excess of the highest rate of tax 
                specified in section 11(b) over the alternative 
                rate of tax under section 1201(a) bears to the 
                highest rate of tax specified in section 
                11(b).''.
            (D) Clause (v) of section 593(b)(2)(D) is amended--
                    (i) by striking ``if there is a capital 
                gain rate differential (as defined in section 
                904(b)(3)(D)) for the taxable year,'', and
                    (ii) by striking ``section 904(b)(3)(E)'' 
                and inserting ``section 904(b)(3)(D)''.
            (9) The last sentence of section 1044(d) is amended 
        by striking ``1202'' and inserting ``1203''.
            (10)(A) Paragraph (2) of section 1211(b) is amended 
        to read as follows:
            ``(2) the sum of--
                    ``(A) the excess of the net short-term 
                capital loss over the net long-term capital 
                gain, and
                    ``(B) one-half of the excess of the net 
                long-term capital loss over the net short-term 
                capital gain.''.
            (B) So much of paragraph (2) of section 1212(b) as 
        precedes subparagraph (B) thereof is amended to read as 
        follows:
            ``(2) Special rules.--
                    ``(A) Adjustments.--
                            ``(i) For purposes of determining 
                        the excess referred to in paragraph 
                        (1)(A), there shall be treated as 
                        short-term capital gain in the taxable 
                        year an amount equal to the lesser of--
                                    ``(I) the amount allowed 
                                for the taxable year under 
                                paragraph (1) or (2) of section 
                                1211(b), or
                                    ``(II) the adjusted taxable 
                                income for such taxable year.
                            ``(ii) For purposes of determining 
                        the excess referred to in paragraph 
                        (1)(B), there shall be treated as 
                        short-term capital gain in the taxable 
                        year an amount equal to the sum of--
                                    ``(I) the amount allowed 
                                for the taxable year under 
                                paragraph (1) or (2) of section 
                                1211(b) or the adjusted taxable 
                                income for such taxable year, 
                                whichever is the least, plus
                                    ``(II) the excess of the 
                                amount described in subclause 
                                (I) over the net short-term 
                                capital loss (determined 
                                without regard to this 
                                subsection) for such year.''.
            (C) Subsection (b) of section 1212 is amended by 
        adding at the end the following new paragraph:
            ``(3) Transitional rule.--In the case of any amount 
        which, under this subsection and section 1211(b) (as in 
        effect for taxable years beginning before January 1, 
        1996), is treated as a capital loss in the first 
        taxable year beginning after December 31, 1995, 
        paragraph (2) and section 1211(b) (as so in effect) 
        shall apply (and paragraph (2) and section 1211(b) as 
        in effect for taxable years beginning after December 
        31, 1995, shall not apply) to the extent such amount 
        exceeds the total of any capital gain net income 
        (determined without regard to this subsection) for 
        taxable years beginning after December 31, 1995.''.
            (11) Paragraph (1) of section 1402(i) is amended by 
        inserting ``, and the deduction provided by section 
        1202 shall not apply'' before the period at the end 
        thereof.
            (12) Subsection (e) of section 1445 is amended--
                    (A) in paragraph (1) by striking ``35 
                percent (or, to the extent provided in 
                regulations, 28 percent)'' and inserting ``28 
                percent (or, to the extent provided in 
                regulations, 19.8 percent)'', and
                    (B) in paragraph (2) by striking ``35 
                percent'' and inserting ``28 percent''.
            (13)(A) The second sentence of section 
        7518(g)(6)(A) is amended--
                    (i) by striking ``during a taxable year to 
                which section 1(h) or 1201(a) applies'', and
                    (ii) by striking ``28 percent (34 percent'' 
                and inserting ``19.8 percent (28 percent''.
            (B) The second sentence of section 607(h)(6)(A) of 
        the Merchant Marine Act, 1936 is amended--
                    (i) by striking ``during a taxable year to 
                which section 1(h) or 1201(a) of such Code 
                applies'', and
                    (ii) by striking ``28 percent (34 percent'' 
                and inserting ``19.8 percent (28 percent''.
    (e) Clerical Amendment.--The table of sections for part I 
of subchapter P of chapter 1 is amended by striking the item 
relating to section 1202 and by inserting after the item 
relating to section 1201 the following new items:

        ``Sec. 1202. Capital gains deduction.
        ``Sec. 1203. Small business stock eligible for preferential 
                  rates.''.

    (f) Effective Date.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to taxable years ending after December 31, 
        1994.
            (2) Collectibles.--The amendments made by 
        subsection (c) shall apply to sales and exchanges after 
        December 31, 1994.
            (3) Repeal of section 1(h).--The amendment made by 
        subsection (d)(1) shall apply to taxable years 
        beginning after January 1, 1995.
            (4) Contributions.--The amendment made by 
        subsection (d)(2) shall apply to contributions after 
        December 31, 1994.
            (5) Use of long-term losses.--The amendments made 
        by subsection (d)(10) shall apply to taxable years 
        beginning after December 31, 1995.
            (6) Withholding.--The amendment made by subsection 
        (d)(12) shall apply only to amounts paid after the date 
        of the enactment of this Act.

SEC. 11022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 
                    2000, FOR PURPOSES OF DETERMINING GAIN.

    (a) In General.--Part II of subchapter O of chapter 1 
(relating to basis rules of general application) is amended by 
inserting after section 1021 the following new section:

``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 
                    2000, FOR PURPOSES OF DETERMINING GAIN.

    ``(a) General Rule.--
            ``(1) Indexed basis substituted for adjusted 
        basis.--Solely for purposes of determining gain on the 
        sale or other disposition by a taxpayer (other than a 
        corporation) of an indexed asset which has been held 
        for more than 3 years, the indexed basis of the asset 
        shall be substituted for its adjusted basis.
            ``(2) Exception for depreciation, etc.--The 
        deductions for depreciation, depletion, and 
        amortization shall be determined without regard to the 
        application of paragraph (1) to the taxpayer or any 
        other person.
    ``(b) Indexed Asset.--
            ``(1) In general.--For purposes of this section, 
        the term `indexed asset' means--
                    ``(A) common stock in a C corporation 
                (other than a foreign corporation), and
                    ``(B) tangible property,
        which is a capital asset or property used in the trade 
        or business (as defined in section 1231(b)).
            ``(2) Stock in certain foreign corporations 
        included.--For purposes of this section--
                    ``(A) In general.--The term `indexed asset' 
                includes common stock in a foreign corporation 
                which is regularly traded on an established 
                securities market.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to--
                            ``(i) stock of a foreign investment 
                        company (within the meaning of section 
                        1246(b)),
                            ``(ii) stock in a passive foreign 
                        investment company (as defined in 
                        section 1296),
                            ``(iii) stock in a foreign 
                        corporation held by a United States 
                        person who meets the requirements of 
                        section 1248(a)(2), and
                            ``(iv) stock in a foreign personal 
                        holding company (as defined in section 
                        552).
                    ``(C) Treatment of american depository 
                receipts.--An American depository receipt for 
                common stock in a foreign corporation shall be 
                treated as common stock in such corporation.
    ``(c) Indexed Basis.--For purposes of this section--
            ``(1) General rule.--The indexed basis for any 
        asset is--
                    ``(A) the adjusted basis of the asset, 
                increased by
                    ``(B) the applicable inflation adjustment.
            ``(2) Applicable inflation adjustment.--The 
        applicable inflation adjustment for any asset is an 
        amount equal to--
                    ``(A) the adjusted basis of the asset, 
                multiplied by
                    ``(B) the percentage (if any) by which--
                            ``(i) the gross domestic product 
                        deflator for the last calendar quarter 
                        ending before the asset is disposed of, 
                        exceeds
                            ``(ii) the gross domestic product 
                        deflator for the last calendar quarter 
                        ending before the asset was acquired by 
                        the taxpayer.
        The percentage under subparagraph (B) shall be rounded 
        to the nearest \1/10\ of 1 percentage point.
            ``(3) Gross domestic product deflator.--The gross 
        domestic product deflator for any calendar quarter is 
        the implicit price deflator for the gross domestic 
        product for such quarter (as shown in the last revision 
        thereof released by the Secretary of Commerce before 
        the close of the following calendar quarter).
    ``(d) Suspension of Holding Period Where Diminished Risk of 
Loss; Treatment of Short Sales.--
            ``(1) In general.--If the taxpayer (or a related 
        person) enters into any transaction which substantially 
        reduces the risk of loss from holding any asset, such 
        asset shall not be treated as an indexed asset for the 
        period of such reduced risk.
            ``(2) Short sales.--
                    ``(A) In general.--In the case of a short 
                sale of an indexed asset with a short sale 
                period in excess of 3 years, for purposes of 
                this title, the amount realized shall be an 
                amount equal to the amount realized (determined 
                without regard to this paragraph) increased by 
                the applicable inflation adjustment. In 
                applying subsection (c)(2) for purposes of the 
                preceding sentence, the date on which the 
                property is sold short shall be treated as the 
                date of acquisition and the closing date for 
                the sale shall be treated as the date of 
                disposition.
                    ``(B) Short sale period.--For purposes of 
                subparagraph (A), the short sale period begins 
                on the day that the property is sold and ends 
                on the closing date for the sale.
    ``(e) Treatment of Regulated Investment Companies and Real 
Estate Investment Trusts.--
            ``(1) Adjustments at entity level.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, the adjustment 
                under subsection (a) shall be allowed to any 
                qualified investment entity (including for 
                purposes of determining the earnings and 
                profits of such entity).
                    ``(B) Exception for corporate 
                shareholders.--Under regulations--
                            ``(i) in the case of a distribution 
                        by a qualified investment entity 
                        (directly or indirectly) to a 
                        corporation--
                                    ``(I) the determination of 
                                whether such distribution is a 
                                dividend shall be made without 
                                regard to this section, and
                                    ``(II) the amount treated 
                                as gain by reason of the 
                                receipt of any capital gain 
                                dividend shall be increased by 
                                the percentage by which the 
                                entity's net capital gain for 
                                the taxable year (determined 
                                without regard to this section) 
                                exceeds the entity's net 
                                capital gain for such year 
                                determined with regard to this 
                                section, and
                            ``(ii) there shall be other 
                        appropriate adjustments (including 
                        deemed distributions) so as to ensure 
                        that the benefits of this section are 
                        not allowed (directly or indirectly) to 
                        corporate shareholders of qualified 
                        investment entities.
                For purposes of the preceding sentence, any 
                amount includible in gross income under section 
                852(b)(3)(D) shall be treated as a capital gain 
                dividend and an S corporation shall not be 
                treated as a corporation.
                    ``(C) Exception for qualification 
                purposes.--This section shall not apply for 
                purposes of sections 851(b) and 856(c).
                    ``(D) Exception for certain taxes imposed 
                at entity level.--
                            ``(i) Tax on failure to distribute 
                        entire gain.--If any amount is subject 
                        to tax under section 852(b)(3)(A) for 
                        any taxable year, the amount on which 
                        tax is imposed under such section shall 
                        be increased by the percentage 
                        determined under subparagraph 
                        (B)(i)(II). A similar rule shall apply 
                        in the case of any amount subject to 
                        tax under paragraph (2) or (3) of 
                        section 857(b) to the extent 
                        attributable to the excess of the net 
                        capital gain over the deduction for 
                        dividends paid determined with 
                        reference to capital gain dividends 
                        only. The first sentence of this clause 
                        shall not apply to so much of the 
                        amount subject to tax under section 
                        852(b)(3)(A) as is designated by the 
                        company under section 852(b)(3)(D).
                            ``(ii) Other taxes.--This section 
                        shall not apply for purposes of 
                        determining the amount of any tax 
                        imposed by paragraph (4), (5), or (6) 
                        of section 857(b).
            ``(2) Adjustments to interests held in entity.--
                    ``(A) Regulated investment companies.--
                Stock in a regulated investment company (within 
                the meaning of section 851) shall be an indexed 
                asset for any calendar quarter in the same 
                ratio as--
                            ``(i) the average of the fair 
                        market values of the indexed assets 
                        held by such company at the close of 
                        each month during such quarter, bears 
                        to
                            ``(ii) the average of the fair 
                        market values of all assets held by 
                        such company at the close of each such 
                        month.
                    ``(B) Real estate investment trusts.--Stock 
                in a real estate investment trust (within the 
                meaning of section 856) shall be an indexed 
                asset for any calendar quarter in the same 
                ratio as--
                            ``(i) the fair market value of the 
                        indexed assets held by such trust at 
                        the close of such quarter, bears to
                            ``(ii) the fair market value of all 
                        assets held by such trust at the close 
                        of such quarter.
                    ``(C) Ratio of 80 percent or more.--If the 
                ratio for any calendar quarter determined under 
                subparagraph (A) or (B) would (but for this 
                subparagraph) be 80 percent or more, such ratio 
                for such quarter shall be 100 percent.
                    ``(D) Ratio of 20 percent or less.--If the 
                ratio for any calendar quarter determined under 
                subparagraph (A) or (B) would (but for this 
                subparagraph) be 20 percent or less, such ratio 
                for such quarter shall be zero.
                    ``(E) Look-thru of partnerships.--For 
                purposes of this paragraph, a qualified 
                investment entity which holds a partnership 
                interest shall be treated (in lieu of holding a 
                partnership interest) as holding its 
                proportionate share of the assets held by the 
                partnership.
            ``(3) Treatment of return of capital 
        distributions.--Except as otherwise provided by the 
        Secretary, a distribution with respect to stock in a 
        qualified investment entity which is not a dividend and 
        which results in a reduction in the adjusted basis of 
        such stock shall be treated as allocable to stock 
        acquired by the taxpayer in the order in which such 
        stock was acquired.
            ``(4) Qualified investment entity.--For purposes of 
        this subsection, the term `qualified investment entity' 
        means--
                    ``(A) a regulated investment company 
                (within the meaning of section 851), and
                    ``(B) a real estate investment trust 
                (within the meaning of section 856).
    ``(f) Other Pass-Thru Entities.--
            ``(1) Partnerships.--
                    ``(A) In general.--In the case of a 
                partnership, the adjustment made under 
                subsection (a) at the partnership level shall 
                be passed through to the partners.
                    ``(B) Special rule in the case of section 
                754 elections.--In the case of a transfer of an 
                interest in a partnership with respect to which 
                the election provided in section 754 is in 
                effect--
                            ``(i) the adjustment under section 
                        743(b)(1) shall, with respect to the 
                        transferor partner, be treated as a 
                        sale of the partnership assets for 
                        purposes of applying this section, and
                            ``(ii) with respect to the 
                        transferee partner, the partnership's 
                        holding period for purposes of this 
                        section in such assets shall be treated 
                        as beginning on the date of such 
                        adjustment.
            ``(2) S corporations.--In the case of an S 
        corporation, the adjustment made under subsection (a) 
        at the corporate level shall be passed through to the 
        shareholders. This section shall not apply for purposes 
        of determining the amount of any tax imposed by section 
        1374 or 1375.
            ``(3) Common trust funds.--In the case of a common 
        trust fund, the adjustment made under subsection (a) at 
        the trust level shall be passed through to the 
        participants.
            ``(4) Indexing adjustment disregarded in 
        determining loss on sale of interest in entity.--
        Notwithstanding the preceding provisions of this 
        subsection, for purposes of determining the amount of 
        any loss on a sale or exchange of an interest in a 
        partnership, S corporation, or common trust fund, the 
        adjustment made under subsection (a) shall not be taken 
        into account in determining the adjusted basis of such 
        interest.
    ``(g) Dispositions Between Related Persons.--
            ``(1) In general.--This section shall not apply to 
        any sale or other disposition of property between 
        related persons except to the extent that the basis of 
        such property in the hands of the transferee is a 
        substituted basis.
            ``(2) Related persons defined.--For purposes of 
        this section, the term `related persons' means--
                    ``(A) persons bearing a relationship set 
                forth in section 267(b), and
                    ``(B) persons treated as single employer 
                under subsection (b) or (c) of section 414.
    ``(h) Transfers To Increase Indexing Adjustment.--If any 
person transfers cash, debt, or any other property to another 
person and the principal purpose of such transfer is to secure 
or increase an adjustment under subsection (a), the Secretary 
may disallow part or all of such adjustment or increase.
    ``(i) Special Rules.--For purposes of this section--
            ``(1) Treatment of improvements, etc.--If there is 
        an addition to the adjusted basis of any tangible 
        property or of any stock in a corporation during the 
        taxable year by reason of an improvement to such 
        property or a contribution to capital of such 
        corporation--
                    ``(A) such addition shall never be taken 
                into account under subsection (c)(1)(A) if the 
                aggregate amount thereof during the taxable 
                year with respect to such property or stock is 
                less than $1,000, and
                    ``(B) such addition shall be treated as a 
                separate asset acquired at the close of such 
                taxable year if the aggregate amount thereof 
                during the taxable year with respect to such 
                property or stock is $1,000 or more.
        A rule similar to the rule of the preceding sentence 
        shall apply to any other portion of an asset to the 
        extent that separate treatment of such portion is 
        appropriate to carry out the purposes of this section.
            ``(2) Assets which are not indexed assets 
        throughout holding period.--The applicable inflation 
        adjustment shall be appropriately reduced for periods 
        during which the asset was not an indexed asset.
            ``(3) Treatment of certain distributions.--A 
        distribution with respect to stock in a corporation 
        which is not a dividend shall be treated as a 
        disposition.
            ``(4) Acquisition date where there has been prior 
        application of subsection (a)(1) with respect to the 
        taxpayer.--If there has been a prior application of 
        subsection (a)(1) to an asset while such asset was held 
        by the taxpayer, the date of acquisition of such asset 
        by the taxpayer shall be treated as not earlier than 
        the date of the most recent such prior application.
            ``(5) Collapsible corporations.--The application of 
        section 341(a) (relating to collapsible corporations) 
        shall be determined without regard to this section.
    ``(j) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''
    (b) Clerical Amendment.--The table of sections for part II 
of subchapter O of chapter 1 is amended by inserting after the 
item relating to section 1021 the following new item:

        ``Sec. 1022. Indexing of certain assets acquired after December 
                  31, 2000, for purposes of determining gain.''

    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to the disposition of any property 
        the holding period of which begins after December 31, 
        2000.
            (2) Certain transactions between related persons.--
        The amendments made by this section shall not apply to 
        the disposition of any property acquired after December 
        31, 2000, from a related person (as defined in section 
        1022(g)(2) of the Internal Revenue Code of 1986, as 
        added by this section) if--
                    (A) such property was so acquired for a 
                price less than the property's fair market 
                value, and
                    (B) the amendments made by this section did 
                not apply to such property in the hands of such 
                related person.
    (d) Election To Recognize Gain on Assets Held on January 1, 
2001.--For purposes of the Internal Revenue Code of 1986--
            (1) In general.--A taxpayer other than a 
        corporation may elect to treat--
                    (A) any readily tradable stock (which is an 
                indexed asset) held by such taxpayer on January 
                1, 2001, and not sold before the next business 
                day after such date, as having been sold on 
                such next business day for an amount equal to 
                its closing market price on such next business 
                day (and as having been reacquired on such next 
                business day for an amount equal to such 
                closing market price), and
                    (B) any other indexed asset held by the 
                taxpayer on January 1, 2001, as having been 
                sold on such date for an amount equal to its 
                fair market value on such date (and as having 
                been reacquired on such date for an amount 
                equal to such fair market value).
            (2) Treatment of gain or loss.--
                    (A) Any gain resulting from an election 
                under paragraph (1) shall be treated as 
                received or accrued on the date the asset is 
                treated as sold under paragraph (1) and shall 
                be recognized notwithstanding any provision of 
                the Internal Revenue Code of 1986.
                    (B) Any loss resulting from an election 
                under paragraph (1) shall not be allowed for 
                any taxable year.
            (3) Election.--An election under paragraph (1) 
        shall be made in such manner as the Secretary of the 
        Treasury or his delegate may prescribe and shall 
        specify the assets for which such election is made. 
        Such an election, once made with respect to any asset, 
        shall be irrevocable.
            (4) Readily tradable stock.--For purposes of this 
        subsection, the term ``readily tradable stock'' means 
        any stock which, as of January 1, 2001, is readily 
        tradable on an established securities market or 
        otherwise.
    (e) Treatment of Principal Residences.--Property held and 
used by the taxpayer on January 1, 2001, as his principal 
residence (within the meaning of section 1034 of the Internal 
Revenue Code of 1986) shall be treated--
            (1) for purposes of subsection (c)(1) of this 
        section and section 1022 of such Code, as having a 
        holding period which begins on January 1, 2001, and
            (2) for purposes of section 1022(c)(2)(B)(ii) of 
        such Code, as having been acquired on January 1, 2001.
Subsection (d) shall not apply to property to which this 
subsection applies.

SEC. 11023. MODIFICATIONS TO EXCLUSION OF GAIN ON CERTAIN SMALL 
                    BUSINESS STOCK.

    (a) Reduced Rate In Lieu of Exclusion.--
            (1) Section 1, as amended by section 11021, is 
        amended by adding at the end the following new 
        subsection:
    ``(h) Maximum Capital Gains Rate for Certain Small Business 
Stock.--
            ``(1) In general.--If for any taxable year a 
        taxpayer has gain from the sale or exchange of any 
        qualified small business stock held for more than 5 
        years, then the tax imposed by this section shall not 
        exceed the sum of--
                    ``(A) a tax computed on the taxable income 
                reduced by \1/2\ the amount of the small 
                business gain, at the rates and in the manner 
                as if this subsection had not been enacted, 
                plus
                    ``(B) a tax of 14 percent of the small 
                business gain.
            ``(2) Small business gain.--For purposes of 
        paragraph (1), the term `small business gain' means the 
        lesser of--
                    ``(A) gain from the sale or exchange of any 
                qualified small business stock held for more 
                than 5 years, or
                    ``(B) the net capital gain taken into 
                account under section 1202(a).
            ``(3) Qualified small business stock.--The term 
        `qualified small business stock' has the meaning given 
        such term by section 1203(c).''
            (2) Subsection (a) of section 1203, as redesignated 
        by section 11021, is amended to read as follows:
    ``(a) Application of Reduced Rates to Qualified Small 
Business Stock Gains.--

          ``For treatment of gain on qualified small business stock held 
        for more than 5 years, see sections 1(h) and 1201(b).''.

    (b) Repeal of Minimum Tax Preference.--
            (1) Subsection (a) of section 57 is amended by 
        striking paragraph (7).
            (2) Subclause (II) of section 53(d)(1)(B)(ii) is 
        amended by striking ``, (5), and (7)'' and inserting 
        ``and (5)''.
    (c) Stock of Larger Businesses Eligible for Reduced 
Rates.--Paragraph (1) of section 1203(d), as redesignated by 
section 11021, is amended by striking ``$50,000,000'' each 
place it appears and inserting ``$100,000,000''.
    (d) Repeal of Per-Issuer Limitation.--Section 1203, as so 
redesignated, is amended by striking subsection (b).
    (e) Other Modifications.--
            (1) Repeal of working capital limitation.--
        Paragraph (6) of section 1203(e), as so redesignated, 
        is amended--
                    (A) by striking ``2 years'' in subparagraph 
                (B) and inserting ``5 years'', and
                    (B) by striking the last sentence.
            (2) Exception from redemption rules where business 
        purpose.--Paragraph (3) of section 1203(c), as so 
        redesignated, is amended by adding at the end the 
        following new subparagraph:
                    ``(D) Waiver where business purpose.--A 
                purchase of stock by the issuing corporation 
                shall be disregarded for purposes of 
                subparagraph (B) if the issuing corporation 
                establishes that there was a business purpose 
                for such purchase and one of the principal 
                purposes of the purchase was not to avoid the 
                limitations of this section.''.
    (f) Clerical Amendment.--The section heading for section 
1203, as redesignated by section 11021, is amended to read as 
follows:

``SEC. 1203. SMALL BUSINESS STOCK ELIGIBLE FOR PREFERENTIAL RATES.''

    (g) Effective Dates.--
            (1) Reduced rates.--The amendments made by 
        subsections (a) and (b) shall apply to taxable years 
        beginning after the date of the enactment of this Act.
            (2) Increase in size.--The amendment made by 
        subsection (c) shall apply to stock issued after the 
        date of the enactment of this Act.
            (3) Other rules.--The amendments made by 
        subsections (d) and (e) shall apply to stock issued 
        after August 10, 1993.

                 Subchapter B--Corporate Capital Gains

SEC. 11025. REDUCTION OF ALTERNATIVE CAPITAL GAIN TAX FOR CORPORATIONS.

    (a) In General.--Section 1201 is amended to read as 
follows:

``SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

    ``(a) General Rule.--If for any taxable year a corporation 
has a net capital gain, then, in lieu of the tax imposed by 
sections 11, 511, and 831 (a) and (b) (whichever is 
applicable), there is hereby imposed a tax (if such tax is less 
than the tax imposed by such sections) which shall consist of 
the sum of--
            ``(1) a tax computed on the taxable income reduced 
        by the amount of the net capital gain, at the rates and 
        in the manner as if this subsection had not been 
        enacted, plus
            ``(2) a tax of 28 percent of the net capital gain.
    ``(b) Special Rules for Qualified Small Business Gain.--
            ``(1) In general.--If for any taxable year a 
        corporation has gain from the sale or exchange of any 
        qualified small business stock held for more than 5 
        years, the amount determined under subsection (a)(2) 
        for such taxable year shall be equal to the sum of--
                    ``(A) 21 percent of the lesser of such gain 
                or the corporation's net capital gain, plus
                    ``(B) 28 percent of the net capital gain 
                reduced by the gain taken into account under 
                subparagraph (A).
            ``(2) Qualified small business stock.--For purposes 
        of paragraph (1), the term `qualified small business 
        stock' has the meaning given such term by section 
        1203(c), except that stock shall not be treated as 
        qualified small business stock if such stock was at any 
        time held by a member of the parent-subsidiary 
        controlled group (as defined in section 1203(d)(3)) 
        which includes the qualified small business.
    ``(c) Transitional Rule.--
            ``(1) In general.--In applying this section, net 
        capital gain for any taxable year shall not exceed the 
        net capital gain determined by taking into account only 
        gains and losses properly taken into account for the 
        portion of the taxable year after December 31, 1994.
            ``(2) Special rule for pass-thru entities.--Section 
        1202(e)(2) shall apply for purposes of paragraph (1).
    ``(d) Cross References.--

            ``For computation of the alternative tax--
            ``(1) in the case of life insurance companies, see section 
        801(a)(2),
            ``(2) in the case of regulated investment companies and 
        their shareholders, see section 852(b)(3)(A) and (D), and
            ``(3) in the case of real estate investment trusts, see 
        section 857(b)(3)(A).''.

    (b) Technical Amendment.--Clause (iii) of section 
852(b)(3)(D) is amended by striking ``65 percent'' and 
inserting ``72 percent''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years ending after 
        December 31, 1994.
            (2) Qualified small business stock.--Section 
        1201(b) of the Internal Revenue Code of 1986 (as added 
        by subsection (a)) shall apply to gain from qualified 
        small business stock acquired on or after the date of 
        the enactment of this Act.

 Subchapter C--Capital Loss Deduction Allowed With Respect to Sale or 
                    Exchange of Principal Residence

SEC. 11026. CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE OR 
                    EXCHANGE OF PRINCIPAL RESIDENCE.

    (a) In General.--Subsection (c) of section 165 (relating to 
limitation on losses of individuals) is amended by striking 
``and'' at the end of paragraph (2), by striking the period at 
the end of paragraph (3) and inserting ``; and'', and by adding 
at the end the following new paragraph:
            ``(4) losses arising from the sale or exchange of 
        the principal residence (within the meaning of section 
        1034) of the taxpayer.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to sales and exchanges after December 31, 1994, in 
taxable years ending after such date.

          CHAPTER 3--CORPORATE ALTERNATIVE MINIMUM TAX REFORM

SEC. 11031. MODIFICATION OF DEPRECIATION RULES UNDER MINIMUM TAX.

    (a) In General.--Clause (i) of section 56(a)(1)(A) is 
amended by inserting ``and before January 1, 1996,'' after 
``December 31, 1986,''.
    (b) Conforming Amendment.--Clause (ii) of section 
56(a)(1)(A) is amended by striking ``The method'' and inserting 
``In the case of property placed in service before January 1, 
1996, the method''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after December 31, 1995.

SEC. 11032. LONG-TERM UNUSED CREDITS ALLOWED AGAINST MINIMUM TAX.

    (a) In General.--Section 53(c) (relating to limitation) is 
amended by adding at the end the following new paragraph:
            ``(2) Special rule for taxpayers with long-term 
        unused credits.--
                    ``(A) In general.--If--
                            ``(i) a corporation to which 
                        section 56(g) applies has a long-term 
                        unused minimum tax credit for a taxable 
                        year, and
                            ``(ii) no credit would be allowable 
                        under this section for the taxable year 
                        by reason of paragraph (1),
                then there shall be allowed a credit under 
                subsection (a) for the taxable year in the 
                amount determined under subparagraph (B).
                    ``(B) Amount of credit.--For purposes of 
                subparagraph (A), the amount of the credit 
                shall be equal to the least of the following 
                for the taxable year:
                            ``(i) The long-term unused minimum 
                        tax credit.
                            ``(ii) 50 percent of the taxpayer's 
                        tentative minimum tax.
                            ``(iii) The excess (if any) of the 
                        amount under paragraph (1)(B) over the 
                        amount under paragraph (1)(A).
                    ``(C) Long-term unused minimum tax 
                credit.--For purposes of this paragraph--
                            ``(i) In general.--The long-term 
                        unused minimum tax credit for any 
                        taxable year is the portion of the 
                        minimum tax credit determined under 
                        subsection (b) attributable to the 
                        adjusted net minimum tax for taxable 
                        years beginning after 1986 and ending 
                        before the 7th taxable year immediately 
                        preceding the taxable year for which 
                        the determination is being made.
                            ``(ii) First-in, first-out ordering 
                        rule.--For purposes of clause (i), 
                        credits shall be treated as allowed 
                        under subsection (a) on a first-in, 
                        first-out basis.''.
    (b) Conforming Amendments.--(1) Section 53(c) (as in effect 
before the amendment made by subsection (a)) is amended--
            (A) by striking ``The'' and inserting:
            ``(1) In general.--The'', and
            (B) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B), respectively.
    (2) Subparagraph (C) of section 108(b)(4) is amended by 
striking ``and (G)'' in the text and heading thereof and 
inserting ``, (C), and (G)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

                  CHAPTER 4--COST RECOVERY PROVISIONS

SEC. 11035. TREATMENT OF ABANDONMENT OF LESSOR IMPROVEMENTS AT 
                    TERMINATION OF LEASE.

    (a) In General.--Paragraph (8) of section 168(i) is amended 
to read as follows:
            ``(8) Treatment of leasehold improvements.--
                    ``(A) In general.--In the case of any 
                building erected (or improvements made) on 
                leased property, if such building or 
                improvement is property to which this section 
                applies, the depreciation deduction shall be 
                determined under the provisions of this 
                section.
                    ``(B) Treatment of lessor improvements 
                which are abandoned at termination of lease.--
                An improvement--
                            ``(i) which is made by the lessor 
                        of leased property for the lessee of 
                        such property, and
                            ``(ii) which is irrevocably 
                        disposed of or abandoned by the lessor 
                        at the termination of the lease by such 
                        lessee,
                shall be treated for purposes of determining 
                gain or loss under this title as disposed of by 
                the lessor when so disposed of or abandoned.''
    (b) Effective Date.--Subparagraph (B) of section 168(i)(8) 
of the Internal Revenue Code of 1986, as added by the amendment 
made by subsection (a), shall apply to improvements disposed of 
or abandoned after March 13, 1995.

SEC. 11036. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) General Rule.--Paragraph (1) of section 179(b) 
(relating to dollar limitation) is amended to read as follows:
            ``(1) Dollar limitation.--The aggregate cost which 
        may be taken into account under subsection (a) for any 
        taxable year shall not exceed the following applicable 
        amount:

    ``If the taxable year                                 The applicable
      begins in:                                              amount is:
          1996..........................................        $19,000 
          1997..........................................         20,000 
          1998..........................................         21,000 
          1999..........................................         22,000 
          2000..........................................         23,000 
          2001..........................................         24,000 
          2002 or thereafter............................       25,000.''

    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1995.

                 Subtitle C--Health Related Provisions

                  CHAPTER 1--LONG-TERM CARE PROVISIONS

          Subchapter A--Long-Term Care Services and Contracts

                       PART I--GENERAL PROVISIONS

SEC. 11041. TREATMENT OF LONG-TERM CARE INSURANCE.

    (a) General Rule.--Chapter 79 (relating to definitions) is 
amended by inserting after section 7702A the following new 
section:

``SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE INSURANCE.

    ``(a) In General.--For purposes of this title--
            ``(1) a qualified long-term care insurance contract 
        shall be treated as an accident and health insurance 
        contract,
            ``(2) amounts (other than policyholder dividends, 
        as defined in section 808, or premium refunds) received 
        under a qualified long-term care insurance contract 
        shall be treated as amounts received for personal 
        injuries and sickness and shall be treated as 
        reimbursement for expenses actually incurred for 
        medical care (as defined in section 213(d)),
            ``(3) any plan of an employer providing coverage 
        under a qualified long-term care insurance contract 
        shall be treated as an accident and health plan with 
        respect to such coverage,
            ``(4) except as provided in subsection (d)(3), 
        amounts paid for a qualified long-term care insurance 
        contract providing the benefits described in subsection 
        (b)(2)(A) shall be treated as payments made for 
        insurance for purposes of section 213(d)(1)(D), and
            ``(5) a qualified long-term care insurance contract 
        shall be treated as a guaranteed renewable contract 
        subject to the rules of section 816(e).
    ``(b) Qualified Long-Term Care Insurance Contract.--For 
purposes of this title--
            ``(1) In general.--The term `qualified long-term 
        care insurance contract' means any insurance contract 
        if--
                    ``(A) the only insurance protection 
                provided under such contract is coverage of 
                qualified long-term care services,
                    ``(B) such contract does not pay or 
                reimburse expenses incurred for services or 
                items to the extent that such expenses are 
                reimbursable under title XVIII of the Social 
                Security Act or would be so reimbursable but 
                for the application of a deductible or 
                coinsurance amount,
                    ``(C) such contract is guaranteed 
                renewable,
                    ``(D) such contract does not provide for a 
                cash surrender value or other money that can 
                be--
                            ``(i) paid, assigned, or pledged as 
                        collateral for a loan, or
                            ``(ii) borrowed,
                other than as provided in subparagraph (E) or 
                paragraph (2)(C),
                    ``(E) all refunds of premiums, and all 
                policyholder dividends or similar amounts, 
                under such contract are to be applied as a 
                reduction in future premiums or to increase 
                future benefits, and
                    ``(F) such contract meets the requirements 
                of subsection (f).
            ``(2) Special rules.--
                    ``(A) Per diem, etc. payments permitted.--A 
                contract shall not fail to be described in 
                subparagraph (A) or (B) of paragraph (1) by 
                reason of payments being made on a per diem or 
                other periodic basis without regard to the 
                expenses incurred during the period to which 
                the payments relate.
                    ``(B) Special rules relating to medicare.--
                            ``(i) Paragraph (1)(B) shall not 
                        apply to expenses which are 
                        reimbursable under title XVIII of the 
                        Social Security Act only as a secondary 
                        payor.
                            ``(ii) No provision of law shall be 
                        construed or applied so as to prohibit 
                        the offering of a qualified long-term 
                        care insurance contract on the basis 
                        that the contract coordinates its 
                        benefits with those provided under such 
                        title.
                    ``(C) Refunds of premiums.--Paragraph 
                (1)(E) shall not apply to any refund on the 
                death of the insured, or on a complete 
                surrender or cancellation of the contract, 
                which cannot exceed the aggregate premiums paid 
                under the contract. Any refund on a complete 
                surrender or cancellation of the contract shall 
                be includible in gross income to the extent 
                that any deduction or exclusion was allowable 
                with respect to the premiums.
    ``(c) Qualified Long-Term Care Services.--For purposes of 
this section--
            ``(1) In general.--The term `qualified long-term 
        care services' means necessary diagnostic, preventive, 
        therapeutic, curing, treating, mitigating, and 
        rehabilitative services, and maintenance or personal 
        care services, which--
                    ``(A) are required by a chronically ill 
                individual, and
                    ``(B) are provided pursuant to a plan of 
                care prescribed by a licensed health care 
                practitioner.
            ``(2) Chronically ill individual.--
                    ``(A) In general.--The term `chronically 
                ill individual' means any individual who has 
                been certified by a licensed health care 
                practitioner as--
                            ``(i) being unable to perform 
                        (without substantial assistance from 
                        another individual) at least 2 
                        activities of daily living for a period 
                        of at least 90 days due to a loss of 
                        functional capacity or to cognitive 
                        impairment, or
                            ``(ii) having a level of disability 
                        similar (as determined by the Secretary 
                        in consultation with the Secretary of 
                        Health and Human Services) to the level 
                        of disability described in clause (i).
                Such term shall not include any individual 
                otherwise meeting the requirements of the 
                preceding sentence unless within the preceding 
                12-month period a licensed health care 
                practitioner has certified that such individual 
                meets such requirements.
                    ``(B) Activities of daily living.--For 
                purposes of subparagraph (A), each of the 
                following is an activity of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                            ``(vi) Continence.
                Nothing in this section shall be construed to 
                require a contract to take into account all of 
                the preceding activities of daily living.
            ``(3) Maintenance or personal care services.--The 
        term `maintenance or personal care services' means any 
        care the primary purpose of which is the provision of 
        needed assistance with any of the disabilities as a 
        result of which the individual is a chronically ill 
        individual (including the protection from threats to 
        health and safety due to severe cognitive impairment).
            ``(4) Licensed health care practitioner.--The term 
        `licensed health care practitioner' means any physician 
        (as defined in section 1861(r)(1) of the Social 
        Security Act) and any registered professional nurse, 
        licensed social worker, or other individual who meets 
        such requirements as may be prescribed by the 
        Secretary.
    ``(d) Special Rules for Treatment of Insureds.--
            ``(1) Aggregate payments in excess of limits.--
                    ``(A) In general.--If the aggregate amount 
                of periodic payments under all qualified long-
                term care insurance contracts with respect to 
                an insured for any period exceed the dollar 
                amount in effect for such period under 
                subparagraph (C), such excess payments shall be 
                treated as made for qualified long-term care 
                services only to the extent of the costs 
                incurred by the payee (not otherwise 
                compensated for by insurance or otherwise) for 
                qualified long-term care services provided 
                during such period for such insured.
                    ``(B) Periodic payments.--For purposes of 
                subparagraph (A), the term `periodic payment' 
                means any payment (whether on a periodic basis 
                or otherwise) made without regard to the extent 
                of the costs incurred by the payee for 
                qualified long-term care services.
                    ``(C) Dollar amount.--The dollar amount in 
                effect under this paragraph shall be $175 per 
                day (or the equivalent amount in the case of 
                payments on another periodic basis).
                    ``(D) Inflation adjustment.--In the case of 
                a calendar year after 1996, the dollar amount 
                contained in subparagraph (C) shall be 
                increased at the same time and in the same 
                manner as amounts are increased pursuant to 
                section 213(d)(11).
    ``(e) Treatment of Coverage Provided as Part of a Life 
Insurance Contract.--Except as otherwise provided in 
regulations prescribed by the Secretary, in the case of any 
long-term care insurance coverage (whether or not qualified) 
provided by a rider on a life insurance contract--
            ``(1) In general.--This section shall apply as if 
        the portion of the contract providing such coverage is 
        a separate contract.
            ``(2) Application of 7702.--Section 7702(c)(2) 
        (relating to the guideline premium limitation) shall be 
        applied by increasing the guideline premium limitation 
        with respect to a life insurance contract, as of any 
        date--
                    ``(A) by the sum of any charges (but not 
                premium payments) against the life insurance 
                contract's cash surrender value (within the 
                meaning of section 7702(f)(2)(A)) for such 
                coverage made to that date under the contract, 
                less
                    ``(B) any such charges the imposition of 
                which reduces the premiums paid for the 
                contract (within the meaning of section 
                7702(f)(1)).
            ``(3) Application of section 213.--No deduction 
        shall be allowed under section 213(a) for charges 
        against the life insurance contract's cash surrender 
        value described in paragraph (2), unless such charges 
        are includible in income as a result of the application 
        of section 72(e)(10) and the rider is a qualified long-
        term care insurance contract under subsection (b).
            ``(4) Portion defined.--For purposes of this 
        subsection, the term `portion' means only the terms and 
        benefits under a life insurance contract that are in 
        addition to the terms and benefits under the contract 
        without regard to the coverage under a qualified long-
        term care insurance contract.''
    (b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) 
is amended by inserting ``(other than a qualified long-term 
care insurance contract, as defined in section 7702B(b))'' 
after ``insurance contract''.
    (c) Long-Term Care Insurance Not Permitted Under Cafeteria 
Plans or Flexible Spending Arrangements.--
            (1) Cafeteria plans.--Section 125(f) is amended by 
        adding at the end the following new sentence: ``Such 
        term shall not include any long-term care insurance 
        contract (as defined in section 4980C).''
            (2) Flexible spending arrangements.--The text of 
        section 106 (relating to contributions by employer to 
        accident and health plans) is amended to read as 
        follows:
    ``(a) General Rule.--Except as provided in subsection (b), 
gross income of an employee does not include employer-provided 
coverage under an accident or health plan.
    ``(b) Inclusion of Long-Term Care Benefits Provided Through 
Flexible Spending Arrangements.--
            ``(1) In general.--Effective on and after January 
        1, 1996, gross income of an employee shall include 
        employer-provided coverage for qualified long-term care 
        services (as defined in section 7702B(c)) to the extent 
        that such coverage is provided through a flexible 
        spending or similar arrangement.
            ``(2) Flexible spending arrangement.--For purposes 
        of this subsection, a flexible spending arrangement is 
        a benefit program which provides employees with 
        coverage under which--
                    ``(A) specified incurred expenses may be 
                reimbursed (subject to reimbursement maximums 
                and other reasonable conditions), and
                    ``(B) the maximum amount of reimbursement 
                which is reasonably available to a participant 
                for such coverage is less than 500 percent of 
                the value of such coverage.
        In the case of an insured plan, the maximum amount 
        reasonably available shall be determined on the basis 
        of the underlying coverage.''
    (d) Continuation Coverage Excise Tax Not To Apply.--
Subsection (f) of section 4980B is amended by adding at the end 
the following new paragraph:
            ``(9) Continuation of long-term care coverage not 
        required.--A group health plan shall not be treated as 
        failing to meet the requirements of this subsection 
        solely by reason of failing to provide coverage under 
        any qualified long-term care insurance contract (as 
        defined in section 7702B(b)).''
    (e) Amounts Paid to Relatives Treated as Not Paid for 
Medical Care.--Section 213(d) is amended by adding at the end 
the following new paragraph:
            ``(10) Certain payments to relatives treated as not 
        paid for medical care.--An amount paid for a qualified 
        long-term care service (as defined in section 7702B(c)) 
        provided to an individual shall be treated as not paid 
        for medical care if such service is provided--
                    ``(A) by a relative (directly or through a 
                partnership, corporation, or other entity) 
                unless the relative is a licensed professional 
                with respect to such services, or
                    ``(B) by a corporation or partnership which 
                is related (within the meaning of section 
                267(b) or 707(b)) to the individual.
        For purposes of this paragraph, the term `relative' 
        means an individual bearing a relationship to the 
        individual which is described in any of paragraphs (1) 
        through (8) of section 152(a). This paragraph shall not 
        apply for purposes of section 105(b) with respect to 
        reimbursements through insurance.''
    (f) Clerical Amendment.--The table of sections for chapter 
79 is amended by inserting after the item relating to section 
7702A the following new item:

        ``Sec. 7702B. Treatment of qualified long-term care 
                  insurance.''.

    (g) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to contracts issued after December 
        31, 1995.
            (2) Continuation of existing policies.--In the case 
        of any contract issued before January 1, 1996, which 
        met the long-term care insurance requirements of the 
        State in which the contract was sitused at the time the 
        contract was issued--
                    (A) such contract shall be treated for 
                purposes of the Internal Revenue Code of 1986 
                as a qualified long-term care insurance 
                contract (as defined in section 7702B(b) of 
                such Code), and
                    (B) services provided under, or reimbursed 
                by, such contract shall be treated for such 
                purposes as qualified long-term care services 
                (as defined in section 7702B(c) of such Code).
            (3) Exchanges of existing policies.--If, after the 
        date of enactment of this Act and before January 1, 
        1997, a contract providing for long-term care insurance 
        coverage is exchanged solely for a qualified long-term 
        care insurance contract (as defined in section 7702B(b) 
        of such Code), no gain or loss shall be recognized on 
        the exchange. If, in addition to a qualified long-term 
        care insurance contract, money or other property is 
        received in the exchange, then any gain shall be 
        recognized to the extent of the sum of the money and 
        the fair market value of the other property received. 
        For purposes of this paragraph, the cancellation of a 
        contract providing for long-term care insurance 
        coverage and reinvestment of the cancellation proceeds 
        in a qualified long-term care insurance contract within 
        60 days thereafter shall be treated as an exchange.
            (4) Issuance of certain riders permitted.--For 
        purposes of applying sections 101(f), 7702, and 7702A 
        of the Internal Revenue Code of 1986 to any contract--
                    (A) the issuance of a rider which is 
                treated as a qualified long-term care insurance 
                contract under section 7702B, and
                    (B) the addition of any provision required 
                to conform any other long-term care rider to be 
                so treated,
        shall not be treated as a modification or material 
        change of such contract.

SEC. 11042. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL CARE.

    (a) General Rule.--Paragraph (1) of section 213(d) 
(defining medical care) is amended by striking ``or'' at the 
end of subparagraph (B), by redesignating subparagraph (C) as 
subparagraph (D), and by inserting after subparagraph (B) the 
following new subparagraph:
                    ``(C) for qualified long-term care services 
                (as defined in section 7702B(c)), or''.
    (b) Technical Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) (as 
        redesignated by subsection (a)) is amended by striking 
        ``subparagraphs (A) and (B)'' and inserting 
        ``subparagraphs (A), (B), and (C)''.
            (2)(A) Paragraph (1) of section 213(d) is amended 
        by adding at the end the following new flush sentence:
        ``In the case of a qualified long-term care insurance 
        contract (as defined in section 7702B(b)), only 
        eligible long-term care premiums (as defined in 
        paragraph (11)) shall be taken into account under 
        subparagraph (D).''
            (B) Subsection (d) of section 213 is amended by 
        adding at the end the following new paragraph:
            ``(11) Eligible long-term care premiums.--
                    ``(A) In general.--For purposes of this 
                section, the term `eligible long-term care 
                premiums' means the amount paid during a 
                taxable year for any qualified long-term care 
                insurance contract (as defined in section 
                7702B(b)) covering an individual, to the extent 
                such amount does not exceed the limitation 
                determined under the following table:

          ``In the case of an individual                                
            with an attained age before the               The limitation
            close of the taxable year of:                        is:    
              40 or less................................         $200   
              More than 40 but not more than 50.........          375   
              More than 50 but not more than 60.........          750   
              More than 60 but not more than 70.........        2,000   
              More than 70..............................        2,500.  

                    ``(B) Indexing.--
                            ``(i) In general.--In the case of 
                        any taxable year beginning in a 
                        calendar year after 1996, each dollar 
                        amount contained in subparagraph (A) 
                        shall be increased by the medical care 
                        cost adjustment of such amount for such 
                        calendar year. If any increase 
                        determined under the preceding sentence 
                        is not a multiple of $10, such increase 
                        shall be rounded to the nearest 
                        multiple of $10.
                            ``(ii) Medical care cost 
                        adjustment.--For purposes of clause 
                        (i), the medical care cost adjustment 
                        for any calendar year is the percentage 
                        (if any) by which--
                                    ``(I) the medical care 
                                component of the Consumer Price 
                                Index (as defined in section 
                                1(f)(5)) for August of the 
                                preceding calendar year, 
                                exceeds
                                    ``(II) such component for 
                                August of 1995.
                        The Secretary shall, in consultation 
                        with the Secretary of Health and Human 
                        Services, prescribe an adjustment which 
                        the Secretary determines is more 
                        appropriate for purposes of this 
                        paragraph than the adjustment described 
                        in the preceding sentence, and the 
                        adjustment so prescribed shall apply in 
                        lieu of the adjustment described in the 
                        preceding sentence.''
            (3) Paragraph (6) of section 213(d) is amended--
                    (A) by striking ``subparagraphs (A) and 
                (B)'' and inserting ``subparagraphs (A), (B), 
                and (C)'', and
                    (B) by striking ``paragraph (1)(C)'' in 
                subparagraph (A) and inserting ``paragraph 
                (1)(D)''.
            (4) Paragraph (7) of section 213(d) is amended by 
        striking ``subparagraphs (A) and (B)'' and inserting 
        ``subparagraphs (A), (B), and (C)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11043. CERTAIN EXCHANGES OF LIFE INSURANCE CONTRACTS FOR QUALIFIED 
                    LONG-TERM CARE INSURANCE CONTRACTS NOT TAXABLE.

    (a) In General.--Subsection (a) of section 1035 (relating 
to certain exchanges of insurance contracts) is amended by 
striking the period at the end of paragraph (3) and inserting 
``; or'', and by adding at the end the following new paragraph:
            ``(4) a contract of life insurance or an endowment 
        or annuity contract for a qualified long-term care 
        insurance contract (as defined in section 7702B(b)).''
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11044. EXCEPTION FROM PENALTY TAX FOR AMOUNTS WITHDRAWN FROM 
                    CERTAIN RETIREMENT PLANS FOR QUALIFIED LONG-TERM 
                    CARE INSURANCE.

    (a) In General.--Paragraph (2) of section 72(t) is amended 
by adding at the end the following new subparagraph:
                    ``(F) Premiums for qualified long-term care 
                insurance contracts.--Distributions to an 
                individual 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), to the extent such 
                distributions do not exceed the premiums for a 
                qualified long-term care insurance contract (as 
                defined in section 7702B(b)) for such 
                individual or the spouse of such individual. In 
                applying subparagraph (B), such premiums shall 
                be treated as amounts not paid for medical 
                care.''
    (b) Distributions Permitted From Certain Plans To Pay Long-
term Care Premiums.--
            (1) Section 401(k)(2)(B)(i) 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 
                                distributions for premiums for 
                                a long-term care insurance 
                                contract (as defined in section 
                                7702B(b)) for coverage of such 
                                individual or the spouse of 
                                such individual are made, 
                                and''.
            (2) Section 403(b)(11) 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 the payment of premiums for a 
                long-term care insurance contract (as defined 
                in section 7702B(b)) for coverage of the 
                employee or the spouse of the employee.''
            (3) Subparagraph (A) of section 457(d)(1) is 
        amended by striking ``or'' at the end of clause (ii), 
        by striking ``and'' at the end of clause (iii) and 
        inserting ``or'', and by inserting after clause (iii) 
        the following new clause:
                            ``(iv) the date distributions for 
                        premiums for a long-term care insurance 
                        contract (as defined in section 
                        7702B(b)) for coverage of such 
                        individual or the spouse of such 
                        individual are made, and''.
    (c) Effective Date.--The amendments made by this section 
shall apply to payments and distributions after December 31, 
1995.

SEC. 11045. REPORTING REQUIREMENTS.

    (a) In General.--Subpart B of part III of subchapter A of 
chapter 61, as amended by section 11004, is amended by adding 
at the end the following new section:

``SEC. 6050R. CERTAIN LONG-TERM CARE BENEFITS.

    ``(a) Requirement of Reporting.--Any person who pays long-
term care benefits shall make a return, according to the forms 
or regulations prescribed by the Secretary, setting forth--
            ``(1) the aggregate amount of such benefits paid by 
        such person to any individual during any calendar year, 
        and
            ``(2) the name, address, and TIN of such 
        individual.
    ``(b) Statements To Be Furnished to Persons With Respect to 
Whom Information Is Required.--Every person required to make a 
return under subsection (a) shall furnish to each individual 
whose name is required to be set forth in such return a written 
statement showing--
            ``(1) the name of the person making the payments, 
        and
            ``(2) the aggregate amount of long-term care 
        benefits paid to the individual which are required to 
        be shown on such return.
The written statement required under the preceding sentence 
shall be furnished to the individual on or before January 31 of 
the year following the calendar year for which the return under 
subsection (a) was required to be made.
    ``(c) Long-Term Care Benefits.--For purposes of this 
section, the term `long-term care benefit' means any amount 
paid under a long-term care insurance policy (within the 
meaning of section 4980C(e)).''.
    (b) Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1), as 
        amended by section 11004, is amended by redesignating 
        clauses (x) through (xv) as clauses (xi) through (xvi), 
        respectively, and by inserting after clause (ix) the 
        following new clause:
                            ``(x) section 6050R (relating to 
                        certain long-term care benefits),''.
            (2) Paragraph (2) of section 6724(d), as amended by 
        section 11004, is amended by redesignating 
        subparagraphs (R) through (U) as subparagraphs (S) 
        through (V), respectively, and by inserting after 
        subparagraph (P) the following new subparagraph:
                    ``(R) section 6050R(b) (relating to certain 
                long-term care benefits),''.
    (c) Clerical Amendment.--The table of sections for subpart 
B of part III of subchapter A of chapter 61 is amended by 
adding at the end the following new item:

        ``Sec. 6050R. Certain long-term care benefits.''

    (d) Effective Date.--The amendments made by this section 
shall apply to benefits paid after December 31, 1995.

                PART II--CONSUMER PROTECTION PROVISIONS

SEC. 11051. POLICY REQUIREMENTS.

    Section 7702B (as added by section 11041) is amended by 
adding at the end the following new subsection:
    ``(f) Consumer Protection Provisions.--
            ``(1) In general.--The requirements of this 
        subsection are met with respect to any contract if any 
        long-term care insurance policy issued under the 
        contract meets--
                    ``(A) the requirements of the model 
                regulation and model Act described in paragraph 
                (2),
                    ``(B) the disclosure requirement of 
                paragraph (3), and
                    ``(C) the requirements relating to 
                nonforfeitability under paragraph (4).
            ``(2) Requirements of model regulation and act.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any policy if 
                such policy meets--
                            ``(i) Model regulation.--The 
                        following requirements of the model 
                        regulation:
                                    ``(I) Section 7A (relating 
                                to guaranteed renewal or 
                                noncancellability), and the 
                                requirements of section 6B of 
                                the model Act relating to such 
                                section 7A.
                                    ``(II) Section 7B (relating 
                                to prohibitions on limitations 
                                and exclusions).
                                    ``(III) Section 7C 
                                (relating to extension of 
                                benefits).
                                    ``(IV) Section 7D (relating 
                                to continuation or conversion 
                                of coverage).
                                    ``(V) Section 7E (relating 
                                to discontinuance and 
                                replacement of policies).
                                    ``(VI) Section 8 (relating 
                                to unintentional lapse).
                                    ``(VII) Section 9 (relating 
                                to disclosure), other than 
                                section 9F thereof.
                                    ``(VIII) Section 10 
                                (relating to prohibitions 
                                against post-claims 
                                underwriting).
                                    ``(IX) Section 11 (relating 
                                to minimum standards).
                                    ``(X) Section 12 (relating 
                                to requirement to offer 
                                inflation protection), except 
                                that any requirement for a 
                                signature on a rejection of 
                                inflation protection shall 
                                permit the signature to be on 
                                an application or on a separate 
                                form.
                                    ``(XI) Section 23 (relating 
                                to prohibition against 
                                preexisting conditions and 
                                probationary periods in 
                                replacement policies or 
                                certificates).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating 
                                to preexisting conditions).
                                    ``(II) Section 6D (relating 
                                to prior hospitalization).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms 
                        `model regulation' and `model Act' mean 
                        the long-term care insurance model 
                        regulation, and the long-term care 
                        insurance model Act, respectively, 
                        promulgated by the National Association 
                        of Insurance Commissioners (as adopted 
                        as of January 1993).
                            ``(ii) Coordination.--Any provision 
                        of the model regulation or model Act 
                        listed under clause (i) or (ii) of 
                        subparagraph (A) shall be treated as 
                        including any other provision of such 
                        regulation or Act necessary to 
                        implement the provision.
            ``(3) Disclosure requirement.--The requirement of 
        this paragraph is met with respect to any policy if 
        such policy meets the requirements of section 
        4980C(d)(1).
            ``(4) Nonforfeiture requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any level 
                premium long-term care insurance policy, if the 
                issuer of such policy offers to the 
                policyholder, including any group policyholder, 
                a nonforfeiture provision meeting the 
                requirements of subparagraph (B).
                    ``(B) Requirements of provision.--The 
                nonforfeiture provision required under 
                subparagraph (A) shall meet the following 
                requirements:
                            ``(i) The nonforfeiture provision 
                        shall be appropriately captioned.
                            ``(ii) The nonforfeiture provision 
                        shall provide for a benefit available 
                        in the event of a default in the 
                        payment of any premiums and the amount 
                        of the benefit may be adjusted 
                        subsequent to being initially granted 
                        only as necessary to reflect changes in 
                        claims, persistency, and interest as 
                        reflected in changes in rates for 
                        premium paying policies approved by the 
                        Secretary for the same policy form.
                            ``(iii) The nonforfeiture provision 
                        shall provide at least one of the 
                        following:
                                    ``(I) Reduced paid-up 
                                insurance.
                                    ``(II) Extended term 
                                insurance.
                                    ``(III) Shortened benefit 
                                period.
                                    ``(IV) Other similar 
                                offerings approved by the 
                                Secretary.
            ``(5) Long-term care insurance policy defined.--For 
        purposes of this subsection, the term `long-term care 
        insurance policy' has the meaning given such term by 
        section 4980C(e).''.

SEC. 11052. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSURANCE 
                    POLICIES.

    (a) In General.--Chapter 43 is amended by adding at the end 
the following new section:

``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSURANCE 
                    POLICIES.

    ``(a) General Rule.--There is hereby imposed on any person 
failing to meet the requirements of subsection (c) or (d) a tax 
in the amount determined under subsection (b).
    ``(b) Amount.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) shall be $100 per policy for each day 
        any requirements of subsection (c) or (d) are not met 
        with respect to each long-term care insurance policy.
            ``(2) Waiver.--In the case of a failure which is 
        due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that payment of the tax 
        would be excessive relative to the failure involved.
    ``(c) Responsibilities.--The requirements of this 
subsection are as follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following 
                requirements of the model regulation must be 
                met:
                            ``(i) Section 13 (relating to 
                        application forms and replacement 
                        coverage).
                            ``(ii) Section 14 (relating to 
                        reporting requirements), except that 
                        the issuer shall also report at least 
                        annually the number of claims denied 
                        during the reporting period for each 
                        class of business (expressed as a 
                        percentage of claims denied), other 
                        than claims denied for failure to meet 
                        the waiting period or because of any 
                        applicable preexisting condition.
                            ``(iii) Section 20 (relating to 
                        filing requirements for marketing).
                            ``(iv) Section 21 (relating to 
                        standards for marketing), including 
                        inaccurate completion of medical 
                        histories, other than sections 21C(1) 
                        and 21C(6) thereof, except that--
                                    ``(I) in addition to such 
                                requirements, no person shall, 
                                in selling or offering to sell 
                                a long-term care insurance 
                                policy, misrepresent a material 
                                fact; and
                                    ``(II) no such requirements 
                                shall include a requirement to 
                                inquire or identify whether a 
                                prospective applicant or 
                                enrollee for long-term care 
                                insurance has accident and 
                                sickness insurance.
                            ``(v) Section 22 (relating to 
                        appropriateness of recommended 
                        purchase).
                            ``(vi) Section 24 (relating to 
                        standard format outline of coverage).
                            ``(vii) Section 25 (relating to 
                        requirement to deliver shopper's 
                        guide).
                    ``(B) Model act.--The following 
                requirements of the model Act must be met:
                            ``(i) Section 6F (relating to right 
                        to return), except that such section 
                        shall also apply to denials of 
                        applications and any refund shall be 
                        made within 30 days of the return or 
                        denial.
                            ``(ii) Section 6G (relating to 
                        outline of coverage).
                            ``(iii) Section 6H (relating to 
                        requirements for certificates under 
                        group plans).
                            ``(iv) Section 6I (relating to 
                        policy summary).
                            ``(v) Section 6J (relating to 
                        monthly reports on accelerated death 
                        benefits).
                            ``(vi) Section 7 (relating to 
                        incontestability period).
                    ``(C) Definitions.--For purposes of this 
                paragraph, the terms `model regulation' and 
                `model Act' have the meanings given such terms 
                by section 7702B(f)(2)(B).
            ``(2) Delivery of policy.--If an application for a 
        long-term care insurance policy (or for a certificate 
        under a group long-term care insurance policy) is 
        approved, the issuer shall deliver to the applicant (or 
        policyholder or certificateholder) the policy (or 
        certificate) of insurance not later than 30 days after 
        the date of the approval.
            ``(3) Information on denials of claims.--If a claim 
        under a long-term care insurance policy is denied, the 
        issuer shall, within 60 days of the date of a written 
        request by the policyholder or certificateholder (or 
        representative)--
                    ``(A) provide a written explanation of the 
                reasons for the denial, and
                    ``(B) make available all information 
                directly relating to such denial.
    ``(d) Disclosure.--The requirements of this subsection are 
met if the issuer of a long-term care insurance policy 
discloses in such policy and in the outline of coverage 
required under subsection (c)(1)(B)(ii) that the policy is 
intended to be a qualified long-term care insurance contract 
under section 7702B(b).
    ``(e) Long-Term Care Insurance Policy Defined.--For 
purposes of this section, the term `long-term care insurance 
policy' means any product which is advertised, marketed, or 
offered as long-term care insurance.''.
    (b) Conforming Amendment.--The table of sections for 
chapter 43 is amended by adding at the end the following new 
item:

        ``Sec. 4980C. Requirements for issuers of long-term care 
                  insurance policies.''.

SEC. 11053. COORDINATION WITH STATE REQUIREMENTS.

    Nothing in this part shall prevent a State from 
establishing, implementing, or continuing in effect standards 
related to the protection of policyholders of long-term care 
insurance policies (as defined in section 4980C(e) of the 
Internal Revenue Code of 1986), if such standards are not in 
conflict with or inconsistent with the standards established 
under such Code.

SEC. 11054. EFFECTIVE DATES.

    (a) In General.--The provisions of, and amendments made by, 
this part shall apply to contracts issued after December 31, 
1995. The provisions of section 11041(g) of this Act (relating 
to transition rule) shall apply to such contracts.
    (b) Issuers.--The amendments made by section 11052 shall 
apply to actions taken after December 31, 1995.

         Subchapter B--Treatment of Accelerated Death Benefits

SEC. 11061. TREATMENT OF ACCELERATED DEATH BENEFITS BY RECIPIENT.

    (a) In General.--Section 101 (relating to certain death 
benefits) is amended by adding at the end the following new 
subsection:
    ``(g) Treatment of Certain Accelerated Death Benefits.--
            ``(1) In general.--For purposes of this section, 
        the following amounts shall be treated as an amount 
        paid by reason of the death of an insured:
                    ``(A) Any amount received under a life 
                insurance contract on the life of an insured 
                who is a terminally ill individual.
                    ``(B) Any amount received under a life 
                insurance contract on the life of an insured 
                who is a chronically ill individual (as 
                determined in such manner as the Secretary may 
                prescribe) but only if such amount is received 
                under a rider or other provision of such 
                contract which is treated as a qualified long-
                term care insurance contract under section 
                7702B.
            ``(2) Treatment of viatical settlements.--
                    ``(A) In general.--In the case of a life 
                insurance contract on the life of an insured 
                described in paragraph (1), if--
                            ``(i) any portion of such contract 
                        is sold to any viatical settlement 
                        provider, or
                            ``(ii) any portion of the death 
                        benefit is assigned to such a provider,
                the amount paid for such sale or assignment 
                shall be treated as an amount paid under the 
                life insurance contract by reason of the death 
                of such insured.
                    ``(B) Viatical settlement provider.--The 
                term `viatical settlement provider' means any 
                person regularly engaged in the trade or 
                business of purchasing, or taking assignments 
                of, life insurance contracts on the lives of 
                insureds described in paragraph (1) if--
                            ``(i) such person is licensed for 
                        such purposes in the State in which the 
                        insured resides, or
                            ``(ii) in the case of an insured 
                        who resides in a State not requiring 
                        the licensing of such persons for such 
                        purposes--
                                    ``(I) such person meets the 
                                requirements of sections 8 and 
                                9 of the Viatical Settlements 
                                Model Act of the National 
                                Association of Insurance 
                                Commissioners, and
                                    ``(II) meets the 
                                requirements of the Model 
                                Regulations of the National 
                                Association of Insurance 
                                Commissioners (relating to 
                                standards for evaluation of 
                                reasonable payments) in 
                                determining amounts paid by 
                                such person in connection with 
                                such purchases or assignments.
            ``(3) Definitions.--For purposes of this 
        subsection--
                    ``(A) Terminally ill individual.--The term 
                `terminally ill individual' means an individual 
                who has been certified by a physician as having 
                an illness or physical condition which can 
                reasonably be expected to result in death in 24 
                months or less after the date of the 
                certification.
                    ``(B) Physician.--The term `physician' has 
                the meaning given to such term by section 
                1861(r)(1) of the Social Security Act (42 
                U.S.C. 1395x(r)(1)).
            ``(4) Exception for business-related policies.--
        This subsection shall not apply in the case of any 
        amount paid to any taxpayer other than the insured if 
        such taxpayer has an insurable interest with respect to 
        the life of the insured by reason of the insured being 
        a director, officer, or employee of the taxpayer or by 
        reason of the insured being financially interested in 
        any trade or business carried on by the taxpayer.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to amounts received after December 31, 1995.

SEC. 11062. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED 
                    DEATH BENEFIT RIDERS.

    (a) Qualified Accelerated Death Benefit Riders Treated as 
Life Insurance.--Section 818 (relating to other definitions and 
special rules) is amended by adding at the end the following 
new subsection:
    ``(g) Qualified Accelerated Death Benefit Riders Treated as 
Life Insurance.--For purposes of this part--
            ``(1) In general.--Any reference to a life 
        insurance contract shall be treated as including a 
        reference to a qualified accelerated death benefit 
        rider on such contract.
            ``(2) Qualified accelerated death benefit riders.--
        For purposes of this subsection, the term `qualified 
        accelerated death benefit rider' means any rider on a 
        life insurance contract if the only payments under the 
        rider are payments meeting the requirements of section 
        101(g).
            ``(3) Exception for long-term care riders.--
        Paragraph (1) shall not apply to any rider which is 
        treated as a long-term care insurance contract under 
        section 7702B.''
    (b) Effective Date.--
            (1) In general.--The amendment made by this section 
        shall take effect on January 1, 1996.
            (2) Issuance of rider not treated as material 
        change.--For purposes of applying sections 101(f), 
        7702, and 7702A of the Internal Revenue Code of 1986 to 
        any contract--
                    (A) the issuance of a qualified accelerated 
                death benefit rider (as defined in section 
                818(g) of such Code (as added by this Act)), 
                and
                    (B) the addition of any provision required 
                to conform an accelerated death benefit rider 
                to the requirements of such section 818(g),
        shall not be treated as a modification or material 
        change of such contract.

                  CHAPTER 2--MEDICAL SAVINGS ACCOUNTS

SEC. 11066. MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 
(relating to additional itemized deductions for individuals) is 
amended by redesignating section 222 as section 223 and by 
inserting after section 221 the following new section:

``SEC. 222. MEDICAL SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual who 
is an eligible individual for any month during the taxable 
year, there shall be allowed as a deduction for the taxable 
year an amount equal to the aggregate amount paid in cash 
during such taxable year by such individual to a medical 
savings account of such individual.
    ``(b) Limitations.--
            ``(1) In general.--Except as otherwise provided in 
        this subsection, the amount allowable as a deduction 
        under subsection (a) to an individual for the taxable 
        year shall not exceed--
                    ``(A) except as provided in subparagraph 
                (B), the lesser of--
                            ``(i) $2,000, or
                            ``(ii) the annual deductible limit 
                        for any individual covered under the 
                        high deductible health plan, or
                    ``(B) in the case of a high deductible 
                health plan covering the taxpayer and any other 
                eligible individual who is the spouse or any 
                dependent (as defined in section 152) of the 
                taxpayer, the lesser of--
                            ``(i) $4,000, or
                            ``(ii) the annual limit under the 
                        plan on the aggregate amount of 
                        deductibles required to be paid by all 
                        individuals.
        The preceding sentence shall not apply if the spouse of 
        such individual is covered under any other high 
        deductible health plan.
            ``(2) Special rule for married individuals.--
                    ``(A) In general.--This subsection shall be 
                applied separately for each married individual.
                    ``(B) Special rule.--If individuals who are 
                married to each other are covered under the 
                same high deductible health plan, then the 
                amounts applicable under paragraph (1)(B) shall 
                be divided equally between them unless they 
                agree on a different division.
            ``(3) Coordination with exclusion for employer 
        contributions.--No deduction shall be allowed under 
        this section for any amount paid for any taxable year 
        to a medical savings account of an individual if--
                    ``(A) any amount is paid to any medical 
                savings account of such individual which is 
                excludable from gross income under section 
                106(b) for such year, or
                    ``(B) in a case described in paragraph (2), 
                any amount is paid to any medical savings 
                account of either spouse which is so excludable 
                for such year.
            ``(4) Proration of limitation.--
                    ``(A) In general.--The limitation under 
                paragraph (1) shall be the sum of the monthly 
                limitations for months during the taxable year 
                that the individual is an eligible individual 
                if--
                            ``(i) such individual is not an 
                        eligible individual for all months of 
                        the taxable year,
                            ``(ii) the deductible under the 
                        high deductible health plan covering 
                        such individual is not the same 
                        throughout such taxable year, or
                            ``(iii) such limitation is 
                        determined under paragraph (1)(B) for 
                        some but not all months during such 
                        taxable year.
                    ``(B) Monthly limitation.--The monthly 
                limitation for any month shall be an amount 
                equal to \1/12\ of the limitation which would 
                (but for this paragraph and paragraph (3)) be 
                determined under paragraph (1) if the facts and 
                circumstances as of the first day of such month 
                that such individual is covered under a high 
                deductible health plan were true for the entire 
                taxable year.
            ``(5) Denial of deduction to dependents.--No 
        deduction shall be allowed under this section to any 
        individual with respect to whom a deduction under 
        section 151 is allowable to another taxpayer for a 
        taxable year beginning in the calendar year in which 
        such individual's taxable year begins.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--
                    ``(A) In general.--The term `eligible 
                individual' means, with respect to any month, 
                any individual--
                            ``(i) who is covered under a high 
                        deductible health plan as of the 1st 
                        day of such month, and
                            ``(ii) who is not, while covered 
                        under a high deductible health plan, 
                        covered under any health plan--
                                    ``(I) which is not a high 
                                deductible health plan, and
                                    ``(II) which provides 
                                coverage for any benefit which 
                                is covered under the high 
                                deductible health plan.
                    ``(B) Certain coverage disregarded.--
                Subparagraph (A)(ii) shall be applied without 
                regard to--
                            ``(i) coverage for any benefit 
                        provided by permitted insurance, and
                            ``(ii) coverage (whether through 
                        insurance or otherwise) for accidents, 
                        disability, dental care, vision care, 
                        or long-term care.
            ``(2) High deductible health plan.--The term `high 
        deductible health plan' means a health plan which--
                    ``(A) has an annual deductible limit for 
                each individual covered by the plan which is 
                not less than $1,500, and
                    ``(B) has an annual limit on the aggregate 
                amount of deductibles required to be paid with 
                respect to all individuals covered by the plan 
                which is not less than $3,000.
        Such term does not include a health plan if 
        substantially all of its coverage is coverage described 
        in paragraph (1)(B).
            ``(3) Permitted insurance.--The term `permitted 
        insurance' means--
                    ``(A) Medicare supplemental insurance,
                    ``(B) insurance if substantially all of the 
                coverage provided under such insurance relates 
                to--
                            ``(i) liabilities incurred under 
                        workers' compensation laws,
                            ``(ii) tort liabilities,
                            ``(iii) liabilities relating to 
                        ownership or use of property, or
                            ``(iv) such other similar 
                        liabilities as the Secretary may 
                        specify by regulations,
                    ``(C) insurance for a specified disease or 
                illness, and
                    ``(D) insurance paying a fixed amount per 
                day (or other period) of hospitalization.
    ``(d) Medical Savings Account.--For purposes of this 
section--
            ``(1) Medical savings account.--The term `medical 
        savings account' means a trust created or organized in 
        the United States exclusively for the purpose of paying 
        the qualified medical expenses of the account holder, 
        but only if the written governing instrument creating 
        the trust meets the following requirements:
                    ``(A) Except in the case of a rollover 
                contribution described in subsection (f)(5), no 
                contribution will be accepted--
                            ``(i) unless it is in cash, or
                            ``(ii) to the extent such 
                        contribution, when added to previous 
                        contributions to the trust for the 
                        calendar year, exceeds $4,000.
                    ``(B) The trustee is a bank (as defined in 
                section 408(n)), an insurance company (as 
                defined in section 816), or another person who 
                demonstrates to the satisfaction of the 
                Secretary that the manner in which such person 
                will administer the trust will be consistent 
                with the requirements of this section.
                    ``(C) No part of the trust assets will be 
                invested in life insurance contracts.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a 
                common trust fund or common investment fund.
                    ``(E) The interest of an individual in the 
                balance in his account is nonforfeitable.
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified 
                medical expenses' means, with respect to an 
                account holder, amounts paid by such holder for 
                medical care (as defined in section 213(d)) for 
                such individual, the spouse of such individual, 
                and any dependent (as defined in section 152) 
                of such individual, but only to the extent such 
                amounts are not compensated for by insurance or 
                otherwise.
                    ``(B) Health insurance may not be purchased 
                from account.--
                            ``(i) In general.--Subparagraph (A) 
                        shall not apply to any payment for 
                        insurance.
                            ``(ii) Exceptions.--Clause (i) 
                        shall not apply to any expense for 
                        coverage under--
                                    ``(I) a health plan during 
                                any period of continuation 
                                coverage required under any 
                                Federal law,
                                    ``(II) a qualified long-
                                term care contract (as defined 
                                in section 7702B), or
                                    ``(III) a health plan 
                                during a period in which the 
                                individual is receiving 
                                unemployment compensation under 
                                any Federal or State law.
            ``(3) Account holder.--The term `account holder' 
        means the individual on whose behalf the medical 
        savings account was established.
            ``(4) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this 
        section:
                    ``(A) Section 219(d)(2) (relating to no 
                deduction for rollovers).
                    ``(B) Section 219(f)(3) (relating to time 
                when contributions deemed made).
                    ``(C) Except as provided in section 106(b), 
                section 219(f)(5) (relating to employer 
                payments).
                    ``(D) Section 408(g) (relating to community 
                property laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).
    ``(e) Tax Treatment of Accounts.--
            ``(1) In general.--A medical savings account is 
        exempt from taxation under this subtitle unless such 
        account has ceased to be a medical savings account by 
        reason of paragraph (2) or (3). Notwithstanding the 
        preceding sentence, any such account is subject to the 
        taxes imposed by section 511 (relating to imposition of 
        tax on unrelated business income of charitable, etc. 
        organizations).
            ``(2) Account terminations.--Rules similar to the 
        rules of paragraphs (2) and (4) of section 408(e) shall 
        apply to medical savings accounts, and any amount 
        treated as distributed under such rules shall be 
        treated as not used to pay qualified medical expenses.
    ``(f) Tax Treatment of Distributions.--
            ``(1) Amounts used for qualified medical 
        expenses.--
                    ``(A) In general.--Any amount paid or 
                distributed out of a medical savings account 
                which is used exclusively to pay qualified 
                medical expenses of any account holder (or any 
                spouse or dependent of the holder) shall not be 
                includible in gross income.
                    ``(B) Treatment after death of account 
                holder.--
                            ``(i) Treatment if holder is 
                        spouse.--If, after the death of the 
                        account holder, the account holder's 
                        interest is payable to (or for the 
                        benefit of) the holder's spouse, the 
                        medical savings account shall be 
                        treated as if the spouse were the 
                        account holder.
                            ``(ii) Treatment if designated 
                        holder is not spouse.--In the case of 
                        an account holder's interest in a 
                        medical savings account which is 
                        payable to (or for the benefit of) any 
                        person other than such holder's spouse 
                        upon the death of such holder--
                                    ``(I) such account shall 
                                cease to be a medical savings 
                                account as of the date of 
                                death, and
                                    ``(II) an amount equal to 
                                the fair market value of the 
                                assets in such account on such 
                                date shall be includible if 
                                such person is not the estate 
                                of such holder, in such 
                                person's gross income for the 
                                taxable year which includes 
                                such date, or if such person is 
                                the estate of such holder, in 
                                such holder's gross income for 
                                the last taxable year of such 
                                holder.
            ``(2) Inclusion of amounts not used for qualified 
        medical expenses.--
                    ``(A) In general.--Any amount paid or 
                distributed out of a medical savings account 
                which is not used exclusively to pay the 
                qualified medical expenses of the account 
                holder or of the spouse or dependents of such 
                holder shall be included in the gross income of 
                such holder.
                    ``(B) Special rules.--For purposes of 
                subparagraph (A)--
                            ``(i) all medical savings accounts 
                        of the account holder shall be treated 
                        as 1 account,
                            ``(ii) all payments and 
                        distributions during any taxable year 
                        shall be treated as 1 distribution, and
                            ``(iii) any distribution of 
                        property shall be taken into account at 
                        its fair market value on the date of 
                        the distribution.
            ``(3) Excess contributions returned before due date 
        of return.--Paragraph (2) shall not apply to the 
        distribution of any contribution paid during a taxable 
        year to a medical savings account to the extent that 
        such contribution exceeds the amount under subsection 
        (d)(1)(A)(ii) if--
                    ``(A) such distribution is received by the 
                individual on or before the last day prescribed 
                by law (including extensions of time) for 
                filing such individual's return for such 
                taxable year, and
                    ``(B) such distribution is accompanied by 
                the amount of net income attributable to such 
                excess contribution.
        Any net income described in subparagraph (B) shall be 
        included in the gross income of the individual for the 
        taxable year in which it is received.
            ``(4) Penalty for distributions not used for 
        qualified medical expenses.--
                    ``(A) In general.--The tax imposed by this 
                chapter on the account holder for any taxable 
                year in which there is a payment or 
                distribution from a medical savings account of 
                such holder which is includible in gross income 
                under paragraph (2) shall be increased by 10 
                percent of the amount which is so includible.
                    ``(B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment 
                or distribution is made after the account 
                holder becomes disabled within the meaning of 
                section 72(m)(7) or dies.
                    ``(C) Exception for distributions after age 
                59\1/2\.--Subparagraph (A) shall not apply to 
                any payment or distribution after the date on 
                which the account holder attains age 59\1/2\.
            ``(5) Rollover contribution.--An amount is 
        described in this paragraph as a rollover contribution 
        if it meets the requirements of subparagraphs (A) and 
        (B).
                    ``(A) In general.--Paragraph (2) shall not 
                apply to any amount paid or distributed from a 
                medical savings account to the account holder 
                to the extent the amount received is paid into 
                a medical savings account for the benefit of 
                such holder not later than the 60th day after 
                the day on which the holder receives the 
                payment or distribution.
                    ``(B) Limitation.--This paragraph shall not 
                apply to any amount described in subparagraph 
                (A) received by an individual from a medical 
                savings account if, at any time during the 1-
                year period ending on the day of such receipt, 
                such individual received any other amount 
                described in subparagraph (A) from a medical 
                savings account which was not includible in the 
                individual's gross income because of the 
                application of this paragraph.
            ``(6) Coordination with medical expense 
        deduction.--For purposes of determining the amount of 
        the deduction under section 213, any payment or 
        distribution out of a medical savings account for 
        qualified medical expenses shall not be treated as an 
        expense paid for medical care.
            ``(7)  Transfer of account incident to divorce.--
        The transfer of an individual's interest in a medical 
        savings account to an individual's spouse or former 
        spouse under a divorce or separation instrument 
        described in subparagraph (A) of section 71(b)(2) shall 
        not be considered a taxable transfer made by such 
        individual notwithstanding any other provision of this 
        subtitle, and such interest shall, after such transfer, 
        be treated as a medical savings account with respect to 
        which the spouse is the account holder.
    ``(g) Cost-of-Living Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1996, each dollar 
        amount in subsection (b)(1), (c)(2), or (d)(1)(A) shall 
        be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the medical care cost adjustment for 
                such calendar year.
        If any increase under the preceding sentence is not a 
        multiple of $50, such increase shall be rounded to the 
        nearest multiple of $50.
            ``(2) Medical care cost adjustment.--For purposes 
        of paragraph (1), the medical care cost adjustment for 
        any calendar year is the percentage (if any) by which--
                    ``(A) the medical care component of the 
                Consumer Price Index (as defined in section 
                1(f)(5)) for August of the preceding calendar 
                year, exceeds
                    ``(B) such component for August of 1995.
    ``(h) Reports.--The Secretary may require the trustee of a 
medical savings account to make such reports regarding such 
account to the Secretary and to the account holder with respect 
to contributions, distributions, and such other matters as the 
Secretary determines appropriate. The reports required by this 
subsection shall be filed at such time and in such manner and 
furnished to such individuals at such time and in such manner 
as may be required by those regulations.''
    (b) Deduction Allowed Whether or Not Individual Itemizes 
Other Deductions.--Subsection (a) of section 62 is amended by 
inserting after paragraph (18) the following new paragraph:
            ``(19) Medical savings accounts.--The deduction 
        allowed by section 222.''
    (c) Exclusions for Employer Contributions to Medical 
Savings Accounts.--
            (1) Exclusion from income tax.--Section 106 
        (relating to contributions by employer to accident and 
        health plans), as amended by this Act, is amended--
                    (A) by adding at the end the following new 
                subsection:
    ``(c) Contributions to Medical Savings Accounts.--
            ``(1) In general.--In the case of an employee who 
        is an eligible individual, gross income does not 
        include amounts contributed by such employee's employer 
        to any medical savings account of such employee.
            ``(2) Coordination with deduction limitation.--The 
        amount excluded from the gross income of an employee 
        under this subsection for any taxable year shall not 
        exceed the limitation under section 222(b)(1) 
        (determined without regard to this subsection) which is 
        applicable to such employee for such taxable year.
            ``(3) No constructive receipt.--No amount shall be 
        included in the gross income of any employee solely 
        because the employee may choose between the 
        contributions referred to in paragraph (1) and employer 
        contributions to another health plan of the employer.
            ``(4) Special rule for deduction of employer 
        contributions.--Any employer contribution to a medical 
        savings account, if otherwise allowable as a deduction 
        under this chapter, shall be allowed only for the 
        taxable year in which paid.
            ``(5) Definitions.--For purposes of this 
        subsection, the terms `eligible individual' and 
        `medical savings account' have the respective meanings 
        given to such terms by section 222'', and
                    (B) by striking ``subsection (b)'' in 
                subsection (a) and inserting ``this 
                subsection''.
            (2) Exclusion from withholding tax.--Subsection (a) 
        of section 3401 is amended by striking ``or'' at the 
        end of paragraph (19), by striking the period at the 
        end of paragraph (20) and inserting ``; or'', and by 
        inserting after paragraph (20) the following new 
        paragraph:
            ``(21) any payment made to or for the benefit of an 
        employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to 
        exclude such payment from income under section 
        106(b).''
    (d) Medical Savings Account Contributions Not Available 
Under Cafeteria Plans.--Subsection (f) of section 125 is 
amended by inserting ``106(b),'' before ``117''.
    (e) Exclusion of Medical Savings Accounts From Estate 
Tax.--Part IV of subchapter A of chapter 11 is amended by 
adding at the end the following new section:

``SEC. 2057. MEDICAL SAVINGS ACCOUNTS.

    ``For purposes of the tax imposed by section 2001, the 
value of the taxable estate shall be determined by deducting 
from the value of the gross estate an amount equal to the value 
of any medical savings account (as defined in section 222(d)) 
included in the gross estate.''
    (f) Tax on Excess Contributions.--Section 4973 (relating to 
tax on excess contributions to individual retirement accounts, 
certain section 403(b) contracts, and certain individual 
retirement annuities) is amended--
            (1) by inserting ``medical savings accounts,'' 
        after ``accounts,'' in the heading of such section,
            (2) by striking ``or'' at the end of paragraph (1) 
        of subsection (a),
            (3) by redesignating paragraph (2) of subsection 
        (a) as paragraph (3) and by inserting after paragraph 
        (1) the following:
            ``(2) a medical savings account (within the meaning 
        of section 222(d)), or'', and
            (4) by adding at the end the following new 
        subsection:
    ``(d) Excess Contributions to Medical Savings Accounts.--
For purposes of this section, in the case of a medical savings 
account (within the meaning of section 222(d)), the term 
`excess contributions' means the sum of--
            ``(1) the amount by which the amount contributed 
        for the taxable year to the account exceeds the amount 
        which may be contributed to the account under section 
        222(d)(1)(B)(ii) for such taxable year, and
            ``(2) the amount determined under this subsection 
        for the preceding taxable year, reduced by the sum of 
        distributions out of the account included in gross 
        income under section 222(f) (2) or (3) and the excess 
        (if any) of the maximum amount allowable as a deduction 
        under section 222 for the taxable year over the amount 
        contributed.
For purposes of this subsection, any contribution which is 
distributed out of the medical savings account in a 
distribution to which section 222(f)(3) applies shall be 
treated as an amount not contributed.''
    (g) Tax on Prohibited Transactions.--
            (1) Section 4975 (relating to tax on prohibited 
        transactions) is amended by adding at the end of 
        subsection (c) the following new paragraph:
            ``(4) Special rule for medical savings accounts.--
        An individual for whose benefit a medical savings 
        account (within the meaning of section 222(d)) is 
        established shall be exempt from the tax imposed by 
        this section with respect to any transaction concerning 
        such account (which would otherwise be taxable under 
        this section) if, with respect to such transaction, the 
        account ceases to be a medical savings account by 
        reason of the application of section 222(e)(2) to such 
        account.''
            (2) Paragraph (1) of section 4975(e) is amended to 
        read as follows:
            ``(1) Plan.--For purposes of this section, the term 
        `plan' means--
                    ``(A) a trust described in section 401(a) 
                which forms a part of a plan, or a plan 
                described in section 403(a), which trust or 
                plan is exempt from tax under section 501(a),
                    ``(B) an individual retirement account 
                described in section 408(a),
                    ``(C) an individual retirement annuity 
                described in section 408(b),
                    ``(D) a medical savings account described 
                in section 220(d), or
                    ``(E) a trust, plan, account, or annuity 
                which, at any time, has been determined by the 
                Secretary to be described in any preceding 
                subparagraph of this paragraph.''
    (h) Failure To Provide Reports on MedicarePlus MSA's.--
            (1) Subsection (a) of section 6693 (relating to 
        failure to provide reports on individual retirement 
        accounts or annuities) is amended to read as follows:
    ``(a) Reports.--
            ``(1) In general.--If a person required to file a 
        report under a provision referred to in paragraph (2) 
        fails to file such report at the time and in the manner 
        required by such provision, such person shall pay a 
        penalty of $50 for each failure unless it is shown that 
        such failure is due to reasonable cause.
            ``(2) Provisions.--The provisions referred to in 
        this paragraph are--
                    ``(A) subsections (i) and (l) of section 
                408 (relating to individual retirement plans), 
                and
                    ``(B) section 222(h) (relating to medical 
                savings accounts).''
    (i) Exception From Capitalization of Policy Acquisition 
Expenses.--Subparagraph (B) of section 848(e)(1) (defining 
specified insurance contract) is amended by striking ``and'' at 
the end of clause (ii), by striking the period at the end of 
clause (iii) and inserting ``, and'', and by adding at the end 
the following new clause:
                            ``(iv) any contract which is a 
                        medical savings account (as defined in 
                        section 222(d)).''.
    (j) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the last 
item and inserting the following:

        ``Sec. 222. Medical savings accounts.
        ``Sec. 223. Cross reference.''

    (k) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

  CHAPTER 3--INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
                          EMPLOYED INDIVIDUALS

SEC. 11068. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
                    EMPLOYED INDIVIDUALS.

    (a) In General.--Paragraph (1) of section 162(l) is amended 
to read as follows:
            ``(1) Allowance of deduction.--
                    ``(A) In general.--In the case of an 
                individual who is an employee within the 
                meaning of section 401(c)(1), there shall be 
                allowed as a deduction under this section an 
                amount equal to the applicable percentage of 
                the amount paid during the taxable year for 
                insurance which constitutes medical care for 
                the taxpayer, his spouse, and dependents.
                    ``(B) Applicable percentage.--For purposes 
                of subparagraph (A), the applicable percentage 
                shall be determined under the following table:

                                                          The applicable
``For taxable years beginning in calendar year--         percentage is--
    1996 or 1997..............................................       30 
    1998 or 1999..............................................       35 
    2000 or 2001..............................................       40 
    2002 or thereafter........................................     50.''

    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1995.

                 Subtitle D--Estate and Gift Provisions

SEC. 11071. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND GIFT TAX 
                    PROVISIONS.

    (a) Increase in Unified Estate and Gift Tax Credit.--
            (1) Estate tax credit.--
                    (A) Subsection (a) of section 2010 
                (relating to unified credit against estate tax) 
                is amended by striking ``$192,800'' and 
                inserting ``the applicable credit amount''.
                    (B) Section 2010 is amended by 
                redesignating subsection (c) as subsection (d) 
                and by inserting after subsection (b) the 
                following new subsection:
    ``(c) Applicable Credit Amount.--For purposes of this 
section--
            ``(1) In general.--The applicable credit amount is 
        the amount of the tentative tax which would be 
        determined under the rate schedule set forth in section 
        2001(c) if the amount with respect to which such 
        tentative tax is to be computed were the applicable 
        exclusion amount determined in accordance with the 
        following table:

``In the case of estates of decedents           The applicable exclusion
dying, and gifts made, during:                                amount is:
          1996..........................................       $625,000 
          1997..........................................       $650,000 
          1998..........................................       $675,000 
          1999..........................................       $700,000 
          2000..........................................       $725,000 
          2001 or thereafter............................       $750,000.

        10    ``(2) Cost-of-living adjustments.--In the case of 
        any decedent dying, and gift made, in a calendar year 
        after 2001, the $750,000 amount set forth in paragraph 
        (1) shall be increased by an amount equal to--
                    ``(A) $750,000, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                2000' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any amount as adjusted under the preceding sentence 
        is not a multiple of $10,000, such amount shall be 
        rounded to the nearest multiple of $10,000.''
                    (C) Paragraph (1) of section 6018(a) is 
                amended by striking ``$600,000'' and inserting 
                ``the applicable exclusion amount in effect 
                under section 2010(c) (as adjusted under 
                paragraph (2) thereof) for the calendar year 
                which includes the date of death''.
                    (D) Paragraph (2) of section 2001(c) is 
                amended by striking ``$21,040,000'' and 
                inserting ``the amount at which the average tax 
                rate under this section is 55 percent''.
                    (E) Subparagraph (A) of section 2102(c)(3) 
                is amended by striking ``$192,800'' and 
                inserting ``the applicable credit amount in 
                effect under section 2010(c) for the calendar 
                year which includes the date of death''.
            (2) Unified gift tax credit.--Paragraph (1) of 
        section 2505(a) is amended by striking ``$192,800'' and 
        inserting ``the applicable credit amount in effect 
        under section 2010(c) for such calendar year''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to the estates of decedents 
        dying, and gifts made, after December 31, 1995.
    (b) Alternate Valuation of Certain Farm, Etc., Real 
Property.--Subsection (a) of section 2032A is amended by adding 
at the end the following new paragraph:
            ``(3) Inflation adjustment.--In the case of estates 
        of decedents dying in a calendar year after 2000, the 
        $750,000 amount contained in paragraph (2) shall be 
        increased by an amount equal to--
                    ``(A) $750,000, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                1999' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any amount as adjusted under the preceding sentence 
        is not a multiple of $10,000, such amount shall be 
        rounded to the nearest multiple of $10,000.''
    (c) Annual Gift Tax Exclusion.--Subsection (b) of section 
2503 is amended--
            (1) by striking the subsection heading and 
        inserting the following:
    ``(b) Exclusions From Gifts.--
            ``(1) In general.--'',
            (2) by moving the text 2 ems to the right, and
            (3) by adding at the end the following new 
        paragraph:
            ``(2) Inflation adjustment.--In the case of gifts 
        made in a calendar year after 2000, the $10,000 amount 
        contained in paragraph (1) shall be increased by an 
        amount equal to--
                    ``(A) $10,000, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                1999' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any amount as adjusted under the preceding sentence 
        is not a multiple of $1,000, such amount shall be 
        rounded to the nearest multiple of $1,000.''
    (d) Exemption From Generation-Skipping Tax.--Section 2631 
(relating to GST exemption) is amended by adding at the end the 
following new subsection:
    ``(c) Inflation Adjustment.--In the case of an individual 
who dies in any calendar year after 2000, the $1,000,000 amount 
contained in subsection (a) shall be increased by an amount 
equal to--
            ``(1) $1,000,000, multiplied by
            ``(2) the cost-of-living adjustment determined 
        under section 1(f)(3) for such calendar year by 
        substituting `calendar year 1999' for `calendar year 
        1992' in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a 
multiple of $10,000, such amount shall be rounded to the 
nearest multiple of $10,000.''
    (e) Amount of Tax Eligible For 4 Percent Interest Rate on 
Extension of Time for Payment of Estate Tax on Closely Held 
Business.--
            (1) Subparagraph (A) of section 6601(j)(2) is 
        amended by striking ``$345,800'' and inserting ``the 
        applicable limitation amount''.
            (2) Subsection (j) of section 6601 is amended by 
        redesignating paragraph (3) as paragraph (4) and by 
        inserting after paragraph (2) the following new 
        paragraph:
            ``(3) Applicable limitation amount.--
                    ``(A) In general.--For purposes of 
                paragraph (2), the applicable limitation amount 
                is the amount of the tentative tax which would 
                be determined under the rate schedule set forth 
                in section 2001(c) if the amount with respect 
                to which such tentative tax is to be computed 
                were $1,000,000.
                    ``(B) Inflation adjustment.--In the case of 
                estates of decedents dying in a calendar year 
                after 2000, the $1,000,000 amount contained in 
                subparagraph (A) shall be increased by an 
                amount equal to--
                            ``(i) $1,000,000, multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under section 
                        1(f)(3) for such calendar year by 
                        substituting `calendar year 1999' for 
                        `calendar year 1992' in subparagraph 
                        (B) thereof.
                If any amount as adjusted under the preceding 
                sentence is not a multiple of $10,000, such 
                amount shall be rounded to the nearest multiple 
                of $10,000.''

SEC. 11072. FAMILY-OWNED BUSINESS EXCLUSION.

    (a) In General.--Part III of subchapter A of chapter 11 
(relating to gross estate) is amended by inserting after 
section 2033 the following new section:

``SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.

    ``(a) In General.--In the case of an estate of a decedent 
to which this section applies, the value of the gross estate 
shall not include the lesser of--
            ``(1) the adjusted value of the qualified family-
        owned business interests of the decedent otherwise 
        includible in the estate, or
            ``(2) the sum of--
                    ``(A) $1,000,000, plus
                    ``(B) 50 percent of the excess (if any) of 
                the adjusted value of such interests over 
                $1,000,000, but not over $2,500,000.
    ``(b) Estates to Which Section Applies.--
            ``(1) In general.--This section shall apply to an 
        estate if--
                    ``(A) the decedent was (at the date of the 
                decedent's death) a citizen or resident of the 
                United States,
                    ``(B) the sum of--
                            ``(i) the adjusted value of the 
                        qualified family-owned business 
                        interests described in paragraph (2), 
                        plus
                            ``(ii) the amount of the gifts of 
                        such interests determined under 
                        paragraph (3),
                exceeds 50 percent of the adjusted gross 
                estate, and
                    ``(C) during the 8-year period ending on 
                the date of the decedent's death there have 
                been periods aggregating 5 years or more during 
                which--
                            ``(i) such interests were owned by 
                        the decedent or a member of the 
                        decedent's family, and
                            ``(ii) there was material 
                        participation (within the meaning of 
                        section 2032A(e)(6)) by the decedent or 
                        a member of the decedent's family in 
                        the operation of the business to which 
                        such interests relate.
            ``(2) Includible qualified family-owned business 
        interests.--The qualified family-owned business 
        interests described in this paragraph are the interests 
        which--
                    ``(A) are included in determining the value 
                of the gross estate (without regard to this 
                section), and
                    ``(B) are acquired by any qualified heir 
                from, or passed to any qualified heir from, the 
                decedent (within the meaning of section 
                2032A(e)(9)).
            ``(3) Includible gifts of interests.--The amount of 
        the gifts of qualified family-owned business interests 
        determined under this paragraph is the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of such gifts from 
                        the decedent to members of the 
                        decedent's family taken into account 
                        under subsection 2001(b)(1)(B), plus
                            ``(ii) the amount of such gifts 
                        otherwise excluded under section 
                        2503(b),
                to the extent such interests are continuously 
                held by members of such family (other than the 
                decedent's spouse) between the date of the gift 
                and the date of the decedent's death, over
                    ``(B) the amount of such gifts from the 
                decedent to members of the decedent's family 
                otherwise included in the gross estate.
    ``(c) Adjusted Gross Estate.--For purposes of this section, 
the term `adjusted gross estate' means the value of the gross 
estate (determined without regard to this section)--
            ``(1) reduced by any amount deductible under 
        paragraph (3) or (4) of section 2053(a), and
            ``(2) increased by the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of gifts 
                        determined under subsection (b)(3), 
                        plus
                            ``(ii) the amount (if more than de 
                        minimis) of other transfers from the 
                        decedent to the decedent's spouse (at 
                        the time of the transfer) within 10 
                        years of the date of the decedent's 
                        death, plus
                            ``(iii) the amount of other gifts 
                        (not included under clause (i) or (ii)) 
                        from the decedent within 3 years of 
                        such date, other than gifts to members 
                        of the decedent's family otherwise 
                        excluded under section 2503(b), over
                    ``(B) the sum of the amounts described in 
                clauses (i), (ii), and (iii) of subparagraph 
                (A) which are otherwise includible in the gross 
                estate.
For purposes of the preceding sentence, the Secretary may 
provide that de minimis gifts to persons other than members of 
the decedent's family shall not be taken into account.
    ``(d) Adjusted Value of the Qualified Family-Owned Business 
Interests.--For purposes of this section, the adjusted value of 
any qualified family-owned business interest is the value of 
such interest for purposes of this chapter (determined without 
regard to this section), reduced by the excess of--
            ``(1) any amount deductible under paragraph (3) or 
        (4) of section 2053(a), over
            ``(2) the sum of--
                    ``(A) any indebtedness on any qualified 
                residence of the decedent the interest on which 
                is deductible under section 163(h)(3), plus
                    ``(B) any indebtedness to the extent the 
                taxpayer establishes that the proceeds of such 
                indebtedness were used for the payment of 
                educational and medical expenses of the 
                decedent, the decedent's spouse, or the 
                decedent's dependents (within the meaning of 
                section 152), plus
                    ``(C) any indebtedness not described in 
                clause (i) or (ii), to the extent such 
                indebtedness does not exceed $10,000.
    ``(e) Qualified Family-Owned Business Interest.--
            ``(1) In general.--For purposes of this section, 
        the term `qualified family-owned business interest' 
        means--
                    ``(A) an interest as a proprietor in a 
                trade or business carried on as a 
                proprietorship, or
                    ``(B) an interest in an entity carrying on 
                a trade or business, if--
                            ``(i) at least--
                                    ``(I) 50 percent of such 
                                entity is owned (directly or 
                                indirectly) by the decedent and 
                                members of the decedent's 
                                family,
                                    ``(II) 70 percent of such 
                                entity is so owned by members 
                                of 2 families, or
                                    ``(III) 90 percent of such 
                                entity is so owned by members 
                                of 3 families, and
                            ``(ii) for purposes of subclause 
                        (II) or (III) of clause (i), at least 
                        30 percent of such entity is so owned 
                        by the decedent and members of the 
                        decedent's family.
            ``(2) Limitation.--Such term shall not include--
                    ``(A) any interest in a trade or business 
                the principal place of business of which is not 
                located in the United States,
                    ``(B) any interest in an entity, if the 
                stock or debt of such entity or a controlled 
                group (as defined in section 267(f)(1)) of 
                which such entity was a member was readily 
                tradable on an established securities market or 
                secondary market (as defined by the Secretary) 
                at any time within 3 years of the date of the 
                decedent's death,
                    ``(C) any interest in a trade or business 
                not described in section 542(c)(2), if more 
                than 35 percent of the adjusted ordinary gross 
                income of such trade or business for the 
                taxable year which includes the date of the 
                decedent's death would qualify as personal 
                holding company income (as defined in section 
                543(a)),
                    ``(D) that portion of an interest in a 
                trade or business that is attributable to--
                            ``(i) cash or marketable 
                        securities, or both, in excess of the 
                        reasonably expected day-to-day working 
                        capital needs of such trade or 
                        business, and
                            ``(ii) any other assets of the 
                        trade or business (other than assets 
                        used in the active conduct of a trade 
                        or business described in section 
                        542(c)(2)), the income of which is 
                        described in section 543(a) or in 
                        subparagraph (B), (C), (D), or (E) of 
                        section 954(c)(1) (determined by 
                        substituting `trade or business' for 
                        `controlled foreign corporation').
            ``(3) Rules regarding ownership.--
                    ``(A) Ownership of entities.--For purposes 
                of paragraph (1)(B)--
                            ``(i) Corporations.--Ownership of a 
                        corporation shall be determined by the 
                        holding of stock possessing the 
                        appropriate percentage of the total 
                        combined voting power of all classes of 
                        stock entitled to vote and the 
                        appropriate percentage of the total 
                        value of shares of all classes of 
                        stock.
                            ``(ii) Partnerships.--Ownership of 
                        a partnership shall be determined by 
                        the owning of the appropriate 
                        percentage of the capital interest in 
                        such partnership.
                    ``(B) Ownership of tiered entities.--For 
                purposes of this section, if by reason of 
                holding an interest in a trade or business, a 
                decedent, any member of the decedent's family, 
                any qualified heir, or any member of any 
                qualified heir's family is treated as holding 
                an interest in any other trade or business--
                            ``(i) such ownership interest in 
                        the other trade or business shall be 
                        disregarded in determining if the 
                        ownership interest in the first trade 
                        or business is a qualified family-owned 
                        business interest, and
                            ``(ii) this section shall be 
                        applied separately in determining if 
                        such interest in any other trade or 
                        business is a qualified family-owned 
                        business interest.
                    ``(C) Individual ownership rules.--For 
                purposes of this section, an interest owned, 
                directly or indirectly, by or for an entity 
                described in paragraph (1)(B) shall be 
                considered as being owned proportionately by or 
                for the entity's shareholders, partners, or 
                beneficiaries. A person shall be treated as a 
                beneficiary of any trust only if such person 
                has a present interest in such trust.
    ``(f) Tax Treatment of Failure To Materially Participate in 
Business or Dispositions of Interests.--
            ``(1) In general.--There is imposed an additional 
        estate tax if, within 10 years after the date of the 
        decedent's death and before the date of the qualified 
        heir's death--
                    ``(A) the material participation 
                requirements described in section 
                2032A(c)(6)(B) are not met with respect to the 
                qualified family-owned business interest which 
                was acquired (or passed) from the decedent,
                    ``(B) the qualified heir disposes of any 
                portion of a qualified family-owned business 
                interest (other than by a disposition to a 
                member of the qualified heir's family or 
                through a qualified conservation contribution 
                under section 170(h)),
                    ``(C) the qualified heir loses United 
                States citizenship (within the meaning of 
                section 877) or with respect to whom an event 
                described in subparagraph (A) or (B) of section 
                877(e)(1) occurs, and such heir does not comply 
                with the requirements of subsection (g), or
                    ``(D) the principal place of business of a 
                trade or business of the qualified family-owned 
                business interest ceases to be located in the 
                United States.
            ``(2) Additional estate tax.--
                    ``(A) In general.--The amount of the 
                additional estate tax imposed by paragraph (1) 
                shall be equal to--
                            ``(i) the applicable percentage of 
                        the adjusted tax difference 
                        attributable to the qualified family-
                        owned business interest (as determined 
                        under rules similar to the rules of 
                        section 2032A(c)(2)(B)), plus
                            ``(ii) interest on the amount 
                        determined under clause (i) at the 
                        underpayment rate established under 
                        section 6621 for the period beginning 
                        on the date the estate tax liability 
                        was due under this chapter and ending 
                        on the date such additional estate tax 
                        is due.
                    ``(B) Applicable percentage.--For purposes 
                of this paragraph, the applicable percentage 
                shall be determined under the following table:

``If the event described in paragraph                                   
  (1) occurs in the following year of                     The applicable
  material participation:                                 percentage is:
    1 through 6...............................................      100 
    7.........................................................       80 
    8.........................................................       60 
    9.........................................................       40 
    10........................................................       20.

    ``(g) Security Requirements for Noncitizen Qualified 
Heirs.--
            ``(1) In general.--Except upon the application of 
        subparagraph (F) or (M) of subsection (h)(3), if a 
        qualified heir is not a citizen of the United States, 
        any interest under this section passing to or acquired 
        by such heir (including any interest held by such heir 
        at a time described in subsection (f)(1)(C)) shall be 
        treated as a qualified family-owned business interest 
        only if the interest passes or is acquired (or is held) 
        in a qualified trust.
            ``(2) Qualified trust.--The term `qualified trust' 
        means a trust--
                    ``(A) which is organized under, and 
                governed by, the laws of the United States or a 
                State, and
                    ``(B) except as otherwise provided in 
                regulations, with respect to which the trust 
                instrument requires that at least 1 trustee of 
                the trust be an individual citizen of the 
                United States or a domestic corporation.
    ``(h) Other Definitions and Applicable Rules.--For purposes 
of this section--
            ``(1) Qualified heir.--The term `qualified heir'--
                    ``(A) has the meaning given to such term by 
                section 2032A(e)(1), and
                    ``(B) includes any active employee of the 
                trade or business to which the qualified 
                family-owned business interest relates if such 
                employee has been employed by such trade or 
                business for a period of at least 10 years 
                before the date of the decedent's death.
            ``(2) Member of the family.--The term `member of 
        the family' has the meaning given to such term by 
        section 2032A(e)(2).
            ``(3) Applicable rules.--Rules similar to the 
        following rules shall apply:
                    ``(A) Section 2032A(b)(4) (relating to 
                decedents who are retired or disabled).
                    ``(B) Section 2032A(b)(5) (relating to 
                special rules for surviving spouses).
                    ``(C) Section 2032A(c)(2)(D) (relating to 
                partial dispositions).
                    ``(D) Section 2032A(c)(3) (relating to only 
                1 additional tax imposed with respect to any 1 
                portion).
                    ``(E) Section 2032A(c)(4) (relating to due 
                date).
                    ``(F) Section 2032A(c)(5) (relating to 
                liability for tax; furnishing of bond).
                    ``(G) Section 2032A(c)(7) (relating to no 
                tax if use begins within 2 years; active 
                management by eligible qualified heir treated 
                as material participation).
                    ``(H) Section 2032A(e)(10) (relating to 
                community property).
                    ``(I) Section 2032A(e)(14) (relating to 
                treatment of replacement property acquired in 
                section 1031 or 1033 transactions).
                    ``(J) Section 2032A(f) (relating to statute 
                of limitations).
                    ``(K) Section 6166(b)(3) (relating to 
                farmhouses and certain other structures taken 
                into account).
                    ``(L) Subparagraphs (B), (C), and (D) of 
                section 6166(g)(1) (relating to acceleration of 
                payment).
                    ``(M) Section 6324B (relating to special 
                lien for additional estate tax).
            ``(4) Coordination with other estate tax 
        benefits.--If there is a reduction in the value of the 
        gross estate under this section--
                    ``(A) the dollar limitation applicable 
                under section 2032A(a)(2), and
                    ``(B) the $1,000,000 amount under section 
                6601(j)(3) (as adjusted),
        shall each be reduced (but not below zero) by the 
        amount of such reduction.''.
    (b) Clerical Amendment.--The table of sections for part III 
of subchapter A of chapter 11 is amended by inserting after the 
item relating to section 2033 the following new item:

        ``Sec. 2033A. Family-owned business exclusion.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying after December 31, 
1995.

SEC. 11073. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVATION 
                    EASEMENT.

    (a) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--Section 2031 (relating to the 
definition of gross estate) is amended by redesignating 
subsection (c) as subsection (d) and by inserting after 
subsection (b) the following new subsection:
    ``(c) Estate Tax With Respect to Land Subject to a 
Qualified Conservation Easement.--
            ``(1) In general.--If the executor makes the 
        election described in paragraph (4), then, except as 
        otherwise provided in this subsection, there shall be 
        excluded from the gross estate the applicable 
        percentage of the lesser of--
                    ``(A) the value of land subject to a 
                qualified conservation easement, reduced by the 
                amount of any deduction under section 2055(f) 
                with respect to such land, or
                    ``(B) the excess (if any) of $5,000,000 
                over the lesser of--
                            ``(i) $2,500,000, or
                            ``(ii) the adjusted value of the 
                        qualified family-owned business 
                        interests of the decedent determined 
                        under section 2033A.
            ``(2) Applicable percentage.--For purposes of 
        paragraph (1), the term `applicable percentage' means 
        40 percent reduced (but not below zero) by 2 percentage 
        points for each percentage point (or fraction thereof) 
        by which the value of the qualified conservation 
        easement is less than 30 percent of the value of the 
        land (determined without regard to the value of such 
        easement and reduced by the value of any retained 
        development right (as defined in paragraph (4)).
            ``(3) Treatment of certain indebtedness.--
                    ``(A) In general.--The exclusion provided 
                in paragraph (1) shall not apply to the extent 
                that the land is debt-financed property.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Debt-financed property.--The 
                        term `debt-financed property' means any 
                        property with respect to which there is 
                        an acquisition indebtedness (as defined 
                        in clause (ii)) on the date of the 
                        decedent's death.
                            ``(ii) Acquisition indebtedness.--
                        The term `acquisition indebtedness' 
                        means, with respect to debt-financed 
                        property, the unpaid amount of--
                                    ``(I) the indebtedness 
                                incurred by the donor in 
                                acquiring such property,
                                    ``(II) the indebtedness 
                                incurred before the acquisition 
                                of such property if such 
                                indebtedness would not have 
                                been incurred but for such 
                                acquisition,
                                    ``(III) the indebtedness 
                                incurred after the acquisition 
                                of such property if such 
                                indebtedness would not have 
                                been incurred but for such 
                                acquisition and the incurrence 
                                of such indebtedness was 
                                reasonably foreseeable at the 
                                time of such acquisition, and
                                    ``(IV) the extension, 
                                renewal, or refinancing of an 
                                acquisition indebtedness.
            ``(4) Treatment of retained development right.--
                    ``(A) In general.--Paragraph (1) shall not 
                apply to the value of any development right 
                retained by the donor in the conveyance of a 
                qualified conservation easement.
                    ``(B) Termination of retained development 
                right.--If every person in being who has an 
                interest (whether or not in possession) in the 
                land executes an agreement to extinguish 
                permanently some or all of any development 
                rights (as defined in subparagraph (D)) 
                retained by the donor on or before the date for 
                filing the return of the tax imposed by section 
                2001, then any tax imposed by section 2001 
                shall be reduced accordingly. Such agreement 
                shall be filed with the return of the tax 
                imposed by section 2001. The agreement shall be 
                in such form as the Secretary shall prescribe.
                    ``(C) Additional tax.--Any failure to 
                implement the agreement described in 
                subparagraph (B) not later than the earlier 
                of--
                            ``(i) the date which is 2 years 
                        after the date of the decedent's death, 
                        or
                            ``(ii) the date of the sale of such 
                        land subject to the qualified 
                        conservation easement,
                shall result in the imposition of an additional 
                tax in the amount of the tax which would have 
                been due on the retained development rights 
                subject to such agreement. Such additional tax 
                shall be due and payable on the last day of the 
                6th month following such date.
                    ``(D) Development right defined.--For 
                purposes of this paragraph, the term 
                `development right' means any right to use the 
                land subject to the qualified conservation 
                easement in which such right is retained for 
                any commercial purpose which is not subordinate 
                to and directly supportive of the use of such 
                land as a farm for farming purposes (within the 
                meaning of section 6420(c)).
            ``(4) Election.--The election under this subsection 
        shall be made on the return of the tax imposed by 
        section 2001. Such an election, once made, shall be 
        irrevocable.
            ``(5) Calculation of estate tax due.--An executor 
        making the election described in paragraph (4) shall, 
        for purposes of calculating the amount of tax imposed 
        by section 2001, include the value of any development 
        right (as defined in paragraph (3)) retained by the 
        donor in the conveyance of such qualified conservation 
        easement. The computation of tax on any retained 
        development right prescribed in this paragraph shall be 
        done in such manner and on such forms as the Secretary 
        shall prescribe.
            ``(6) Definitions.--For purposes of this 
        subsection--
                    ``(A) Land subject to a qualified 
                conservation easement.--The term `land subject 
                to a qualified conservation easement' means 
                land--
                            ``(i) which is located--
                                    ``(I) in or within 25 miles 
                                of an area which, on the date 
                                of the decedent's death, is a 
                                metropolitan area (as defined 
                                by the Office of Management and 
                                Budget),
                                    ``(II) in or within 25 
                                miles of an area which, on the 
                                date of the decedent's death, 
                                is a national park or 
                                wilderness area designated as 
                                part of the National Wilderness 
                                Preservation System (unless it 
                                is determined by the Secretary 
                                that land in or within 25 miles 
                                of such a park or wilderness 
                                area is not under significant 
                                development pressure), or
                                    ``(III) in or within 10 
                                miles of an area which, on the 
                                date of the decedent's death, 
                                is an Urban National Forest (as 
                                designated by the Forest 
                                Service),
                            ``(ii) which was owned by the 
                        decedent or a member of the decedent's 
                        family at all times during the 3-year 
                        period ending on the date of the 
                        decedent's death, and
                            ``(iii) with respect to which a 
                        qualified conservation easement has 
                        been made by the decedent or a member 
                        of the decedent's family.
                    ``(B) Qualified conservation easement.--The 
                term `qualified conservation easement' means a 
                qualified conservation contribution (as defined 
                in section 170(h)(1)) of a qualified real 
                property interest (as defined in section 
                170(h)(2)(C)), except that clause (iv) of 
                section 170(h)(4)(A) shall not apply, and the 
                restriction on the use of such interest 
                described in section 170(h)(2)(C) shall include 
                a prohibition on commercial recreational 
                activity.
                    ``(C) Member of family.--The term `member 
                of the decedent's family' means any member of 
                the family (as defined in section 2032A(e)(2)) 
                of the decedent.
            ``(7) Application of this section to interests in 
        partnerships, corporations, and trusts.--This section 
        shall apply to an interest in a partnership, 
        corporation, or trust if at least 30 percent of the 
        entity is owned (directly or indirectly) by the 
        decedent, as determined under the rules described in 
        section 2033A(e)(3).''.
    (b) Carryover Basis.--Section 1014(a) (relating to basis of 
property acquired from a decedent) is amended by striking the 
period at the end of paragraph (3) and inserting ``, or'' and 
by adding after paragraph (3) the following new paragraph:
            ``(4) to the extent of the applicability of the 
        exclusion described in section 2031(c), the basis in 
        the hands of the decedent.''.
    (c) Qualified Conservation Contribution Is Not a 
Disposition.--Subsection (c) of section 2032A (relating to 
alternative valuation method) is amended by adding at the end 
the following new paragraph:
            ``(8) Qualified conservation contribution is not a 
        disposition.--A qualified conservation contribution (as 
        defined in section 170(h)) by gift or otherwise shall 
        not be deemed a disposition under subsection 
        (c)(1)(A).''.
    (d) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying after December 31, 
1995.

SEC. 11074. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING TRANSFER 
                    TAX FOR TRANSFERS TO INDIVIDUALS WITH DECEASED 
                    PARENTS.

    (a) In General.--Section 2651 (relating to generation 
assignment) is amended by redesignating subsection (e) as 
subsection (f), and by inserting after subsection (d) the 
following new subsection:
    ``(e) Special Rule for Persons With a Deceased Parent.--
            ``(1) In general.--For purposes of determining 
        whether any transfer is a generation-skipping transfer, 
        if--
                    ``(A) an individual is a descendant of a 
                parent of the transferor (or the transferor's 
                spouse or former spouse), and
                    ``(B) such individual's parent who is a 
                lineal descendant of the parent of the 
                transferor (or the transferor's spouse or 
                former spouse) is dead at the time the transfer 
                (from which an interest of such individual is 
                established or derived) is subject to a tax 
                imposed by chapter 11 or 12 upon the transferor 
                (and if there shall be more than 1 such time, 
                then at the earliest such time),
        such individual shall be treated as if such individual 
        were a member of the generation which is 1 generation 
        below the lower of the transferor's generation or the 
        generation assignment of the youngest living ancestor 
        of such individual who is also a descendant of the 
        parent of the transferor (or the transferor's spouse or 
        former spouse), and the generation assignment of any 
        descendant of such individual shall be adjusted 
        accordingly.
            ``(2) Limited application of subsection to 
        collateral heirs.--This subsection shall not apply with 
        respect to a transfer to any individual who is not a 
        lineal descendant of the transferor (or the 
        transferor's spouse or former spouse) if, at the time 
        of the transfer, such transferor has any living lineal 
        descendant.''
    (b) Conforming Amendments.--
            (1) Section 2612(c) (defining direct skip) is 
        amended by striking paragraph (2) and by redesignating 
        paragraph (3) as paragraph (2).
            (2) Section 2612(c)(2) (as so redesignated) is 
        amended by striking ``section 2651(e)(2)'' and 
        inserting ``section 2651(f)(2)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to terminations, distributions, and transfers 
occurring after December 31, 1994.

SEC. 11075. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER SECTION 2032A 
                    TO LINEAL DESCENDANTS.

    (a) General Rule.--Paragraph (7) of section 2032A(c) 
(relating to special rules for tax treatment of dispositions 
and failures to use for qualified use) is amended by adding at 
the end the following new subparagraph:
                    ``(E) Certain rents treated as qualified 
                use.--For purposes of this subsection, a 
                surviving spouse or lineal descendant of the 
                decedent shall not be treated as failing to use 
                qualified real property in a qualified use 
                solely because such spouse or descendant rents 
                such property to a member of the family of such 
                spouse or descendant on a net cash basis. For 
                purposes of the preceding sentence, a legally 
                adopted child of an individual shall be treated 
                as the child of such individual by blood.''.
    (b) Conforming Amendment.--Section 2032A(b)(5)(A) is 
amended by striking out the last sentence.
    (c) Effective Date.--The amendments made by this section 
shall apply with respect to leases entered into after December 
31, 1995.

              Subtitle E--Extension of Expiring Provisions

                    CHAPTER 1--TEMPORARY EXTENSIONS

SEC. 11111. WORK OPPORTUNITY TAX CREDIT.

    (a) Amount of Credit.--Subsection (a) of section 51 
(relating to amount of credit) is amended by striking ``40 
percent'' and inserting ``35 percent''.
    (b) Members of Targeted Groups.--Subsection (d) of section 
51 is amended to read as follows:
    ``(d) Members of Targeted Groups.--For purposes of this 
subpart--
            ``(1) In general.--An individual is a member of a 
        targeted group if such individual is--
                    ``(A) a qualified IV-A recipient,
                    ``(B) a qualified veteran,
                    ``(C) a qualified ex-felon,
                    ``(D) a high-risk youth,
                    ``(E) a vocational rehabilitation referral, 
                or
                    ``(F) a qualified summer youth employee.
            ``(2) Qualified IV-A recipient.--
                    ``(A) In general.--The term `qualified IV-A 
                recipient' means any individual who is 
                certified by the designated local agency as 
                being a member of a family receiving assistance 
                under a IV-A program for at least a 9-month 
                period ending during the 9-month period ending 
                on the hiring date.
                    ``(B) IV-A program.--For purposes of this 
                paragraph, the term `IV-A program' means any 
                program providing assistance under a State plan 
                approved under part A of title IV of the Social 
                Security Act (relating to assistance for needy 
                families with minor children) and any successor 
                of such program.
            ``(3) Qualified veteran.--
                    ``(A) In general.--The term `qualified 
                veteran' means any veteran who is certified by 
                the designated local agency as being--
                            ``(i) a member of a family 
                        receiving assistance under a IV-A 
                        program (as defined in paragraph 
                        (2)(B)) for at least a 9-month period 
                        ending during the 12-month period 
                        ending on the hiring date, or
                            ``(ii) a member of a family 
                        receiving assistance under a food stamp 
                        program under the Food Stamp Act of 
                        1977 for at least a 3-month period 
                        ending during the 12-month period 
                        ending on the hiring date.
                    ``(B) Veteran.--For purposes of 
                subparagraph (A), the term `veteran' means any 
                individual who is certified by the designated 
                local agency as--
                            ``(i)(I) having served on active 
                        duty (other than active duty for 
                        training) in the Armed Forces of the 
                        United States for a period of more than 
                        180 days, or
                            ``(II) having been discharged or 
                        released from active duty in the Armed 
                        Forces of the United States for a 
                        service-connected disability, and
                            ``(ii) not having any day during 
                        the 60-day period ending on the hiring 
                        date which was a day of extended active 
                        duty in the Armed Forces of the United 
                        States.
                For purposes of clause (ii), the term `extended 
                active duty' means a period of more than 90 
                days during which the individual was on active 
                duty (other than active duty for training).
            ``(4) Qualified ex-felon.--The term `qualified ex-
        felon' means any individual who is certified by the 
        designated local agency--
                    ``(A) as having been convicted of a felony 
                under any statute of the United States or any 
                State,
                    ``(B) as having a hiring date which is not 
                more than 1 year after the last date on which 
                such individual was so convicted or was 
                released from prison, and
                    ``(C) as being a member of a family which 
                had an income during the 6 months immediately 
                preceding the earlier of the month in which 
                such income determination occurs or the month 
                in which the hiring date occurs, which, on an 
                annual basis, would be 70 percent or less of 
                the Bureau of Labor Statistics lower living 
                standard.
        Any determination under subparagraph (C) shall be valid 
        for the 45-day period beginning on the date such 
        determination is made.
            ``(5) High-risk youth.--
                    ``(A) In general.--The term `high-risk 
                youth' means any individual who is certified by 
                the designated local agency--
                            ``(i) as having attained age 18 but 
                        not age 25 on the hiring date, and
                            ``(ii) as having his principal 
                        place of abode within an empowerment 
                        zone or enterprise community.
                    ``(B) Youth must continue to reside in 
                zone.--In the case of a high-risk youth, the 
                term `qualified wages' shall not include wages 
                paid or incurred for services performed while 
                such youth's principal place of abode is 
                outside an empowerment zone or enterprise 
                community.
            ``(6) Vocational rehabilitation referral.--The term 
        `vocational rehabilitation referral' means any 
        individual who is certified by the designated local 
        agency as--
                    ``(A) having a physical or mental 
                disability which, for such individual, 
                constitutes or results in a substantial 
                handicap to employment, and
                    ``(B) having been referred to the employer 
                upon completion of (or while receiving) 
                rehabilitative services pursuant to--
                            ``(i) an individualized written 
                        rehabilitation plan under a State plan 
                        for vocational rehabilitation services 
                        approved under the Rehabilitation Act 
                        of 1973, or
                            ``(ii) a program of vocational 
                        rehabilitation carried out under 
                        chapter 31 of title 38, United States 
                        Code.
            ``(7) Qualified summer youth employee.--
                    ``(A) In general.--The term `qualified 
                summer youth employee' means any individual--
                            ``(i) who performs services for the 
                        employer between May 1 and September 
                        15,
                            ``(ii) who is certified by the 
                        designated local agency as having 
                        attained age 16 but not 18 on the 
                        hiring date (or if later, on May 1 of 
                        the calendar year involved),
                            ``(iii) who has not been an 
                        employee of the employer during any 
                        period prior to the 90-day period 
                        described in subparagraph (B)(i), and
                            ``(iv) who is certified by the 
                        designated local agency as having his 
                        principal place of abode within an 
                        empowerment zone or enterprise 
                        community.
                    ``(B) Special rules for determining amount 
                of credit.--For purposes of applying this 
                subpart to wages paid or incurred to any 
                qualified summer youth employee--
                            ``(i) subsection (b)(2) shall be 
                        applied by substituting `any 90-day 
                        period between May 1 and September 15' 
                        for `the 1-year period beginning with 
                        the day the individual begins work for 
                        the employer', and
                            ``(ii) subsection (b)(3) shall be 
                        applied by substituting `$3,000' for 
                        `$6,000'.
                The preceding sentence shall not apply to an 
                individual who, with respect to the same 
                employer, is certified as a member of another 
                targeted group after such individual has been a 
                qualified summer youth employee.
                    ``(C) Youth must continue to reside in 
                zone.--Paragraph (5)(B) shall apply for 
                purposes of this paragraph.
            ``(8) Hiring date.--The term `hiring date' means 
        the day the individual is hired by the employer.
            ``(9) Designated local agency.--The term 
        `designated local agency' means a State employment 
        security agency established in accordance with the Act 
        of June 6, 1933, as amended (29 U.S.C. 49-49n).
            ``(10) Special rules for certifications.--
                    ``(A) In general.--An individual shall not 
                be treated as a member of a targeted group 
                unless--
                            ``(i) on or before the day on which 
                        such individual begins work for the 
                        employer, the employer has received a 
                        certification from a designated local 
                        agency that such individual is a member 
                        of a targeted group, or
                            ``(ii)(I) on or before the day the 
                        individual is offered employment with 
                        the employer, a pre-screening notice is 
                        completed by the employer with respect 
                        to such individual, and
                            ``(II) not later than the 14th day 
                        after the individual begins work for 
                        the employer, the employer submits such 
                        notice, signed by the employer and the 
                        individual under penalties of perjury, 
                        to the designated local agency as part 
                        of a written request for such a 
                        certification from such agency.
                For purposes of this paragraph, the term `pre-
                screening notice' means a document (in such 
                form as the Secretary shall prescribe) which 
                contains information provided by the individual 
                on the basis of which the employer believes 
                that the individual is a member of a targeted 
                group.
                    ``(B) Incorrect certifications.--If--
                            ``(i) an individual has been 
                        certified by a designated local agency 
                        as a member of a targeted group, and
                            ``(ii) such certification is 
                        incorrect because it was based on false 
                        information provided by such 
                        individual,
                the certification shall be revoked and wages 
                paid by the employer after the date on which 
                notice of revocation is received by the 
                employer shall not be treated as qualified 
                wages.
                    ``(C) Explanation of denial of request.--If 
                a designated local agency denies a request for 
                certification of membership in a targeted 
                group, such agency shall provide to the person 
                making such request a written explanation of 
                the reasons for such denial.''
    (c) Minimum Employment Period.--Paragraph (3) of section 
51(i) (relating to certain individuals ineligible) is amended 
to read as follows:
            ``(3) Individuals not meeting minimum employment 
        period.--No wages shall be taken into account under 
        subsection (a) with respect to any individual unless 
        such individual either--
                    ``(A) is employed by the employer at least 
                180 days (20 days in the case of a qualified 
                summer youth employee), or
                    ``(B) has completed at least 500 hours (120 
                hours in the case of a qualified summer youth 
                employee) of services performed for the 
                employer.''
    (d) Termination.--Paragraph (4) of section 51(c) (relating 
to wages defined) is amended to read as follows:
            ``(4) Termination.--The term `wages' shall not 
        include any amount paid or incurred to an individual 
        who begins work for the employer--
                    ``(A) after December 31, 1994, and before 
                January 1, 1996, or
                    ``(B) after December 31, 1996.''
    (e) Redesignation of Credit.--
            (1) Sections 38(b)(2) and 51(a) are each amended by 
        striking ``targeted jobs credit'' and inserting ``work 
        opportunity credit''.
            (2) The subpart heading for subpart F of part IV of 
        subchapter A of chapter 1 is amended by striking 
        ``Targeted Jobs Credit'' and inserting ``Work 
        Opportunity Credit''.
            (3) The table of subparts for such part IV is 
        amended by striking ``targeted jobs credit'' and 
        inserting ``work opportunity credit''.
            (4) The heading for paragraph (3) of section 
        1396(c) is amended by striking ``targeted jobs credit'' 
        and inserting ``work opportunity credit''.
    (f) Technical Amendments.--
            (1) Paragraph (1) of section 51(c) is amended by 
        striking ``, subsection (d)(8)(D),''.
            (2) Paragraph (3) of section 51(i) is amended by 
        striking ``(d)(12)'' each place it appears and 
        inserting ``(d)(6)''.
    (g) Effective Date.--The amendments made by this section 
shall apply to individuals who begin work for the employer 
after December 31, 1995.

SEC. 11112. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.

    (a) Extension.--Subsection (d) of section 127 (relating to 
educational assistance programs) is amended by striking 
``December 31, 1994'' and inserting ``December 31, 1996''.
    (b) Limitation to Education Below Graduate Level.--The last 
sentence of section 127(c)(1) is amended by inserting before 
the period ``or at the graduate level''.
    (c) Effective Dates.--
            (1) Extension.--The amendment made by subsection 
        (a) shall apply to taxable years beginning after 
        December 31, 1994.
            (2) Limitation.--The amendment made by subsection 
        (b) shall apply to taxable years beginning after 
        December 31, 1995.

SEC. 11113. RESEARCH CREDIT.

    (a) In General.--Subsection (h) of section 41 (relating to 
credit for research activities) is amended--
            (1) by striking ``June 30, 1995'' each place it 
        appears and inserting ``December 31, 1996'', and
            (2) by striking ``July 1, 1995'' each place it 
        appears and inserting ``January 1, 1997''.
    (b) Base Amount for Start-up Companies.--Clause (i) of 
section 41(c)(3)(B) (relating to start-up companies) is amended 
to read as follows:
                            ``(i)  Taxpayers to which 
                        subparagraph applies.--The fixed-base 
                        percentage shall be determined under 
                        this subparagraph if--
                                    ``(I) the first taxable 
                                year in which a taxpayer had 
                                both gross receipts and 
                                qualified research expenses 
                                begins after December 31, 1983, 
                                or
                                    ``(II) there are fewer than 
                                3 taxable years beginning after 
                                December 31, 1983, and before 
                                January 1, 1989, in which the 
                                taxpayer had both gross 
                                receipts and qualified research 
                                expenses.''.
    (c) Election of Alternative Incremental Credit.--Subsection 
(c) of section 41 is amended by redesignating paragraphs (4) 
and (5) as paragraphs (5) and (6), respectively, and by 
inserting after paragraph (3) the following new paragraph:
            ``(4) Election of alternative incremental credit.--
                    ``(A) In general.--At the election of the 
                taxpayer, the credit determined under 
                subsection (a)(1) shall be equal to the sum 
                of--
                            ``(i) 1.65 percent of so much of 
                        the qualified research expenses for the 
                        taxable year as exceeds 1 percent of 
                        the average described in subsection 
                        (c)(1)(B) but does not exceed 1.5 
                        percent of such average,
                            ``(ii) 2.2 percent of so much of 
                        such expenses as exceeds 1.5 percent of 
                        such average but does not exceed 2 
                        percent of such average, and
                            ``(iii) 2.75 percent of so much of 
                        such expenses as exceeds 2 percent of 
                        such average.
                    ``(B) Election.--An election under this 
                paragraph may be made only for the first 
                taxable year of the taxpayer beginning after 
                June 30, 1995. Such an election shall apply to 
                the taxable year for which made and all 
                succeeding taxable years unless revoked with 
                the consent of the Secretary.''
    (d) Increased Credit for Contract Research Expenses With 
Respect to Certain Research Consortia.--Paragraph (3) of 
section 41(b) is amended by adding at the end the following new 
subparagraph:
                    ``(C) Amounts paid to certain research 
                consortia.--
                            ``(i) In general.--Subparagraph (A) 
                        shall be applied by substituting `75 
                        percent' for `65 percent' with respect 
                        to amounts paid or incurred by the 
                        taxpayer to a qualified research 
                        consortium for qualified research.
                            ``(ii) Qualified research 
                        consortium.--The term `qualified 
                        research consortium' means any 
                        organization described in subsection 
                        (e)(6)(B) if--
                                    ``(I) at least 15 unrelated 
                                taxpayers paid (during the 
                                calendar year in which the 
                                taxable year of the taxpayer 
                                begins) amounts to such 
                                organization for qualified 
                                research,
                                    ``(II) no 3 persons paid 
                                during such calendar year more 
                                than 50 percent of the total 
                                amounts paid during such 
                                calendar year for qualified 
                                research, and
                                    ``(III) no person 
                                contributed more than 20 
                                percent of such total amounts.
                        For purposes of subclause (I), all 
                        persons treated as a single employer 
                        under subsection (a) or (b) of section 
                        52 shall be treated as related 
                        taxpayers.''
    (e)  Conforming amendment.--Subparagraph (D) of section 
28(b)(1) is amended by striking ``June 30, 1995'' and inserting 
``December 31, 1996''.
    (f) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years ending after June 30, 1995.
            (2) Subsections (c) and (d).--The amendments made 
        by subsections (c) and (d) shall apply to taxable years 
        beginning after June 30, 1995.

SEC. 11114. ORPHAN DRUG TAX CREDIT.

    (a) Recategorized as a Business Credit.--
            (1) In general.--Section 28 (relating to clinical 
        testing expenses for certain drugs for rare diseases or 
        conditions) is transferred to subpart D of part IV of 
        subchapter A of chapter 1, inserted after section 45B, 
        and redesignated as section 45C.
            (2) Conforming amendment.--Subsection (b) of 
        section 38 (relating to general business credit) is 
        amended by striking ``plus'' at the end of paragraph 
        (10), by striking the period at the end of paragraph 
        (11) and inserting ``, plus'', and by adding at the end 
        the following new paragraph:
            ``(12) the orphan drug credit determined under 
        section 45C(a).''.
            (3) Clerical amendments.--
                    (A) The table of sections for subpart B of 
                such part IV is amended by striking the item 
                relating to section 28.
                    (B) The table of sections for subpart D of 
                such part IV is amended by adding at the end 
                the following new item:

    ``Sec. 45C. Clinical testing expenses for certain drugs for rare 
              diseases or conditions.''.

    (b) Credit Termination.--Subsection (e) of section 45C, as 
redesignated by subsection (a)(1), is amended by striking 
``December 31, 1994'' and inserting ``December 31, 1996''.
    (c) No Pre-1995 Carrybacks.--Subsection (d) of section 39 
(relating to carryback and carryforward of unused credits) is 
amended by adding at the end the following new paragraph:
            ``(7) No carryback of section 45c credit before 
        1995.--No portion of the unused business credit for any 
        taxable year which is attributable to the orphan drug 
        credit determined under section 45C may be carried back 
        to a taxable year beginning before January 1, 1995.''.
    (d) Additional Conforming Amendments.--
            (1) Section 45C(a), as redesignated by subsection 
        (a)(1), is amended by striking ``There shall be allowed 
        as a credit against the tax imposed by this chapter for 
        the taxable year'' and inserting ``For purposes of 
        section 38, the credit determined under this section 
        for the taxable year is''.
            (2) Section 45C(d), as so redesignated, is amended 
        by striking paragraph (2) and by redesignating 
        paragraphs (3), (4), and (5) as paragraphs (2), (3), 
        and (4).
            (3) Section 29(b)(6)(A) is amended by striking 
        ``sections 27 and 28'' and inserting ``section 27''.
            (4) Section 30(b)(3)(A) is amended by striking 
        ``sections 27, 28, and 29'' and inserting ``sections 27 
        and 29''.
            (5) Section 53(d)(1)(B) is amended--
                    (A) by striking ``or not allowed under 
                section 28 solely by reason of the application 
                of section 28(d)(2)(B),'' in clause (iii), and
                    (B) by striking ``or not allowed under 
                section 28 solely by reason of the application 
                of section 28(d)(2)(B)'' in clause (iv)(II).
            (6) Section 55(c)(2) is amended by striking 
        ``28(d)(2),''.
            (7) Section 280C(b) is amended--
                    (A) by striking ``section 28(b)'' in 
                paragraph (1) and inserting ``section 45C(b)'',
                    (B) by striking ``section 28'' in 
                paragraphs (1) and (2)(A) and inserting 
                ``section 45C(b)'', and
                    (C) by striking ``subsection (d)(2) 
                thereof'' in paragraphs (1) and (2)(A) and 
                inserting ``section 38(c)''.
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after December 31, 1994.

SEC. 11115. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

    (a) In General.--Subparagraph (D) of section 170(e)(5) 
(relating to special rule for contributions of stock for which 
market quotations are readily available) is amended by striking 
``December 31, 1994'' and inserting ``December 31, 1996''.
    (b) Effective Date.--The amendment made by this section 
shall apply to contributions made after December 31, 1994.

SEC. 11116. DELAY OF TAX ON FUEL USED IN COMMERCIAL AVIATION.

    (a) In General.--Sections 4092(b)(2), 6421(f)(2)(B), and 
6427(l)(4)(B) are each amended by striking ``September 30, 
1995'' and inserting ``September 30, 1997''.
    (b) Conforming Amendment.--Section 13245 of the Omnibus 
Budget Reconciliation Act of 1993 is hereby repealed.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall take effect after September 30, 1995, but 
        shall not take effect if section 11117 does not take 
        effect.
            (2) Cross reference.--

          For refund of tax paid on commercial aviation fuel before the 
        date of the enactment of this Act, see section 6427(l) of the 
        Internal Revenue Code of 1986.

    (d) Floor Stocks Tax.--
            (1) Imposition of tax.--In the case of commercial 
        aviation fuel which is held by any person on October 1, 
        1997, there is hereby imposed a floor stocks tax equal 
        to 4.3 cents per gallon.
            (2) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding 
                aviation fuel on October 1, 1997, to which the 
                tax imposed by paragraph (1) applies shall be 
                liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as 
                the Secretary shall prescribe.
                    (C) Time for payment.--The tax imposed by 
                paragraph (1) shall be paid on or before April 
                30, 1998.
            (3) Definitions.--For purposes of this subsection--
                    (A) Held by a person.--Aviation fuel shall 
                be considered as ``held by a person'' if title 
                thereto has passed to such person (whether or 
                not delivery to the person has been made).
                    (B) Commercial aviation fuel.--The term 
                ``commercial aviation fuel'' means aviation 
                fuel (as defined in section 4093 of such Code) 
                which is held on October 1, 1997, for sale or 
                use in commercial aviation (as defined in 
                section 4092(b) of such Code).
                    (C) Secretary.--The term ``Secretary'' 
                means the Secretary of the Treasury or the 
                Secretary's delegate.
            (4) Exception for exempt uses.--The tax imposed by 
        paragraph (1) shall not apply to aviation fuel held by 
        any person exclusively for any use for which a credit 
        or refund of the entire tax imposed by section 4091 of 
        such Code (other than the rate imposed by section 
        4091(b)(2) of such Code) is allowable for aviation fuel 
        so used.
            (5) Exception for certain amounts of fuel.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on aviation fuel held on October 
                1, 1997, by any person if the aggregate amount 
                of commercial aviation fuel held by such person 
                on such date does not exceed 2,000 gallons. The 
                preceding sentence shall apply only if such 
                person submits to the Secretary (at the time 
                and in the manner required by the Secretary) 
                such information as the Secretary shall require 
                for purposes of this paragraph.
                    (B) Exempt fuel.--For purposes of 
                subparagraph (A), there shall not be taken into 
                account fuel held by any person which is exempt 
                from the tax imposed by paragraph (1) by reason 
                of paragraph (4).
                    (C) Controlled groups.--For purposes of 
                this paragraph--
                            (i) Corporations.--
                                    (I) In general.--All 
                                persons treated as a controlled 
                                group shall be treated as 1 
                                person.
                                    (II) Controlled group.--The 
                                term ``controlled group'' has 
                                the meaning given to such term 
                                by subsection (a) of section 
                                1563 of such Code; except that 
                                for such purposes the phrase 
                                ``more than 50 percent'' shall 
                                be substituted for the phrase 
                                ``at least 80 percent'' each 
                                place it appears in such 
                                subsection.
                            (ii) Nonincorporated persons under 
                        common control.--Under regulations 
                        prescribed by the Secretary, principles 
                        similar to the principles of clause (i) 
                        shall apply to a group of persons under 
                        common control where 1 or more of such 
                        persons is not a corporation.
            (6) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the 
        taxes imposed by section 4091 of such Code shall, 
        insofar as applicable and not inconsistent with the 
        provisions of this subsection, apply with respect to 
        the floor stock taxes imposed by paragraph (1) to the 
        same extent as if such taxes were imposed by such 
        section 4091.

SEC. 11117. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE TAXES.

    (a) Fuel Tax.--
            (1) Subparagraph (A) of section 4091(b)(3) is 
        amended by striking ``January 1, 1996'' and inserting 
        ``October 1, 1996''.
            (2) Paragraph (2) of section 4081(d), as amended by 
        section 11651 of this Act, is amended by striking 
        ``January 1, 1996'' and inserting ``October 1, 1996''.
    (b) Ticket Taxes.--Sections 4261(g) and 4271(d) are each 
amended by striking ``January 1, 1996'' and inserting ``October 
1, 1996''.
    (c) Transfer to Airport and Airway Trust Fund.--
            (1) Subsection (b) of section 9502 is amended by 
        striking ``January 1, 1996'' each place it appears and 
        inserting ``October 1, 1996''.
            (2) Paragraph (3) of section 9502(f) is amended by 
        striking ``December 31, 1995'' and inserting 
        ``September 30, 1996''.

SEC. 11118. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

    Subsection (c) of section 10511 of the Revenue Act of 1987 
is amended by striking ``October 1, 2000'' and by inserting 
``October 1, 2002''.

             CHAPTER 2--SUNSET OF LOW-INCOME HOUSING CREDIT

SEC. 11121. SUNSET OF LOW-INCOME HOUSING CREDIT.

    (a) Repeal of Reallocation of Unused Credits Among 
States.--Subparagraph (D) of section 42(h)(3) is amended by 
adding at the end the following new clause:
                            ``(v) Termination.--No amount may 
                        be allocated under this paragraph for 
                        any calendar year after 1995.''
    (b) Termination.--Section 42 is amended by adding at the 
end the following new subsection:
    ``(o) Termination.--
            ``(1) In general.--Except as provided in paragraph 
        (2)--
                    ``(A) clause (i) of subsection (h)(3)(C) 
                shall not apply to any amount allocated after 
                December 31, 1997, and
                    ``(B) subsection (h)(4) shall not apply to 
                any building placed in service after such date.
            ``(2) Exception for bond-financed buildings in 
        progress.--For purposes of paragraph (1)(B), a building 
        shall be treated as placed in service before January 1, 
        1998, if--
                    ``(A) the bonds with respect to such 
                building are issued before such date,
                    ``(B) the taxpayer's basis in the project 
                (of which the building is a part) as of 
                December 31, 1997, is more than 10 percent of 
                the taxpayer's reasonably expected basis in 
                such project as of December 31, 1999, and
                    ``(C) such building is placed in service 
                before January 1, 2000.''

    CHAPTER 3--EXTENSIONS OF SUPERFUND AND OIL SPILL LIABILITY TAXES

SEC. 11131. EXTENSION OF HAZARDOUS SUBSTANCE SUPERFUND TAXES.

    (a) Extension of Taxes.--
            (1) Environmental tax.--Section 59A(e) is amended 
        to read as follows:
    ``(e) Application of Tax.--The tax imposed by this section 
shall apply to taxable years beginning after December 31, 1986, 
and before January 1, 1997.''.
            (2) Excise taxes.--Section 4611(e) is amended to 
        read as follows:
    ``(e) Application of Hazardous Substance Superfund 
Financing Rate.--The Hazardous Substance Superfund financing 
rate under this section shall apply after December 31, 1986, 
and before October 1, 1996.''.
    (b) Termination on Deposits of Taxes into Hazardous 
Substance Superfund.--Paragraph (1) of section 9507(b) is 
amended by inserting ``before August 1, 1996'' after 
``received''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 11132. EXTENSION OF OIL SPILL LIABILITY TAX.

    (a) In General.--Section 4611(f)(1) (relating to 
application of oil spill liability trust fund financing rate) 
is amended by striking ``after December 31, 1989, and before 
January 1, 1995'' and inserting ``after December 31, 1995, and 
before October 1, 2002''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on January 1, 1996.

              CHAPTER 4--EXTENSIONS RELATING TO FUEL TAXES

SEC. 11141. ETHANOL BLENDER REFUNDS.

    (a) In General.--Paragraph (4) of section 6427(f) (relating 
to gasoline, diesel fuel, and aviation fuel used to produce 
certain alcohol fuels) is amended by striking ``1995'' and 
inserting ``1999''.
    (b) Special Rule.--With respect to refund claims which 
could have been filed under section 6427(f) of the Internal 
Revenue Code of 1986 during the period beginning on October 8, 
1995, and ending on the date of the enactment of this Act, but 
for the expiration of such section after September 30, 1995, 
interest shall accrue on such claims from the date which is the 
later of--
            (1) November 1, 1995, or
            (2) 20 days after the claim could have been filed 
        under such section as in effect on September 30, 1995.
    (c) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 11142. EXTENSION OF BINDING CONTRACT DATE FOR BIOMASS AND COAL 
                    FACILITIES.

    (a) In General.--Subparagraph (A) of section 29(g)(1) 
(relating to extension of certain facilities) is amended by 
striking ``January 1, 1997'' and inserting ``January 1, 1998'' 
and by striking ``January 1, 1996'' and inserting ``July 1, 
1996''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 11143. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS WITH RESPECT 
                    TO CERTAIN STATES.

    (a) In General.--Section 4082 (relating to exemptions for 
diesel fuel) is amended by redesignating subsections (c) and 
(d) as subsections (d) and (e), respectively, and by inserting 
after subsection (b) the following new subsection:
    ``(c) Exception to Dyeing Requirements.--Paragraph (2) of 
subsection (a) shall not apply with respect to any diesel 
fuel--
            ``(1) removed, entered, or sold in a State for 
        ultimate sale or use in an area of such State on or 
        after the date on which such area is exempted from the 
        fuel dyeing requirements under subsection (i) of 
        section 211 of the Clean Air Act (as in effect on the 
        date of the enactment of this subsection) by the 
        Administrator of the Environmental Protection Agency 
        under paragraph (4) of such subsection (i) (as so in 
        effect), and
            ``(2) the use of which is certified pursuant to 
        regulations issued by the Secretary.''
    (b) Effective Date.--The amendments made by this section 
shall take effect on the first day of the first calendar 
quarter beginning after the date of the enactment of this Act.

SEC. 11144. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL SOLD FOR USE OR 
                    USED IN DIESEL-POWERED MOTORBOATS.

    (a) In General.--Subparagraph (D) of section 4041(a)(1) 
(relating to the imposition of tax on diesel fuel and special 
motor fuels) is amended to read as follows:
                    ``(D) Diesel fuel used in motorboats.--
                            ``(i) Moratorium.--No tax shall be 
                        imposed by subsection (a) or (d)(1) on 
                        diesel fuel sold for use or used in a 
                        diesel-powered motorboat during the 
                        period after December 31, 1995, and 
                        before July 1, 1997.
                            ``(ii) Special termination date.--
                        In the case of any sale for use, or 
                        use, of fuel in a diesel-powered 
                        motorboat--
                                    ``(I) effective during the 
                                period after September 30, 
                                1999, and before January 1, 
                                2000, the rate of tax imposed 
                                by this paragraph is 24.3 cents 
                                per gallon, and
                                    ``(II) the termination of 
                                the tax under subsection (d) 
                                shall not occur before January 
                                1, 2000.''.
    (b) Effective Date.--The amendments made by this section 
shall take effect after December 31, 1995.

CHAPTER 5--PERMANENT EXTENSION OF FUTA EXEMPTION FOR ALIEN AGRICULTURAL 
                                WORKERS

SEC. 11151. FUTA EXEMPTION FOR ALIEN AGRICULTURAL WORKERS.

    (a) In General.--Subparagraph (B) of section 3306(c)(1) 
(defining employment) is amended by striking ``before January 
1, 1995,''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to services performed after December 31, 1994.

   CHAPTER 6--DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF 
                       CERTAIN VETERANS PROGRAMS

SEC. 11161. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF 
                    CERTAIN VETERANS PROGRAMS.

    (a) General Rule.--Subparagraph (D) of section 6103(l)(7) 
(relating to disclosure of return information to Federal, 
State, and local agencies administering certain programs) is 
amended by striking ``Clause (viii) shall not apply after 
September 30, 1998.'' and inserting ``Clause (viii) shall not 
apply after September 30, 2002.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

            Subtitle F--Taxpayer Bill of Rights 2 Provisions

SEC. 11201. EXPANSION OF AUTHORITY TO ABATE INTEREST.

    (a) General Rule.--Paragraph (1) of section 6404(e) 
(relating to abatement of interest in certain cases) is 
amended--
            (1) by inserting ``unreasonable'' before ``error'' 
        each place it appears in subparagraphs (A) and (B), and
            (2) by striking ``in performing a ministerial act'' 
        each place it appears and inserting ``in performing a 
        ministerial or managerial act''.
    (b) Clerical Amendment.--The subsection heading for 
subsection (e) of section 6404 is amended--
            (1) by striking ``Assessments'' and inserting 
        ``Abatement'', and
            (2) by inserting ``Unreasonable'' before 
        ``Errors''.
    (c) Effective Date.--The amendments made by this section 
shall apply to interest accruing with respect to deficiencies 
or payments for taxable years beginning after the date of the 
enactment of this Act.

SEC. 11202. EXTENSION OF INTEREST-FREE PERIOD FOR PAYMENT OF TAX AFTER 
                    NOTICE AND DEMAND.

    (a) General Rule.--Paragraph (3) of section 6601(e) 
(relating to payments made within 10 days after notice and 
demand) is amended to read as follows:
            ``(3) Payments made within specified period after 
        notice and demand.--If notice and demand is made for 
        payment of any amount and if such amount is paid within 
        21 calendar days (10 business days if the amount for 
        which such notice and demand is made equals or exceeds 
        $100,000) after the date of such notice and demand, 
        interest under this section on the amount so paid shall 
        not be imposed for the period after the date of such 
        notice and demand.''
    (b) Conforming Amendments.--
            (1) Subparagraph (A) of section 6601(e)(2) is 
        amended by striking ``10 days from the date of notice 
        and demand therefor'' and inserting ``21 calendar days 
        from the date of notice and demand therefor (10 
        business days if the amount for which such notice and 
        demand is made equals or exceeds $100,000)''.
            (2) Paragraph (3) of section 6651(a) is amended by 
        striking ``10 days of the date of the notice and demand 
        therefor'' and inserting ``21 calendar days from the 
        date of notice and demand therefor (10 business days if 
        the amount for which such notice and demand is made 
        equals or exceeds $100,000)''.
    (c) Effective Date.--The amendments made by this section 
shall apply in the case of any notice and demand given after 
June 30, 1996.

SEC. 11203. JOINT RETURN MAY BE MADE AFTER SEPARATE RETURNS WITHOUT 
                    FULL PAYMENT OF TAX.

    (a) General Rule.--Paragraph (2) of section 6013(b) 
(relating to limitations on filing of joint return after filing 
separate returns) is amended by striking subparagraph (A) and 
redesignating the following subparagraphs accordingly.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 11204. MODIFICATIONS TO CERTAIN LEVY EXEMPTION AMOUNTS.

    (a) Fuel, Etc.--Paragraph (2) of section 6334(a) (relating 
to fuel, provisions, furniture, and personal effects exempt 
from levy) is amended--
            (1) by striking ``If the taxpayer is the head of a 
        family, so'' and inserting ``So'',
            (2) by striking ``his household'' and inserting 
        ``the taxpayer's household'', and
            (3) by striking ``$1,650 ($1,550 in the case of 
        levies issued during 1989)'' and inserting ``$2,500''.
    (b) Books, Etc.--Paragraph (3) of section 6334(a) (relating 
to books and tools of a trade, business, or profession) is 
amended by striking ``$1,100 ($1,050 in the case of levies 
issued during 1989)'' and inserting ``$1,250''.
    (c) Inflation Adjustment.--Section 6334 (relating to 
property exempt from levy) is amended by adding at the end the 
following new subsection:
    ``(f) Inflation Adjustment.--
            ``(1) In general.--In the case of any calendar year 
        beginning after 1996, each dollar amount referred to in 
        paragraphs (2) and (3) of subsection (a) shall be 
        increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year, by substituting `calendar year 
                1995' for `calendar year 1992' in subparagraph 
                (B) thereof.
            ``(2) Rounding.--If any dollar amount after being 
        increased under paragraph (1) is not a multiple of $10, 
        such dollar amount shall be rounded to the nearest 
        multiple of $10.''.
    (d) Effective Date.--The amendments made by this section 
shall take effect with respect to levies issued after December 
31, 1995.

SEC. 11205. OFFERS-IN-COMPROMISE.

    (a) Review Requirements.--Subsection (b) of section 7122 
(relating to records) is amended by striking ``$500.'' and 
inserting ``$50,000. However, such compromise shall be subject 
to continuing quality review by the Secretary.''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 11206. INCREASED LIMIT ON ATTORNEY FEES.

    (a) In General.--Paragraph (1) of section 7430(c) (defining 
reasonable litigation costs) is amended--
            (1) by striking ``$75'' in clause (iii) of 
        subparagraph (B) and inserting ``$110'',
            (2) by striking ``an increase in the cost of living 
        or'' in clause (iii) of subparagraph (B), and
            (3) by adding after clause (iii) the following:
        ``In the case of any calendar year beginning after 
        1996, the dollar amount referred to in clause (iii) 
        shall be increased by an amount equal to such dollar 
        amount multiplied by the cost-of-living adjustment 
        determined under section 1(f)(3) for such calendar 
        year, by substituting `calendar year 1995' for 
        `calendar year 1992' in subparagraph (B) thereof. If 
        any dollar amount after being increased under the 
        preceding sentence is not a multiple of $10, such 
        dollar amount shall be rounded to the nearest multiple 
        of $10.''
    (b) Effective Date.--The amendment made by this section 
shall apply in the case of proceedings commenced after the date 
of the enactment of this Act.

SEC. 11207. AWARD OF LITIGATION COSTS PERMITTED IN DECLARATORY JUDGMENT 
                    PROCEEDINGS.

    (a) In General.--Subsection (b) of section 7430 is amended 
by striking paragraph (3) and by redesignating paragraph (4) as 
paragraph (3).
    (b) Effective Date.--The amendment made by this section 
shall apply in the case of proceedings commenced after the date 
of the enactment of this Act.

SEC. 11208. INCREASE IN LIMIT ON RECOVERY OF CIVIL DAMAGES FOR 
                    UNAUTHORIZED COLLECTION ACTIONS.

    (a) General Rule.--Subsection (b) of section 7433 (relating 
to damages) is amended by striking ``$100,000'' and inserting 
``$1,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to actions by officers or employees of the Internal 
Revenue Service after the date of the enactment of this Act.

SEC. 11209. ENROLLED AGENTS INCLUDED AS THIRD-PARTY RECORDKEEPERS.

    (a) In General.--Paragraph (3) of section 7609(a) (relating 
to third-party recordkeeper defined) is amended by striking 
``and'' at the end of subparagraph (G), by striking the period 
at the end of subparagraph (H) and inserting ``; and'', and by 
adding at the end the following the subparagraph:
                    ``(I) any enrolled agent.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to summonses issued after the date of the enactment 
of this Act.

SEC. 11210. ANNUAL REMINDERS TO TAXPAYERS WITH OUTSTANDING DELINQUENT 
                    ACCOUNTS.

    (a) In General.--Chapter 77 (relating to miscellaneous 
provisions) is amended by adding at the end the following new 
section:

``SEC. 7524. ANNUAL NOTICE OF TAX DELINQUENCY.

    ``Not less often than annually, the Secretary shall send a 
written notice to each taxpayer who has a tax delinquent 
account of the amount of the tax delinquency as of the date of 
the notice.''
    (b) Clerical Amendment.--The table of sections for chapter 
77 is amended by adding at the end the following new item:

        ``Sec. 7524. Annual notice of tax delinquency.''

    (c) Effective Date.--The amendments made by this section 
shall apply to calendar years after 1995.

       Subtitle G--Casualty and Involuntary Conversion Provisions

SEC. 11251. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION WHERE 
                    STOCK IN CORPORATION IS REPLACEMENT PROPERTY UNDER 
                    INVOLUNTARY CONVERSION RULES.

    (a) In General.--Subsection (b) of section 1033 is amended 
to read as follows:
    ``(b) Basis of Property Acquired Through Involuntary 
Conversion.--
            ``(1) Conversions described in subsection (a)(1).--
        If the property was acquired as the result of a 
        compulsory or involuntary conversion described in 
        subsection (a)(1), the basis shall be the same as in 
        the case of the property so converted--
                    ``(A) decreased in the amount of any money 
                received by the taxpayer which was not expended 
                in accordance with the provisions of law 
                (applicable to the year in which such 
                conversion was made) determining the taxable 
                status of the gain or loss upon such 
                conversion, and
                    ``(B) increased in the amount of gain or 
                decreased in the amount of loss to the taxpayer 
                recognized upon such conversion under the law 
                applicable to the year in which such conversion 
                was made.
            ``(2) Conversions described in subsection (a)(2).--
        In the case of property purchased by the taxpayer in a 
        transaction described in subsection (a)(2) which 
        resulted in the nonrecognition of any part of the gain 
        realized as the result of a compulsory or involuntary 
        conversion, the basis shall be the cost of such 
        property decreased in the amount of the gain not so 
        recognized; and if the property purchased consists of 
        more than 1 piece of property, the basis determined 
        under this sentence shall be allocated to the purchased 
        properties in proportion to their respective costs.
            ``(3) Property held by corporation the stock of 
        which is replacement property.--
                    ``(A) In general.--If the basis of stock in 
                a corporation is decreased under paragraph (2), 
                an amount equal to such decrease shall also be 
                applied to reduce the basis of property held by 
                the corporation at the time the taxpayer 
                acquired control (as defined in subsection 
                (a)(2)(E)) of such corporation.
                    ``(B) Limitation.--Subparagraph (A) shall 
                not apply to the extent that it would (but for 
                this subparagraph) require a reduction in the 
                aggregate adjusted bases of the property of the 
                corporation below the taxpayer's adjusted basis 
                of the stock in the corporation (determined 
                immediately after such basis is decreased under 
                paragraph (2)).
                    ``(C) Allocation of basis reduction.--The 
                decrease required under subparagraph (A) shall 
                be allocated--
                            ``(i) first to property which is 
                        similar or related in service or use to 
                        the converted property,
                            ``(ii) second to depreciable 
                        property (as defined in section 
                        1017(b)(3)(B)) not described in clause 
                        (i), and
                            ``(iii) then to other property.
                    ``(D) Special rules.--
                            ``(i) Reduction not to exceed 
                        adjusted basis of property.--No 
                        reduction in the basis of any property 
                        under this paragraph shall exceed the 
                        adjusted basis of such property 
                        (determined without regard to such 
                        reduction).
                            ``(ii) Allocation of reduction 
                        among properties.--If more than 1 
                        property is described in a clause of 
                        subparagraph (C), the reduction under 
                        this paragraph shall be allocated among 
                        such property in proportion to the 
                        adjusted bases of such property (as so 
                        determined).''.
    (b) Effective Date.--The amendment made by this section 
shall apply to involuntary conversions occurring after 
September 13, 1995.

SEC. 11252. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY CONVERTED 
                    PROPERTY BE REPLACED WITH PROPERTY ACQUIRED FROM AN 
                    UNRELATED PERSON.

    (a) In General.--Subsection (i) of section 1033 is amended 
to read as follows:
    ``(i) Replacement Property Must Be Acquired From Unrelated 
Person in Certain Cases.--
            ``(1) In general.--If the property which is 
        involuntarily converted is held by a taxpayer to which 
        this subsection applies, subsection (a) shall not apply 
        if the replacement property or stock is acquired from a 
        related person. The preceding sentence shall not apply 
        to the extent that the related person acquired the 
        replacement property or stock from an unrelated person 
        during the period applicable under subsection 
        (a)(2)(B).
            ``(2) Taxpayers to which subsection applies.--This 
        subsection shall apply to--
                    ``(A) a C corporation,
                    ``(B) a partnership in which 1 or more C 
                corporations own, directly or indirectly 
                (determined in accordance with section 
                707(b)(3)), more than 50 percent of the capital 
                interest, or profits interest, in such 
                partnership at the time of the involuntary 
                conversion, and
                    ``(C) any other taxpayer if, with respect 
                to property which is involuntarily converted 
                during the taxable year, the aggregate of the 
                amount of realized gain on such property on 
                which there is realized gain exceeds $100,000.
        In the case of a partnership, subparagraph (C) shall 
        apply with respect to the partnership and with respect 
        to each partner. A similar rule shall apply in the case 
        of an S corporation and its shareholders.
            ``(3) Related person.--For purposes of this 
        subsection, a person is related to another person if 
        the person bears a relationship to the other person 
        described in section 267(b) or 707(b)(1).''.
    (b) Effective Date.--The amendment made by this section 
shall apply to involuntary conversions occurring after 
September 13, 1995.

SEC. 11253. SPECIAL RULE FOR CROP INSURANCE PROCEEDS AND DISASTER 
                    PAYMENTS.

    (a) In General.--Section 451(d) (relating to special rule 
for crop insurance proceeds and disaster payments) is amended 
to read as follows:
    ``(d) Special Rule for Crop Insurance Proceeds and Disaster 
Payments.--
            ``(1) General rule.--In the case of any payment 
        described in paragraph (2), a taxpayer reporting on the 
        cash receipts and disbursements method of accounting--
                    ``(A) may elect to treat any such payment 
                received in the taxable year of destruction or 
                damage of crops as having been received in the 
                following taxable year if the taxpayer 
                establishes that, under the taxpayer's 
                practice, income from such crops involved would 
                have been reported in a following taxable year, 
                or
                    ``(B) may elect to treat any such payment 
                received in a taxable year following the 
                taxable year of the destruction or damage of 
                crops as having been received in the taxable 
                year of destruction or damage, if the taxpayer 
                establishes that, under the taxpayer's 
                practice, income from such crops involved would 
                have been reported in the taxable year of 
                destruction or damage.
            ``(2) Payments described.--For purposes of this 
        subsection, a payment is described in this paragraph if 
        such payment--
                    ``(A) is insurance proceeds received on 
                account of destruction or damage to crops, or
                    ``(B) is disaster assistance received under 
                any Federal law as a result of--
                            ``(i) destruction or damage to 
                        crops caused by drought, flood, or 
                        other natural disaster, or
                            ``(ii) inability to plant crops 
                        because of such a disaster.''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies to payments received after December 31, 1992, as a 
result of destruction or damage occurring after such date.

SEC. 11254. APPLICATION OF INVOLUNTARY EXCLUSION RULES TO 
                    PRESIDENTIALLY DECLARED DISASTERS.

    (a) In General.--Section 1033(h) is amended by 
redesignating paragraphs (2) and (3) as paragraphs (3) and (4) 
and by inserting after paragraph (1) the following new 
paragraph:
            ``(2) Trade or business and investment property.--
        If a taxpayer's property held for productive use in a 
        trade or business or for investment is compulsorily or 
        involuntarily converted as a result of a Presidentially 
        declared disaster, tangible property of a type held for 
        productive use in a trade or business shall be treated 
        for purposes of subsection (a) as property similar or 
        related in use to the property so converted.''.
    (b) Conforming Amendments.--Section 1033(h) is amended--
            (1) by striking ``residence'' in paragraph (3) (as 
        redesignated by subsection (a)) and inserting 
        ``property'',
            (2) by striking ``Principal Residences'' in the 
        heading and inserting ``Property'', and
            (3) by striking ``(1) In general.--'' and inserting 
        ``(1) Principal residences.--''.
    (c) Effective Date.--The amendments made by this section 
shall apply to disasters declared after December 31, 1994, in 
taxable years ending after such date.

        Subtitle H--Exempt Organizations and Charitable Reforms

      CHAPTER 1--EXCISE TAX ON AMOUNTS OF PRIVATE EXCESS BENEFITS

SEC. 11271. EXCISE TAXES FOR FAILURE BY CERTAIN CHARITABLE 
                    ORGANIZATIONS TO MEET CERTAIN QUALIFICATION 
                    REQUIREMENTS.

    (a) In General.--Chapter 42 (relating to private 
foundations and certain other tax-exempt organizations) is 
amended by redesignating subchapter D as subchapter E and by 
inserting after subchapter C the following new subchapter:

  ``Subchapter D--Failure By Certain Charitable Organizations To Meet 
                   Certain Qualification Requirements

        ``Sec. 4958. Taxes on excess benefit transactions.

``SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.

    ``(a) Initial Taxes.--
            ``(1) On the disqualified person.--There is hereby 
        imposed on each excess benefit transaction a tax equal 
        to 25 percent of the excess benefit. The tax imposed by 
        this paragraph shall be paid by any disqualified person 
        referred to in subsection (f)(1) with respect to such 
        transaction.
            ``(2) On the management.--In any case in which a 
        tax is imposed by paragraph (1), there is hereby 
        imposed on the participation of any organization 
        manager in the excess benefit transaction, knowing that 
        it is such a transaction, a tax equal to 10 percent of 
        the excess benefit, unless such participation is not 
        willful and is due to reasonable cause. The tax imposed 
        by this paragraph shall be paid by any organization 
        manager who participated in the excess benefit 
        transaction.
    ``(b) Additional Tax on the Disqualified Person.--In any 
case in which an initial tax is imposed by subsection (a)(1) on 
an excess benefit transaction and the excess benefit involved 
in such transaction is not corrected within the taxable period, 
there is hereby imposed a tax equal to 200 percent of the 
excess benefit involved. The tax imposed by this subsection 
shall be paid by any disqualified person referred to in 
subsection (f)(1) with respect to such transaction.
    ``(c) Excess Benefit Transaction; Excess Benefit.--For 
purposes of this section--
            ``(1) Excess benefit transaction.--
                    ``(A) In general.--The term `excess benefit 
                transaction' means any transaction in which an 
                economic benefit is provided by an applicable 
                tax-exempt organization directly or indirectly 
                to or for the use of any disqualified person if 
                the value of the economic benefit provided 
                exceeds the value of the consideration 
                (including the performance of services) 
                received for providing such benefit. For 
                purposes of the preceding sentence, an economic 
                benefit shall not be treated as consideration 
                for the performance of services unless such 
                organization clearly indicated its intent to so 
                treat such benefit.
                    ``(B) Excess benefit.--The term `excess 
                benefit' means the excess referred to in 
                subparagraph (A).
            ``(2) Authority to include certain other private 
        inurement.--To the extent provided in regulations 
        prescribed by the Secretary, the term `excess benefit 
        transaction' includes any transaction in which the 
        amount of any economic benefit provided to or for the 
        use of a disqualified person is determined in whole or 
        in part by the revenues of 1 or more activities of the 
        organization but only if such transaction results in 
        inurement not permitted under paragraph (3) or (4) of 
        section 501(c), as the case may be. In the case of any 
        such transaction, the excess benefit shall be the 
        amount of the inurement not so permitted.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Joint and several liability.--If more than 1 
        person is liable for any tax imposed by subsection (a) 
        or subsection (b), all such persons shall be jointly 
        and severally liable for such tax.
            ``(2) Limit for management.--With respect to any 1 
        excess benefit transaction, the maximum amount of the 
        tax imposed by subsection (a)(2) shall not exceed 
        $10,000.
    ``(e) Applicable Tax-Exempt Organization.--For purposes of 
this subchapter, the term `applicable tax-exempt organization' 
means--
            ``(1) any organization which (without regard to any 
        excess benefit) would be described in paragraph (3) or 
        (4) of section 501(c) and exempt from tax under section 
        501(a), and
            ``(2) any organization which was described in 
        paragraph (1) at any time during the 2-year period 
        ending on the date of the transaction.
Such term shall not include a private foundation (as defined in 
section 509(a)).
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Disqualified person.--The term `disqualified 
        person' means, with respect to any transaction--
                    ``(A) any person who was, at any time 
                during the 5-year period ending on the date of 
                such transaction, in a position to exercise 
                substantial influence over the affairs of the 
                organization,
                    ``(B) a member of the family of an 
                individual described in subparagraph (A), and
                    ``(C) a 35-percent controlled entity.
            ``(2) Organization manager.--The term `organization 
        manager' means, with respect to any applicable tax-
        exempt organization, any officer, director, or trustee 
        of such organization (or any individual having powers 
        or responsibilities similar to those of officers, 
        directors, or trustees of the organization).
            ``(3) 35-percent controlled entity.--
                    ``(A) In general.--The term `35-percent 
                controlled entity' means--
                            ``(i) a corporation in which 
                        persons described in subparagraph (A) 
                        or (B) of paragraph (1) own more than 
                        35 percent of the total combined voting 
                        power,
                            ``(ii) a partnership in which such 
                        persons own more than 35 percent of the 
                        profits interest, and
                            ``(iii) a trust or estate in which 
                        such persons own more than 35 percent 
                        of the beneficial interest.
                    ``(B) Constructive ownership rules.--Rules 
                similar to the rules of paragraphs (3) and (4) 
                of section 4946(a) shall apply for purposes of 
                this paragraph.
            ``(4) Family members.--The members of an 
        individual's family shall be determined under section 
        4946(d); except that such members also shall include 
        the brothers and sisters (whether by the whole or half 
        blood) of the individual and their spouses.
            ``(5) Taxable period.--The term `taxable period' 
        means, with respect to any excess benefit transaction, 
        the period beginning with the date on which the 
        transaction occurs and ending on the earliest of--
                    ``(A) the date of mailing a notice of 
                deficiency under section 6212 with respect to 
                the tax imposed by subsection (a)(1), or
                    ``(B) the date on which the tax imposed by 
                subsection (a)(1) is assessed.
            ``(6) Correction.--The terms `correction' and 
        `correct' mean, with respect to any excess benefit 
        transaction, undoing the excess benefit to the extent 
        possible, and where fully undoing the excess benefit is 
        not possible, such additional corrective action as is 
        prescribed by the Secretary by regulations.''
    (b) Application of Private Inurement Rule to Tax-Exempt 
Organizations Described in Section 501(c)(4).--
            (1) Paragraph (4) of section 501(c) is amended by 
        inserting ``(A)'' after ``(4)'' and by adding at the 
        end the following:
            ``(B) Subparagraph (A) shall not apply to an entity 
        unless no part of the net earnings of such entity 
        inures to the benefit of any private shareholder or 
        individual.''
            (2) In the case of an organization operating on a 
        cooperative basis which, before the date of the 
        enactment of this Act, was determined by the Secretary 
        of the Treasury or his delegate, to be described in 
        section 501(c)(4) of the Internal Revenue Code of 1986 
        and exempt from tax under section 501(a) of such Code, 
        the allocation or return of net margins or capital to 
        the members of such organization in accordance with its 
        incorporating statute and bylaws shall not be treated 
        for purposes of such Code as the inurement of the net 
        earnings of such organization to the benefit of any 
        private shareholder or individual. The preceding 
        sentence shall apply only if such statute and bylaws 
        are substantially as such statute and bylaws were in 
        existence on the date of the enactment of this Act.
    (c) Technical and Conforming Amendments.--
            (1) Subsection (e) of section 4955 is amended--
                    (A) by striking ``Section 4945'' in the 
                heading and inserting ``Sections 4945 and 
                4958'', and
                    (B) by inserting before the period ``or an 
                excess benefit for purposes of section 4958''.
            (2) Subsections (a), (b), and (c) of section 4963 
        are each amended by inserting ``4958,'' after 
        ``4955,''.
            (3) Subsection (e) of section 6213 is amended by 
        inserting ``4958 (relating to private excess 
        benefit),'' before ``4971''.
            (4) Paragraphs (2) and (3) of section 7422(g) are 
        each amended by inserting ``4958,'' after ``4955,''.
            (5) Subsection (b) of section 7454 is amended by 
        inserting ``or whether an organization manager (as 
        defined in section 4958(f)(2)) has `knowingly' 
        participated in an excess benefit transaction (as 
        defined in section 4958(c)),'' after ``section 
        4912(b),''.
            (6) The table of subchapters for chapter 42 is 
        amended by striking the last item and inserting the 
        following:

        ``Subchapter D. Failure by certain charitable organizations to 
                  meet certain qualification requirements.
        ``Subchapter E. Abatement of first and second tier taxes in 
                  certain cases.''

    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section (other than subsection (b)) shall apply to 
        excess benefit transactions occurring on or after 
        September 14, 1995.
            (2) Binding contracts.--The amendments referred to 
        in paragraph (1) shall not apply to any benefit arising 
        from a transaction pursuant to any written contract 
        which was binding on September 13, 1995, and at all 
        times thereafter before such transaction occurred.
            (3) Application of private inurement rule to tax-
        exempt organizations described in section 501(c)(4).--
                    (A) In general.--The amendment made by 
                subsection (b) shall apply to inurement 
                occurring on or after September 14, 1995.
                    (B) Binding contracts.--The amendment made 
                by subsection (b) shall not apply to any 
                inurement occurring before January 1, 1997, 
                pursuant to a written contract which was 
                binding on September 13, 1995, and at all times 
                thereafter before such inurement occurred.

SEC. 11272. REPORTING OF CERTAIN EXCISE TAXES AND OTHER INFORMATION.

    (a) Reporting by Organizations Described in Section 
501(c)(3).--Subsection (b) of section 6033 (relating to certain 
organizations described in section 501(c)(3)) is amended by 
striking ``and'' at the end of paragraph (9), by redesignating 
paragraph (10) as paragraph (14), and by inserting after 
paragraph (9) the following new paragraphs:
            ``(10) the respective amounts (if any) of the taxes 
        paid by the organization during the taxable year under 
        the following provisions:
                    ``(A) section 4911 (relating to tax on 
                excess expenditures to influence legislation),
                    ``(B) section 4912 (relating to tax on 
                disqualifying lobbying expenditures of certain 
                organizations), and
                    ``(C) section 4955 (relating to taxes on 
                political expenditures of section 501(c)(3) 
                organizations),
            ``(11) the respective amounts (if any) of the taxes 
        paid by the organization, or any disqualified person 
        with respect to such organization, during the taxable 
        year under section 4958 (relating to taxes on private 
        excess benefit from certain charitable organizations),
            ``(12) such information as the Secretary may 
        require with respect to any excess benefit transaction 
        (as defined in section 4958),
            ``(13) the name of each disqualified person (as 
        defined in section 4958(f)(1)(A)) with respect to such 
        organization and such other information as the 
        Secretary may prescribe, and''.
    (b) Organizations Described in Section 501(c)(4).--Section 
6033 is amended by redesignating subsection (f) as subsection 
(g) and by inserting after subsection (e) the following new 
subsection:
    ``(f) Certain Organizations Described in Section 
501(c)(4).--Every organization described in section 501(c)(4) 
which is subject to the requirements of subsection (a) shall 
include on the return required under subsection (a) the 
information referred to in paragraphs (11), (12) and (13) of 
subsection (b) with respect to such organization.''
    (c) Effective Date.--The amendments made by this section 
shall apply to returns for taxable years beginning after the 
date of the enactment of this Act.

SEC. 11273. INCREASE IN PENALTIES ON EXEMPT ORGANIZATIONS FOR FAILURE 
                    TO FILE COMPLETE AND TIMELY ANNUAL RETURNS.

    (a) In General.--Subparagraph (A) of section 6652(c)(1) 
(relating to annual returns under section 6033) is amended by 
striking ``$10'' and inserting ``$20'' and by striking 
``$5,000'' and inserting ``$10,000''.
    (b) Larger Penalty on Organizations Having Gross Receipts 
in Excess of $1,000,000.--Subparagraph (A) of section 
6652(c)(1) is amended by adding at the end the following new 
sentence: ``In the case of an organization having gross 
receipts exceeding $1,000,000 for any year, with respect to the 
return required under section 6033 for such year, the first 
sentence of this subparagraph shall be applied by substituting 
`$100' for `$20' and, in lieu of applying the second sentence 
of this subparagraph, the maximum penalty under this 
subparagraph shall not exceed $50,000.''
    (c) Effective Date.--The amendments made by this section 
shall apply to returns for taxable years ending on or after 
December 31, 1995.

                      CHAPTER 2--OTHER PROVISIONS

SEC. 11276. COOPERATIVE SERVICE ORGANIZATIONS FOR CERTAIN FOUNDATIONS.

    (a) In General.--Section 501 (relating to exemption from 
tax on corporations, certain trusts, etc.) is amended by 
redesignating subsection (n) as subsection (o) and by inserting 
after subsection (m) the following new subsection:
    ``(n) Cooperative Service Organizations for Certain 
Foundations.--
            ``(1) In general.--For purposes of this title, if 
        an organization--
                    ``(A) is organized and operated solely for 
                purposes referred to in subsection (f)(1),
                    ``(B) is composed solely of members which 
                are exempt from taxation under subsection (a) 
                and are--
                            ``(i) private foundations, or
                            ``(ii) community foundations as to 
                        which section 170(b)(1)(A)(vi) applies,
                    ``(C) has at least 20 members,
                    ``(D) does not at any time after the second 
                taxable year beginning after the date of its 
                organization or, if later, beginning after the 
                date of the enactment of this subsection, have 
                a member which holds more than 10 percent (by 
                value) of the interests in the organization,
                    ``(E) is organized and controlled by its 
                members but is not controlled by any one member 
                and does not have a member which controls 
                another member of the organization, and
                    ``(F) permits members of the organization 
                to require the dismissal of any of the 
                organization's investment advisers, following 
                reasonable notice, if members holding a 
                majority of interest in the account managed by 
                such adviser vote to remove such adviser,
        then such organization shall be treated as an 
        organization organized and operated exclusively for 
        charitable purposes.
            ``(2) Treatment of income of members.--If any 
        member of an organization described in paragraph (1) is 
        a private foundation (other than an exempt operating 
        foundation, as defined in section 4940(d)), such 
        private foundation's allocable share of the capital 
        gain net income and gross investment income of the 
        organization for any taxable year of the organization 
        shall be treated, for purposes of section 4940, as 
        capital gain net income and gross investment income of 
        such private foundation (whether or not distributed to 
        such foundation) for the taxable year of such private 
        foundation with or within which the taxable year of the 
        organization described in paragraph (1) ends (and such 
        private foundation shall take into account its 
        allocable share of the deductions referred to in 
        section 4940(c)(3) of the organization).
            ``(3) Applicable excise taxes.--Subchapter A of 
        chapter 42 (other than sections 4940 and 4942) shall 
        apply to any organization described in paragraph 
        (1).''.
    (b) Conforming Amendments.--
            (1) Section 4945(d) is amended by adding at the end 
        the following new flush sentence:
``Paragraph (4)(B) shall not apply to a grant to an 
organization described in section 501(n).''
            (2) Section 4942(g)(1)(A) is amended by inserting 
        ``or an organization described in section 501(n)'' 
        after ``subsection (j)(3))''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after December 31, 1995.

SEC. 11277. EXCLUSION FROM UNRELATED BUSINESS TAXABLE INCOME FOR 
                    CERTAIN SPONSORSHIP PAYMENTS.

    (a) In General.--Section 513 (relating to unrelated trade 
or business income) is amended by adding at the end the 
following new subsection:
    ``(i) Treatment of Certain Sponsorship Payments.--
            ``(1) In general.--The term `unrelated trade or 
        business' does not include the activity of soliciting 
        and receiving qualified sponsorship payments.
            ``(2) Qualified sponsorship payments.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `qualified 
                sponsorship payment' means any payment made by 
                any person engaged in a trade or business with 
                respect to which there is no arrangement or 
                expectation that such person will receive any 
                substantial return benefit other than the use 
                or acknowledgement of the name or logo (or 
                product lines) of such person's trade or 
                business in connection with the activities of 
                the organization that receives such payment. 
                Such a use or acknowledgement does not include 
                advertising such person's products or services 
                (including messages containing qualitative or 
                comparative language, price information or 
                other indications of savings or value, an 
                endorsement, or an inducement to purchase, 
                sell, or use such products or services).
                    ``(B) Limitations.--
                            ``(i) Contingent payments.--The 
                        term `qualified sponsorship payment' 
                        does not include any payment if the 
                        amount of such payment is contingent 
                        upon the level of attendance at one or 
                        more events, broadcast ratings, or 
                        other factors indicating the degree of 
                        public exposure to one or more events.
                            ``(ii) Acknowledgements or 
                        advertising in periodicals.--The term 
                        `qualified sponsorship payment' does 
                        not include any payment which entitles 
                        the payor to an acknowledgement or 
                        advertising in regularly scheduled and 
                        printed material published by or on 
                        behalf of the payee organization that 
                        is not related to and primarily 
                        distributed in connection with a 
                        specific event conducted by the payee 
                        organization.
            ``(3) Allocation of portions of single payment.--
        For purposes of this subsection, to the extent that a 
        portion of a payment would (if made as a separate 
        payment) be a qualified sponsorship payment, such 
        portion of such payment and the other portion of such 
        payment shall be treated as separate payments.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to payments solicited or received after December 
31, 1995.

SEC. 11278. TREATMENT OF DUES PAID TO AGRICULTURAL OR HORTICULTURAL 
                    ORGANIZATIONS.

    (a) General Rule.--Section 512 (defining unrelated business 
taxable income) is amended by adding at the end the following 
new subsection:
    ``(d) Treatment of Dues of Agricultural or Horticultural 
Organizations.--
            ``(1) In general.--If--
                    ``(A) an agricultural or horticultural 
                organization described in section 501(c)(5) 
                requires annual dues to be paid in order to be 
                a member of such organization, and
                    ``(B) the amount of such required annual 
                dues does not exceed $100,
        in no event shall any portion of such dues be treated 
        as derived by such organization from an unrelated trade 
        or business by reason of any benefits or privileges to 
        which members of such organization are entitled.
            ``(2) Indexation of $100 amount.--In the case of 
        any taxable year beginning in a calendar year after 
        1995, the $100 amount in paragraph (1) shall be 
        increased by an amount equal to--
                    ``(A) $100, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                by substituting `calendar year 1994' for 
                `calendar year 1992' in subparagraph (B) 
                thereof.
            ``(3) Dues.--For purposes of this subsection, the 
        term `dues' means any payment required to be made in 
        order to be recognized by the organization as a member 
        of the organization.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1994.

SEC. 11279. REPEAL OF CREDIT FOR CONTRIBUTIONS TO COMMUNITY DEVELOPMENT 
                    CORPORATIONS.

    (a) In General.--Section 13311 of the Revenue 
Reconciliation Act of 1993 (relating to credit for 
contributions to certain community development corporations) is 
hereby repealed.
    (b) Effective Date.--The amendment made by this section 
shall apply to contributions made after the date of the 
enactment of this Act (other than contributions made pursuant 
to a legally enforceable agreement which is effect on the date 
of the enactment of this Act).

              Subtitle I--Tax Reform and Other Provisions

              CHAPTER 1--PROVISIONS RELATING TO BUSINESSES

SEC. 11301. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.

    (a) Treatment of Extraordinary Dividends in Excess of 
Basis.--Paragraph (2) of section 1059(a) (relating to corporate 
shareholder's basis in stock reduced by nontaxed portion of 
extraordinary dividends) is amended to read as follows:
            ``(2) Amounts in excess of basis.--If the nontaxed 
        portion of such dividends exceeds such basis, such 
        excess shall be treated as gain from the sale or 
        exchange of such stock for the taxable year in which 
        the extraordinary dividend is received.''.
    (b) Treatment of Redemptions Where Options Involved.--
Paragraph (1) of section 1059(e) (relating to treatment of 
partial liquidations and non-pro rata redemptions) is amended 
to read as follows:
            ``(1) Treatment of partial liquidations and certain 
        redemptions.--Except as otherwise provided in 
        regulations--
                    ``(A) Redemptions.--In the case of any 
                redemption of stock--
                            ``(i) which is part of a partial 
                        liquidation (within the meaning of 
                        section 302(e)) of the redeeming 
                        corporation,
                            ``(ii) which is not pro rata as to 
                        all shareholders, or
                            ``(iii) which would not have been 
                        treated (in whole or in part) as a 
                        dividend if any options had not been 
                        taken into account under section 
                        318(a)(4),
                any amount treated as a dividend with respect 
                to such redemption shall be treated as an 
                extraordinary dividend to which paragraphs (1) 
                and (2) of subsection (a) apply without regard 
                to the period the taxpayer held such stock. In 
                the case of a redemption described in clause 
                (iii), only the basis in the stock redeemed 
                shall be taken into account under subsection 
                (a).
                    ``(B) Reorganizations, etc.--An exchange 
                described in section 356(a)(1) which is treated 
                as a dividend under section 356(a)(2) shall be 
                treated as a redemption of stock for purposes 
                of applying subparagraph (A).''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to distributions after May 3, 1995.
            (2) Transition rule.--The amendments made by this 
        section shall not apply to any distribution made 
        pursuant to the terms of--
                    (A) a written binding contract in effect on 
                May 3, 1995, and at all times thereafter before 
                such distribution, or
                    (B) a tender offer outstanding on May 3, 
                1995.
            (3) Certain dividends not pursuant to certain 
        redemptions.--In determining whether the amendment made 
        by subsection (a) applies to any extraordinary dividend 
        other than a dividend treated as an extraordinary 
        dividend under section 1059(e)(1) of the Internal 
        Revenue Code of 1986 (as amended by this Act), 
        paragraphs (1) and (2) shall be applied by substituting 
        ``September 13, 1995'' for ``May 3, 1995''.

SEC. 11302. REGISTRATION OF CONFIDENTIAL CORPORATE TAX SHELTERS.

    (a) In General.--Section 6111 (relating to registration of 
tax shelters) is amended by redesignating subsections (d) and 
(e) as subsections (e) and (f), respectively, and by inserting 
after subsection (c) the following new subsection:
    ``(d) Certain Confidential Arrangements Treated as Tax 
Shelters.--
            ``(1) In general.--For purposes of this section, 
        the term `tax shelter' includes any entity, plan, 
        arrangement, or transaction--
                    ``(A) a significant purpose of the 
                structure of which is the avoidance or evasion 
                of Federal income tax for a direct or indirect 
                participant which is a corporation,
                    ``(B) which is offered to any potential 
                participant under conditions of 
                confidentiality, and
                    ``(C) for which the tax shelter promoters 
                may receive fees in excess of $100,000 in the 
                aggregate.
            ``(2) Conditions of confidentiality.--For purposes 
        of paragraph (1)(B), an offer is under conditions of 
        confidentiality if--
                    ``(A) the potential participant to whom the 
                offer is made (or any other person acting on 
                behalf of such participant) has an 
                understanding or agreement with or for the 
                benefit of any promoter of the tax shelter that 
                such participant (or such other person) will 
                limit disclosure of the tax shelter or any 
                significant tax features of the tax shelter, or
                    ``(B) any promoter of the tax shelter--
                            ``(i) claims, knows, or has reason 
                        to know,
                            ``(ii) knows or has reason to know 
                        that any other person (other than the 
                        potential participant) claims, or
                            ``(iii) causes another person to 
                        claim,
                that the tax shelter (or any aspect thereof) is 
                proprietary to any person other than the 
                potential participant or is otherwise protected 
                from disclosure to or use by others.
        For purposes of this subsection, the term `promoter' 
        means any person or any related person (within the 
        meaning of section 267 or 707) who participates in the 
        organization, management, or sale of the tax shelter.
            ``(3) Persons other than promoter required to 
        register in certain cases.--
                    ``(A) In general.--If--
                            ``(i) the requirements of 
                        subsection (a) are not met with respect 
                        to any tax shelter (as defined in 
                        paragraph (1)) by any tax shelter 
                        promoter, and
                            ``(ii) no tax shelter promoter is a 
                        United States person,
                then each United States person who discussed 
                participation in such shelter shall register 
                such shelter under subsection (a).
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to a United States person who 
                discussed participation in a tax shelter if--
                            ``(i) such person notified the 
                        promoter in writing (not later than the 
                        close of the 90th day after the day on 
                        which such discussions began) that such 
                        person would not participate in such 
                        shelter, and
                            ``(ii) such person does not 
                        participate in such shelter.
            ``(4) Offer to participate treated as offer for 
        sale.--For purposes of subsections (a) and (b), an 
        offer to participate in a tax shelter (as defined in 
        paragraph (1)) shall be treated as an offer for 
        sale.''.
    (b) Penalty.--Subsection (a) of section 6707 (relating to 
failure to furnish information regarding tax shelters) is 
amended by adding at the end the following new paragraph:
            ``(3) Confidential arrangements.--
                    ``(A) In general.--In the case of a tax 
                shelter (as defined in section 6111(d)), the 
                penalty imposed under paragraph (1) shall be an 
                amount equal to the greater of--
                            ``(i) 50 percent of the fees paid 
                        to any promoter of the tax shelter with 
                        respect to offerings made before the 
                        date such shelter is registered under 
                        section 6111, or
                            ``(ii) $10,000.
                Clause (i) shall be applied by substituting `75 
                percent' for `50 percent' in the case of an 
                intentional failure or act described in 
                paragraph (1).
                    ``(B) Special rule for participants 
                required to register shelter.--In the case of a 
                person required to register such a tax shelter 
                by reason of section 6111(d)(3)--
                            ``(i) such person shall be required 
                        to pay the penalty under paragraph (1) 
                        only if such person actually 
                        participated in such shelter,
                            ``(ii) the amount of such penalty 
                        shall be determined by taking into 
                        account under subparagraph (A)(i) only 
                        the fees paid by such person, and
                            ``(iii) such penalty shall be in 
                        addition to the penalty imposed on any 
                        other person for failing to register 
                        such shelter.''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 6707(a) is amended by 
        striking ``The penalty'' and inserting ``Except as 
        provided in paragraph (3), the penalty''.
            (2) Subparagraph (A) of section 6707(a)(1) is 
        amended by striking ``paragraph (2)'' and inserting 
        ``paragraph (2) or (3), as the case may be''.
    (d) Effective Date.--The amendments made by this section 
shall apply to any tax shelter (as defined in section 6111(d) 
of the Internal Revenue Code of 1986, as amended by this 
section) interests in which are offered to potential 
participants after the Secretary of the Treasury prescribes 
guidance with respect to meeting requirements added by such 
amendments.

SEC. 11303. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH RESPECT TO 
                    COMPANY-OWNED INSURANCE.

    (a) In General.--Paragraph (4) of section 264(a) is 
amended--
            (1) by inserting ``, or any endowment or annuity 
        contracts owned by the taxpayer covering any 
        individual,'' after ``the life of any individual'', and
            (2) by striking all that follows ``carried on by 
        the taxpayer'' and inserting a period.
    (b) Exception for Contracts Relating to Key Persons; 
Permissible Interest Rates.--Section 264 is amended--
            (1) by striking ``Any'' in subsection (a)(4) and 
        inserting ``Except as provided in subsection (d), 
        any'', and
            (2) by adding at the end the following new 
        subsection:
    ``(d) Special Rules For Application of Subsection (a)(4).--
            ``(1) Exception for key persons.--Subsection (a)(4) 
        shall not apply to any interest paid or accrued on any 
        indebtedness with respect to policies or contracts 
        covering an individual who is a key person to the 
        extent that the aggregate amount of such indebtedness 
        with respect to policies and contracts covering such 
        individual does not exceed $50,000.
            ``(2) Interest rate cap on key persons and pre-1986 
        contracts.--
                    ``(A) In general.--No deduction shall be 
                allowed by reason of paragraph (1) or the last 
                sentence of subsection (a) with respect to 
                interest paid or accrued for any month to the 
                extent the amount of such interest exceeds the 
                amount which would have been determined if the 
                applicable rate of interest were used for such 
                month.
                    ``(B) Applicable rate of interest.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--The applicable 
                        rate of interest for any month is the 
                        rate of interest described as Moody's 
                        Corporate Bond Yield Average-Monthly 
                        Average Corporates as published by 
                        Moody's Investors Service, Inc., or any 
                        successor thereto, for such month.
                            ``(ii) Pre-1986 contract.--In the 
                        case of indebtedness on a contract to 
                        which the last sentence of subsection 
                        (a) applies--
                                    ``(I) which is a contract 
                                providing a fixed rate of 
                                interest, the applicable rate 
                                of interest for any month shall 
                                be the Moody's rate described 
                                in clause (i) for the month in 
                                which the contract was 
                                purchased, or
                                    ``(II) which is a contract 
                                providing a variable rate of 
                                interest, the applicable rate 
                                of interest for any month in an 
                                applicable period shall be such 
                                Moody's rate for the last month 
                                preceding such period.
                        For purposes of subclause (II), the 
                        taxpayer shall elect an applicable 
                        period for such contract on its return 
                        of tax imposed by this chapter for its 
                        first taxable year ending on or after 
                        October 13, 1995. Such applicable 
                        period shall be for any number of 
                        months (not greater than 12) specified 
                        in the election and may not be changed 
                        by the taxpayer without the consent of 
                        the Secretary.
            ``(3) Key person.--For purposes of paragraph (1), 
        the term `key person' means an officer or 20-percent 
        owner, except that the number of individuals who may be 
        treated as key persons with respect to any taxpayer 
        shall not exceed the greater of--
                    ``(A) 5 individuals, or
                    ``(B) the lesser of 5 percent of the total 
                officers and employees of the taxpayer or 10 
                individuals.
            ``(4) 20-percent owner.--For purposes of this 
        subsection, the term `20-percent owner' means--
                    ``(A) if the taxpayer is a corporation, any 
                person who owns directly 20 percent or more of 
                the outstanding stock of the corporation or 
                stock possessing 20 percent or more of the 
                total combined voting power of all stock of the 
                corporation, or
                    ``(B) if the taxpayer is not a corporation, 
                any person who owns 20 percent or more of the 
                capital or profits interest in the employer.
            ``(5) Aggregation rules.--
                    ``(A) In general.--For purposes of 
                paragraph (4)(A) and applying the $50,000 
                limitation in paragraph (1)--
                            ``(i) all members of a controlled 
                        group shall be treated as 1 taxpayer, 
                        and
                            ``(ii) such limitation shall be 
                        allocated among the members of such 
                        group in such manner as the Secretary 
                        may prescribe.
                    ``(B) Controlled group.--For purposes of 
                this paragraph, all persons treated as a single 
                employer under subsection (a) or (b) of section 
                52 or subsection (m) or (o) of section 414 
                shall be treated as members of a controlled 
                group.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to interest paid or accrued after 
        December 31, 1995.
            (2) Transition rule for existing indebtedness.--
                    (A) In general.--In the case of--
                            (i) indebtedness incurred before 
                        January 1, 1996, or
                            (ii) indebtedness incurred before 
                        January 1, 1997 with respect to any 
                        contract or policy entered into in 1994 
                        or 1995,
                the amendments made by this section shall not 
                apply to qualified interest paid or accrued on 
                such indebtedness after October 13, 1995, and 
                before January 1, 1999.
                    (B) Qualified interest.--For purposes of 
                subparagraph (A), the qualified interest with 
                respect to any indebtedness for any month is 
                the amount of interest which would be paid or 
                accrued for such month on such indebtedness 
                if--
                            (i) in the case of any interest 
                        paid or accrued after December 31, 
                        1995, indebtedness with respect to no 
                        more than 20,000 insured individuals 
                        were taken into account, and
                            (ii) the lesser of the following 
                        rates of interest were used for such 
                        month:
                                    (I) The rate of interest 
                                specified under the terms of 
                                the indebtedness as in effect 
                                on October 13, 1995 (and 
                                without regard to modification 
                                of such terms after such date).
                                    (II) The applicable 
                                percentage rate of interest 
                                described as Moody's Corporate 
                                Bond Yield Average-Monthly 
                                Average Corporates as published 
                                by Moody's Investors Service, 
                                Inc., or any successor thereto, 
                                for such month.
                For purposes of clause (i), all persons treated 
                as a single employer under subsection (a) or 
                (b) of section 52 of the Internal Revenue Code 
                of 1986 or subsection (m) or (o) of section 414 
                of such Code shall be treated as one person.
                    (C) Applicable percentage.--For purposes of 
                subparagraph (B), the applicable percentage is 
                as follows:

    For calendar year:                                The percentage is:
        1995............................................    100 percent 
        1996............................................     90 percent 
        1997............................................     80 percent 
        1998............................................     70 percent.

            (3) Special rule for grandfathered contracts.--This 
        section shall not apply to any contract purchased on or 
        before June 20, 1986, except that section 264(d)(2) of 
        the Internal Revenue Code of 1986 shall apply to 
        interest paid or accrued after October 13, 1995.
    (d) Spread of Income Inclusion on Surrender, Etc. of 
Contracts.--
            (1) In general.--If any amount is received under 
        any life insurance policy or endowment or annuity 
        contract described in paragraph (4) of section 264(a) 
        of the Internal Revenue Code of 1986--
                    (A) on the complete surrender, redemption, 
                or maturity of such policy or contract during 
                calendar year 1996, 1997, or 1998, or
                    (B) in full discharge during any such 
                calendar year of the obligation under the 
                policy or contract which is in the nature of a 
                refund of the consideration paid for the policy 
                or contract,
        then (in lieu of any other inclusion in gross income) 
        such amount shall be includible in gross income ratably 
        over the 4-taxable year period beginning with the 
        taxable year such amount would (but for this paragraph) 
        be includible. The preceding sentence shall only apply 
        to the extent the amount is includible in gross income 
        for the taxable year in which the event described in 
        subparagraph (A) or (B) occurs.
            (2) Special rules for applying section 264.--A 
        contract shall not be treated as--
                    (A) failing to meet the requirement of 
                section 264(c)(1) of the Internal Revenue Code 
                of 1986, or
                    (B) a single premium contract under section 
                264(b)(1) of such Code,
        solely by reason of an occurrence described in 
        subparagraph (A) or (B) of paragraph (1) of this 
        subsection or solely by reason of no additional 
        premiums being received under the contract by reason of 
        a lapse occurring after October 13, 1995.
            (3) Special rule for deferred acquisition costs.--
        In the case of the occurrence of any event described in 
        subparagraph (A) or (B) of paragraph (1) of this 
        subsection with respect to any policy or contract--
                    (A) section 848 of the Internal Revenue 
                Code of 1986 shall not apply to the unamortized 
                balance (if any) of the specified policy 
                acquisition expenses attributable to such 
                policy or contract immediately before the 
                insurance company's taxable year in which such 
                event occurs, and
                    (B) there shall be allowed as a deduction 
                to such company for such taxable year under 
                chapter 1 of such Code an amount equal to such 
                unamortized balance.

SEC. 11304. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY CORPORATIONS 
                    REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING.

    (a) In General.--Subsection (i) of section 447 (relating to 
method of accounting for corporations engaged in farming) is 
amended by adding at the end the following new paragraph:
            ``(7) Termination.--
                    ``(A) In general.--No suspense account may 
                be established under this subsection by any 
                corporation required by this section to change 
                its method of accounting for any taxable year 
                ending after September 13, 1995.
                    ``(B) 20-year phaseout of existing suspense 
                accounts.--Each suspense account under this 
                subsection shall be reduced (but not below 
                zero) for each of the first 20 taxable years 
                beginning after September 13, 1995, by an 
                amount equal to the applicable portion of such 
                account. Any reduction in a suspense account 
                under this paragraph shall be included in gross 
                income for the taxable year of the reduction. 
                The amount of the reduction required under this 
                paragraph for any taxable year shall be reduced 
                (but not below zero) by the amount of any 
                reduction required for such taxable year under 
                any other provision of this subsection.
                    ``(C) Applicable portion.--For purposes of 
                subparagraph (B), the term `applicable portion' 
                means, for any taxable year, the amount which 
                would ratably reduce the amount in the account 
                (after taking into account prior reductions) to 
                zero over the period consisting of such taxable 
                year and the remaining taxable years in such 
                first 20 taxable years.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years ending after September 13, 1995.

SEC. 11305. TERMINATION OF PUERTO RICO AND POSSESSION TAX CREDIT.

    (a) In General.--Section 936 is amended by adding at the 
end the following new subsection:
    ``(j) Termination.--
            ``(1) In general.--Except as otherwise provided in 
        this subsection, this section shall not apply to any 
        taxable year beginning after December 31, 1995.
            ``(2) Transition rules for active business income 
        credit.--Except as provided in paragraph (3)--
                    ``(A) In general.--In the case of an 
                existing credit claimant to which subsection 
                (a)(4)(B) does not apply, the credit determined 
                under subsection (a)(1)(A) shall be allowed for 
                taxable years beginning after December 31, 
                1995, and before January 1, 2002.
                    ``(B) Special rule for reduced credit.--
                            ``(i) In general.--In the case of 
                        an existing credit claimant to which 
                        subsection (a)(4)(B) applies, the 
                        credit determined under subsection 
                        (a)(1)(A) shall be allowed for taxable 
                        years beginning after December 31, 
                        1995, and before January 1, 1998.
                            ``(ii) Election irrevocable after 
                        1997.--An election under subsection 
                        (a)(4)(B)(iii) which is in effect for 
                        the taxpayer's last taxable year 
                        beginning before 1997 may not be 
                        revoked unless it is revoked for the 
                        taxpayer's first taxable year beginning 
                        in 1997 and all subsequent taxable 
                        years.
            ``(3) Additional restricted credit.--
                    ``(A) In general.--In the case of an 
                existing credit claimant--
                            ``(i) the credit under subsection 
                        (a)(1)(A) shall be allowed for the 
                        period beginning with the first taxable 
                        year after the last taxable year to 
                        which subparagraph (A) or (B) of 
                        paragraph (2), whichever is 
                        appropriate, applied and ending with 
                        the last taxable year beginning before 
                        January 1, 2006, except that
                            ``(ii) the aggregate amount of 
                        taxable income taken into account under 
                        subsection (a)(1)(A) for any such 
                        taxable year shall not exceed the 
                        adjusted base period income of such 
                        claimant.
                    ``(B) Coordination with subsection 
                (a)(4).--The amount of income described in 
                subsection (a)(1)(A) which is taken into 
                account in applying subsection (a)(4) shall be 
                such income as reduced under this paragraph.
            ``(4) Adjusted base period income.--For purposes of 
        paragraph (3)--
                    ``(A) In general.--The term `adjusted base 
                period income' means the average of the 
                inflation-adjusted possession incomes of the 
                corporation for each base period year.
                    ``(B) Inflation-adjusted possession 
                income.--For purposes of subparagraph (A), the 
                inflation-adjusted possession income of any 
                corporation for any base period year shall be 
                an amount equal to the sum of--
                            ``(i) the possession income of such 
                        corporation for such base period year, 
                        plus
                            ``(ii) such possession income 
                        multiplied by the inflation adjustment 
                        percentage for such base period year.
                    ``(C) Inflation adjustment percentage.--For 
                purposes of subparagraph (B), the inflation 
                adjustment percentage for any base period year 
                means the percentage (if any) by which--
                            ``(i) the CPI for 1995, exceeds
                            ``(ii) the CPI for the calendar 
                        year in which the base period year for 
                        which the determination is being made 
                        ends.
                For purposes of the preceding sentence, the CPI 
                for any calendar year is the CPI (as defined in 
                section 1(f)(5)) for such year under section 
                1(f)(4).
                    ``(D) Increase in inflation adjustment 
                percentage for growth during base years.--The 
                inflation adjustment percentage (determined 
                under subparagraph (C) without regard to this 
                subparagraph) for each of the 5 taxable years 
                referred to in paragraph (5)(A) shall be 
                increased by--
                            ``(i) 5 percentage points in the 
                        case of a taxable year ending during 
                        the 1-year period ending on October 13, 
                        1995;
                            ``(ii) 10.25 percentage points in 
                        the case of a taxable year ending 
                        during the 1-year period ending on 
                        October 13, 1994;
                            ``(iii) 15.76 percentage points in 
                        the case of a taxable year ending 
                        during the 1-year period ending on 
                        October 13, 1993;
                            ``(iv) 21.55 percentage points in 
                        the case of a taxable year ending 
                        during the 1-year period ending on 
                        October 13, 1992; and
                            ``(v) 27.63 percentage points in 
                        the case of a taxable year ending 
                        during the 1-year period ending on 
                        October 13, 1991.
            ``(5) Base period year.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `base period 
                year' means each of 3 taxable years which are 
                among the 5 most recent taxable years of the 
                corporation ending before October 14, 1995, 
                determined by disregarding--
                            ``(i) one taxable year for which 
                        the corporation had the largest 
                        inflation-adjusted possession income, 
                        and
                            ``(ii) one taxable year for which 
                        the corporation had the smallest 
                        inflation-adjusted possession income.
                    ``(B) Corporations not having significant 
                possession income throughout 5-year period.--
                            ``(i) In general.--If a corporation 
                        does not have significant possession 
                        income for each of the most recent 5 
                        taxable years ending before October 14, 
                        1995, then, in lieu of applying 
                        subparagraph (A), the term `base period 
                        year' means only those taxable years 
                        (of such 5 taxable years) for which the 
                        corporation has significant possession 
                        income; except that, if such 
                        corporation has significant possession 
                        income for 4 of such 5 taxable years, 
                        the rule of subparagraph (A)(ii) shall 
                        apply.
                            ``(ii) Special rule.--If there is 
                        no year (of such 5 taxable years) for 
                        which a corporation has significant 
                        possession income--
                                    ``(I) the term `base period 
                                year' means the first taxable 
                                year ending on or after October 
                                14, 1995, but
                                    ``(II) the amount of 
                                possession income for such year 
                                which is taken into account 
                                under paragraph (4) shall be 
                                the amount which would be 
                                determined if such year were a 
                                short taxable year ending on 
                                September 30, 1995.
                            ``(iii) Significant possession 
                        income.--For purposes of this 
                        subparagraph, the term `significant 
                        possession income' means possession 
                        income which exceeds 2 percent of the 
                        possession income of the taxpayer for 
                        the taxable year (of the period of 6 
                        taxable years ending with the first 
                        taxable year ending on or after October 
                        14, 1995) having the greatest 
                        possession income.
                    ``(C) Election to use one base period 
                year.--
                            ``(i) In general.--At the election 
                        of the taxpayer, the term `base period 
                        year' means--
                                    ``(I) only the last taxable 
                                year of the corporation ending 
                                in calendar year 1992, or
                                    ``(II) a deemed taxable 
                                year which includes the first 
                                ten months of calendar year 
                                1995.
                            ``(ii) Base period income for 
                        1995.--In determining the adjusted base 
                        period income of the corporation for 
                        the deemed taxable year under clause 
                        (i)(II), the possession income shall be 
                        annualized and shall be determined 
                        without regard to any extraordinary 
                        item.
                            ``(iii) Election.--An election 
                        under this subparagraph by any 
                        possession corporation may be made only 
                        for the corporation's first taxable 
                        year beginning after December 31, 1995, 
                        for which it is a possession 
                        corporation. The rules of subclauses 
                        (II) and (III) of subsection 
                        (a)(4)(B)(iii) shall apply to the 
                        election under this subparagraph.
                    ``(D) Acquisitions and dispositions.--Rules 
                similar to the rules of subparagraphs (A) and 
                (B) of section 41(f)(3) shall apply for 
                purposes of this subsection.
            ``(6) Possession income.--For purposes of this 
        subsection, the term `possession income' means the 
        income referred to in subsection (a)(1)(A), except that 
        there shall not be taken into account any such income 
        from an applicable possession (as defined in paragraph 
        (8)(B)). In no event shall possession income be treated 
        as being less than zero.
            ``(7) Short years.--If the current year or a base 
        period year is a short taxable year, the application of 
        this subsection shall be made with such annualizations 
        as the Secretary shall prescribe.
            ``(8) Special rules for certain possessions.--
                    ``(A) In general.--In the case of an 
                existing credit claimant with respect to an 
                applicable possession, this section (other than 
                the preceding paragraphs of this subsection) 
                shall apply to taxable years beginning after 
                December 31, 1995, and before January 1, 2006.
                    ``(B) Applicable possession.--For purposes 
                of this paragraph, the term `applicable 
                possession' means Guam, American Samoa, and the 
                Commonwealth of the Northern Mariana Islands.
            ``(9) Existing credit claimant.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `existing 
                credit claimant' means a corporation--
                            ``(i) which was actively conducting 
                        a trade or business in a possession on 
                        October 13, 1995, and
                            ``(ii) with respect to which an 
                        election under this section is in 
                        effect for the corporation's taxable 
                        year which includes October 13, 1995.
                    ``(B) New lines of business prohibited.--
                If, after October 13, 1995, a corporation which 
                would (but for this subparagraph) be an 
                existing credit claimant adds a substantial new 
                line of business, such corporation shall cease 
                to be treated as an existing credit claimant as 
                of the close of the taxable year ending before 
                the date of such addition.
                    ``(C) Binding contract exception.--If, on 
                October 13, 1995, and at all times thereafter, 
                there is in effect with respect to a 
                corporation a binding contract for the 
                acquisition of assets to be used in, or for the 
                sale of assets to be produced from, a trade or 
                business, the corporation shall be treated for 
                purposes of this paragraph as actively 
                conducting such trade or business on October 
                13, 1995. The preceding sentence shall not 
                apply if such trade or business is not actively 
                conducted before January 1, 1996.
                    ``(D) Special rule for applicable 
                possessions.--In determining under paragraph 
                (8) whether a taxpayer is an existing credit 
                claimant with respect to an applicable 
                possession, this paragraph shall be applied 
                separately with respect to such possession.''
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11306. DEPRECIATION UNDER INCOME FORECAST METHOD.

    (a) General Rule.--Section 167 (relating to depreciation) 
is amended by redesignating subsection (g) as subsection (h) 
and by inserting after subsection (f) the following new 
subsection:
    ``(g) Depreciation Under Income Forecast Method.--
            ``(1) In general.--If the depreciation deduction 
        allowable under this section to any taxpayer with 
        respect to any property is determined under the income 
        forecast method or any similar method--
                    ``(A) in determining the amount of the 
                depreciation deduction under such method, the 
                estimated income from the property shall 
                include all income earned before the close of 
                the 10th taxable year following the taxable 
                year in which the property was placed in 
                service in connection with the ultimate use of 
                the property by, or the ultimate sale of 
                merchandise to, persons who are not related 
                persons (within the meaning of section 267(b)) 
                to the taxpayer,
                    ``(B) the adjusted basis of the property 
                shall only include amounts with respect to 
                which the requirements of section 461(h) are 
                satisfied,
                    ``(C) the depreciation deduction under such 
                method for the 10th taxable year beginning 
                after the taxable year in which the property 
                was placed in service shall be equal to the 
                adjusted basis of such property as of the 
                beginning of such 10th taxable year, and
                    ``(D) such taxpayer shall pay (or be 
                entitled to receive) interest computed under 
                the look-back method of paragraph (2) for any 
                recomputation year.
            ``(2) Look-back method.--The interest computed 
        under the look-back method of this paragraph for any 
        recomputation year shall be determined by--
                    ``(A) first determining the depreciation 
                deductions under this section with respect to 
                such property which would have been allowable 
                for prior taxable years if the determination of 
                the amounts so allowable had been made on the 
                basis of the sum of the following (instead of 
                the estimated income with respect to such 
                property)--
                            ``(i) the actual income from such 
                        property for periods before the close 
                        of the recomputation year, and
                            ``(ii) an estimate of the future 
                        income with respect to such property 
                        for periods after the recomputation 
                        year,
                    ``(B) second, determining (solely for 
                purposes of computing such interest) the 
                overpayment or underpayment of tax for each 
                such prior taxable year which would result 
                solely from the application of subparagraph 
                (A), and
                    ``(C) then using the adjusted overpayment 
                rate (as defined in section 460(b)(7)), 
                compounded daily, on the overpayment or 
                underpayment determined under subparagraph (B).
        For purposes of the preceding sentence, any cost 
        incurred after the property is placed in service (which 
        is not treated as a separate property under paragraph 
        (5)) shall be taken into account by discounting (using 
        the Federal mid-term rate determined under section 
        1274(d) as of the time such cost is incurred) such cost 
        to its value as of the date the property is placed in 
        service. The taxpayer may elect with respect to any 
        property to have the preceding sentence not apply to 
        such property.
            ``(3) Exception from look-back method.--Paragraph 
        (1)(D) shall not apply with respect to any property 
        which, when placed in service by the taxpayer, had a 
        basis of $100,000 or less.
            ``(4) Recomputation year.--For purposes of this 
        subsection, except as provided in regulations, the term 
        `recomputation year' means, with respect to any 
        property, the third and the 10th taxable years 
        beginning after the taxable year in which the property 
        was placed in service, unless the actual income from 
        the property for the period before the close of such 
        third or 10th taxable year is within 10 percent of the 
        estimated income from the property for such period 
        which was taken into account under paragraph (1)(A).
            ``(5) Special rules.--
                    ``(A) Certain costs treated as separate 
                property.--For purposes of this subsection, the 
                following costs shall be treated as separate 
                properties:
                            ``(i) Any costs incurred with 
                        respect to any property after the 10th 
                        taxable year beginning after the 
                        taxable year in which the property was 
                        placed in service.
                            ``(ii) Any costs incurred after the 
                        property is placed in service and 
                        before the close of such 10th taxable 
                        year if such costs are significant and 
                        give rise to a significant increase in 
                        the income from the property which was 
                        not included in the estimated income 
                        from the property.
                    ``(B) Syndication income from television 
                series.--In the case of property which is an 
                episode in a television series, income from 
                syndicating such series shall not be required 
                to be taken into account under this subsection 
                before the earlier of--
                            ``(i) the 4th taxable year 
                        beginning after the date the first 
                        episode in such series is placed in 
                        service, or
                            ``(ii) the earliest taxable year in 
                        which the taxpayer has an arrangement 
                        relating to the future syndication of 
                        such series.
                    ``(C) Collection of interest.--For purposes 
                of subtitle F (other than sections 6654 and 
                6655), any interest required to be paid by the 
                taxpayer under paragraph (1) for any 
                recomputation year shall be treated as an 
                increase in the tax imposed by this chapter for 
                such year.
                    ``(D) Determinations.--For purposes of 
                paragraph (2), determinations of the amount of 
                income from any property shall be determined in 
                the same manner as for purposes of applying the 
                income forecast method; except that any income 
                from the disposition of such property shall be 
                taken into account.
                    ``(E) Treatment of pass-thru entities.--
                Rules similar to the rules of section 460(b)(4) 
                shall apply for purposes of this subsection.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection 
        (a) shall apply to property placed in service after 
        September 13, 1995.
            (2) Binding contracts.--The amendment made by 
        subsection (a) shall not apply to any property produced 
        or acquired by the taxpayer pursuant to a written 
        contract which was binding on September 13, 1995, and 
        at all times thereafter before such production or 
        acquisition.

SEC. 11307. TRANSFERS OF EXCESS PENSION ASSETS.

    (a) In General.--Section 420 (relating to transfers of 
excess pension assets to retiree health accounts) is amended by 
adding at the end the following new subsection:
    ``(f) Similar Rules To Apply to Other Transfers of Excess 
Plan Assets.--
            ``(1) In general.--If there is a qualified employee 
        benefit transfer of any excess pension assets of a 
        defined benefit plan (other than a multiemployer plan) 
        to an employer--
                    ``(A) a trust which is part of such plan 
                shall not be treated as failing to meet the 
                requirements of section 401(a) solely by reason 
                of such transfer (or any other action 
                authorized under this section), and
                    ``(B) such transfer shall not be treated 
                as--
                            ``(i) an employer reversion for 
                        purposes of section 4980, or
                            ``(ii) a prohibited transaction for 
                        purposes of section 4975.
        The gross income of the employer shall include the 
        amount of any qualified employee benefit transfer made 
        during the taxable year.
            ``(2) Qualified employee benefit transfer.--For 
        purposes of this section--
                    ``(A) In general.--The term `qualified 
                employee benefit transfer' means a transfer--
                            ``(i) of excess pension assets of a 
                        defined benefit plan to the employer, 
                        and
                            ``(ii) with respect to which--
                                    ``(I) the use requirements 
                                of paragraph (3) are met, and
                                    ``(II) the requirements of 
                                subsection (c)(2)(A) are met 
                                (determined by treating such 
                                transfer as a qualified 
                                transfer).
                    ``(B) Limitation on amounts transferred.--
                The amount of excess pension assets which may 
                be transferred in qualified employee benefit 
                transfers during any taxable year shall not 
                exceed the amount which is reasonably estimated 
                to be the amount the employer maintaining the 
                plan will pay (whether directly or through 
                reimbursement) during the taxable year for 
                qualified current employee benefit liabilities.
                    ``(C) Coordination with transfers to 
                retiree health accounts.--Such term shall not 
                include any qualified transfer (as defined in 
                subsection (b)).
                    ``(D) Expiration.--No transfer in any 
                taxable year beginning after December 31, 2001, 
                shall be treated as a qualified employee 
                benefit transfer.
            ``(3) Restrictions on use of transferred assets.--
                    ``(A) In general.--Any assets transferred 
                to an employer in a qualified employee benefit 
                transfer shall be used only to pay qualified 
                current employee benefit liabilities for the 
                taxable year of the transfer (whether directly 
                or through reimbursement).
                    ``(B) Amounts not used to pay benefits.--An 
                employer shall transfer to a plan an amount 
                equal to any assets transferred out of the plan 
                in a qualified employee benefit transfer which 
                are not used as provided in subparagraph (A). 
                Such amount shall be treated in the same manner 
                as amounts are treated under subsection 
                (c)(1)(B), except that allocable income shall 
                be determined by using the Federal short-term 
                rate under section 1274(d).
                    ``(C) Qualified current employee benefit 
                liabilities.--For purposes of this subsection--
                            ``(i) In general.--The term 
                        `qualified current employee benefit 
                        liabilities' means, with respect to any 
                        taxable year, the aggregate amounts 
                        (including administrative expenses) for 
                        which a deduction is allowable to the 
                        employer for such taxable year with 
                        respect to applicable employee 
                        benefits.
                            ``(ii) Applicable employee 
                        benefits.--The term `applicable 
                        employee benefits' means--
                                    ``(I) contributions to a 
                                trust described in section 
                                401(a) which is exempt from tax 
                                under section 501(a),
                                    ``(II) benefits under an 
                                accident or health plan (within 
                                the meaning of section 105),
                                    ``(III) disability 
                                benefits,
                                    ``(IV) benefits under an 
                                educational assistance program 
                                of the employer described in 
                                section 127(b), and
                                    ``(V) benefits under a 
                                dependent care assistance 
                                program of the employer 
                                described in section 129(d).
            ``(4) Definition and special rules.--For purposes 
        of this subsection--
                    ``(A) Excess pension assets.--The term 
                `excess pension assets' has the meaning given 
                such term by subsection (e)(2).
                    ``(B) Coordination with section 412.--In 
                the case of a qualified employee benefit 
                transfer--
                            ``(i) any assets transferred in a 
                        plan year on or before the valuation 
                        date for such year (and any income 
                        allocable thereto) shall, for purposes 
                        of section 412, be treated as assets in 
                        the plan as of the valuation date for 
                        such year, and
                            ``(ii) the plan shall be treated as 
                        having a net experience loss under 
                        section 412(b)(2)(B)(iv) in an amount 
                        equal to the amount of such transfer 
                        and for which amortization charges 
                        begin for the first plan year after the 
                        plan year in which such transfer 
                        occurs, except that such section shall 
                        be applied to such amount by 
                        substituting `10 plan years' for `5 
                        plan years'.''
    (b) Excess Assets.--Section 420(e)(2) is amended to read as 
follows:
            ``(2) Excess pension assets.--The term `excess 
        pension assets' means the excess (if any) of--
                    ``(A) the amount determined under section 
                412(c)(7)(A)(ii), over
                    ``(B) the greater of--
                            ``(i) the amount determined under 
                        section 412(c)(7)(A)(i)(II), or
                            ``(ii) 125 percent of termination 
                        liability determined under section 
                        414(l), except that the actuarial 
                        assumptions used in making such 
                        determinations shall be the assumptions 
                        used by the Pension Benefit Guaranty 
                        Corporation for single-employer plan 
                        termination purposes under regulations 
                        under title IV of the Employee 
                        Retirement Income Security Act of 1974.
        The determination under the preceding sentence with 
        respect to any transfer shall be made as of the date of 
        the transfer. No substantial changes in the regulations 
        described in clause (ii) which are made after the date 
        of the enactment of the Revenue Reconciliation Act of 
        1995 shall be taken into account for purposes of such 
        clause.''
    (c) Taxpayers in Bankruptcy May Not Make Transfers.--
Section 420(e) is amended by adding at the end the following 
new paragraph:
            ``(5) Exclusion of taxpayers in bankruptcy.--No 
        qualified transfer or qualified employee benefit 
        transfer may be made under this section by a taxpayer 
        if--
                    ``(A) the taxpayer has filed, or has had 
                filed against it, a petition in a title 11 or 
                similar case (within the meaning of section 
                368(a)(3)), and
                    ``(B) such case is still pending.''
    (d) Conforming Amendments to ERISA.--
            (1) Notice.--Section 101(e) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1021(e)) is amended--
                    (A) by inserting ``or a qualified employee 
                benefit transfer,'' after ``to a health 
                benefits account,'' in paragraphs (1) and 
                (2)(A),
                    (B) by inserting ``or qualified employee 
                benefits'' after ``the amount of health 
                benefits liabilities'' in paragraph (1),
                    (C) in paragraph (3)--
                            (i) by striking ``January 1, 1995'' 
                        and inserting ``the date of the 
                        enactment of the Revenue Reconciliation 
                        Act of 1995'', and
                            (ii) by striking ``paragraph (1)'' 
                        and inserting ``this subsection'', and
                    (D) by striking ``to Health Benefits 
                Accounts'' in the heading.
            (2) Exclusive benefit.--Paragraph (1) of section 
        403(c) of such Act (29 U.S.C. 1103(c)(1)) is amended by 
        striking ``January 1, 1995'' and inserting ``the date 
        of the enactment of the Revenue Reconciliation Act of 
        1995''.
            (3) Exemption from prohibited transaction.--
        Paragraph (13) of section 408(b) of such Act (29 U.S.C. 
        1108(b)(13)) is amended--
                    (A) by striking ``retiree health account'' 
                and inserting ``health benefits account'',
                    (B) by inserting before the period at the 
                end ``, or any transfer of such assets in a 
                taxable year beginning before January 1, 2002, 
                in a qualified employee benefit transfer 
                permitted under such section 420'', and
                    (C) by striking ``January 1, 1995'' and 
                inserting ``the date of the enactment of the 
                Revenue Reconciliation Act of 1995''.
    (e) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to transfers on and after the date 
        of the enactment of this Act.
            (2) Qualified transfers.--To the extent the 
        amendments made by subsections (b), (c), and (d) apply 
        to qualified transfers under section 420 of the 
        Internal Revenue Code of 1986 (as in effect on the day 
        before the date of the enactment of this Act), such 
        amendments shall apply to transfers occurring after 
        December 31, 1995.

SEC. 11308. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO ACQUIRE 
                    EMPLOYER SECURITIES.

    (a) In General.--Section 133 (relating to interest on 
certain loans used to acquire employer securities) is hereby 
repealed.
    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 291(e)(1) is 
        amended by striking clause (iv) and by redesignating 
        clause (v) as clause (iv).
            (2) Section 812 is amended by striking subsection 
        (g).
            (3) Paragraph (5) of section 852(b) is amended by 
        striking subparagraph (C).
            (4) Paragraph (2) of section 4978(b) is amended by 
        striking subparagraph (A) and all that follows and 
        inserting the following:
                    ``(A) first from qualified securities to 
                which section 1042 applied acquired during the 
                3-year period ending on the date of the 
                disposition, beginning with the securities 
                first so acquired, and
                    ``(B) then from any other employer 
                securities.
        If subsection (d) applies to a disposition, the 
        disposition shall be treated as made from employer 
        securities in the opposite order of the preceding 
        sentence.''.
            (5)(A) Section 4978B (relating to tax on 
        disposition of employer securities to which section 133 
        applied) is hereby repealed.
            (B) The table of sections for chapter 43 is amended 
        by striking the item relating to section 4978B.
            (6) Subsection (e) of section 6047 is amended by 
        striking paragraphs (1), (2), and (3) and inserting the 
        following new paragraphs:
            ``(1) any employer maintaining, or the plan 
        administrator (within the meaning of section 414(g)) 
        of, an employee stock ownership plan which holds stock 
        with respect to which section 404(k) applies to 
        dividends paid on such stock, or
            ``(2) both such employer or plan administrator,''.
            (7) Subsection (f) of section 7872 is amended by 
        striking paragraph (12).
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to loans made after October 13, 
        1995.
            (2) Refinancings.--The amendments made by this 
        section shall not apply to loans made after October 13, 
        1995, to refinance securities acquisition loans 
        (determined without regard to section 133(b)(1)(B) of 
        the Internal Revenue Code of 1986, as in effect on the 
        day before the date of the enactment of this Act) made 
        on or before such date or to refinance loans described 
        in this paragraph if--
                    (A) the refinancing loans meet the 
                requirements of section 133 of such Code (as so 
                in effect),
                    (B) immediately after the refinancing the 
                principal amount of the loan resulting from the 
                refinancing does not exceed the principal 
                amount of the refinanced loan (immediately 
                before the refinancing), and
                    (C) the term of such refinancing loan does 
                not extend beyond the last day of the term of 
                the original securities acquisition loan.
        For purposes of this paragraph, the term ``securities 
        acquisition loan'' includes a loan from a corporation 
        to an employee stock ownership plan described in 
        section 133(b)(3) of such Code (as so in effect).

                        CHAPTER 2--LEGAL REFORMS

SEC. 11311. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR DAMAGES 
                    NOT ATTRIBUTABLE TO PHYSICAL INJURIES OR SICKNESS.

    (a) In General.--Paragraph (2) of section 104(a) (relating 
to compensation for injuries or sickness) is amended to read as 
follows:
            ``(2) the amount of any damages (other than 
        punitive damages) received (whether by suit or 
        agreement and whether as lump sums or as periodic 
        payments) on account of personal physical injuries or 
        physical sickness;''.
    (b) Emotional Distress as Such Treated as Not Physical 
Injury or Physical Sickness.--Section 104(a) is amended by 
striking the last sentence and inserting the following new 
sentence: ``For purposes of paragraph (2), emotional distress 
shall not be treated as a physical injury or physical sickness. 
The preceding sentence shall not apply to an amount of damages 
not in excess of the amount paid for medical care (described in 
subparagraph (A) or (B) of section 213(d)(1)) attributable to 
emotional distress.''.
    (c) Special Rule for States in Which Only Punitive Damages 
May Be Awarded in Wrongful Death Actions.--Section 104 is 
amended by redesignating subsection (c) as subsection (d) and 
by inserting after subsection (b) the following new subsection:
    ``(c) Restriction on Punitive Damages Not to Apply in 
Certain Cases.--The restriction on the application of 
subsection (a)(2) to punitive damages shall not apply to 
punitive damages which--
            ``(1) are awarded in a civil action--
                    ``(A) which is a wrongful death action, and
                    ``(B) with respect to which applicable 
                State law (as in effect on February 1, 1996, 
                and without regard to any modification after 
                such date) provides, or has been construed to 
                provide by a court of competent jurisdiction 
                pursuant to a decision issued on or before 
                February 1, 1996, that only punitive damages 
                may be awarded in such an action, and
            ``(2) would have been excludable from gross income 
        under subsection (a)(2) as in effect for amounts 
        received on December 31, 1995.
This subsection shall cease to apply to any civil action filed 
on or after the first date on which the applicable State law 
ceases to provide (or is no longer construed to provide) the 
treatment described in paragraph (2).''
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        amounts received after December 31, 1995, in taxable 
        years ending after such date.
            (2) Exception.--The amendments made by this section 
        shall not apply to any amount received under a written 
        binding agreement, court decree, or mediation award in 
        effect on (or issued on or before) September 13, 1995.

SEC. 11312. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.

    (a) In General.--Section 6045 (relating to returns of 
brokers) is amended by adding at the end the following new 
subsection:
    ``(f) Return Required in the Case of Payments to 
Attorneys.--
            ``(1) In general.--Any person engaged in a trade or 
        business and making a payment (in the course of such 
        trade or business) to which this subsection applies 
        shall file a return under subsection (a) and a 
        statement under subsection (b) with respect to such 
        payment.
            ``(2) Application of subsection.--
                    ``(A) In general.--This subsection shall 
                apply to any payment to an attorney in 
                connection with legal services (whether or not 
                such services are performed for the payor).
                    ``(B) Exception.--This subsection shall not 
                apply to the portion of any payment which is 
                required to be reported under section 6041(a) 
                (or would be so required but for the dollar 
                limitation contained therein) or section 
                6051.''.
    (b) Reporting of Attorneys' Fees Payable to Corporations.--
The regulations providing an exception under section 6041 of 
the Internal Revenue Code of 1986 for payments made to 
corporations shall not apply to payments of attorneys' fees.
    (c) Effective Date.--The amendment made by this section 
shall apply to payments made after December 31, 1996.

        CHAPTER 3--REFORMS RELATING TO NONRECOGNITION PROVISIONS

SEC. 11321. NO ROLLOVER OR EXCLUSION OF GAIN ON SALE OF PRINCIPAL 
                    RESIDENCE WHICH IS ATTRIBUTABLE TO DEPRECIATION 
                    DEDUCTIONS.

    (a) In General.--Subsection (d) of section 1034 (relating 
to limitations) is amended by adding at the end the following 
new paragraph:
            ``(3) Recognition of gain attributable to 
        depreciation.--Subsection (a) shall not apply to so 
        much of the gain from the sale of any residence as does 
        not exceed the portion of the depreciation adjustments 
        (as defined in section 1250(b)(3)) attributable to 
        periods after December 31, 1995, in respect of such 
        residence.''.
    (b) Comparable Treatment Under 1-Time Exclusion of Gain on 
Sale of Principal Residence.--Subsection (d) of section 121 is 
amended by adding at the end the following new paragraph:
            ``(10) Recognition of gain attributable to 
        depreciation.--
                    ``(A) In general.--Subsection (a) shall not 
                apply to so much of the gain from the sale of 
                any property as does not exceed the portion of 
                the depreciation adjustments (as defined in 
                section 1250(b)(3)) attributable to periods 
                after December 31, 1995, in respect of such 
                property.
                    ``(B) Coordination with paragraph (5).--If 
                this section does not apply to gain 
                attributable to a portion of a residence by 
                reason of paragraph (5), subparagraph (A) shall 
                not apply to depreciation adjustments 
                attributable to such portion.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after December 31, 1995.

SEC. 11322. NONRECOGNITION OF GAIN ON SALE OF PRINCIPAL RESIDENCE BY 
                    NONCITIZENS LIMITED TO NEW RESIDENCES LOCATED IN 
                    THE UNITED STATES.

    (a) In General.--Subsection (d) of section 1034 (relating 
to limitations) (as amended by section 11321) is amended by 
adding at the end the following new paragraph:
            ``(4) New residence must be located in united 
        states in certain cases.--
                    ``(A) In general.--In the case of a sale of 
                an old residence by a taxpayer--
                            ``(i) who is not a citizen of the 
                        United States at the time of sale, and
                            ``(ii) who is not a citizen or 
                        resident of the United States on the 
                        date which is 2 years after the date of 
                        the sale of such old residence,
                subsection (a) shall apply only if the new 
                residence is located in the United States or a 
                possession of the United States.
                    ``(B) Property held jointly by husband and 
                wife.--Subparagraph (A) shall not apply if--
                            ``(i) the old residence is held by 
                        a husband and wife as joint tenants, 
                        tenants by the entirety, or community 
                        property,
                            ``(ii) such husband and wife make a 
                        joint return for the taxable year of 
                        the sale or exchange, and
                            ``(iii) one spouse is a citizen of 
                        the United States at the time of 
                        sale.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section 
        shall apply to sales of old residences after December 
        31, 1995.
            (2) Treatment of purchases of new residences.--The 
        amendment made by this section shall not apply to new 
        residences--
                    (A) purchased before September 13, 1995, or
                    (B) purchased on or after such date 
                pursuant to a binding contract in effect on 
                such date and at all times thereafter before 
                such purchase.
            (3) Certain rules to apply.--For purposes of this 
        subsection, the rules of paragraphs (1), (2), and (3) 
        of section 1034(c) of the Internal Revenue Code of 1986 
        shall apply.

          CHAPTER 4--EXCISE TAX AND TAX-EXEMPT BOND PROVISIONS

SEC. 11331. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS OF DIESEL-
                    POWERED AUTOMOBILES AND LIGHT TRUCKS.

    (a) In General.--Section 6427 (relating to fuels not used 
for taxable purposes) is amended by striking subsection (g).
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 34(a) is amended to 
        read as follows:
            ``(3) under section 6427 with respect to fuels used 
        for nontaxable purposes or resold during the taxable 
        year (determined without regard to section 6427(k)).''.
            (2) Paragraphs (1) and (2)(A) of section 6427(i) 
        are each amended--
                    (A) by striking ``(g),'', and
                    (B) by striking ``(or a qualified diesel 
                powered highway vehicle purchased)'' each place 
                it appears.
    (c) Effective Date.--The amendments made by this section 
shall apply to vehicles purchased after December 31, 1995.

SEC. 11332. MODIFICATIONS TO EXCISE TAX ON OZONE-DEPLETING CHEMICALS.

    (a) In General.--Section 4682(d)(1) (relating to recycling) 
is amended by inserting ``, or on any recycled halon imported 
from any country which is a signatory to the Montreal Protocol 
on Substances that Deplete the Ozone Layer'' before the period 
at the end.
    (b) Certification System.--The Secretary of the Treasury, 
after consultation with the Administrator of the Environmental 
Protection Agency, shall develop a certification system to 
ensure compliance with the recycling requirement for imported 
halon under section 4682(d)(1) of the Internal Revenue Code of 
1986, as amended by subsection (a).
    (c) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 11333. ELECTION TO AVOID TAX-EXEMPT BOND PENALTIES FOR LOCAL 
                    FURNISHERS OF ELECTRICITY AND GAS.

    Section 142(f) (relating to local furnishing of electric 
energy or gas) is amended by adding at the end the following 
new paragraphs:
            ``(3) Election to avoid penalties for certain 
        furnishers.--
                    ``(A) In general.--If--
                            ``(i) a person engaged in the local 
                        furnishing of electric energy or gas, 
                        directly or indirectly financed 
                        facilities for such furnishing in whole 
                        or in part with exempt facility bonds 
                        described in subsection (a)(8) issued 
                        before the date of the enactment of 
                        this paragraph,
                            ``(ii) such bonds would (but for 
                        this paragraph) cease to be tax-exempt 
                        by reason of such person failing to 
                        meet the local furnishing requirement 
                        of such section as a result of a 
                        service area expansion by such person, 
                        and
                            ``(iii) an election described in 
                        subparagraph (B) is made by such person 
                        with respect to all such facilities of 
                        the person,
                then such bonds shall not cease to be tax-
                exempt by reason of such expansion (and section 
                150(b)(4) shall not apply to interest on such 
                bonds).
                    ``(B) Election.--An election is described 
                in this subparagraph if it is an election made 
                in such manner as the Secretary prescribes, and 
                such person agrees that--
                            ``(i) no bond exempt from tax under 
                        section 103 and described in subsection 
                        (a)(8) may be issued on or after the 
                        date of the enactment of this paragraph 
                        with respect to the facilities for the 
                        local furnishing of electric energy or 
                        gas, or both of such person, other than 
                        such a bond issued to refund another 
                        bond if the amount of such bond does 
                        not exceed the outstanding amount of 
                        the refunded bond and the maturity date 
                        of the refunding bond is not later than 
                        the average maturity date of the 
                        refunded bonds to be refunded by the 
                        issue of which the refunding bond is a 
                        part,
                            ``(ii) the expansion of the service 
                        area--
                                    ``(I) is not financed with 
                                the proceeds of any exempt 
                                facility bond described in 
                                subsection (a)(8), and
                                    ``(II) is not treated as a 
                                nonqualifying use under the 
                                rules of paragraph (2), and
                            ``(iii) all outstanding bonds used 
                        to finance the facilities for such 
                        person are redeemed not later than 6 
                        months after the later of--
                                    ``(I) the earliest date on 
                                which such bonds may be 
                                redeemed, or
                                    ``(II) the date of the 
                                election.
                    ``(C) Related persons.--For purposes of 
                this paragraph, the term `person' includes a 
                group of related persons (within the meaning of 
                section 144(a)(3)) which includes such person.
            ``(4) Application of section.--For purposes of this 
        section, no person may qualify on or after the date of 
        the enactment of this paragraph for tax-exempt bond 
        financing for the local furnishing of electric energy 
        or gas unless such person is engaged on such date in 
        the local furnishing of the energy source for which 
        facilities are financed.''.

SEC. 11334. TAX-EXEMPT BONDS FOR SALE OF ALASKA POWER ADMINISTRATION 
                    FACILITY.

    Sections 142(f)(4) (as added by section 11333(a)) and 
147(d) of the Internal Revenue Code of 1986 shall not apply 
with respect to any private activity bond issued after the date 
of the enactment of this Act and used to finance the 
acquisition of the Snettisham hydroelectric project from the 
Alaska Power Administration in determining if such bond is a 
qualified bond for purposes of such Code.

                CHAPTER 5--FOREIGN TRUST TAX COMPLIANCE

SEC. 11341. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

    (a) In General.--Section 6048 (relating to returns as to 
certain foreign trusts) is amended to read as follows:

``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS.

    ``(a) Notice of Certain Events.--
            ``(1) General rule.--On or before the 90th day (or 
        such later day as the Secretary may prescribe) after 
        any reportable event, the responsible party shall 
        provide written notice of such event to the Secretary 
        in accordance with paragraph (2).
            ``(2) Contents of notice.--The notice required by 
        paragraph (1) shall contain such information as the 
        Secretary may prescribe, including--
                    ``(A) the amount of money or other property 
                (if any) transferred to the trust in connection 
                with the reportable event, and
                    ``(B) the identity of the trust and of each 
                trustee and beneficiary (or class of 
                beneficiaries) of the trust.
            ``(3) Reportable event.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `reportable 
                event' means--
                            ``(i) the creation of any foreign 
                        trust by a United States person,
                            ``(ii) the transfer of any money or 
                        property (directly or indirectly) to a 
                        foreign trust by a United States 
                        person, including a transfer by reason 
                        of death, and
                            ``(iii) the death of a citizen or 
                        resident of the United States if--
                                    ``(I) the decedent was 
                                treated as the owner of any 
                                portion of a foreign trust 
                                under the rules of subpart E of 
                                part I of subchapter J of 
                                chapter 1, or
                                    ``(II) any portion of a 
                                foreign trust was included in 
                                the gross estate of the 
                                decedent.
                    ``(B) Exceptions.--
                            ``(i) Fair market value sales.--
                        Subparagraph (A)(ii) shall not apply to 
                        any transfer of property to a trust in 
                        exchange for consideration of at least 
                        the fair market value of the 
                        transferred property. For purposes of 
                        the preceding sentence, consideration 
                        other than cash shall be taken into 
                        account at its fair market value and 
                        the rules of section 679(a)(3) shall 
                        apply.
                            ``(ii) Deferred compensation and 
                        charitable trusts.--Subparagraph (A) 
                        shall not apply with respect to a trust 
                        which is--
                                    ``(I) described in section 
                                402(b), 404(a)(4), or 404A, or
                                    ``(II) determined by the 
                                Secretary to be described in 
                                section 501(c)(3).
            ``(4) Responsible party.--For purposes of this 
        subsection, the term `responsible party' means--
                    ``(A) the grantor in the case of the 
                creation of an inter vivos trust,
                    ``(B) the transferor in the case of a 
                reportable event described in paragraph 
                (3)(A)(ii) other than a transfer by reason of 
                death, and
                    ``(C) the executor of the decedent's estate 
                in any other case.
    ``(b) United States Grantor of Foreign Trust.--
            ``(1) In general.--If, at any time during any 
        taxable year of a United States person, such person is 
        treated as the owner of any portion of a foreign trust 
        under the rules of subpart E of part I of subchapter J 
        of chapter 1, such person shall be responsible to 
        ensure that--
                    ``(A) such trust makes a return for such 
                year which sets forth a full and complete 
                accounting of all trust activities and 
                operations for the year, the name of the United 
                States agent for such trust, and such other 
                information as the Secretary may prescribe, and
                    ``(B) such trust furnishes such information 
                as the Secretary may prescribe to each United 
                States person (i) who is treated as the owner 
                of any portion of such trust or (ii) who 
                receives (directly or indirectly) any 
                distribution from the trust.
            ``(2) Trusts not having united states agent.--
                    ``(A) In general.--If the rules of this 
                paragraph apply to any foreign trust, the 
                determination of amounts required to be taken 
                into account with respect to such trust by a 
                United States person under the rules of subpart 
                E of part I of subchapter J of chapter 1 shall 
                be determined by the Secretary.
                    ``(B) United states agent required.--The 
                rules of this paragraph shall apply to any 
                foreign trust to which paragraph (1) applies 
                unless such trust agrees (in such manner, 
                subject to such conditions, and at such time as 
                the Secretary shall prescribe) to authorize a 
                United States person to act as such trust's 
                limited agent solely for purposes of applying 
                sections 7602, 7603, and 7604 with respect to--
                            ``(i) any request by the Secretary 
                        to examine records or produce testimony 
                        related to the proper treatment of 
                        amounts required to be taken into 
                        account under the rules referred to in 
                        subparagraph (A), or
                            ``(ii) any summons by the Secretary 
                        for such records or testimony.
                The appearance of persons or production of 
                records by reason of a United States person 
                being such an agent shall not subject such 
                persons or records to legal process for any 
                purpose other than determining the correct 
                treatment under this title of the amounts 
                required to be taken into account under the 
                rules referred to in subparagraph (A). A 
                foreign trust which appoints an agent described 
                in this subparagraph shall not be considered to 
                have an office or a permanent establishment in 
                the United States, or to be engaged in a trade 
                or business in the United States, solely 
                because of the activities of such agent 
                pursuant to this subsection.
                    ``(C) Other rules to apply.--Rules similar 
                to the rules of paragraphs (2) and (4) of 
                section 6038A(e) shall apply for purposes of 
                this paragraph.
    ``(c) Reporting by United States Beneficiaries of Foreign 
Trusts.--
            ``(1) In general.--If any United States person 
        receives (directly or indirectly) during any taxable 
        year of such person any distribution from a foreign 
        trust, such person shall make a return with respect to 
        such trust for such year which includes--
                    ``(A) the name of such trust,
                    ``(B) the aggregate amount of the 
                distributions so received from such trust 
                during such taxable year, and
                    ``(C) such other information as the 
                Secretary may prescribe.
            ``(2) Inclusion in income if records not 
        provided.--
                    ``(A) In general.--If adequate records are 
                not provided to the Secretary to determine the 
                proper treatment of any distribution from a 
                foreign trust, such distribution shall be 
                treated as an accumulation distribution 
                includible in the gross income of the 
                distributee under chapter 1. To the extent 
                provided in regulations, the preceding sentence 
                shall not apply if the foreign trust elects to 
                be subject to rules similar to the rules of 
                subsection (b)(2)(B).
                    ``(B) Application of accumulation 
                distribution rules.--For purposes of applying 
                section 668 in a case to which subparagraph (A) 
                applies, the applicable number of years for 
                purposes of section 668(a) shall be \1/2\ of 
                the number of years the trust has been in 
                existence.
    ``(d) Special Rules.--
            ``(1) Determination of whether united states person 
        receives distribution.--For purposes of this section, 
        in determining whether a United States person receives 
        a distribution from a foreign trust, the fact that a 
        portion of such trust is treated as owned by another 
        person under the rules of subpart E of part I of 
        subchapter J of chapter 1 shall be disregarded.
            ``(2) Domestic trusts with foreign activities.--To 
        the extent provided in regulations, a trust which is a 
        United States person shall be treated as a foreign 
        trust for purposes of this section and section 6677 if 
        such trust has substantial activities, or holds 
        substantial property, outside the United States.
            ``(3) Time and manner of filing information.--Any 
        notice or return required under this section shall be 
        made at such time and in such manner as the Secretary 
        shall prescribe.
            ``(4) Modification of return requirements.--The 
        Secretary is authorized to suspend or modify any 
        requirement of this section if the Secretary determines 
        that the United States has no significant tax interest 
        in obtaining the required information.''.
    (b) Increased Penalties.--Section 6677 (relating to failure 
to file information returns with respect to certain foreign 
trusts) is amended to read as follows:

``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN 
                    FOREIGN TRUSTS.

    ``(a) Civil Penalty.--In addition to any criminal penalty 
provided by law, if any notice or return required to be filed 
by section 6048--
            ``(1) is not filed on or before the time provided 
        in such section, or
            ``(2) does not include all the information required 
        pursuant to such section or includes incorrect 
        information,
the person required to file such notice or return shall pay a 
penalty equal to 35 percent of the gross reportable amount. If 
any failure described in the preceding sentence continues for 
more than 90 days after the day on which the Secretary mails 
notice of such failure to the person required to pay such 
penalty, such person shall pay a penalty (in addition to the 
amount determined under the preceding sentence) of $10,000 for 
each 30-day period (or fraction thereof) during which such 
failure continues after the expiration of such 90-day period. 
In no event shall the penalty under this subsection with 
respect to any failure exceed the gross reportable amount.
    ``(b) Special Rules for Returns Under Section 6048(b).--In 
the case of a return required under section 6048(b)--
            ``(1) the United States person referred to in such 
        section shall be liable for the penalty imposed by 
        subsection (a), and
            ``(2) subsection (a) shall be applied by 
        substituting `5 percent' for `35 percent'.
    ``(c) Gross Reportable Amount.--For purposes of subsection 
(a), the term `gross reportable amount' means--
            ``(1) the gross value of the property involved in 
        the event (determined as of the date of the event) in 
        the case of a failure relating to section 6048(a),
            ``(2) the gross value of the portion of the trust's 
        assets at the close of the year treated as owned by the 
        United States person in the case of a failure relating 
        to section 6048(b)(1), and
            ``(3) the gross amount of the distributions in the 
        case of a failure relating to section 6048(c).
    ``(d) Reasonable Cause Exception.--No penalty shall be 
imposed by this section on any failure which is shown to be due 
to reasonable cause and not due to willful neglect. The fact 
that a foreign jurisdiction would impose a civil or criminal 
penalty on the taxpayer (or any other person) for disclosing 
the required information is not reasonable cause.
    ``(e) Deficiency Procedures Not To Apply.--Subchapter B of 
chapter 63 (relating to deficiency procedures for income, 
estate, gift, and certain excise taxes) shall not apply in 
respect of the assessment or collection of any penalty imposed 
by subsection (a).''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 6724(d), as amended by 
        sections 11004 and 11045, is amended by striking ``or'' 
        at the end of subparagraph (U), by striking the period 
        at the end of subparagraph (V) and inserting ``, or'', 
        and by inserting after subparagraph (V) the following 
        new subparagraph:
                    ``(W) section 6048(b)(1)(B) (relating to 
                foreign trust reporting requirements).''.
            (2) The table of sections for subpart B of part III 
        of subchapter A of chapter 61 is amended by striking 
        the item relating to section 6048 and inserting the 
        following new item:

        ``Sec. 6048. Information with respect to certain foreign 
                  trusts.''.

            (3) The table of sections for part I of subchapter 
        B of chapter 68 is amended by striking the item 
        relating to section 6677 and inserting the following 
        new item:

        ``Sec. 6677. Failure to file information with respect to certain 
                  foreign trusts.''.

    (d) Effective Dates.--
            (1) Reportable events.--To the extent related to 
        subsection (a) of section 6048 of the Internal Revenue 
        Code of 1986, as amended by this section, the 
        amendments made by this section shall apply to 
        reportable events (as defined in such section 6048) 
        occurring after the date of the enactment of this Act.
            (2) Grantor trust reporting.--To the extent related 
        to subsection (b) of such section 6048, the amendments 
        made by this section shall apply to taxable years of 
        United States persons beginning after the date of the 
        enactment of this Act.
            (3) Reporting by united states beneficiaries.--To 
        the extent related to subsection (c) of such section 
        6048, the amendments made by this section shall apply 
        to distributions received after the date of the 
        enactment of this Act.

SEC. 11342. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS HAVING 
                    ONE OR MORE UNITED STATES BENEFICIARIES.

    (a) Treatment of Trust Obligations, Etc.--
            (1) Paragraph (2) of section 679(a) is amended by 
        striking subparagraph (B) and inserting the following:
                    ``(B) Transfers at fair market value.--To 
                any transfer of property to a trust in exchange 
                for consideration of at least the fair market 
                value of the transferred property. For purposes 
                of the preceding sentence, consideration other 
                than cash shall be taken into account at its 
                fair market value.''.
            (2) Subsection (a) of section 679 (relating to 
        foreign trusts having one or more United States 
        beneficiaries) is amended by adding at the end the 
        following new paragraph:
            ``(3) Certain obligations not taken into account 
        under fair market value exception.--
                    ``(A) In general.--In determining whether 
                paragraph (2)(B) applies to any transfer by a 
                person described in clause (ii) or (iii) of 
                subparagraph (C), there shall not be taken into 
                account--
                            ``(i) except as provided in 
                        regulations, any obligation of a person 
                        described in subparagraph (C), and
                            ``(ii) to the extent provided in 
                        regulations, any obligation which is 
                        guaranteed by a person described in 
                        subparagraph (C).
                    ``(B) Treatment of principal payments on 
                obligation.--Principal payments by the trust on 
                any obligation referred to in subparagraph (A) 
                shall be taken into account on and after the 
                date of the payment in determining the portion 
                of the trust attributable to the property 
                transferred.
                    ``(C) Persons described.--The persons 
                described in this subparagraph are--
                            ``(i) the trust,
                            ``(ii) any grantor or beneficiary 
                        of the trust, and
                            ``(iii) any person who is related 
                        (within the meaning of section 
                        643(i)(2)(B)) to any grantor or 
                        beneficiary of the trust.''.
    (b) Exemption of Transfers to Charitable Trusts.--
Subsection (a) of section 679 is amended by striking ``section 
404(a)(4) or 404A'' and inserting ``section 
6048(a)(3)(B)(ii)''.
    (c) Other Modifications.--Subsection (a) of section 679 is 
amended by adding at the end the following new paragraphs:
            ``(4) Special rules applicable to foreign grantor 
        who later becomes a united states person.--
                    ``(A) In general.--If a nonresident alien 
                individual has a residency starting date within 
                5 years after directly or indirectly 
                transferring property to a foreign trust, this 
                section and section 6048 shall be applied as if 
                such individual transferred to such trust on 
                the residency starting date an amount equal to 
                the portion of such trust attributable to the 
                property transferred by such individual to such 
                trust in such transfer.
                    ``(B) Treatment of undistributed income.--
                For purposes of this section, undistributed net 
                income for periods before such individual's 
                residency starting date shall be taken into 
                account in determining the portion of the trust 
                which is attributable to property transferred 
                by such individual to such trust but shall not 
                otherwise be taken into account.
                    ``(C) Residency starting date.--For 
                purposes of this paragraph, an individual's 
                residency starting date is the residency 
                starting date determined under section 
                7701(b)(2)(A).
            ``(5) Outbound trust migrations.--If--
                    ``(A) an individual who is a citizen or 
                resident of the United States transferred 
                property to a trust which was not a foreign 
                trust, and
                    ``(B) such trust becomes a foreign trust 
                while such individual is alive,
        then this section and section 6048 shall be applied as 
        if such individual transferred to such trust on the 
        date such trust becomes a foreign trust an amount equal 
        to the portion of such trust attributable to the 
        property previously transferred by such individual to 
        such trust. A rule similar to the rule of paragraph 
        (4)(B) shall apply for purposes of this paragraph.''.
    (d) Modifications Relating to Whether Trust Has United 
States Beneficiaries.--Subsection (c) of section 679 is amended 
by adding at the end the following new paragraph:
            ``(3) Certain united states beneficiaries 
        disregarded.--A beneficiary shall not be treated as a 
        United States person in applying this section with 
        respect to any transfer of property to foreign trust if 
        such beneficiary first became a United States person 
        more than 5 years after the date of such transfer.''.
    (e) Technical Amendment.--Subparagraph (A) of section 
679(c)(2) is amended to read as follows:
                    ``(A) in the case of a foreign corporation, 
                such corporation is a controlled foreign 
                corporation (as defined in section 957(a)),''.
    (f) Regulations.--Section 679 is amended by adding at the 
end the following new subsection:
    ``(d) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''.
    (g) Effective Date.--The amendments made by this section 
shall apply to transfers of property after February 6, 1995.

SEC. 11343. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER GRANTOR 
                    TRUST RULES.

    (a) General Rule.--
            (1) Subsection (f) of section 672 (relating to 
        special rule where grantor is foreign person) is 
        amended to read as follows:
    ``(f) Subpart Not To Result in Foreign Ownership.--
            ``(1) In general.--Notwithstanding any other 
        provision of this subpart, this subpart shall apply 
        only to the extent such application results in an 
        amount being currently taken into account (directly or 
        through 1 or more entities) under this chapter in 
        computing the income of a citizen or resident of the 
        United States or a domestic corporation.
            ``(2) Exceptions.--
                    ``(A) Certain revocable and irrevocable 
                trusts.--Paragraph (1) shall not apply to any 
                trust if--
                            ``(i) the power to revest 
                        absolutely in the grantor title to the 
                        trust property is exercisable solely by 
                        the grantor without the approval or 
                        consent of any other person or with the 
                        consent of a related or subordinate 
                        party who is subservient to the 
                        grantor, or
                            ``(ii) the only amounts 
                        distributable from such trust (whether 
                        income or corpus) during the lifetime 
                        of the grantor are amounts 
                        distributable to the grantor or the 
                        spouse of the grantor.
                    ``(B) Compensatory trusts.--Except as 
                provided in regulations, paragraph (1) shall 
                not apply to any portion of a trust 
                distributions from which are taxable as 
                compensation for services rendered.
            ``(3) Special rules.--Except as otherwise provided 
        in regulations prescribed by the Secretary--
                    ``(A) a controlled foreign corporation (as 
                defined in section 957) shall be treated as a 
                domestic corporation for purposes of paragraph 
                (1), and
                    ``(B) paragraph (1) shall not apply for 
                purposes of applying section 1296.
            ``(4) Recharacterization of purported gifts.--In 
        the case of any transfer directly or indirectly from a 
        partnership or foreign corporation which the transferee 
        treats as a gift or bequest, the Secretary may 
        recharacterize such transfer in such circumstances as 
        the Secretary determines to be appropriate to prevent 
        the avoidance of the purposes of this subsection.
            ``(5) Special rule where grantor is foreign 
        person.--If
                    ``(A) but for this subsection, a foreign 
                person would be treated as the owner of any 
                portion of a trust, and
                    ``(B) such trust has a beneficiary who is a 
                United States person,
        such beneficiary shall be treated as the grantor of 
        such portion to the extent such beneficiary has made 
        transfers of property by gift (directly or indirectly) 
        to such foreign person. For purposes of the preceding 
        sentence, any gift shall not be taken into account to 
        the extent such gift would be excluded from taxable 
        gifts under section 2503(b).
            ``(6) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary or appropriate to 
        carry out the purposes of this subsection, including 
        regulations providing that paragraph (1) shall not 
        apply in appropriate cases.''.
            (2) The last sentence of subsection (c) of section 
        672 of such Code is amended by inserting ``subsection 
        (f) and'' before ``sections 674''.
    (b) Credit for Certain Taxes.--Paragraph (2) of section 
665(d) is amended by adding at the end the following new 
sentence: ``Under rules or regulations prescribed by the 
Secretary, in the case of any foreign trust of which the 
settlor or another person would be treated as owner of any 
portion of the trust under subpart E but for section 672(f), 
the term `taxes imposed on the trust' includes the allocable 
amount of any income, war profits, and excess profits taxes 
imposed by any foreign country or possession of the United 
States on the settlor or such other person in respect of trust 
gross income.''.
    (c) Distributions by Certain Foreign Trusts Through 
Nominees.--
            (1) Section 643 is amended by adding at the end the 
        following new subsection:
    ``(h) Distributions by Certain Foreign Trusts Through 
Nominees.--For purposes of this part, any amount paid to a 
United States person which is derived directly or indirectly 
from a foreign trust of which the payor is not the grantor 
shall be deemed in the year of payment to have been directly 
paid by the foreign trust to such United States person.''.
            (2) Section 665 is amended by striking subsection 
        (c).
    (d) Effective Date.--
            (1) In general.--Except as provided by paragraph 
        (2), the amendments made by this section shall take 
        effect on the date of the enactment of this Act.
            (2) Exception for certain trusts.--The amendments 
        made by this section shall not apply to any trust--
                    (A) which is treated as owned by the 
                grantor or another person under section 676 or 
                677 (other than subsection (a)(3) thereof) of 
                the Internal Revenue Code of 1986, and
                    (B) which is in existence on September 19, 
                1995.
        The preceding sentence shall not apply to the portion 
        of any such trust attributable to any transfer to such 
        trust after September 19, 1995.
    (e) Transitional Rule.--If--
            (1) by reason of the amendments made by this 
        section, any person other than a United States person 
        ceases to be treated as the owner of a portion of a 
        domestic trust, and
            (2) before January 1, 1997, such trust becomes a 
        foreign trust, or the assets of such trust are 
        transferred to a foreign trust,
no tax shall be imposed by section 1491 of the Internal Revenue 
Code of 1986 by reason of such trust becoming a foreign trust 
or the assets of such trust being transferred to a foreign 
trust.

SEC. 11344. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

    (a) In General.--Subpart A of part III of subchapter A of 
chapter 61 is amended by inserting after section 6039E the 
following new section:

``SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN PERSONS.

    ``(a) In General.--If the value of the aggregate foreign 
gifts received by a United States person (other than an 
organization described in section 501(c) and exempt from tax 
under section 501(a)) during any taxable year exceeds $10,000, 
such United States person shall furnish (at such time and in 
such manner as the Secretary shall prescribe) such information 
as the Secretary may prescribe regarding each foreign gift 
received during such year.
    ``(b) Foreign Gift.--For purposes of this section, the term 
`foreign gift' means any amount received from a person other 
than a United States person which the recipient treats as a 
gift or bequest. Such term shall not include any qualified 
transfer (within the meaning of section 2503(e)(2)).
    ``(c) Penalty for Failure To File Information.--
            ``(1) In general.--If a United States person fails 
        to furnish the information required by subsection (a) 
        with respect to any foreign gift within the time 
        prescribed therefor (including extensions)--
                    ``(A) the tax consequences of the receipt 
                of such gift shall be determined by the 
                Secretary in the Secretary's sole discretion 
                from the Secretary's own knowledge or from such 
                information as the Secretary may obtain through 
                testimony or otherwise, and
                    ``(B) such United States person shall pay 
                (upon notice and demand by the Secretary and in 
                the same manner as tax) an amount equal to 5 
                percent of the amount of such foreign gift for 
                each month for which the failure continues (not 
                to exceed 25 percent of such amount in the 
                aggregate).
            ``(2) Reasonable cause exception.--Paragraph (1) 
        shall not apply to any failure to report a foreign gift 
        if the United States person shows that the failure is 
        due to reasonable cause and not due to willful neglect.
    ``(d) Cost-of-Living Adjustment.--In the case of any 
taxable year beginning after December 31, 1996, the $10,000 
amount under subsection (a) shall be increased by an amount 
equal to the product of such amount and the cost-of-living 
adjustment for such taxable year under section 1(f)(3), except 
that subparagraph (B) thereof shall be applied by substituting 
`1995' for `1992'.
    ``(e) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for such 
subpart is amended by inserting after the item relating to 
section 6039E the following new item:

        ``Sec. 6039F. Notice of large gifts received from foreign 
                  persons.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to amounts received after the date of the enactment 
of this Act in taxable years ending after such date.

SEC. 11345. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS WHICH ARE 
                    NOT GRANTOR TRUSTS.

    (a) Modification of Interest Charge on Accumulation 
Distributions.--Subsection (a) of section 668 (relating to 
interest charge on accumulation distributions from foreign 
trusts) is amended to read as follows:
    ``(a) General Rule.--For purposes of the tax determined 
under section 667(a)--
            ``(1) Interest determined using underpayment 
        rates.--The interest charge determined under this 
        section with respect to any distribution is the amount 
        of interest which would be determined on the partial 
        tax computed under section 667(b) for the period 
        described in paragraph (2) using the rates and the 
        method under section 6621 applicable to underpayments 
        of tax.
            ``(2) Period.--For purposes of paragraph (1), the 
        period described in this paragraph is the period which 
        begins on the date which is the applicable number of 
        years before the date of the distribution and which 
        ends on the date of the distribution.
            ``(3) Applicable number of years.--For purposes of 
        paragraph (2)--
                    ``(A) In general.--The applicable number of 
                years with respect to a distribution is the 
                number determined by dividing--
                            ``(i) the sum of the products 
                        described in subparagraph (B) with 
                        respect to each undistributed income 
                        year, by
                            ``(ii) the aggregate undistributed 
                        net income.
                The quotient determined under the preceding 
                sentence shall be rounded under procedures 
                prescribed by the Secretary.
                    ``(B) Product described.--For purposes of 
                subparagraph (A), the product described in this 
                subparagraph with respect to any undistributed 
                income year is the product of--
                            ``(i) the undistributed net income 
                        for such year, and
                            ``(ii) the sum of the number of 
                        taxable years between such year and the 
                        taxable year of the distribution 
                        (counting in each case the 
                        undistributed income year but not 
                        counting the taxable year of the 
                        distribution).
            ``(4) Undistributed income year.--For purposes of 
        this subsection, the term `undistributed income year' 
        means any prior taxable year of the trust for which 
        there is undistributed net income, other than a taxable 
        year during all of which the beneficiary receiving the 
        distribution was not a citizen or resident of the 
        United States.
            ``(5) Determination of undistributed net income.--
        Notwithstanding section 666, for purposes of this 
        subsection, an accumulation distribution from the trust 
        shall be treated as reducing proportionately the 
        undistributed net income for undistributed income 
        years.
            ``(6) Periods before 1996.--Interest for the 
        portion of the period described in paragraph (2) which 
        occurs before January 1, 1996, shall be determined--
                    ``(A) by using an interest rate of 6 
                percent, and
                    ``(B) without compounding until January 1, 
                1996.''.
    (b) Abusive Transactions.--Section 643(a) is amended by 
inserting after paragraph (6) the following new paragraph:
            ``(7) Abusive transactions.--The Secretary shall 
        prescribe such regulations as may be necessary or 
        appropriate to carry out the purposes of this part, 
        including regulations to prevent avoidance of such 
        purposes.''.
    (c) Treatment of Loans From Trusts.--
            (1) In general.--Section 643 (relating to 
        definitions applicable to subparts A, B, C, and D) is 
        amended by adding at the end the following new 
        subsection:
    ``(i) Loans From Foreign Trusts.--For purposes of subparts 
B, C, and D--
            ``(1) General rule.--Except as provided in 
        regulations, if a foreign trust makes a loan of cash or 
        marketable securities directly or indirectly to--
                    ``(A) any grantor or beneficiary of such 
                trust who is a United States person, or
                    ``(B) any United States person not 
                described in subparagraph (A) who is related to 
                such grantor or beneficiary,
        the amount of such loan shall be treated as a 
        distribution by such trust to such grantor or 
        beneficiary (as the case may be).
            ``(2) Definitions and special rules.--For purposes 
        of this subsection--
                    ``(A) Cash.--The term `cash' includes 
                foreign currencies and cash equivalents.
                    ``(B) Related person.--
                            ``(i) In general.--A person is 
                        related to another person if the 
                        relationship between such persons would 
                        result in a disallowance of losses 
                        under section 267 or 707(b). In 
                        applying section 267 for purposes of 
                        the preceding sentence, section 
                        267(c)(4) shall be applied as if the 
                        family of an individual includes the 
                        spouses of the members of the family.
                            ``(ii) Allocation.--If any person 
                        described in paragraph (1)(B) is 
                        related to more than one person, the 
                        grantor or beneficiary to whom the 
                        treatment under this subsection applies 
                        shall be determined under regulations 
                        prescribed by the Secretary.
                    ``(C) Exclusion of tax-exempts.--The term 
                `United States person' does not include any 
                entity exempt from tax under this chapter.
                    ``(D) Trust not treated as simple trust.--
                Any trust which is treated under this 
                subsection as making a distribution shall be 
                treated as not described in section 651.
            ``(3) Subsequent transactions regarding loan 
        principal.--If any loan is taken into account under 
        paragraph (1), any subsequent transaction between the 
        trust and the original borrower regarding the principal 
        of the loan (by way of complete or partial repayment, 
        satisfaction, cancellation, discharge, or otherwise) 
        shall be disregarded for purposes of this title.''.
            (2) Technical amendment.--Paragraph (8) of section 
        7872(f) is amended by inserting ``, 643(i),'' before 
        ``or 1274'' each place it appears.
    (d) Effective Dates.--
            (1) Interest charge.--The amendment made by 
        subsection (a) shall apply to distributions after the 
        date of the enactment of this Act.
            (2) Abusive transactions.--The amendment made by 
        subsection (b) shall take effect on the date of the 
        enactment of this Act.
            (3) Loans from trusts.--The amendment made by 
        subsection (c) shall apply to loans of cash or 
        marketable securities after September 19, 1995.

SEC. 11346. RESIDENCE OF ESTATES AND TRUSTS, ETC.

    (a) Treatment as United States Person.--
            (1) In general.--Paragraph (30) of section 7701(a) 
        is amended by striking subparagraph (D) and by 
        inserting after subparagraph (C) the following:
                    ``(D) any estate or trust if--
                            ``(i) a court within the United 
                        States is able to exercise primary 
                        supervision over the administration of 
                        the estate or trust, and
                            ``(ii) in the case of a trust, one 
                        or more United States fiduciaries have 
                        the authority to control all 
                        substantial decisions of the trust.''.
            (2) Conforming amendment.--Paragraph (31) of 
        section 7701(a) is amended to read as follows:
            ``(31) Foreign estate or trust.--The term `foreign 
        estate' or `foreign trust' means any estate or trust 
        other than an estate or trust described in section 
        7701(a)(30)(D).''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply--
                    (A) to taxable years beginning after 
                December 31, 1996, or
                    (B) at the election of the trustee of a 
                trust, to taxable years ending after the date 
                of the enactment of this Act.
        Such an election, once made, shall be irrevocable.
    (b) Domestic Trusts Which Become Foreign Trusts.--
            (1) In general.--Section 1491 (relating to 
        imposition of tax on transfers to avoid income tax) is 
        amended by adding at the end the following new flush 
        sentence:
``If a trust which is not a foreign trust becomes a foreign 
trust, such trust shall be treated for purposes of this section 
as having transferred, immediately before becoming a foreign 
trust, all of its assets to a foreign trust.''.
            (2) Penalty.--Section 1494 is amended by adding at 
        the end the following new subsection:
    ``(c) Penalty.--In the case of any failure to file a return 
required by the Secretary with respect to any transfer 
described in section 1491 with respect to a trust, the person 
required to file such return shall be liable for the penalties 
provided in section 6677 in the same manner as if such failure 
were a failure to file a return under section 6048(a).''.
            (3) Effective date.--The amendments made by this 
        subsection shall take effect on the date of the 
        enactment of this Act.

 CHAPTER 6--TREATMENT OF INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP

SEC. 11348. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON INDIVIDUALS 
                    WHO LOSE UNITED STATES CITIZENSHIP.

    (a) In General.--Subsection (a) of section 877 is amended 
to read as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) In general.--Every nonresident alien 
        individual who, within the 10-year period immediately 
        preceding the close of the taxable year, lost United 
        States citizenship, unless such loss did not have for 1 
        of its principal purposes the avoidance of taxes under 
        this subtitle or subtitle B, shall be taxable for such 
        taxable year in the manner provided in subsection (b) 
        if the tax imposed pursuant to such subsection exceeds 
        the tax which, without regard to this section, is 
        imposed pursuant to section 871.
            ``(2) Certain individuals treated as having tax 
        avoidance purpose.--For purposes of paragraph (1), an 
        individual shall be treated as having a principal 
        purpose to avoid such taxes if--
                    ``(A) the average annual net income tax (as 
                defined in section 38(c)(1)) of such individual 
                for the period of 5 taxable years ending before 
                the date of the loss of United States 
                citizenship is greater than $100,000, or
                    ``(B) the net worth of the individual as of 
                such date is $500,000 or more.
        In the case of the loss of United States citizenship in 
        any calendar year after 1996, such $100,000 and 
        $500,000 amounts shall be increased by an amount equal 
        to such dollar amount multiplied by the cost-of-living 
        adjustment determined under section 1(f)(3) for such 
        calendar year by substituting `1994' for `1992' in 
        subparagraph (B) thereof. Any increase under the 
        preceding sentence shall be rounded to the nearest 
        multiple of $1,000.''
    (b) Exceptions.--
            (1) In general.--Section 877 is amended by striking 
        subsection (d), by redesignating subsection (c) as 
        subsection (d), and by inserting after subsection (b) 
        the following new subsection:
    ``(c) Tax Avoidance Not Presumed in Certain Cases.--
            ``(1) In general.--Subsection (a)(2) shall not 
        apply to an individual if--
                    ``(A) such individual is described in a 
                subparagraph of paragraph (2) of this 
                subsection, and
                    ``(B) within the 1-year period beginning on 
                the date of the loss of United States 
                citizenship, such individual submits a ruling 
                request for the Secretary's determination as to 
                whether such loss has for 1 of its principal 
                purposes the avoidance of taxes under this 
                subtitle or subtitle B.
            ``(2) Individuals described.--
                    ``(A) Dual citizenship, etc.--An individual 
                is described in this subparagraph if--
                            ``(i) the individual became at 
                        birth a citizen of the United States 
                        and a citizen of another country and 
                        continues to be a citizen of such other 
                        country, or
                            ``(ii) the individual becomes (not 
                        later than the close of a reasonable 
                        period after loss of United States 
                        citizenship) a citizen of the country 
                        in which--
                                    ``(I) such individual was 
                                born,
                                    ``(II) if such individual 
                                is married, such individual's 
                                spouse was born, or
                                    ``(III) either of such 
                                individual's parents were born.
                    ``(B) Long-term foreign residents.--An 
                individual is described in this subparagraph 
                if, for each year in the 10-year period ending 
                on the date of loss of United States 
                citizenship, the individual was present in the 
                United States for 30 days or less. The rule of 
                section 7701(b)(3)(D)(ii) shall apply for 
                purposes of this subparagraph.
                    ``(C) Renunciation upon reaching age of 
                majority.--An individual is described in this 
                subparagraph if the individual's loss of United 
                States citizenship occurs before such 
                individual attains age 18\1/2\.
                    ``(D) Individuals specified in 
                regulations.--An individual is described in 
                this subparagraph if the individual is 
                described in a category of individuals 
                prescribed by regulation by the Secretary.''
            (2) Technical amendment.--Paragraph (1) of section 
        877(b) of such Code is amended by striking ``subsection 
        (c)'' and inserting ``subsection (d)''.
    (c) Treatment of Property Disposed of in Nonrecognition 
Transactions; Treatment of Distributions From Certain 
Controlled Foreign Corporations.--Subsection (d) of section 
877, as redesignated by subsection (b), is amended to read as 
follows:
    ``(d) Special Rules for Source, Etc.--For purposes of 
subsection (b)--
            ``(1) Source rules.--The following items of gross 
        income shall be treated as income from sources within 
        the United States:
                    ``(A) Sale of property.--Gains on the sale 
                or exchange of property (other than stock or 
                debt obligations) located in the United States.
                    ``(B) Stock or debt obligations.--Gains on 
                the sale or exchange of stock issued by a 
                domestic corporation or debt obligations of 
                United States persons or of the United States, 
                a State or political subdivision thereof, or 
                the District of Columbia.
                    ``(C) Income or gain derived from 
                controlled foreign corporation.--Any income or 
                gain derived from stock in a foreign 
                corporation but only--
                            ``(i) if the individual losing 
                        United States citizenship owned (within 
                        the meaning of section 958(a)), or is 
                        considered as owning (by applying the 
                        ownership rules of section 958(b)), at 
                        any time during the 2-year period 
                        ending on the date of the loss of 
                        United States citizenship, more than 50 
                        percent of--
                                    ``(I) the total combined 
                                voting power of all classes of 
                                stock entitled to vote of such 
                                corporation, or
                                    ``(II) the total value of 
                                the stock of such corporation, 
                                and
                            ``(ii) to the extent such income or 
                        gain does not exceed the earnings and 
                        profits attributable to such stock 
                        which were earned or accumulated before 
                        the loss of citizenship and during 
                        periods that the ownership requirements 
                        of clause (i) are met.
            ``(2) Gain recognition on certain exchanges.--
                    ``(A) In general.--In the case of any 
                exchange of property to which this paragraph 
                applies, notwithstanding any other provision of 
                this title, such property shall be treated as 
                sold for its fair market value on the date of 
                such exchange, and any gain shall be recognized 
                for the taxable year which includes such date.
                    ``(B) Exchanges to which paragraph 
                applies.--This paragraph shall apply to any 
                exchange during the 10-year period described in 
                subsection (a) if--
                            ``(i) gain would not (but for this 
                        paragraph) be recognized on such 
                        exchange in whole or in part for 
                        purposes of this subtitle,
                            ``(ii) income derived from such 
                        property was from sources within the 
                        United States (or, if no income was so 
                        derived, would have been from such 
                        sources), and
                            ``(iii) income derived from the 
                        property acquired in the exchange would 
                        be from sources outside the United 
                        States.
                    ``(C) Exception.--Subparagraph (A) shall 
                not apply if the individual enters into an 
                agreement with the Secretary which specifies 
                that any income or gain derived from the 
                property acquired in the exchange (or any other 
                property which has a basis determined in whole 
                or part by reference to such property) during 
                such 10-year period shall be treated as from 
                sources within the United States. If the 
                property transferred in the exchange is 
                disposed of by the person acquiring such 
                property, such agreement shall terminate and 
                any gain which was not recognized by reason of 
                such agreement shall be recognized as of the 
                date of such disposition.
                    ``(D) Secretary may extend period.--To the 
                extent provided in regulations prescribed by 
                the Secretary, subparagraph (B) shall be 
                applied by substituting the 15-year period 
                beginning 5 years before the loss of United 
                States citizenship for the 10-year period 
                referred to therein.
                    ``(E) Secretary may require recognition of 
                gain in certain cases.--To the extent provided 
                in regulations prescribed by the Secretary--
                            ``(i) the removal of appreciated 
                        tangible personal property from the 
                        United States, and
                            ``(ii) any other occurrence which 
                        (without recognition of gain) results 
                        in a change in the source of the income 
                        or gain from property from sources 
                        within the United States to sources 
                        outside the United States,
                shall be treated as an exchange to which this 
                paragraph applies.
            ``(3) Substantial diminishing of risks of 
        ownership.--For purposes of determining whether this 
        section applies to any gain on the sale or exchange of 
        any property, the running of the 10-year period 
        described in subsection (a) shall be suspended for any 
        period during which the individual's risk of loss with 
        respect to the property is substantially diminished 
        by--
                    ``(A) the holding of a put with respect to 
                such property (or similar property),
                    ``(B) the holding by another person of a 
                right to acquire the property, or
                    ``(C) a short sale or any other 
                transaction.''
    (d) Credit for Foreign Taxes Imposed on United States 
Source Income.--
            (1) Subsection (b) of section 877 is amended by 
        adding at the end the following new sentence: ``The tax 
        imposed solely by reason of this section shall be 
        reduced (but not below zero) by the amount of any 
        income, war profits, and excess profits taxes (within 
        the meaning of section 903) paid to any foreign country 
        or possession of the United States on any income of the 
        taxpayer on which tax is imposed solely by reason of 
        this section.''
            (2) Subsection (a) of section 877, as amended by 
        subsection (a), is amended by inserting ``(after any 
        reduction in such tax under the last sentence of such 
        subsection)'' after ``such subsection''.
    (e) Comparable Estate and Gift Tax Treatment.--
            (1) Estate tax.--
                    (A) In general.--Subsection (a) of section 
                2107 is amended to read as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) Rate of tax.--A tax computed in accordance 
        with the table contained in section 2001 is hereby 
        imposed on the transfer of the taxable estate, 
        determined as provided in section 2106, of every 
        decedent nonresident not a citizen of the United States 
        if, within the 10-year period ending with the date of 
        death, such decedent lost United States citizenship, 
        unless such loss did not have for 1 of its principal 
        purposes the avoidance of taxes under this subtitle or 
        subtitle A.
            ``(2) Certain individuals treated as having tax 
        avoidance purpose.--
                    ``(A) In general.--For purposes of 
                paragraph (1), an individual shall be treated 
                as having a principal purpose to avoid such 
                taxes if such individual is so treated under 
                section 877(a)(2).
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to a decedent meeting the 
                requirements of section 877(c)(1).''
                    (B) Credit for foreign death taxes.--
                Subsection (c) of section 2107 is amended by 
                redesignating paragraph (2) as paragraph (3) 
                and by inserting after paragraph (1) the 
                following new paragraph:
            ``(2) Credit for foreign death taxes.--
                    ``(A) In general.--The tax imposed by 
                subsection (a) shall be credited with the 
                amount of any estate, inheritance, legacy, or 
                succession taxes actually paid to any foreign 
                country in respect of any property which is 
                included in the gross estate solely by reason 
                of subsection (b).
                    ``(B) Limitation on credit.--The credit 
                allowed by subparagraph (A) for such taxes paid 
                to a foreign country shall not exceed the 
                lesser of--
                            ``(i) the amount which bears the 
                        same ratio to the amount of such taxes 
                        actually paid to such foreign country 
                        in respect of property included in the 
                        gross estate as the value of the 
                        property included in the gross estate 
                        solely by reason of subsection (b) 
                        bears to the value of all property 
                        subjected to such taxes by such foreign 
                        country, or
                            ``(ii) such property's 
                        proportionate share of the excess of--
                                    ``(I) the tax imposed by 
                                subsection (a), over
                                    ``(II) the tax which would 
                                be imposed by section 2101 but 
                                for this section.
                    ``(C) Proportionate share.--For purposes of 
                subparagraph (B), a property's proportionate 
                share is the percentage which the value of the 
                property which is included in the gross estate 
                solely by reason of subsection (b) bears to the 
                total value of the gross estate.''
                    (C) Expansion of inclusion in gross estate 
                of stock of foreign corporations.--Paragraph 
                (2) of section 2107(b) is amended by striking 
                ``more than 50 percent of'' and all that 
                follows and inserting ``more than 50 percent 
                of--
                    ``(A) the total combined voting power of 
                all classes of stock entitled to vote of such 
                corporation, or
                    ``(B) the total value of the stock of such 
                corporation,''.
            (2) Gift tax.--
                    (A) In general.--Paragraph (3) of section 
                2501(a) is amended to read as follows:
            ``(3) Exception.--
                    ``(A) Certain individuals.--Paragraph (2) 
                shall not apply in the case of a donor who, 
                within the 10-year period ending with the date 
                of transfer, lost United States citizenship, 
                unless such loss did not have for 1 of its 
                principal purposes the avoidance of taxes under 
                this subtitle or subtitle A.
                    ``(B) Certain individuals treated as having 
                tax avoidance purpose.--For purposes of 
                subparagraph (A), an individual shall be 
                treated as having a principal purpose to avoid 
                such taxes if such individual is so treated 
                under section 877(a)(2).
                    ``(C) Exception for certain individuals.--
                Subparagraph (B) shall not apply to a decedent 
                meeting the requirements of section 877(c)(1).
                    ``(D) Credit for foreign gift taxes.--The 
                tax imposed by this section solely by reason of 
                this paragraph shall be credited with the 
                amount of any gift tax actually paid to any 
                foreign country in respect of any gift which is 
                taxable under this section solely by reason of 
                this paragraph.''
    (f) Comparable Treatment of Lawful Permanent Residents Who 
Cease To Be Taxed as Residents.--
            (1) In general.--Section 877 is amended by 
        redesignating subsection (e) as subsection (f) and by 
        inserting after subsection (d) the following new 
        subsection:
    ``(e) Comparable Treatment of Lawful Permanent Residents 
Who Cease To Be Taxed as Residents.--
            ``(1) In general.--Any long-term resident of the 
        United States who--
                    ``(A) ceases to be a lawful permanent 
                resident of the United States (within the 
                meaning of section 7701(b)(6)), or
                    ``(B) commences to be treated as a resident 
                of a foreign country under the provisions of a 
                tax treaty between the United States and the 
                foreign country and who does not waive the 
                benefits of such treaty applicable to residents 
                of the foreign country,
        shall be treated for purposes of this section and 
        sections 2107, 2501, and 6039F in the same manner as if 
        such resident were a citizen of the United States who 
        lost United States citizenship on the date of such 
        cessation or commencement.
            ``(2) Long-term resident.--For purposes of this 
        subsection, the term `long-term resident' means any 
        individual (other than a citizen of the United States) 
        who is a lawful permanent resident of the United States 
        in at least 8 taxable years during the period of 15 
        taxable years ending with the taxable year during which 
        the event described in subparagraph (A) or (B) of 
        paragraph (1) occurs. For purposes of the preceding 
        sentence, an individual shall not be treated as a 
        lawful permanent resident for any taxable year if such 
        individual is treated as a resident of a foreign 
        country for the taxable year under the provisions of a 
        tax treaty between the United States and the foreign 
        country and does not waive the benefits of such treaty 
        applicable to residents of the foreign country.
            ``(3) Special rules.--
                    ``(A) Exceptions not to apply.--Subsection 
                (c) shall not apply to an individual who is 
                treated as provided in paragraph (1).
                    ``(B) Step-up in basis.--Solely for 
                purposes of determining any tax imposed by 
                reason of this subsection, property which was 
                held by the long-term resident on the date the 
                individual first became a resident of the 
                United States shall be treated as having a 
                basis on such date of not less than the fair 
                market value of such property on such date. The 
                preceding sentence shall not apply if the 
                individual elects not to have such sentence 
                apply. Such an election, once made, shall be 
                irrevocable.
            ``(4) Authority to exempt individuals.--This 
        subsection shall not apply to an individual who is 
        described in a category of individuals prescribed by 
        regulation by the Secretary.
            ``(5) Regulations.--The Secretary shall prescribe 
        such regulations as may be appropriate to carry out 
        this subsection, including regulations providing for 
        the application of this subsection in cases where an 
        alien individual becomes a resident of the United 
        States during the 10-year period after being treated as 
        provided in paragraph (1).''
            (2) Conforming amendments.--
                    (A) Section 2107 is amended by striking 
                subsection (d), by redesignating subsection (e) 
                as subsection (d), and by inserting after 
                subsection (d) (as so redesignated) the 
                following new subsection:
    ``(e) Cross Reference.--

            ``For comparable treatment of long-term lawful permanent 
        residents who ceased to be taxed as residents, see section 
        877(e).''

                    (B) Paragraph (3) of section 2501(a) (as 
                amended by subsection (e)) is amended by adding 
                at the end the following new subparagraph:
                    ``(E) Cross reference.--

            ``For comparable treatment of long-term lawful permanent 
        residents who ceased to be taxed as residents, see section 
        877(e).''

    (g) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to--
                    (A) individuals losing United States 
                citizenship (within the meaning of section 877 
                of the Internal Revenue Code of 1986) on or 
                after February 6, 1995, and
                    (B) long-term residents of the United 
                States with respect to whom an event described 
                in subparagraph (A) or (B) of section 877(e)(1) 
                of such Code occurs on or after February 6, 
                1995.
            (2) Special rule.--
                    (A) In general.--In the case of an 
                individual who performed an act of expatriation 
                specified in paragraph (1), (2), (3), or (4) of 
                section 349(a) of the Immigration and 
                Nationality Act (8 U.S.C. 1481(a)(1)-(4)) 
                before February 6, 1995, but who did not, on or 
                before such date, furnish to the United States 
                Department of State a signed statement of 
                voluntary relinquishment of United States 
                nationality confirming the performance of such 
                act, the amendments made by this section and 
                section 11349 shall apply to such individual 
                except that--
                            (i) the 10-year period described in 
                        section 877(a) of such Code shall not 
                        expire before the end of the 10-year 
                        period beginning on the date such 
                        statement is so furnished, and
                            (ii) the 1-year period referred to 
                        in section 877(c) of such Code, as 
                        amended by this section, shall not 
                        expire before the date which is 1 year 
                        after the date of the enactment of this 
                        Act.
                    (B) Exception.--Subparagraph (A) shall not 
                apply if the individual establishes to the 
                satisfaction of the Secretary of the Treasury 
                that such loss of United States citizenship 
                occurred before February 6, 1994.

SEC. 11349. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                    CITIZENSHIP.

    (a) In General.--Subpart A of part III of subchapter A of 
chapter 61, as amended by section 11344, is amended by 
inserting after section 6039F the following new section:

``SEC. 6039G. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                    CITIZENSHIP.

    ``(a) In General.--Notwithstanding any other provision of 
law, any individual who loses United States citizenship (within 
the meaning of section 877(a)) shall provide a statement which 
includes the information described in subsection (b). Such 
statement shall be--
            ``(1) provided not later than the earliest date of 
        any act referred to in subsection (c), and
            ``(2) provided to the person or court referred to 
        in subsection (c) with respect to such act.
    ``(b) Information To Be Provided.--Information required 
under subsection (a) shall include--
            ``(1) the taxpayer's TIN,
            ``(2) the mailing address of such individual's 
        principal foreign residence,
            ``(3) the foreign country in which such individual 
        is residing,
            ``(4) the foreign country of which such individual 
        is a citizen,
            ``(5) in the case of an individual having a net 
        worth of at least the dollar amount applicable under 
        section 877(a)(2)(B), information detailing the assets 
        and liabilities of such individual, and
            ``(6) such other information as the Secretary may 
        prescribe.
    ``(c) Acts Described.--For purposes of this section, the 
acts referred to in this subsection are--
            ``(1) the individual's renunciation of his United 
        States nationality before a diplomatic or consular 
        officer of the United States pursuant to paragraph (5) 
        of section 349(a) of the Immigration and Nationality 
        Act (8 U.S.C. 1481(a)(5)),
            ``(2) the individual's furnishing to the United 
        States Department of State a signed statement of 
        voluntary relinquishment of United States nationality 
        confirming the performance of an act of expatriation 
        specified in paragraph (1), (2), (3), or (4) of section 
        349(a) of the Immigration and Nationality Act (8 U.S.C. 
        1481(a)(1)-(4)),
            ``(3) the issuance by the United States Department 
        of State of a certificate of loss of nationality to the 
        individual, or
            ``(4) the cancellation by a court of the United 
        States of a naturalized citizen's certificate of 
        naturalization.
    ``(d) Penalty.--Any individual failing to provide a 
statement required under subsection (a) shall be subject to a 
penalty for each year (of the 10-year period beginning on the 
date of loss of United States citizenship) during any portion 
of which such failure continues in an amount equal to the 
greater of--
            ``(1) 5 percent of the tax required to be paid 
        under section 877 for the taxable year ending during 
        such year, or
            ``(2) $1,000,
unless it is shown that such failure is due to reasonable cause 
and not to willful neglect.
    ``(e) Information To Be Provided To Secretary.--
Notwithstanding any other provision of law--
            ``(1) any Federal agency or court which collects 
        (or is required to collect) the statement under 
        subsection (a) shall provide to the Secretary--
                    ``(A) a copy of any such statement, and
                    ``(B) the name (and any other identifying 
                information) of any individual refusing to 
                comply with the provisions of subsection (a),
            ``(2) the Secretary of State shall provide to the 
        Secretary a copy of each certificate as to the loss of 
        American nationality under section 358 of the 
        Immigration and Nationality Act which is approved by 
        the Secretary of State, and
            ``(3) the Federal agency primarily responsible for 
        administering the immigration laws shall provide to the 
        Secretary the name of each lawful permanent resident of 
        the United States (within the meaning of section 
        7701(b)(6)) whose status as such has been revoked or 
        has been administratively or judicially determined to 
        have been abandoned.
    ``(f) Reporting by Long-Term Lawful Permanent Residents Who 
Cease To Be Taxed as Residents.--In lieu of applying the last 
sentence of subsection (a), any individual who is required to 
provide a statement under this section by reason of section 
877(e)(1) shall provide such statement with the return of tax 
imposed by chapter 1 for the taxable year during which the 
event described in such section occurs.
    ``(g) Exemption.--The Secretary may by regulations exempt 
any class of individuals from the requirements of this section 
if he determines that applying this section to such individuals 
is not necessary to carry out the purposes of this section.''
    (b) Clerical Amendment.--The table of sections for such 
subpart A is amended by inserting after the item relating to 
section 6039F the following new item:

        ``Sec. 6039G. Information on individuals losing United States 
        citizenship.''

    (c) Effective Date.--The amendments made by this section 
shall apply to--
            (1) individuals losing United States citizenship 
        (within the meaning of section 877 of the Internal 
        Revenue Code of 1986) on or after February 6, 1995, and
            (2) long-term residents of the United States with 
        respect to whom an event described in subparagraph (A) 
        or (B) of section 877(e)(1) of such Code occurs on or 
        after such date.
In no event shall any statement required by such amendments be 
due before the 90th day after the date of the enactment of this 
Act.

         CHAPTER 7--FINANCIAL ASSET SECURITIZATION INVESTMENTS

SEC. 11351. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.

    (a) In General.--Subchapter M of chapter 1 is amended by 
adding at the end the following new part:

       ``PART V--FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS

    ``Sec. 860H. Taxation of a FASIT; other general rules.
    ``Sec. 860I. Gain recognition on contributions to and distributions 
              from a FASIT and in other cases.
    ``Sec. 860J. Non-FASIT losses not to offset certain FASIT 
              inclusions.
    ``Sec. 860K. Treatment of transfers of high-yield interests to 
              disqualified holders.
    ``Sec. 860L. Definitions and other special rules.

``SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.

    ``(a) Taxation of FASIT.--A FASIT as such shall not be 
subject to taxation under this subtitle (and shall not be 
treated as a trust, partnership, corporation, or taxable 
mortgage pool).
    ``(b) Taxation of Holder of Ownership Interest.--In 
determining the taxable income of the holder of the ownership 
interest in a FASIT--
            ``(1) all assets, liabilities, and items of income, 
        gain, deduction, loss, and credit of a FASIT shall be 
        treated as assets, liabilities, and such items (as the 
        case may be) of such holder,
            ``(2) the constant yield method (including the 
        rules of section 1272(a)(6)) shall be applied under an 
        accrual method of accounting in determining all 
        interest, acquisition discount, original issue 
        discount, and market discount and all premium 
        deductions or adjustments with respect to all debt 
        instruments of the FASIT,
            ``(3) the amount of the tax imposed by section 
        860L(e) (relating to tax on income from foreclosure 
        property) shall be allowed as a deduction,
            ``(4) there shall not be taken into account any 
        item of income, gain, loss, or deduction allocable to 
        prohibited income, and
            ``(5) interest accrued by the FASIT which is exempt 
        from tax imposed by this subtitle shall, when taken 
        into account by such holder, be treated as ordinary 
        income.
For purposes of this subtitle, securities treated as held by 
such holder under paragraph (1) shall be treated as held for 
investment.
    ``(c) Treatment of Regular Interests.--For purposes of this 
title--
            ``(1) a regular interest in a FASIT, if not 
        otherwise a debt instrument, shall be treated as a debt 
        instrument,
            ``(2) section 163(e)(5) shall not apply to such an 
        interest, and
            ``(3) amounts includible in gross income with 
        respect to such an interest shall be determined under 
        an accrual method of accounting.

``SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO AND DISTRIBUTIONS 
                    FROM A FASIT AND IN OTHER CASES.

    ``(a) Contributions to FASIT.--
            ``(1) In general.--If property is contributed to a 
        FASIT by the holder of the ownership interest in such 
        FASIT, gain (if any) shall be recognized to such holder 
        in an amount equal to the excess (if any) of such 
        property's value under subsection (e) on the date of 
        such contribution over its adjusted basis on such date.
            ``(2) Debt instruments acquired other than by 
        contribution by holder of ownership interest.--For 
        purposes of this part, any debt instrument which is 
        acquired by a FASIT other than in a contribution by the 
        holder of the ownership interest in the FASIT shall be 
        treated--
                    ``(A) as having been acquired by such 
                holder at its fair market value on the date of 
                its acquisition by the FASIT, and
                    ``(B) as having been contributed by such 
                holder to the FASIT at its value under 
                subsection (e) on such date.
            ``(3) Deferral of gain recognition.--The Secretary 
        may prescribe regulations which--
                    ``(A) provide that gain otherwise 
                recognized under paragraph (1) shall not be 
                recognized before the earliest date on which 
                such property supports any regular interest in 
                such FASIT or any indebtedness of the holder of 
                the ownership interest (or of any person 
                related to such holder), and
                    ``(B) provide such adjustments to the other 
                provisions of this part to the extent 
                appropriate in the context of the treatment 
                provided under subparagraph (A).
    ``(b) Certain Distributions.--If a FASIT makes a 
distribution of property with respect to the ownership interest 
in the FASIT, gain (if any) shall be recognized to such FASIT 
on the distribution in the same manner as if the FASIT had sold 
such property to the distributee at its value under subsection 
(e) on the date of such distribution.
    ``(c) Gain Recognition on Property Outside FASIT Which 
Supports Regular Interests.--If property held by the holder of 
the ownership interest in a FASIT (or by any person related to 
such holder) supports any regular interest in such FASIT--
            ``(1) gain shall be recognized to such holder in 
        the same manner as if such holder had sold such 
        property at its value under subsection (e) on the 
        earliest date such property supports such an interest, 
        and
            ``(2) such property shall be treated as held by 
        such FASIT for purposes of this part.
    ``(d) Gain Recognition on Retained Interests.--If--
            ``(1) any interest in a debt instrument is 
        contributed to a FASIT, and
            ``(2) the contributor (or any person related to 
        such contributor) retains any interest in such 
        instrument (including a right to receive excessive 
        servicing fees with respect to such instrument),
then gain shall be recognized to such contributor (or person) 
in the same manner as if the contributor (or person) had sold 
the retained interest at its value under subsection (e) on the 
date of such contribution.
    ``(e) Valuation.--For purposes of this section--
            ``(1) In general.--The value of any property under 
        this subsection shall be--
                    ``(A) in the case of property other than a 
                debt instrument, its fair market value, and
                    ``(B) in the case of a debt instrument, the 
                sum of the present values of the reasonably 
                expected payments under such instrument 
                determined (in the manner provided by 
                regulations prescribed by the Secretary)--
                            ``(i) as of the date of the event 
                        resulting in the gain recognition under 
                        this section, and
                            ``(ii) by using a discount rate 
                        equal to 120 percent of the applicable 
                        Federal rate (as defined in section 
                        1274(d)), or such other discount rate 
                        specified in such regulations, 
                        compounded semiannually.
            ``(2) Special rule for revolving loan accounts.--
        For purposes of paragraph (1)--
                    ``(A) each extension of credit (other than 
                the accrual of interest) on a revolving loan 
                account shall be treated as a separate debt 
                instrument, and
                    ``(B) payments on such extensions of credit 
                having substantially the same terms shall be 
                applied to such extensions beginning with the 
                earliest such extension.
    ``(f) Special Rules.--
            ``(1) Nonrecognition rules not to apply.--Gain 
        required to be recognized under this section shall be 
        recognized notwithstanding any other provision of this 
        subtitle.
            ``(2) Basis adjustments.--The basis of any property 
        on which gain is recognized under this section shall be 
        increased by the amount of gain so recognized.

``SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN FASIT INCLUSIONS.

    ``(a) In General.--The taxable income of the holder of the 
ownership interest or any high-yield interest in a FASIT for 
any taxable year shall in no event be less than such holder's 
taxable income determined solely with respect to such 
interests.
    ``(b) Coordination With Section 172.--Any increase in the 
taxable income of any holder of the ownership interest or a 
high-yield interest in a FASIT for any taxable year by reason 
of subsection (a) shall be disregarded--
            ``(1) in determining under section 172 the amount 
        of any net operating loss for such taxable year, and
            ``(2) in determining taxable income for such 
        taxable year for purposes of the 2nd sentence of 
        section 172(b)(2).
    ``(c) Coordination With Minimum Tax.--For purposes of part 
VI of subchapter A of this chapter--
            ``(1) the reference in section 55(b)(2) to taxable 
        income shall be treated as a reference to taxable 
        income determined without regard to this section,
            ``(2) the alternative minimum taxable income of any 
        holder of the ownership interest or a high-yield 
        interest in a FASIT for any taxable year shall in no 
        event be less than such holder's taxable income 
        determined solely with respect to such interests, and
            ``(3) any increase in taxable income under this 
        section shall be disregarded for purposes of computing 
        the alternative tax net operating loss deduction.

``SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD INTERESTS TO 
                    DISQUALIFIED HOLDERS.

    ``(a) General Rule.--If any high-yield interest is held by 
a disqualified holder, this chapter shall be applied as if the 
transferor of such interest to such holder had not transferred 
such interest.
    ``(b) Exceptions.--Rules similar to the rules of paragraphs 
(4) and (7) of section 860E(e) shall apply to the tax imposed 
by reason of subsection (a).
    ``(c) Disqualified Holder.--For purposes of this section, 
the term `disqualified holder' means any holder other than an 
eligible corporation (as defined in section 860L(a)(2)).
    ``(d) Treatment of Interests Held By Securities Dealers.--
            ``(1) In general.--Subsection (a) shall not apply 
        to any high-yield interest held by a disqualified 
        holder if such holder is a dealer in securities who 
        acquired such interest exclusively for sale to 
        customers in the ordinary course of business (and not 
        for investment).
            ``(2) Change in dealer status.--
                    ``(A) In general.--In the case of a dealer 
                in securities which is not an eligible 
                corporation (as defined in section 860L(a)(2)), 
                if--
                            ``(i) such dealer ceases to be a 
                        dealer in securities, or
                            ``(ii) such dealer commences 
                        holding the high-yield interest for 
                        investment,
                there is hereby imposed (in addition to other 
                taxes) an excise tax equal to the product of 
                the highest rate of tax specified in section 
                11(b)(1) and the income of such dealer 
                attributable to such interest for periods after 
                the date of such cessation or commencement.
                    ``(B) Holding for 31 days or less.--For 
                purposes of subparagraph (A)(ii), a dealer 
                shall not be treated as holding an interest for 
                investment before the 32d day after the date 
                such dealer acquired such interest unless such 
                interest is so held as part of a plan to avoid 
                the purposes of this paragraph.
                    ``(C) Administrative provisions.--The 
                deficiency procedures of subtitle F shall apply 
                to the tax imposed by this paragraph.
    ``(e) Treatment of High-Yield Interests in Pass-Thru 
Entities.--If a pass-thru entity (as defined in section 
860E(e)(6)) issues a debt or equity interest--
            ``(1) which is supported by any regular interest in 
        a FASIT, and
            ``(2) which has an original yield to maturity which 
        is greater than each of--
                    ``(A) the sum determined under clauses (i) 
                and (ii) of section 163(i)(1)(B) with respect 
                to such debt or equity interest, and
                    ``(B) the yield to maturity on such regular 
                interest,
        there is hereby imposed on the pass-thru entity a tax 
        (in addition to other taxes) equal to the product of 
        the highest rate of tax specified in section 11(b)(1) 
        and the income of the holder of such debt or equity 
        interest which is properly attributable to such regular 
        interest. For purposes of the preceding sentence, the 
        yield to maturity of any equity interest shall be 
        determined under regulations prescribed by the 
        Secretary.

``SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.

    ``(a) FASIT.--
            ``(1) In general.--For purposes of this title, the 
        terms `financial asset securitization investment trust' 
        and `FASIT' mean any entity--
                    ``(A) for which an election to be treated 
                as a FASIT applies for the taxable year,
                    ``(B) all of the interests in which are 
                regular interests or the ownership interest,
                    ``(C) which has only 1 ownership interest 
                and such ownership interest is held directly by 
                an eligible corporation,
                    ``(D) as of the close of the 3rd month 
                beginning after the day of its formation and at 
                all times thereafter, substantially all of the 
                assets of which (including assets treated as 
                held by the entity under section 860I(c)(2)) 
                consist of permitted assets, and
                    ``(E) which is not described in section 
                851(a).
        A rule similar to the rule of the last sentence of 
        section 860D(a) shall apply for purposes of this 
        paragraph.
            ``(2) Eligible corporation.--For purposes of 
        paragraph (1)(C), the term `eligible corporation' means 
        any domestic C corporation other than--
                    ``(A) a corporation which is exempt from, 
                or is not subject to, tax under this chapter,
                    ``(B) an entity described in section 851(a) 
                or 856(a),
                    ``(C) a REMIC, and
                    ``(D) an organization to which part I of 
                subchapter T applies.
            ``(3) Election.--
                    ``(A) In general.--An entity (otherwise 
                meeting the requirements of paragraph (1)) may 
                elect to be treated as a FASIT. Except as 
                provided in paragraph (5), such an election 
                shall apply to the taxable year for which made 
                and all subsequent taxable years unless revoked 
                with the consent of the Secretary.
                    ``(B) Elections made after 1st taxable year 
                of entity.--If the election under subparagraph 
                (A) is made after the first taxable year of the 
                entity, all property held (or treated as held 
                under section 860I(c)(2)) by such entity as of 
                the first day of the first taxable year for 
                which such election is made shall be treated as 
                contributed to such entity on such first day by 
                the holder of the ownership interest in such 
                entity.
            ``(4) Termination.--If any entity ceases to be a 
        FASIT at any time during the taxable year, such entity 
        shall not be treated as a FASIT for such taxable year 
        or any succeeding taxable year.
            ``(5) Inadvertent terminations, etc.--Rules similar 
        to the rules of section 860D(b)(2)(B) shall apply to 
        inadvertent failures to qualify or remain qualified as 
        a FASIT.
    ``(b) Interests in FASIT.--For purposes of this part--
            ``(1) Regular interest.--
                    ``(A) In general.--The term `regular 
                interest' means any interest which is issued by 
                a FASIT with fixed terms and which is 
                designated as a regular interest if--
                            ``(i) such interest unconditionally 
                        entitles the holder to receive a 
                        specified principal amount (or other 
                        similar amount),
                            ``(ii) except as otherwise provided 
                        by the Secretary--
                                    ``(I) in the case of a 
                                FASIT which would be treated as 
                                a REMIC if an election under 
                                section 860D(b) had been made, 
                                interest payments (or other 
                                similar amounts), if any, with 
                                respect to such interest at or 
                                before maturity meet the 
                                requirements applicable under 
                                clause (i) or (ii) of section 
                                860G(a)(1)(B), or
                                    ``(II) in the case of any 
                                other FASIT, interest payments 
                                (or other similar amounts), if 
                                any, with respect to such 
                                interest are determined using a 
                                current rate which is 
                                reasonably expected to measure 
                                contemporaneous variations in 
                                the cost of newly borrowed 
                                funds in the currency in which 
                                the regular interest is 
                                denominated,
                            ``(iii) such interest does not have 
                        a stated maturity (including options to 
                        renew) greater than 30 years (or such 
                        longer period as may be permitted by 
                        regulations),
                            ``(iv) the issue price of such 
                        interest does not exceed 125 percent of 
                        its stated principal amount, and
                            ``(v) the yield to maturity on such 
                        interest is less than the sum 
                        determined under section 163(i)(1)(B) 
                        with respect to such interest.
                Interest shall not fail to meet the 
                requirements of clause (i) merely because the 
                timing (but not the amount) of the principal 
                payments (or other similar amounts) may be 
                contingent on the extent that payments on debt 
                instruments held by the FASIT are made in 
                advance of anticipated payments and on the 
                amount of income from permitted assets.
                    ``(B) High-yield interests.--
                            ``(i) In general.--The term 
                        `regular interest' includes any high-
                        yield interest.
                            ``(ii) High-yield interest.--The 
                        term `high-yield interest' means any 
                        interest which would be described in 
                        subparagraph (A) but for failing to 
                        meet the requirements of one or more of 
                        clauses (i), (iv), or (v) thereof.
            ``(2) Ownership interest.--The term `ownership 
        interest' means the interest issued by a FASIT which is 
        designated as an ownership interest and which is not a 
        regular interest.
    ``(c) Permitted Assets.--For purposes of this part--
            ``(1) In general.--The term `permitted asset' 
        means--
                    ``(A) cash or cash equivalents,
                    ``(B) any debt instrument (as defined in 
                section 1275(a)(1)) under which interest 
                payments (or other similar amounts), if any, at 
                or before maturity meet the requirements 
                applicable under clause (i) or (ii) of section 
                860G(a)(1)(B),
                    ``(C) foreclosure property,
                    ``(D) any asset--
                            ``(i) which is an interest rate or 
                        foreign currency notional principal 
                        contract, letter of credit, insurance, 
                        guarantee against payment defaults, or 
                        other similar instrument, permitted by 
                        the Secretary, and
                            ``(ii) which is a reasonably 
                        required to guarantee or hedge against 
                        the FASIT's risks associated with being 
                        the obligor on interests issued by the 
                        FASIT, and
                    ``(E) contract rights to acquire debt 
                instruments described in subparagraph (B) or 
                assets described in subparagraph (D).
            ``(2) Debt issued by holder of ownership interest 
        not permitted asset.--The term `permitted asset' shall 
        not include any debt instrument issued by the holder of 
        the ownership interest in the FASIT or by any person 
        related to such holder or any direct or indirect 
        interest in such a debt instrument. The preceding 
        sentence shall not apply to cash equivalents and to any 
        other investment specified in regulations prescribed by 
        the Secretary.
            ``(3) Foreclosure property.--The term `foreclosure 
        property' means property--
                    ``(A) which would be foreclosure property 
                under section 856(e) (determined without regard 
                to paragraph (5) thereof) if acquired by a real 
                estate investment trust, and
                    ``(B) which is acquired in connection with 
                the default or imminent default of a debt 
                instrument held by the FASIT unless the 
                security interest in such property was created 
                for the principal purpose of permitting the 
                FASIT to invest in such property.
        Solely for purposes of subsection (a)(1), the 
        determination of whether any property is foreclosure 
        property shall be made without regard to section 
        856(e)(4).
    ``(d) Tax on Prohibited Transactions.--
            ``(1) In general.--There is hereby imposed for each 
        taxable year of a FASIT a tax equal to 100 percent of 
        the net income derived from prohibited transactions.
            ``(2) Prohibited transactions.--For purposes of 
        this part, the term `prohibited transaction' means--
                    ``(A) the receipt of any income derived 
                from any asset that is not a permitted asset,
                    ``(B) except as provided in paragraph (3), 
                the disposition of any permitted asset,
                    ``(C) the receipt of any income derived 
                from any loan originated by the FASIT, and
                    ``(D) the receipt of any income 
                representing a fee or other compensation for 
                services (other than any fee received as 
                compensation for a waiver, amendment, or 
                consent under permitted assets (other than 
                foreclosure property) held by the FASIT).
            ``(3) Exception for income from certain 
        dispositions.--
                    ``(A) In general.--Paragraph (2)(B) shall 
                not apply to a disposition which would not be a 
                prohibited transaction (as defined in section 
                860F(a)(2)) by reason of--
                            ``(i) clause (ii), (iii), or (iv) 
                        of section 860F(a)(2)(A), or
                            ``(ii) section 860F(a)(5),
                if the FASIT were treated as a REMIC and debt 
                instruments described in subsection (c)(1)(B) 
                were treated as qualified mortgages.
                    ``(B) Substitution of debt instruments; 
                reduction of over-collateralization.--Paragraph 
                (2)(B) shall not apply to--
                            ``(i) the substitution of a debt 
                        instrument described in subsection 
                        (c)(1)(B) for another debt instrument 
                        which is a permitted asset, or
                            ``(ii) the distribution of a debt 
                        instrument contributed by the holder of 
                        the ownership interest to such holder 
                        in order to reduce over-
                        collateralization of the FASIT,
                but only if a principal purpose of acquiring 
                the debt instrument which is disposed of was 
                not the recognition of gain (or the reduction 
                of a loss) as a result of an increase in the 
                market value of the debt instrument after its 
                acquisition by the FASIT.
                    ``(C) Liquidation of class of regular 
                interests.--Paragraph (2)(B) shall not apply to 
                the complete liquidation of any class of 
                regular interests.
            ``(4) Net income.--For purposes of this subsection, 
        net income shall be determined in accordance with 
        section 860F(a)(3).
    ``(e) Tax on Income From Foreclosure Property.--
            ``(1) In general.--A tax is hereby imposed for each 
        taxable year on the net income from foreclosure 
        property of each FASIT. Such tax shall be computed by 
        multiplying the net income from foreclosure property by 
        the highest rate of tax specified in section 11(b).
            ``(2) Net income from foreclosure property.--For 
        purposes of this part, the term `net income from 
        foreclosure property' means the amount which would be 
        the FASIT's net income from foreclosure property under 
        section 857(b)(4)(B) if the FASIT were a real estate 
        investment trust.
    ``(f) Coordination With Wash Sales Rules.--Rules similar to 
the rules of section 860F(d) shall apply to the ownership 
interest in a FASIT.
    ``(g) Related Person.--For purposes of this part, a person 
(hereinafter in this subsection referred to as the `related 
person') is related to any person if--
            ``(1) the related person bears a relationship to 
        such person specified in section 267(b) or section 
        707(b)(1), or
            ``(2) the related person and such person are 
        engaged in trades or businesses under common control 
        (within the meaning of subsections (a) and (b) of 
        section 52).
For purposes of paragraph (1), in applying section 267(b) or 
707(b)(1), `20 percent' shall be substituted for `50 percent'.
    ``(h) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this part, including regulations to prevent the 
abuse of the purposes of this part through transactions which 
are not primarily related to securitization of debt instruments 
by a FASIT.''.
    (b) Technical Amendments.--
            (1) Paragraph (2) of section 26(b) is amended by 
        striking ``and'' at the end of subparagraph (M), by 
        striking the period at the end of subparagraph (N) and 
        inserting ``, and'', and by adding at the end the 
        following new subparagraphs:
                    ``(O) section 860K (relating to treatment 
                of transfers of high-yield interests to 
                disqualified holders).''.
            (2) Paragraph (6) of section 56(g) is amended by 
        striking ``or REMIC'' and inserting ``REMIC, or 
        FASIT''.
            (3) Clause (ii) of section 382(l)(4)(B) is amended 
        by striking ``or a REMIC to which part IV of subchapter 
        M applies'' and inserting ``a REMIC to which part IV of 
        subchapter M applies, or a FASIT to which part V of 
        subchapter M applies''.
            (4) Paragraph (1) of section 582(c) is amended by 
        inserting ``, and any regular or ownership interest in 
        a FASIT,'' after ``REMIC''.
            (5) Subparagraph (E) of section 856(c)(6) is 
        amended by adding at the end the following new 
        sentence: ``References in the preceding provisions of 
        this subparagraph to a REMIC shall be treated as 
        including a reference to a FASIT.''.
            (6) Subparagraph (C) of section 1202(e)(4) is 
        amended by striking ``or REMIC'' and inserting ``REMIC, 
        or FASIT''.
            (7) Clause (xi) of section 7701(a)(19)(C) is 
        amended to read as follows:
                            ``(xi) any regular or residual 
                        interest in a REMIC, and any regular or 
                        ownership interest in a FASIT, but only 
                        in the proportion which the assets of 
                        such REMIC or FASIT consist of property 
                        described in any of the preceding 
                        clauses of this subparagraph; except 
                        that if 95 percent or more of the 
                        assets of such REMIC or FASIT are 
                        assets described in clauses (i) through 
                        (x), the entire interest in the REMIC 
                        or FASIT shall qualify.''.
            (8) Subparagraph (A) of section 7701(i)(2) is 
        amended by inserting ``or a FASIT'' after ``a REMIC''.
    (c) Clerical Amendment.--The table of parts for subchapter 
M of chapter 1 is amended by adding at the end the following 
new item:

    ``Part V. Financial asset securitization investment trusts.''.

    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

                   CHAPTER 8--DEPRECIATION PROVISIONS

SEC. 11361. TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION.

    (a) Treatment of Contributions in Aid of Construction.--
            (1) In general.--Section 118 (relating to 
        contributions to the capital of a corporation) is 
        amended--
                    (A) by redesignating subsection (c) as 
                subsection (e), and
                    (B) by inserting after subsection (b) the 
                following new subsections:
    ``(c) Special Rules for Water and Sewerage Disposal 
Utilities.--
            ``(1) General rule.--For purposes of this section, 
        the term `contribution to the capital of the taxpayer' 
        includes any amount of money or other property received 
        from any person (whether or not a shareholder) by a 
        regulated public utility which provides water or 
        sewerage disposal services if--
                    ``(A) such amount is a contribution in aid 
                of construction,
                    ``(B) in the case of contribution of 
                property other than water or sewerage disposal 
                facilities, such amount meets the requirements 
                of the expenditure rule of paragraph (2), and
                    ``(C) such amount (or any property acquired 
                or constructed with such amount) is not 
                included in the taxpayer's rate base for 
                ratemaking purposes.
            ``(2) Expenditure rule.--An amount meets the 
        requirements of this paragraph if--
                    ``(A) an amount equal to such amount is 
                expended for the acquisition or construction of 
                tangible property described in section 
                1231(b)--
                            ``(i) which is the property for 
                        which the contribution was made or is 
                        of the same type as such property, and
                            ``(ii) which is used predominantly 
                        in the trade or business of furnishing 
                        water or sewerage disposal services,
                    ``(B) the expenditure referred to in 
                subparagraph (A) occurs before the end of the 
                second taxable year after the year in which 
                such amount was received, and
                    ``(C) accurate records are kept of the 
                amounts contributed and expenditures made, the 
                expenditures to which contributions are 
                allocated, and the year in which the 
                contributions and expenditures are received and 
                made.
            ``(3) Definitions.--For purposes of this 
        subsection--
                    ``(A) Contribution in aid of 
                construction.--The term `contribution in aid of 
                construction' shall be defined by regulations 
                prescribed by the Secretary, except that such 
                term shall not include amounts paid as service 
                charges for starting or stopping services.
                    ``(B) Predominantly.--The term 
                `predominantly' means 80 percent or more.
                    ``(C) Regulated public utility.--The term 
                `regulated public utility' has the meaning 
                given such term by section 7701(a)(33), except 
                that such term shall not include any utility 
                which is not required to provide water or 
                sewerage disposal services to members of the 
                general public in its service area.
            ``(4) Disallowance of deductions and credits; 
        adjusted basis.--Notwithstanding any other provision of 
        this subtitle, no deduction or credit shall be allowed 
        for, or by reason of, any expenditure which constitutes 
        a contribution in aid of construction to which this 
        subsection applies. The adjusted basis of any property 
        acquired with contributions in aid of construction to 
        which this subsection applies shall be zero.
    ``(d) Statute of Limitations.--If the taxpayer for any 
taxable year treats an amount as a contribution to the capital 
of the taxpayer described in subsection (c), then--
            ``(1) the statutory period for the assessment of 
        any deficiency attributable to any part of such amount 
        shall not expire before the expiration of 3 years from 
        the date the Secretary is notified by the taxpayer (in 
        such manner as the Secretary may prescribe) of--
                    ``(A) the amount of the expenditure 
                referred to in subparagraph (A) of subsection 
                (c)(2),
                    ``(B) the taxpayer's intention not to make 
                the expenditures referred to in such 
                subparagraph, or
                    ``(C) a failure to make such expenditure 
                within the period described in subparagraph (B) 
                of subsection (c)(2); and
            ``(2) such deficiency may be assessed before the 
        expiration of such 3-year period notwithstanding the 
        provisions of any other law or rule of law which would 
        otherwise prevent such assessment.''.
            (2) Conforming amendment.--Section 118(b) is 
        amended by inserting ``except as provided in subsection 
        (c),'' before ``the term''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to amounts received after the 
        date of the enactment of this Act.
    (b) Recovery Method and Period for Water Utility 
Property.--
            (1) Requirement to use straight line method.--
        Section 168(b)(3) is amended by adding at the end the 
        following new subparagraph:
                    ``(F) Water utility property described in 
                subsection (e)(5).''.
            (2) 25-year recovery period.--The table contained 
        in section 168(c)(1) is amended by inserting the 
        following item after the item relating to 20-year 
        property:
    ``Water utility property............................     25 years''.

            (3) Water utility property.--
                    (A) In general.--Section 168(e) is amended 
                by adding at the end the following new 
                paragraph:
            ``(5) Water utility property.--The term `water 
        utility property' means property--
                    ``(A) which is an integral part of the 
                gathering, treatment, or commercial 
                distribution of water, and which, without 
                regard to this paragraph, would be 20-year 
                property, and
                    ``(B) any municipal sewer.''.
                    (B) Conforming amendments.--Section 168 is 
                amended--
                            (i) by striking subparagraph (F) of 
                        subsection (e)(3), and
                            (ii) by striking the item relating 
                        to subparagraph (F) in the table in 
                        subsection (g)(3).
            (4) Alternative system.--Clause (iv) of section 
        168(g)(2)(C) is amended by inserting ``or water utility 
        property'' after ``tunnel bore''.
            (5) Effective date.--The amendments made by this 
        subsection shall apply to property placed in service 
        after the date of the enactment of this Act, other than 
        property placed in service pursuant to a binding 
        contract in effect on such date and at all times 
        thereafter before the property is placed in service.

SEC. 11362. DEDUCTION FOR CERTAIN OPERATING AUTHORITY.

    (a) General Rule.--For purpose of chapter 1 of the Internal 
Revenue Code of 1986, in computing the taxable income of a 
taxpayer who, on January 1, 1995, held one or more operating 
authorities preempted by section 601 of the Federal Aviation 
Administration Authorization Act of 1994, the taxpayer shall be 
entitled to deduct ratably over the 36-month period beginning 
with January 1995 an amount equal to the aggregate adjusted 
bases of such operating authorities held by the taxpayer on 
January 1, 1995.
    (b) Treatment As Depreciation.--Any deduction under 
subsection (a) shall be treated as a deduction for depreciation 
for purposes of the Internal Revenue Code of 1986.
    (c) Effective Date.--The provisions of this section shall 
apply to taxable years ending after December 31, 1994.

SEC. 11363. CLASS LIFE FOR GAS STATION CONVENIENCE STORES AND SIMILAR 
                    STRUCTURES.

    (a) In General.--Section 168(e)(3)(E) (classifying certain 
property as 15-year property) is amended by striking ``and'' at 
the end of clause (i), by striking the period at the end of 
clause (ii) and inserting ``, and'', and by adding at the end 
the following new clause:
                            ``(iii) any section 1250 property 
                        which is a retail motor fuels outlet 
                        (whether or not food or other 
                        convenience items are sold at the 
                        outlet).''.
    (b) Conforming Amendment.--Subparagraph (B) of section 
168(g)(3) is amended by inserting after the item relating to 
subparagraph (E)(ii) in the table contained therein the 
following new item:

``(E)(iii)                                                         20''.

    (c) Effective Date.--The amendments made by this section 
shall apply to property which is placed in service on or after 
the date of the enactment of this Act and to which section 168 
of the Internal Revenue Code of 1986 applies after the 
amendment made by section 201 of the Tax Reform Act of 1986. A 
taxpayer may elect to have such amendments apply with respect 
to any property placed in service before such date and to which 
such section so applies.

                      CHAPTER 9--OTHER PROVISIONS

SEC. 11371. APPLICATION OF FAILURE-TO-PAY PENALTY TO SUBSTITUTE 
                    RETURNS.

    (a) General Rule.--Section 6651 (relating to failure to 
file tax return or to pay tax) is amended by adding at the end 
the following new subsection:
    ``(g) Treatment of Returns Prepared by Secretary Under 
Section 6020(b).--In the case of any return made by the 
Secretary under section 6020(b)--
            ``(1) such return shall be disregarded for purposes 
        of determining the amount of the addition under 
        paragraph (1) of subsection (a), but
            ``(2) such return shall be treated as the return 
        filed by the taxpayer for purposes of determining the 
        amount of the addition under paragraphs (2) and (3) of 
        subsection (a).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply in the case of any return the due date for which 
(determined without regard to extensions) is after the date of 
the enactment of this Act.

SEC. 11372. EXTENSION OF WITHHOLDING TO CERTAIN GAMBLING WINNINGS.

    (a) Repeal of Exemption for Bingo and Keno.--Paragraph (5) 
of section 3402(q) is amended to read as follows:
            ``(5) Exemption for slot machines.--The tax imposed 
        under paragraph (1) shall not apply to winnings from a 
        slot machine.''.
    (b) Threshold Amount.--Paragraph (3) of section 3402(q) is 
amended--
            (1) by striking ``(B) and (C)'' in subparagraph (A) 
        and inserting ``(B), (C), and (D)'', and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(D) Bingo and keno.--Proceeds of more 
                than $5,000 from a wager placed in a bingo or 
                keno game.''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 1996.

SEC. 11373. LOSSES FROM FORECLOSURE PROPERTY.

    (a) In General.--Section 818(b) is amended by adding at the 
end the following new paragraph:
            ``(2) Losses from foreclosure property.--
                    ``(A) In general.--The amortizable portion 
                of any loss arising from the sale or exchange 
                of foreclosure property which (without regard 
                to this paragraph) is treated as a capital loss 
                shall be treated as a loss from the sale or 
                exchange of real property used in carrying on 
                an insurance 
                business which is recognized ratably over the 
                10-taxable year period beginning with the 
                taxable year following the taxable year in 
                which the sale or exchange of the foreclosure 
                property occurred.
                    ``(B) Amortizable portion.--For purposes of 
                this paragraph--
                            ``(i) In general.--The amortizable 
                        portion of a loss referred to in 
                        subparagraph (A) is the percentage (not 
                        greater than 20 percent) of such loss 
                        to which the taxpayer elects to have 
                        this paragraph apply.
                            ``(ii) Subsequent modifications of 
                        amount.--The taxpayer may elect for any 
                        of the taxable years in the change 
                        period to change (subject to the 
                        limitation under clause (i)) the 
                        percentage of a loss referred to in 
                        subparagraph (A) which is treated as 
                        the amortizable portion of such loss. 
                        If the taxpayer so elects, each such 
                        changed percentage shall be treated as 
                        if it were the percentage specified in 
                        the election made under clause (i), and 
                        proper adjustments shall be made for 
                        all taxable years to reflect each such 
                        change.
                            ``(iii) Statute of limitations.-- 
                        For purposes of section 6501(h) and 
                        6511(d)(2), any change by reason of an 
                        election under clause (ii) shall be 
                        treated as a capital loss carryback 
                        from the year such change is made.
                            ``(iv) Change period.--For purposes 
                        of clause (ii), the change period is 
                        the 3-taxable year period following the 
                        taxable year in which the sale or 
                        exchange of the foreclosure property 
                        occurred.
                    ``(C) Election to treat unamortized 
                ordinary losses as capital losses.--
                            ``(i) In general.--The taxpayer may 
                        elect to treat any unused amount of any 
                        ordinary loss described in subparagraph 
                        (A) as a capital loss arising in the 
                        taxable year for which the election 
                        under this subparagraph is made.
                            ``(ii) Limitation on election.--An 
                        election may be made under clause (i) 
                        with respect to any loss only for any 
                        taxable year in the 5-taxable year 
                        period following the taxable year 
                        referred to in subparagraph (A).
                            ``(iii) Unused amount of ordinary 
                        loss.--For purposes of clause (i), the 
                        unused amount of an ordinary loss is 
                        the amount of the amortizable portion 
                        of any loss which has not been 
                        recognized as of the close of the 
                        preceding taxable year.
                            ``(iv) Ordering rule.--Any unused 
                        amount of an ordinary loss with respect 
                        to which an election was made under 
                        clause (i) shall be treated as coming 
                        first from the last taxable year in the 
                        10-taxable year period referred to in 
                        subparagraph (A) and then from each 
                        preceding taxable year in reverse 
                        chronological order.
                    ``(D) Foreclosure property.--For purposes 
                of this paragraph, the term `foreclosure 
                property' means any real property used in a 
                trade or businesses (as defined in section 
                1231(b) without regard to this subsection) 
                which is acquired by a life insurance company 
                as the result of--
                            ``(i) such company having bid on 
                        such property at foreclosure, or
                            ``(ii) such company having 
                        otherwise reduced such property to 
                        ownership or possession by agreement or 
                        process of law, after there was a 
                        default (or default was imminent) on 
                        indebtedness which such property 
                        secured.
                    ``(E) Time for making elections.--Any 
                election under this paragraph for any taxable 
                year shall be made on or before the due date 
                (including extensions) for the return of tax 
                for such taxable year.''
    (b) Conforming Amendments.--Section 818(b) is amended--
            (1) by striking ``In the'' and inserting:
            ``(1) In general.--In the '', and
            (2) by redesignating paragraphs (1) and (2) and 
        subparagraphs (A) and (B) of paragraph (1) as 
        subparagraphs (A) and (B) and clauses (i) and (ii) of 
        subparagraph (A), respectively.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1994.

SEC. 11374. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON 
                    TRUST FUNDS TO REGULATED INVESTMENT COMPANIES.

    (a) General Rule.--Section 584 (relating to common trust 
funds) is amended by redesignating subsection (h) as subsection 
(i) and by inserting after subsection (g) the following new 
subsection:
    ``(h) Nonrecognition Treatment for Certain Transfers to 
Regulated Investment Companies.--
            ``(1) In general.--If--
                    ``(A) pursuant to a single plan, a common 
                trust fund transfers substantially all of its 
                assets to one or more regulated investment 
                companies in exchange solely for stock in the 
                company or companies to which such assets are 
                so transferred, and
                    ``(B) such stock is distributed by such 
                common trust fund to participants in such 
                common trust fund in exchange solely for their 
                interests in such common trust fund,
        no gain or loss shall be recognized by such common 
        trust fund by reason of such transfer or distribution, 
        and no gain or loss shall be recognized by any 
        participant in such common trust fund by reason of such 
        exchange.
            ``(2) Basis rules.--
                    ``(A) Regulated investment company.--The 
                basis of any asset received by a regulated 
                investment company in a transfer referred to in 
                paragraph (1)(A) shall be the same as it would 
                be in the hands of the common trust fund.
                    ``(B) Participants.--The basis of the stock 
                which is received in an exchange referred to in 
                paragraph (1)(B) shall be the same as that of 
                the property exchanged. If stock in more than 
                one regulated investment company is received in 
                such exchange, the basis determined under the 
                preceding sentence shall be allocated among the 
                stock in each such company on the basis of 
                respective fair market values.
            ``(3) Treatment of assumptions of liability.--
                    ``(A) In general.--In determining whether 
                the transfer referred to in paragraph (1)(A) is 
                in exchange solely for stock in one or more 
                regulated investment companies, the assumption 
                by any such company of a liability of the 
                common trust fund, and the fact that any 
                property transferred by the common trust fund 
                is subject to a liability, shall be 
                disregarded.
                    ``(B) Special rule where assumed 
                liabilities exceed basis.--
                            ``(i) In general.--If, in any 
                        transfer referred to in paragraph 
                        (1)(A), the assumed liabilities exceed 
                        the aggregate adjusted bases (in the 
                        hands of the common trust fund) of the 
                        assets transferred to the regulated 
                        investment company or companies--
                                    ``(I) notwithstanding 
                                paragraph (1), gain shall be 
                                recognized to the common trust 
                                fund on such transfer in an 
                                amount equal to such excess,
                                    ``(II) the basis of the 
                                assets received by the 
                                regulated investment company or 
                                companies in such transfer 
                                shall be increased by the 
                                amount so recognized, and
                                    ``(III) any adjustment to 
                                the basis of a participant's 
                                interest in the common trust 
                                fund as a result of the gain so 
                                recognized shall be treated as 
                                occurring immediately before 
                                the exchange referred to in 
                                paragraph (1)(B).
                        If the transfer referred to in 
                        paragraph (1)(A) is to two or more 
                        regulated investment companies, the 
                        basis increase under subclause (II) 
                        shall be allocated among such companies 
                        on the basis of the respective fair 
                        market values of the assets received by 
                        each of such companies.
                            ``(ii) Assumed liabilities.--For 
                        purposes of clause (i), the term 
                        `assumed liabilities' means the 
                        aggregate of--
                                    ``(I) any liability of the 
                                common trust fund assumed by 
                                any regulated investment 
                                company in connection with the 
                                transfer referred to in 
                                paragraph (1)(A), and
                                    ``(II) any liability to 
                                which property so transferred 
                                is subject.
            ``(4) Common trust fund must meet diversification 
        rules.--This subsection shall not apply to any common 
        trust fund which would not meet the requirements of 
        section 368(a)(2)(F)(ii) if it were a corporation. For 
        purposes of the preceding sentence, Government 
        securities shall not be treated as securities of an 
        issuer in applying the 25-percent and 50-percent test 
        and such securities shall not be excluded for purposes 
        of determining total assets under clause (iv) of 
        section 368(a)(2)(F).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to transfers after December 31, 1995.

SEC. 11375. EXCLUSION FOR ENERGY CONSERVATION SUBSIDIES LIMITED TO 
                    SUBSIDIES WITH RESPECT TO DWELLING UNITS.

    (a) In General.--Paragraph (1) of section 136(c) (defining 
energy conservation measure) is amended by striking ``energy 
demand--'' and all that follows and inserting ``energy demand 
with respect to a dwelling unit.''
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 136 is amended to 
        read as follows:
    ``(a) Exclusion.--Gross income shall not include the value 
of any subsidy provided (directly or indirectly) by a public 
utility to a customer for the purchase or installation of any 
energy conservation measure.''
            (2) Paragraph (2) of section 136(c) is amended--
                    (A) by striking subparagraph (A) and by 
                redesignating subparagraphs (B) and (C) as 
                subparagraphs (A) and (B), respectively, and
                    (B) by striking ``and special rules'' in 
                the paragraph heading.
    (c) Effective Date.--The amendments made by this section 
shall apply to amounts received after December 31, 1995, unless 
received pursuant to a written binding contract in effect on 
September 13, 1995, and at all times thereafter.

SEC. 11376. ELECTION TO CEASE STATUS AS QUALIFIED SCHOLARSHIP FUNDING 
                    CORPORATION.

    (a) In General.--Subsection (d) of section 150 (relating to 
definitions and special rules) is amended by adding at the end 
thereof the following new paragraph:
            ``(3) Election to cease status as qualified 
        scholarship funding corporation.--
                    ``(A) In general.--Any qualified 
                scholarship funding bond, and qualified student 
                loan bond, outstanding on the date of the 
                issuer's election under this paragraph (and any 
                bond (or series of bonds) issued to refund such 
                a bond) shall not fail to be a tax-exempt bond 
                solely because the issuer ceases to be 
                described in subparagraphs (A) and (B) of 
                paragraph (2) if the issuer meets the 
                requirements of subparagraphs (B) and (C) of 
                this paragraph.
                    ``(B) Assets and liabilities of issuer 
                transferred to taxable subsidiary.--The 
                requirements of this subparagraph are met by an 
                issuer if--
                            ``(i) all of the student loan notes 
                        of the issuer and other assets pledged 
                        to secure the repayment of qualified 
                        scholarship funding bond indebtedness 
                        of the issuer are transferred to 
                        another corporation within a reasonable 
                        period after the election is made under 
                        this paragraph;
                            ``(ii) such transferee corporation 
                        assumes or otherwise provides for the 
                        payment of all of the qualified 
                        scholarship funding bond indebtedness 
                        of the issuer within a reasonable 
                        period after the election is made under 
                        this paragraph;
                            ``(iii) to the extent permitted by 
                        law, such transferee corporation 
                        assumes all of the responsibilities, 
                        and succeeds to all of the rights, of 
                        the issuer under the issuer's 
                        agreements with the Secretary of 
                        Education in respect of student loans;
                            ``(iv) immediately after such 
                        transfer, the issuer, together with any 
                        other issuer which has made an election 
                        under this paragraph in respect of such 
                        transferee, hold all of the senior 
                        stock in such transferee corporation; 
                        and
                            ``(v) such transferee corporation 
                        is not exempt from tax under this 
                        chapter.
                    ``(C) Issuer to operate as independent 
                organization described in section 501(c)(3).--
                The requirements of this subparagraph are met 
                by an issuer if, within a reasonable period 
                after the transfer referred to in subparagraph 
                (B)--
                            ``(i) the issuer is described in 
                        section 501(c)(3) and exempt from tax 
                        under section 501(a);
                            ``(ii) the issuer no longer is 
                        described in subparagraphs (A) and (B) 
                        of paragraph (2); and
                            ``(iii) at least 80 percent of the 
                        members of the board of directors of 
                        the issuer are independent members.
                    ``(D) Senior stock.--For purposes of this 
                paragraph, the term `senior stock' means 
                stock--
                            ``(i) which participates pro rata 
                        and fully in the equity value of the 
                        corporation with all other common stock 
                        of the corporation but which has the 
                        right to payment of liquidation 
                        proceeds prior to payment of 
                        liquidation proceeds in respect of 
                        other common stock of the corporation;
                            ``(ii) which has a fixed right upon 
                        liquidation and upon redemption to an 
                        amount equal to the greater of--
                                    ``(I) the fair market value 
                                of such stock on the date of 
                                liquidation or redemption 
                                (whichever is applicable); or
                                    ``(II) the fair market 
                                value of all assets transferred 
                                in exchange for such stock and 
                                reduced by the amount of all 
                                liabilities of the corporation 
                                which has made an election 
                                under this paragraph assumed by 
                                the transferee corporation in 
                                such transfer;
                            ``(iii) the holder of which has the 
                        right to require the transferee 
                        corporation to redeem on a date that is 
                        not later than 10 years after the date 
                        on which an election under this 
                        paragraph was made and pursuant to such 
                        election such stock was issued; and
                            ``(iv) in respect of which, during 
                        the time such stock is outstanding, 
                        there is not outstanding any equity 
                        interest in the corporation having any 
                        liquidation, redemption or dividend 
                        rights in the corporation which are 
                        superior to those of such stock.
                    ``(E) Independent member.--The term 
                `independent member' means a member of the 
                board of directors of the issuer who (except 
                for services as a member of such board) 
                receives no compensation directly or 
                indirectly--
                            ``(i) for services performed in 
                        connection with such transferee 
                        corporation, or
                            ``(ii) for services as a member of 
                        the board of directors or as an officer 
                        of such transferee corporation.
                For purposes of clause (ii), the term `officer' 
                includes any individual having powers or 
                responsibilities similar to those of officers.
                    ``(F) Coordination with certain private 
                foundation taxes.--For purposes of sections 
                4942 (relating to the excise tax on a failure 
                to distribute income) and 4943 (relating to the 
                excise tax on excess business holdings), the 
                transferee corporation referred to in 
                subparagraph (B) shall be treated as a 
                functionally related business (within the 
                meaning of section 4942(j)(4)) with respect to 
                the issuer during the period commencing with 
                the date on which an election is made under 
                this paragraph and ending on the date that is 
                the earlier of--
                            ``(i) the last day of the last 
                        taxable year for which more than 50 
                        percent of the gross income of such 
                        transferee corporation is derived from, 
                        or more than 50 percent of the assets 
                        (by value) of such transferee 
                        corporation consists of, student loan 
                        notes incurred under the Higher 
                        Education Act of 1965; or
                            ``(ii) the last day of the taxable 
                        year of the issuer during which occurs 
                        the date which is 10 years after the 
                        date on which the election under this 
                        paragraph is made.
                    ``(G) Election.--An election under this 
                paragraph may be revoked only with the consent 
                of the Secretary.''
    (b) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 11377. CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS TREATED 
                    AS UNRELATED BUSINESS TAXABLE INCOME.

    (a) General Rule.--Subsection (b) of section 512 (relating 
to modifications) is amended by adding at the end thereof the 
following new paragraph:
            ``(18) Treatment of certain amounts derived from 
        foreign corporations.--
                    ``(A) In general.--Notwithstanding 
                paragraph (1), any amount included in gross 
                income under section 951(a)(1)(A) shall be 
                included as an item of gross income derived 
                from an unrelated trade or business to the 
                extent the amount so included is attributable 
                to insurance income (as defined in section 953) 
                which, if derived directly by the organization, 
                would be treated as gross income from an 
                unrelated trade or business. There shall be 
                allowed all deductions directly connected with 
                amounts included in gross income under the 
                preceding sentence.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to income attributable to a policy of 
                insurance or reinsurance with respect to which 
                the person (directly or indirectly) insured 
                is--
                            ``(i) such organization,
                            ``(ii) an affiliate of such 
                        organization which is exempt from tax 
                        under section 501(a), or
                            ``(iii) a director or officer of, 
                        or an individual who performs services 
                        for, such organization or affiliate but 
                        only if the insurance covers primarily 
                        risks associated with the performance 
                        of services for the benefit of such 
                        organization or affiliate.
                For purposes of this subparagraph, the 
                determination as to whether an entity is an 
                affiliate of an organization shall be made 
                under rules similar to the rules of section 
                168(h)(4)(B).
                    ``(C) Regulations.--The Secretary shall 
                prescribe such regulations as may be necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations for the 
                application of this paragraph in the case of 
                income paid through 1 or more entities or 
                between 2 or more chains of entities.''
    (b) Effective Date.--The amendment made by this section 
shall apply to amounts included in gross income in any taxable 
year beginning after December 31, 1995.

SEC. 11378. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO INTEREST 
                    ALLOCATION RULES.

    (a) In General.--Paragraph (5) of section 1215(c) of the 
Tax Reform Act of 1986 (Public Law 99-514, 100 Stat. 2548) is 
hereby repealed.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11379. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT SAVINGS 
                    ASSOCIATIONS.

    (a) In General.--Section 593 (relating to reserves for 
losses on loans) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subsection (d) of section 50 is amended by 
        adding at the end the following new sentence:
``Paragraphs (1)(A), (2)(A), and (4) of section 46(e) referred 
to in paragraph (1) of this subsection shall not apply to any 
taxable year beginning after December 31, 1995.''
            (2) Subsection (e) of section 52 is amended by 
        striking paragraph (1) and by redesignating paragraphs 
        (2) and (3) as paragraphs (1) and (2), respectively.
            (3) Subsection (a) of section 57 is amended by 
        striking paragraph (4).
            (4) Section 246 is amended by striking subsection 
        (f).
            (5) Clause (i) of section 291(e)(1)(B) is amended 
        by striking ``or to which section 593 applies''.
            (6) Subparagraph (A) of section 585(a)(2) is 
        amended by striking ``other than an organization to 
        which section 593 applies''.
            (7) Sections 595 and 596 are hereby repealed.
            (8) Subsection (a) of section 860E is amended--
                    (A) by striking ``Except as provided in 
                paragraph (2), the'' in paragraph (1) and 
                inserting ``The'',
                    (B) by striking paragraphs (2) and (4) and 
                redesignating paragraphs (3) and (5) as 
                paragraphs (2) and (3), respectively, and
                    (C) by striking in paragraph (2) (as so 
                redesignated) all that follows ``subsection'' 
                and inserting a period.
            (9) Paragraph (3) of section 992(d) is amended by 
        striking ``or 593''.
            (10) Section 1038 is amended by striking subsection 
        (f).
            (11) Clause (ii) of section 1042(c)(4)(B) is 
        amended by striking ``or 593''.
            (12) Subsection (c) of section 1277 is amended by 
        striking ``or to which section 593 applies''.
            (13) Subparagraph (B) of section 1361(b)(2) is 
        amended by striking ``or to which section 593 
        applies''.
            (14) The table of sections for part II of 
        subchapter H of chapter 1 is amended by striking the 
        items relating to sections 593, 595, and 596.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years beginning after December 31, 1995.
            (2) Repeal of section 595.--The repeal of section 
        595 under subsection (b)(7) shall apply to property 
        acquired in taxable years beginning after December 31, 
        1995.
    (d) 6-Year Spread of Adjustments.--
            (1) In general.--In the case of any taxpayer who is 
        required by reason of the amendments made by this 
        section to change its method of computing reserves for 
        bad debts--
                    (A) such change shall be treated as a 
                change in a method of accounting,
                    (B) such change shall be treated as 
                initiated by the taxpayer and as having been 
                made with the consent of the Secretary, and
                    (C) the net amount of the adjustments 
                required to be taken into account by the 
                taxpayer under section 481(a)--
                            (i) shall be determined by taking 
                        into account only applicable excess 
                        reserves, and
                            (ii) as so determined, shall be 
                        taken into account ratably over the 6-
                        taxable year period beginning with the 
                        first taxable year beginning after 
                        December 31, 1995.
            (2) Applicable excess reserves.--
                    (A) In general.--For purposes of paragraph 
                (1), the term `applicable excess reserves' 
                means the excess (if any) of--
                            (i) the balance of the reserves 
                        described in section 593(c)(1) of such 
                        Code (as in effect on the day before 
                        the date of the enactment of this Act) 
                        as of the close of the taxpayer's last 
                        taxable year beginning before January 
                        1, 1996, over
                            (ii) the lesser of--
                                    (I) the balance of such 
                                reserves as of the close of the 
                                taxpayer's last taxable year 
                                beginning before January 1, 
                                1988, or
                                    (II) the balance of the 
                                reserves described in subclause 
                                (I), reduce by an amount 
                                determined in the same manner 
                                as under section 
                                585(b)(2)(B)(ii) on the basis 
                                of the taxable years described 
                                in clause (i) and this clause.
                    (B) Special rule for thrifts which become 
                small banks.--In the case of a bank (as defined 
                in section 581 of such Code) which is not a 
                large bank (as defined in section 585(c)(2) of 
                such Code) for its first taxable year beginning 
                after December 31, 1995--
                            (i) the balance taken into account 
                        under subparagraph (A)(ii) shall not be 
                        less than the amount which would be the 
                        balance of such reserve as of the close 
                        of its last taxable year beginning 
                        before January 1, 1996, if the 
                        additions to such reserve for all 
                        taxable years had been determined under 
                        section 585(b)(2)(A), and
                            (ii) the opening balance of the 
                        reserve for bad debts as of the 
                        beginning of such first taxable year 
                        shall be the balance taken into account 
                        under subparagraph (A)(ii) (determined 
                        after the application of clause (i) of 
                        this subparagraph).
                The preceding sentence shall not apply for 
                purposes of paragraphs (5), (6), and (7).
            (3) Recapture of pre-1988 reserves where taxpayer 
        ceases to be bank.--If during any taxable year 
        beginning after December 31, 1995, a taxpayer to which 
        paragraph (1) applied is not a bank (as defined in 
        section 581), paragraph (1) shall apply to the reserves 
        described in subparagraph (A)(ii) except that such 
        reserves shall be taken into account ratably over the 
        6-taxable year period beginning with such taxable year.
            (4) Suspension of recapture if residential loan 
        requirement met.--
                    (A) In general.--In the case of a bank 
                which meets the residential loan requirement of 
                subparagraph (B) for a taxable year beginning 
                after December 31, 1995, and before January 1, 
                1998--
                            (i) no adjustment shall be taken 
                        into account under paragraph (1) for 
                        such taxable year, and
                            (ii) such taxable year shall be 
                        disregarded in determining--
                                    (I) whether any other 
                                taxable year is a taxable year 
                                for which an adjustment is 
                                required to be taken into 
                                account under paragraph (1), 
                                and
                                    (II) the amount of such 
                                adjustment.
                    (B) Residential loan requirement.--A 
                taxpayer meets the residential loan requirement 
                of this subparagraph for any taxable year if 
                the principal amount of the residential loans 
                made by the taxpayer during such year is not 
                less than the base amount for such year.
                    (C) Residential loan.--For purposes of this 
                paragraph, the term ``residential loan'' means 
                any loan described in clause (v) of section 
                7701(a)(19)(C) of such Code but only if such 
                loan is incurred in acquiring, constructing, or 
                improving the property described in such 
                clause.
                    (D) Base amount.--For purposes of 
                subparagraph (B), the base amount is the 
                average of the principal amounts of the 
                residential loans made by the taxpayer during 
                the 6 most recent taxable years beginning 
                before January 1, 1996. At the election of the 
                taxpayer who made such loans during each of 
                such 6 taxable years, the preceding sentence 
                shall be applied without regard to the taxable 
                year in which such principal amount was the 
                highest and the taxable year in such principal 
                amount was the lowest. Such an election may be 
                made only for the first taxable year beginning 
                after December 31, 1995, and, if made for such 
                taxable year, shall apply to the succeeding 
                taxable year unless revoked with the consent of 
                the Secretary of the Treasury or his delegate.
                    (E) Controlled groups.--In the case of a 
                taxpayer which is a member of any controlled 
                group of corporations described in section 
                1563(a)(1) of such Code, subparagraph (B) shall 
                be applied with respect to such group.
            (5) Continued application of fresh start under 
        section 585 transitional rules.--In the case of a 
        taxpayer to which paragraph (1) applied and which was 
        not a large bank (as defined in section 585(c)(2) of 
        such Code) for its first taxable year beginning after 
        December 31, 1995:
                    (A) In general.--For purposes of 
                determining the net amount of adjustments 
                referred to in section 585(c)(3)(A)(iii) of 
                such Code, there shall be taken into account 
                only the excess of the reserve for bad debts as 
                of the close of the last taxable year before 
                the disqualification year over the balance 
                taken into account by such taxpayer under 
                paragraph (2)(A)(ii) of this subsection.
                    (B) Treatment under elective cut-off 
                method.--For purposes of applying section 
                585(c)(4) of such Code--
                            (i) the balance of the reserve 
                        taken into account under subparagraph 
                        (B) thereof shall be reduced by the 
                        balance taken into account by such 
                        taxpayer under paragraph (2)(A)(ii) of 
                        this subsection, and
                            (ii) no amount shall be includible 
                        in gross income by reason of such 
                        reduction.
            (6) Continued application of section 593(e).--
        Notwithstanding the amendments made by this section, in 
        the case of a taxpayer to which paragraph (1) of this 
        subsection applies, section 593(e) of such Code (as in 
        effect on the day before the date of the enactment of 
        this Act) shall continue to apply to such taxpayer as 
        if such taxpayer were a domestic building and loan 
        association but the amount of the reserves taken into 
        account under subparagraphs (B) and (C) of section 
        593(e)(1) (as so in effect) shall be the balance taken 
        into account by such taxpayer under paragraph 
        (2)(A)(ii) of this subsection.
            (7) Certain items included as section 381(c) 
        items.--The balance of the applicable excess reserves, 
        and the balance taken into account by a taxpayer under 
        paragraph (2)(A)(ii) of this subsection, shall be 
        treated as items described in section 381(c) of such 
        Code.
            (8) Conversions to credit unions.--In the case of a 
        taxpayer to which paragraph (1) applied which becomes a 
        credit union described in section 501(c)(14)(A)--
                    (A) any amount required to be included in 
                the gross income of the credit union by reason 
                of this subsection shall be treated as derived 
                from an unrelated trade or business (as defined 
                in section 513), and
                    (B) for purposes of paragraph (3), the 
                credit union shall not be treated as if it were 
                a bank.
            (9) Regulations.--The Secretary of the Treasury or 
        his delegate shall prescribe such regulations as may be 
        necessary to carry out this subsection, including 
        regulations providing for the application of paragraphs 
        (4) and (6) in the case of acquisitions, mergers, spin-
        offs, and other reorganizations.

SEC. 11380. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT SELLERS.

    (a) In General.--Section 3508(b)(2)(A) in amended by 
striking ``or'' at the end of clause (i), by inserting ``or'' 
at the end of clause (ii), and by inserting after clause (ii) 
the following new clause:
                            ``(iii) is engaged in the trade or 
                        business of the delivering or 
                        distribution of newspapers or shopping 
                        news (including any services directly 
                        related to such trade or business),''.
    (b) Effective Date.--The amendments made by this section 
shall apply to services performed after December 31, 1995.

                     Subtitle J--Tax Simplification

             CHAPTER 1--PROVISIONS RELATING TO INDIVIDUALS

   Subchapter A--Provisions Relating To Rollover of Gain on Sale of 
                          Principal Residence

SEC. 11401. MULTIPLE SALES WITHIN ROLLOVER PERIOD.

    (a) General Rule.--
            (1) Section 1034(d) (relating to limitation on 
        rollover of gain on sale of principal residence), as 
        amended by sections 11321 and 11322, is amended by 
        striking paragraphs (1) and (2) and by redesignating 
        paragraphs (3) and (4) as paragraphs (1) and (2), 
        respectively.
            (2) Paragraph (4) of section 1034(c) is amended to 
        read as follows:
            ``(4) If the taxpayer, during the period described 
        in subsection (a), purchases more than 1 residence 
        which is used by him as his principal residence at some 
        time within 2 years after the date of the sale of the 
        old residence, only the first of such residences so 
        used by him after the date of such sale shall 
        constitute the new residence.''
            (3) Subsections (h)(1) and (k) of section 1034 are 
        each amended by striking ``(other than the 2 years 
        referred to in subsection (c)(4))''.
    (b) Effective Date.--The amendments made by this section 
shall apply to sales of old residences (within the meaning of 
section 1034 of the Internal Revenue Code of 1986) after the 
date of the enactment of this Act.

SEC. 11402. SPECIAL RULES IN CASE OF DIVORCE.

    (a) In General.--Subsection (c) of section 1034 is amended 
by adding at the end the following new paragraph:
            ``(5) If--
                    ``(A) a residence is sold by an individual 
                pursuant to a divorce or marital separation, 
                and
                    ``(B) the taxpayer used such residence as 
                his principal residence at any time during the 
                2-year period ending on the date of such sale,
        for purposes of this section, such residence shall be 
        treated as the taxpayer's principal residence at the 
        time of such sale.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to sales of old residences (within the meaning of 
section 1034 of the Internal Revenue Code of 1986) after the 
date of the enactment of this Act.

SEC. 11403. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE 
                    FOR CERTAIN SPOUSES.

    (a) In General.--Paragraph (2) of section 121(b) (relating 
to one-time exclusion of gain from sale of principal residence 
by individual who has attained age 55) is amended by adding at 
the end the following new sentence: ``For purposes of applying 
the preceding sentence to individuals who are married to each 
other, an election by one individual with respect to a sale or 
exchange occurring before the marriage shall be disregarded for 
purposes of permitting an election with respect to property 
owned and used by the other individual as his principal 
residence throughout the 3-year period ending on the date of 
the marriage.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply for purposes of determining whether an election may 
be made under section 121 of the Internal Revenue Code of 1986 
with respect to a sale or exchange occurring after September 
13, 1995.

                     Subchapter B--Other Provisions

SEC. 11411. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL 
                    CARRIERS.

    (a) In General.--Section 162 (relating to trade or business 
expenses) is amended by redesignating subsection (o) as 
subsection (p) and by inserting after subsection (n) the 
following new subsection:
    ``(o) Treatment of Certain Reimbursed Expenses of Rural 
Mail Carriers.--
            ``(1) General rule.--In the case of any employee of 
        the United States Postal Service who performs services 
        involving the collection and delivery of mail on a 
        rural route and who receives qualified reimbursements 
        for the expenses incurred by such employee for the use 
        of a vehicle in performing such services--
                    ``(A) the amount allowable as a deduction 
                under this chapter for the use of a vehicle in 
                performing such services shall be equal to the 
                amount of such qualified reimbursements; and
                    ``(B) such qualified reimbursements shall 
                be treated as paid under a reimbursement or 
                other expense allowance arrangement for 
                purposes of section 62(a)(2)(A) (and section 
                62(c) shall not apply to such qualified 
                reimbursements).
            ``(2) Definition of qualified reimbursements.--For 
        purposes of this subsection, the term `qualified 
        reimbursements' means the amounts paid by the United 
        States Postal Service to employees as an equipment 
        maintenance allowance under the 1991 collective 
        bargaining agreement between the United States Postal 
        Service and the National Rural Letter Carriers' 
        Association. Amounts paid as an equipment maintenance 
        allowance by such Postal Service under later collective 
        bargaining agreements that supersede the 1991 agreement 
        shall be considered qualified reimbursements if such 
        amounts do not exceed the amounts that would have been 
        paid under the 1991 agreement, adjusted for changes in 
        the Consumer Price Index (as defined in section 
        1(f)(5)) since 1991.''
    (b) Technical Amendment.--Section 6008 of the Technical and 
Miscellaneous Revenue Act of 1988 is hereby repealed.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11412. TREATMENT OF TRAVELING EXPENSES OF CERTAIN FEDERAL 
                    EMPLOYEES ENGAGED IN CRIMINAL INVESTIGATIONS.

    (a) In General.--Subsection (a) of section 162 is amended 
by adding at the end the following new sentence: ``The 
preceding sentence shall not apply to any Federal employee 
during any period for which such employee is certified by the 
Attorney General (or the designee thereof) as traveling on 
behalf of the United States in temporary duty status to 
investigate, or provide support services for the investigation 
of, a Federal crime.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years ending after the date of the 
enactment of this Act.

                   CHAPTER 2--PENSION SIMPLIFICATION

              Subchapter A--Simplified Distribution Rules

SEC. 11421. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM 
                    DISTRIBUTIONS.

    (a) In General.--Subsection (d) of section 402 (relating to 
taxability of beneficiary of employees' trust) is amended to 
read as follows:
    ``(d) Taxability of Beneficiary of Certain Foreign Situs 
Trusts.--For purposes of subsections (a), (b), and (c), a stock 
bonus, pension, or profit-sharing trust which would qualify for 
exemption from tax under section 501(a) except for the fact 
that it is a trust created or organized outside the United 
States shall be treated as if it were a trust exempt from tax 
under section 501(a).''.
    (b) Conforming Amendments.--
            (1) Subparagraph (D) of section 402(e)(4) (relating 
        to other rules applicable to exempt trusts) is amended 
        to read as follows:
                    ``(D) Lump-sum distribution.--For purposes 
                of this paragraph--
                            ``(i) In general.--The term `lump 
                        sum distribution' means the 
                        distribution or payment within one 
                        taxable year of the recipient of the 
                        balance to the credit of an employee 
                        which becomes payable to the 
                        recipient--
                                    ``(I) on account of the 
                                employee's death,
                                    ``(II) after the employee 
                                attains age 59\1/2\,
                                    ``(III) on account of the 
                                employee's separation from 
                                service, or
                                    ``(IV) after the employee 
                                has become disabled (within the 
                                meaning of section 72(m)(7)),
                        from a trust which forms a part of a 
                        plan described in section 401(a) and 
                        which is exempt from tax under section 
                        501 or from a plan described in section 
                        403(a). Subclause (III) of this clause 
                        shall be applied only with respect to 
                        an individual who is an employee 
                        without regard to section 401(c)(1), 
                        and subclause (IV) shall be applied 
                        only with respect to an employee within 
                        the meaning of section 401(c)(1). For 
                        purposes of this clause, a distribution 
                        to two or more trusts shall be treated 
                        as a distribution to one recipient. For 
                        purposes of this paragraph, the balance 
                        to the credit of the employee does not 
                        include the accumulated deductible 
                        employee contributions under the plan 
                        (within the meaning of section 
                        72(o)(5)).
                            ``(ii) Aggregation of certain 
                        trusts and plans.--For purposes of 
                        determining the balance to the credit 
                        of an employee under clause (i)--
                                    ``(I) all trusts which are 
                                part of a plan shall be treated 
                                as a single trust, all pension 
                                plans maintained by the 
                                employer shall be treated as a 
                                single plan, all profit-sharing 
                                plans maintained by the 
                                employer shall be treated as a 
                                single plan, and all stock 
                                bonus plans maintained by the 
                                employer shall be treated as a 
                                single plan, and
                                    ``(II) trusts which are not 
                                qualified trusts under section 
                                401(a) and annuity contracts 
                                which do not satisfy the 
                                requirements of section 
                                404(a)(2) shall not be taken 
                                into account.
                            ``(iii) Community property laws.--
                        The provisions of this paragraph shall 
                        be applied without regard to community 
                        property laws.
                            ``(iv) Amounts subject to 
                        penalty.--This paragraph shall not 
                        apply to amounts described in 
                        subparagraph (A) of section 72(m)(5) to 
                        the extent that section 72(m)(5) 
                        applies to such amounts.
                            ``(v) Balance to credit of employee 
                        not to include amounts payable under 
                        qualified domestic relations order.--
                        For purposes of this paragraph, the 
                        balance to the credit of an employee 
                        shall not include any amount payable to 
                        an alternate payee under a qualified 
                        domestic relations order (within the 
                        meaning of section 414(p)).
                            ``(vi) Transfers to cost-of-living 
                        arrangement not treated as 
                        distribution.--For purposes of this 
                        paragraph, the balance to the credit of 
                        an employee under a defined 
                        contribution plan shall not include any 
                        amount transferred from such defined 
                        contribution plan to a qualified cost-
                        of-living arrangement (within the 
                        meaning of section 415(k)(2)) under a 
                        defined benefit plan.
                            ``(vii) Lump-sum distributions of 
                        alternate payees.--If any distribution 
                        or payment of the balance to the credit 
                        of an employee would be treated as a 
                        lump-sum distribution, then, for 
                        purposes of this paragraph, the payment 
                        under a qualified domestic relations 
                        order (within the meaning of section 
                        414(p)) of the balance to the credit of 
                        an alternate payee who is the spouse or 
                        former spouse of the employee shall be 
                        treated as a lump-sum distribution. For 
                        purposes of this clause, the balance to 
                        the credit of the alternate payee shall 
                        not include any amount payable to the 
                        employee.''.
            (2) Section 402(c) (relating to rules applicable to 
        rollovers from exempt trusts) is amended by striking 
        paragraph (10).
            (3) Paragraph (1) of section 55(c) (defining 
        regular tax) is amended by striking ``shall not include 
        any tax imposed by section 402(d) and''.
            (4) Paragraph (8) of section 62(a) (relating to 
        certain portion of lump-sum distributions from pension 
        plans taxed under section 402(d)) is hereby repealed.
            (5) Section 401(a)(28)(B) (relating to coordination 
        with distribution rules) is amended by striking clause 
        (v).
            (6) Subparagraph (B)(ii) of section 401(k)(10) 
        (relating to distributions that must be lump-sum 
        distributions) is amended to read as follows:
                    ``(ii) Lump-sum distribution.--For purposes 
                of this subparagraph, the term `lump-sum 
                distribution' means any distribution of the 
                balance to the credit of an employee 
                immediately before the distribution.''.
            (7) Section 406(c) (relating to termination of 
        status as deemed employee not to be treated as 
        separation from service for purposes of limitation of 
        tax) is hereby repealed.
            (8) Section 407(c) (relating to termination of 
        status as deemed employee not to be treated as 
        separation from service for purposes of limitation of 
        tax) is hereby repealed.
            (9) Section 691(c) (relating to deduction for 
        estate tax) is amended by striking paragraph (5).
            (10) Paragraph (1) of section 871(b) (relating to 
        imposition of tax) is amended by striking ``section 1, 
        55, or 402(d)(1)'' and inserting ``section 1 or 55''.
            (11) Subsection (b) of section 877 (relating to 
        alternative tax) is amended by striking ``section 1, 
        55, or 402(d)(1)'' and inserting ``section 1 or 55''.
            (12) Section 4980A(c)(4) is amended--
                    (A) by striking ``to which an election 
                under section 402(d)(4)(B) applies'' and 
                inserting ``(as defined in section 
                402(e)(4)(D)) with respect to which the 
                individual elects to have this paragraph 
                apply'',
                    (B) by adding at the end the following new 
                flush sentence:
        ``An individual may elect to have this paragraph apply 
        to only one lump-sum distribution.'', and
                    (C) by striking the heading and inserting:
            ``(4) Special one-time election.--''.
            (13) Section 402(e) is amended by striking 
        paragraph (5).
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 1998.
            (2) Retention of certain transition rules.--
        Notwithstanding any other provision of this section, 
        the amendments made by this section shall not apply to 
        any distribution for which the taxpayer elects the 
        benefits of section 1122 (h)(3) or (h)(5) of the Tax 
        Reform Act of 1986. For purposes of the preceding 
        sentence, the rules of sections 402(c)(10) and 402(d) 
        of the Internal Revenue Code of 1986 (as in effect 
        before the amendments made by this Act) shall apply.

SEC. 11422. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH BENEFITS.

    (a) In General.--Subsection (b) of section 101 is hereby 
repealed.
    (b) Conforming Amendments.--
            (1) Subsection (c) of section 101 is amended by 
        striking ``subsection (a) or (b)'' and inserting 
        ``subsection (a)''.
            (2) Sections 406(e) and 407(e) are each amended by 
        striking paragraph (2) and by redesignating paragraph 
        (3) as paragraph (2).
            (3) Section 7701(a)(20) is amended by striking ``, 
        for the purposes of applying the provisions of section 
        101(b) with respect to employees' death benefits''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11423. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER 
                    CERTAIN EMPLOYER PLANS.

    (a) General Rule.--Subsection (d) of section 72 (relating 
to annuities; certain proceeds of endowment and life insurance 
contracts) is amended to read as follows:
    ``(d) Special Rules for Qualified Employer Retirement 
Plans.--
            ``(1) Simplified method of taxing annuity 
        payments.--
                    ``(A) In general.--In the case of any 
                amount received as an annuity under a qualified 
                employer retirement plan--
                            ``(i) subsection (b) shall not 
                        apply, and
                            ``(ii) the investment in the 
                        contract shall be recovered as provided 
                        in this paragraph.
                    ``(B) Method of recovering investment in 
                contract.--
                            ``(i) In general.--Gross income 
                        shall not include so much of any 
                        monthly annuity payment under a 
                        qualified employer retirement plan as 
                        does not exceed the amount obtained by 
                        dividing--
                                    ``(I) the investment in the 
                                contract (as of the annuity 
                                starting date), by
                                    ``(II) the number of 
                                anticipated payments determined 
                                under the table contained in 
                                clause (iii) (or, in the case 
                                of a contract to which 
                                subsection (c)(3)(B) applies, 
                                the number of monthly annuity 
                                payments under such contract).
                            ``(ii) Certain rules made 
                        applicable.--Rules similar to the rules 
                        of paragraphs (2) and (3) of subsection 
                        (b) shall apply for purposes of this 
                        paragraph.
                            ``(iii) Number of anticipated 
                        payments.--

             ``If the age of the                                        
               primary annuitant on                           The number
               the annuity starting                       of anticipated
               date is:                                     payments is:
                 Not more than 55.......................            360 
                 More than 55 but not more than 60......            310 
                 More than 60 but not more than 65......            260 
                 More than 65 but not more than 70......            210 
                 More than 70...........................            160.

                    ``(C) Adjustment for refund feature not 
                applicable.--For purposes of this paragraph, 
                investment in the contract shall be determined 
                under subsection (c)(1) without regard to 
                subsection (c)(2).
                    ``(D) Special rule where lump sum paid in 
                connection with commencement of annuity 
                payments.--If, in connection with the 
                commencement of annuity payments under any 
                qualified employer retirement plan, the 
                taxpayer receives a lump sum payment--
                            ``(i) such payment shall be taxable 
                        under subsection (e) as if received 
                        before the annuity starting date, and
                            ``(ii) the investment in the 
                        contract for purposes of this paragraph 
                        shall be determined as if such payment 
                        had been so received.
                    ``(E) Exception.--This paragraph shall not 
                apply in any case where the primary annuitant 
                has attained age 75 on the annuity starting 
                date unless there are fewer than 5 years of 
                guaranteed payments under the annuity.
                    ``(F) Adjustment where annuity payments not 
                on monthly basis.--In any case where the 
                annuity payments are not made on a monthly 
                basis, appropriate adjustments in the 
                application of this paragraph shall be made to 
                take into account the period on the basis of 
                which such payments are made.
                    ``(G) Qualified employer retirement plan.--
                For purposes of this paragraph, the term 
                `qualified employer retirement plan' means any 
                plan or contract described in paragraph (1), 
                (2), or (3) of section 4974(c).
            ``(2) Treatment of employee contributions under 
        defined contribution plans.--For purposes of this 
        section, employee contributions (and any income 
        allocable thereto) under a defined contribution plan 
        may be treated as a separate contract.''.
    (b) Effective Date.--The amendment made by this section 
shall apply in cases where the annuity starting date is after 
December 31, 1995.

SEC. 11424. REQUIRED DISTRIBUTIONS.

    (a) In General.--Section 401(a)(9)(C) (defining required 
beginning date) is amended to read as follows:
                    ``(C) Required beginning date.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term 
                        `required beginning date' means April 1 
                        of the calendar year following the 
                        later of--
                                    ``(I) the calendar year in 
                                which the employee attains age 
                                70\1/2\, or
                                    ``(II) the calendar year in 
                                which the employee retires.
                            ``(ii) Exception.--Subclause (II) 
                        of clause (i) shall not apply--
                                    ``(I) except as provided in 
                                section 409(d), in the case of 
                                an employee who is a 5-percent 
                                owner (as defined in section 
                                416) with respect to the plan 
                                year ending in the calendar 
                                year in which the employee 
                                attains age 70\1/2\, or
                                    ``(II) for purposes of 
                                section 408 (a)(6) or (b)(3).
                            ``(iii) Actuarial adjustment.--In 
                        the case of an employee to whom clause 
                        (i)(II) applies who retires in a 
                        calendar year after the calendar year 
                        in which the employee attains age 70\1/
                        2\, the employee's accrued benefit 
                        shall be actuarially increased to take 
                        into account the period after age 70\1/
                        2\ in which the employee was not 
                        receiving any benefits under the plan.
                            ``(iv) Exception for governmental 
                        and church plans.--Clauses (ii) and 
                        (iii) shall not apply in the case of a 
                        governmental plan or church plan. For 
                        purposes of this clause, the term 
                        `church plan' means a plan maintained 
                        by a church for church employees, and 
                        the term `church' means any church (as 
                        defined in section 3121(w)(3)(A)) or 
                        qualified church-controlled 
                        organization (as defined in section 
                        3121(w)(3)(B)).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to years beginning after December 31, 1995.

            Subchapter B--Increased Access to Pension Plans

SEC. 11431. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).

    (a) In General.--Subparagraph (B) of section 401(k)(4) is 
amended to read as follows:
                    ``(B) Eligibility of state and local 
                governments and tax-exempt organizations.--
                            ``(i) Governments ineligible.--A 
                        cash or deferred arrangement shall not 
                        be treated as a qualified cash or 
                        deferred arrangement if it is part of a 
                        plan maintained by a State or local 
                        government or political subdivision 
                        thereof, or any agency or 
                        instrumentality thereof. This clause 
                        shall not apply to a rural cooperative 
                        plan.
                            ``(ii) Tax-exempts eligible.--
                                    ``(I) In general.--Any 
                                organization exempt from tax 
                                under this subtitle may include 
                                a qualified cash or deferred 
                                arrangement as part of a plan 
                                maintained by it.
                                    ``(II) Treatment of indian 
                                tribal governments.--An 
                                employer which is an Indian 
                                tribal government (as defined 
                                in section 7701(a)(40)), a 
                                subdivision of an Indian tribal 
                                government (determined in 
                                accordance with section 
                                7871(d)), an agency or 
                                instrumentality of an Indian 
                                tribal government or 
                                subdivision thereof, or a 
                                corporation chartered under 
                                Federal, State, or tribal law 
                                which is owned in whole or in 
                                part by any of the foregoing 
                                shall be treated as an 
                                organization exempt from tax 
                                under this subtitle for 
                                purposes of subclause (I).
    (b) Effective Date.--The amendment made by this section 
shall apply to plan years beginning after December 31, 1996, 
but shall not apply to any cash or deferred arrangement to 
which clause (i) of section 1116(f)(2)(B) of the Tax Reform Act 
of 1986 applies.

               Subchapter C--Nondiscrimination Provisions

SEC. 11441. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL OF 
                    FAMILY AGGREGATION.

    (a) In General.--Paragraph (1) of section 414(q) (defining 
highly compensated employee) is amended to read as follows:
            ``(1) In general.--The term `highly compensated 
        employee' means any employee who--
                    ``(A) was a 5-percent owner at any time 
                during the year or the preceding year, or
                    ``(B) for the preceding year had 
                compensation from the employer in excess of 
                $80,000 and was in the top-paid group of the 
                employer.
        The Secretary shall adjust the $80,000 amount under 
        subparagraph (B) at the same time and in the same 
        manner as under section 415(d), except that the base 
        period shall be the calendar quarter ending September 
        30, 1996.''.
    (b) Repeal of Family Aggregation Rules.--
            (1) In general.--Paragraph (6) of section 414(q) is 
        hereby repealed.
            (2) Compensation limit.--Paragraph (17)(A) of 
        section 401(a) is amended by striking the last 
        sentence.
            (3) Deduction.--Subsection (l) of section 404 is 
        amended by striking the last sentence.
    (c) Conforming Amendments.--
            (1)(A) Subsection (q) of section 414 is amended by 
        striking paragraphs (2), (5), (8), and (12) and by 
        redesignating paragraphs (3), (4), (7), (9), (10), and 
        (11) as paragraphs (2) through (7), respectively.
            (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 
        408(k)(2)(C), and 416(i)(1)(D) are each amended by 
        striking ``section 414(q)(7)'' and inserting ``section 
        414(q)(4)''.
            (C) Section 416(i)(1)(A) is amended by striking 
        ``section 414(q)(8)'' and inserting ``section 
        414(r)(9)''.
            (2)(A) Section 414(r) is amended by adding at the 
        end the following new paragraph:
            ``(9) Excluded employees.--For purposes of this 
        subsection, the following employees shall be excluded:
                    ``(A) Employees who have not completed 6 
                months of service.
                    ``(B) Employees who normally work less than 
                17\1/2\ hours per week.
                    ``(C) Employees who normally work not more 
                than 6 months during any year.
                    ``(D) Employees who have not attained the 
                age of 21.
                    ``(E) Except to the extent provided in 
                regulations, employees who are included in a 
                unit of employees covered by an agreement which 
                the Secretary of Labor finds to be a collective 
                bargaining agreement between employee 
                representatives and the employer.
        Except as provided by the Secretary, the employer may 
        elect to apply subparagraph (A), (B), (C), or (D) by 
        substituting a shorter period of service, smaller 
        number of hours or months, or lower age for the period 
        of service, number of hours or months, or age (as the 
        case may be) specified in such subparagraph.''.
            (B) Subparagraph (A) of section 414(r)(2) is 
        amended by striking ``subsection (q)(8)'' and inserting 
        ``paragraph (9)''.
            (3) Section 1114(c)(4) of the Tax Reform Act of 
        1986 is amended by adding at the end the following new 
        sentence: ``Any reference in this paragraph to section 
        414(q) shall be treated as a reference to such section 
        as in effect on the day before the date of the 
        enactment of the Revenue Reconciliation Act of 1995.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to years beginning after December 
        31, 1995, except that in determining whether an 
        employee is a highly compensated employee for years 
        beginning in 1996, such amendments shall be treated as 
        having been in effect for years beginning in 1995.
            (2) Family aggregation.--The amendments made by 
        subsection (b) shall apply to years beginning after 
        December 31, 1995.

SEC. 11442. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.

    (a) General Rule.--Section 401(a)(26)(A) (relating to 
additional participation requirements) is amended to read as 
follows:
            ``(A) In general.--In the case of a trust which is 
        a part of a defined benefit plan, such trust shall not 
        constitute a qualified trust under this subsection 
        unless on each day of the plan year such trust benefits 
        at least the lesser of--
                    ``(i) 50 employees of the employer, or
                    ``(ii) the greater of--
                            ``(I) 40 percent of all employees 
                        of the employer, or
                            ``(II) 2 employees (or if there is 
                        only 1 employee, such employee).''.
    (b) Separate Line of Business Test.--Section 401(a)(26)(G) 
(relating to separate line of business) is amended by striking 
``paragraph (7)'' and inserting ``paragraph (2)(A) or (7)''.
    (c) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 1995.

SEC. 11443. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED 
                    ARRANGEMENTS AND MATCHING CONTRIBUTIONS.

    (a) Alternative Methods of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or 
deferred arrangements), as amended by this Act, is amended by 
adding at the end the following new paragraph:
            ``(12) Alternative methods of meeting 
        nondiscrimination requirements.--
                    ``(A) In general.--A cash or deferred 
                arrangement shall be treated as meeting the 
                requirements of paragraph (3)(A)(ii) if such 
                arrangement--
                            ``(i) meets the contribution 
                        requirements of subparagraph (B) or 
                        (C), and
                            ``(ii) meets the notice 
                        requirements of subparagraph (D).
                    ``(B) Matching contributions.--
                            ``(i) In general.--The requirements 
                        of this subparagraph are met if, under 
                        the arrangement, the employer makes 
                        matching contributions on behalf of 
                        each employee who is not a highly 
                        compensated employee in an amount equal 
                        to--
                                    ``(I) 100 percent of the 
                                elective contributions of the 
                                employee to the extent such 
                                elective contributions do not 
                                exceed 3 percent of the 
                                employee's compensation, and
                                    ``(II) 50 percent of the 
                                elective contributions of the 
                                employee to the extent that 
                                such elective contributions 
                                exceed 3 percent but do not 
                                exceed 5 percent of the 
                                employee's compensation.
                            ``(ii) Rate for highly compensated 
                        employees.--The requirements of this 
                        subparagraph are not met if, under the 
                        arrangement, the matching contribution 
                        with respect to any elective 
                        contribution of a highly compensated 
                        employee at any level of compensation 
                        is greater than that with respect to an 
                        employee who is not a highly 
                        compensated employee.
                            ``(iii) Alternative plan designs.--
                        If the matching contribution with 
                        respect to any elective contribution at 
                        any specific level of compensation is 
                        not equal to the percentage required 
                        under clause (i), an arrangement shall 
                        not be treated as failing to meet the 
                        requirements of clause (i) if--
                                    ``(I) the level of an 
                                employer's matching 
                                contribution does not increase 
                                as an employee's elective 
                                contributions increase, and
                                    ``(II) the aggregate amount 
                                of matching contributions with 
                                respect to elective 
                                contributions not in excess of 
                                such level of compensation is 
                                at least equal to the amount of 
                                matching contributions which 
                                would be made if matching 
                                contributions were made on the 
                                basis of the percentages 
                                described in clause (i).
                    ``(C) Nonelective contributions.--The 
                requirements of this subparagraph are met if, 
                under the arrangement, the employer is 
                required, without regard to whether the 
                employee makes an elective contribution or 
                employee contribution, to make a contribution 
                to a defined contribution plan on behalf of 
                each employee who is not a highly compensated 
                employee and who is eligible to participate in 
                the arrangement in an amount equal to at least 
                3 percent of the employee's compensation.
                    ``(D) Notice requirement.--An arrangement 
                meets the requirements of this paragraph if, 
                under the arrangement, each employee eligible 
                to participate is, within a reasonable period 
                before any year, given written notice of the 
                employee's rights and obligations under the 
                arrangement which--
                            ``(i) is sufficiently accurate and 
                        comprehensive to appraise the employee 
                        of such rights and obligations, and
                            ``(ii) is written in a manner 
                        calculated to be understood by the 
                        average employee eligible to 
                        participate.
                    ``(E) Other requirements.--
                            ``(i) Withdrawal and vesting 
                        restrictions.--An arrangement shall not 
                        be treated as meeting the requirements 
                        of subparagraph (B) or (C) unless the 
                        requirements of subparagraphs (B) and 
                        (C) of paragraph (2) are met with 
                        respect to all employer contributions 
                        (including matching contributions).
                            ``(ii) Social security and similar 
                        contributions not taken into account.--
                        An arrangement shall not be treated as 
                        meeting the requirements of 
                        subparagraph (B) or (C) unless such 
                        requirements are met without regard to 
                        subsection (l), and, for purposes of 
                        subsection (l), employer contributions 
                        under subparagraph (B) or (C) shall not 
                        be taken into account.
                    ``(F) Other plans.--An arrangement shall be 
                treated as meeting the requirements under 
                subparagraph (A)(i) if any other plan 
                maintained by the employer meets such 
                requirements with respect to employees eligible 
                under the arrangement.''.
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to 
nondiscrimination test for matching contributions and employee 
contributions), as amended by this Act, is amended by 
redesignating paragraph (10) as paragraph (11) and by adding 
after paragraph (9) the following new paragraph:
            ``(11) Alternative method of satisfying tests.--
                    ``(A) In general.--A defined contribution 
                plan shall be treated as meeting the 
                requirements of paragraph (2) with respect to 
                matching contributions if the plan--
                            ``(i) meets the contribution 
                        requirements of subparagraph (B) or (C) 
                        of subsection (k)(12),
                            ``(ii) meets the notice 
                        requirements of subsection (k)(12)(D), 
                        and
                            ``(iii) meets the requirements of 
                        subparagraph (B).
                    ``(B) Limitation on matching 
                contributions.--The requirements of this 
                subparagraph are met if--
                            ``(i) matching contributions on 
                        behalf of any employee may not be made 
                        with respect to an employee's 
                        contributions or elective deferrals in 
                        excess of 6 percent of the employee's 
                        compensation,
                            ``(ii) the level of an employer's 
                        matching contribution does not increase 
                        as an employee's contributions or 
                        elective deferrals increase, and
                            ``(iii) the matching contribution 
                        with respect to any highly compensated 
                        employee at a specific level of 
                        compensation is not greater than that 
                        with respect to an employee who is not 
                        a highly compensated employee.''.
    (c) Year for Computing Nonhighly Compensated Employee 
Percentage.--
            (1) Cash or deferred arrangements.--Clause (ii) of 
        section 401(k)(3)(A) is amended--
                    (A) by striking ``such year'' and inserting 
                ``the plan year'',
                    (B) by striking ``for such plan year'' and 
                inserting ``the preceding plan year'', and
                    (C) by adding at the end the following new 
                sentence: ``An arrangement may apply this 
                clause by using the plan year rather than the 
                preceding plan year if the employer so elects, 
                except that if such an election is made, it may 
                not be changed except as provided by the 
                Secretary.''.
            (2) Matching and employee contributions.--Section 
        401(m)(2)(A) is amended--
                    (A) by inserting ``for such plan year'' 
                after ``highly compensated employee'',
                    (B) by inserting ``for the preceding plan 
                year'' after ``eligible employees'' each place 
                it appears in clause (i) and clause (ii), and
                    (C) by adding at the end the following 
                flush sentence: ``This subparagraph may be 
                applied by using the plan year rather than the 
                preceding plan year if the employer so elects, 
                except that if such an election is made, it may 
                not be changed except as provided the 
                Secretary.''.
    (d) Special Rule for Determining Average Deferral 
Percentage for First Plan Year, Etc.--
            (1) Paragraph (3) of section 401(k) is amended by 
        adding at the end the following new subparagraph:
                    ``(E) For purposes of this paragraph, in 
                the case of the first plan year of any plan, 
                the amount taken into account as the actual 
                deferral percentage of nonhighly compensated 
                employees for the preceding plan year shall 
                be--
                            ``(i) 3 percent, or
                            ``(ii) if the employer makes an 
                        election under this subclause, the 
                        actual deferral percentage of nonhighly 
                        compensated employees determined for 
                        such first plan year.''.
            (2) Paragraph (3) of section 401(m) is amended by 
        adding at the end the following: ``Rules similar to the 
        rules of subsection (k)(3)(E) shall apply for purposes 
        of this subsection.''.
    (e) Distribution of Excess Contributions.--
            (1) Subparagraph (C) of section 401(k)(8) (relating 
        to arrangement not disqualified if excess contributions 
        distributed) is amended by striking ``on the basis of 
        the respective portions of the excess contributions 
        attributable to each of such employees'' and inserting 
        ``on the basis of the amount of contributions by, or on 
        behalf of, each of such employees''.
            (2) Subparagraph (C) of section 401(m)(6) (relating 
        to method of distributing excess aggregate 
        contributions) is amended by striking ``on the basis of 
        the respective portions of such amounts attributable to 
        each of such employees'' and inserting ``on the basis 
        of the amount of contributions on behalf of, or by, 
        each such employee''.
    (f) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to years beginning after December 
        31, 1998.
            (2) Excess contributions.--The amendments made by 
        subsection (e) shall apply to years beginning after 
        December 31, 1995.

SEC. 11444. DEFINITION OF COMPENSATION FOR SECTION 415 PURPOSES.

    (a) General Rule.--Section 415(c)(3) (defining 
participant's compensation) is amended by adding at the end the 
following new subparagraph:
                    ``(D) Certain deferrals included.--The term 
                `participant's compensation' shall include--
                            ``(i) any elective deferral (as 
                        defined in section 402(g)(3)), and
                            ``(ii) any amount which is 
                        contributed by the employer at the 
                        election of the employee and which is 
                        not includible in the gross income of 
                        the employee under section 125 or 
                        457.''.
    (b) Conforming Amendments.--
            (1) Section 414(q)(4), as redesignated by section 
        11441, is amended to read as follows:
            ``(7) Compensation.--For purposes of this 
        subsection, the term `compensation' has the meaning 
        given such term by section 415(c)(3).''.
            (2) Section 414(s)(2) is amended by inserting 
        ``not'' after ``elect'' in the text and heading 
        thereof.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 1997.

                 Subchapter D--Miscellaneous Provisions

SEC. 11451. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

    (a) Aggregation Rules.--Section 401(d) (relating to 
additional requirements for qualification of trusts and plans 
benefiting owner-employees) is amended to read as follows:
    ``(d) Contribution Limit on Owner-Employees.--A trust 
forming part of a pension or profit-sharing plan which provides 
contributions or benefits for employees some or all of whom are 
owner-employees shall constitute a qualified trust under this 
section only if, in addition to meeting the requirements of 
subsection (a), the plan provides that contributions on behalf 
of any owner-employee may be made only with respect to the 
earned income of such owner-employee which is derived from the 
trade or business with respect to which such plan is 
established.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 1995.

SEC. 11452. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER 
                    PLANS.

    (a) In General.--Paragraph (2) of section 411(a) (relating 
to minimum vesting standards) is amended--
            (1) by striking ``subparagraph (A), (B), or (C)'' 
        and inserting ``subparagraph (A) or (B)''; and
            (2) by striking subparagraph (C).
    (b) Effective Date.--The amendments made by this section 
shall apply to plan years beginning on or after the earlier 
of--
            (1) the later of--
                    (A) January 1, 1996, or
                    (B) the date on which the last of the 
                collective bargaining agreements pursuant to 
                which the plan is maintained terminates 
                (determined without regard to any extension 
                thereof after the date of the enactment of this 
                Act), or
            (2) January 1, 1998.
Such amendments shall not apply to any individual who does not 
have more than 1 hour of service under the plan on or after the 
1st day of the 1st plan year to which such amendments apply.

SEC. 11453. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

    (a) Distributions for Hardship or After a Certain Age.--
Section 401(k)(7) is amended by adding at the end the following 
new subparagraph:
                    ``(C) Special rule for certain 
                distributions.--A rural cooperative plan which 
                includes a qualified cash or deferred 
                arrangement shall not be treated as violating 
                the requirements of section 401(a) or of 
                paragraph (2) merely by reason of a hardship 
                distribution or a distribution to a participant 
                after attainment of age 59\1/2\. For purposes 
                of this section, the term `hardship 
                distribution' means a distribution described in 
                paragraph (2)(B)(i)(IV) (without regard to the 
                limitation of its application to profit-sharing 
                or stock bonus plans).''.
    (b) Public Utility Districts.--Clause (i) of section 
401(k)(7)(B) (defining rural cooperative) is amended to read as 
follows:
                            ``(i) any organization which--
                                    ``(I) is engaged primarily 
                                in providing electric service 
                                on a mutual or cooperative 
                                basis, or
                                    ``(II) is engaged primarily 
                                in providing electric service 
                                to the public in its area of 
                                service and which is exempt 
                                from tax under this subtitle or 
                                which is a State or local 
                                government (or an agency or 
                                instrumentality thereof), other 
                                than a municipality (or an 
                                agency or instrumentality 
                                thereof).''
    (c) Effective Dates.--
            (1) Distributions.--The amendments made by 
        subsection (a) shall apply to distributions after the 
        date of the enactment of this Act.
            (2) Rural cooperative.--The amendments made by 
        subsection (b) shall apply to plan years beginning 
        after December 31, 1994.

SEC. 11454. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

    (a) Compensation Limit.--Subsection (b) of section 415 is 
amended by adding immediately after paragraph (10) the 
following new paragraph:
            ``(11) Special limitation rule for governmental 
        plans.--In the case of a governmental plan (as defined 
        in section 414(d)), subparagraph (B) of paragraph (1) 
        shall not apply.''
    (b) Treatment of Certain Excess Benefit Plans.--
            (1) In general.--Section 415 is amended by adding 
        at the end the following new subsection:
    ``(m) Treatment of Qualified Governmental Excess Benefit 
Arrangements.--
            ``(1) Governmental plan not affected.--In 
        determining whether a governmental plan (as defined in 
        section 414(d)) meets the requirements of this section, 
        benefits provided under a qualified governmental excess 
        benefit arrangement shall not be taken into account. 
        Income accruing to a governmental plan (or to a trust 
        that is maintained solely for the purpose of providing 
        benefits under a qualified governmental excess benefit 
        arrangement) in respect of a qualified governmental 
        excess benefit arrangement shall constitute income 
        derived from the exercise of an essential governmental 
        function upon which such governmental plan (or trust) 
        shall be exempt from tax under section 115.
            ``(2) Taxation of participant.--For purposes of 
        this chapter--
                    ``(A) the taxable year or years for which 
                amounts in respect of a qualified governmental 
                excess benefit arrangement are includible in 
                gross income by a participant, and
                    ``(B) the treatment of such amounts when so 
                includible by the participant,
        shall be determined as if such qualified governmental 
        excess benefit arrangement were treated as a plan for 
        the deferral of compensation which is maintained by a 
        corporation not exempt from tax under this chapter and 
        which does not meet the requirements for qualification 
        under section 401.
            ``(3) Qualified governmental excess benefit 
        arrangement.--For purposes of this subsection, the term 
        `qualified governmental excess benefit arrangement' 
        means a portion of a governmental plan if--
                    ``(A) such portion is maintained solely for 
                the purpose of providing to participants in the 
                plan that part of the participant's annual 
                benefit otherwise payable under the terms of 
                the plan that exceeds the limitations on 
                benefits imposed by this section,
                    ``(B) under such portion no election is 
                provided at any time to the participant 
                (directly or indirectly) to defer compensation, 
                and
                    ``(C) benefits described in subparagraph 
                (A) are not paid from a trust forming a part of 
                such governmental plan unless such trust is 
                maintained solely for the purpose of providing 
                such benefits.''
            (2) Coordination with section 457.--Subsection (e) 
        of section 457 is amended by adding at the end the 
        following new paragraph:
            ``(15) Treatment of qualified governmental excess 
        benefit arrangements.--Subsections (b)(2) and (c)(1) 
        shall not apply to any qualified governmental excess 
        benefit arrangement (as defined in section 415(m)(3)), 
        and benefits provided under such an arrangement shall 
        not be taken into account in determining whether any 
        other plan is an eligible deferred compensation plan.''
            (3) Conforming amendment.--Paragraph (2) of section 
        457(f) is amended by striking ``and'' at the end of 
        subparagraph (C), by striking the period at the end of 
        subparagraph (D) and inserting ``, and'', and by 
        inserting immediately thereafter the following new 
        subparagraph:
                    ``(E) a qualified governmental excess 
                benefit arrangement described in section 
                415(m).''
    (c) Exemption for Survivor and Disability Benefits.--
Paragraph (2) of section 415(b) is amended by adding at the end 
the following new subparagraph:
                    ``(I) Exemption for survivor and disability 
                benefits provided under governmental plans.--
                Subparagraph (B) of paragraph (1), subparagraph 
                (C) of this paragraph, and paragraph (5) shall 
                not apply to--
                            ``(i) income received from a 
                        governmental plan (as defined in 
                        section 414(d)) as a pension, annuity, 
                        or similar allowance as the result of 
                        the recipient becoming disabled by 
                        reason of personal injuries or 
                        sickness, or
                            ``(ii) amounts received from a 
                        governmental plan by the beneficiaries, 
                        survivors, or the estate of an employee 
                        as the result of the death of the 
                        employee.''
    (d) Revocation of Grandfather Election.--
            (1) In general.--Subparagraph (C) of section 
        415(b)(10) is amended by adding at the end the 
        following new clause:
                            ``(ii) Revocation of election.--An 
                        election under clause (i) may be 
                        revoked not later than the last day of 
                        the third plan year beginning after the 
                        date of the enactment of this clause. 
                        The revocation shall apply to all plan 
                        years to which the election applied and 
                        to all subsequent plan years. Any 
                        amount paid by a plan in a taxable year 
                        ending after the revocation shall be 
                        includible in income in such taxable 
                        year under the rules of this chapter in 
                        effect for such taxable year, except 
                        that, for purposes of applying the 
                        limitations imposed by this section, 
                        any portion of such amount which is 
                        attributable to any taxable year during 
                        which the election was in effect shall 
                        be treated as received in such taxable 
                        year.''
            (2) Conforming amendment.--Subparagraph (C) of 
        section 415(b)(10) is amended by striking ``This'' and 
        inserting:
                            ``(i) In general.--This''.
    (e) Effective Date.--
            (1) In general.--The amendments made by subsections 
        (a), (b), and (c) shall apply to years beginning after 
        December 31, 1994. The amendments made by subsection 
        (d) shall apply with respect to revocations adopted 
        after the date of the enactment of this Act.
            (2) Treatment for years beginning before date of 
        enactment.--Nothing in the amendments made by this 
        section shall be construed to infer that a governmental 
        plan (as defined in section 414(d) of the Internal 
        Revenue Code of 1986) fails to satisfy the requirements 
        of section 415 of such Code for any taxable year 
        beginning before the date of the enactment of this Act.

SEC. 11455. UNIFORM RETIREMENT AGE.

    (a) Discrimination Testing.--Paragraph (5) of section 
401(a) (relating to special rules relating to nondiscrimination 
requirements) is amended by adding at the end the following new 
subparagraph:
                    ``(F) Social security retirement age.--For 
                purposes of testing for discrimination under 
                paragraph (4)--
                            ``(i) the social security 
                        retirement age (as defined in section 
                        415(b)(8)) shall be treated as a 
                        uniform retirement age, and
                            ``(ii) subsidized early retirement 
                        benefits and joint and survivor 
                        annuities shall not be treated as being 
                        unavailable to employees on the same 
                        terms merely because such benefits or 
                        annuities are based in whole or in part 
                        on an employee's social security 
                        retirement age (as so defined).''
    (b) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 1995.

SEC. 11456. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

    (a) All Disabled Participants Receiving Contributions.--
Section 415(c)(3)(C) is amended by adding at the end the 
following: ``If a defined contribution plan provides for the 
continuation of contributions on behalf of all participants 
described in clause (i) for a fixed or determinable period, 
this subparagraph shall be applied without regard to clauses 
(ii) and (iii).''
    (b) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 1995.

SEC. 11457. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL 
                    GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

    (a) Special Rules for Plan Distributions.--Paragraph (9) of 
section 457(e) (relating to other definitions and special 
rules) is amended to read as follows:
            ``(9) Benefits not treated as made available by 
        reason of certain elections, etc.--
                    ``(A) Total amount payable is $3,500 or 
                less.--The total amount payable to a 
                participant under the plan shall not be treated 
                as made available merely because the 
                participant may elect to receive such amount 
                (or the plan may distribute such amount without 
                the participant's consent) if--
                            ``(i) such amount does not exceed 
                        $3,500, and
                            ``(ii) such amount may be 
                        distributed only if--
                                    ``(I) no amount has been 
                                deferred under the plan with 
                                respect to such participant 
                                during the 2-year period ending 
                                on the date of the 
                                distribution, and
                                    ``(II) there has been no 
                                prior distribution under the 
                                plan to such participant to 
                                which this subparagraph 
                                applied.
                A plan shall not be treated as failing to meet 
                the distribution requirements of subsection (d) 
                by reason of a distribution to which this 
                subparagraph applies.
                    ``(B) Election to defer commencement of 
                distributions.--The total amount payable to a 
                participant under the plan shall not be treated 
                as made available merely because the 
                participant may elect to defer commencement of 
                distributions under the plan if--
                            ``(i) such election is made after 
                        amounts may be available under the plan 
                        in accordance with subsection (d)(1)(A) 
                        and before commencement of such 
                        distributions, and
                            ``(ii) the participant may make 
                        only 1 such election.''.
    (b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
Subsection (e) of section 457, as amended by section 
11454(b)(2) (relating to governmental plans), is amended by 
adding at the end the following new paragraph:
            ``(16) Cost-of-living adjustment of maximum 
        deferral amount.--The Secretary shall adjust the $7,500 
        amount specified in subsections (b)(2) and (c)(1) at 
        the same time and in the same manner as under section 
        415(d), except that the base period shall be the 
        calendar quarter ending September 30, 1994, and any 
        increase under this paragraph which is not a multiple 
        of $500 shall be rounded to the next lowest multiple of 
        $500.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11458. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE 
                    AND LOCAL GOVERNMENTS.

    (a) In General.--Section 457 is amended by adding at the 
end the following new subsection:
    ``(g) Governmental Plans Must Maintain Set Asides for 
Exclusive Benefit of Participants.--
            ``(1) In general.--A plan maintained by an eligible 
        employer described in subsection (e)(1)(A) shall not be 
        treated as an eligible deferred compensation plan 
        unless all assets and income of the plan described in 
        subsection (b)(6) are held in trust for the exclusive 
        benefit of participants and their beneficiaries.
            ``(2) Taxability of trusts and participants.--For 
        purposes of this title--
                    ``(A) a trust described in paragraph (1) 
                shall be treated as an organization exempt from 
                taxation under section 501(a), and
                    ``(B) notwithstanding any other provision 
                of this title, amounts in the trust shall be 
                includible in the gross income of participants 
                and beneficiaries only to the extent, and at 
                the time, provided in this section.
            ``(3) Custodial accounts and contracts.--For 
        purposes of this subsection, custodial accounts and 
        contracts described in section 401(f) shall be treated 
        as trusts under rules similar to the rules under 
        section 401(f).''
    (b) Conforming Amendment.--Paragraph (6) of section 457(b) 
is amended by inserting ``except as provided in subsection 
(g),'' before ``which provides that''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        assets and income described in section 457(b)(6) of the 
        Internal Revenue Code of 1986 held by a plan on and 
        after the date of the enactment of this Act.
            (2) Transition rule.--In the case of assets and 
        income described in paragraph (1) held by a plan before 
        the first day of the first calendar quarter beginning 
        after the close of the first regular session of the 
        State legislature of the State in which the 
        governmental entity maintaining the plan is located 
        beginning after the date of the enactment of this Act, 
        a trust need not be established by reason of the 
        amendments made by this section before such first day. 
        For purposes of the preceding sentence, in the case of 
        a State that has a 2-year legislative session, each 
        year of such session shall be deemed to be a separate 
        regular session of the State legislature.

SEC. 11459. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS UNDER 
                    SECTION 415 LIMITATIONS.

    (a) In General.--Subparagraph (A) of section 767(d)(3) of 
the Uruguay Round Agreements Act is amended to read as follows:
                    ``(A) Exception.--A plan that was adopted 
                and in effect before December 8, 1994, shall 
                not be required to apply the amendments made by 
                subsection (b) with respect to benefits accrued 
                before the earlier of--
                            ``(i) the later of the date a plan 
                        amendment applying such amendment is 
                        adopted or made effective, or
                            ``(ii) the first day of the first 
                        limitation year beginning after 
                        December 31, 1999.
                Determinations under section 415(b)(2)(E) of 
                the Internal Revenue Code of 1986 shall be made 
                with respect to such benefits on the basis of 
                such section as in effect on December 7, 1994 
                (except that the modification made by 
                subsection (b) shall be taken into account), 
                and the provisions of the plan as in effect on 
                December 7, 1994, but only if such provisions 
                of the plan meet the requirements of such 
                section (as so in effect).''
    (b) Modification of Certain Assumptions for Adjusting 
Benefits of Defined Benefit Plans for Early Retirees.--
Subparagraph (E) of section 415(b)(2) (relating to limitation 
on certain assumptions) is amended--
            (1) by striking ``Except as provided in clause 
        (ii), for purposes of adjusting any benefit or 
        limitation under subparagraph (B) or (C),'' in clause 
        (i) and inserting ``For purposes of adjusting any 
        limitation under subparagraph (C) and, except as 
        provided in clause (ii), for purposes of adjusting any 
        benefit under subparagraph (B),'', and
            (2) by striking ``For purposes of adjusting the 
        benefit or limitation of any form of benefit subject to 
        section 417(e)(3),'' in clause (ii) and inserting ``For 
        purposes of adjusting any benefit under subparagraph 
        (B) for any form of benefit subject to section 
        417(e)(3),''.
    (c) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of section 
767 of the Uruguay Round Agreements Act.
    (d) Transitional Rule.--In the case of a plan that was 
adopted and in effect before December 8, 1994, if--
            (1) a plan amendment was adopted or made effective 
        on or before the date of the enactment of this Act 
        applying the amendments made by section 767(b) of the 
        Uruguay Round Agreements Act, and
            (2) within 1 year after the date of the enactment 
        of this Act, a plan amendment is adopted which repeals 
        the amendment referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be taken 
into account in applying section 767(d)(3)(A) of the Uruguay 
Round Agreements Act, as amended by subsection (a).

SEC. 11460. MODIFICATIONS OF SECTION 403(b).

    (a) Multiple Salary Reduction Agreements Permitted.--
            (1) General rule.--For purposes of section 403(b) 
        of the Internal Revenue Code of 1986, the frequency 
        that an employee is permitted to enter into a salary 
        reduction agreement, the salary to which such an 
        agreement may apply, and the ability to revoke such an 
        agreement shall be determined under the rules 
        applicable to cash or deferred elections under section 
        401(k) of such Code.
            (2) Effective date.--This subsection shall apply to 
        taxable years beginning after December 31, 1995.
    (b) Treatment of Indian Tribal Governments.--
            (1) In general.--In the case of any contract 
        purchased in a plan year beginning before January 1, 
        1995, section 403(b) of the Internal Revenue Code of 
        1986 shall be applied as if any reference to an 
        employer described in section 501(c)(3) of the Internal 
        Revenue Code of 1986 which is exempt from tax under 
        section 501 of such Code included a reference to an 
        employer which is an Indian tribal government (as 
        defined by section 7701(a)(40) of such Code), a 
        subdivision of an Indian tribal government (determined 
        in accordance with section 7871(d) of such Code), an 
        agency or instrumentality of an Indian tribal 
        government or subdivision thereof, or a corporation 
        chartered under Federal, State, or tribal law which is 
        owned in whole or in part by any of the foregoing.
            (2) Rollovers.--Solely for purposes of applying 
        section 403(b)(8) of such Code to a contract to which 
        paragraph (1) applies, a qualified cash or deferred 
        arrangement under section 401(k) of such Code shall be 
        treated as if it were a plan or contract described in 
        clause (ii) of section 403(b)(8)(A) of such Code.
    (c) Elective Deferrals.--
            (1) In general.--Subparagraph (E) of section 
        403(b)(1) is amended to read as follows:
                    ``(E) in the case of a contract purchased 
                under a salary reduction agreement, the 
                contract meets the requirements of section 
                401(a)(30),''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to years beginning after 
        December 31, 1995.

SEC. 11461. WAIVER OF MINIMUM PERIOD FOR JOINT AND SURVIVOR ANNUITY 
                    EXPLANATION BEFORE ANNUITY STARTING DATE.

    (a) General Rule.--For purposes of section 417(a)(3)(A) of 
the Internal Revenue Code of 1986 (relating to plan to provide 
written explanations), the minimum period prescribed by the 
Secretary of the Treasury between the date that the explanation 
referred to in such section is provided and the annuity 
starting date shall not apply if waived by the participant and, 
if applicable, the participant's spouse.
    (b) Effective Date.--Subsection (a) shall apply to plan 
years beginning after December 31, 1995.

SEC. 11462. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND 
                    DEFINED CONTRIBUTION PLAN FOR SAME EMPLOYEE; EXCESS 
                    DISTRIBUTIONS.

    (a) In General.--Section 415(e) is repealed.
    (b) Excess Distributions.--Section 4980A is amended by 
adding at the end the following new subsection:
    ``(g) Limitation on Application.--This section shall not 
apply to distributions during years beginning after December 
31, 1995, and before January 1, 1999, and such distributions 
shall be treated as made first from amounts not described in 
subsection (f).''
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 415(b)(5) is 
        amended by striking ``and subsection (e)''.
            (2) Paragraph (1) of section 415(f) is amended by 
        striking ``subsections (b), (c), and (e)'' and 
        inserting ``subsections (b) and (c)''.
            (3) Subsection (g) of section 415 is amended by 
        striking ``subsections (e) and (f)'' in the last 
        sentence and inserting ``subsection (f)''.
            (4) Clause (i) of section 415(k)(2)(A) is amended 
        to read as follows:
                            ``(i) any contribution made 
                        directly by an employee under such an 
                        arrangement shall not be treated as an 
                        annual addition for purposes of 
                        subsection (c), and''.
            (5) Clause (ii) of section 415(k)(2)(A) is amended 
        by striking ``subsections (c) and (e)'' and inserting 
        ``subsection (c)''.
            (6) Section 416 is amended by striking subsection 
        (h).
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        limitation years beginning after December 31, 1998.
            (2) Excess distributions.--The amendment made by 
        subsection (b) shall apply to years beginning after 
        December 31, 1995.

SEC. 11463. TAX ON PROHIBITED TRANSACTIONS.

    (a) In General.--Section 4975(a) is amended by striking ``5 
percent'' and inserting ``10 percent''.
    (b) Effective Date.--The amendment made by this section 
shall apply to prohibited transactions occurring after December 
31, 1995.

SEC. 11464. TREATMENT OF LEASED EMPLOYEES.

    (a) General Rule.--Subparagraph (C) of section 414(n)(2) 
(defining leased employee) is amended to read as follows:
                    ``(C) such services are performed under 
                primary direction or control by the 
                recipient.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to years beginning after December 31, 1995, but 
shall not apply to any relationship determined under an 
Internal Revenue Service ruling issued before the date of the 
enactment of this Act pursuant to section 414(n)(2)(C) of the 
Internal Revenue Code of 1986 (as in effect on the day before 
such date) not to involve a leased employee.

               CHAPTER 3--TREATMENT OF LARGE PARTNERSHIPS

SEC. 11471. SIMPLIFIED FLOW-THROUGH FOR ELECTING LARGE PARTNERSHIPS.

    (a) General Rule.--Subchapter K (relating to partners and 
partnerships) is amended by adding at the end the following new 
part:

        ``PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS

        ``Sec. 771. Application of subchapter to electing large 
                  partnerships.
        ``Sec. 772. Simplified flow-through.
        ``Sec. 773. Computations at partnership level.
        ``Sec. 774. Other modifications.
        ``Sec. 775. Electing large partnership defined.
        ``Sec. 776. Special rules for partnerships holding oil and gas 
                  properties.
        ``Sec. 777. Regulations.

``SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING LARGE PARTNERSHIPS.

    ``The preceding provisions of this subchapter to the extent 
inconsistent with the provisions of this part shall not apply 
to an electing large partnership and its partners.

``SEC. 772. SIMPLIFIED FLOW-THROUGH.

    ``(a) General Rule.--In determining the income tax of a 
partner of an electing large partnership, such partner shall 
take into account separately such partner's distributive share 
of the partnership's--
            ``(1) taxable income or loss from passive loss 
        limitation activities,
            ``(2) taxable income or loss from other activities,
            ``(3) net capital gain (or net capital loss)--
                    ``(A) to the extent allocable to passive 
                loss limitation activities, and
                    ``(B) to the extent allocable to other 
                activities,
            ``(4) tax-exempt interest,
            ``(5) applicable net AMT adjustment separately 
        computed for--
                    ``(A) passive loss limitation activities, 
                and
                    ``(B) other activities,
            ``(6) general credits,
            ``(7) low-income housing credit determined under 
        section 42,
            ``(8) rehabilitation credit determined under 
        section 47,
            ``(9) foreign income taxes,
            ``(10) the credit allowable under section 29, and
            ``(11) other items to the extent that the Secretary 
        determines that the separate treatment of such items is 
        appropriate.
    ``(b) Separate Computations.--In determining the amounts 
required under subsection (a) to be separately taken into 
account by any partner, this section and section 773 shall be 
applied separately with respect to such partner by taking into 
account such partner's distributive share of the items of 
income, gain, loss, deduction, or credit of the partnership.
    ``(c) Treatment at Partner Level.--
            ``(1) In general.--Except as provided in this 
        subsection, rules similar to the rules of section 
        702(b) shall apply to any partner's distributive share 
        of the amounts referred to in subsection (a).
            ``(2) Income or loss from passive loss limitation 
        activities.--For purposes of this chapter, any 
        partner's distributive share of any income or loss 
        described in subsection (a)(1) shall be treated as an 
        item of income or loss (as the case may be) from the 
        conduct of a trade or business which is a single 
        passive activity (as defined in section 469). A similar 
        rule shall apply to a partner's distributive share of 
        amounts referred to in paragraphs (3)(A) and (5)(A) of 
        subsection (a).
            ``(3) Income or loss from other activities.--
                    ``(A) In general.--For purposes of this 
                chapter, any partner's distributive share of 
                any income or loss described in subsection 
                (a)(2) shall be treated as an item of income or 
                expense (as the case may be) with respect to 
                property held for investment.
                    ``(B) Deductions for loss not subject to 
                section 67.--The deduction under section 212 
                for any loss described in subparagraph (A) 
                shall not be treated as a miscellaneous 
                itemized deduction for purposes of section 67.
            ``(4) Treatment of net capital gain or loss.--For 
        purposes of this chapter, any partner's distributive 
        share of any gain or loss described in subsection 
        (a)(3) shall be treated as a long-term capital gain or 
        loss, as the case may be.
            ``(5) Minimum tax treatment.--In determining the 
        alternative minimum taxable income of any partner, such 
        partner's distributive share of any applicable net AMT 
        adjustment shall be taken into account in lieu of 
        making the separate adjustments provided in sections 
        56, 57, and 58 with respect to the items of the 
        partnership. Except as provided in regulations, the 
        applicable net AMT adjustment shall be treated, for 
        purposes of section 53, as an adjustment or item of tax 
        preference not specified in section 53(d)(1)(B)(ii).
            ``(6) General credits.--A partner's distributive 
        share of the amount referred to in paragraph (6) of 
        subsection (a) shall be taken into account as a current 
        year business credit.
    ``(d) Operating Rules.--For purposes of this section--
            ``(1) Passive loss limitation activity.--The term 
        `passive loss limitation activity' means--
                    ``(A) any activity which involves the 
                conduct of a trade or business, and
                    ``(B) any rental activity.
        For purposes of the preceding sentence, the term `trade 
        or business' includes any activity treated as a trade 
        or business under paragraph (5) or (6) of section 
        469(c).
            ``(2) Tax-exempt interest.--The term `tax-exempt 
        interest' means interest excludable from gross income 
        under section 103.
            ``(3) Applicable net amt adjustment.--
                    ``(A) In general.--The applicable net AMT 
                adjustment is--
                            ``(i) with respect to taxpayers 
                        other than corporations, the net 
                        adjustment determined by using the 
                        adjustments applicable to individuals, 
                        and
                            ``(ii) with respect to 
                        corporations, the net adjustment 
                        determined by using the adjustments 
                        applicable to corporations.
                    ``(B) Net adjustment.--The term `net 
                adjustment' means the net adjustment in the 
                items attributable to passive loss activities 
                or other activities (as the case may be) which 
                would result if such items were determined with 
                the adjustments of sections 56, 57, and 58.
            ``(4) Treatment of certain separately stated 
        items.--
                    ``(A) Exclusion for certain purposes.--In 
                determining the amounts referred to in 
                paragraphs (1) and (2) of subsection (a), any 
                net capital gain or net capital loss (as the 
                case may be), and any item referred to in 
                subsection (a)(11), shall be excluded.
                    ``(B) Allocation rules.--The net capital 
                gain shall be treated--
                            ``(i) as allocable to passive loss 
                        limitation activities to the extent the 
                        net capital gain does not exceed the 
                        net capital gain determined by only 
                        taking into account gains and losses 
                        from sales and exchanges of property 
                        used in connection with such 
                        activities, and
                            ``(ii) as allocable to other 
                        activities to the extent such gain 
                        exceeds the amount allocated under 
                        clause (i).
                A similar rule shall apply for purposes of 
                allocating any net capital loss.
                    ``(C) Net capital loss.--The term `net 
                capital loss' means the excess of the losses 
                from sales or exchanges of capital assets over 
                the gains from sales or exchange of capital 
                assets.
            ``(5) General credits.--The term `general credits' 
        means any credit other than the low-income housing 
        credit, the rehabilitation credit, the foreign tax 
        credit, and the credit allowable under section 29.
            ``(6) Foreign income taxes.--The term `foreign 
        income taxes' means taxes described in section 901 
        which are paid or accrued to foreign countries and to 
        possessions of the United States.
    ``(e) Special Rule for Unrelated Business Tax.--In the case 
of a partner which is an organization subject to tax under 
section 511, such partner's distributive share of any items 
shall be taken into account separately to the extent necessary 
to comply with the provisions of section 512(c)(1).
    ``(f) Special Rules for Applying Passive Loss 
Limitations.--If any person holds an interest in an electing 
large partnership other than as a limited partner--
            ``(1) paragraph (2) of subsection (c) shall not 
        apply to such partner, and
            ``(2) such partner's distributive share of the 
        partnership items allocable to passive loss limitation 
        activities shall be taken into account separately to 
        the extent necessary to comply with the provisions of 
        section 469.
The preceding sentence shall not apply to any items allocable 
to an interest held as a limited partner.

``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

    ``(a) General Rule.--
            ``(1) Taxable income.--The taxable income of an 
        electing large partnership shall be computed in the 
        same manner as in the case of an individual except 
        that--
                    ``(A) the items described in section 772(a) 
                shall be separately stated, and
                    ``(B) the modifications of subsection (b) 
                shall apply.
            ``(2) Elections.--All elections affecting the 
        computation of the taxable income of an electing large 
        partnership or the computation of any credit of an 
        electing large partnership shall be made by the 
        partnership; except that the election under section 
        901, and any election under section 108, shall be made 
        by each partner separately.
            ``(3) Limitations, etc.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), all limitations and other 
                provisions affecting the computation of the 
                taxable income of an electing large partnership 
                or the computation of any credit of an electing 
                large partnership shall be applied at the 
                partnership level (and not at the partner 
                level).
                    ``(B) Certain limitations applied at 
                partner level.--The following provisions shall 
                be applied at the partner level (and not at the 
                partnership level):
                            ``(i) Section 68 (relating to 
                        overall limitation on itemized 
                        deductions).
                            ``(ii) Sections 49 and 465 
                        (relating to at risk limitations).
                            ``(iii) Section 469 (relating to 
                        limitation on passive activity losses 
                        and credits).
                            ``(iv) Any other provision 
                        specified in regulations.
            ``(4) Coordination with other provisions.--
        Paragraphs (2) and (3) shall apply notwithstanding any 
        other provision of this chapter other than this part.
    ``(b) Modifications to Determination of Taxable Income.--In 
determining the taxable income of an electing large 
partnership--
            ``(1) Certain deductions not allowed.--The 
        following deductions shall not be allowed:
                    ``(A) The deduction for personal exemptions 
                provided in section 151.
                    ``(B) The net operating loss deduction 
                provided in section 172.
                    ``(C) The additional itemized deductions 
                for individuals provided in part VII of 
                subchapter B (other than section 212 thereof).
            ``(2) Charitable deductions.--In determining the 
        amount allowable under section 170, the limitation of 
        section 170(b)(2) shall apply.
            ``(3) Coordination with section 67.--In lieu of 
        applying section 67, 70 percent of the amount of the 
        miscellaneous itemized deductions shall be disallowed.
    ``(c) Special Rules for Income From Discharge of 
Indebtedness.--If an electing large partnership has income from 
the discharge of any indebtedness--
            ``(1) such income shall be excluded in determining 
        the amounts referred to in section 772(a), and
            ``(2) in determining the income tax of any partner 
        of such partnership--
                    ``(A) such income shall be treated as an 
                item required to be separately taken into 
                account under section 772(a), and
                    ``(B) the provisions of section 108 shall 
                be applied without regard to this part.

``SEC. 774. OTHER MODIFICATIONS.

    ``(a) Treatment of Certain Optional Adjustments, Etc.--In 
the case of an electing large partnership--
            ``(1) computations under section 773 shall be made 
        without regard to any adjustment under section 743(b) 
        or 108(b), but
            ``(2) a partner's distributive share of any amount 
        referred to in section 772(a) shall be appropriately 
        adjusted to take into account any adjustment under 
        section 743(b) or 108(b) with respect to such partner.
    ``(b) Credit Recapture Determined at Partnership Level.--
            ``(1) In general.--In the case of an electing large 
        partnership--
                    ``(A) any credit recapture shall be taken 
                into account by the partnership, and
                    ``(B) the amount of such recapture shall be 
                determined as if the credit with respect to 
                which the recapture is made had been fully 
                utilized to reduce tax.
            ``(2) Method of taking recapture into account.--An 
        electing large partnership shall take into account a 
        credit recapture by reducing the amount of the 
        appropriate current year credit to the extent thereof, 
        and if such recapture exceeds the amount of such 
        current year credit, the partnership shall be liable to 
        pay such excess.
            ``(3) Dispositions not to trigger recapture.--No 
        credit recapture shall be required by reason of any 
        transfer of an interest in an electing large 
        partnership.
            ``(4) Credit recapture.--For purposes of this 
        subsection, the term `credit recapture' means any 
        increase in tax under section 42(j) or 50(a).
    ``(c) Partnership Not Terminated by Reason of Change in 
Ownership.--Subparagraph (B) of section 708(b)(1) shall not 
apply to an electing large partnership.
    ``(d) Partnership Entitled to Certain Credits.--The 
following shall be allowed to an electing large partnership and 
shall not be taken into account by the partners of such 
partnership:
            ``(1) The credit provided by section 34.
            ``(2) Any credit or refund under section 
        852(b)(3)(D).
    ``(e) Treatment of REMIC Residuals.--For purposes of 
applying section 860E(e)(6) to any electing large partnership--
            ``(1) all interests in such partnership shall be 
        treated as held by disqualified organizations,
            ``(2) in lieu of applying subparagraph (C) of 
        section 860E(e)(6), the amount subject to tax under 
        section 860E(e)(6) shall be excluded from the gross 
        income of such partnership, and
            ``(3) subparagraph (D) of section 860E(e)(6) shall 
        not apply.
    ``(f) Special Rules for Applying Certain Installment Sale 
Rules.--In the case of an electing large partnership--
            ``(1) the provisions of sections 453(l)(3) and 453A 
        shall be applied at the partnership level, and
            ``(2) in determining the amount of interest payable 
        under such sections, such partnership shall be treated 
        as subject to tax under this chapter at the highest 
        rate of tax in effect under section 1 or 11.

``SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.

    ``(a) General Rule.--For purposes of this part--
            ``(1) In general.--The term `electing large 
        partnership' means, with respect to any partnership 
        taxable year, any partnership if--
                    ``(A) the number of persons who were 
                partners in such partnership in the preceding 
                partnership taxable year equaled or exceeded 
                100, and
                    ``(B) such partnership elects the 
                application of this part.
        To the extent provided in regulations, a partnership 
        shall cease to be treated as an electing large 
        partnership for any partnership taxable year if in such 
        taxable year fewer than 100 persons were partners in 
        such partnership.
            ``(2) Election.--The election under this subsection 
        shall apply to the taxable year for which made and all 
        subsequent taxable years unless revoked with the 
        consent of the Secretary.
    ``(b) Special Rules for Certain Service Partnerships.--
            ``(1) Certain partners not counted.--For purposes 
        of this section, the term `partner' does not include 
        any individual performing substantial services in 
        connection with the activities of the partnership and 
        holding an interest in such partnership, or an 
        individual who formerly performed substantial services 
        in connection with such activities and who held an 
        interest in such partnership at the time the individual 
        performed such services.
            ``(2) Exclusion.--For purposes of this part, an 
        election under subsection (a) shall not be effective 
        with respect to any partnership if substantially all 
        the partners of such partnership--
                    ``(A) are individuals performing 
                substantial services in connection with the 
                activities of such partnership or are personal 
                service corporations (as defined in section 
                269A(b)) the owner-employees (as defined in 
                section 269A(b)) of which perform such 
                substantial services,
                    ``(B) are retired partners who had 
                performed such substantial services, or
                    ``(C) are spouses of partners who are 
                performing (or had previously performed) such 
                substantial services.
            ``(3) Special rule for lower tier partnerships.--
        For purposes of this subsection, the activities of a 
        partnership shall include the activities of any other 
        partnership in which the partnership owns directly an 
        interest in the capital and profits of at least 80 
        percent.
    ``(c) Exclusion of Commodity Pools.--For purposes of this 
part, an election under subsection (a) shall not be effective 
with respect to any partnership the principal activity of which 
is the buying and selling of commodities (not described in 
section 1221(1)), or options, futures, or forwards with respect 
to such commodities.
    ``(d) Secretary May Rely on Treatment on Return.--If, on 
the partnership return of any partnership, such partnership is 
treated as an electing large partnership, such treatment shall 
be binding on such partnership and all partners of such 
partnership but not on the Secretary.

``SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING OIL AND GAS 
                    PROPERTIES.

    ``(a) Exception for Partnerships Holding Significant Oil 
and Gas Properties.--
            ``(1) In general.--For purposes of this part, an 
        election under section 775(a) shall not be effective 
        with respect to any partnership if the average 
        percentage of assets (by value) held by such 
        partnership during the taxable year which are oil or 
        gas properties is at least 25 percent. For purposes of 
        the preceding sentence, any interest held by a 
        partnership in another partnership shall be 
        disregarded, except that the partnership shall be 
        treated as holding its proportionate share of the 
        assets of such other partnership.
            ``(2) Election to waive exception.--Any partnership 
        may elect to have paragraph (1) not apply. Such an 
        election shall apply to the partnership taxable year 
        for which made and all subsequent partnership taxable 
        years unless revoked with the consent of the Secretary.
    ``(b) Special Rules Where Part Applies.--
            ``(1) Computation of percentage depletion.--In the 
        case of an electing large partnership, except as 
        provided in paragraph (2)--
                    ``(A) the allowance for depletion under 
                section 611 with respect to any partnership oil 
                or gas property shall be computed at the 
                partnership level without regard to any 
                provision of section 613A requiring such 
                allowance to be computed separately by each 
                partner,
                    ``(B) such allowance shall be determined 
                without regard to the provisions of section 
                613A(c) limiting the amount of production for 
                which percentage depletion is allowable and 
                without regard to paragraph (1) of section 
                613A(d), and
                    ``(C) paragraph (3) of section 705(a) shall 
                not apply.
            ``(2) Treatment of certain partners.--
                    ``(A) In general.--In the case of a 
                disqualified person, the treatment under this 
                chapter of such person's distributive share of 
                any item of income, gain, loss, deduction, or 
                credit attributable to any partnership oil or 
                gas property shall be determined without regard 
                to this part. Such person's distributive share 
                of any such items shall be excluded for 
                purposes of making determinations under 
                sections 772 and 773.
                    ``(B) Disqualified person.--For purposes of 
                subparagraph (A), the term `disqualified 
                person' means, with respect to any partnership 
                taxable year--
                            ``(i) any person referred to in 
                        paragraph (2) or (4) of section 613A(d) 
                        for such person's taxable year in which 
                        such partnership taxable year ends, and
                            ``(ii) any other person if such 
                        person's average daily production of 
                        domestic crude oil and natural gas for 
                        such person's taxable year in which 
                        such partnership taxable year ends 
                        exceeds 500 barrels.
                    ``(C) Average daily production.--For 
                purposes of subparagraph (B), a person's 
                average daily production of domestic crude oil 
                and natural gas for any taxable year shall be 
                computed as provided in section 613A(c)(2)--
                            ``(i) by taking into account all 
                        production of domestic crude oil and 
                        natural gas (including such person's 
                        proportionate share of any production 
                        of a partnership),
                            ``(ii) by treating 6,000 cubic feet 
                        of natural gas as a barrel of crude 
                        oil, and
                            ``(iii) by treating as 1 person all 
                        persons treated as 1 taxpayer under 
                        section 613A(c)(8) or among whom 
                        allocations are required under such 
                        section.

``SEC. 777. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
appropriate to carry out the purposes of this part.''
    (b) Clerical Amendment.--The table of parts for subchapter 
K of chapter 1 is amended by adding at the end the following 
new item:

        ``Part IV. Special rules for electing large partnerships.''

    (c) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years beginning after 
December 31, 1995.

SEC. 11472. RETURNS MAY BE REQUIRED ON MAGNETIC MEDIA.

    (a) In General.--Paragraph (2) of section 6011(e) (relating 
to returns on magnetic media) is amended by adding at the end 
the following new sentence:
        ``Notwithstanding the preceding sentence, the Secretary 
        shall require partnerships having more than 100 
        partners to file returns on magnetic media.''
    (b) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years beginning after 
December 31, 1995.

                     CHAPTER 4--FOREIGN PROVISIONS

Subchapter A--Modifications to Treatment of Passive Foreign Investment 
                               Companies

SEC. 11481. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN 
                    CORPORATIONS NOT SUBJECT TO PFIC INCLUSION.

    Section 1296 is amended by adding at the end the following 
new subsection:
    ``(e) Exception for United States Shareholders of 
Controlled Foreign Corporations.--
            ``(1) In general.--For purposes of this part, a 
        corporation shall not be treated with respect to a 
        shareholder as a passive foreign investment company 
        during the qualified portion of such shareholder's 
        holding period with respect to stock in such 
        corporation.
            ``(2) Qualified portion.--For purposes of this 
        subsection, the term `qualified portion' means the 
        portion of the shareholder's holding period--
                    ``(A) which is after December 31, 1995, and
                    ``(B) during which the shareholder is a 
                United States shareholder (as defined in 
                section 951(b)) of the corporation and the 
                corporation is a controlled foreign 
                corporation.
            ``(3) New holding period if qualified portion 
        ends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), if the qualified portion of a 
                shareholder's holding period with respect to 
                any stock ends after December 31, 1995, solely 
                for purposes of this part, the shareholder's 
                holding period with respect to such stock shall 
                be treated as beginning as of the first day 
                following such period.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply if such stock was, with respect to 
                such shareholder, stock in a passive foreign 
                investment company at any time before the 
                qualified portion of the shareholder's holding 
                period with respect to such stock and no 
                election under section 1298(b)(1) is made.''

SEC. 11482. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK IN PASSIVE 
                    FOREIGN INVESTMENT COMPANY.

    (a) In General.--Part VI of subchapter P of chapter 1 is 
amended by redesignating subpart C as subpart D, by 
redesignating sections 1296 and 1297 as sections 1297 and 1298, 
respectively, and by inserting after subpart B the following 
new subpart:

      ``Subpart C--Election of Mark to Market For Marketable Stock

        ``Sec. 1296. Election of mark to market for marketable stock.

``SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK.

    ``(a) General Rule.--In the case of marketable stock in a 
passive foreign investment company which is owned (or treated 
under subsection (g) as owned) by a United States person at the 
close of any taxable year of such person, at the election of 
such person--
            ``(1) If the fair market value of such stock as of 
        the close of such taxable year exceeds its adjusted 
        basis, such United States person shall include in gross 
        income for such taxable year an amount equal to the 
        amount of such excess.
            ``(2) If the adjusted basis of such stock exceeds 
        the fair market value of such stock as of the close of 
        such taxable year, such United States person shall be 
        allowed a deduction for such taxable year equal to the 
        lesser of--
                    ``(A) the amount of such excess, or
                    ``(B) the unreversed inclusions with 
                respect to such stock.
    ``(b) Basis Adjustments.--
            ``(1) In general.--The adjusted basis of stock in a 
        passive foreign investment company--
                    ``(A) shall be increased by the amount 
                included in the gross income of the United 
                States person under subsection (a)(1) with 
                respect to such stock, and
                    ``(B) shall be decreased by the amount 
                allowed as a deduction to the United States 
                person under subsection (a)(2) with respect to 
                such stock.
            ``(2) Special rule for stock constructively 
        owned.--In the case of stock in a passive foreign 
        investment company which the United States person is 
        treated as owning under subsection (g)--
                    ``(A) the adjustments under paragraph (1) 
                shall apply to such stock in the hands of the 
                person actually holding such stock but only for 
                purposes of determining the subsequent 
                treatment under this chapter of the United 
                States person with respect to such stock, and
                    ``(B) similar adjustments shall be made to 
                the adjusted basis of the property by reason of 
                which the United States person is treated as 
                owning such stock.
    ``(c) Character and Source Rules.--
            ``(1) Ordinary treatment.--
                    ``(A) Gain.--Any amount included in gross 
                income under subsection (a)(1), and any gain on 
                the sale or other disposition of marketable 
                stock in a passive foreign investment company 
                (with respect to which an election under this 
                section is in effect), shall be treated as 
                ordinary income.
                    ``(B) Loss.--Any--
                            ``(i) amount allowed as a deduction 
                        under subsection (a)(2), and
                            ``(ii) loss on the sale or other 
                        disposition of marketable stock in a 
                        passive foreign investment company 
                        (with respect to which an election 
                        under this section is in effect) to the 
                        extent that the amount of such loss 
                        does not exceed the unreversed 
                        inclusions with respect to such stock,
                shall be treated as an ordinary loss. The 
                amount so treated shall be treated as a 
                deduction allowable in computing adjusted gross 
                income.
            ``(2) Source.--The source of any amount included in 
        gross income under subsection (a)(1) (or allowed as a 
        deduction under subsection (a)(2)) shall be determined 
        in the same manner as if such amount were gain or loss 
        (as the case may be) from the sale of stock in the 
        passive foreign investment company.
    ``(d) Unreversed Inclusions.--For purposes of this section, 
the term `unreversed inclusions' means, with respect to any 
stock in a passive foreign investment company, the excess (if 
any) of--
            ``(1) the amount included in gross income of the 
        taxpayer under subsection (a)(1) with respect to such 
        stock for prior taxable years, over
            ``(2) the amount allowed as a deduction under 
        subsection (a)(2) with respect to such stock for prior 
        taxable years.
The amount referred to in paragraph (1) shall include any 
amount which would have been included in gross income under 
subsection (a)(1) with respect to such stock for any prior 
taxable year but for section 1291.
    ``(e) Marketable Stock.--For purposes of this section--
            ``(1) In general.--The term `marketable stock' 
        means--
                    ``(A) any stock which is regularly traded 
                on--
                            ``(i) a national securities 
                        exchange which is registered with the 
                        Securities and Exchange Commission or 
                        the national market system established 
                        pursuant to section 11A of the 
                        Securities and Exchange Act of 1934, or
                            ``(ii) any exchange or other market 
                        which the Secretary determines has 
                        rules adequate to carry out the 
                        purposes of this part,
                    ``(B) to the extent provided in 
                regulations, stock in any foreign corporation 
                which is comparable to a regulated investment 
                company and which offers for sale or has 
                outstanding any stock of which it is the issuer 
                and which is redeemable at its net asset value, 
                and
                    ``(C) to the extent provided in 
                regulations, any option on stock described in 
                subparagraph (A) or (B).
            ``(2) Special rule for regulated investment 
        companies.--In the case of any regulated investment 
        company which is offering for sale or has outstanding 
        any stock of which it is the issuer and which is 
        redeemable at its net asset value, all stock in a 
        passive foreign investment company which it owns 
        directly or indirectly shall be treated as marketable 
        stock for purposes of this section. Except as provided 
        in regulations, similar treatment as marketable stock 
        shall apply in the case of any other regulated 
        investment company which publishes net asset valuations 
        at least annually.
    ``(f) Treatment of Controlled Foreign Corporations Which 
Are Shareholders in Passive Foreign Investment Companies.--In 
the case of a foreign corporation which is a controlled foreign 
corporation and which owns (or is treated under subsection (g) 
as owning) stock in a passive foreign investment company--
            ``(1) this section (other than subsection (c)(2)) 
        shall apply to such foreign corporation in the same 
        manner as if such corporation were a United States 
        person, and
            ``(2) for purposes of subpart F of part III of 
        subchapter N--
                    ``(A) any amount included in gross income 
                under subsection (a)(1) shall be treated as 
                foreign personal holding company income 
                described in section 954(c)(1)(A), and
                    ``(B) any amount allowed as a deduction 
                under subsection (a)(2) shall be treated as a 
                deduction allocable to foreign personal holding 
                company income so described.
    ``(g) Stock Owned Through Certain Foreign Entities.--Except 
as provided in regulations--
            ``(1) In general.--For purposes of this section, 
        stock owned, directly or indirectly, by or for a 
        foreign partnership or foreign trust or foreign estate 
        shall be considered as being owned proportionately by 
        its partners or beneficiaries. Stock considered to be 
        owned by a person by reason of the application of the 
        preceding sentence shall, for purposes of applying such 
        sentence, be treated as actually owned by such person.
            ``(2) Treatment of certain dispositions.--In any 
        case in which a United States person is treated as 
        owning stock in a passive foreign investment company by 
        reason of paragraph (1)--
                    ``(A) any disposition by the United States 
                person or by any other person which results in 
                the United States person being treated as no 
                longer owning such stock, and
                    ``(B) any disposition by the person owning 
                such stock,
        shall be treated as a disposition by the United States 
        person of the stock in the passive foreign investment 
        company.
    ``(h) Coordination With Section 851(b).--For purposes of 
paragraphs (2) and (3) of section 851(b), any amount included 
in gross income under subsection (a) shall be treated as a 
dividend.
    ``(i) Stock Acquired From a Decedent.--In the case of stock 
of a passive foreign investment company which is acquired by 
bequest, devise, or inheritance (or by the decedent's estate) 
and with respect to which an election under this section was in 
effect as of the date of the decedent's death, notwithstanding 
section 1014, the basis of such stock in the hands of the 
person so acquiring it shall be the adjusted basis of such 
stock in the hands of the decedent immediately before his death 
(or, if lesser, the basis which would have been determined 
under section 1014 without regard to this subsection).
    ``(j) Coordination With Section 1291 for First Year of 
Election.--
            ``(1) Taxpayers other than regulated investment 
        companies.--
                    ``(A) In general.--If the taxpayer elects 
                the application of this section with respect to 
                any marketable stock in a corporation after the 
                beginning of the taxpayer's holding period in 
                such stock, and if the requirements of 
                subparagraph (B) are not satisfied, section 
                1291 shall apply to--
                            ``(i) any distributions with 
                        respect to, or disposition of, such 
                        stock in the first taxable year of the 
                        taxpayer for which such election is 
                        made, and
                            ``(ii) any amount which, but for 
                        section 1291, would have been included 
                        in gross income under subsection (a) 
                        with respect to such stock for such 
                        taxable year in the same manner as if 
                        such amount were gain on the 
                        disposition of such stock.
                    ``(B) Requirements.--The requirements of 
                this subparagraph are met if, with respect to 
                each of such corporation's taxable years for 
                which such corporation was a passive foreign 
                investment company and which begin after 
                December 31, 1986, and included any portion of 
                the taxpayer's holding period in such stock, 
                such corporation was treated as a qualified 
                electing fund under this part with respect to 
                the taxpayer.
            ``(2) Special rules for regulated investment 
        companies.--
                    ``(A) In general.--If a regulated 
                investment company elects the application of 
                this section with respect to any marketable 
                stock in a corporation after the beginning of 
                the taxpayer's holding period in such stock, 
                then, with respect to such company's first 
                taxable year for which such company elects the 
                application of this section with respect to 
                such stock--
                            ``(i) section 1291 shall not apply 
                        to such stock with respect to any 
                        distribution or disposition during, or 
                        amount included in gross income under 
                        this section for, such first taxable 
                        year, but
                            ``(ii) such regulated investment 
                        company's tax under this chapter for 
                        such first taxable year shall be 
                        increased by the aggregate amount of 
                        interest which would have been 
                        determined under section 1291(c)(3) if 
                        section 1291 were applied without 
                        regard to this subparagraph.
                Clause (ii) shall not apply if for the 
                preceding taxable year the company elected to 
                mark to market the stock held by such company 
                as of the last day of such preceding taxable 
                year.
                    ``(B) Disallowance of deduction.--No 
                deduction shall be allowed to any regulated 
                investment company for the increase in tax 
                under subparagraph (A)(ii).
    ``(k) Election.--This section shall apply to marketable 
stock in a passive foreign investment company which is held by 
a United States person only if such person elects to apply this 
section with respect to such stock. Such an election shall 
apply to the taxable year for which made and all subsequent 
taxable years unless--
            ``(1) such stock ceases to be marketable stock, or
            ``(2) the Secretary consents to the revocation of 
        such election.
    ``(l) Transition Rule for Individuals Becoming Subject to 
United States Tax.--If any individual becomes a United States 
person in a taxable year beginning after December 31, 1995, 
solely for purposes of this section, the adjusted basis (before 
adjustments under subsection (b)) of any marketable stock in a 
passive foreign investment company owned by such individual on 
the first day of such taxable year shall be treated as being 
the greater of its fair market value on such first day or its 
adjusted basis on such first day.''
    (b) Coordination With Interest Charge, Etc.--
            (1) Paragraph (1) of section 1291(d) is amended by 
        adding at the end the following new flush sentence:
        ``Except as provided in section 1296(j), this section 
        also shall not apply if an election under section 
        1296(k) is in effect for the taxpayer's taxable year.''
            (2) The subsection heading for subsection (d) of 
        section 1291 is amended by striking ``Subpart B'' and 
        inserting ``Subparts B and C''.
            (3) Subparagraph (A) of section 1291(a)(3) is 
        amended to read as follows:
                    ``(A) Holding period.--The taxpayer's 
                holding period shall be determined under 
                section 1223; except that--
                            ``(i) for purposes of applying this 
                        section to an excess distribution, such 
                        holding period shall be treated as 
                        ending on the date of such 
                        distribution, and
                            ``(ii) if section 1296 applied to 
                        such stock with respect to the taxpayer 
                        for any prior taxable year, such 
                        holding period shall be treated as 
                        beginning on the first day of the first 
                        taxable year beginning after the last 
                        taxable year for which section 1296 so 
                        applied.''
    (c) Conforming Amendments.--
            (1) Sections 532(b)(4) and 542(c)(10) are each 
        amended by striking ``section 1296'' and inserting 
        ``section 1297''.
            (2) Subsection (f) of section 551 is amended by 
        striking ``section 1297(b)(5)'' and inserting ``section 
        1298(b)(5)''
            (3) Subsections (a)(1) and (d) of section 1293 are 
        each amended by striking ``section 1297(a)'' and 
        inserting ``section 1298(a)''.
            (4) Paragraph (3) of section 1297(b), as 
        redesignated by subsection (a), is hereby repealed.
            (5) The table of sections for subpart D of part VI 
        of subchapter P of chapter 1, as redesignated by 
        subsection (a), is amended to read as follows:

        ``Sec. 1297. Passive foreign investment company.
        ``Sec. 1298. Special rules.''

            (6) The table of subparts for part VI of subchapter 
        P of chapter 1 is amended by striking the last item and 
        inserting the following new items:

        ``Subpart C. Election of mark to market for marketable stock.
        ``Subpart D. General provisions.''

    (d) Clarification of Gain Recognition Election.--The last 
sentence of section 1298(b)(1), as so redesignated, is amended 
by inserting ``(determined without regard to the preceding 
sentence)'' after ``investment company''.

SEC. 11483. MODIFICATIONS TO DEFINITION OF PASSIVE INCOME.

    (a) Exception for Same Country Income Not To Apply.--
Paragraph (1) of section 1297(b) (defining passive income), as 
redesignated by section 11482, is amended by inserting before 
the period ``without regard to paragraph (3) thereof''.
    (b) Passive Income Not To Include FSC Income.--Paragraph 
(2) of section 1297(b), as so redesignated, is amended by 
striking ``or'' at the end of subparagraph (B), by striking the 
period at the end of subparagraph (C) and inserting ``, or'', 
and by inserting after subparagraph (C) the following new 
subparagraph:
                    ``(D) any foreign trade income of a FSC.''

SEC. 11484. EFFECTIVE DATE.

    The amendments made by this subchapter shall apply to--
            (1) taxable years of United States persons 
        beginning after December 31, 1995, and
            (2) taxable years of foreign corporations ending 
        with or within such taxable years of United States 
        persons.

       Subchapter B--Treatment of Controlled Foreign Corporations

SEC. 11486. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN 
                    CORPORATIONS TREATED AS DIVIDENDS.

    (a) General Rule.--Section 964 (relating to miscellaneous 
provisions) is amended by adding at the end the following new 
subsection:
    ``(e) Gain on Certain Stock Sales by Controlled Foreign 
Corporations Treated as Dividends.--
            ``(1) In general.--If a controlled foreign 
        corporation sells or exchanges stock in any other 
        foreign corporation, gain recognized on such sale or 
        exchange shall be included in the gross income of such 
        controlled foreign corporation as a dividend to the 
        same extent that it would have been so included under 
        section 1248(a) if such controlled foreign corporation 
        were a United States person. For purposes of 
        determining the amount which would have been so 
        includible, the determination of whether such other 
        foreign corporation was a controlled foreign 
        corporation shall be made without regard to the 
        preceding sentence.
            ``(2) Same country exception not applicable.--
        Clause (i) of section 954(c)(3)(A) shall not apply to 
        any amount treated as a dividend by reason of paragraph 
        (1).
            ``(3) Clarification of deemed sales.--For purposes 
        of this subsection, a controlled foreign corporation 
        shall be treated as having sold or exchanged any stock 
        if, under any provision of this subtitle, such 
        controlled foreign corporation is treated as having 
        gain from the sale or exchange of such stock.''
    (b) Amendment of Section 904(d).--Clause (i) of section 
904(d)(2)(E) is amended by striking ``and except as provided in 
regulations, the taxpayer was a United States shareholder in 
such corporation''.
    (c) Effective Dates.--
            (1) The amendment made by subsection (a) shall 
        apply to gain recognized on transactions occurring 
        after the date of the enactment of this Act.
            (2) The amendment made by subsection (b) shall 
        apply to distributions after the date of the enactment 
        of this Act.

SEC. 11487. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

    (a) Section 1248 Gain Taken Into Account in Determining Pro 
Rata Share.--
            (1) In general.--Paragraph (2) of section 951(a) 
        (defining pro rata share of subpart F income) is 
        amended by adding at the end the following new 
        sentence: ``For purposes of subparagraph (B), any gain 
        included in the gross income of any person as a 
        dividend under section 1248 shall be treated as a 
        distribution received by such person with respect to 
        the stock involved.''
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to dispositions after the 
        date of the enactment of this Act.
    (b) Basis Adjustments in Stock Held by Foreign 
Corporation.--
            (1) In general.--Section 961 (relating to 
        adjustments to basis of stock in controlled foreign 
        corporations and of other property) is amended by 
        adding at the end the following new subsection:
    ``(c) Basis Adjustments in Stock Held by Foreign 
Corporation.--Under regulations prescribed by the Secretary, if 
a United States shareholder is treated under section 958(a)(2) 
as owning any stock in a controlled foreign corporation which 
is actually owned by another controlled foreign corporation, 
adjustments similar to the adjustments provided by subsections 
(a) and (b) shall be made to the basis of such stock in the 
hands of such other controlled foreign corporation, but only 
for the purposes of determining the amount included under 
section 951 in the gross income of such United States 
shareholder (or any other United States shareholder who 
acquires from any person any portion of the interest of such 
United States shareholder by reason of which such shareholder 
was treated as owning such stock, but only to the extent of 
such portion, and subject to such proof of identity of such 
interest as the Secretary may prescribe by regulations).''
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply for purposes of determining 
        inclusions for taxable years of United States 
        shareholders beginning after December 31, 1995.
    (c) Determination of Previously Taxed Income in Section 304 
Distributions, Etc.--
            (1) In general.--Section 959 (relating to exclusion 
        from gross income of previously taxed earnings and 
        profits) is amended by adding at the end the following 
        new subsection:
    ``(g) Adjustments for Certain Transactions.--If by reason 
of--
            ``(1) a transaction to which section 304 applies,
            ``(2) the structure of a United States 
        shareholder's holdings in controlled foreign 
        corporations, or
            ``(3) other circumstances,
there would be a multiple inclusion of any item in income (or 
an inclusion or exclusion without an appropriate basis 
adjustment) by reason of this subpart, the Secretary may 
prescribe regulations providing such modifications in the 
application of this subpart as may be necessary to eliminate 
such multiple inclusion or provide such basis adjustment, as 
the case may be.''
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect on the date of the 
        enactment of this Act.
    (d) Clarification of Treatment of Branch Tax Exemptions or 
Reductions.--
            (1) In general.--Subsection (b) of section 952 is 
        amended by adding at the end the following new 
        sentence: ``For purposes of this subsection, any 
        exemption (or reduction) with respect to the tax 
        imposed by section 884 shall not be taken into 
        account.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to taxable years beginning 
        after December 31, 1986.

SEC. 11488. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER 
                    COMPANIES.

    (a) Section 902 Credit.--
            (1) In general.--Subsection (b) of section 902 
        (relating to deemed taxes increased in case of certain 
        2nd and 3rd tier foreign corporations) is amended to 
        read as follows:
    ``(b) Deemed Taxes Increased in Case of Certain Lower Tier 
Corporations.--
            ``(1) In general.--If--
                    ``(A) any foreign corporation is a member 
                of a qualified group, and
                    ``(B) such foreign corporation owns 10 
                percent or more of the voting stock of another 
                member of such group from which it receives 
                dividends in any taxable year,
        such foreign corporation shall be deemed to have paid 
        the same proportion of such other member's post-1986 
        foreign income taxes as would be determined under 
        subsection (a) if such foreign corporation were a 
        domestic corporation.
            ``(2) Qualified group.--For purposes of paragraph 
        (1), the term `qualified group' means--
                    ``(A) the foreign corporation described in 
                subsection (a), and
                    ``(B) any other foreign corporation if--
                            ``(i) the domestic corporation owns 
                        at least 5 percent of the voting stock 
                        of such other foreign corporation 
                        indirectly through a chain of foreign 
                        corporations connected through stock 
                        ownership of at least 10 percent of 
                        their voting stock,
                            ``(ii) the foreign corporation 
                        described in subsection (a) is the 
                        first tier corporation in such chain, 
                        and
                            ``(iii) such other corporation is 
                        not below the sixth tier in such chain.
        The term `qualified group' shall not include any 
        foreign corporation below the third tier in the chain 
        referred to in clause (i) unless such foreign 
        corporation is a controlled foreign corporation (as 
        defined in section 957) and the domestic corporation is 
        a United States shareholder (as defined in section 
        951(b)) in such foreign corporation. Paragraph (1) 
        shall apply to those taxes paid by a member of the 
        qualified group below the third tier only with respect 
        to periods during which it was a controlled foreign 
        corporation.''
            (2) Conforming amendments.--
                    (A) Subparagraph (B) of section 902(c)(3) 
                is amended by adding ``or'' at the end of 
                clause (i) and by striking clauses (ii) and 
                (iii) and inserting the following new clause:
                            ``(ii) the requirements of 
                        subsection (b)(2) are met with respect 
                        to such foreign corporation.''
                    (B) Subparagraph (B) of section 902(c)(4) 
                is amended by striking ``3rd foreign 
                corporation'' and inserting ``sixth tier 
                foreign corporation''.
                    (C) The heading for paragraph (3) of 
                section 902(c) is amended by striking ``where 
                domestic corporation acquires 10 percent of 
                foreign corporation'' and inserting ``where 
                foreign corporation first qualifies''.
                    (D) Paragraph (3) of section 902(c) is 
                amended by striking ``ownership'' each place it 
                appears.
    (b) Section 960 Credit.--Paragraph (1) of section 960(a) 
(relating to special rules for foreign tax credits) is amended 
to read as follows:
            ``(1) Deemed paid credit.--For purposes of subpart 
        A of this part, if there is included under section 
        951(a) in the gross income of a domestic corporation 
        any amount attributable to earnings and profits of a 
        foreign corporation which is a member of a qualified 
        group (as defined in section 902(b)) with respect to 
        the domestic corporation, then, except to the extent 
        provided in regulations, section 902 shall be applied 
        as if the amount so included were a dividend paid by 
        such foreign corporation (determined by applying 
        section 902(c) in accordance with section 
        904(d)(3)(B)).''
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxes of foreign corporations 
        for taxable years of such corporations beginning after 
        the date of enactment of this Act.
            (2) Special rule.--In the case of any chain of 
        foreign corporations described in clauses (i) and (ii) 
        of section 902(b)(2)(B) of the Internal Revenue Code of 
        1986 (as amended by this section), no liquidation, 
        reorganization, or similar transaction in a taxable 
        year beginning after the date of the enactment of this 
        Act shall have the effect of permitting taxes to be 
        taken into account under section 902 of the Internal 
        Revenue Code of 1986 which could not have been taken 
        into account under such section but for such 
        transaction.

SEC. 11489. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED IN EXCESS 
                    PASSIVE ASSETS.

    (a) In General.--
            (1) Repeal of inclusion.--Paragraph (1) of section 
        951(a) (relating to amounts included in gross income of 
        United States shareholders) is amended by striking 
        subparagraph (C), by striking ``; and'' at the end of 
        subparagraph (B) and inserting a period, and by adding 
        ``and'' at the end of subparagraph (A).
            (2) Repeal of inclusion amount.--Section 956A 
        (relating to earnings invested in excess passive 
        assets) is repealed.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 956(b) is amended to 
        read as follows:
            ``(1) Applicable earnings.--For purposes of this 
        section, the term `applicable earnings' means, with 
        respect to any controlled foreign corporation, the sum 
        of--
                    ``(A) the amount (not including a deficit) 
                referred to in section 316(a)(1), and
                    ``(B) the amount referred to in section 
                316(a)(2),
        but reduced by distributions made during the taxable 
        year.''
            (2) Paragraph (3) of section 956(b) is amended to 
        read as follows:
            ``(3) Special rule where corporation ceases to be 
        controlled foreign corporation.--If any foreign 
        corporation ceases to be a controlled foreign 
        corporation during any taxable year--
                    ``(A) the determination of any United 
                States shareholder's pro rata share shall be 
                made on the basis of stock owned (within the 
                meaning of section 958(a)) by such shareholder 
                on the last day during the taxable year on 
                which the foreign corporation is a controlled 
                foreign corporation,
                    ``(B) the average referred to in subsection 
                (a)(1)(A) for such taxable year shall be 
                determined by only taking into account quarters 
                ending on or before such last day, and
                    ``(C) in determining applicable earnings, 
                the amount taken into account by reason of 
                being described in paragraph (2) of section 
                316(a) shall be the portion of the amount so 
                described which is allocable (on a pro rata 
                basis) to the part of such year during which 
                the corporation is a controlled foreign 
                corporation.''
            (3) Subsection (a) of section 959 (relating to 
        exclusion from gross income of previously taxed 
        earnings and profits) is amended by adding ``or'' at 
        the end of paragraph (1), by striking ``or'' at the end 
        of paragraph (2), and by striking paragraph (3).
            (4) Subsection (a) of section 959 is amended by 
        striking ``paragraphs (2) and (3)'' in the last 
        sentence and inserting ``paragraph (2)''.
            (5) Subsection (c) of section 959 is amended by 
        adding at the end the following flush sentence:
``References in this subsection to section 951(a)(1)(C) and 
subsection (a)(3) shall be treated as references to such 
provisions as in effect on the day before the date of the 
enactment of the Revenue Reconciliation Act of 1995.''
            (6) Paragraph (1) of section 959(f) is amended to 
        read as follows:
            ``(1) In general.--For purposes of this section, 
        amounts that would be included under subparagraph (B) 
        of section 951(a)(1) (determined without regard to this 
        section) shall be treated as attributable first to 
        earnings described in subsection (c)(2), and then to 
        earnings described in subsection (c)(3).''
            (7) Paragraph (2) of section 959(f) is amended by 
        striking ``subparagraphs (B) and (C) of section 
        951(a)(1)'' and inserting ``section 951(a)(1)(B)''.
            (8) Subsection (b) of section 989 is amended by 
        striking ``subparagraph (B) or (C) of section 
        951(a)(1)'' and inserting ``section 951(a)(1)(B)''.
            (9) Paragraph (9) of section 1298(b), as 
        redesignated by section 11482, is amended by striking 
        ``subparagraph (B) or (C) of section 951(a)(1)'' and 
        inserting ``section 951(a)(1)(B)''.
            (10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of 
        section 1298, as redesignated by section 11482, are 
        each amended by striking ``or section 956A''.
    (c) Clerical Amendment.--The table of sections for subpart 
F of part III of subchapter N of chapter 1 is amended by 
striking the item relating to section 956A.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years of foreign corporations beginning 
after September 30, 1995, and to taxable years of United States 
shareholders within which or with which such taxable years of 
foreign corporations end.

                 CHAPTER 5--OTHER INCOME TAX PROVISIONS

          Subchapter A--Provisions Relating to S Corporations

SEC. 11501. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.

    Subparagraph (A) of section 1361(b)(1) (defining small 
business corporation) is amended by striking ``35 
shareholders'' and inserting ``75 shareholders''.

SEC. 11502. ELECTING SMALL BUSINESS TRUSTS.

    (a) General Rule.--Subparagraph (A) of section 1361(c)(2) 
(relating to certain trusts permitted as shareholders) is 
amended by inserting after clause (iv) the following new 
clause:
                            ``(v) An electing small business 
                        trust.''
    (b) Current Beneficiaries Treated as Shareholders.--
Subparagraph (B) of section 1361(c)(2) is amended by adding at 
the end the following new clause:
                            ``(v) In the case of a trust 
                        described in clause (v) of subparagraph 
                        (A), each potential current beneficiary 
                        of such trust shall be treated as a 
                        shareholder; except that, if for any 
                        period there is no potential current 
                        beneficiary of such trust, such trust 
                        shall be treated as the shareholder 
                        during such period.''
    (c) Electing Small Business Trust Defined.--Section 1361 
(defining S corporation) is amended by adding at the end the 
following new subsection:
    ``(e) Electing Small Business Trust Defined.--
            ``(1) Electing small business trust.--For purposes 
        of this section--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `electing small 
                business trust' means any trust if--
                            ``(i) such trust does not have as a 
                        beneficiary any person other than (I) 
                        an individual, (II) an estate, or (III) 
                        an organization described in paragraph 
                        (2), (3), (4), or (5) of section 170(c) 
                        which holds a contingent interest and 
                        is not a potential current beneficiary,
                            ``(ii) no interest in such trust 
                        was acquired by purchase, and
                            ``(iii) an election under this 
                        subsection applies to such trust.
                    ``(B) Certain trusts not eligible.--The 
                term `electing small business trust' shall not 
                include--
                            ``(i) any qualified subchapter S 
                        trust (as defined in subsection (d)(3)) 
                        if an election under subsection (d)(2) 
                        applies to any corporation the stock of 
                        which is held by such trust, and
                            ``(ii) any trust exempt from tax 
                        under this subtitle.
                    ``(C) Purchase.--For purposes of 
                subparagraph (A), the term `purchase' means any 
                acquisition if the basis of the property 
                acquired is determined under section 1012.
            ``(2) Potential current beneficiary.--For purposes 
        of this section, the term `potential current 
        beneficiary' means, with respect to any period, any 
        person who at any time during such period is entitled 
        to, or at the discretion of any person may receive, a 
        distribution from the principal or income of the trust. 
        If a trust disposes of all of the stock which it holds 
        in an S corporation, then, with respect to such 
        corporation, the term `potential current beneficiary' 
        does not include any person who first met the 
        requirements of the preceding sentence during the 60-
        day period ending on the date of such disposition.
            ``(3) Election.--An election under this subsection 
        shall be made by the trustee. Any such election shall 
        apply to the taxable year of the trust for which made 
        and all subsequent taxable years of such trust unless 
        revoked with the consent of the Secretary.
            ``(4) Cross reference.--

            ``For special treatment of electing small business trusts, 
        see section 641(d).''

    (d) Taxation of Electing Small Business Trusts.--Section 
641 (relating to imposition of tax on trusts) is amended by 
adding at the end the following new subsection:
    ``(d) Special Rules for Taxation of Electing Small Business 
Trusts.--
            ``(1) In general.--For purposes of this chapter--
                    ``(A) the portion of any electing small 
                business trust which consists of stock in 1 or 
                more S corporations shall be treated as a 
                separate trust, and
                    ``(B) the amount of the tax imposed by this 
                chapter on such separate trust shall be 
                determined with the modifications of paragraph 
                (2).
            ``(2) Modifications.--For purposes of paragraph 
        (1), the modifications of this paragraph are the 
        following:
                    ``(A) Except as provided in section 1(h), 
                the amount of the tax imposed by section 1(e) 
                shall be determined by using the highest rate 
                of tax set forth in section 1(e).
                    ``(B) The exemption amount under section 
                55(d) shall be zero.
                    ``(C) The only items of income, loss, 
                deduction, or credit to be taken into account 
                are the following:
                            ``(i) The items required to be 
                        taken into account under section 1366.
                            ``(ii) Any gain or loss from the 
                        disposition of stock in an S 
                        corporation.
                            ``(iii) To the extent provided in 
                        regulations, State or local income 
                        taxes or administrative expenses to the 
                        extent allocable to items described in 
                        clauses (i) and (ii).
                No deduction or credit shall be allowed for any 
                amount not described in this paragraph, and no 
                item described in this paragraph shall be 
                apportioned to any beneficiary.
                    ``(D) No amount shall be allowed under 
                paragraph (1) or (2) of section 1211(b).
            ``(3) Treatment of remainder of trust and 
        distributions.--For purposes of determining--
                    ``(A) the amount of the tax imposed by this 
                chapter on the portion of any electing small 
                business trust not treated as a separate trust 
                under paragraph (1), and
                    ``(B) the distributable net income of the 
                entire trust,
        the items referred to in paragraph (2)(C) shall be 
        excluded. Except as provided in the preceding sentence, 
        this subsection shall not affect the taxation of any 
        distribution from the trust.
            ``(4) Treatment of unused deductions where 
        termination of separate trust.--If a portion of an 
        electing small business trust ceases to be treated as a 
        separate trust under paragraph (1), any carryover or 
        excess deduction of the separate trust which is 
        referred to in section 642(h) shall be taken into 
        account by the entire trust.
            ``(5) Electing small business trust.--For purposes 
        of this subsection, the term `electing small business 
        trust' has the meaning given such term by section 
        1361(e)(1).''
    (e) Technical Amendment.--Paragraph (1) of section 1366(a) 
is amended by inserting ``, or of a trust or estate which 
terminates,'' after ``who dies''.

SEC. 11503. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN TRUSTS.

    Subparagraph (A) of section 1361(c)(2) (relating to certain 
trusts permitted as shareholders) is amended--
            (1) by striking ``60-day period'' each place it 
        appears in clauses (ii) and (iii) and inserting ``2-
        year period'', and
            (2) by striking the last sentence in clause (ii).

SEC. 11504. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE HARBOR DEBT.

    Clause (iii) of section 1361(c)(5)(B) (defining straight 
debt) is amended by striking ``or a trust described in 
paragraph (2)'' and inserting ``a trust described in paragraph 
(2), or a person which is actively and regularly engaged in the 
business of lending money.''

SEC. 11505. RULES RELATING TO INADVERTENT TERMINATIONS AND INVALID 
                    ELECTIONS.

    (a) General Rule.--Subsection (f) of section 1362 (relating 
to inadvertent terminations) is amended to read as follows:
    ``(f) Inadvertent Invalid Elections or Terminations.--If--
            ``(1) an election under subsection (a) by any 
        corporation--
                    ``(A) was not effective for the taxable 
                year for which made (determined without regard 
                to subsection (b)(2)) by reason of a failure to 
                meet the requirements of section 1361(b) or to 
                obtain shareholder consents, or
                    ``(B) was terminated under paragraph (2) or 
                (3) of subsection (d),
            ``(2) the Secretary determines that the 
        circumstances resulting in such ineffectiveness or 
        termination were inadvertent,
            ``(3) no later than a reasonable period of time 
        after discovery of the circumstances resulting in such 
        ineffectiveness or termination, steps were taken--
                    ``(A) so that the corporation is a small 
                business corporation, or
                    ``(B) to acquire the required shareholder 
                consents, and
            ``(4) the corporation, and each person who was a 
        shareholder in the corporation at any time during the 
        period specified pursuant to this subsection, agrees to 
        make such adjustments (consistent with the treatment of 
        the corporation as an S corporation) as may be required 
        by the Secretary with respect to such period,
then, notwithstanding the circumstances resulting in such 
ineffectiveness or termination, such corporation shall be 
treated as an S corporation during the period specified by the 
Secretary.''
    (b) Late Elections.--Subsection (b) of section 1362 is 
amended by adding at the end the following new paragraph:
            ``(5) Authority to treat late elections as 
        timely.--If--
                    ``(A) an election under subsection (a) is 
                made for any taxable year (determined without 
                regard to paragraph (3)) after the date 
                prescribed by this subsection for making such 
                election for such taxable year, and
                    ``(B) the Secretary determines that there 
                was reasonable cause for the failure to timely 
                make such election,
        the Secretary may treat such election as timely made 
        for such taxable year (and paragraph (3) shall not 
        apply).''
    (c) Effective Date.--The amendments made by subsection (a) 
and (b) shall apply with respect to elections for taxable years 
beginning after December 31, 1982.

SEC. 11506. AGREEMENT TO TERMINATE YEAR.

    Paragraph (2) of section 1377(a) (relating to pro rata 
share) is amended to read as follows:
            ``(2) Election to terminate year.--
                    ``(A) In general.--If any shareholder 
                terminates the shareholder's interest in the 
                corporation during the taxable year and all 
                affected shareholders and the corporation agree 
                to the application of this paragraph, paragraph 
                (1) shall be applied to the affected 
                shareholders as if the taxable year consisted 
                of 2 taxable years the first of which ends on 
                the date of the termination.
                    ``(B) Affected shareholders.--For purposes 
                of subparagraph (A), the term `affected 
                shareholders' means the shareholder whose 
                interest is terminated and all shareholders to 
                whom such shareholder has transferred shares 
                during the taxable year. If such shareholder 
                has transferred shares to the corporation, the 
                term `affected shareholders' shall include all 
                persons who are shareholders during the taxable 
                year.''

SEC. 11507. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

    (a) In General.--Paragraph (1) of section 1377(b) (relating 
to post-termination transition period) is amended by striking 
``and'' at the end of subparagraph (A), by redesignating 
subparagraph (B) as subparagraph (C), and by inserting after 
subparagraph (A) the following new subparagraph:
                    ``(B) the 120-day period beginning on the 
                date of any determination pursuant to an audit 
                of the taxpayer which follows the termination 
                of the corporation's election and which adjusts 
                a subchapter S item of income, loss, or 
                deduction of the corporation arising during the 
                S period (as defined in section 1368(e)(2)), 
                and''.
    (b) Determination Defined.--Paragraph (2) of section 
1377(b) is amended by striking subparagraphs (A) and (B), by 
redesignating subparagraph (C) as subparagraph (B), and by 
inserting before subparagraph (B) (as so redesignated) the 
following new subparagraph:
                    ``(A) a determination as defined in section 
                1313(a), or''.
    (c) Repeal of Special Audit Provisions for Subchapter S 
Items.--
            (1) General rule.--Subchapter D of chapter 63 
        (relating to tax treatment of subchapter S items) is 
        hereby repealed.
            (2) Consistent treatment required.--Section 6037 
        (relating to return of S corporation) is amended by 
        adding at the end the following new subsection:
    ``(c) Shareholder's Return Must Be Consistent With 
Corporate Return or Secretary Notified of Inconsistency.--
            ``(1) In general.--A shareholder of an S 
        corporation shall, on such shareholder's return, treat 
        a subchapter S item in a manner which is consistent 
        with the treatment of such item on the corporate 
        return.
            ``(2) Notification of inconsistent treatment.--
                    ``(A) In general.--In the case of any 
                subchapter S item, if--
                            ``(i)(I) the corporation has filed 
                        a return but the shareholder's 
                        treatment on his return is (or may be) 
                        inconsistent with the treatment of the 
                        item on the corporate return, or
                            ``(II) the corporation has not 
                        filed a return, and
                            ``(ii) the shareholder files with 
                        the Secretary a statement identifying 
                        the inconsistency,
                paragraph (1) shall not apply to such item.
                    ``(B) Shareholder receiving incorrect 
                information.--A shareholder shall be treated as 
                having complied with clause (ii) of 
                subparagraph (A) with respect to a subchapter S 
                item if the shareholder--
                            ``(i) demonstrates to the 
                        satisfaction of the Secretary that the 
                        treatment of the subchapter S item on 
                        the shareholder's return is consistent 
                        with the treatment of the item on the 
                        schedule furnished to the shareholder 
                        by the corporation, and
                            ``(ii) elects to have this 
                        paragraph apply with respect to that 
                        item.
            ``(3) Effect of failure to notify.--In any case--
                    ``(A) described in subparagraph (A)(i)(I) 
                of paragraph (2), and
                    ``(B) in which the shareholder does not 
                comply with subparagraph (A)(ii) of paragraph 
                (2),
        any adjustment required to make the treatment of the 
        items by such shareholder consistent with the treatment 
        of the items on the corporate return shall be treated 
        as arising out of mathematical or clerical errors and 
        assessed according to section 6213(b)(1). Paragraph (2) 
        of section 6213(b) shall not apply to any assessment 
        referred to in the preceding sentence.
            ``(4) Subchapter s item.--For purposes of this 
        subsection, the term `subchapter S item' means any item 
        of an S corporation to the extent that regulations 
        prescribed by the Secretary provide that, for purposes 
        of this subtitle, such item is more appropriately 
        determined at the corporation level than at the 
        shareholder level.
            ``(5) Addition to tax for failure to comply with 
        section.--

          ``For addition to tax in the case of a shareholder's 
        negligence in connection with, or disregard of, the requirements 
        of this section, see part II of subchapter A of chapter 68.''

            (3) Conforming amendments.--
                    (A) Section 1366 is amended by striking 
                subsection (g).
                    (B) Subsection (b) of section 6233 is 
                amended to read as follows:
    ``(b) Similar Rules in Certain Cases.--If a partnership 
return is filed for any taxable year but it is determined that 
there is no entity for such taxable year, to the extent 
provided in regulations, rules similar to the rules of 
subsection (a) shall apply.''
                    (C) The table of subchapters for chapter 63 
                is amended by striking the item relating to 
                subchapter D.

SEC. 11508. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

    (a) In General.--Paragraph (2) of section 1361(b) (defining 
ineligible corporation) is amended by striking subparagraph (A) 
and by redesignating subparagraphs (B), (C), (D), and (E) as 
subparagraphs (A), (B), (C), and (D), respectively.
    (b) Treatment of Certain Wholly Owned S Corporation 
Subsidiaries.--Section 1361(b) (defining small business 
corporation) is amended by adding at the end the following new 
paragraph:
            ``(3) Treatment of certain wholly owned 
        subsidiaries.--
                    ``(A) In general.--For purposes of this 
                title--
                            ``(i) a corporation which is a 
                        qualified subchapter S subsidiary shall 
                        not be treated as a separate 
                        corporation, and
                            ``(ii) all assets, liabilities, and 
                        items of income, deduction, and credit 
                        of a qualified subchapter S subsidiary 
                        shall be treated as assets, 
                        liabilities, and such items (as the 
                        case may be) of the S corporation.
                    ``(B) Qualified subchapter s subsidiary.--
                For purposes of this paragraph, the term 
                `qualified subchapter S subsidiary' means any 
                domestic corporation which is not an ineligible 
                corporation (as defined in paragraph (2)), if--
                            ``(i) 100 percent of the stock of 
                        such corporation is held by the S 
                        corporation, and
                            ``(ii) the S corporation elects to 
                        treat such corporation as a qualified 
                        subchapter S subsidiary.
                    ``(C) Treatment of terminations of 
                qualified subchapter s subsidiary status.--For 
                purposes of this title, if any corporation 
                which was a qualified subchapter S subsidiary 
                ceases to meet the requirements of subparagraph 
                (B), such corporation shall be treated as a new 
                corporation acquiring all of its assets (and 
                assuming all of its liabilities) immediately 
                before such cessation from the S corporation in 
                exchange for its stock.''
    (c) Certain Dividends Not Treated as Passive Investment 
Income.--Paragraph (3) of section 1362(d) is amended by adding 
at the end the following new subparagraph:
                    ``(F) Treatment of certain dividends.--If 
                an S corporation holds stock in a C corporation 
                meeting the requirements of section 1504(a)(2), 
                the term `passive investment income' shall not 
                include dividends from such C corporation to 
                the extent such dividends are attributable to 
                the earnings and profits of such C corporation 
                derived from the active conduct of a trade or 
                business.''
    (d) Conforming Amendments.--
            (1) Subsection (c) of section 1361 is amended by 
        striking paragraph (6).
            (2) Subsection (b) of section 1504 (defining 
        includible corporation) is amended by adding at the end 
        the following new paragraph:
            ``(8) An S corporation.''

SEC. 11509. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

    (a) Adjustments for Distributions Taken Into Account Before 
Losses.--
            (1) Subparagraph (A) of section 1366(d)(1) 
        (relating to losses and deductions cannot exceed 
        shareholder's basis in stock and debt) is amended by 
        striking ``paragraph (1)'' and inserting ``paragraphs 
        (1) and (2)(A)''.
            (2) Subsection (d) of section 1368 (relating to 
        certain adjustments taken into account) is amended by 
        adding at the end the following new sentence:
``In the case of any distribution made during any taxable year, 
the adjusted basis of the stock shall be determined with regard 
to the adjustments provided in paragraph (1) of section 1367(a) 
for the taxable year.''
    (b) Accumulated Adjustments Account.--Paragraph (1) of 
section 1368(e) (relating to accumulated adjustments account) 
is amended by adding at the end the following new subparagraph:
            ``(C) Net loss for year disregarded.--
                    ``(i) In general.--In applying this section 
                to distributions made during any taxable year, 
                the amount in the accumulated adjustments 
                account as of the close of such taxable year 
                shall be determined without regard to any net 
                negative adjustment for such taxable year.
                    ``(ii) Net negative adjustment.--For 
                purposes of clause (i), the term `net negative 
                adjustment' means, with respect to any taxable 
                year, the excess (if any) of--
                            ``(I) the reductions in the account 
                        for the taxable year (other than for 
                        distributions), over
                            ``(II) the increases in such 
                        account for such taxable year.''
    (c) Conforming Amendments.--Subparagraph (A) of section 
1368(e)(1) is amended--
            (1) by striking ``as provided in subparagraph (B)'' 
        and inserting ``as otherwise provided in this 
        paragraph'', and
            (2) by striking ``section 1367(b)(2)(A)'' and 
        inserting ``section 1367(a)(2)''.

SEC. 11510. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.

    Subsection (a) of section 1371 (relating to application of 
subchapter C rules) is amended to read as follows:
    ``(a) Application of Subchapter C Rules.--Except as 
otherwise provided in this title, and except to the extent 
inconsistent with this subchapter, subchapter C shall apply to 
an S corporation and its shareholders.''

SEC. 11511. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.

    (a) In General.--If--
            (1) a corporation was an electing small business 
        corporation under subchapter S of chapter 1 of the 
        Internal Revenue Code of 1986 for any taxable year 
        beginning before January 1, 1983, and
            (2) such corporation is an S corporation under 
        subchapter S of chapter 1 of such Code for its first 
        taxable year beginning after December 31, 1995,
the amount of such corporation's accumulated earnings and 
profits (as of the beginning of such first taxable year) shall 
be reduced by an amount equal to the portion (if any) of such 
accumulated earnings and profits which were accumulated in any 
taxable year beginning before January 1, 1983, for which such 
corporation was an electing small business corporation under 
such subchapter S.
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 1362(d) is amended--
                    (A) by striking ``Subchapter C'' in the 
                paragraph heading and inserting 
                ``Accumulated'',
                    (B) by striking ``subchapter C'' in 
                subparagraph (A)(i)(I) and inserting 
                ``accumulated'', and
                    (C) by striking subparagraph (B) and 
                redesignating the following subparagraphs 
                accordingly.
            (2)(A) Subsection (a) of section 1375 is amended by 
        striking ``subchapter C'' in paragraph (1) and 
        inserting ``accumulated''.
            (B) Paragraph (3) of section 1375(b) is amended to 
        read as follows:
            ``(3) Passive investment income, etc.--The terms 
        `passive investment income' and `gross receipts' have 
        the same respective meanings as when used in paragraph 
        (3) of section 1362(d).''
            (C) The section heading for section 1375 is amended 
        by striking ``subchapter c'' and inserting 
        ``accumulated''.
            (D) The table of sections for part III of 
        subchapter S of chapter 1 is amended by striking 
        ``subchapter C'' in the item relating to section 1375 
        and inserting ``accumulated''.
            (3) Clause (i) of section 1042(c)(4)(A) is amended 
        by striking ``section 1362(d)(3)(D)'' and inserting 
        ``section 1362(d)(3)(C)''.

SEC. 11512. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS UNDER AT-RISK 
                    RULES ALLOWED.

    Paragraph (3) of section 1366(d) (relating to carryover of 
disallowed losses and deductions to post-termination transition 
period) is amended by adding at the end the following new 
subparagraph:
                    ``(D) At-risk limitations.--To the extent 
                that any increase in adjusted basis described 
                in subparagraph (B) would have increased the 
                shareholder's amount at risk under section 465 
                if such increase had occurred on the day 
                preceding the commencement of the post-
                termination transition period, rules similar to 
                the rules described in subparagraphs (A) 
                through (C) shall apply to any losses 
                disallowed by reason of section 465(a).''

SEC. 11513. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT 
                    CERTAIN ITEMS OF INCOME.

    (a) In General.--Subsection (b) of section 1367 (relating 
to adjustments to basis of stock of shareholders, etc.) is 
amended by adding at the end the following new paragraph:
            ``(4) Adjustments in case of inherited stock.--
                    ``(A) In general.--If any person acquires 
                stock in an S corporation by reason of the 
                death of a decedent or by bequest, devise, or 
                inheritance, section 691 shall be applied with 
                respect to any item of income of the S 
                corporation in the same manner as if the 
                decedent had held directly his pro rata share 
                of such item.
                    ``(B) Adjustments to basis.--The basis 
                determined under section 1014 of any stock in 
                an S corporation shall be reduced by the 
                portion of the value of the stock which is 
                attributable to items constituting income in 
                respect of the decedent.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply in the case of decedents dying after the date of 
the enactment of this Act.

SEC. 11514. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO REAL 
                    PROPERTY SUBDIVIDED FOR SALE BY NONCORPORATE 
                    TAXPAYERS.

    (a) In General.--Subsection (a) of section 1237 (relating 
to real property subdivided for sale) is amended by striking 
``other than a corporation'' in the material preceding 
paragraph (1) and inserting ``other than a C corporation''.
    (b) Conforming Amendment.--Subparagraph (A) of section 
1237(a)(2) is amended by inserting ``an S corporation which 
included the taxpayer as a shareholder,'' after ``controlled by 
the taxpayer,''.

SEC. 11515. EFFECTIVE DATE.

    (a) In General.--Except as otherwise provided in this 
subchapter, the amendments made by this subchapter shall apply 
to taxable years beginning after December 31, 1995.
    (b) Treatment of Certain Elections Under Prior Law.--For 
purposes of section 1362(g) of the Internal Revenue Code of 
1986 (relating to election after termination), any termination 
under section 1362(d) of such Code in a taxable year beginning 
before January 1, 1996, shall not be taken into account.

Subchapter B--Repeal of 30-Percent Gross Income Limitation on Regulated 
                          Investment Companies

SEC. 11521. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.

    (a) General Rule.--Subsection (b) of section 851 (relating 
to limitations) is amended by striking paragraph (3), by adding 
``and'' at the end of paragraph (2), and by redesignating 
paragraph (4) as paragraph (3).
    (b) Technical Amendments.--
            (1) The material following paragraph (3) of section 
        851(b) (as redesignated by subsection (a)) is amended--
                    (A) by striking out ``paragraphs (2) and 
                (3)'' and inserting ``paragraph (2)'', and
                    (B) by striking out the last sentence 
                thereof.
            (2) Subsection (c) of section 851 is amended by 
        striking ``subsection (b)(4)'' each place it appears 
        (including the heading) and inserting ``subsection 
        (b)(3)''.
            (3) Subsection (d) of section 851 is amended by 
        striking ``subsections (b)(4)'' and inserting 
        ``subsections (b)(3)''.
            (4) Paragraph (1) of section 851(e) is amended by 
        striking ``subsection (b)(4)'' and inserting 
        ``subsection (b)(3)''.
            (5) Paragraph (4) of section 851(e) is amended by 
        striking ``subsections (b)(4)'' and inserting 
        ``subsections (b)(3)''.
            (6) Section 851 is amended by striking subsection 
        (g) and redesignating subsection (h) as subsection (g).
            (7) Subsection (g) of section 851 (as redesignated 
        by paragraph (6)) is amended by striking paragraph (3).
            (8) Section 817(h)(2) is amended--
                    (A) by striking ``851(b)(4)'' in 
                subparagraph (A) and inserting ``851(b)(3)'', 
                and
                    (B) by striking ``851(b)(4)(A)(i)'' in 
                subparagraph (B) and inserting 
                ``851(b)(3)(A)(i)''.
            (9) Section 1092(f)(2) is amended by striking 
        ``Except for purposes of section 851(b)(3), the'' and 
        inserting ``The''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after the date of the 
enactment of this Act.

                  Subchapter C--Accounting Provisions

SEC. 11551. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM CONTRACTS.

    (a) Look-Back Method Not To Apply in Certain Cases.--
Subsection (b) of section 460 (relating to percentage of 
completion method) is amended by adding at the end the 
following new paragraph:
            ``(6) Election to have look-back method not apply 
        in de minimis cases.--
                    ``(A) Amounts taken into account after 
                completion of contract.--Paragraph (1)(B) shall 
                not apply with respect to any taxable year 
                (beginning after the taxable year in which the 
                contract is completed) if--
                            ``(i) the cumulative taxable income 
                        (or loss) under the contract as of the 
                        close of such taxable year, is within
                            ``(ii) 10 percent of the cumulative 
                        look-back taxable income (or loss) 
                        under the contract as of the close of 
                        the most recent taxable year to which 
                        paragraph (1)(B) applied (or would have 
                        applied but for subparagraph (B)).
                    ``(B) De minimis discrepancies.--Paragraph 
                (1)(B) shall not apply in any case to which it 
                would otherwise apply if--
                            ``(i) the cumulative taxable income 
                        (or loss) under the contract as of the 
                        close of each prior contract year, is 
                        within
                            ``(ii) 10 percent of the cumulative 
                        look-back income (or loss) under the 
                        contract as of the close of such prior 
                        contract year.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Contract year.--The term 
                        `contract year' means any taxable year 
                        for which income is taken into account 
                        under the contract.
                            ``(ii) Look-back income or loss.--
                        The look-back income (or loss) is the 
                        amount which would be the taxable 
                        income (or loss) under the contract if 
                        the allocation method set forth in 
                        paragraph (2)(A) were used in 
                        determining taxable income.
                            ``(iii) Discounting not 
                        applicable.--The amounts taken into 
                        account after the completion of the 
                        contract shall be determined without 
                        regard to any discounting under the 2nd 
                        sentence of paragraph (2).
                    ``(D) Contracts to which paragraph 
                applies.--This paragraph shall only apply if 
                the taxpayer makes an election under this 
                subparagraph. Unless revoked with the consent 
                of the Secretary, such an election shall apply 
                to all long-term contracts completed during the 
                taxable year for which election is made or 
                during any subsequent taxable year.''
    (b) Modification of Interest Rate.--
            (1) In general.--Subparagraph (C) of section 
        460(b)(2) is amended by striking ``the overpayment rate 
        established by section 6621'' and inserting ``the 
        adjusted overpayment rate (as defined in paragraph 
        (7))''.
            (2) Adjusted overpayment rate.--Subsection (b) of 
        section 460 is amended by adding at the end the 
        following new paragraph:
            ``(7) Adjusted overpayment rate.--
                    ``(A) In general.--The adjusted overpayment 
                rate for any interest accrual period is the 
                overpayment rate in effect under section 6621 
                for the calendar quarter in which such interest 
                accrual period begins.
                    ``(B) Interest accrual period.--For 
                purposes of subparagraph (A), the term 
                `interest accrual period' means the period--
                            ``(i) beginning on the day after 
                        the return due date for any taxable 
                        year of the taxpayer, and
                            ``(ii) ending on the return due 
                        date for the following taxable year.
                For purposes of the preceding sentence, the 
                term `return due date' means the date 
                prescribed for filing the return of the tax 
                imposed by this chapter (determined without 
                regard to extensions).''
    (c) Effective Date.--The amendments made by this section 
shall apply to contracts completed in taxable years ending 
after the date of the enactment of this Act.

SEC. 11552. APPLICATION OF MARK TO MARKET ACCOUNTING METHOD TO TRADERS 
                    IN SECURITIES.

    (a) In General.--Section 475 (relating to mark to market 
accounting method for dealers in securities) is amended by 
redesignating subsection (e) as subsection (f) and by inserting 
after subsection (d) the following new subsection:
    ``(e) Authority To Extend Method to Traders in 
Securities.--
            ``(1) In general.--A trader in securities may elect 
        to have the provisions of this section (other than 
        subsection (d)(3)) apply to securities held by the 
        trader. Such election may be made only with the consent 
        of the Secretary.
            ``(2) Trader in securities.--For purposes of this 
        subsection, the term `trader in securities' means a 
        taxpayer who is regularly engaged in trading 
        securities.''
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years ending on and after December 31, 
1995.

SEC. 11553. MODIFICATION OF RULING AMOUNTS FOR NUCLEAR DECOMMISSIONING 
                    COSTS.

    (a) In General.--Section 468A(d) (relating to ruling 
amount) is amended by adding at the end the following new 
paragraph:
                    ``(4) Nonsubstantial modifications.--A 
                taxpayer may modify a schedule of ruling 
                amounts under paragraph (1) without a review 
                under paragraph (3) if such modification does 
                not substantially modify the ruling amount. The 
                taxpayer shall notify the Secretary of any such 
                modification.''
    (b) Effective Date.--The amendment made by this section 
shall apply to modifications after the date of the enactment of 
this Act.

                Subchapter D--Tax-Exempt Bond Provision

SEC. 11561. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVESTMENT IN 
                    CERTAIN NONPURPOSE INVESTMENTS.

    (a) In General.--Subsection (d) of section 148 (relating to 
special rules for reasonably required reserve or replacement 
fund) is amended by striking paragraph (3).
    (b) Effective Date.--The amendments made by this part shall 
apply to bonds issued after the date of the enactment of this 
Act.

                   Subchapter E--INSURANCE PROVISIONS

SEC. 11571. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.

    (a) General Rule.--
            (1) Paragraph (2) of section 817(d) (defining 
        variable contract) is amended by striking ``or'' at the 
        end of subparagraph (A), by striking ``and'' at the end 
        of subparagraph (B) and inserting ``or'', and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) provides for funding of insurance on 
                retired lives as described in section 
                807(c)(6), and''.
            (2) Paragraph (3) of section 817(d) 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) in the case of funds held under a 
                contract described in paragraph (2)(C), the 
                amounts paid in, or the amounts paid out, 
                reflect the investment return and the market 
                value of the segregated asset account.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11572. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.

    (a) General Rule.--Subpart E of part I of subchapter L of 
chapter 1 (relating to definitions and special rules) is 
amended by inserting after section 817 the following new 
section:

``SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS.

    ``(a) Computation of Reserves.--In the case of a modified 
guaranteed contract, clause (ii) of section 807(e)(1)(A) shall 
not apply.
    ``(b) Segregated Assets Under Modified Guaranteed Contracts 
Marked to Market.--
            ``(1) In general.--In the case of any life 
        insurance company, for purposes of this subtitle--
                    ``(A) Any gain or loss with respect to a 
                segregated asset shall be treated as ordinary 
                income or loss, as the case may be.
                    ``(B) If any segregated asset is held by 
                such company as of the close of any taxable 
                year--
                            ``(i) such company shall recognize 
                        gain or loss as if such asset were sold 
                        for its fair market value on the last 
                        business day of such taxable year, and
                            ``(ii) any such gain or loss shall 
                        be taken into account for such taxable 
                        year.
                Proper adjustment shall be made in the amount 
                of any gain or loss subsequently realized for 
                gain or loss taken into account under the 
                preceding sentence. The Secretary may provide 
                by regulations for the application of this 
                subparagraph at times other than the times 
                provided in this subparagraph.
            ``(2) Segregated asset.--For purposes of paragraph 
        (1), the term `segregated asset' means any asset held 
        as part of a segregated account referred to in 
        subsection (d)(1) under a modified guaranteed contract.
    ``(c) Special Rule in Computing Life Insurance Reserves.--
For purposes of applying section 816(b)(1)(A) to any modified 
guaranteed contract, an assumed rate of interest shall include 
a rate of interest determined, from time to time, with 
reference to a market rate of interest.
    ``(d) Modified Guaranteed Contract Defined.--For purposes 
of this section, the term `modified guaranteed contract' means 
a contract not described in section 817--
            ``(1) all or part of the amounts received under 
        which are allocated to an account which, pursuant to 
        State law or regulation, is segregated from the general 
        asset accounts of the company and is valued from time 
        to time with reference to market values,
            ``(2) which--
                    ``(A) provides for the payment of 
                annuities,
                    ``(B) is a life insurance contract, or
                    ``(C) is a pension plan contract which is 
                not a life, accident, or health, property, 
                casualty, or liability contract,
            ``(3) for which reserves are valued at market for 
        annual statement purposes, and
            ``(4) which provides for a net surrender value or a 
        policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 
817, such portion shall be treated for purposes of this section 
as a separate contract.
    ``(e) Regulations.--The Secretary may prescribe 
regulations--
            ``(1) to provide for the treatment of market value 
        adjustments under sections 72, 7702, 7702A, and 
        807(e)(1)(B),
            ``(2) to determine the interest rates applicable 
        under sections 807(c)(3), 807(d)(2)(B), and 812 with 
        respect to a modified guaranteed contract annually, in 
        a manner appropriate for modified guaranteed contracts 
        and, to the extent appropriate for such a contract, to 
        modify or waive the applicability of section 811(d),
            ``(3) to provide rules to limit ordinary gain or 
        loss treatment to assets constituting reserves for 
        modified guaranteed contracts (and not other assets) of 
        the company,
            ``(4) to provide appropriate treatment of transfers 
        of assets to and from the segregated account, and
            ``(5) as may be necessary or appropriate to carry 
        out the purposes of this section.''.
    (b) Clerical Amendment.--The table of sections for subpart 
E of part I of subchapter L of chapter 1 is amended by 
inserting after the item relating to section 817 the following 
new item:

``Sec. 817A. Special rules for modified guaranteed contracts.''.

    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 1995.
            (2) Treatment of net adjustments.--In the case of 
        any taxpayer required by the amendments made by this 
        section to change its calculation of reserves to take 
        into account market value adjustments and to mark 
        segregated assets to market for any taxable year--
                    (A) such changes shall be treated as a 
                change in method of accounting initiated by the 
                taxpayer,
                    (B) such changes shall be treated as made 
                with the consent of the Secretary, and
                    (C) the adjustments required by reason of 
                section 481 of the Internal Revenue Code of 
                1986 shall be taken into account as ordinary 
                income or loss by the taxpayer for the 
                taxpayer's first taxable year beginning after 
                December 31, 1995.

                     Subchapter F--Other Provisions

SEC. 11581. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT TO 
                    DECEASED PARTNER, ETC.

    (a) General Rule.--Subparagraph (A) of section 706(c)(2) 
(relating to disposition of entire interest) is amended to read 
as follows:
                    ``(A) Disposition of entire interest.--The 
                taxable year of a partnership shall close with 
                respect to a partner whose entire interest in 
                the partnership terminates (whether by reason 
                of death, liquidation, or otherwise).''
    (b) Clerical Amendment.--The paragraph heading for 
paragraph (2) of section 706(c) is amended to read as follows:
            ``(2) Treatment of dispositions.--''.
    (c) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years beginning after 
December 31, 1995.

SEC. 11582. CREDIT FOR SOCIAL SECURITY TAXES PAID WITH RESPECT TO 
                    EMPLOYEE CASH TIPS.

    (a) Reporting Requirement Not Considered.--Subparagraph (A) 
of section 45B(b)(1) (relating to excess employer social 
security tax) is amended by inserting ``(without regard to 
whether such tips are reported under section 6053)'' after 
``section 3121(q)''.
    (b) Taxes Paid.--Subsection (d) of section 13443 of the 
Revenue Reconciliation Act of 1993 is amended by inserting ``, 
with respect to services performed before, on, or after such 
date'' after ``1993''.
    (c) Effective Date.--The amendments made by this section 
shall take effect as if included in the amendments made by, and 
the provisions of, section 13443 of the Revenue Reconciliation 
Act of 1993.

SEC. 11583. DUE DATE FOR FIRST QUARTER ESTIMATED TAX PAYMENTS BY 
                    PRIVATE FOUNDATIONS.

    (a) In General.--Paragraph (3) of section 6655(g) is 
amended by inserting after subparagraph (C) the following new 
subparagraph:
                    ``(D) In the case of any private 
                foundation, subsection (c)(2) shall be applied 
                by substituting `May 15' for `April 15 ' ''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1995.

                     CHAPTER 6--ESTATES AND TRUSTS

                  Subchapter A--Income Tax Provisions

SEC. 11601. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.

    (a) In General.--Subpart A of part I of subchapter J 
(relating to estates, trusts, beneficiaries, and decedents) is 
amended by adding at the end the following new section:

``SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.

    ``(a) General Rule.--For purposes of this subtitle, if both 
the executor (if any) of an estate and the trustee of a 
qualified revocable trust elect the treatment provided in this 
section, such trust shall be treated and taxed as part of such 
estate (and not as a separate trust) for all taxable years of 
the estate ending after the date of the decedent's death and 
before the applicable date.
    ``(b) Definitions.--For purposes of subsection (a)--
            ``(1) Qualified revocable trust.--The term 
        `qualified revocable trust' means any trust (or portion 
        thereof) which was treated under section 676 as owned 
        by the decedent of the estate referred to in subsection 
        (a) by reason of a power in the grantor (determined 
        without regard to section 672(e)).
            ``(2) Applicable date.--The term `applicable date' 
        means--
                    ``(A) if no return of tax imposed by 
                chapter 11 is required to be filed, the date 
                which is 2 years after the date of the 
                decedent's death, and
                    ``(B) if such a return is required to be 
                filed, the date which is 6 months after the 
                date of the final determination of the 
                liability for tax imposed by chapter 11.
    ``(c) Election.--The election under subsection (a) shall be 
made not later than the time prescribed for filing the return 
of tax imposed by this chapter for the first taxable year of 
the estate (determined with regard to extensions) and, once 
made, shall be irrevocable.''
    (b) Comparable Treatment Under Generation-Skipping Tax.--
Paragraph (1) of section 2652(b) is amended by adding at the 
end the following new sentence: ``Such term shall not include 
any trust during any period the trust is treated as part of an 
estate under section 646.''
    (c) Clerical Amendment.--The table of sections for such 
subpart A is amended by adding at the end the following new 
item:

        ``Sec. 646. Certain revocable trusts treated as part of 
                  estate.''

    (d) Effective Date.--The amendments made by this section 
shall apply with respect to estates of decedents dying after 
the date of the enactment of this Act.

SEC. 11602. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR OF 
                    ESTATE.

    (a) In General.--Subsection (b) of section 663 (relating to 
distributions in first 65 days of taxable year) is amended by 
inserting ``an estate or'' before ``a trust'' each place it 
appears.
    (b) Conforming Amendment.--Paragraph (2) of section 663(b) 
is amended by striking ``the fiduciary of such trust'' and 
inserting ``the executor of such estate or the fiduciary of 
such trust (as the case may be)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 11603. SEPARATE SHARE RULES AVAILABLE TO ESTATES.

    (a) In General.--Subsection (c) of section 663 (relating to 
separate shares treated as separate trusts) is amended--
            (1) by inserting before the last sentence the 
        following new sentence: ``Rules similar to the rules of 
        the preceding provisions of this subsection shall apply 
        to treat substantially separate and independent shares 
        of different beneficiaries in an estate having more 
        than 1 beneficiary as separate estates.'', and
            (2) by inserting ``or estates'' after ``trusts'' in 
        the last sentence.
    (b) Conforming Amendment.--The subsection heading of 
section 663(c) is amended by inserting ``Estates or'' before 
``Trusts''.
    (c) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

SEC. 11604. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS RELATED 
                    PERSONS FOR DISALLOWANCE OF LOSSES, ETC.

    (a) Disallowance of Losses.--Subsection (b) of section 267 
(relating to losses, expenses, and interest with respect to 
transactions between related taxpayers) is amended by striking 
``or'' at the end of paragraph (11), by striking the period at 
the end of paragraph (12) and inserting ``; or'', and by adding 
at the end the following new paragraph:
            ``(13) Except in the case of a sale or exchange in 
        satisfaction of a pecuniary bequest, an executor of an 
        estate and a beneficiary of such estate.''
    (b) Ordinary Income From Gain From Sale of Depreciable 
Property.--Subsection (b) of section 1239 is amended by 
striking the period at the end of paragraph (2) and inserting 
``, and'' and by adding at the end the following new paragraph:
            ``(3) except in the case of a sale or exchange in 
        satisfaction of a pecuniary bequest, an executor of an 
        estate and a beneficiary of such estate.''
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 11605. LIMITATION ON TAXABLE YEAR OF ESTATES.

    (a) In General.--Section 645 (relating to taxable year of 
trusts) is amended to read as follows:

``SEC. 645. TAXABLE YEAR OF ESTATES AND TRUSTS.

    ``(a) Estates.--For purposes of this subtitle, the taxable 
year of an estate shall be a year ending on October 31, 
November 30, or December 31.
    ``(b) Trusts.--
            ``(1) In general.--For purposes of this subtitle, 
        the taxable year of any trust shall be the calendar 
        year.
            ``(2) Exception for trusts exempt from tax and 
        charitable trusts.--Paragraph (1) shall not apply to a 
        trust exempt from taxation under section 501(a) or to a 
        trust described in section 4947(a)(1).''
    (b) Clerical Amendment.--The table of sections for subpart 
A of part I of subchapter J of chapter 1 is amended by striking 
the item relating to section 645 and inserting the following 
new item:

        ``Sec. 645. Taxable year of estates and trusts.''

    (c) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

SEC. 11606. TREATMENT OF FUNERAL TRUSTS.

    (a) In General.--Subpart F of part I of subchapter J of 
chapter 1 is amended by adding at the end the following new 
section:

``SEC. 684. TREATMENT OF FUNERAL TRUSTS.

    ``(a) In General.--In the case of a qualified funeral 
trust--
            ``(1) subparts B, C, D, and E shall not apply, and
            ``(2) no deduction shall be allowed by section 
        642(b).
    ``(b) Qualified Funeral Trust.--For purposes of this 
subsection, the term `qualified funeral trust' means any trust 
(other than a foreign trust) if--
            ``(1) the trust arises as a result of a contract 
        with a person engaged in the trade or business of 
        providing funeral or burial services or property 
        necessary to provide such services,
            ``(2) the sole purpose of the trust is to hold, 
        invest, and reinvest funds in the trust and to use such 
        funds solely to make payments for such services or 
        property for the benefit of the beneficiaries of the 
        trust,
            ``(3) the only beneficiaries of such trust are 
        individuals who have entered into contracts described 
        in paragraph (1) to have such services or property 
        provided at their death,
            ``(4) the only contributions to the trust are 
        contributions by or for the benefit of such 
        beneficiaries,
            ``(5) the trustee elects the application of this 
        subsection, and
            ``(6) the trust would (but for the election 
        described in paragraph (5)) be treated as owned by the 
        beneficiaries under subpart E.
    ``(c) Dollar Limitation on Contributions.--
            ``(1) In general.--The term `qualified funeral 
        trust' shall not include any trust which accepts 
        aggregate contributions by or for the benefit of an 
        individual in excess of $7,000.
            ``(2) Related trusts.--For purposes of paragraph 
        (1), all trusts having trustees which are related 
        persons shall be treated as 1 trust. For purposes of 
        the preceding sentence, persons are related if--
                    ``(A) the relationship between such persons 
                would result in the disallowance of losses 
                under section 267 or 707(b),
                    ``(B) such persons are treated as a single 
                employer under subsection (a) or (b) of section 
                52, or
                    ``(C) the Secretary determines that 
                treating such persons as related is necessary 
                to prevent avoidance of the purposes of this 
                section.
            ``(3) Inflation adjustment.--In the case of any 
        contract referred to in subsection (b)(1) which is 
        entered into during any calendar year after 1996, the 
        dollar amount referred to paragraph (1) shall be 
        increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year, by substituting `calendar year 
                1995' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any dollar amount after being increased under the 
        preceding sentence is not a multiple of $100, such 
        dollar amount shall be rounded to the nearest multiple 
        of $100.
    ``(d) Application of Rate Schedule.--Section 1(e) shall be 
applied to each qualified funeral trust by treating each 
beneficiary's interest in each such trust as a separate trust.
    ``(e) Treatment of Amounts Refunded to Beneficiary on 
Cancellation.--No gain or loss shall be recognized to a 
beneficiary described in subsection (b)(3) of any qualified 
funeral trust by reason of any payment from such trust to such 
beneficiary by reason of cancellation of a contract referred to 
in subsection (b)(1). If any payment referred to in the 
preceding sentence consists of property other than money, the 
basis of such property in the hands of such beneficiary shall 
be the same as the trust's basis in such property immediately 
before the payment.
    ``(f) Simplified Reporting.--The Secretary may prescribe 
rules for simplified reporting of all trusts having a single 
trustee.''
    (b) Clerical Amendment.--The table of sections for subpart 
F of part I of subchapter J of chapter 1 is amended by adding 
at the end the following new item:

        ``Sec. 684. Treatment of funeral trusts.''

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

              Subchapter B--Estate and Gift Tax Provisions

SEC. 11611. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOVERY.

    (a) Amendment to Section 2207A.--Paragraph (2) of section 
2207A(a) (relating to right of recovery in the case of certain 
marital deduction property) is amended to read as follows:
            ``(2) Decedent may otherwise direct.--Paragraph (1) 
        shall not apply with respect to any property to the 
        extent that the decedent in his will (or a revocable 
        trust) specifically indicates an intent to waive any 
        right of recovery under this subchapter with respect to 
        such property.''
    (b) Amendment to Section 2207B.--Paragraph (2) of section 
2207B(a) (relating to right of recovery where decedent retained 
interest) is amended to read as follows:
            ``(2) Decedent may otherwise direct.--Paragraph (1) 
        shall not apply with respect to any property to the 
        extent that the decedent in his will (or a revocable 
        trust) specifically indicates an intent to waive any 
        right of recovery under this subchapter with respect to 
        such property.''
    (c) Effective Date.--The amendments made by this section 
shall apply with respect to the estates of decedents dying 
after the date of the enactment of this Act.

SEC. 11612. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT'S DEATH.

    (a) General Rule.--Section 2035 is amended to read as 
follows:

``SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS OF 
                    DECEDENT'S DEATH.

    ``(a) Inclusion of Certain Property in Gross Estate.--If--
            ``(1) the decedent made a transfer (by trust or 
        otherwise) of an interest in any property, or 
        relinquished a power with respect to any property, 
        during the 3-year period ending on the date of the 
        decedent's death, and
            ``(2) the value of such property (or an interest 
        therein) would have been included in the decedent's 
        gross estate under section 2036, 2037, 2038, or 2042 if 
        such transferred interest or relinquished power had 
        been retained by the decedent on the date of his death,
the value of the gross estate shall include the value of any 
property (or interest therein) which would have been so 
included.
    ``(b) Inclusion of Gift Tax on Gifts Made During 3 Years 
Before Decedent's Death.--The amount of the gross estate 
(determined without regard to this subsection) shall be 
increased by the amount of any tax paid under chapter 12 by the 
decedent or his estate on any gift made by the decedent or his 
spouse during the 3-year period ending on the date of the 
decedent's death.
    ``(c) Other Rules Relating to Transfers Within 3 Years of 
Death.--
            ``(1) In general.--For purposes of--
                    ``(A) section 303(b) (relating to 
                distributions in redemption of stock to pay 
                death taxes),
                    ``(B) section 2032A (relating to special 
                valuation of certain farms, etc., real 
                property), and
                    ``(C) subchapter C of chapter 64 (relating 
                to lien for taxes),
        the value of the gross estate shall include the value 
        of all property to the extent of any interest therein 
        of which the decedent has at any time made a transfer, 
        by trust or otherwise, during the 3-year period ending 
        on the date of the decedent's death.
            ``(2) Coordination with section 6166.--An estate 
        shall be treated as meeting the 35 percent of adjusted 
        gross estate requirement of section 6166(a)(1) only if 
        the estate meets such requirement both with and without 
        the application of paragraph (1).
            ``(3) Marital and small transfers.--Paragraph (1) 
        shall not apply to any transfer (other than a transfer 
        with respect to a life insurance policy) made during a 
        calendar year to any donee if the decedent was not 
        required by section 6019 (other than by reason of 
        section 6019(2)) to file any gift tax return for such 
        year with respect to transfers to such donee.
    ``(d) Exception.--Subsection (a) shall not apply to any 
bona fide sale for an adequate and full consideration in money 
or money's worth.
    ``(e) Treatment of Certain Transfers From Revocable 
Trusts.--For purposes of this section and section 2038, any 
transfer from any portion of a trust during any period that 
such portion was treated under section 676 as owned by the 
decedent by reason of a power in the grantor (determined 
without regard to section 672(e)) shall be treated as a 
transfer made directly by the decedent.''
    (b) Clerical Amendment.--The table of sections for part III 
of subchapter A of chapter 11 is amended by striking ``gifts'' 
in the item relating to section 2035 and inserting ``certain 
gifts''.
    (c) Effective Date.--The amendments made by this section 
shall apply to the estates of decedents dying after the date of 
the enactment of this Act.

SEC. 11613. CLARIFICATION OF QUALIFIED TERMINABLE INTEREST RULES.

    (a) General Rule.--
            (1) Estate tax.--Subparagraph (B) of section 
        2056(b)(7) (defining qualified terminable interest 
        property) is amended by adding at the end the following 
        new clause:
                            ``(vi) Treatment of certain income 
                        distributions.--An income interest 
                        shall not fail to qualify as a 
                        qualified income interest for life 
                        solely because income for the period 
                        after the last distribution date and on 
                        or before the date of the surviving 
                        spouse's death is not required to be 
                        distributed to the surviving spouse or 
                        to the estate of the surviving 
                        spouse.''
            (2) Gift tax.--Paragraph (3) of section 2523(f) is 
        amended by striking ``and (iv)'' and inserting ``(iv), 
        and (vi)''.
    (b) Clarification of Subsequent Inclusions.--Section 2044 
is amended by adding at the end the following new subsection:
    ``(d) Clarification of Inclusion of Certain Income.--The 
amount included in the gross estate under subsection (a) shall 
include the amount of any income from the property to which 
this section applies for the period after the last distribution 
date and on or before the date of the decedent's death if such 
income is not otherwise included in the decedent's gross 
estate.''
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply with respect to the estates of 
        decedents dying, and gifts made, after the date of the 
        enactment of this Act.
            (2) Application of section 2044 to transfers before 
        date of enactment.--In the case of the estate of any 
        decedent dying after the date of the enactment of this 
        Act, if there was a transfer of property on or before 
        such date--
                    (A) such property shall not be included in 
                the gross estate of the decedent under section 
                2044 of the Internal Revenue Code of 1986 if no 
                prior marital deduction was allowed with 
                respect to such a transfer of such property to 
                the decedent, but
                    (B) such property shall be so included if 
                such a deduction was allowed.

SEC. 11614. TRANSITIONAL RULE UNDER SECTION 2056A.

    (a) General Rule.--In the case of any trust created under 
an instrument executed before the date of the enactment of the 
Revenue Reconciliation Act of 1990, such trust shall be treated 
as meeting the requirements of paragraph (1) of section 
2056A(a) of the Internal Revenue Code of 1986 if the trust 
instrument requires that all trustees of the trust be 
individual citizens of the United States or domestic 
corporations.
    (b) Effective Date.--The provisions of subsection (a) shall 
take effect as if included in the provisions of section 
11702(g) of the Revenue Reconciliation Act of 1990.

SEC. 11615. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 
                    2032A.

    (a) General Rule.--Paragraph (3) of section 2032A(d) 
(relating to modification of election and agreement to be 
permitted) is amended to read as follows:
            ``(3) Modification of election and agreement to be 
        permitted.--The Secretary shall prescribe procedures 
        which provide that in any case in which the executor 
        makes an election under paragraph (1) (and submits the 
        agreement referred to in paragraph (2)) within the time 
        prescribed therefor, but--
                    ``(A) the notice of election, as filed, 
                does not contain all required information, or
                    ``(B) signatures of 1 or more persons 
                required to enter into the agreement described 
                in paragraph (2) are not included on the 
                agreement as filed, or the agreement does not 
                contain all required information,
        the executor will have a reasonable period of time (not 
        exceeding 90 days) after notification of such failures 
        to provide such information or signatures.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to the estates of decedents dying after the date of 
the enactment of this Act.

SEC. 11616. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES AFTER 
                    EXPIRATION OF STATUTE OF LIMITATIONS.

    (a) In General.--Section 2001 (relating to imposition and 
rate of estate tax) is amended by adding at the end the 
following new subsection:
    ``(f) Valuation of Gifts.--If--
            ``(1) the time has expired within which a tax may 
        be assessed under chapter 12 (or under corresponding 
        provisions of prior laws) on the transfer of property 
        by gift made during a preceding calendar period (as 
        defined in section 2502(b)), and
            ``(2) the value of such gift is shown on the return 
        for such preceding calendar period or is disclosed in 
        such return, or in a statement attached to the return, 
        in a manner adequate to apprise the Secretary of the 
        nature of such gift,
the value of such gift shall, for purposes of computing the tax 
under this chapter, be the value of such gift as finally 
determined for purposes of chapter 12.''
    (b) Modification of Application of Statute of 
Limitations.--Paragraph (9) of section 6501(c) is amended to 
read as follows:
            ``(9) Gift tax on certain gifts not shown on 
        return.--If any gift of property the value of which (or 
        any increase in taxable gifts required under section 
        2701(d)) is required to be shown on a return of tax 
        imposed by chapter 12 (without regard to section 
        2503(b)), and is not shown on such return, any tax 
        imposed by chapter 12 on such gift may be assessed, or 
        a proceeding in court for the collection of such tax 
        may be begun without assessment, at any time. The 
        preceding sentence shall not apply to any item which is 
        disclosed in such return, or in a statement attached to 
        the return, in a manner adequate to apprise the 
        Secretary of the nature of such item. The value of any 
        item which is so disclosed may not be redetermined by 
        the Secretary after the expiration of the period under 
        subsection (a).''
    (c) Declaratory Judgment Procedure for Determining Value of 
Gift.--
            (1) In general.--Part IV of subchapter C of chapter 
        76 is amended by inserting after section 7476 the 
        following new section:

``SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CERTAIN GIFTS.

    ``(a) Creation of Remedy.--In a case of an actual 
controversy involving a determination by the Secretary of the 
value of any gift shown on the return of tax imposed by chapter 
12 or disclosed on such return or in any statement attached to 
such return, upon the filing of an appropriate pleading, the 
Tax Court may make a declaration of the value of such gift. Any 
such declaration shall have the force and effect of a decision 
of the Tax Court and shall be reviewable as such.
    ``(b) Limitations.--
            ``(1) Petitioner.--A pleading may be filed under 
        this section only by the donor.
            ``(2) Exhaustion of administrative remedies.--The 
        court shall not issue a declaratory judgment or decree 
        under this section in any proceeding unless it 
        determines that the petitioner has exhausted all 
        available administrative remedies within the Internal 
        Revenue Service.
            ``(3) Time for bringing action.--If the Secretary 
        sends by certified or registered mail notice of his 
        determination as described in subsection (a) to the 
        petitioner, no proceeding may be initiated under this 
        section unless the pleading is filed before the 91st 
        day after the date of such mailing.''
            (2) Clerical amendment.--The table of sections for 
        such part IV is amended by inserting after the item 
        relating to section 7476 the following new item:

        ``Sec. 7477. Declaratory judgments relating to value of certain 
                  gifts.''

    (d) Conforming Amendment.--Subsection (c) of section 2504 
is amended by striking ``, and if a tax under this chapter or 
under corresponding provisions of prior laws has been assessed 
or paid for such preceding calendar period''.
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections 
        (a) and (c) shall apply to gifts made after the date of 
        the enactment of this Act.
            (2) Subsection (b).--The amendment made by 
        subsection (b) shall apply to gifts made in calendar 
        years ending after the date of the enactment of this 
        Act.

SEC. 11617. CLARIFICATIONS RELATING TO DISCLAIMERS.

    (a) Partial Transfer-Type Disclaimers Permitted.--Paragraph 
(3) of section 2518(c) (relating to certain transfers treated 
as disclaimers) is amended by inserting ``(or an undivided 
portion of such interest)'' after ``entire interest in the 
property''.
    (b) Retention of Interest by Decedent's Spouse Permitted in 
Transfer-Type Disclaimers.--Paragraph (3) of section 2518(c) is 
amended by adding at the end the following new flush sentence:
        ``For purposes of the preceding sentence, a written 
        transfer by the spouse of the decedent of property to a 
        trust shall not fail to be treated as a transfer of 
        such spouse's interest in such property by reason of 
        such spouse having an interest in such trust.''
    (c) Disclaimers Are Effective for Income Tax Purposes.--
Subsection (a) of section 2518 is amended by inserting ``and 
subtitle A'' after ``this subtitle'' each place it appears.
    (d) Effective Date.--The amendments made by this section 
shall apply to transfers creating an interest in the person 
disclaiming, and disclaimers, made after the date of the 
enactment of this Act.

SEC. 11618. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES UNDER 
                    QUALIFIED TERMINABLE INTEREST RULES.

    (a) In General.--Subparagraph (C) of section 2056(b)(7) is 
amended by inserting ``(or, in the case of an interest in an 
annuity arising under the community property laws of a State, 
included in the gross estate of the decedent under section 
2033)'' after ``section 2039''.
    (b) Effective Date.--The amendment made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

SEC. 11619. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES OF FORMS OF 
                    OWNERSHIP WHICH ARE NOT TRUSTS.

    (a) In General.--Subsection (c) of section 2056A (defining 
qualified domestic trust) is amended by adding at the end the 
following new paragraph:
            ``(3) Trust.--To the extent provided in regulations 
        prescribed by the Secretary, the term `trust' includes 
        other arrangements which have substantially the same 
        effect as a trust.''
    (b) Effective Date.--The amendment made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

            Subchapter C--Generation-Skipping Tax Provisions

SEC. 11631. TAXABLE TERMINATION NOT TO INCLUDE DIRECT SKIPS.

    (a) In General.--Paragraph (1) of section 2612(a) (defining 
taxable termination) is amended by adding at the end the 
following new flush sentence:
        ``Such term shall not include a direct skip.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to generation-skipping transfers (as defined in 
section 2611 of the Internal Revenue Code of 1986) after the 
date of the enactment of this Act.

                  CHAPTER 7--EXCISE TAX SIMPLIFICATION

 Subchapter A--Provisions Related to Distilled Spirits, Wines, and Beer

SEC. 11641. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED SPIRITS 
                    RETURNED TO DISTILLED SPIRITS PLANT.

    (a) In General.--Paragraph (1) of section 5008(c) (relating 
to distilled spirits returned to bonded premises) is amended by 
striking ``withdrawn from bonded premises on payment or 
determination of tax'' and inserting ``on which tax has been 
determined or paid''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect at the beginning of the first calendar 
quarter beginning more than 180 days after the date of the 
enactment of this Act.

SEC. 11642. FERMENTED MATERIAL FROM ANY BREWERY MAY BE RECEIVED AT A 
                    DISTILLED SPIRITS PLANT.

    (a) In General.--Paragraph (2) of section 5222(b) (relating 
to production, receipt, removal, and use of distilling 
materials) is amended to read as follows:
            ``(2) beer conveyed without payment of tax from 
        brewery premises, beer which has been lawfully removed 
        from brewery premises upon determination of tax, or''.
    (b) Clarification of Authority To Permit Removal of Beer 
Without Payment of Tax for Use as Distilling Material.--Section 
5053 (relating to exemptions) is amended by redesignating 
subsection (f) as subsection (i) and by inserting after 
subsection (e) the following new subsection:
    ``(f) Removal for Use as Distilling Material.--Subject to 
such regulations as the Secretary may prescribe, beer may be 
removed from a brewery without payment of tax to any distilled 
spirits plant for use as distilling material.''
    (c) Clarification of Refund and Credit of Tax.--Section 
5056 (relating to refund and credit of tax, or relief from 
liability) is amended--
            (1) by redesignating subsection (c) as subsection 
        (d) and by inserting after subsection (b) the following 
        new subsection:
    ``(c) Beer Received at a Distilled Spirits Plant.--Any tax 
paid by any brewer on beer produced in the United States may be 
refunded or credited to the brewer, without interest, or if the 
tax has not been paid, the brewer may be relieved of liability 
therefor, under regulations as the Secretary may prescribe, if 
such beer is received on the bonded premises of a distilled 
spirits plant pursuant to the provisions of section 5222(b)(2), 
for use in the production of distilled spirits.'', and
            (2) by striking ``or rendering unmerchantable'' in 
        subsection (d) (as so redesignated) and inserting 
        ``rendering unmerchantable, or receipt on the bonded 
        premises of a distilled spirits plant''.
    (d) Effective Date.--The amendments made by this section 
shall take effect at the beginning of the first calendar 
quarter beginning more than 180 days after the date of the 
enactment of this Act.

SEC. 11643. REFUND OF TAX ON WINE RETURNED TO BOND NOT LIMITED TO 
                    UNMERCHANTABLE WINE.

    (a) In General.--Subsection (a) of section 5044 (relating 
to refund of tax on unmerchantable wine) is amended by striking 
``as unmerchantable''.
    (b) Conforming Amendments.--
            (1) Section 5361 is amended by striking 
        ``unmerchantable''.
            (2) The section heading for section 5044 is amended 
        by striking ``unmerchantable''.
            (3) The item relating to section 5044 in the table 
        of sections for subpart C of part I of subchapter A of 
        chapter 51 is amended by striking ``unmerchantable''.
    (c) Effective Date.--The amendments made by this section 
shall take effect at the beginning of the first calendar 
quarter beginning more than 180 days after the date of the 
enactment of this Act.

SEC. 11644. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.

    (a) In General.--Section 5053 is amended by inserting after 
subsection (g) the following new subsection:
    ``(h) Removals for Destruction.--Subject to such 
regulations as the Secretary may prescribe, beer may be removed 
from the brewery without payment of tax for destruction.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect at the beginning of the first calendar 
quarter beginning more than 180 days after the date of the 
enactment of this Act.

SEC. 11645. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITHOUT 
                    PAYMENT OF TAX.

    (a) In General.--Part II of subchapter G of chapter 51 is 
amended by adding at the end the following new section:

``SEC. 5418. BEER IMPORTED IN BULK.

    ``Beer imported or brought into the United States in bulk 
containers may, under such regulations as the Secretary may 
prescribe, be withdrawn from customs custody and transferred in 
such bulk containers to the premises of a brewery without 
payment of the internal revenue tax imposed on such beer. The 
proprietor of a brewery to which such beer is transferred shall 
become liable for the tax on the beer withdrawn from customs 
custody under this section upon release of the beer from 
customs custody, and the importer, or the person bringing such 
beer into the United States, shall thereupon be relieved of the 
liability for such tax.''
    (b) Clerical Amendment.--The table of sections for such 
part II is amended by adding at the end the following new item:

        ``Sec. 5418. Beer imported in bulk.''

    (c) Effective Date.--The amendments made by this section 
shall take effect at the beginning of the first calendar 
quarter beginning more than 180 days after the date of the 
enactment of this Act.

       Subchapter B--Consolidation of Taxes on Aviation Gasoline

SEC. 11651. CONSOLIDATION OF TAXES ON AVIATION GASOLINE.

    (a) In General.--Subparagraph (A) of section 4081(a)(2) 
(relating to imposition of tax on gasoline and diesel fuel) is 
amended by redesignating clause (ii) as clause (iii) and by 
striking clause (i) and inserting the following:
                            ``(i) in the case of gasoline other 
                        than aviation gasoline, 18.3 cents per 
                        gallon,
                            ``(ii) in the case of aviation 
                        gasoline, 19.3 cents per gallon, and''.
    (b) Termination.--Subsection (d) of section 4081 is amended 
by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following new paragraph:
            ``(2) Aviation gasoline.--On and after January 1, 
        1996, the rate specified in subsection (a)(2)(A)(ii) 
        shall be 4.3 cents per gallon.''
    (c) Repeal of Retail Level Tax.--
            (1) Subsection (c) of section 4041 is amended by 
        striking paragraphs (2) and (3) and by redesignating 
        paragraphs (4) and (5) as paragraphs (2) and (3), 
        respectively.
            (2) Paragraph (3) of section 4041(c), as 
        redesignated by paragraph (1), is amended by striking 
        ``paragraphs (1) and (2)'' and inserting ``paragraph 
        (1)''.
    (d) Conforming Amendments.--
            (1) Paragraph (1) of section 4041(k) is amended by 
        adding ``and'' at the end of subparagraph (A), by 
        striking ``, and'' at the end of subparagraph (B) and 
        inserting a period, and by striking subparagraph (C).
            (2) Paragraph (1) of section 4081(d) is amended by 
        striking ``each rate of tax specified in subsection 
        (a)(2)(A)'' and inserting ``the rates of tax specified 
        in clauses (i) and (iii) of subsection (a)(2)(A)''.
            (3) Sections 6421(f)(2)(A) and 9502(f)(1)(A) are 
        each amended by striking ``section 4041(c)(4)'' and 
        inserting ``section 4041(c)(2)''.
            (4) Paragraph (2) of section 9502(b) is amended by 
        striking ``14 cents'' and inserting ``15 cents''.
    (e) Effective Date.--The amendments made by this section 
shall take effect on January 1, 1996.
    (f) Floor Stocks Tax.--
            (1) Imposition of tax.--In the case of aviation 
        gasoline on which tax was imposed under section 4081 of 
        the Internal Revenue Code of 1986 before January 1, 
        1996, and which is held on such date by any person, 
        there is hereby imposed a floor stocks tax of 1 cent 
        per gallon of such gasoline.
            (2) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding 
                aviation gasoline on January 1, 1996, to which 
                the tax imposed by paragraph (1) applies shall 
                be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as 
                the Secretary shall prescribe.
                    (C) Time for payment.--The tax imposed by 
                paragraph (1) shall be paid on or before June 
                30, 1996.
            (3) Definitions.--For purposes of this subsection:
                    (A) Held by a person.--Gasoline shall be 
                considered as ``held by a person'' if title 
                thereto has passed to such person (whether or 
                not delivery to the person has been made).
                    (B) Secretary.--The term ``Secretary'' 
                means the Secretary of the Treasury or his 
                delegate.
            (4) Exception for exempt uses.--The tax imposed by 
        paragraph (1) shall not apply to gasoline held by any 
        person exclusively for any use to the extent a credit 
        or refund of the tax imposed by section 4081 of such 
        Code is allowable for such use.
            (5) Exception for fuel held in aircraft tank.--No 
        tax shall be imposed by paragraph (1) on aviation 
        gasoline held in the tank of an aircraft.
            (6) Exception for certain amounts of fuel.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on aviation gasoline held on 
                January 1, 1996, by any person if the aggregate 
                amount of aviation gasoline held by such person 
                on such date does not exceed 6,000 gallons. The 
                preceding sentence shall apply only if such 
                person submits to the Secretary (at the time 
                and in the manner required by the Secretary) 
                such information as the Secretary shall require 
                for purposes of this paragraph.
                    (B) Exempt fuel.--For purposes of 
                subparagraph (A), there shall not be taken into 
                account fuel held by any person which is exempt 
                from the tax imposed by paragraph (1) by reason 
                of paragraph (4) or (5).
                    (C) Controlled groups.--
                            (i) Corporations.--In the case of a 
                        controlled group, the 6,000 gallon 
                        amount in subparagraph (A) shall be 
                        apportioned among the component members 
                        of such group in such manner as the 
                        Secretary shall by regulations 
                        prescribe. For purposes of the 
                        preceding sentence, the term 
                        ``controlled group'' has the meaning 
                        given to such term by subsection (a) of 
                        section 1563 of such Code; except that 
                        for such purposes the phrase ``more 
                        than 50 percent'' shall be substituted 
                        for the phrase ``at least 80 percent'' 
                        each place it appears in such 
                        subsection.
                            (ii) Nonincorporated persons under 
                        common control.--Under regulations 
                        prescribed by the Secretary, principles 
                        similar to the principles of clause (i) 
                        shall apply to a group under common 
                        control where 1 or more of the members 
                        is not a corporation.
            (7) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the 
        taxes imposed by section 4081 of such Code shall, 
        insofar as applicable and not inconsistent with the 
        provisions of this subsection, apply with respect to 
        the floor stock taxes imposed by paragraph (1) to the 
        same extent as if such taxes were imposed by such 
        section 4081.

               Subchapter C--Other Excise Tax Provisions

SEC. 11661. CERTAIN COMBINATIONS NOT TREATED AS MANUFACTURE UNDER 
                    RETAIL SALES TAX ON HEAVY TRUCKS.

    (a) In General.--Paragraph (2) of section 4052(c) (relating 
to certain combinations not treated as manufacture) is amended 
by striking ``or wood or metal floor'' and inserting ``wood or 
metal floor, or a power take-off and dump body''.
    (b) Removal of Fifth Wheel.--Paragraph (1) of section 
4052(c) is amended by inserting before the period ``or the 
removal of any coupling device (including any fifth wheel)''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

                  CHAPTER 8--ADMINISTRATIVE PROVISION

SEC. 11671. CERTAIN NOTICES DISREGARDED UNDER PROVISION INCREASING 
                    INTEREST RATE ON LARGE CORPORATE UNDERPAYMENTS.

    (a) General Rule.--Subparagraph (B) of section 6621(c)(2) 
(defining applicable date) is amended by adding at the end the 
following new clause:
                            ``(iii) Exception for letters or 
                        notices involving small amounts.--For 
                        purposes of this paragraph, any letter 
                        or notice shall be disregarded if the 
                        amount of the deficiency or proposed 
                        deficiency (or the assessment or 
                        proposed assessment) set forth in such 
                        letter or notice is not greater than 
                        $100,000 (determined by not taking into 
                        account any interest, penalties, or 
                        additions to tax).''
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply for purposes of determining interest for periods 
after December 31, 1995.

                  Subtitle K--Miscellaneous Provisions

SEC. 11701. TREATMENT OF STORAGE OF PRODUCT SAMPLES.

    (a) In General.--Paragraph (2) of section 280A(c) is 
amended by striking ``inventory'' and inserting ``inventory or 
product samples''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1995.

SEC. 11702. ADJUSTMENT OF DEATH BENEFIT LIMITS FOR CERTAIN POLICIES.

    (a) In General.--Subparagraph (C)(i) of section 7702(e)(2) 
(relating to limited increases in death benefit permitted) is 
amended by striking ``$5,000'' and inserting ``$7,000'' and by 
striking ``$25,000'' and inserting ``$30,000''.
    (b) Inflation Adjustments.--Section 7702(e) (relating to 
computational rules) is amended by adding at the end the 
following new paragraph:
            ``(3) Inflation adjustment to death benefit limits 
        for years after 1996.--In the case of any taxable year 
        beginning in a calendar year after 1996, each dollar 
        amount contained in paragraph (2)(C)(i) shall be 
        increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3), for the 
                calendar year in which the taxable year begins, 
                by substituting `calendar year 1995' for 
                `calendar year 1992' in subparagraph (B) 
                thereof.''.
    (c) Conforming Amendment.--Section 72(e)(10)(B) is amended 
by striking ``$25,000'' and inserting ``$30,000 (adjusted at 
the same time and in the same manner as under section 
7702(e)(3))''.
    (d) Effective Date.--The amendments made by this section 
shall apply to contracts entered into after December 31, 1995.

SEC. 11703. ORGANIZATIONS SUBJECT TO SECTION 833.

    (a) In General.--Section 833(c) (relating to organization 
to which section applies) is amended by adding at the end the 
following new paragraph:
            ``(4) Treatment as existing blue cross or blue 
        shield organization.--
                    ``(A) In general.--Paragraph (2) shall be 
                applied to an organization described in 
                subparagraph (B) as if it were a Blue Cross or 
                Blue Shield organization.
                    ``(B) Applicable organization.--An 
                organization is described in this subparagraph 
                if it--
                            ``(i) is organized under, and 
                        governed by, State laws which are 
                        specifically and exclusively applicable 
                        to not-for-profit health insurance or 
                        health service type organizations, and
                            ``(ii) is not a Blue Cross or Blue 
                        Shield organization or health 
                        maintenance organization.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years ending after October 13, 1995.

SEC. 11704. CORRECTION OF INFLATION ADJUSTMENT IN LUXURY EXCISE TAX ON 
                    AUTOMOBILES.

    (a) In General.--Subsection (e) of section 4001 (relating 
to inflation adjustment) is amended to read as follows:
    ``(e) Inflation Adjustment.--
            ``(1) In general.--The $30,000 amount in subsection 
        (a) and section 4003(a) shall be increased by an amount 
        equal to--
                    ``(A) $30,000, multiplied by
                    ``(B) the cost-of-living adjustment under 
                section 1(f)(3) for the calendar year in which 
                the vehicle is sold, determined by substituting 
                `calendar year 1990' for `calendar year 1992' 
                in subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under 
        paragraph (1) is not a multiple of $2,000, such amount 
        shall be rounded to the next lowest multiple of 
        $2,000.''
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 11705. EXTENSION AND PHASEDOWN OF LUXURY PASSENGER AUTOMOBILE TAX.

    (a) Extension.--Subsection (f) of section 4001 is amended 
by striking ``1999'' and inserting ``2002''.
    (b) Phasedown.--Section 4001 is amended by redesignating 
subsection (f) (as amended by subsection (a) of this section) 
as subsection (g) and by inserting after subsection (e) the 
following new subsection:
    ``(f) Phasedown.--For sales occurring in a calendar year 
after 1995 and before 2003, subsection (a) shall be applied by 
substituting for `10 percent' the percentage determined in 
accordance with the following table:

``If the calendar year is:                            The percentage is:
  1996..................................................  9 percent     
  1997..................................................  8 percent     
  1998..................................................  7 percent     
  1999..................................................  6 percent     
  2000..................................................  5 percent     
  2001..................................................  4 percent     
  2002..................................................  3 percent.''  

    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 1996.

             Subtitle L--Generalized System of Preferences

SEC. 11801. SHORT TITLE.

    This subtitle may be cited as the ``GSP Renewal Act of 
1995''.

SEC. 11802. GENERALIZED SYSTEM OF PREFERENCES.

    (a) In General.--Title V of the Trade Act of 1974 is 
amended to read as follows:

              ``TITLE V--GENERALIZED SYSTEM OF PREFERENCES

``SEC. 501. AUTHORITY TO EXTEND PREFERENCES.

    ``The President may provide duty-free treatment for any 
eligible article from any beneficiary developing country in 
accordance with the provisions of this title. In taking any 
such action, the President shall have due regard for--
            ``(1) the effect such action will have on 
        furthering the economic development of developing 
        countries through the expansion of their exports;
            ``(2) the extent to which other major developed 
        countries are undertaking a comparable effort to assist 
        developing countries by granting generalized 
        preferences with respect to imports of products of such 
        countries;
            ``(3) the anticipated impact of such action on 
        United States producers of like or directly competitive 
        products; and
            ``(4) the extent of the beneficiary developing 
        country's competitiveness with respect to eligible 
        articles.

``SEC. 502. DESIGNATION OF BENEFICIARY DEVELOPING COUNTRIES.

    ``(a) Authority To Designate Countries.--
            ``(1) Beneficiary developing countries.--The 
        President is authorized to designate countries as 
        beneficiary developing countries for purposes of this 
        title.
            ``(2) Least-developed beneficiary developing 
        countries.--The President is authorized to designate 
        any beneficiary developing country as a least-developed 
        beneficiary developing country for purposes of this 
        title, based on the considerations in section 501 and 
        subsection (c) of this section.
    ``(b) Countries Ineligible for Designation.--
            ``(1) Specific countries.--The following countries 
        may not be designated as beneficiary developing 
        countries for purposes of this title:
                    ``(A) Australia.
                    ``(B) Canada.
                    ``(C) European Union member states.
                    ``(D) Iceland.
                    ``(E) Japan.
                    ``(F) Monaco.
                    ``(G) New Zealand.
                    ``(H) Norway.
                    ``(I) Switzerland.
            ``(2) Other bases for ineligibility.--The President 
        shall not designate any country a beneficiary 
        developing country under this title if any of the 
        following applies:
                    ``(A) Such country is a Communist country, 
                unless--
                            ``(i) the products of such country 
                        receive nondiscriminatory treatment,
                            ``(ii) such country is a WTO Member 
                        (as such term is defined in section 
                        2(10) of the Uruguay Round Agreements 
                        Act) (19 U.S.C. 3501(10)) and a member 
                        of the International Monetary Fund, and
                            ``(iii) such country is not 
                        dominated or controlled by 
                        international communism.
                    ``(B) Such country is a party to an 
                arrangement of countries and participates in 
                any action pursuant to such arrangement, the 
                effect of which is--
                            ``(i) to withhold supplies of vital 
                        commodity resources from international 
                        trade or to raise the price of such 
                        commodities to an unreasonable level, 
                        and
                            ``(ii) to cause serious disruption 
                        of the world economy.
                    ``(C) Such country affords preferential 
                treatment to the products of a developed 
                country, other than the United States, which 
                has, or is likely to have, a significant 
                adverse effect on United States commerce.
                    ``(D)(i) Such country--
                            ``(I) has nationalized, 
                        expropriated, or otherwise seized 
                        ownership or control of property, 
                        including patents, trademarks, or 
                        copyrights, owned by a United States 
                        citizen or by a corporation, 
                        partnership, or association which is 50 
                        percent or more beneficially owned by 
                        United States citizens,
                            ``(II) has taken steps to repudiate 
                        or nullify an existing contract or 
                        agreement with a United States citizen 
                        or a corporation, partnership, or 
                        association which is 50 percent or more 
                        beneficially owned by United States 
                        citizens, the effect of which is to 
                        nationalize, expropriate, or otherwise 
                        seize ownership or control of property, 
                        including patents, trademarks, or 
                        copyrights, so owned, or
                            ``(III) has imposed or enforced 
                        taxes or other exactions, restrictive 
                        maintenance or operational conditions, 
                        or other measures with respect to 
                        property, including patents, 
                        trademarks, or copyrights, so owned, 
                        the effect of which is to nationalize, 
                        expropriate, or otherwise seize 
                        ownership or control of such property,
                unless clause (ii) applies.
                    ``(ii) This clause applies if the President 
                determines that--
                            ``(I) prompt, adequate, and 
                        effective compensation has been or is 
                        being made to the citizen, corporation, 
                        partnership, or association referred to 
                        in clause (i),
                            ``(II) good faith negotiations to 
                        provide prompt, adequate, and effective 
                        compensation under the applicable 
                        provisions of international law are in 
                        progress, or the country described in 
                        clause (i) is otherwise taking steps to 
                        discharge its obligations under 
                        international law with respect to such 
                        citizen, corporation, partnership, or 
                        association, or
                            ``(III) a dispute involving such 
                        citizen, corporation, partnership, or 
                        association over compensation for such 
                        a seizure has been submitted to 
                        arbitration under the provisions of the 
                        Convention for the Settlement of 
                        Investment Disputes, or in another 
                        mutually agreed upon forum,
                and the President promptly furnishes a copy of 
                such determination to the Senate and House of 
                Representatives.
                    ``(E) Such country fails to act in good 
                faith in recognizing as binding or in enforcing 
                arbitral awards in favor of United States 
                citizens or a corporation, partnership, or 
                association which is 50 percent or more 
                beneficially owned by United States citizens, 
                which have been made by arbitrators appointed 
                for each case or by permanent arbitral bodies 
                to which the parties involved have submitted 
                their dispute.
                    ``(F) Such country aids or abets, by 
                granting sanctuary from prosecution to, any 
                individual or group which has committed an act 
                of international terrorism.
                    ``(G) Such country has not taken or is not 
                taking steps to afford internationally 
                recognized worker rights to workers in the 
                country (including any designated zone in that 
                country).
        Subparagraphs (D), (E), (F), and (G) shall not prevent 
        the designation of any country as a beneficiary 
        developing country under this title if the President 
        determines that such designation will be in the 
        national economic interest of the United States and 
        reports such determination to the Congress with the 
        reasons therefor.
    ``(c) Factors Affecting Country Designation.--In 
determining whether to designate any country as a beneficiary 
developing country under this title, the President shall take 
into account--
            ``(1) an expression by such country of its desire 
        to be so designated;
            ``(2) the level of economic development of such 
        country, including its per capita gross national 
        product, the living standards of its inhabitants, and 
        any other economic factors which the President deems 
        appropriate;
            ``(3) whether or not other major developed 
        countries are extending generalized preferential tariff 
        treatment to such country;
            ``(4) the extent to which such country has assured 
        the United States that it will provide equitable and 
        reasonable access to the markets and basic commodity 
        resources of such country and the extent to which such 
        country has assured the United States that it will 
        refrain from engaging in unreasonable export practices;
            ``(5) the extent to which such country is providing 
        adequate and effective protection of intellectual 
        property rights;
            ``(6) the extent to which such country has taken 
        action to--
                    ``(A) reduce trade distorting investment 
                practices and policies (including export 
                performance requirements); and
                    ``(B) reduce or eliminate barriers to trade 
                in services; and
            ``(7) whether or not such country has taken or is 
        taking steps to afford to workers in that country 
        (including any designated zone in that country) 
        internationally recognized worker rights.
    ``(d) Withdrawal, Suspension, or Limitation of Country 
Designation.--
            ``(1) In general.--The President may withdraw, 
        suspend, or limit the application of the duty-free 
        treatment accorded under this title with respect to any 
        country. In taking any action under this subsection, 
        the President shall consider the factors set forth in 
        section 501 and subsection (c) of this section.
            ``(2) Changed circumstances.--The President shall, 
        after complying with the requirements of subsection 
        (f)(2), withdraw or suspend the designation of any 
        country as a beneficiary developing country if, after 
        such designation, the President determines that as the 
        result of changed circumstances such country would be 
        barred from designation as a beneficiary developing 
        country under subsection (b)(2). Such country shall 
        cease to be a beneficiary developing country on the day 
        on which the President issues an Executive order or 
        Presidential proclamation revoking the designation of 
        such country under this title.
            ``(3) Advice to congress.--The President shall, as 
        necessary, advise the Congress on the application of 
        section 501 and subsection (c) of this section, and the 
        actions the President has taken to withdraw, to 
        suspend, or to limit the application of duty-free 
        treatment with respect to any country which has failed 
        to adequately take the actions described in subsection 
        (c).
    ``(e) Mandatory Graduation of Beneficiary Developing 
Countries.--If the President determines that a beneficiary 
developing country has become a `high income' country, as 
defined by the official statistics of the International Bank 
for Reconstruction and Development, then the President shall 
terminate the designation of such country as a beneficiary 
developing country for purposes of this title, effective on 
January 1 of the second year following the year in which such 
determination is made.
    ``(f) Congressional Notification.--
            ``(1) Notification of designation.--
                    ``(A) In general.--Before the President 
                designates any country as a beneficiary 
                developing country under this title, the 
                President shall notify the Congress of the 
                President's intention to make such designation, 
                together with the considerations entering into 
                such decision.
                    ``(B) Designation as least-developed 
                beneficiary developing country.--At least 60 
                days before the President designates any 
                country as a least-developed beneficiary 
                developing country, the President shall notify 
                the Congress of the President's intention to 
                make such designation.
            ``(2) Notification of termination.--If the 
        President has designated any country as a beneficiary 
        developing country under this title, the President 
        shall not terminate such designation unless, at least 
        60 days before such termination, the President has 
        notified the Congress and has notified such country of 
        the President's intention to terminate such 
        designation, together with the considerations entering 
        into such decision.

``SEC. 503. DESIGNATION OF ELIGIBLE ARTICLES.

    ``(a) Eligible Articles.--
            ``(1) Designation.--
                    ``(A) In general.--Except as provided in 
                subsection (b), the President is authorized to 
                designate articles as eligible articles from 
                all beneficiary developing countries for 
                purposes of this title by Executive order or 
                Presidential proclamation after receiving the 
                advice of the International Trade Commission in 
                accordance with subsection (e).
                    ``(B) Least-developed beneficiary 
                developing countries.--Except for articles 
                described in subparagraphs (A), (B), and (E) of 
                subsection (b)(1) and articles described in 
                paragraphs (2) and (3) of subsection (b), the 
                President may, in carrying out section 
                502(d)(1) and subsection (c)(1) of this 
                section, designate articles as eligible 
                articles only for countries designated as 
                least-developed beneficiary developing 
                countries under section 502(a)(2) if, after 
                receiving the advice of the International Trade 
                Commission in accordance with subsection (e) of 
                this section, the President determines that 
                such articles are not import-sensitive in the 
                context of imports from least-developed 
                beneficiary developing countries.
                    ``(C) Three-year rule.--If, after receiving 
                the advice of the International Trade 
                Commission under subsection (e), an article has 
                been formally considered for designation as an 
                eligible article under this title and denied 
                such designation, such article may not be 
                reconsidered for such designation for a period 
                of 3 years after such denial.
            ``(2) Rule of origin.--
                    ``(A) General rule.--The duty-free 
                treatment provided under this title shall apply 
                to any eligible article which is the growth, 
                product, or manufacture of a beneficiary 
                developing country if--
                            ``(i) that article is imported 
                        directly from a beneficiary developing 
                        country into the customs territory of 
                        the United States; and
                            ``(ii) the sum of--
                                    ``(I) the cost or value of 
                                the materials produced in the 
                                beneficiary developing country 
                                or any two or more such 
                                countries that are members of 
                                the same association of 
                                countries and are treated as 
                                one country under section 
                                507(2), plus
                                    ``(II) the direct costs of 
                                processing operations performed 
                                in such beneficiary developing 
                                country or such member 
                                countries,
                        is not less than 35 percent of the 
                        appraised value of such article at the 
                        time it is entered.
                    ``(B) Exclusions.--An article shall not be 
                treated as the growth, product, or manufacture 
                of a beneficiary developing country by virtue 
                of having merely undergone--
                            ``(i) simple combining or packaging 
                        operations, or
                            ``(ii) mere dilution with water or 
                        mere dilution with another substance 
                        that does not materially alter the 
                        characteristics of the article.
            ``(3) Regulations.--The Secretary of the Treasury, 
        after consulting with the United States Trade 
        Representative, shall prescribe such regulations as may 
        be necessary to carry out paragraph (2), including, but 
        not limited to, regulations providing that, in order to 
        be eligible for duty-free treatment under this title, 
        an article--
                    ``(A) must be wholly the growth, product, 
                or manufacture of a beneficiary developing 
                country, or
                    ``(B) must be a new or different article of 
                commerce which has been grown, produced, or 
                manufactured in the beneficiary developing 
                country.
    ``(b) Articles That May Not Be Designated As Eligible 
Articles.--
            ``(1) Import sensitive articles.--The President may 
        not designate any article as an eligible article under 
        subsection (a) if such article is within one of the 
        following categories of import-sensitive articles:
                    ``(A) Textile and apparel articles which 
                were not eligible articles for purposes of this 
                title on January 1, 1994, as this title was in 
                effect on such date.
                    ``(B) Watches, except those watches entered 
                after June 30, 1989, that the President 
                specifically determines, after public notice 
                and comment, will not cause material injury to 
                watch or watch band, strap, or bracelet 
                manufacturing and assembly operations in the 
                United States or the United States insular 
                possessions.
                    ``(C) Import-sensitive electronic articles.
                    ``(D) Import-sensitive steel articles.
                    ``(E) Footwear, handbags, luggage, flat 
                goods, work gloves, and leather wearing apparel 
                which were not eligible articles for purposes 
                of this title on January 1, 1995, as this title 
                was in effect on such date.
                    ``(F) Import-sensitive semimanufactured and 
                manufactured glass products.
                    ``(G) Any other articles which the 
                President determines to be import-sensitive in 
                the context of the Generalized System of 
                Preferences.
            ``(2) Articles against which other actions taken.--
        An article shall not be an eligible article for 
        purposes of this title for any period during which such 
        article is the subject of any action proclaimed 
        pursuant to section 203 of this Act (19 U.S.C. 2253) or 
        section 232 or 351 of the Trade Expansion Act of 1962 
        (19 U.S.C. 1862, 1981).
            ``(3) Agricultural products.--No quantity of an 
        agricultural product subject to a tariff-rate quota 
        that exceeds the in-quota quantity shall be eligible 
        for duty-free treatment under this title.
    ``(c) Withdrawal, Suspension, or Limitation of Duty-Free 
Treatment; Competitive Need Limitation.--
            ``(1) In general.--The President may withdraw, 
        suspend, or limit the application of the duty-free 
        treatment accorded under this title with respect to any 
        article, except that no rate of duty may be established 
        with respect to any article pursuant to this subsection 
        other than the rate which would apply but for this 
        title. In taking any action under this subsection, the 
        President shall consider the factors set forth in 
        sections 501 and 502(c).
            ``(2) Competitive need limitation.--
                    ``(A) Basis for withdrawal of duty-free 
                treatment.--
                            ``(i) In general.--Except as 
                        provided in clause (ii) and subject to 
                        subsection (d), whenever the President 
                        determines that a beneficiary 
                        developing country has exported 
                        (directly or indirectly) to the United 
                        States during any calendar year 
                        beginning after December 31, 1995--
                                    ``(I) a quantity of an 
                                eligible article having an 
                                appraised value in excess of 
                                the applicable amount for the 
                                calendar year, or
                                    ``(II) a quantity of an 
                                eligible article equal to or 
                                exceeding 50 percent of the 
                                appraised value of the total 
                                imports of that article into 
                                the United States during any 
                                calendar year,
                        the President shall, not later than 
                        July 1 of the next calendar year, 
                        terminate the duty-free treatment for 
                        that article from that beneficiary 
                        developing country.
                            ``(ii) Annual adjustment of 
                        applicable amount.--For purposes of 
                        applying clause (i), the applicable 
                        amount is--
                                    ``(I) for 1996, 
                                $75,000,000, and
                                    ``(II) for each calendar 
                                year thereafter, an amount 
                                equal to the applicable amount 
                                in effect for the preceding 
                                calendar year plus $5,000,000.
                    ``(B) Country defined.--For purposes of 
                this paragraph, the term `country' does not 
                include an association of countries which is 
                treated as one country under section 507(2), 
                but does include a country which is a member of 
                any such association.
                    ``(C) Redesignations.--A country which is 
                no longer treated as a beneficiary developing 
                country with respect to an eligible article by 
                reason of subparagraph (A) may, subject to the 
                considerations set forth in sections 501 and 
                502, be redesignated a beneficiary developing 
                country with respect to such article if imports 
                of such article from such country did not 
                exceed the limitations in subparagraph (A) 
                during the preceding calendar year.
                    ``(D) Least-developed beneficiary 
                developing countries.--Subparagraph (A) shall 
                not apply to any least-developed beneficiary 
                developing country.
                    ``(E) Articles not produced in the united 
                states excluded.--Subparagraph (A)(i)(II) shall 
                not apply with respect to any eligible article 
                if a like or directly competitive article was 
                not produced in the United States on January 1, 
                1995.
                    ``(F) De minimis waivers.--
                            ``(i) In general.--The President 
                        may disregard subparagraph (A)(i)(II) 
                        with respect to any eligible article 
                        from any beneficiary developing country 
                        if the aggregate appraised value of the 
                        imports of such article into the United 
                        States during the preceding calendar 
                        year does not exceed the applicable 
                        amount for such preceding calendar 
                        year.
                            ``(ii) Applicable amount.--For 
                        purposes applying clause (i), the 
                        applicable amount is--
                                    ``(I) for calendar year 
                                1995, $13,000,000, and
                                    ``(II) for each calendar 
                                year thereafter, an amount 
                                equal to the applicable amount 
                                in effect for the preceding 
                                calendar year plus $500,000.
    ``(d) Waiver of Competitive Need Limitation.--
            ``(1) In general.--The President may waive the 
        application of subsection (c)(2) with respect to any 
        eligible article of any beneficiary developing country 
        if, before July 1 of the calendar year beginning after 
        the calendar year for which a determination described 
        in subsection (c)(2)(A) was made with respect to such 
        eligible article, the President--
                    ``(A) receives the advice of the 
                International Trade Commission under section 
                332 of the Tariff Act of 1930 on whether any 
                industry in the United States is likely to be 
                adversely affected by such waiver,
                    ``(B) determines, based on the 
                considerations described in sections 501 and 
                502(c) and the advice described in subparagraph 
                (A), that such waiver is in the national 
                economic interest of the United States, and
                    ``(C) publishes the determination described 
                in subparagraph (B) in the Federal Register.
            ``(2) Considerations by the president.--In making 
        any determination under paragraph (1), the President 
        shall give great weight to--
                    ``(A) the extent to which the beneficiary 
                developing country has assured the United 
                States that such country will provide equitable 
                and reasonable access to the markets and basic 
                commodity resources of such country, and
                    ``(B) the extent to which such country 
                provides adequate and effective protection of 
                intellectual property rights.
            ``(3) Other bases for waiver.--The President may 
        waive the application of subsection (c)(2) if, before 
        July 1 of the calendar year beginning after the 
        calendar year for which a determination described in 
        subsection (c)(2) was made with respect to a 
        beneficiary developing country, the President 
        determines that--
                    ``(A) there has been a historical 
                preferential trade relationship between the 
                United States and such country,
                    ``(B) there is a treaty or trade agreement 
                in force covering economic relations between 
                such country and the United States, and
                    ``(C) such country does not discriminate 
                against, or impose unjustifiable or 
                unreasonable barriers to, United States 
                commerce,
        and the President publishes that determination in the 
        Federal Register.
            ``(4) Limitations on waivers.--
                    ``(A) In general.--The President may not 
                exercise the waiver authority under this 
                subsection with respect to a quantity of an 
                eligible article entered during any calendar 
                year beginning after 1995, the aggregate 
                appraised value of which equals or exceeds 30 
                percent of the aggregate appraised value of all 
                articles that entered duty-free under this 
                title during the preceding calendar year.
                    ``(B) Other waiver limits.--The President 
                may not exercise the waiver authority provided 
                under this subsection with respect to a 
                quantity of an eligible article entered during 
                any calendar year beginning after 1995, the 
                aggregate appraised value of which exceeds 15 
                percent of the aggregate appraised value of all 
                articles that have entered duty-free under this 
                title during the preceding calendar year from 
                those beneficiary developing countries which 
                for the preceding calendar year--
                            ``(i) had a per capita gross 
                        national product (calculated on the 
                        basis of the best available 
                        information, including that of the 
                        International Bank for Reconstruction 
                        and Development) of $5,000 or more; or
                            ``(ii) had exported (either 
                        directly or indirectly) to the United 
                        States a quantity of articles that was 
                        duty-free under this title that had an 
                        aggregate appraised value of more than 
                        10 percent of the aggregate appraised 
                        value of all articles that entered 
                        duty-free under this title during that 
                        year.
                    ``(C) Calculation of limitations.--There 
                shall be counted against the limitations 
                imposed under subparagraphs (A) and (B) for any 
                calendar year only that value of any eligible 
                article of any country that--
                            ``(i) entered duty-free under this 
                        title during such calendar year; and
                            ``(ii) is in excess of the value of 
                        that article that would have been so 
                        entered during such calendar year if 
                        the limitations under subsection 
                        (c)(2)(A) applied.
            ``(5) Effective period of waiver.--Any waiver 
        granted under this subsection shall remain in effect 
        until the President determines that such waiver is no 
        longer warranted due to changed circumstances.
    ``(e) International Trade Commission Advice.--Before 
designating articles as eligible articles under subsection 
(a)(1), the President shall publish and furnish the 
International Trade Commission with lists of articles which may 
be considered for designation as eligible articles for purposes 
of this title. The provisions of sections 131, 132, 133, and 
134 shall be complied with as though action under section 501 
and this section were action under section 123 to carry out a 
trade agreement entered into under section 123.
    ``(f) Special Rule Concerning Puerto Rico.--No action under 
this title may affect any tariff duty imposed by the 
Legislature of Puerto Rico pursuant to section 319 of the 
Tariff Act of 1930 on coffee imported into Puerto Rico.

``SEC. 504. REVIEW AND REPORTS TO CONGRESS.

    ``The President shall submit an annual report to the 
Congress on the status of internationally recognized worker 
rights within each beneficiary developing country.

``SEC. 505. DATE OF TERMINATION.

    ``No duty-free treatment provided under this title shall 
remain in effect after December 31, 1996.

``SEC. 506. AGRICULTURAL EXPORTS OF BENEFICIARY DEVELOPING COUNTRIES.

    ``The appropriate agencies of the United States shall 
assist beneficiary developing countries to develop and 
implement measures designed to assure that the agricultural 
sectors of their economies are not directed to export markets 
to the detriment of the production of foodstuffs for their 
citizenry.

``SEC. 507. DEFINITIONS.

    ``For purposes of this title:
            ``(1) Beneficiary developing country.--The term 
        `beneficiary developing country' means any country with 
        respect to which there is in effect an Executive order 
        or Presidential proclamation by the President 
        designating such country as a beneficiary developing 
        country for purposes of this title.
            ``(2) Country.--The term `country' means any 
        foreign country or territory, including any overseas 
        dependent territory or possession of a foreign country, 
        or the Trust Territory of the Pacific Islands. In the 
        case of an association of countries which is a free 
        trade area or customs union, or which is contributing 
        to comprehensive regional economic integration among 
        its members through appropriate means, including, but 
        not limited to, the reduction of duties, the President 
        may by Executive order or Presidential proclamation 
        provide that all members of such association other than 
        members which are barred from designation under section 
        502(b) shall be treated as one country for purposes of 
        this title.
            ``(3) Entered.--The term `entered' means entered, 
        or withdrawn from warehouse for consumption, in the 
        customs territory of the United States.
            ``(4) Internationally recognized worker rights.--
        The term `internationally recognized worker rights' 
        includes--
                    ``(A) the right of association;
                    ``(B) the right to organize and bargain 
                collectively;
                    ``(C) a prohibition on the use of any form 
                of forced or compulsory labor;
                    ``(D) a minimum age for the employment of 
                children; and
                    ``(E) acceptable conditions of work with 
                respect to minimum wages, hours of work, and 
                occupational safety and health.
            ``(5) Least-developed beneficiary developing 
        country.--The term `least-developed beneficiary 
        developing country' means a beneficiary developing 
        country that is designated as a least-developed 
        beneficiary developing country under section 
        502(a)(2).''.
    (b) Table of Contents.--The items relating to title V in 
the table of contents of the Trade Act of 1974 are amended to 
read as follows:

              ``TITLE V--GENERALIZED SYSTEM OF PREFERENCES

``Sec. 501. Authority to extend preferences.
``Sec. 502. Designation of beneficiary developing countries.
``Sec. 503. Designation of eligible articles.
``Sec. 504. Review and reports to Congress.
``Sec. 505. Date of termination.
``Sec. 506. Agricultural exports of beneficiary developing countries.
``Sec. 507. Definitions.''.

SEC. 11803. RETROACTIVE APPLICATION FOR CERTAIN LIQUIDATIONS AND 
                    RELIQUIDATIONS.

    (a) In General.--Notwithstanding section 514 of the Tariff 
Act of 1930 or any other provision of law and subject to 
subsection (b), the entry--
            (1) of any article to which duty-free treatment 
        under title V of the Trade Act of 1974 would have 
        applied if the entry had been made on July 31, 1995, 
        and
            (2) that was made after July 31, 1995, and before 
        the date of the enactment of this Act,
shall be liquidated or reliquidated as free of duty, and the 
Secretary of the Treasury shall refund any duty paid with 
respect to such entry. As used in this subsection, the term 
``entry'' includes a withdrawal from warehouse for consumption.
    (b) Requests.--Liquidation or reliquidation may be made 
under subsection (a) with respect to an entry only if a request 
therefor is filed with the Customs Service, within 180 days 
after the date of the enactment of this Act, that contains 
sufficient information to enable the Customs Service--
            (1) to locate the entry; or
            (2) to reconstruct the entry if it cannot be 
        located.

SEC. 11804. CONFORMING AMENDMENTS.

    (a) Trade Laws.--
            (1) Section 1211(b) of the Omnibus Trade and 
        Competitiveness Act of 1988 (19 U.S.C. 3011(b)) is 
        amended--
                    (A) in paragraph (1), by striking ``(19 
                U.S.C. 2463(a), 2464(c)(3))'' and inserting 
                ``(as in effect on July 31, 1995)''; and
                    (B) in paragraph (2), by striking ``(19 
                U.S.C. 2464(c)(1))'' and inserting the 
                following: ``(as in effect on July 31, 1995)''.
            (2) Section 203(c)(7) of the Andean Trade 
        Preference Act (19 U.S.C. 3202(c)(7)) is amended by 
        striking ``502(a)(4)'' and inserting ``507(4)''.
            (3) Section 212(b)(7) of the Caribbean Basin 
        Economic Recovery Act (19 U.S.C. 2702(b)(7)) is amended 
        by striking ``502(a)(4)'' and inserting ``507(4)''.
            (4) General note 3(a)(iv)(C) of the Harmonized 
        Tariff Schedule of the United States is amended by 
        striking ``sections 503(b) and 504(c)'' and inserting 
        ``subsections (a), (c), and (d) of section 503''.
            (5) Section 201(a)(2) of the North American Free 
        Trade Agreement Implementation Act (19 U.S.C. 
        3331(a)(2)) is amended by striking ``502(a)(2) of the 
        Trade Act of 1974 (19 U.S.C. 2462(a)(2))'' and 
        inserting ``502(f)(2) of the Trade Act of 1974''.
            (6) Section 131 of the Uruguay Round Agreements Act 
        (19 U.S.C. 3551) is amended in subsections (a) and 
        (b)(1) by striking ``502(a)(4)'' and inserting 
        ``507(4)''.
    (b) Other Laws.--
            (1) Section 871(f)(2)(B) of the Internal Revenue 
        Code of 1986 is amended by striking ``within the 
        meaning of section 502'' and inserting ``under title 
        V''.
            (2) Section 2202(8) of the Export Enhancement Act 
        of 1988 (15 U.S.C. 4711(8)) is amended by striking 
        ``502(a)(4)'' and inserting ``507(4)''.
            (3) Section 231A(a) of the Foreign Assistance Act 
        of 1961 (22 U.S.C. 2191a(a)) is amended--
                    (A) in paragraph (1) by striking 
                ``502(a)(4) of the Trade Act of 1974 (19 U.S.C. 
                2462(a)(4))'' and inserting ``507(4) of the 
                Trade Act of 1974'';
                    (B) in paragraph (2) by striking ``505(c) 
                of the Trade Act of 1974 (19 U.S.C. 2465(c))'' 
                and inserting ``504 of the Trade Act of 1974''; 
                and
                    (C) in paragraph (4) by striking 
                ``502(a)(4)'' and inserting ``507(4)''.
            (4) Section 1621(a)(1) of the International 
        Financial Institutions Act (22 U.S.C. 262p-4p(a)(1)) is 
        amended by striking ``502(a)(4)'' and inserting 
        ``507(4)''.
            (5) Section 103B of the Agricultural Act of 1949 (7 
        U.S.C. 1444-2) is amended in subsections (a)(5)(F)(v) 
        and (n)(1)(C) by striking ``503(d) of the Trade Act of 
        1974 (19 U.S.C. 2463(d))'' and inserting ``503(b)(3) of 
        the Trade Act of 1974''.

               Subtitle M--Increase in Public Debt LImit

SEC. 11901. INCREASE IN PUBLIC DEBT LIMIT.

    Subsection (b) of section 3101 of title 31, United States 
Code, is amended by striking the dollar amount contained in the 
first sentence and inserting ``$5,500,000,000,000'' and by 
striking the second sentence (if any).

  TITLE XII--TEACHING HOSPITALS AND GRADUATE MEDICAL EDUCATION; ASSET 
                  SALES; WELFARE; AND OTHER PROVISIONS

SEC. 12001. SHORT TITLE.

    Subtitles A through K of this title may be cited as the 
``Personal Responsibility and Work Opportunity Act of 1995''.

SEC. 12002. TABLE OF CONTENTS.

    The table of contents of subtitles A through L of this 
title is as follows:
Sec. 12001. Short title.
Sec. 12002. Table of contents.

  Subtitle A--Block Grants for Temporary Assistance for Needy Families

Sec. 12100. References to the Social Security Act.
Sec. 12101. Block grants to States.
Sec. 12102. Report on data processing.
Sec. 12103. Conforming amendments to the Social Security Act.
Sec. 12104. Conforming amendments to the Food Stamp Act of 1977 and 
          related provisions.
Sec. 12105. Conforming amendments to other laws.
Sec. 12106. Effective date; transition rule.

                Subtitle B--Supplemental Security Income

Sec. 12200. Reference to Social Security Act.

                   Chapter 1--Eligibility Restrictions

Sec. 12201. Denial of supplemental security income benefits by reason of 
          disability to drug addicts and alcoholics.
Sec. 12202. Denial of SSI benefits for 10 years to individuals found to 
          have fraudulently misrepresented residence in order to obtain 
          benefits simultaneously in 2 or more States.
Sec. 12203. Denial of SSI benefits for fugitive felons and probation and 
          parole violators.

                Chapter 2--Benefits for Disabled Children

Sec. 12211. Definition and eligibility rules.
Sec. 12212. Eligibility redeterminations and continuing disability 
          reviews.
Sec. 12213. Additional accountability requirements.
Sec. 12214. Reduction in cash benefits payable to institutionalized 
          individuals whose medical costs are covered by private 
          insurance.
Sec. 12215. Regulations.

                        Subtitle C--Child Support

Sec. 12300. Reference to Social Security Act.

      Chapter 1--Eligibility for Services; Distribution of Payments

Sec. 12301. State obligation to provide child support enforcement 
          services.
Sec. 12302. Distribution of child support collections.
Sec. 12303. Privacy safeguards.

                   Chapter 2--Locate and Case Tracking

Sec. 12311. State case registry.
Sec. 12312. Collection and disbursement of support payments.
Sec. 12313. State directory of new hires.
Sec. 12314. Amendments concerning income withholding.
Sec. 12315. Locator information from interstate networks.
Sec. 12316. Expansion of the Federal parent locator service.
Sec. 12317. Collection and use of social security numbers for use in 
          child support enforcement.

          Chapter 3--Streamlining and Uniformity of Procedures

Sec. 12321. Adoption of uniform State laws.
Sec. 12322. Improvements to full faith and credit for child support 
          orders.
Sec. 12323. Administrative enforcement in interstate cases.
Sec. 12324. Use of forms in interstate enforcement.
Sec. 12325. State laws providing expedited procedures.

                   Chapter 4--Paternity Establishment

Sec. 12331. State laws concerning paternity establishment.
Sec. 12332. Outreach for voluntary paternity establishment.
Sec. 12333. Cooperation by applicants for and recipients of temporary 
          family assistance.

              Chapter 5--Program Administration and Funding

Sec. 12341. Performance-based incentives and penalties.
Sec. 12342. Federal and State reviews and audits.
Sec. 12343. Required reporting procedures.
Sec. 12344. Automated data processing requirements.
Sec. 12345. Technical assistance.
Sec. 12346. Reports and data collection by the Secretary.

       Chapter 6--Establishment and Modification of Support Orders

Sec. 12351. Simplified process for review and adjustment of child 
          support orders.
Sec. 12352. Furnishing consumer reports for certain purposes relating to 
          child support.
Sec. 12353. Nonliability for financial institutions providing financial 
          records to State child support enforcement agencies in child 
          support cases.

                Chapter 7--Enforcement of Support Orders

Sec. 12361. Internal Revenue Service collection of arrearages.
Sec. 12362. Authority to collect support from Federal employees.
Sec. 12363. Enforcement of child support obligations of members of the 
          Armed Forces.
Sec. 12364. Voiding of fraudulent transfers.
Sec. 12365. Work requirement for persons owing past-due child support.
Sec. 12366. Definition of support order.
Sec. 12367. Reporting arrearages to credit bureaus.
Sec. 12368. Liens.
Sec. 12369. State law authorizing suspension of licenses.
Sec. 12370. International child support enforcement.
Sec. 12371. Financial institution data matches.
Sec. 12372. Enforcement of orders against paternal or maternal 
          grandparents in cases of minor parents.

                       Chapter 8--Medical Support

Sec. 12376. Correction to ERISA definition of medical child support 
          order.
Sec. 12377. Enforcement of orders for health care coverage.

Chapter 9--Enhancing Responsibility and Opportunity for Non-Residential 
                                 Parents

Sec. 12381. Grants to States for access and visitation programs.

                     Chapter 10--Effect of Enactment

Sec. 12391. Effective dates.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens

               Chapter 1--Eligibility for Federal Benefits

Sec. 12401. Aliens who are not qualified aliens ineligible for Federal 
          public benefits.
Sec. 12402. Limited eligibility of certain qualified aliens for certain 
          Federal programs.
Sec. 12403. Five-year limited eligibility of qualified aliens for 
          Federal means-tested public benefit.

       Chapter 2--Attribution of Income and Affidavits of Support

Sec. 12421. Attribution of sponsor's income and resources to alien.
Sec. 12422. Requirements for sponsor's affidavit of support.
Sec. 12423. Cosignature of alien student loans.

                      Chapter 3--General Provisions

Sec. 12431. Definitions.
Sec. 12432. Reapplication for SSI benefits.
Sec. 12433. Statutory construction.

 Subtitle E--Teaching Hospital and Graduate Medical Education Trust Fund

                          Chapter 1--Trust Fund

Sec. 13501. Establishment of Fund; payments to teaching hospitals.

                Chapter 2--Amendments to Medicare Program

Sec. 13511. Transfer of funds.

                 Subtitle F--National Defense Stockpile

Sec. 12601. Disposal of certain materials in national defense stockpile 
          for deficit reduction.

  Subtitle G--Child Protection Block Grant Program and Foster Care and 
                           Adoption Assistance

Sec. 12701. Establishment of program.
Sec. 12702. Conforming amendments.
Sec. 12703. Effective date; transition rule.

                         Subtitle H--Child Care

Sec. 12801. Short title and references.
Sec. 12802. Authorization of appropriations.
Sec. 12803. Lead agency.
Sec. 12804. Application and plan.
Sec. 12805. Limitation on State allotments.
Sec. 12806. Activities to improve the quality of child care.
Sec. 12807. Administration and enforcement.
Sec. 12808. Payments.
Sec. 12809. Annual report and audits.
Sec. 12810. Allotments.
Sec. 12811. Definitions.

                  Subtitle I--Child Nutrition Programs

                  Chapter 1--National School Lunch Act

Sec. 12901. Termination of additional payment for lunches served in high 
          free and reduced price participation schools.
Sec. 12902. Direct Federal expenditures.
Sec. 12903. Value of food assistance.
Sec. 12904. Reduced price lunches.
Sec. 12905. Lunches, breakfasts, and supplements.
Sec. 12906. Summer food service program for children.
Sec. 12907. Child care food program.
Sec. 12908. Pilot projects.
Sec. 12909. Information clearinghouse.

                     Chapter 2--Child Nutrition Act

Sec. 12921. Special milk program.
Sec. 12922. Free and reduced price breakfasts.
Sec. 12923. Conforming reimbursement for paid breakfasts and lunches.
Sec. 12924. School breakfast program authorization.
Sec. 12925. Miscellaneous provisions and definitions.
Sec. 12926. Nutrition education and training.

           Subtitle J--Food Stamps and Commodity Distribution

Sec. 13001. Short title.

                      Chapter 1--Food Stamp Program

Sec. 13011. Definition of certification period.
Sec. 13012. Definition of coupon.
Sec. 13013. Treatment of children living at home.
Sec. 13014. Optional additional criteria for separate household 
          determinations.
Sec. 13015. Adjustment of thrifty food plan.
Sec. 13016. Definition of homeless individual.
Sec. 13017. State option for eligibility standards.
Sec. 13018. Earnings of students.
Sec. 13019. Energy assistance.
Sec. 13020. Deductions from income.
Sec. 13021. Vehicle allowance.
Sec. 13022. Vendor payments for transitional housing counted as income.
Sec. 13023. Doubled penalties for violating food stamp program 
          requirements.
Sec. 13024. Disqualification of convicted individuals.
Sec. 13025. Disqualification.
Sec. 13026. Caretaker exemption.
Sec. 13027. Employment and training.
Sec. 13028. Comparable treatment for disqualification.
Sec. 13029. Disqualification for receipt of multiple food stamp 
          benefits.
Sec. 13030. Disqualification of fleeing felons.
Sec. 13031. Cooperation with child support agencies.
Sec. 13032. Disqualification relating to child support arrears.
Sec. 13033. Work requirement.
Sec. 13034. Encourage electronic benefit transfer systems.
Sec. 13035. Value of minimum allotment.
Sec. 13036. Benefits on recertification.
Sec. 13037. Optional combined allotment for expedited households.
Sec. 13038. Failure to comply with other means-tested public assistance 
          programs.
Sec. 13039. Allotments for households residing in centers.
Sec. 13040. Condition precedent for approval of retail food stores and 
          wholesale food concerns.
Sec. 13041. Authority to establish authorization periods.
Sec. 13042. Information for verifying eligibility for authorization.
Sec. 13043. Waiting period for stores that fail to meet authorization 
          criteria.
Sec. 13044. Expedited coupon service.
Sec. 13045. Withdrawing fair hearing requests.
Sec. 13046. Disqualification of retailers who intentionally submit 
          falsified applications.
Sec. 13047. Disqualification of retailers who are disqualified under the 
          WIC program.
Sec. 13048. Collection of overissuances.
Sec. 13049. Authority to suspend stores violating program requirements 
          pending administrative and judicial review.
Sec. 13050. Limitation of Federal match.
Sec. 13051. Work supplementation or support program.
Sec. 13052. Authorization of pilot projects.
Sec. 13053. Employment initiatives program.
Sec. 13054. Reauthorization of Puerto Rico nutrition assistance program.
Sec. 13055. Simplified food stamp program.
Sec. 13056. State food assistance block grant.
Sec. 13057. American Samoa.
Sec. 13058. Assistance for community food projects.

               Chapter 2--Commodity Distribution Programs

Sec. 13071. Emergency food assistance program.

                        Subtitle K--Miscellaneous

Sec. 13101. Food stamp eligibility.
Sec. 13102. Reduction in block grants for social services.

             Subtitle L--Reform of the Earned Income Credit

Sec. 13200. Amendment of 1986 code.
Sec. 13201. Earned income credit denied to individuals not authorized to 
          be employed in the United States.
Sec. 13202. Repeal of earned income credit for individuals without 
          children.
Sec. 13203. Modification of earned income credit amount and phaseout.
Sec. 13204. Rules relating to denial of earned income credit on basis of 
          disqualified income.
Sec. 13205. Modification of adjusted gross income definition for earned 
          income credit.
Sec. 13206. Provisions to improve tax compliance.

                    Subtitle M--Clinical Laboratories

Sec. 13301. Exemption of physician office laboratories.

  Subtitle A--Block Grants for Temporary Assistance for Needy Families

SEC. 12100. REFERENCES TO THE SOCIAL SECURITY ACT.

    Except as otherwise specifically provided, wherever in this 
subtitle an amendment is expressed in terms of an amendment to 
or repeal of a section or other provision, the reference shall 
be considered to be made to that section or other provision of 
the Social Security Act.

SEC. 12101. BLOCK GRANTS TO STATES.

    Part A of title IV (42 U.S.C. 601 et seq.) is amended to 
read as follows:

  ``PART A--BLOCK GRANTS TO STATES FOR TEMPORARY ASSISTANCE FOR NEEDY 
                                FAMILIES

``SEC. 401. ELIGIBLE STATES; STATE PLAN.

    ``(a) In General.--As used in this part, the term `eligible 
State' means, with respect to a fiscal year, a State that, 
during the 2-year period immediately preceding the fiscal year, 
has submitted to the Secretary a plan that includes the 
following:
            ``(1) Outline of family assistance program.--
                    ``(A) General provisions.--A written 
                document that outlines how the State intends to 
                do the following:
                            ``(i) Conduct a program, designed 
                        to serve all political subdivisions in 
                        the State, that provides assistance to 
                        needy families with (or expecting) 
                        children and provides parents with job 
                        preparation, work, and support services 
                        to enable them to leave the program and 
                        become self-sufficient.
                            ``(ii) Require a parent or 
                        caretaker receiving assistance under 
                        the program to engage in work (as 
                        defined by the State) once the State 
                        determines the parent or caretaker is 
                        ready to engage in work, or once the 
                        parent or caretaker has received 
                        assistance under the program for 24 
                        months (whether or not consecutive), 
                        whichever is earlier.
                            ``(iii) Ensure that parents and 
                        caretakers receiving assistance under 
                        the program engage in work activities 
                        in accordance with section 406.
                            ``(iv) Take such reasonable steps 
                        as the State deems necessary to 
                        restrict the use and disclosure of 
                        information about individuals and 
                        families receiving assistance under the 
                        program.
                            ``(v) Establish goals and take 
                        action to prevent and reduce the 
                        incidence of out-of-wedlock 
                        pregnancies, with special emphasis on 
                        teenage pregnancies, and establish 
                        numerical goals for reducing the 
                        illegitimacy ratio of the State (as 
                        defined in section 402(a)(2)(B)) for 
                        calendar years 1996 through 2005.
                    ``(B) Special provisions.--
                            ``(i) The document shall indicate 
                        whether the State intends to treat 
                        families moving into the State from 
                        another State differently than other 
                        families under the program, and if so, 
                        how the State intends to treat such 
                        families under the program.
                            ``(ii) The document shall indicate 
                        whether the State intends to provide 
                        assistance under the program to 
                        individuals who are not citizens of the 
                        United States, and if so, shall include 
                        an overview of such assistance.
            ``(2) Certification that the state will operate a 
        child support enforcement program.--A certification by 
        the chief executive officer of the State that, during 
        the fiscal year, the State will operate a child support 
        enforcement program under the State plan approved under 
        part D.
            ``(3) Certification that the state will operate a 
        child protection program.--A certification by the chief 
        executive officer of the State that, during the fiscal 
        year, the State will operate a child protection program 
        under the State plan approved under part B.
            ``(4) Certification of the administration of the 
        program.--A certification by the chief executive 
        officer of the State specifying which State agency or 
        agencies will administer and supervise the program 
        referred to in paragraph (1) for the fiscal year, which 
        shall include assurances that local governments and 
        private sector organizations--
                    ``(A) have been consulted regarding the 
                plan and design of welfare services in the 
                State so that services are provided in a manner 
                appropriate to local populations; and
                    ``(B) have had at least 60 days to submit 
                comments on the plan and the design of such 
                services.
            ``(5) Certification that the state will provide 
        indians with equitable access to assistance.--A 
        certification by the chief executive officer of the 
        State that, during the fiscal year, the State will 
        provide each Indian who is a member of an Indian tribe 
        in the State that does not have a tribal family 
        assistance plan approved under section 411 with 
        equitable access to assistance under the State program 
        funded under this part.
    ``(b) Special Rule for Fiscal Year 1996.--Notwithstanding 
subsection (a), the term `eligible State' means, with respect 
to fiscal year 1996, a State that has submitted to the 
Secretary a plan described in subsection (a) within 3 months 
after the date of the enactment of this part.
    ``(c) Public Availability of State Plan Summary.--The State 
shall make available to the public a summary of any plan 
submitted by the State under this section.

``SEC. 402. PAYMENTS TO STATES.

    ``(a) Grants.--
            ``(1) Family assistance grant.--
                    ``(A) In general.--Each eligible State 
                shall be entitled to receive from the 
                Secretary, for each of fiscal years 1996, 1997, 
                1998, 1999, and 2000, a grant in an amount 
                equal to the State family assistance grant. The 
                payment of these grants to States shall not be 
                deemed to entitle any individual or family to 
                any assistance under any State program funded 
                under this part.
                    ``(B) State family assistance grant 
                defined.--As used in this part, the term `State 
                family assistance grant' means the greatest 
                of--
                            ``(i) \1/3\ of the total amount 
                        required to be paid to the State under 
                        section 403 of this title (as in effect 
                        on September 30, 1995) for fiscal years 
                        1992, 1993, and 1994 (other than with 
                        respect to amounts expended by the 
                        State for child care under subsection 
                        (g) or (i) of section 402 (as so in 
                        effect));
                            ``(ii) the total amount required to 
                        be paid to the State under such section 
                        403 for fiscal year 1994 (other than 
                        with respect to amounts expended by the 
                        State for child care under subsection 
                        (g) or (i) of section 402 (as so in 
                        effect)); or
                            ``(iii) \4/3\ of the total amount 
                        required to be paid to the State under 
                        such section 403 for the 1st 3 quarters 
                        of fiscal year 1995 (other than with 
                        respect to amounts expended by the 
                        State under the State plan approved 
                        under part F (as so in effect) or for 
                        child care under subsection (g) or (i) 
                        of section 402 (as so in effect)), plus 
                        the total amount required to be paid to 
                        the State for fiscal year 1995 under 
                        section 403(l) (as so in effect).
            ``(2) Grant to reward states that reduce out-of-
        wedlock births.--
                    ``(A) In general.--In addition to any grant 
                under paragraph (1), each eligible State shall 
                be entitled to receive from the Secretary for 
                fiscal year 1998 or any succeeding fiscal year, 
                a grant in an amount equal to the State family 
                assistance grant multiplied by--
                            ``(i) 5 percent if--
                                    ``(I) the illegitimacy 
                                ratio of the State for the 
                                fiscal year is at least 1 
                                percentage point lower than the 
                                illegitimacy ratio of the State 
                                for fiscal year 1995; and
                                    ``(II) the rate of induced 
                                pregnancy terminations in the 
                                State for the fiscal year is 
                                less than the rate of induced 
                                pregnancy terminations in the 
                                State for fiscal year 1995; or
                            ``(ii) 10 percent--
                                    ``(I) if the illegitimacy 
                                ratio of the State for the 
                                fiscal year is at least 2 
                                percentage points lower than 
                                the illegitimacy ratio of the 
                                State for fiscal year 1995; and
                                    ``(II) the rate of induced 
                                pregnancy terminations in the 
                                State for the fiscal year is 
                                less than the rate of induced 
                                pregnancy terminations in the 
                                State for fiscal year 1995.
                    ``(B) Illegitimacy ratio.--As used in this 
                paragraph, the term `illegitimacy ratio' means, 
                with respect to a State and a fiscal year--
                            ``(i) the number of out-of-wedlock 
                        births that occurred in the State 
                        during the most recent fiscal year for 
                        which such information is available; 
                        divided by
                            ``(ii) the number of births that 
                        occurred in the State during the most 
                        recent fiscal year for which such 
                        information is available.
                    ``(C) Disregard of changes in data due to 
                changed reporting methods.--For purposes of 
                subparagraph (A), the Secretary shall 
                disregard--
                            ``(i) any difference between the 
                        illegitimacy ratio of a State for a 
                        fiscal year and the illegitimacy ratio 
                        of the State for fiscal year 1995 which 
                        is attributable to a change in State 
                        methods of reporting data used to 
                        calculate the illegitimacy ratio; and
                            ``(ii) any difference between the 
                        rate of induced pregnancy terminations 
                        in a State for a fiscal year and such 
                        rate for fiscal year 1995 which is 
                        attributable to a change in State 
                        methods of reporting data used to 
                        calculate such rate.
            ``(3) Supplemental grant for population increases 
        in certain states.--
                    ``(A) In general.--In addition to any grant 
                under paragraph (1), each qualifying State 
                shall, subject to subparagraph (E), be entitled 
                to receive from the Secretary for each of 
                fiscal years 1997, 1998, 1999, and 2000, a 
                grant in an amount equal to the sum of--
                            ``(i) the amount (if any) required 
                        to be paid to the State under this 
                        paragraph for the immediately preceding 
                        fiscal year; and
                            ``(ii) 2.5 percent of the sum of--
                                    ``(I) the total amount 
                                required to be paid to the 
                                State under part A (as in 
                                effect during fiscal year 1994) 
                                for fiscal year 1994; and
                                    ``(II) the amount (if any) 
                                required to be paid to the 
                                State under this paragraph for 
                                the fiscal year preceding the 
                                fiscal year specified in the 
                                matter preceding clause (i).
                    ``(B) Qualifying state.--
                            ``(i) In general.--For purposes of 
                        this paragraph, a State is a qualifying 
                        State for a fiscal year if--
                                    ``(I) the level of welfare 
                                spending per poor person by the 
                                State for the immediately 
                                preceding fiscal year is less 
                                than the national average level 
                                of State welfare spending per 
                                poor person for such preceding 
                                fiscal year; and
                                    ``(II) the population 
                                growth rate of the State (as 
                                determined by the Bureau of the 
                                Census for the most recent 
                                fiscal year for which 
                                information is available 
                                exceeds the average population 
                                growth rate for all States (as 
                                so determined) for such most 
                                recent fiscal year.
                            ``(ii) State must qualify in fiscal 
                        year 1997.--Notwithstanding clause (i), 
                        a State shall not be a qualifying State 
                        for any fiscal year after 1997 by 
                        reason of clause (i) if the State is 
                        not a qualifying State for fiscal year 
                        1997 by reason of clause (i).
                            ``(iii) Certain states deemed 
                        qualifying states.--For purposes of 
                        this paragraph, a State is deemed to be 
                        a qualifying State for fiscal years 
                        1997, 1998, 1999, and 2000 if--
                                    ``(I) the level of welfare 
                                spending per poor person by the 
                                State for fiscal year 1996 is 
                                less than 35 percent of the 
                                national average level of State 
                                welfare spending per poor 
                                person for fiscal year 1996; or
                                    ``(II) the population of 
                                the State increased by more 
                                than 10 percent from April 1, 
                                1990 to July 1, 1994, as 
                                determined by the Bureau of the 
                                Census.
                    ``(C) Definitions.--As used in this 
                paragraph:
                            ``(i) Level of welfare spending per 
                        poor person.--The term `level of State 
                        welfare spending per poor person' 
                        means, with respect to a State and a 
                        fiscal year--
                                    ``(I) the sum of--
                                            ``(aa) the total 
                                        amount required to be 
                                        paid to the State under 
                                        part A (as in effect 
                                        during fiscal year 
                                        1994) for fiscal year 
                                        1994; and
                                            ``(bb) the amount 
                                        (if any) paid to the 
                                        State under this 
                                        paragraph for the 
                                        immediately preceding 
                                        fiscal year; divided by
                                    ``(II) the number of 
                                individuals, according to the 
                                1990 decennial census, who were 
                                residents of the State and 
                                whose income was below the 
                                poverty line.
                            ``(ii) National average level of 
                        state welfare spending per poor 
                        person.--The term `national average 
                        level of State welfare spending per 
                        poor person' means, with respect to a 
                        fiscal year, an amount equal to--
                                    ``(I) the total amount 
                                required to be paid to the 
                                States under part A (as in 
                                effect during fiscal year 1994) 
                                for fiscal year 1994; divided 
                                by
                                    ``(II) the number of 
                                individuals, according to the 
                                1990 decennial census, who were 
                                residents of any State and 
                                whose income was below the 
                                poverty line.
                            ``(iii) State.--The term `State' 
                        means each of the 50 States of the 
                        United States and the District of 
                        Columbia.
                    ``(D) Appropriation.--Out of any money in 
                the Treasury of the United States not otherwise 
                appropriated, there are appropriated 1996, 
                1997, 1998, 1999, and 2000 such sums as are 
                necessary for grants under this paragraph, in a 
                total amount not to exceed $800,000,000.
                    ``(E) Grants reduced pro rata if 
                insufficient appropriations.--If the amount 
                appropriated pursuant to this paragraph for a 
                fiscal year is less than the total amount of 
                payments otherwise required to be made under 
                this paragraph for the fiscal year, then the 
                amount otherwise payable to each qualifying 
                State for the fiscal year under this paragraph 
                shall be reduced by a percentage equal to the 
                amount so appropriated divided by such total 
                amount.
    ``(b) Contingency Fund.--
            ``(1) Establishment.--There is hereby established 
        in the Treasury of the United States a fund which shall 
        be known as the `Contingency Fund for State Welfare 
        Programs' (in this section referred to as the `Fund').
            ``(2) Deposits into fund.--Out of any money in the 
        Treasury of the United States not otherwise 
        appropriated, there are appropriated for fiscal years 
        1996, 1997, 1998, 1999, and 2000 such sums as are 
        necessary for payment to the Fund in a total amount not 
        to exceed $800,000,000.
            ``(3) Computation of grant.--
                    ``(A) In general.--Subject to subparagraph 
                (B), the Secretary of the Treasury shall pay to 
                each eligible State for a fiscal year an amount 
                equal to the Federal medical assistance 
                percentage for the State for the fiscal year 
                (as defined in section 1905(b), as in effect on 
                the date of the enactment of this part) of so 
                much of the expenditures by the State in the 
                fiscal year under the State program funded 
                under this part as exceed the historic State 
                expenditures (as defined in section 
                408(a)(7)(B)(iii)) for the State.
                    ``(B) Limitation.--The total amount paid to 
                a State under subparagraph (A) for any fiscal 
                year shall not exceed an amount equal to 20 
                percent of the State family assistance grant 
                for the fiscal year.
                    ``(C) Method of reconciliation.--If, at the 
                end of any fiscal year, the Secretary finds 
                that a State to which amounts from the Fund 
                were paid in the fiscal year did not meet the 
                maintenance of effort requirement under 
                paragraph (4)(B) for the fiscal year, the 
                Secretary shall reduce the grant payable to the 
                State under subsection (a)(1) for the 
                immediately succeeding fiscal year by such 
                amounts.
            ``(4) Eligible state.--
                    ``(A) In general.--For purposes of this 
                subsection, a State is an eligible State for a 
                fiscal year, if--
                            ``(i)(I) the average rate of total 
                        unemployment in such State (seasonally 
                        adjusted) for the period consisting of 
                        the most recent 3 months for which data 
                        for all States are published equals or 
                        exceeds 6.5 percent; and
                            ``(II) the average rate of total 
                        unemployment in such State (seasonally 
                        adjusted) for the 3-month period equals 
                        or exceeds 110 percent of such average 
                        rate for either (or both) of the 
                        corresponding 3-month periods ending in 
                        the 2 preceding calendar years; and
                            ``(ii) has met the maintenance of 
                        effort requirement under subparagraph 
                        (B) for the State program funded under 
                        this part for the fiscal year.
                    ``(B) Maintenance of effort.--The 
                maintenance of effort requirement for any State 
                under this subparagraph for any fiscal year is 
                the expenditure by the State during the fiscal 
                year of an amount at least equal to 100 percent 
                of the level of historic State expenditures for 
                the State (as determined under section 408(e)).
            ``(5) State.--As used in this subsection, the term 
        `State' means each of the 50 States of the United 
        States and the District of Columbia.
    ``(c) Condition of Grant.--
            ``(1) In general.--Notwithstanding any other 
        provision of this section, as a condition of receiving 
        a grant under this section, a State shall not provide 
        cash assistance to a family that includes an adult who 
        has received assistance under any State program funded 
        under this part for 60 months (whether or not 
        consecutive) after September 30, 1995, except as 
        provided in paragraphs (2) and (3).
            ``(2) Minor child exception.--In determining the 
        number of months for which an individual who is a 
        parent or pregnant, as the case may be, has received 
        assistance under the State program funded under this 
        part, there shall be disregarded any month for which 
        such assistance was provided with respect to the 
        individual and throughout which the individual was--
                    ``(A) a minor child; and
                    ``(B) not the head of a household or 
                married to the head of a household.
            ``(3) Hardship exception.--
                    ``(A) In general.--The State may exempt a 
                family from the application of paragraph (1) by 
                reason of hardship or if the family includes an 
                individual who has been battered or subjected 
                to extreme cruelty.
                    ``(B) Limitation.--The number of families 
                with respect to which an exemption made by a 
                State under subparagraph (A) is in effect for a 
                fiscal year shall not exceed 15 percent of the 
                average monthly number of families to which the 
                State is providing assistance under the program 
                funded under this part.
                    ``(C) Battered or subject to extreme 
                cruelty defined.--For purposes of subparagraph 
                (A), an individual has been battered or 
                subjected to extreme cruelty if the individual 
                has been subjected to--
                            ``(i) physical acts that resulted 
                        in, or threatened to result in, 
                        physical injury to the individual;
                            ``(ii) sexual abuse;
                            ``(iii) sexual activity involving a 
                        dependent child;
                            ``(iv) being forced as the 
                        caretaker relative of a dependent child 
                        to engage in nonconsensual sexual acts 
                        or activities;
                            ``(v) threats of, or attempts at, 
                        physical or sexual abuse;
                            ``(vi) mental abuse; or
                            ``(vii) neglect or deprivation of 
                        medical care.
            ``(4) Rule of interpretation.--Paragraph (1) shall 
        not be interpreted to require any State to provide 
        assistance to any individual for any period of time 
        under the State program funded under this part.

``SEC. 403. USE OF GRANTS.

    ``(a) General Rules.--Subject to this part, a State to 
which a grant is made under section 402 may use the grant--
            ``(1) in any manner that is reasonably calculated 
        to increase the flexibility of States in operating a 
        program designed to--
                    ``(A) provide assistance to needy families 
                so that children may be cared for in their own 
                homes or in the homes of relatives;
                    ``(B) end the dependence of needy parents 
                on government benefits by promoting job 
                preparation, work, and marriage;
                    ``(C) prevent and reduce the incidence of 
                out-of-wedlock pregnancies and establish annual 
                numerical goals for preventing and reducing the 
                incidence of these pregnancies; and
                    ``(D) encourage the formation and 
                maintenance of two-parent families; and
            ``(2) in any manner that the State was authorized 
        to use amounts received under part A or F of this 
        title, as such parts were in effect on September 30, 
        1995.
    ``(b) Limitation on Use of Grant for Administrative 
Purposes.--
            ``(1) Limitation.--A State to which a grant is made 
        under section 402 shall not expend more than 15 percent 
        of the grant for administrative purposes.
            ``(2) Exception.--Paragraph (1) shall not apply to 
        the use of a grant for information technology and 
        computerization needed for tracking or monitoring 
        required by or under this part.
    ``(c) Authority To Use Portion of Grant for Other 
Purposes.--
            ``(1) In general.--A State may use not more than 30 
        percent of the amount of the grant made to the State 
        under section 402 for a fiscal year to carry out a 
        State program pursuant to any or all of the following 
        provisions of law:
                    ``(A) Part B of this title.
                    ``(B) Title XX of this Act.
                    ``(C) The Child Care and Development Block 
                Grant Act of 1990.
            ``(2) Applicable rules.--Any amount paid to the 
        State under this part that is used to carry out a State 
        program pursuant to a provision of law specified in 
        paragraph (1) shall not be subject to the requirements 
        of this part, but shall be subject to the requirements 
        that apply to Federal funds provided directly under the 
        provision of law to carry out the program.
    ``(d) Authority To Reserve Certain Amounts for 
Assistance.--A State may reserve amounts paid to the State 
under this part for any fiscal year for the purpose of 
providing, without fiscal year limitation, assistance under the 
State program funded under this part.
    ``(e) Authority To Operate Employment Placement Program.--A 
State to which a grant is made under section 402 may use the 
grant to make payments (or provide job placement vouchers) to 
State-approved public and private job placement agencies that 
provide employment placement services to individuals who 
receive assistance under the State program funded under this 
part.
    ``(f) Implementation of Electronic Benefit Transfer 
System.--A State to which a grant is made under section 402 is 
encouraged to implement an electronic benefit transfer system 
for providing assistance under the State program funded under 
this part, and may use the grant for such purpose.

``SEC. 404. ADMINISTRATIVE PROVISIONS.

    ``(a) Quarterly.--The Secretary shall pay each grant 
payable to a State under section 402 in quarterly installments.
    ``(b) Notification.--Not later than 3 months before the 
payment of any such quarterly installment to a State, the 
Secretary shall notify the State of the amount of any reduction 
determined under section 411(a)(1)(B) with respect to the 
State.
    ``(c) Computation and Certification of Payments to 
States.--
            ``(1) Computation.--The Secretary shall estimate 
        the amount to be paid to each eligible State for each 
        quarter under this part, such estimate to be based on a 
        report filed by the State containing an estimate by the 
        State of the total sum to be expended by the State in 
        the quarter under the State program funded under this 
        part and such other information as the Secretary may 
        find necessary.
            ``(2) Certification.--The Secretary of Health and 
        Human Services shall certify to the Secretary of the 
        Treasury the amount estimated by the Secretary under 
        paragraph (1) with respect to a State.
    ``(d) Payment Method.--Upon receipt of a certification 
under subsection (c)(2) with respect to a State, the Secretary 
of the Treasury shall, through the Fiscal Service of the 
Department of the Treasury and before audit or settlement by 
the General Accounting Office, pay to the State, at the time or 
times fixed by the Secretary of Health and Human Services, the 
amount so certified.

``SEC. 405. FEDERAL LOANS FOR STATE WELFARE PROGRAMS.

    ``(a) Loan Authority.--
            ``(1) In general.--The Secretary shall make loans 
        to any loan-eligible State, for a period to maturity of 
        not more than 3 years.
            ``(2) Loan-eligible state.--As used in paragraph 
        (1), the term `loan-eligible State' means a State 
        against which a penalty has not been imposed under 
        section 408(a)(1) at any time before the loan is to be 
        made.
    ``(b) Rate of Interest.--The Secretary shall charge and 
collect interest on any loan made under this section at a rate 
equal to the current average market yield on outstanding 
marketable obligations of the United States with remaining 
periods to maturity comparable to the period to maturity of the 
loan.
    ``(c) Use of Loan.--A State shall use a loan made to the 
State under this section only for any purpose for which grant 
amounts received by the State under section 402(a) may be used 
including--
            ``(1) welfare anti-fraud activities; and
            ``(2) the provision of assistance under the State 
        program to Indian families that have moved from the 
        service area of an Indian tribe with a tribal family 
        assistance plan approved under section 411.
    ``(d) Limitation on Total Amount of Loans to a State.--The 
cumulative dollar amount of all loans made to a State under 
this section during fiscal years 1996 through 2000 shall not 
exceed 10 percent of the State family assistance grant.
    ``(e) Limitation on Total Amount of Outstanding Loans.--The 
total dollar amount of loans outstanding under this section may 
not exceed $1,700,000,000.
    ``(f) Appropriation.--Out of any money in the Treasury of 
the United States not otherwise appropriated, there are 
appropriated such sums as may be necessary for the cost of 
loans under this section.

``SEC. 406. MANDATORY WORK REQUIREMENTS.

    ``(a) Participation Rate Requirements.--
            ``(1) All families.--A State to which a grant is 
        made under section 402 for a fiscal year shall achieve 
        the minimum participation rate specified in the 
        following table for the fiscal year with respect to all 
        families receiving assistance under the State program 
        funded under this part:

                                                             The minimum
                                                           participation
          ``If the fiscal year is:                              rate is:
              1996......................................           15   
              1997......................................           20   
              1998......................................           25   
              1999......................................           30   
              2000......................................           35   
              2001......................................           40   
              2002 or thereafter........................           50.  

            ``(2) 2-parent families.--A State to which a grant 
        is made under section 402 for a fiscal year shall 
        achieve the minimum participation rate specified in the 
        following table for the fiscal year with respect to 2-
        parent families receiving assistance under the State 
        program funded under this part:

                                                             The minimum
                                                           participation
          ``If the fiscal year is:                              rate is:
              1996......................................           50   
              1997......................................           75   
              1998......................................           75   
              1999 or thereafter........................           90.  

    ``(b) Calculation of Participation Rates.--
            ``(1) All families.--
                    ``(A) Average monthly rate.--For purposes 
                of subsection (a)(1), the participation rate 
                for all families of a State for a fiscal year 
                is the average of the participation rates for 
                all families of the State for each month in the 
                fiscal year.
                    ``(B) Monthly participation rates.--The 
                participation rate of a State for all families 
                of the State for a month, expressed as a 
                percentage, is--
                            ``(i) the number of families 
                        receiving assistance under the State 
                        program funded under this part that 
                        include an adult who is engaged in work 
                        for the month; divided by
                            ``(ii) the amount by which--
                                    ``(I) the number of 
                                families receiving such 
                                assistance during the month 
                                that include an adult receiving 
                                such assistance; exceeds
                                    ``(II) the number of 
                                families receiving such 
                                assistance that are subject in 
                                such month to a reduction or 
                                termination of assistance 
                                pursuant to section 408(a)(2) 
                                but have not been subject to 
                                such penalty for more than 3 
                                months within the preceding 12-
                                month period (whether or not 
                                consecutive).
            ``(2) 2-parent families.--
                    ``(A) Average monthly rate.--For purposes 
                of subsection (a)(2), the participation rate 
                for 2-parent families of a State for a fiscal 
                year is the average of the participation rates 
                for 2-parent families of the State for each 
                month in the fiscal year.
                    ``(B) Monthly participation rates.--The 
                participation rate of a State for 2-parent 
                families of the State for a month shall be 
                calculated by use of the formula set forth in 
                paragraph (1)(B), except that in the formula 
                the term `number of 2-parent families' shall be 
                substituted for the term `number of families' 
                each place such latter term appears.
            ``(3) Pro rata reduction of participation rate due 
        to caseload reductions not required by federal law.--
                    ``(A) In general.--The Secretary shall 
                prescribe regulations for reducing the minimum 
                participation rate otherwise required by this 
                section for a fiscal year by the number of 
                percentage points equal to the number of 
                percentage points (if any) by which--
                            ``(i) the number of families 
                        receiving assistance during the fiscal 
                        year under the State program funded 
                        under this part is less than
                            ``(ii) the number of families that 
                        received aid under the State plan 
                        approved under part A of this title (as 
                        in effect on September 30, 1995) during 
                        the fiscal year immediately preceding 
                        such effective date.
                The minimum participation rate shall not be 
                reduced to the extent that the Secretary 
                determines that the reduction in the number of 
                families receiving such assistance is required 
                by Federal law.
                    ``(B) Eligibility changes not counted.--The 
                regulations described in subparagraph (A) shall 
                not take into account families that are 
                diverted from a State program funded under this 
                part as a result of differences in eligibility 
                criteria under a State program funded under 
                this part and eligibility criteria under such 
                State's plan under the aid to families with 
                dependent children program, as such plan was in 
                effect on the day before the date of the 
                enactment of the Personal Responsibility and 
                Work Opportunity Act of 1995. Such regulations 
                shall place the burden on the Secretary to 
                prove that such families were diverted as a 
                direct result of differences in such 
                eligibility criteria.
            ``(4) State option to include individuals receiving 
        assistance under a tribal family assistance plan.--For 
        purposes of paragraphs (1)(B) and (2)(B), a State may, 
        at its option, include families receiving assistance 
        under a tribal family assistance plan approved under 
        section 411.
    ``(c) Engaged in Work.--
            ``(1) All families.--For purposes of subsection 
        (b)(1)(B)(i), a recipient is engaged in work for a 
        month in a fiscal year if the recipient is 
        participating in such activities for at least the 
        minimum average number of hours per week specified in 
        the following table during the month, not fewer than 20 
        hours per week of which are attributable to an activity 
        described in paragraph (1), (2), (3), (4), (5), (7), or 
        (8) of subsection (d) (or, in the case of the first 4 
        weeks for which the recipient is required under this 
        section to participate in work activities, an activity 
        described in subsection (d)(6)):

                                                             The minimum
             ``If the month is                         average number of
               in fiscal year:                        hours per week is:
                 1996...................................           20   
                 1997...................................           20   
                 1998...................................           20   
                 1999...................................           25   
                 2000...................................           30   
                 2001...................................           30   
                 2002...................................           35   
                 2003 or thereafter.....................           35.  

            ``(2) 2-parent families.--For purposes of 
        subsection (b)(2)(B)(i), an adult is engaged in work 
        for a month in a fiscal year if the adult is making 
        progress in such activities for at least 35 hours per 
        week during the month, not fewer than 30 hours per week 
        of which are attributable to an activity described in 
        paragraph (1), (2), (3), (4), (5), (7), or (8) of 
        subsection (d) (or, in the case of the first 4 weeks 
        for which the recipient is required under this section 
        to participate in work activities, an activity 
        described in subsection (d)(6)).
            ``(3) Limitation on vocational education activities 
        counted as work.--For purposes of determining monthly 
        participation rates under paragraphs (1)(B)(i) and 
        (2)(B)(i) of subsection (b), not more than 20 percent 
        of adults in all families and in 2-parent families 
        determined to be engaged in work in the State for a 
        month may meet the work activity requirement through 
        participation in vocational educational training.
    ``(d) Work Activities Defined.--As used in this section, 
the term `work activities' means--
            ``(1) unsubsidized employment;
            ``(2) subsidized private sector employment;
            ``(3) subsidized public sector employment;
            ``(4) work experience (including work associated 
        with the refurbishing of publicly assisted housing) if 
        sufficient private sector employment is not available;
            ``(5) on-the-job training;
            ``(6) job search and job readiness assistance;
            ``(7) community service programs;
            ``(8) vocational educational training (not to 
        exceed 12 months with respect to any individual);
            ``(9) job skills training directly related to 
        employment;
            ``(10) education directly related to employment, in 
        the case of a recipient who has not attained 20 years 
        of age, and has not received a high school diploma or a 
        certificate of high school equivalency; and
            ``(11) satisfactory attendance at secondary school, 
        in the case of a recipient who--
                    ``(A) has not completed secondary school; 
                and
                    ``(B) is a dependent child, or a head of 
                household who has not attained 20 years of age.

``SEC. 407. PROHIBITIONS.

    ``(a) In General.--
            ``(1) No assistance for families without a minor 
        child.--A State to which a grant is made under section 
        402 may not use any part of the grant to provide 
        assistance to a family, unless the family includes--
                    ``(A) a minor child who resides with a 
                custodial parent or other adult caretaker 
                relative of the child; or
                    ``(B) a pregnant individual.
            ``(2) Reduced assistance for family if adult 
        refuses to work.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a State to which a grant is 
                made under section 402 may not fail to--
                            ``(i) reduce the amount of 
                        assistance otherwise payable to a 
                        family receiving assistance under the 
                        State program funded under this part, 
                        pro rata (or more, at the option of the 
                        State) with respect to any period 
                        during a month in which an adult member 
                        of the family refuses to engage in work 
                        required in accordance with this 
                        section; or
                            ``(ii) terminate such assistance,
                subject to such good cause and other exceptions 
                as the State may establish.
                    ``(B) Exception.--Notwithstanding 
                subparagraph (A), a State may not reduce or 
                terminate assistance under the State program 
                funded under this part based on a refusal of an 
                adult to work if the adult is a single 
                custodial parent caring for a child who has not 
                attained 6 years of age, and the adult proves 
                that the adult has a demonstrated inability (as 
                determined by the State) to obtain needed child 
                care, for 1 or more of the following reasons:
                            ``(i) Unavailability of appropriate 
                        child care within a reasonable distance 
                        from the individual's home or work 
                        site.
                            ``(ii) Unavailability or 
                        unsuitability of informal child care by 
                        a relative or under other arrangements.
                            ``(iii) Unavailability of 
                        appropriate and affordable formal child 
                        care arrangements.
            ``(3) Reduction or elimination of assistance for 
        noncooperation in child support.--If the agency 
        responsible for administering the State plan approved 
        under part D determines that an individual is not 
        cooperating with the State in establishing, modifying, 
        or enforcing a support order with respect to a child of 
        the individual, then the State--
                    ``(A) shall deduct from the assistance that 
                would otherwise be provided to the family of 
                the individual under the State program funded 
                under this part the share of such assistance 
                attributable to the individual; and
                    ``(B) may deny the family any assistance 
                under the State program.
            ``(4) No assistance for families not assigning 
        certain support rights to the state.--
                    ``(A) In general.--A State to which a grant 
                is made under section 402 may not fail to 
                require, as a condition of providing assistance 
                to a family under the State program funded 
                under this part, that a member of the family 
                assign to the State any rights the family 
                member may have (on behalf of the family member 
                or of any other person for whom the family 
                member has applied for or is receiving such 
                assistance) to support from any other person, 
                not exceeding the total amount of assistance so 
                provided to the family, which accrue (or have 
                accrued) before the date the family leaves the 
                program, which assignment, on and after the 
                date the the family leaves the program, shall 
                not apply with respect to--
                            ``(i) if the assignment occurs on 
                        or after October 1, 1997, and before 
                        October 1, 2000, any support (other 
                        than support collected pursuant to 
                        section 464) which accrued before the 
                        family received such assistance and 
                        which the State has not collected by 
                        September 30, 2000; or
                            ``(ii) if the assignment occurs on 
                        or after October 1, 2000, any support 
                        (other than support collected pursuant 
                        to section 464) which accrued before 
                        the family received such assistance and 
                        which the State has not collected by 
                        the date the family leaves the program.
                    ``(B) Limitation.--A State to which a grant 
                is made under section 402 may not require, as a 
                condition of providing assistance to any family 
                under the State program funded under this part, 
                that a member of the family assign to the State 
                any rights to support described in subparagraph 
                (A) which accrue after the date the family 
                leaves the program.
            ``(5) No assistance for teenage parents who do not 
        attend high school or other equivalent training 
        program.--A State to which a grant is made under 
        section 402 may not use any part of the grant to 
        provide assistance to an individual who has not 
        attained 18 years of age, is not married, has a minor 
        child at least 12 weeks of age in his or her care, and 
        has not successfully completed a high-school education 
        (or its equivalent), if the individual does not 
        participate in--
                    ``(A) educational activities directed 
                toward the attainment of a high school diploma 
                or its equivalent; or
                    ``(B) an alternative educational or 
                training program that has been approved by the 
                State.
            ``(6) No assistance for teenage parents not living 
        in adult-supervised settings.--
                    ``(A) In general.--
                            ``(i) Requirement.--Except as 
                        provided in subparagraph (B), a State 
                        to which a grant is made under section 
                        402 may not use any part of the grant 
                        to provide assistance to an individual 
                        described in clause (ii) of this 
                        subparagraph if the individual and the 
                        minor child referred to in clause 
                        (ii)(II) do not reside in a place of 
                        residence maintained by a parent, legal 
                        guardian, or other adult relative of 
                        the individual as such parent's, 
                        guardian's, or adult relative's own 
                        home.
                            ``(ii) Individual described.-- For 
                        purposes of clause (i), an individual 
                        described in this clause is an 
                        individual who--
                                    ``(I) has not attained 18 
                                years of age; and
                                    ``(II) is not married, and 
                                has a minor child in his or her 
                                care.
                    ``(B) Exception.--
                            ``(i) Provision of, or assistance 
                        in locating, adult-supervised living 
                        arrangement.--In the case of an 
                        individual who is described in clause 
                        (ii), the State agency referred to in 
                        section 401(a)(4) shall provide, or 
                        assist the individual in locating, a 
                        second chance home, maternity home, or 
                        other appropriate adult-supervised 
                        supportive living arrangement, taking 
                        into consideration the needs and 
                        concerns of the individual, unless the 
                        State agency determines that the 
                        individual's current living arrangement 
                        is appropriate, and thereafter shall 
                        require that the individual and the 
                        minor child referred to in subparagraph 
                        (A)(ii)(II) reside in such living 
                        arrangement as a condition of the 
                        continued receipt of assistance under 
                        the State program funded under this 
                        part (or in an alternative appropriate 
                        arrangement, should circumstances 
                        change and the current arrangement 
                        cease to be appropriate).
                            ``(ii) Individual described.--For 
                        purposes of clause (i), an individual 
                        is described in this clause if the 
                        individual is described in subparagraph 
                        (A)(ii), and--
                                    ``(I) the individual has no 
                                parent, legal guardian or other 
                                appropriate adult relative 
                                described in subclause (II) of 
                                his or her own who is living or 
                                whose whereabouts are known;
                                    ``(II) no living parent, 
                                legal guardian, or other 
                                appropriate adult relative, who 
                                would otherwise meet applicable 
                                State criteria to act as the 
                                individual's legal guardian, of 
                                such individual allows the 
                                individual to live in the home 
                                of such parent, guardian, or 
                                relative;
                                    ``(III) the State agency 
                                determines that--
                                            ``(aa) the 
                                        individual or the minor 
                                        child referred to in 
                                        subparagraph 
                                        (A)(ii)(II) is being or 
                                        has been subjected to 
                                        serious physical or 
                                        emotional harm, sexual 
                                        abuse, or exploitation 
                                        in the residence of the 
                                        individual's own parent 
                                        or legal guardian; or
                                            ``(bb) substantial 
                                        evidence exists of an 
                                        act or failure to act 
                                        that presents an 
                                        imminent or serious 
                                        harm if the individual 
                                        and the minor child 
                                        lived in the same 
                                        residence with the 
                                        individual's own parent 
                                        or legal guardian; or
                                    ``(IV) the State agency 
                                otherwise determines that it is 
                                in the best interest of the 
                                minor child to waive the 
                                requirement of subparagraph (A) 
                                with respect to the individual 
                                or the minor child.
                            ``(iii) Second-chance home.--For 
                        purposes of this subparagraph, the term 
                        `second-chance home' means an entity 
                        that provides individuals described in 
                        clause (ii) with a supportive and 
                        supervised living arrangement in which 
                        such individuals are required to learn 
                        parenting skills, including child 
                        development, family budgeting, health 
                        and nutrition, and other skills to 
                        promote their long-term economic 
                        independence and the well-being of 
                        their children.
            ``(7) No medical services.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a State to which a grant is 
                made under section 402 may not use any part of 
                the grant to provide medical services.
                    ``(B) Exception for family planning 
                services.--As used in subparagraph (A), the 
                term `medical services' does not include family 
                planning services.
            ``(8) Denial of assistance for 10 years to a person 
        found to have fraudulently misrepresented residence in 
        order to obtain assistance in 2 or more states.--a 
        State to which a grant is made under section 402 may 
        not use any part of the grant to provide cash 
        assistance to an individual during the 10-year period 
        that begins on the date the individual is convicted in 
        Federal or State court of having made a fraudulent 
        statement or representation with respect to the place 
        of residence of the individual in order to receive 
        assistance simultaneously from 2 or more States under 
        programs that are funded under this title, title XIX, 
        or the Food Stamp Act of 1977, or benefits in 2 or more 
        States under the supplemental security income program 
        under title XVI.
            ``(9) Denial of assistance for fugitive felons and 
        probation and parole violators.--
                    ``(A) In general.--A State to which a grant 
                is made under section 402 may not use any part 
                of the grant to provide assistance to any 
                individual who is--
                            ``(i) fleeing to avoid prosecution, 
                        or custody or confinement after 
                        conviction, under the laws of the place 
                        from which the individual flees, for a 
                        crime, or an attempt to commit a crime, 
                        which is a felony under the laws of the 
                        place from which the individual flees, 
                        or which, in the case of the State of 
                        New Jersey, is a high misdemeanor under 
                        the laws of such State; or
                            ``(ii) violating a condition of 
                        probation or parole imposed under 
                        Federal or State law.
                    ``(B) Exchange of information with law 
                enforcement agencies.--If a State to which a 
                grant is made under section 402 establishes 
                safeguards against the use or disclosure of 
                information about applicants or recipients of 
                assistance under the State program funded under 
                this part, the safeguards shall not prevent the 
                State agency administering the program from 
                furnishing a Federal, State, or local law 
                enforcement officer, upon the request of the 
                officer, with the current address of any 
                recipient if the officer furnishes the agency 
                with the name of the recipient and notifies the 
                agency that--
                            ``(i) such recipient--
                                    ``(I) is fleeing to avoid 
                                prosecution, or custody or 
                                confinement after conviction, 
                                under the laws of the place 
                                from which the recipient flees, 
                                for a crime, or an attempt to 
                                commit a crime, which is a 
                                felony under the laws of the 
                                place from which the recipient 
                                flees, or which, in the case of 
                                the State of New Jersey, is a 
                                high misdemeanor under the laws 
                                of such State;
                                    ``(II) is violating a 
                                condition of probation or 
                                parole imposed under Federal or 
                                State law; or
                                    ``(III) has information 
                                that is necessary for the 
                                officer to conduct the official 
                                duties of the officer; and
                            ``(ii) the location or apprehension 
                        of the recipient is within such 
                        official duties.
            ``(10) Denial of assistance for minor children who 
        are absent from the home for a significant period.--
                    ``(A) In general.--A State to which a grant 
                is made under section 402 may not use any part 
                of the grant to provide assistance for a minor 
                child who has been, or is expected by a parent 
                (or other caretaker relative) of the child to 
                be, absent from the home for a period of 45 
                consecutive days or, at the option of the 
                State, such period of not less than 30 and not 
                more than 90 consecutive days as the State may 
                provide for in the State plan submitted 
                pursuant to section 401.
                    ``(B) State authority to establish good 
                cause exceptions.--The State may establish such 
                good cause exceptions to subparagraph (A) as 
                the State considers appropriate if such 
                exceptions are provided for in the State plan 
                submitted pursuant to section 401.
                    ``(C) Denial of assistance for relative who 
                fails to notify state agency of absence of 
                child.--A State to which a grant is made under 
                section 402 may not use any part of the grant 
                to provide assistance for an individual who is 
                a parent (or other caretaker relative) of a 
                minor child and who fails to notify the agency 
                administering the State program funded under 
                this part, of the absence of the minor child 
                from the home for the period specified in or 
                provided for under subparagraph (A), by the end 
                of the 5-day period that begins with the date 
                that it becomes clear to the parent (or 
                relative) that the minor child will be absent 
                for such period so specified or provided for.
            ``(11) Income security payments not to be 
        disregarded in determining the amount of assistance to 
        be provided to a family.--If a State to which a grant 
        is made under section 402 uses any part of the grant to 
        provide assistance for any individual who is receiving 
        a payment under a State plan for old-age assistance 
        approved under section 2, a State program funded under 
        part B that provides cash payments for foster care, or 
        the supplemental security income program under title 
        XVI, then the State may not disregard the payment in 
        determining the amount of assistance to be provided to 
        the family of which the individual is a member under 
        the State program funded under this part.

``SEC. 408. PENALTIES.

    ``(a) In General.--Subject to subsections (b), (c), and 
(d):
            ``(1) For use of grant in violation of this part.--
                    ``(A) General penalty.--If an audit 
                conducted under chapter 75 of title 31, United 
                States Code, finds that an amount paid to a 
                State under section 402 for a fiscal year has 
                been used in violation of this part, the 
                Secretary shall reduce the grant payable to the 
                State under section 402(a)(1) for the 
                immediately succeeding fiscal year quarter by 
                the amount so used.
                    ``(B) Enhanced penalty for intentional 
                violations.--If the State does not prove to the 
                satisfaction of the Secretary that the State 
                did not intend to use the amount in violation 
                of this part, the Secretary shall further 
                reduce the grant payable to the State under 
                section 402(a)(1) for the immediately 
                succeeding fiscal year quarter by an amount 
                equal to 5 percent of the State family 
                assistance grant.
            ``(2) For failure to submit required report.--
                    ``(A) In general.--If the Secretary 
                determines that a State has not, within 6 
                months after the end of a fiscal year, 
                submitted the report required by section 410 
                for the fiscal year, the Secretary shall reduce 
                the grant payable to the State under section 
                402(a)(1) for the immediately succeeding fiscal 
                year by an amount equal to 4 percent of the 
                State family assistance grant.
                    ``(B) Rescission of penalty.--The Secretary 
                shall rescind a penalty imposed on a State 
                under subparagraph (A) with respect to a report 
                for a fiscal year if the State submits the 
                report before the end of the immediately 
                succeeding fiscal year.
            ``(3) For failure to satisfy minimum participation 
        rates.--
                    ``(A) In general.--If the Secretary 
                determines that a State to which a grant is 
                made under section 402 for a fiscal year has 
                failed to comply with section 406(a) for the 
                fiscal year, the Secretary shall reduce the 
                grant payable to the State under section 
                402(a)(1) for the immediately succeeding fiscal 
                year by an amount equal to not more than 5 
                percent of the State family assistance grant.
                    ``(B) Penalty based on severity of 
                failure.--The Secretary shall impose reductions 
                under subparagraph (A) based on the degree of 
                noncompliance.
            ``(4) For failure to participate in the income and 
        eligibility verification system.--If the Secretary 
        determines that a State program funded under this part 
        is not participating during a fiscal year in the income 
        and eligibility verification system required by section 
        1137, the Secretary shall reduce the grant payable to 
        the State under section 402(a)(1) for the immediately 
        succeeding fiscal year by an amount equal to not more 
        than 2 percent of the State family assistance grant.
            ``(5) For failure to comply with paternity 
        establishment and child support enforcement 
        requirements under part d.--Notwithstanding any other 
        provision of this Act, if the Secretary determines that 
        the State agency that administers a program funded 
        under this part does not enforce the penalties 
        requested by the agency administering part D against 
        recipients of assistance under the State program who 
        fail to cooperate in establishing paternity in 
        accordance with such part, the Secretary shall reduce 
        the grant payable to the State under section 402(a)(1) 
        for the immediately succeeding fiscal year (without 
        regard to this section) by not more than 5 percent.
            ``(6) For failure to timely repay a federal loan 
        fund for state welfare programs.--If the Secretary 
        determines that a State has failed to repay any amount 
        borrowed from the Federal Loan Fund for State Welfare 
        Programs established under section 405 within the 
        period of maturity applicable to the loan, plus any 
        interest owed on the loan, the Secretary shall reduce 
        the grant payable to the State under section 402(a)(1) 
        for the immediately succeeding fiscal year quarter 
        (without regard to this section) by the outstanding 
        loan amount, plus the interest owed on the outstanding 
        amount. The Secretary may not forgive any outstanding 
        loan amount or interest owed on the outstanding amount.
            ``(7) Maintenance of effort.--
                    ``(A) In general.--The Secretary shall 
                reduce the grant payable to the State under 
                section 402(a)(1) for fiscal year 1996, 1997, 
                1998, 1999, or 2000 by the amount (if any) by 
                which State expenditures under the State 
                program funded under this part for the then 
                immediately preceding fiscal year is less than 
                the applicable percentage of historic State 
                expenditures.
                    ``(B) Definitions.--As used in this 
                paragraph:
                            ``(i) State expenditures under the 
                        state program funded under this part.--
                                    ``(I) In general.--The term 
                                `State expenditures under the 
                                State program funded under this 
                                part' means, with respect to a 
                                State and a fiscal year, the 
                                sum of the expenditures by the 
                                State under the program for the 
                                fiscal year for--
                                            ``(aa) cash 
                                        assistance;
                                            ``(bb) child care 
                                        assistance;
                                            ``(cc) education, 
                                        job training, and work;
                                            ``(dd) 
                                        administrative costs; 
                                        and
                                            ``(ee) any other 
                                        use of funds allowable 
                                        under section 
                                        403(a)(1).
                                    ``(II) Exclusion of 
                                transfers from other state and 
                                local programs.--Such term does 
                                not include funding supplanted 
                                by transfers from other State 
                                and local programs.
                            ``(ii) Applicable percentage.--The 
                        term `applicable percentage' means--
                                    ``(I) for fiscal year 1996, 
                                75 percent; and
                                    ``(II) for fiscal years 
                                1997, 1998, 1999, and 2000, 75 
                                percent reduced (if 
                                appropriate) in accordance with 
                                subparagraph (C)(iii).
                            ``(iii) Historic state 
                        expenditures.--The term `historic State 
                        expenditures' means, with respect to a 
                        State, the lesser of--
                                    ``(I) the expenditures by 
                                the State under parts A and F 
                                of this title (as in effect 
                                during fiscal year 1994) for 
                                fiscal year 1994; or
                                    ``(II) the amount which 
                                bears the same ratio to the 
                                amount described in subclause 
                                (I) as--
                                            ``(aa) the State 
                                        family assistance grant 
                                        for the immediately 
                                        preceding fiscal year; 
                                        bears to
                                            ``(bb) the total 
                                        amount of Federal 
                                        payments to the State 
                                        under section 403 (as 
                                        in effect during fiscal 
                                        year 1994) for fiscal 
                                        year 1994.
                            ``(iv) Expenditures by the state.--
                        The term `expenditures by the State' 
                        does not include any expenditures from 
                        amounts made available by the Federal 
                        Government, State funds expended for 
                        the medicaid program under title XIX or 
                        the MediGrant program under title XXI, 
                        or any State funds which are used to 
                        match Federal funds or are expended as 
                        a condition of receiving Federal funds 
                        under Federal programs other than under 
                        title I.
                    ``(C) Applicable percentage reduced for 
                states with best or most improved performance 
                in certain areas.--
                            ``(i) Scoring of state 
                        performance.--Beginning with fiscal 
                        year 1997, the Secretary shall assign 
                        to each State a score that represents 
                        the performance of the State for the 
                        fiscal year in each category described 
                        in clause (ii).
                            ``(ii) Categories.--The categories 
                        described in this clause are the 
                        following:
                                    ``(I) Increasing the number 
                                of families that received 
                                assistance under a State 
                                program funded under this part 
                                in the fiscal year, and that, 
                                during the fiscal year, become 
                                ineligible for such assistance 
                                as a result of unsubsidized 
                                employment.
                                    ``(II) Reducing the 
                                percentage of families that, 
                                within 18 months after becoming 
                                ineligible for assistance under 
                                the State program funded under 
                                this part, become eligible for 
                                such assistance.
                                    ``(III) Increasing the 
                                amount earned by families that 
                                receive assistance under this 
                                part.
                                    ``(IV) Reducing the 
                                percentage of families in the 
                                State that receive assistance 
                                under the State program funded 
                                under this part.
                            ``(iii) Reduction of maintenance of 
                        effort threshold.--
                                    ``(I) Reduction for states 
                                with 5 greatest scores in each 
                                category of performance.--The 
                                applicable percentage for a 
                                State for a fiscal year shall 
                                be reduced by 2 percentage 
                                points, with respect to each 
                                category described in clause 
                                (ii) for which the score 
                                assigned to the State under 
                                clause (i) for the fiscal year 
                                is 1 of the 5 highest scores so 
                                assigned to States.
                                    ``(II) Reduction for states 
                                with 5 greatest improvement in 
                                scores in each category of 
                                performance.--The applicable 
                                percentage for a State for a 
                                fiscal year shall be reduced by 
                                2 percentage points for a State 
                                for a fiscal year, with respect 
                                to each category described in 
                                clause (ii) for which the 
                                difference between the score 
                                assigned to the State under 
                                clause (i) for the fiscal year 
                                and the score so assigned to 
                                the State for the immediately 
                                preceding fiscal year is 1 of 
                                the 5 greatest such 
                                differences.
                                    ``(III) Limitation on 
                                reduction.--The applicable 
                                percentage for a State for a 
                                fiscal year may not be reduced 
                                by more than 8 percentage 
                                points pursuant to this clause.
            ``(8) Penalties for substantial noncompliance of 
        state child support enforcement program with 
        requirements of part d.--
                    ``(A) In general.--If a State program 
                operated under part D is found as a result of a 
                review conducted under section 452(a)(4) not to 
                have complied substantially with the 
                requirements of such part for any quarter, and 
                the Secretary determines that the program is 
                not complying substantially with such 
                requirements at the time the finding is made, 
                the Secretary shall, subject to paragraph (2), 
                reduce the grant payable to the State under 
                section 402(a)(1) for the quarter and each 
                subsequent quarter that ends before the 1st 
                quarter throughout which the program is found 
                not to be in substantial compliance with such 
                requirements by--
                            ``(i) not less than 1 nor more than 
                        2 percent;
                            ``(ii) not less than 2 nor more 
                        than 3 percent, if the finding is the 
                        2nd consecutive such finding made as a 
                        result of such a review; or
                            ``(iii) not less than 3 nor more 
                        than 5 percent, if the finding is the 
                        3rd or a subsequent consecutive such 
                        finding made as a result of such a 
                        review.
                    ``(B) Disregard of noncompliance which is 
                of a technical nature.--For purposes of 
                subparagraph (A) and section 452(a)(4), a State 
                which is not in full compliance with the 
                requirements of this part shall be determined 
                to be in substantial compliance with such 
                requirements only if the Secretary determines 
                that any noncompliance with such requirements 
                is of a technical nature which does not 
                adversely affect the performance of the State's 
                program operated under part D.
            ``(9) For failure to expend additional state funds 
        to replace grant reductions.--If the grant payable to a 
        State under section 402(a)(1) for a fiscal year is 
        reduced by reason of any of the preceding paragraphs of 
        this subsection, the State shall, during the 
        immediately succeeding fiscal year, expend under the 
        State program funded under this part an amount equal to 
        the sum of--
                    ``(A) the applicable percentage of the 
                historic State expenditures; and
                    ``(B) 105 percent of the total amount of 
                such reductions under such preceding 
                paragraphs.
    ``(b) Reasonable Cause Exception.--The Secretary may not 
impose a penalty on a State under subsection (a) with respect 
to a requirement if the Secretary determines that the State has 
reasonable cause for failing to comply with the requirement.
    ``(c) Corrective Compliance Plan.--
            ``(1) In general.--
                    ``(A) Notification of violation.--
                Notwithstanding any other provision of law, the 
                Federal Government shall, before assessing a 
                penalty against a State under subsection (a), 
                notify the State of the violation of law for 
                which the penalty would be assessed and allow 
                the State the opportunity to enter into a 
                corrective compliance plan in accordance with 
                this subsection which outlines how the State 
                will correct any such violations and how the 
                State will insure continuing compliance with 
                the requirements of this part.
                    ``(B) 60-day period to propose a corrective 
                compliance plan.--Any State notified under 
                subparagraph (A) shall have 60 days in which to 
                submit to the Federal Government a corrective 
                compliance plan to correct any violations 
                described in subparagraph (A).
                    ``(C) Acceptance of plan.--The Federal 
                Government shall have 60 days to accept or 
                reject the State's corrective compliance plan 
                and may consult with the State during this 
                period to modify the plan. If the Federal 
                Government does not accept or reject the 
                corrective compliance plan during the period, 
                the corrective compliance plan shall be deemed 
                to be accepted.
            ``(2) Failure to correct.--If a corrective 
        compliance plan is accepted by the Federal Government, 
        no penalty shall be imposed with respect to a violation 
        described in paragraph (1) if the State corrects the 
        violation pursuant to the plan. If a State has not 
        corrected the violation in a timely manner under the 
        plan, some or all of the penalty shall be assessed.
    ``(d) Limitation on Amount of Penalty.--
            ``(1) In general.--In imposing the penalties 
        described in subsection (a), the Secretary shall not 
        reduce any quarterly payment to a State by more than 25 
        percent.
            ``(2) Carryforward of unrecovered penalties.--To 
        the extent that paragraph (1) prevents the Secretary 
        from recovering during a fiscal year the full amount of 
        all penalties imposed on a State under subsection (a) 
        for a prior fiscal year, the Secretary shall apply any 
        remaining amount of such penalties to the grant payable 
        to the State under section 402(a)(1) for the 
        immediately succeeding fiscal year.

``SEC. 409. APPEAL OF ADVERSE DECISION.

    ``(a) In General.--Within 5 days after the date any adverse 
decision is made or action is taken under this part with 
respect to a State, the Secretary shall notify the chief 
executive officer of the State of the adverse decision or 
action, including any decision with respect to the State plan 
submitted under section 401 or the imposition of a penalty 
under section 408.
    ``(b) Administrative Review of Adverse Decision.--
            ``(1) In general.--Within 60 days after the date a 
        State receives notice under this section of an adverse 
        decision, the State may appeal the decision, in whole 
        or in part, to the Departmental Appeals Board 
        established in the Department of Health and Human 
        Services (in this section referred to as the `Board') 
        by filing an appeal with the Board.
            ``(2) Procedural rules.--The Board shall consider a 
        State's appeal on the basis of such documentation as 
        the State may submit and as the Board may require to 
        support the final decision of the Board. In deciding 
        whether to uphold an adverse decision or any portion of 
        such a decision, the Board shall conduct a thorough 
        review of the issues and take into account all relevant 
        evidence. The Board shall make a final determination 
        with respect to an appeal filed under this paragraph 
        not less than 60 days after the date the appeal is 
        filed.
    ``(c) Judicial Review of Adverse Decision.--
            ``(1) In general.--Within 90 days after the date of 
        a final decision by the Board with respect to an 
        adverse decision regarding a State under this section, 
        the State may obtain judicial review of the final 
        decision (and the findings incorporated into the final 
        decision) by filing an action in--
                    ``(A) the district court of the United 
                States for the judicial district in which the 
                principal or headquarters office of the State 
                agency is located; or
                    ``(B) the United States District Court for 
                the District of Columbia.
            ``(2) Procedural rules.--The district court in 
        which an action is filed shall review the final 
        decision of the Board on the record established in the 
        administrative proceeding, in accordance with the 
        standards of review prescribed by subparagraphs (A) 
        through (E) of section 706(2) of title 5, United States 
        Code. The review shall be on the basis of the documents 
        and supporting data submitted to the Board.

``SEC. 410. DATA COLLECTION AND REPORTING.

    ``(a) General Reporting Requirement.--Beginning July 1, 
1996, each State shall collect on a monthly basis, and report 
to the Secretary on a quarterly basis, the following 
information on the families receiving assistance under the 
State program funded under this part:
            ``(1) The county of residence of the family.
            ``(2) Whether a child receiving such assistance or 
        an adult in the family is disabled.
            ``(3) The ages of the members of such families.
            ``(4) The number of individuals in the family, and 
        the relation of each family member to the youngest 
        child in the family.
            ``(5) The employment status and earnings of the 
        employed adult in the family.
            ``(6) The marital status of the adults in the 
        family, including whether such adults have never 
        married, are widowed, or are divorced.
            ``(7) The educational status of each adult in the 
        family.
            ``(8) The educational status of each child in the 
        family.
            ``(9) Whether the family received subsidized 
        housing, assistance under the State MediGrant plan 
        approved under title XXI, food stamps, or subsidized 
        child care, and if the latter 2, the amount received.
            ``(10) The number of months that the family has 
        received each type of assistance under the program.
            ``(11) If the adults participated in, and the 
        number of hours per week of participation in, the 
        following activities:
                    ``(A) Education.
                    ``(B) Subsidized private sector employment.
                    ``(C) Unsubsidized employment.
                    ``(D) Public sector employment, work 
                experience, or community service.
                    ``(E) Job search.
                    ``(F) Job skills training or on-the-job 
                training.
                    ``(G) Vocational education.
            ``(12) Information necessary to calculate 
        participation rates under section 406.
            ``(13) The type and amount of assistance received 
        under the program, including the amount of and reason 
        for any reduction of assistance (including sanctions).
            ``(14) From a sample of closed cases, whether the 
        family left the program, and if so, whether the family 
        left due to--
                    ``(A) employment;
                    ``(B) marriage;
                    ``(C) the prohibition set forth in section 
                407(a)(8);
                    ``(D) sanction; or
                    ``(E) State policy.
            ``(15) Any amount of unearned income received by 
        any member of the family.
            ``(16) The citizenship of the members of the 
        family.
    ``(b) Use of Estimates.--
            ``(1) Authority.--A State may comply with 
        subsection (a) by submitting an estimate which is 
        obtained through the use of scientifically acceptable 
        sampling methods approved by the Secretary.
            ``(2) Sampling and other methods.--The Secretary 
        shall provide the States with such case sampling plans 
        and data collection procedures as the Secretary deems 
        necessary to produce statistically valid estimates of 
        the performance of State programs funded under this 
        part. The Secretary may develop and implement 
        procedures for verifying the quality of data submitted 
        by the States.
    ``(c) Report on Use of Federal Funds To Cover 
Administrative Costs and Overhead.--The report required by 
subsection (a) for a fiscal quarter shall include a statement 
of the percentage of the funds paid to the State under this 
part for the quarter that are used to cover administrative 
costs or overhead.
    ``(d) Report on State Expenditures on Programs for Needy 
Families.--The report required by subsection (a) for a fiscal 
quarter shall include a statement of the total amount expended 
by the State during the quarter on programs for needy families.
    ``(e) Report on Noncustodial Parents Participating in Work 
Activities.--The report required by subsection (a) for a fiscal 
quarter shall include the number of noncustodial parents in the 
State who participated in work activities (as defined in 
section 406(d)) during the quarter.
    ``(f) Report on Transitional Services.--The report required 
by subsection (a) for a fiscal quarter shall include the total 
amount expended by the State during the quarter to provide 
transitional services to a family that has ceased to receive 
assistance under this part because of employment, along with a 
description of such services.
    ``(g) Report to Congress.--Not later than 6 months after 
the end of fiscal year 1997, and each fiscal year thereafter, 
the Secretary shall transmit to the Congress a report 
describing--
            ``(1) whether the States are meeting--
                    ``(A) the participation rates described in 
                section 406(a); and
                    ``(B) the objectives of--
                            ``(i) increasing employment and 
                        earnings of needy families, and child 
                        support collections; and
                            ``(ii) decreasing out-of-wedlock 
                        pregnancies and child poverty;
            ``(2) the demographic and financial characteristics 
        of families applying for assistance, families receiving 
        assistance, and families that become ineligible to 
        receive assistance;
            ``(3) the characteristics of each State program 
        funded under this part; and
            ``(4) the trends in employment and earnings of 
        needy families with minor children living at home.

``SEC. 411. DIRECT FUNDING AND ADMINISTRATION BY INDIAN TRIBES.

    ``(a) Grants for Indian Tribes.--
            ``(1) Tribal family assistance grant.--
                    ``(A) In general.--For each of fiscal years 
                1997, 1998, 1999, and 2000, the Secretary shall 
                pay to each Indian tribe that has an approved 
                tribal family assistance plan a tribal family 
                assistance grant for the fiscal year in an 
                amount equal to the amount determined under 
                subparagraph (B), and shall reduce the grant 
                payable under section 402(a)(1) to any State in 
                which lies the service area or areas of the 
                Indian tribe by that portion of the amount so 
                determined that is attributable to expenditures 
                by the State.
                    ``(B) Amount determined.--
                            ``(i) In general.--The amount 
                        determined under this subparagraph is 
                        an amount equal to the total amount of 
                        the Federal payments to a State or 
                        States under section 403 for fiscal 
                        year 1994 (as in effect during such 
                        fiscal year) attributable to 
                        expenditures by the State or States 
                        under parts A and F of this title (as 
                        so in effect) for fiscal year 1994 for 
                        Indian families residing in the service 
                        area or areas identified by the Indian 
                        tribe pursuant to subsection (b)(1)(C).
                            ``(ii) Use of state submitted 
                        data.--
                                    ``(I) In general.--The 
                                Secretary shall use State 
                                submitted data to make each 
                                determination under clause (i).
                                    ``(II) Disagreement with 
                                determination.--If an Indian 
                                tribe or tribal organization 
                                disagrees with State submitted 
                                data described under subclause 
                                (I), the Indian tribe or tribal 
                                organization may submit to the 
                                Secretary such additional 
                                information as may be relevant 
                                to making the determination 
                                under clause (i) and the 
                                Secretary may consider such 
                                information before making such 
                                determination.
            ``(2) Grants for indian tribes that received jobs 
        funds.--
                    ``(A) In general.--The Secretary shall pay 
                to each eligible Indian tribe for each of 
                fiscal years 1996, 1997, 1998, 1999, and 2000 a 
                grant in an amount equal to the amount received 
                by the Indian tribe in fiscal year 1994 under 
                section 482(i) (as in effect during fiscal year 
                1994).
                    ``(B) Eligible indian tribe.--For purposes 
                of subparagraph (A), the term `eligible Indian 
                tribe' means an Indian tribe or Alaska Native 
                organization that conducted a job opportunities 
                and basic skills training program in fiscal 
                year 1995 under section 482(i) (as in effect 
                during such fiscal year).
                    ``(C) Use of grant.--Each Indian tribe to 
                which a grant is made under this paragraph 
                shall use the grant for the purpose of 
                operating a program to make work activities 
                available to members of the Indian tribe.
                    ``(D) Appropriation.--Out of any money in 
                the Treasury of the United States not otherwise 
                appropriated, there are appropriated $7,638,474 
                for each fiscal year specified in subparagraph 
                (A) for grants under subparagraph (A).
    ``(b) 3-Year Tribal Family Assistance Plan.--
            ``(1) In general.--Any Indian tribe that desires to 
        receive a tribal family assistance grant shall submit 
        to the Secretary a 3-year tribal family assistance plan 
        that--
                    ``(A) outlines the Indian tribe's approach 
                to providing welfare-related services for the 
                3-year period, consistent with this section;
                    ``(B) specifies whether the welfare-related 
                services provided under the plan will be 
                provided by the Indian tribe or through 
                agreements, contracts, or compacts with 
                intertribal consortia, States, or other 
                entities;
                    ``(C) identifies the population and service 
                area or areas to be served by such plan;
                    ``(D) provides that a family receiving 
                assistance under the plan may not receive 
                duplicative assistance from other State or 
                tribal programs funded under this part;
                    ``(E) identifies the employment 
                opportunities in or near the service area or 
                areas of the Indian tribe and the manner in 
                which the Indian tribe will cooperate and 
                participate in enhancing such opportunities for 
                recipients of assistance under the plan 
                consistent with any applicable State standards; 
                and
                    ``(F) applies the fiscal accountability 
                provisions of section 5(f)(1) of the Indian 
                Self-Determination and Education Assistance Act 
                (25 U.S.C. 450c(f)(1)), relating to the 
                submission of a single-agency audit report 
                required by chapter 75 of title 31, United 
                States Code.
            ``(2) Approval.--The Secretary shall approve each 
        tribal family assistance plan submitted in accordance 
        with paragraph (1).
            ``(3) Consortium of tribes.--Nothing in this 
        section shall preclude the development and submission 
        of a single tribal family assistance plan by the 
        participating Indian tribes of an intertribal 
        consortium.
    ``(c) Minimum Work Participation Requirements and Time 
Limits.--The Secretary, with the participation of Indian 
tribes, shall establish for each Indian tribe receiving a grant 
under this section minimum work participation requirements, 
appropriate time limits for receipt of welfare-related services 
under the grant, and penalties against individuals--
            ``(1) consistent with the purposes of this section;
            ``(2) consistent with the economic conditions and 
        resources available to each tribe; and
            ``(3) similar to comparable provisions in section 
        406(d).
    ``(d) Emergency Assistance.--Nothing in this section shall 
preclude an Indian tribe from seeking emergency assistance from 
any Federal loan program or emergency fund.
    ``(e) Accountability.--Nothing in this section shall be 
construed to limit the ability of the Secretary to maintain 
program funding accountability consistent with--
            ``(1) generally accepted accounting principles; and
            ``(2) the requirements of the Indian Self-
        Determination and Education Assistance Act (25 U.S.C. 
        450 et seq.).
    ``(f) Penalties.--
            ``(1) Subsections (a)(1), (a)(6), and (b) of 
        section 408, shall apply to an Indian tribe with an 
        approved tribal assistance plan in the same manner as 
        such subsections apply to a State.
            ``(2) Section 408(a)(3) shall apply to an Indian 
        tribe with an approved tribal assistance plan by 
        substituting `meet minimum work participation 
        requirements established under section 411(c)' for 
        `comply with section 406(a)'.
    ``(g) Data Collection and Reporting.--Section 410 shall 
apply to an Indian tribe with an approved tribal family 
assistance plan.
    ``(h) Special Rule for Indian Tribes in Alaska.--
            ``(1) In general.--Notwithstanding any other 
        provision of this section, and except as provided in 
        paragraph (2), a tribal organization in the State of 
        Alaska that receives a tribal family assistance grant 
        under this section shall use the grant to operate a 
        program in accordance with the requirements comparable 
        to the requirements applicable to the program of the 
        State of Alaska funded under this part. Comparability 
        of programs shall be established on the basis of 
        program criteria developed by the Secretary in 
        consultation with the State of Alaska and the tribal 
        organizations.
            ``(2) Waiver.--An Indian tribe described in 
        paragraph (1) may apply to the appropriate State 
        authority to receive a waiver of the requirement of 
        paragraph (1).

``SEC. 412. RESEARCH, EVALUATIONS, AND NATIONAL STUDIES.

    ``(a) Research.--The Secretary shall conduct research on 
the benefits, effects, and costs of operating different State 
programs funded under this part, including time limits relating 
to eligibility for assistance. The research shall include 
studies on the effects of different programs and the operation 
of such programs on welfare dependency, illegitimacy, teen 
pregnancy, employment rates, child well-being, and any other 
area the Secretary deems appropriate. The Secretary shall also 
conduct research on the costs and benefits of State activities 
under section 406.
    ``(b) Development and Evaluation of Innovative Approaches 
To Reducing Welfare Dependency and Increasing Child Well-
Being.--
            ``(1) In general.--The Secretary may assist States 
        in developing, and shall evaluate, innovative 
        approaches for reducing welfare dependency and 
        increasing the well-being of minor children living at 
        home with respect to recipients of assistance under 
        programs funded under this part. The Secretary may 
        provide funds for training and technical assistance to 
        carry out the approaches developed pursuant to this 
        paragraph.
            ``(2) Evaluations.--In performing the evaluations 
        under paragraph (1), the Secretary shall, to the 
        maximum extent feasible, use random assignment as an 
        evaluation methodology.
    ``(c) Dissemination of Information.--The Secretary shall 
develop innovative methods of disseminating information on any 
research, evaluations, and studies conducted under this 
section, including the facilitation of the sharing of 
information and best practices among States and localities 
through the use of computers and other technologies.
    ``(d) Annual Ranking of States and Review of Most and Least 
Successful Work Programs.--
            ``(1) Annual ranking of states.--The Secretary 
        shall rank annually the States to which grants are paid 
        under section 402 in the order of their success in 
        placing recipients of assistance under the State 
        program funded under this part into long-term private 
        sector jobs, reducing the overall welfare caseload, 
        and, when a practicable method for calculating this 
        information becomes available, diverting individuals 
        from formally applying to the State program and 
        receiving assistance. In ranking States under this 
        subsection, the Secretary shall take into account the 
        average number of minor children living at home in 
        families in the State that have incomes below the 
        poverty line and the amount of funding provided each 
        State for such families.
            ``(2) Annual review of most and least successful 
        work programs.--The Secretary shall review the programs 
        of the 3 States most recently ranked highest under 
        paragraph (1) and the 3 States most recently ranked 
        lowest under paragraph (1) that provide parents with 
        work experience, assistance in finding employment, and 
        other work preparation activities and support services 
        to enable the families of such parents to leave the 
        program and become self-sufficient.
    ``(e) Annual Ranking of States and Review of Issues 
Relating to Out-of-Wedlock Births.--
            ``(1) Annual ranking of states.--
                    ``(A) In general.--The Secretary shall 
                annually rank States to which grants are made 
                under section 402 based on the following 
                ranking factors:
                            ``(i) Absolute out-of-wedlock 
                        ratios.--The ratio represented by--
                                    ``(I) the total number of 
                                out-of-wedlock births in 
                                families receiving assistance 
                                under the State program under 
                                this part in the State for the 
                                most recent fiscal year for 
                                which information is available; 
                                over
                                    ``(II) the total number of 
                                births in families receiving 
                                assistance under the State 
                                program under this part in the 
                                State for such year.
                            ``(ii) Net changes in the out-of-
                        wedlock ratio.--The difference between 
                        the ratio described in subparagraph 
                        (A)(i) for the most recent fiscal year 
                        for which information is available and 
                        such State's ratio determined for the 
                        preceding year.
            ``(2) Annual review.--The Secretary shall review 
        the programs of the 5 States most recently ranked 
        highest under paragraph (1) and the 5 States most 
        recently ranked the lowest under paragraph (1).
    ``(f) State-Initiated Studies.--A State shall be eligible 
to receive funding to evaluate the State's family assistance 
program funded under this part if--
            ``(1) the State submits a proposal to the Secretary 
        for such evaluation,
            ``(2) the Secretary determines that the design and 
        approach of the evaluation is rigorous and is likely to 
        yield information that is credible and will be useful 
        to other States, and
            ``(3) unless otherwise waived by the Secretary, the 
        State provides a non-Federal share of at least 10 
        percent of the cost of such study.
    ``(g) Funding of Studies and Demonstrations.--
            ``(1) In general.--Out of any money in the Treasury 
        of the United States not otherwise appropriated, there 
        are appropriated $15,000,000 for each fiscal year 
        specified in section 402(a)(1) for the purpose of 
        paying--
                    ``(A) the cost of conducting the research 
                described in subsection (a);
                    ``(B) the cost of developing and evaluating 
                innovative approaches for reducing welfare 
                dependency and increasing the well-being of 
                minor children under subsection (b);
                    ``(C) the Federal share of any State-
                initiated study approved under subsection (f); 
                and
                    ``(D) an amount determined by the Secretary 
                to be necessary to operate and evaluate 
                demonstration projects, relating to this part, 
                that are in effect or approved under section 
                1115 as of September 30, 1995, and are 
                continued after such date.
            ``(2) Allocation.--Of the amount appropriated under 
        paragraph (1) for a fiscal year--
                    ``(A) 50 percent shall be allocated for the 
                purposes described in subparagraphs (A) and (B) 
                of paragraph (1), and
                    ``(B) 50 percent shall be allocated for the 
                purposes described in subparagraphs (C) and (D) 
                of paragraph (1).

``SEC. 413. STUDY BY THE CENSUS BUREAU.

    ``(a) In General.--The Bureau of the Census shall expand 
the Survey of Income and Program Participation as necessary to 
obtain such information as will enable interested persons to 
evaluate the impact of the amendments made by subtitle A of the 
Personal Responsibility and Work Opportunity Act of 1995 on a 
random national sample of recipients of assistance under State 
programs funded under this part and (as appropriate) other low 
income families, and in doing so, shall pay particular 
attention to the issues of out-of-wedlock birth, welfare 
dependency, the beginning and end of welfare spells, and the 
causes of repeat welfare spells.
    ``(b) Appropriation.--Out of any money in the Treasury of 
the United States not otherwise appropriated, there are 
appropriated $10,000,000 for each of fiscal years 1996, 1997, 
1998, 1999, and 2000 for payment to the Bureau of the Census to 
carry out subsection (a).

``SEC. 414. WAIVERS.

    ``(a) Continuation of Waivers.--
            ``(1) In general.--Except as provided in paragraph 
        (2), if any waiver granted to a State under section 
        1115 or otherwise which relates to the provision of 
        assistance under a State plan under this part is in 
        effect or approved by the Secretary as of October 1, 
        1995, the amendments made by the Personal 
        Responsibility and Work Opportunity Act of 1995 shall 
        not apply with respect to the State before the 
        expiration (determined without regard to any 
        extensions) of the waiver to the extent such amendments 
        are inconsistent with the terms of the waiver.
            ``(2) Financing limitation.--Notwithstanding any 
        other provision of law, beginning with fiscal year 
        1996, a State operating under a waiver described in 
        paragraph (1) shall receive the payment described for 
        such State for such fiscal year under section 402, in 
        lieu of any other payment provided for in the waiver.
    ``(b) State Option To Terminate Waiver.--
            ``(1) In general.--A State may terminate a waiver 
        described in subsection (a) before the expiration of 
        the waiver.
            ``(2) Report.--A State which terminates a waiver 
        under paragraph (1) shall submit a report to the 
        Secretary summarizing the waiver and any available 
        information concerning the result or effect of such 
        waiver.
            ``(3) Hold harmless provision.--
                    ``(A) In general.--Notwithstanding any 
                other provision of law, a State that, not later 
                than the date described in subparagraph (B), 
                submits a written request to terminate a waiver 
                described in subsection (a) shall be held 
                harmless for accrued cost neutrality 
                liabilities incurred under the terms and 
                conditions of such waiver.
                    ``(B) Date described.--The date described 
                in this subparagraph is the later of--
                            ``(i) January 1, 1996; or
                            ``(ii) 90 days following the 
                        adjournment of the first regular 
                        session of the State legislature that 
                        begins after the date of the enactment 
                        of the Personal Responsibility and Work 
                        Opportunity Act of 1995.
    ``(c) Secretarial Encouragement of Current Waivers.--The 
Secretary shall encourage any State operating a waiver 
described in subsection (a) to continue such waiver and to 
evaluate, using random sampling and other characteristics of 
accepted scientific evaluations, the result or effect of such 
waiver.
    ``(d) Continuation of Individual Waivers.--A State may 
elect to continue one or more individual waivers described in 
subsection (a)(1).

``SEC. 415. ASSISTANT SECRETARY FOR FAMILY SUPPORT.

    ``The programs under this part and part D shall be 
administered by an Assistant Secretary for Family Support 
within the Department of Health and Human Services, who shall 
be appointed by the President, by and with the advice and 
consent of the Senate, and who shall be in addition to any 
other Assistant Secretary of Health and Human Services provided 
for by law.

``SEC. 416. LIMITATION ON FEDERAL AUTHORITY.

    ``No officer or employee of the Federal Government may 
regulate the conduct of States under this part or enforce any 
provision of this part, except to the extent expressly provided 
in this part.

``SEC. 417. DEFINITIONS.

    ``As used in this part:
            ``(1) Adult.--The term `adult' means an individual 
        who is not a minor child.
            ``(2) Minor child.--The term `minor child' means an 
        individual who--
                    ``(A) has not attained 18 years of age; or
                    ``(B) has not attained 19 years of age and 
                is a full-time student in a secondary school 
                (or in the equivalent level of vocational or 
                technical training).
            ``(3) Fiscal year.--The term `fiscal year' means 
        any 12-month period ending on September 30 of a 
        calendar year.
            ``(4) Indian, indian tribe, and tribal 
        organization.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the terms `Indian', `Indian 
                tribe', and `tribal organization' have the 
                meaning given such terms by section 4 of the 
                Indian Self-Determination and Education 
                Assistance Act (25 U.S.C. 450b).
                    ``(B) Special rule for indian tribes in 
                alaska.--The term `Indian tribe' means, with 
                respect to the State of Alaska, only the 
                following Alaska Native regional nonprofit 
                corporations:
                            ``(i) Arctic Slope Native 
                        Association.
                            ``(ii) Kawerak, Inc.
                            ``(iii) Maniilaq Association.
                            ``(iv) Association of Village 
                        Council Presidents.
                            ``(v) Tanana Chiefs Conference.
                            ``(vi) Cook Inlet Tribal Council.
                            ``(vii) Bristol Bay Native 
                        Association.
                            ``(viii) Aleutian and Pribilof 
                        Island Association.
                            ``(ix) Chugachmuit.
                            ``(x) Tlingit Haida Central 
                        Council.
                            ``(xi) Kodiak Area Native 
                        Association.
                            ``(xii) Copper River Native 
                        Association.
                            ``(xiii) Metlakatla Indian Tribe.
            ``(5) State.--Except as otherwise specifically 
        provided, the term `State' includes the several States, 
        the District of Columbia, the Commonwealth of Puerto 
        Rico, the United States Virgin Islands, Guam, and 
        American Samoa.''.

SEC. 12102. REPORT ON DATA PROCESSING.

    (a) In General.--Within 6 months after the date of the 
enactment of this Act, the Secretary of Health and Human 
Services shall prepare and submit to the Congress a report on--
            (1) the status of the automated data processing 
        systems operated by the States to assist management in 
        the administration of State programs under part A of 
        title IV of the Social Security Act (whether in effect 
        before or after October 1, 1995); and
            (2) what would be required to establish a system 
        capable of--
                    (A) tracking participants in public 
                programs over time; and
                    (B) checking case records of the States to 
                determine whether individuals are participating 
                in public programs of 2 or more States.
    (b) Preferred Contents.--The report required by subsection 
(a) should include--
            (1) a plan for building on the automated data 
        processing systems of the States to establish a system 
        with the capabilities described in subsection (a)(2); 
        and
            (2) an estimate of the amount of time required to 
        establish such a system and of the cost of establishing 
        such a system.

SEC. 12103. CONFORMING AMENDMENTS TO THE SOCIAL SECURITY ACT.

    (a) Amendments to Title II.--
            (1) Section 205(c)(2)(C)(vi) (42 U.S.C. 
        405(c)(2)(C)(vi)), as so redesignated by section 
        321(a)(9)(B) of the Social Security Independence and 
        Program Improvements Act of 1994, is amended--
                    (A) by inserting ``an agency administering 
                a program funded under part A of title IV or'' 
                before ``an agency operating''; and
                    (B) by striking ``A or D of title IV of 
                this Act'' and inserting ``D of such title''.
            (2) Section 228(d)(1) (42 U.S.C. 428(d)(1)) is 
        amended by inserting ``under a State program funded 
        under'' before ``part A of title IV''.
    (b) Amendments to Part D of Title IV.--
            (1) Section 451 (42 U.S.C. 651) is amended by 
        striking ``aid'' and inserting ``assistance under a 
        State program funded''.
            (2) Section 452(a)(10)(C) (42 U.S.C. 652(a)(10)(C)) 
        is amended--
                    (A) by striking ``aid to families with 
                dependent children'' and inserting ``assistance 
                under a State program funded under part A'';
                    (B) by striking ``such aid'' and inserting 
                ``such assistance''; and
                    (C) by striking ``under section 402(a)(26) 
                or 471(a)(17)'' and inserting ``pursuant to 
                section 408(a)(4) or under section 
                471(a)(17)''.
            (3) Section 452(a)(10)(F) (42 U.S.C. 652(a)(10)(F)) 
        is amended--
                    (A) by striking ``aid under a State plan 
                approved'' and inserting ``assistance under a 
                State program funded''; and
                    (B) by striking ``in accordance with the 
                standards referred to in section 
                402(a)(26)(B)(ii)'' and inserting ``by the 
                State''.
            (4) Section 452(b) (42 U.S.C. 652(b)) is amended in 
        the first sentence by striking ``aid under the State 
        plan approved under part A'' and inserting ``assistance 
        under the State program funded under part A''.
            (5) Section 452(d)(3)(B)(i) (42 U.S.C. 
        652(d)(3)(B)(i)) is amended by striking ``1115(c)'' and 
        inserting ``1115(b)''.
            (6) Section 452(g)(2)(A)(ii)(I) (42 U.S.C. 
        652(g)(2)(A)(ii)(I)) is amended by striking ``aid is 
        being paid under the State's plan approved under part A 
        or E'' and inserting ``assistance is being provided 
        under the State program funded under part A or aid is 
        being paid under the State's plan approved under part 
        E''.
            (7) Section 452(g)(2)(A) (42 U.S.C. 652(g)(2)(A)) 
        is amended in the matter following clause (iii) by 
        striking ``aid was being paid under the State's plan 
        approved under part A or E'' and inserting ``assistance 
        was being provided under the State program funded under 
        part A or aid was being paid under the State's plan 
        approved under part E''.
            (8) Section 452(g)(2) (42 U.S.C. 652(g)(2)) is 
        amended in the matter following subparagraph (B)--
                    (A) by striking ``who is a dependent 
                child'' and inserting ``with respect to whom 
                assistance is being provided under the State 
                program funded under part A'';
                    (B) by inserting ``by the State agency 
                administering the State plan approved under 
                this part'' after ``found''; and
                    (C) by striking ``under section 
                402(a)(26)'' and inserting ``with the State in 
                establishing paternity''.
            (9) Section 452(h) (42 U.S.C. 652(h)) is amended by 
        striking ``under section 402(a)(26)'' and inserting 
        ``pursuant to section 408(a)(4)''.
            (10) Section 453(c)(3) (42 U.S.C. 653(c)(3)) is 
        amended by striking ``aid under part A of this title'' 
        and inserting ``assistance under a State program funded 
        under part A''.
            (11) Section 454(5)(A) (42 U.S.C. 654(5)(A))) is 
        amended--
                    (A) by striking ``under section 
                402(a)(26)'' and inserting ``pursuant to 
                section 408(a)(4)''; and
                    (B) by striking ``; except that this 
                paragraph shall not apply to such payments for 
                any month following the first month in which 
                the amount collected is sufficient to make such 
                family ineligible for assistance under the 
                State plan approved under part A;'' and 
                inserting a comma.
            (12) Section 454(6)(D) (42 U.S.C. 654(6)(D)) is 
        amended by striking ``aid under a State plan approved'' 
        and inserting ``assistance under a State program 
        funded''.
            (13) Section 456(a)(1) (42 U.S.C. 656(a)(1)) is 
        amended by striking ``under section 402(a)(26)''.
            (14) Section 466(a)(3)(B) (42 U.S.C. 666(a)(3)(B)) 
        is amended by striking ``402(a)(26)'' and inserting 
        ``408(a)(4)''.
            (15) Section 466(b)(2) (42 U.S.C. 666(b)(2)) is 
        amended by striking ``aid'' and inserting ``assistance 
        under a State program funded''.
            (16) Section 469(a) (42 U.S.C. 669(a)) is amended--
                    (A) by striking ``aid under plans 
                approved'' and inserting ``assistance under 
                State programs funded''; and
                    (B) by striking ``such aid'' and inserting 
                ``such assistance''.
    (c) Repeal of Part F of Title IV.--Part F of title IV (42 
U.S.C. 681-687) is repealed.
    (d) Amendment to Title X.--Section 1002(a)(7) (42 U.S.C. 
1202(a)(7)) is amended by striking ``aid to families with 
dependent children under the State plan approved under section 
402 of this Act'' and inserting ``assistance under a State 
program funded under part A of title IV''.
    (e) Amendments to Title XI.--
            (1) Section 1108 (42 U.S.C. 1308) is amended to 
        read as follows:

``SEC. 1108. LIMITATION ON PAYMENTS TO PUERTO RICO, THE VIRGIN ISLANDS, 
                    GUAM, AND AMERICAN SAMOA.

    ``(a) In General.--Notwithstanding any other provision of 
this Act, the total amount certified by the Secretary of Health 
and Human Services under titles I, X, XIV, and XVI, and under 
parts A and B of title IV for payment to any territory for a 
fiscal year shall not exceed the ceiling amount for the 
territory for the fiscal year.
    ``(b) Definitions.--As used in this section:
            ``(1) Territory.--The term `territory' means Puerto 
        Rico, the Virgin Islands, Guam, and American Samoa.
            ``(2) Ceiling amount.--The term `ceiling amount' 
        means, with respect to a territory and a fiscal year, 
        the mandatory ceiling amount with respect to the 
        territory plus the discretionary ceiling amount with 
        respect to the territory, reduced for the fiscal year 
        in accordance with subsection (e).
            ``(3) Mandatory ceiling amount.--The term 
        `mandatory ceiling amount' means--
                    ``(A) $103,538,000 with respect to for 
                Puerto Rico;
                    ``(B) $4,812,000 with respect to Guam;
                    ``(C) $3,677,397 with respect to the Virgin 
                Islands; and
                    ``(D) $1,122,095 with respect to American 
                Samoa.
            ``(4) Discretionary ceiling amount.--The term 
        `discretionary ceiling amount' means, with respect to a 
        territory, the dollar amount specified in subsection 
        (c)(2) with respect to the territory.
    ``(c) Discretionary Grants.--
            ``(1) In general.--The Secretary shall make a grant 
        to each territory for any fiscal year in the amount 
        appropriated pursuant to paragraph (2) for the fiscal 
        year for payment to the territory.
            ``(2) Use of grant.--Any territory to which a grant 
        is made under paragraph (1) may expend the amount under 
        any program operated or funded under any provision of 
        law specified in subsection (a).
            ``(3) Limitation on authorization of 
        appropriations.--For grants under paragraph (1), there 
        are authorized to be appropriated to the Secretary for 
        each fiscal year--
                    ``(A) $7,951,000 for payment to Puerto 
                Rico;
                    ``(B) $345,000 for payment to Guam;
                    ``(C) $275,000 for payment to the Virgin 
                Islands; and
                    ``(D) $190,000 for payment to American 
                Samoa.
    ``(d) Authority to Transfer Funds Among Programs.--
Notwithstanding any other provision of this Act, any territory 
to which an amount is paid under any provision of law specified 
in subsection (a) may use part or all of the amount to carry 
out any program operated by the territory, or funded, under any 
other such provision of law.
    ``(e) Maintenance of Effort.--The ceiling amount with 
respect to a territory shall be reduced for a fiscal year by an 
amount equal to the amount (if any) by which--
            ``(1) the total amount expended by the territory 
        under all programs of the territory operated pursuant 
        to the provisions of law specified in subsection (a) 
        (as such provisions were in effect for fiscal year 
        1995) for fiscal year 1995; exceeds
            ``(2) the total amount expended by the territory 
        under all programs of the territory that are funded 
        under the provisions of law specified in subsection (a) 
        for the fiscal year that immediately precedes the 
        fiscal year referred to in the matter preceding 
        paragraph (1).''.
            (2) Section 1109 (42 U.S.C. 1309) is amended by 
        striking ``or part A of title IV,''.
            (3) Section 1115 (42 U.S.C. 1315) is amended--
                    (A) in subsection (a)(2)--
                            (i) by inserting ``(A)'' after 
                        ``(2)'';
                            (ii) by striking ``403,'';
                            (iii) by striking the period at the 
                        end and inserting ``, and''; and
                            (iv) by adding at the end the 
                        following new subparagraph:
            ``(B) costs of such project which would not 
        otherwise be a permissible use of funds under part A of 
        title IV and which are not included as part of the 
        costs of projects under section 1110, shall to the 
        extent and for the period prescribed by the Secretary, 
        be regarded as a permissible use of funds under such 
        part.''; and
                    (B) in subsection (c)(3), by striking 
                ``under the program of aid to families with 
                dependent children'' and inserting ``part A of 
                such title''.
            (4) Section 1116 (42 U.S.C. 1316) is amended--
                    (A) in each of subsections (a)(1), (b), and 
                (d), by striking ``or part A of title IV,''; 
                and
                    (B) in subsection (a)(3), by striking 
                ``404,''.
            (5) Section 1118 (42 U.S.C. 1318) is amended--
                    (A) by striking ``403(a),'';
                    (B) by striking ``and part A of title 
                IV,''; and
                    (C) by striking ``, and shall, in the case 
                of American Samoa, mean 75 per centum with 
                respect to part A of title IV''.
            (6) Section 1119 (42 U.S.C. 1319) is amended--
                    (A) by striking ``or part A of title IV''; 
                and
                    (B) by striking ``403(a),''.
            (7) Section 1133(a) (42 U.S.C. 1320b-3(a)) is 
        amended by striking ``or part A of title IV,''.
            (8) Section 1136 (42 U.S.C. 1320b-6) is repealed.
            (9) Section 1137 (42 U.S.C. 1320b-7) is amended--
                    (A) in subsection (b), by striking 
                paragraph (1) and inserting the following:
            ``(1) any State program funded under part A of 
        title IV of this Act;''; and
                    (B) in subsection (d)(1)(B)--
                            (i) by striking ``In this 
                        subsection--'' and all that follows 
                        through ``(ii) in'' and inserting ``In 
                        this subsection, in'';
                            (ii) by redesignating subclauses 
                        (I), (II), and (III) as clauses (i), 
                        (ii), and (iii); and
                            (iii) by moving such redesignated 
                        material 2 ems to the left.
    (f) Amendment to Title XIV.--Section 1402(a)(7) (42 U.S.C. 
1352(a)(7)) is amended by striking ``aid to families with 
dependent children under the State plan approved under section 
402 of this Act'' and inserting ``assistance under a State 
program funded under part A of title IV''.
    (g) Amendment to Title XVI as in Effect With Respect to the 
Territories.--Section 1602(a)(11), as in effect without regard 
to the amendment made by section 301 of the Social Security 
Amendments of 1972 (42 U.S.C. 1382 note), is amended by 
striking ``aid under the State plan approved'' and inserting 
``assistance under a State program funded''.
    (h) Amendment to Title XVI as in Effect With Respect to the 
States.--Section 1611(c)(5)(A) (42 U.S.C. 1382(c)(5)(A)) is 
amended to read as follows: ``(A) a State program funded under 
part A of title IV,''.

SEC. 12104. CONFORMING AMENDMENTS TO THE FOOD STAMP ACT OF 1977 AND 
                    RELATED PROVISIONS.

    (a) Section 5 of the Food Stamp Act of 1977 (7 U.S.C. 2014) 
is amended--
            (1) in the second sentence of subsection (a), by 
        striking ``plan approved'' and all that follows through 
        ``title IV of the Social Security Act'' and inserting 
        ``program funded under part A of title IV of the Social 
        Security Act (42 U.S.C. 601 et seq.) that the Secretary 
        determines complies with standards established by the 
        Secretary that ensure that the standards under the 
        State program are comparable to or more restrictive 
        than those in effect on June 1, 1995'';
            (2) in subsection (d)--
                    (A) in paragraph (5), by striking 
                ``assistance to families with dependent 
                children'' and inserting ``assistance under a 
                State program funded''; and
                    (B) by striking paragraph (13) and 
                redesignating paragraphs (14), (15), and (16) 
                as paragraphs (13), (14), and (15), 
                respectively;
            (3) in subsection (j), by striking ``plan approved 
        under part A of title IV of such Act (42 U.S.C. 601 et 
        seq.)'' and inserting ``program funded under part A of 
        title IV of the Act (42 U.S.C. 601 et seq.) that the 
        Secretary determines complies with standards 
        established by the Secretary that ensure that the 
        standards under the State program are comparable to or 
        more restrictive than those in effect on June 1, 
        1995''.
    (b) Section 6 of such Act (7 U.S.C. 2015) is amended--
            (1) in subsection (c)(5), by striking ``the State 
        plan approved'' and inserting ``the State program 
        funded'';
            (2) in subsection (e)--
                    (A) by striking ``aid to families with 
                dependent children'' and inserting ``benefits 
                under a State program funded''; and
                    (B) by inserting before the semicolon the 
                following: ``that the Secretary determines 
                complies with standards established by the 
                Secretary that ensure that the standards under 
                the State program are comparable to or more 
                restrictive than those in effect on June 1, 
                1995''; and
            (3) by adding at the end the following new 
        subsection:
    ``(i) Eligibility Under Other Law.--Notwithstanding any 
other provision of this Act, a household may not receive 
benefits under this Act as a result of the household's 
eligibility under a State program funded under part A of title 
IV of the Social Security Act (42 U.S.C. 601 et seq.), unless 
the Secretary determines that any household with income above 
130 percent of the poverty guidelines is not eligible for the 
program.''.
    (c) Section 16(g)(4) of such Act (7 U.S.C. 2025(g)(4)) is 
amended by striking ``State plans under the Aid to Families 
with Dependent Children Program under'' and inserting ``State 
programs funded under part A of''.
    (d) Section 17 of such Act (7 U.S.C. 2026) is amended--
            (1) in the first sentence of subsection (b)(1)(A), 
        by striking ``to aid to families with dependent 
        children under part A of title IV of the Social 
        Security Act'' and inserting ``or are receiving 
        assistance under a State program funded under part A of 
        title IV of the Social Security Act (42 U.S.C. 601 et 
        seq.)''; and
            (2) in subsection (b)(3), by adding at the end the 
        following new subparagraph:
             ``(I) The Secretary may not grant a waiver under 
        this paragraph on or after October 1, 1995. Any 
        reference in this paragraph to a provision of title IV 
        of the Social Security Act shall be deemed to be a 
        reference to such provision as in effect on September 
        30, 1995.'';
    (e) Section 20 of such Act (7 U.S.C. 2029) is amended--
            (1) in subsection (a)(2)(B) by striking 
        ``operating--'' and all that follows through ``(ii) any 
        other'' and inserting ``operating any''; and
            (2) in subsection (b)--
                    (A) in paragraph (1)--
                            (i) by striking ``(b)(1) A 
                        household'' and inserting ``(b) A 
                        household''; and
                            (ii) in subparagraph (B), by 
                        striking ``training program'' and 
                        inserting ``activity'';
                    (B) by striking paragraph (2); and
                    (C) by redesignating subparagraphs (A) 
                through (F) as paragraphs (1) through (6), 
                respectively.
    (f) Section 5(h)(1) of the Agriculture and Consumer 
Protection Act of 1973 (Public Law 93-186; 7 U.S.C. 612c note) 
is amended by striking ``the program for aid to families with 
dependent children'' and inserting ``the State program 
funded''.
    (g) Section 9 of the National School Lunch Act (42 U.S.C. 
1758) is amended--
            (1) in subsection (b)--
                    (A) in paragraph (2)(C)(ii)(II)--
                            (i) by striking ``program for aid 
                        to families with dependent children'' 
                        and inserting ``State program funded''; 
                        and
                            (ii) by inserting before the period 
                        at the end the following: ``that the 
                        Secretary determines complies with 
                        standards established by the Secretary 
                        that ensure that the standards under 
                        the State program are comparable to or 
                        more restrictive than those in effect 
                        on June 1, 1995''; and
                    (B) in paragraph (6)--
                            (i) in subparagraph (A)(ii)--
                                    (I) by striking ``an AFDC 
                                assistance unit (under the aid 
                                to families with dependent 
                                children program authorized'' 
                                and inserting ``a family (under 
                                the State program funded''; and
                                    (II) by striking ``, in a 
                                State'' and all that follows 
                                through ``9902(2)))'' and 
                                inserting ``that the Secretary 
                                determines complies with 
                                standards established by the 
                                Secretary that ensure that the 
                                standards under the State 
                                program are comparable to or 
                                more restrictive than those in 
                                effect on June 1, 1995''; and
                            (ii) in subparagraph (B), by 
                        striking ``aid to families with 
                        dependent children'' and inserting 
                        ``assistance under the State program 
                        funded under part A of title IV of the 
                        Social Security Act (42 U.S.C. 601 et 
                        seq.) that the Secretary determines 
                        complies with standards established by 
                        the Secretary that ensure that the 
                        standards under the State program are 
                        comparable to or more restrictive than 
                        those in effect on June 1, 1995''; and
            (2) in subsection (d)(2)(C)--
                    (A) by striking ``program for aid to 
                families with dependent children'' and 
                inserting ``State program funded''; and
                    (B) by inserting before the period at the 
                end the following: ``that the Secretary 
                determines complies with standards established 
                by the Secretary that ensure that the standards 
                under the State program are comparable to or 
                more restrictive than those in effect on June 
                1, 1995''.
    (h) Section 17(d)(2)(A)(ii)(II) of the Child Nutrition Act 
of 1966 (42 U.S.C. 1786(d)(2)(A)(ii)(II)) is amended--
            (1) by striking ``program for aid to families with 
        dependent children established'' and inserting ``State 
        program funded''; and
            (2) by inserting before the semicolon the 
        following: ``that the Secretary determines complies 
        with standards established by the Secretary that ensure 
        that the standards under the State program are 
        comparable to or more restrictive than those in effect 
        on June 1, 1995''.

SEC. 12105. CONFORMING AMENDMENTS TO OTHER LAWS.

    (a) Subsection (b) of section 508 of the Unemployment 
Compensation Amendments of 1976 (42 U.S.C. 603a; Public Law 94-
566; 90 Stat. 2689) is amended to read as follows:
    ``(b) Provision for Reimbursement of Expenses.--For 
purposes of section 455 of the Social Security Act, expenses 
incurred to reimburse State employment offices for furnishing 
information requested of such offices--
            ``(1) pursuant to the third sentence of section 
        3(a) of the Act entitled `An Act to provide for the 
        establishment of a national employment system and for 
        cooperation with the States in the promotion of such 
        system, and for other purposes', approved June 6, 1933 
        (29 U.S.C. 49b(a)), or
            ``(2) by a State or local agency charged with the 
        duty of carrying a State plan for child support 
        approved under part D of title IV of the Social 
        Security Act,
shall be considered to constitute expenses incurred in the 
administration of such State plan.''.
    (b) Section 9121 of the Omnibus Budget Reconciliation Act 
of 1987 (42 U.S.C. 602 note) is repealed.
    (c) Section 9122 of the Omnibus Budget Reconciliation Act 
of 1987 (42 U.S.C. 602 note) is repealed.
    (d) Section 221 of the Housing and Urban-Rural Recovery Act 
of 1983 (42 U.S.C. 602 note), relating to treatment under AFDC 
of certain rental payments for federally assisted housing, is 
repealed.
    (e) Section 159 of the Tax Equity and Fiscal Responsibility 
Act of 1982 (42 U.S.C. 602 note) is repealed.
    (f) Section 202(d) of the Social Security Amendments of 
1967 (81 Stat. 882; 42 U.S.C. 602 note) is repealed.
    (g) Section 903 of the Stewart B. McKinney Homeless 
Assistance Amendments Act of 1988 (42 U.S.C. 11381 note), 
relating to demonstration projects to reduce number of AFDC 
families in welfare hotels, is amended--
            (1) in subsection (a), by striking ``aid to 
        families with dependent children under a State plan 
        approved'' and inserting ``assistance under a State 
        program funded''; and
            (2) in subsection (c), by striking ``aid to 
        families with dependent children in the State under a 
        State plan approved'' and inserting ``assistance in the 
        State under a State program funded''.
    (h) The Higher Education Act of 1965 (20 U.S.C. 1001 et 
seq.) is amended--
            (1) in section 404C(c)(3) (20 U.S.C. 1070a-
        23(c)(3)), by striking ``(Aid to Families with 
        Dependent Children)''; and
            (2) in section 480(b)(2) (20 U.S.C. 1087vv(b)(2)), 
        by striking ``aid to families with dependent children 
        under a State plan approved'' and inserting 
        ``assistance under a State program funded''.
    (i) The Carl D. Perkins Vocational and Applied Technology 
Education Act (20 U.S.C. 2301 et seq.) is amended--
            (1) in section 231(d)(3)(A)(ii) (20 U.S.C. 
        2341(d)(3)(A)(ii)), by striking ``the program for aid 
        to dependent children'' and inserting ``the State 
        program funded'';
            (2) in section 232(b)(2)(B) (20 U.S.C. 
        2341a(b)(2)(B)), by striking ``the program for aid to 
        families with dependent children'' and inserting ``the 
        State program funded''; and
            (3) in section 521(14)(B)(iii) (20 U.S.C. 
        2471(14)(B)(iii)), by striking ``the program for aid to 
        families with dependent children'' and inserting ``the 
        State program funded''.
    (j) The Elementary and Secondary Education Act of 1965 (20 
U.S.C. 2701 et seq.) is amended--
            (1) in section 1113(a)(5) (20 U.S.C. 6313(a)(5)), 
        by striking ``Aid to Families with Dependent Children 
        Program'' and inserting ``State program funded under 
        part A of title IV of the Social Security Act'';
            (2) in section 1124(c)(5) (20 U.S.C. 6333(c)(5)), 
        by striking ``the program of aid to families with 
        dependent children under a State plan approved under'' 
        and inserting ``a State program funded under part A 
        of''; and
            (3) in section 5203(b)(2) (20 U.S.C. 7233(b)(2))--
                    (A) in subparagraph (A)(xi), by striking 
                ``Aid to Families with Dependent Children 
                benefits'' and inserting ``assistance under a 
                State program funded under part A of title IV 
                of the Social Security Act''; and
                    (B) in subparagraph (B)(viii), by striking 
                ``Aid to Families with Dependent Children'' and 
                inserting ``assistance under the State program 
                funded under part A of title IV of the Social 
                Security Act''.
    (k) Chapter VII of title I of Public Law 99-88 (25 U.S.C. 
13d-1) is amended to read as follows: ``Provided further, That 
general assistance payments made by the Bureau of Indian 
Affairs shall be made--
            ``(1) after April 29, 1985, and before October 1, 
        1995, on the basis of Aid to Families with Dependent 
        Children (AFDC) standards of need; and
            ``(2) on and after October 1, 1995, on the basis of 
        standards of need established under the State program 
        funded under part A of title IV of the Social Security 
        Act,
except that where a State ratably reduces its AFDC or State 
program payments, the Bureau shall reduce general assistance 
payments in such State by the same percentage as the State has 
reduced the AFDC or State program payment.''.
    (l) The Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.) 
is amended--
            (1) in section 51(d)(9) (26 U.S.C. 51(d)(9)), by 
        striking all that follows ``agency as'' and inserting 
        ``being eligible for financial assistance under part A 
        of title IV of the Social Security Act and as having 
        continually received such financial assistance during 
        the 90-day period which immediately precedes the date 
        on which such individual is hired by the employer.'';
            (2) in section 3304(a)(16) (26 U.S.C. 3304(a)(16)), 
        by striking ``eligibility for aid or services,'' and 
        all that follows through ``children approved'' and 
        inserting ``eligibility for assistance, or the amount 
        of such assistance, under a State program funded'';
            (3) in section 6103(l)(7)(D)(i) (26 U.S.C. 
        6103(l)(7)(D)(i)), by striking ``aid to families with 
        dependent children provided under a State plan 
        approved'' and inserting ``a State program funded'';
            (4) in section 6334(a)(11)(A) (26 U.S.C. 
        6334(a)(11)(A)), by striking ``(relating to aid to 
        families with dependent children)''; and
            (5) in section 7523(b)(3)(C) (26 U.S.C. 
        7523(b)(3)(C)), by striking ``aid to families with 
        dependent children'' and inserting ``assistance under a 
        State program funded under part A of title IV of the 
        Social Security Act''.
    (m) Section 3(b) of the Wagner-Peyser Act (29 U.S.C. 
49b(b)) is amended by striking ``State plan approved under part 
A of title IV'' and inserting ``State program funded under part 
A of title IV''.
    (n) The Job Training Partnership Act (29 U.S.C. 1501 et 
seq.) is amended--
            (1) in section 4(29)(A)(i) (29 U.S.C. 
        1503(29)(A)(i)), by striking ``(42 U.S.C. 601 et 
        seq.)'';
            (2) in section 106(b)(6)(C) (29 U.S.C. 
        1516(b)(6)(C)), by striking ``State aid to families 
        with dependent children records,'' and inserting 
        ``records collected under the State program funded 
        under part A of title IV of the Social Security Act,'';
            (3) in section 121(b)(2) (29 U.S.C. 1531(b)(2))--
                    (A) by striking ``the JOBS program'' and 
                inserting ``the work activities required under 
                title IV of the Social Security Act''; and
                    (B) by striking the second sentence;
            (4) in section 123(c) (29 U.S.C. 1533(c))--
                    (A) in paragraph (1)(E), by repealing 
                clause (vi); and
                    (B) in paragraph (2)(D), by repealing 
                clause (v);
            (5) in section 203(b)(3) (29 U.S.C. 1603(b)(3)), by 
        striking ``, including recipients under the JOBS 
        program'';
            (6) in subparagraphs (A) and (B) of section 
        204(a)(1) (29 U.S.C. 1604(a)(1) (A) and (B)), by 
        striking ``(such as the JOBS program)'' each place it 
        appears;
            (7) in section 205(a) (29 U.S.C. 1605(a)), by 
        striking paragraph (4) and inserting the following:
            ``(4) the portions of title IV of the Social 
        Security Act relating to work activities;'';
            (8) in section 253 (29 U.S.C. 1632)--
                    (A) in subsection (b)(2), by repealing 
                subparagraph (C); and
                    (B) in paragraphs (1)(B) and (2)(B) of 
                subsection (c), by striking ``the JOBS program 
                or'' each place it appears;
            (9) in section 264 (29 U.S.C. 1644)--
                    (A) in subparagraphs (A) and (B) of 
                subsection (b)(1), by striking ``(such as the 
                JOBS program)'' each place it appears; and
                    (B) in subparagraphs (A) and (B) of 
                subsection (d)(3), by striking ``and the JOBS 
                program'' each place it appears;
            (10) in section 265(b) (29 U.S.C. 1645(b)), by 
        striking paragraph (6) and inserting the following:
            ``(6) the portion of title IV of the Social 
        Security Act relating to work activities;'';
            (11) in the second sentence of section 429(e) (29 
        U.S.C. 1699(e)), by striking ``and shall be in an 
        amount that does not exceed the maximum amount that may 
        be provided by the State pursuant to section 
        402(g)(1)(C) of the Social Security Act (42 U.S.C. 
        602(g)(1)(C))'';
            (12) in section 454(c) (29 U.S.C. 1734(c)), by 
        striking ``JOBS and'';
            (13) in section 455(b) (29 U.S.C. 1735(b)), by 
        striking ``the JOBS program,'';
            (14) in section 501(1) (29 U.S.C. 1791(1)), by 
        striking ``aid to families with dependent children 
        under part A of title IV of the Social Security Act (42 
        U.S.C. 601 et seq.)'' and inserting ``assistance under 
        the State program funded under part A of title IV of 
        the Social Security Act'';
            (15) in section 506(1)(A) (29 U.S.C. 1791e(1)(A)), 
        by striking ``aid to families with dependent children'' 
        and inserting ``assistance under the State program 
        funded'';
            (16) in section 508(a)(2)(A) (29 U.S.C. 
        1791g(a)(2)(A)), by striking ``aid to families with 
        dependent children'' and inserting ``assistance under 
        the State program funded''; and
            (17) in section 701(b)(2)(A) (29 U.S.C. 
        1792(b)(2)(A))--
                    (A) in clause (v), by striking the 
                semicolon and inserting ``; and''; and
                    (B) by striking clause (vi).
    (o) Section 3803(c)(2)(C)(iv) of title 31, United States 
Code, is amended to read as follows:
                            ``(iv) assistance under a State 
                        program funded under part A of title IV 
                        of the Social Security Act''.
    (p) Section 2605(b)(2)(A)(i) of the Low-Income Home Energy 
Assistance Act of 1981 (42 U.S.C. 8624(b)(2)(A)(i)) is amended 
to read as follows:
                            ``(i) assistance under the State 
                        program funded under part A of title IV 
                        of the Social Security Act;''.
    (q) Section 303(f)(2) of the Family Support Act of 1988 (42 
U.S.C. 602 note) is amended--
            (1) by striking ``(A)''; and
            (2) by striking subparagraphs (B) and (C).
    (r) The Balanced Budget and Emergency Deficit Control Act 
of 1985 (2 U.S.C. 900 et seq.) is amended--
            (1) in the first section 255(h) (2 U.S.C. 905(h)), 
        by striking ``Aid to families with dependent children 
        (75-0412-0-1-609);'' and inserting ``Block grants to 
        States for temporary assistance for needy families;''; 
        and
            (2) in section 256 (2 U.S.C. 906)--
                    (A) by striking subsection (k); and
                    (B) by redesignating subsection (l) as 
                subsection (k).
    (s) The Immigration and Nationality Act (8 U.S.C. 1101 et 
seq.) is amended--
            (1) in section 210(f) (8 U.S.C. 1160(f)), by 
        striking ``aid under a State plan approved under'' each 
        place it appears and inserting ``assistance under a 
        State program funded under'';
            (2) in section 245A(h) (8 U.S.C. 1255a(h))--
                    (A) in paragraph (1)(A)(i), by striking 
                ``program of aid to families with dependent 
                children'' and inserting ``State program of 
                assistance''; and
                    (B) in paragraph (2)(B), by striking ``aid 
                to families with dependent children'' and 
                inserting ``assistance under a State program 
                funded under part A of title IV of the Social 
                Security Act''; and
            (3) in section 412(e)(4) (8 U.S.C. 1522(e)(4)), by 
        striking ``State plan approved'' and inserting ``State 
        program funded''.
    (t) Section 640(a)(4)(B)(i) of the Head Start Act (42 
U.S.C. 9835(a)(4)(B)(i)) is amended by striking ``program of 
aid to families with dependent children under a State plan 
approved'' and inserting ``State program of assistance 
funded''.
    (u) Section 9 of the Act of April 19, 1950 (64 Stat. 47, 
chapter 92; 25 U.S.C. 639) is repealed.
    (v) Subparagraph (E) of section 213(d)(6) of the School-To-
Work Opportunities Act of 1994 (20 U.S.C. 6143(d)(6)) is 
amended to read as follows:
                    ``(E) part A of title IV of the Social 
                Security Act (42 U.S.C. 601 et seq.) relating 
                to work activities;''.

SEC. 12106. EFFECTIVE DATE; TRANSITION RULE.

    (a) In General.--Except as otherwise provided in this 
subtitle, this subtitle and the amendments made by this 
subtitle shall take effect on October 1, 1995.
    (b) Penalties.--
            (1) In general.--Paragraphs (2) through (7) and 
        paragraph (9) of section 408(a) of the Social Security 
        Act (as added by section 12101 of this Act) shall apply 
        with respect to fiscal years beginning on or after 
        October 1, 1996.
            (2) Misuse of funds.--Paragraphs (1) and (8) of 
        section 408(a) of the Social Security Act (as added by 
        section 12101 of this Act, shall apply with respect to 
        fiscal years beginning on or after October 1, 1995.
    (c) Transition Rules.--
            (1) State option to continue afdc program.--
                    (A) 9-month extension.--A State may elect 
                to continue the State AFDC program until June 
                30, 1996.
                    (B) No individual or family entitlement 
                under continued state afdc programs.--
                Notwithstanding any other provision of law or 
                any rule of law, no individual or family is 
                entitled to aid under any State AFDC program on 
                or after the date of the enactment of this Act.
                    (C) Limitations on federal obligations.--
                            (i) Under afdc program.--If a State 
                        elects to continue the State AFDC 
                        program pursuant to subparagraph (A), 
                        the total obligations of the Federal 
                        Government to the State under part A of 
                        title IV of the Social Security Act (as 
                        in effect on September 30, 1995) after 
                        the date of the enactment of this Act 
                        shall not exceed an amount equal to--
                                    (I) the State family 
                                assistance grant (as defined in 
                                section 402(a)(1)(B) of the 
                                Social Security Act (as in 
                                effect pursuant to the 
                                amendment made by section 12101 
                                of this Act)); minus
                                    (II) any obligations of the 
                                Federal Government to the State 
                                under such part (as in effect 
                                on September 30, 1995) with 
                                respect to expenditures by the 
                                State during the period that 
                                begins on October 1, 1995, and 
                                ends on the day before the date 
                                of the enactment of this Act.
                            (ii) Under temporary family 
                        assistance program.--Notwithstanding 
                        section 402(a)(1) of the Social 
                        Security Act (as in effect pursuant to 
                        the amendment made by section 12101 of 
                        this Act), the total obligations of the 
                        Federal Government to the State under 
                        such section 402(a)(1) for fiscal year 
                        1996 after the termination of the State 
                        AFDC program shall not exceed an amount 
                        equal to--
                                    (I) the amount described in 
                                clause (i)(I) of this 
                                subparagraph; minus
                                    (II) any obligations of the 
                                Federal Government to the State 
                                under part A of title IV of the 
                                Social Security Act (as in 
                                effect on September 30, 1995) 
                                with respect to expenditures by 
                                the State on or after October 
                                1, 1995.
                    (D) Submission of state plan for fiscal 
                year 1996 deemed acceptance of grant 
                limitations and formula.--The submission of a 
                plan by a State under section 401(a) of the 
                Social Security Act (as in effect pursuant to 
                the amendment made by section 12101 of this 
                Act) for fiscal year 1996 is deemed to 
                constitute the State's acceptance of the grant 
                reductions under subparagraph (C)(ii) of this 
                paragraph (including the formula for computing 
                the amount of the reduction).
                    (E) State afdc program defined.--As used in 
                this paragraph, the term ``State AFDC program'' 
                means the State program under parts A and F of 
                title IV of the Social Security Act (as in 
                effect on September 30, 1995).
            (2) Claims, actions, and proceedings.--The 
        amendments made by this subtitle shall not apply with 
        respect to--
                    (A) powers, duties, functions, rights, 
                claims, penalties, or obligations applicable to 
                aid, assistance, or services provided before 
                the effective date of this subtitle under the 
                provisions amended; and
                    (B) administrative actions and proceedings 
                commenced before such date, or authorized 
                before such date to be commenced, under such 
                provisions.
            (3) Closing out account for those programs 
        terminated or substantially modified by this 
        subtitle.--In closing out accounts, Federal and State 
        officials may use scientifically acceptable statistical 
        sampling techniques. Claims made under programs which 
        are repealed or substantially amended in this subtitle 
        and which involve State expenditures in cases where 
        assistance or services were provided during a prior 
        fiscal year, shall be treated as expenditures during 
        fiscal year 1995 for purposes of reimbursement even if 
        payment was made by a State on or after October 1, 
        1995. States shall complete the filing of all claims no 
        later than September 30, 1997. Federal department heads 
        shall--
                    (A) use the single audit procedure to 
                review and resolve any claims in connection 
                with the close out of programs, and
                    (B) reimburse States for any payments made 
                for assistance or services provided during a 
                prior fiscal year from funds for fiscal year 
                1995, rather than the funds authorized by this 
                subtitle.
            (4) Continuance in office of assistant secretary 
        for family support.--The individual who, on the day 
        before the effective date of this subtitle, is serving 
        as Assistant Secretary for Family Support within the 
        Department of Health and Human Services shall, until a 
        successor is appointed to such position--
                    (A) continue to serve in such position; and
                    (B) except as otherwise provided by law--
                            (i) continue to perform the 
                        functions of the Assistant Secretary 
                        for Family Support under section 417 of 
                        the Social Security Act (as in effect 
                        before such effective date); and
                            (ii) have the powers and duties of 
                        the Assistant Secretary for Family 
                        Support under section 415 of the Social 
                        Security Act (as in effect pursuant to 
                        the amendment made by section 12101 of 
                        this Act).
    (d) Sunset.--The amendment made by section 12101 shall be 
effective only during the 6-year period beginning on October 1, 
1995.

                Subtitle B--Supplemental Security Income

SEC. 12200. REFERENCE TO SOCIAL SECURITY ACT.

    Except as otherwise specifically provided, where ever in 
this subtitle an amendment is expressed in terms of an 
amendment to or repeal of a section or other provision, the 
reference shall be considered to be made to that section or 
other provision of the Social Security Act.

                  CHAPTER 1--ELIGIBILITY RESTRICTIONS

SEC. 12201. DENIAL OF SUPPLEMENTAL SECURITY INCOME BENEFITS BY REASON 
                    OF DISABILITY TO DRUG ADDICTS AND ALCOHOLICS.

    (a) In General.--Section 1614(a)(3) (42 U.S.C. 1382c(a)(3)) 
is amended by adding at the end the following:
    ``(I) Notwithstanding subparagraph (A), an individual shall 
not be considered to be disabled for purposes of this title if 
alcoholism or drug addiction would (but for this subparagraph) 
be a contributing factor material to the Commissioner's 
determination that the individual is disabled.''.
    (b) Representative Payee Requirements.--
            (1) Section 1631(a)(2)(A)(ii)(II) (42 U.S.C. 
        1383(a)(2)(A)(ii)(II)) is amended to read as follows:
    ``(II) In the case of an individual eligible for benefits 
under this title by reason of disability, the payment of such 
benefits shall be made to a representative payee if the 
Commissioner of Social Security determines that such payment 
would serve the interest of the individual because the 
individual also has an alcoholism or drug addiction condition 
that prevents the individual from managing such benefits.''.
            (2) Section 1631(a)(2)(B)(vii) (42 U.S.C. 
        1383(a)(2)(B)(vii)) is amended by striking ``eligible 
        for benefits'' and all that follows through ``is 
        disabled'' and inserting ``described in subparagraph 
        (A)(ii)(II)''.
            (3) Section 1631(a)(2)(B)(ix)(II) (42 U.S.C. 
        1383(a)(2)(B)(ix)(II)) is amended by striking all that 
        follows ``15 years, or'' and inserting ``described in 
        subparagraph (A)(ii)(II)''.
            (4) Section 1631(a)(2)(D)(i)(II) (42 U.S.C. 
        1383(a)(2)(D)(i)(II)) is amended by striking ``eligible 
        for benefits'' and all that follows through ``is 
        disabled'' and inserting ``described in subparagraph 
        (A)(ii)(II)''.
    (c) Treatment Referrals for Individuals with an Alcoholism 
or Drug Addiction Condition.--Title XVI (42 U.S.C. 1381 et 
seq.) is amended by adding at the end the following new 
section:


   ``treatment referrals for individuals with an alcoholism or drug 
                          addiction condition


    ``Sec. 1636. In the case of any eligible individual whose 
benefits under this title by reason of disability are paid to a 
representative payee pursuant to section 1631(a)(2)(A)(ii)(II), 
the Commissioner of Social Security shall refer such individual 
to the appropriate State agency administering the State plan 
for substance abuse treatment services approved under subpart 
II of part B of title XIX of the Public Health Service Act (42 
U.S.C. 300x-21 et seq.).''.
    (d) Conforming Amendments.--
            (1) Section 1611(e) (42 U.S.C. 1382(e)) is amended 
        by striking paragraph (3).
            (2) Section 1634 (42 U.S.C. 1383c) is amended by 
        striking subsection (e).
            (3) Section 201(c)(1) of the Social Security 
        Independence and Program Improvements Act of 1994 (42 
        U.S.C. 425 note) is amended--
                    (A) by striking ``to--'' and all that 
                follows through ``in cases in which'' and 
                inserting ``to individuals who are entitled to 
                disability insurance benefits or child's, 
                widow's, or widower's insurance benefits based 
                on disability under title II of the Social 
                Security Act, in cases in which'';
                    (B) by striking ``either subparagraph (A) 
                or subparagraph (B)'' and inserting ``the 
                preceding sentence''; and
                    (C) by striking ``subparagraph (A) or (B)'' 
                and inserting ``the preceding sentence''.
    (e) Supplemental Funding for Alcohol and Substance Abuse 
Treatment Programs.--
            (1) In general.--Out of any money in the Treasury 
        not otherwise appropriated, there are hereby 
        appropriated to supplement State and Tribal programs 
        funded under section 1933 of the Public Health Service 
        Act (42 U.S.C. 300x-33), $50,000,000 for each of the 
        fiscal years 1997 and 1998.
            (2) Additional funds.--Amounts appropriated under 
        paragraph (1) shall be in addition to any funds 
        otherwise appropriated for allotments under section 
        1933 of the Public Health Service Act (42 U.S.C. 300x-
        33) and shall be allocated pursuant to such section 
        1933.
            (3) Use of Funds.--A State or Tribal government 
        receiving an allotment under this subsection shall 
        consider as priorities, for purposes of expending funds 
        allotted under this subsection, activities relating to 
        the treatment of the abuse of alcohol and other drugs.
    (f) Effective dates.--
            (1) In general.--Except as provided in paragraphs 
        (2) and (3), the amendments made by this section shall 
        apply to applicants for benefits for months beginning 
        on or after the date of the enactment of this Act, 
        without regard to whether regulations have been issued 
        to implement such amendments.
            (2) Application to current recipients.--
                    (A) Application and notice.--
                Notwithstanding any other provision of law, in 
                the case of an individual who is receiving 
                supplemental security income benefits under 
                title XVI of the Social Security Act as of the 
                date of the enactment of this Act and whose 
                eligibility for such benefits would terminate 
                by reason of the amendments made by this 
                section, such amendments shall apply with 
                respect to the benefits of such individual, 
                including such individual's treatment (if any) 
                provided pursuant to such title as in effect on 
                the day before the date of such enactment, for 
                months beginning on or after January 1, 1997, 
                and the Commissioner of Social Security shall 
                so notify the individual not later than 90 days 
                after the date of the enactment of this Act.
                    (B) Reapplication.--
                            (i) In general.--Not later than 120 
                        days after the date of the enactment of 
                        this Act, each individual notified 
                        pursuant to subparagraph (A) who 
                        desires to reapply for benefits under 
                        title XVI of the Social Security Act, 
                        as amended by this title, may reapply 
                        to the Commissioner of Social Security.
                            (ii) Determination of 
                        eligibility.--Not later than January 1, 
                        1997, the Commissioner of Social 
                        Security shall complete the eligibility 
                        redetermination of each individual who 
                        reapplies for benefits under clause (i) 
                        pursuant to the procedures of title XVI 
                        of such Act.
            (3) Additional application of payee representative 
        and treatment referral requirements.--The amendments 
        made by subsections (b) and (c) shall also apply--
                    (A) in the case of any individual who is 
                receiving supplemental security income benefits 
                under title XVI of the Social Security Act as 
                of the date of the enactment of this Act, on 
                and after the date of such individual's first 
                continuing disability review occurring after 
                such date of enactment, and
                    (B) in the case of any individual who 
                receives supplemental security income benefits 
                under title XVI of the Social Security Act and 
                has attained age 65, in such manner as 
                determined appropriate by the Commissioner of 
                Social Security.

SEC. 12202. DENIAL OF SSI BENEFITS FOR 10 YEARS TO INDIVIDUALS FOUND TO 
                    HAVE FRAUDULENTLY MISREPRESENTED RESIDENCE IN ORDER 
                    TO OBTAIN BENEFITS SIMULTANEOUSLY IN 2 OR MORE 
                    STATES.

    (a) In General.--Section 1614(a) (42 U.S.C. 1382c(a)) is 
amended by adding at the end the following new paragraph:
    ``(5) An individual shall not be considered an eligible 
individual for the purposes of this title during the 10-year 
period that begins on the date the individual is convicted in 
Federal or State court of having made a fraudulent statement or 
representation with respect to the place of residence of the 
individual in order to receive assistance simultaneously from 2 
or more States under programs that are funded under title IV, 
title XXI, or the Food Stamp Act of 1977, or benefits in 2 or 
more States under the supplemental security income program 
under this title.''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 12203. DENIAL OF SSI BENEFITS FOR FUGITIVE FELONS AND PROBATION 
                    AND PAROLE VIOLATORS.

    (a) In General.--Section 1611(e) (42 U.S.C. 1382(e)), as 
amended by section 12201(d)(1), is amended by inserting after 
paragraph (2) the following new paragraph:
    ``(3) A person shall not be considered an eligible 
individual or eligible spouse for purposes of this title with 
respect to any month if during such month the person is--
            ``(A) fleeing to avoid prosecution, or custody or 
        confinement after conviction, under the laws of the 
        place from which the person flees, for a crime, or an 
        attempt to commit a crime, which is a felony under the 
        laws of the place from which the person flees, or 
        which, in the case of the State of New Jersey, is a 
        high misdemeanor under the laws of such State; or
            ``(B) violating a condition of probation or parole 
        imposed under Federal or State law.''.
    (b) Exchange of Information With Law Enforcement 
Agencies.--Section 1611(e) (42 U.S.C. 1382(e)), as amended by 
section 12201(d)(1) and subsection (a), is amended by inserting 
after paragraph (3) the following new paragraph:
    ``(4) Notwithstanding any other provision of law, the 
Commissioner shall furnish any Federal, State, or local law 
enforcement officer, upon the request of the officer, with the 
current address, Social Security number, and photograph (if 
applicable) of any recipient of benefits under this title, if 
the officer furnishes the Commissioner with the name of the 
recipient and notifies the Commissioner that--
            ``(A) the recipient--
                    ``(i) is described in subparagraph (A) or 
                (B) of paragraph (3); or
                    ``(ii) has information that is necessary 
                for the officer to conduct the officer's 
                official duties; and
            ``(B) the location or apprehension of the recipient 
        is within the officer's official duties.''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

               CHAPTER 2--BENEFITS FOR DISABLED CHILDREN

SEC. 12211. DEFINITION AND ELIGIBILITY RULES.

    (a) Definition of Childhood Disability.--Section 1614(a)(3) 
(42 U.S.C. 1382c(a)(3)), as amended by section 7251(a), is 
amended--
            (1) in subparagraph (A), by striking ``An 
        individual'' and inserting ``Except as provided in 
        subparagraph (C), an individual'';
            (2) in subparagraph (A), by striking ``(or, in the 
        case of an individual under the age of 18, if he 
        suffers from any medically determinable physical or 
        mental impairment of comparable severity)'';
            (3) by redesignating subparagraphs (C) through (I) 
        as subparagraphs (D) through (J), respectively;
            (4) by inserting after subparagraph (B) the 
        following new subparagraph:
    ``(C) An individual under the age of 18 shall be considered 
disabled for the purposes of this title if that individual has 
a medically determinable physical or mental impairment, which 
results in marked and severe functional limitations, and which 
can be expected to result in death or which has lasted or can 
be expected to last for a continuous period of not less than 12 
months. Notwithstanding the preceding sentence, no individual 
under the age of 18 who engages in substantial gainful activity 
(determined in accordance with regulations prescribed pursuant 
to subparagraph (E)) may be considered to be disabled.''; and
            (5) in subparagraph (F), as redesignated by 
        paragraph (3), by striking ``(D)'' and inserting 
        ``(E)''.
    (b) Changes to Childhood SSI Regulations.--
            (1) Modification to medical criteria for evaluation 
        of mental and emotional disorders.--The Commissioner of 
        Social Security shall modify sections 112.00C.2. and 
        112.02B.2.c.(2) of appendix 1 to subpart P of part 404 
        of title 20, Code of Federal Regulations, to eliminate 
        references to maladaptive behavior in the domain of 
        personal/behavorial function.
            (2) Discontinuance of individualized functional 
        assessment.--The Commissioner of Social Security shall 
        discontinue the individualized functional assessment 
        for children set forth in sections 416.924d and 
        416.924e of title 20, Code of Federal Regulations.
    (c) Medical Improvement Review Standard as it Applies to 
Individuals Under the Age of 18.--Section 1614(a)(4) (42 U.S.C. 
1382(a)(4)) is amended--
            (1) by redesignating subclauses (I) and (II) of 
        clauses (i) and (ii) of subparagraph (B) as subclauses 
        (aa) and (bb), respectively;
            (2) by redesignating clauses (i) and (ii) of 
        subparagraphs (A) and (B) as subclauses (I) and (II), 
        respectively;
            (3) by redesignating subparagraphs (A) through (C) 
        as clauses (i) through (iii), respectively, and by 
        moving their left hand margin 2 ems to the right;
            (4) by inserting before clause (i) (as redesignated 
        by paragraph (3)) the following:
                    ``(A) in the case of an individual who is 
                age 18 or older--'';
            (5) at the end of subparagraph (A)(iii) (as 
        redesignated by paragraphs (3) and (4)), by striking 
        the period and inserting ``; or'';
            (6) by inserting after and below subparagraph 
        (A)(iii) (as so redesignated) the following:
                    ``(B) in the case of an individual who is 
                under the age of 18--
                            ``(i) substantial evidence which 
                        demonstrates that there has been 
                        medical improvement in the individual's 
                        impairment or combination of 
                        impairments, and that such impairment 
                        or combination of impairments no longer 
                        results in marked and severe functional 
                        limitations; or
                            ``(ii) substantial evidence which 
                        demonstrates that, as determined on the 
                        basis of new or improved diagnostic 
                        techniques or evaluations, the 
                        individual's impairment or combination 
                        of impairments, is not as disabling as 
                        it was considered to be at the time of 
                        the most recent prior decision that he 
                        or she was under a disability or 
                        continued to be under a disability, and 
                        such impairment or combination of 
                        impairments does not result in marked 
                        or severe functional limitations; or'';
            (7) by redesignating subparagraph (D) as 
        subparagraph (C) and by inserting in such subparagraph 
        ``in the case of any individual,'' before ``substantial 
        evidence''; and
            (8) in the first sentence following subparagraph 
        (C) (as redesignated by paragraph (7)), by--
                    (A) inserting ``(i)'' before ``to 
                restore''; and
                    (B) inserting ``, or (ii) in the case of an 
                individual under the age of 18, to eliminate or 
                improve the individual's impairment or 
                combination of impairments so that it no longer 
                results in marked and severe functional 
                limitations'' immediately before the period.
    (d) Amount of Benefits.--Section 1611(b) (42 U.S.C. 
1382(b)) is amended by adding at the end the following new 
paragraph:
    ``(3)(i) Except with respect to individuals described in 
clause (ii), the benefit under this title for an individual 
described in section 1614(a)(3)(C) shall be payable at a rate 
equal to 75 percent of the rate otherwise determined under this 
subsection.
    ``(ii) An individual is described in this clause if such 
individual is described in section 1614(a)(3)(C), and--
            ``(I) in the case of such an individual under the 
        age of 6, such individual has a medical impairment that 
        severely limits the individual's ability to function in 
        a manner appropriate to individuals of the same age and 
        who without special personal assistance would require 
        specialized care outside the home; or
            ``(II) in the case of such an individual who has 
        attained the age of 6, such individual requires 
        personal care assistance with--
                    ``(aa) at least 2 activities of daily 
                living;
                    ``(bb) continual 24-hour supervision or 
                monitoring to avoid causing injury or harm to 
                self or others; or
                    ``(cc) the administration of medical 
                treatment; and
        who without such assistance would require full-time or 
        part-time specialized care outside the home.
    ``(iii)(I) For purposes of clause (ii), the term 
`specialized care' means medical care beyond routine 
administration of medication.
    ``(II) For purposes of clause (ii)(II)--
            ``(aa) the term `personal care assistance' means at 
        least hands-on and stand-by assistance, supervision, or 
        cueing; and
            ``(bb) the term `activities of daily living' means 
        eating, toileting, dressing, bathing, and mobility.''.
    (e) Effective Dates, Etc.--
            (1) Effective dates.--
                    (A) In general.--The provisions of, and 
                amendments made by, subsections (a), (b), and 
                (c) shall apply to applicants for benefits 
                under title XVI of the Social Security Act for 
                months beginning on or after the date of the 
                enactment of this Act, without regard to 
                whether regulations have been issued to 
                implement such provisions and amendments.
                    (B) Eligibility rules.--The amendments made 
                by subsection (d) shall apply to--
                            (i) applicants for benefits under 
                        title XVI of the Social Security Act 
                        for months beginning on or after 
                        January 1, 1997; and
                            (ii) with respect to continuing 
                        disability reviews of eligibility for 
                        benefits under such title occurring on 
                        or after such date.
            (2) Application to current recipients.--
                    (A) Eligibility determinations.--Not later 
                than 1 year after the date of the enactment of 
                this Act, the Commissioner of Social Security 
                shall redetermine the eligibility of any 
                individual under age 18 who is receiving 
                supplemental security income benefits based on 
                a disability under title XVI of the Social 
                Security Act as of the date of the enactment of 
                this Act and whose eligibility for such 
                benefits may terminate by reason of the 
                provisions of, and amendments made by, 
                subsections (a), (b), and (c). With respect to 
                any redetermination under this subparagraph--
                            (i) section 1614(a)(4) of the 
                        Social Security Act (42 U.S.C. 
                        1382c(a)(4)) shall not apply;
                            (ii) the Commissioner of Social 
                        Security shall apply the eligibility 
                        criteria for new applicants for 
                        benefits under title XVI of such Act;
                            (iii) the Commissioner shall give 
                        such redetermination priority over all 
                        continuing eligibility reviews and 
                        other reviews under such title; and
                            (iv) such redetermination shall be 
                        counted as a review or redetermination 
                        otherwise required to be made under 
                        section 208 of the Social Security 
                        Independence and Program Improvements 
                        Act of 1994 or any other provision of 
                        title XVI of the Social Security Act.
                    (B) Grandfather provision.--The provisions 
                of, and amendments made by, subsections (a), 
                (b), and (c), and the redetermination under 
                subparagraph (A), shall only apply with respect 
                to the benefits of an individual described in 
                subparagraph (A) for months beginning on or 
                after January 1, 1997.
                    (C) Notice.--Not later than 90 days after 
                the date of the enactment of this Act, the 
                Commissioner of Social Security shall notify an 
                individual described in subparagraph (A) of the 
                provisions of this paragraph.
            (3) Regulations.--The Commissioner of Social 
        Security shall submit for review to the committees of 
        jurisdiction in the Congress any final regulation 
        pertaining to the eligibility of individuals under age 
        18 for benefits under title XVI of the Social Security 
        Act at least 45 days before the effective date of such 
        regulation. The submission under this paragraph shall 
        include supporting documentation providing a cost 
        analysis, workload impact, and projections as to how 
        the regulation will effect the future number of 
        recipients under such title.
            (4) Appropriations.--
                    (A) In general.--Out of any money in the 
                Treasury not otherwise appropriated, there are 
                authorized to be appropriated and are hereby 
                appropriated, to remain available without 
                fiscal year limitation, $200,000,000 for fiscal 
                year 1996, $75,000,000 for fiscal year 1997, 
                and $25,000,000 for fiscal year 1998, for the 
                Commissioner of Social Security to utilize only 
                for continuing disability reviews and 
                redeterminations under title XVI of the Social 
                Security Act, with reviews and redeterminations 
                for individuals affected by the provisions of 
                subsection (b) given highest priority.
                    (B) Additional funds.--Amounts appropriated 
                under subparagraph (A) shall be in addition to 
                any funds otherwise appropriated for continuing 
                disability reviews and redeterminations under 
                title XVI of the Social Security Act.

SEC. 12212. ELIGIBILITY REDETERMINATIONS AND CONTINUING DISABILITY 
                    REVIEWS.

    (a) Continuing Disability Reviews Relating to Certain 
Children.--Section 1614(a)(3)(H) (42 U.S.C. 1382c(a)(3)(H)), as 
redesignated by section 12211(a)(3), is amended--
            (1) by inserting ``(i)'' after ``(H)''; and
            (2) by adding at the end the following new clause:
    ``(ii)(I) Not less frequently than once every 3 years, the 
Commissioner shall review in accordance with paragraph (4) the 
continued eligibility for benefits under this title of each 
individual who has not attained 18 years of age and is eligible 
for such benefits by reason of an impairment (or combination of 
impairments) which may improve (or, at the option of the 
Commissioner, which is unlikely to improve).
    ``(II) A representative payee of a recipient whose case is 
reviewed under this clause shall present, at the time of 
review, evidence demonstrating that the recipient is, and has 
been, receiving treatment, to the extent considered medically 
necessary and available, of the condition which was the basis 
for providing benefits under this title.
    ``(III) If the representative payee refuses to comply 
without good cause with the requirements of subclause (II), the 
Commissioner of Social Security shall, if the Commissioner 
determines it is in the best interest of the individual, 
promptly terminate payment of benefits to the representative 
payee, and provide for payment of benefits to an alternative 
representative payee of the individual or, if the interest of 
the individual under this title would be served thereby, to the 
individual.
    ``(IV) Subclause (II) shall not apply to the representative 
payee of any individual with respect to whom the Commissioner 
determines such application would be inappropriate or 
unnecessary. In making such determination, the Commissioner 
shall take into consideration the nature of the individual's 
impairment (or combination of impairments). Section 1631(c) 
shall not apply to a finding by the Commissioner that the 
requirements of subclause (II) should not apply to an 
individual's representative payee.''.
    (b) Disability Eligibility Redeterminations Required for 
SSI Recipients Who Attain 18 Years of Age.--
            (1) In general.--Section 1614(a)(3)(H) (42 U.S.C. 
        1382c(a)(3)(H)), as amended by subsection (a), is 
        amended by adding at the end the following new clause:
    ``(iii) If an individual is eligible for benefits under 
this title by reason of disability for the month preceding the 
month in which the individual attains the age of 18 years, the 
Commissioner shall redetermine such eligibility--
            ``(I) during the 1-year period beginning on the 
        individual's 18th birthday; and
            ``(II) by applying the criteria used in determining 
        the initial eligibility for applicants who are age 18 
        or older.
With respect to a redetermination under this clause, paragraph 
(4) shall not apply and such redetermination shall be 
considered a substitute for a review or redetermination 
otherwise required under any other provision of this 
subparagraph during that 1-year period.''.
            (2) Conforming repeal.--Section 207 of the Social 
        Security Independence and Program Improvements Act of 
        1994 (42 U.S.C. 1382 note; 108 Stat. 1516) is hereby 
        repealed.
    (c) Continuing Disability Review Required for Low Birth 
Weight Babies.--Section 1614(a)(3)(H) (42 U.S.C. 
1382c(a)(3)(H)), as amended by subsections (a) and (b), is 
amended by adding at the end the following new clause:
    ``(iv)(I) Not later than 12 months after the birth of an 
individual, the Commissioner shall review in accordance with 
paragraph (4) the continuing eligibility for benefits under 
this title by reason of disability of such individual whose low 
birth weight is a contributing factor material to the 
Commissioner's determination that the individual is disabled.
    ``(II) A review under subclause (I) shall be considered a 
substitute for a review otherwise required under any other 
provision of this subparagraph during that 12-month period.
    ``(III) A representative payee of a recipient whose case is 
reviewed under this clause shall present, at the time of 
review, evidence demonstrating that the recipient is, and has 
been, receiving treatment, to the extent considered medically 
necessary and available, of the condition which was the basis 
for providing benefits under this title.
    ``(IV) If the representative payee refuses to comply 
without good cause with the requirements of subclause (III), 
the Commissioner of Social Security shall, if the Commissioner 
determines it is in the best interest of the individual, 
promptly terminate payment of benefits to the representative 
payee, and provide for payment of benefits to an alternative 
representative payee of the individual or, if the interest of 
the individual under this title would be served thereby, to the 
individual.
    ``(V) Subclause (III) shall not apply to the representative 
payee of any individual with respect to whom the Commissioner 
determines such application would be inappropriate or 
unnecessary. In making such determination, the Commissioner 
shall take into consideration the nature of the individual's 
impairment (or combination of impairments). Section 1631(c) 
shall not apply to a finding by the Commissioner that the 
requirements of subclause (III) should not apply to an 
individual's representative payee.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to benefits for months beginning on or after the 
date of the enactment of this Act, without regard to whether 
regulations have been issued to implement such amendments.

SEC. 12213. ADDITIONAL ACCOUNTABILITY REQUIREMENTS.

    (a) Disposal of Resources for Less Than Fair Market 
Value.--
            (1) In general.--Section 1613(c) (42 U.S.C. 
        1382b(c)) is amended to read as follows:
    ``(c) Disposal of Resources for Less Than Fair Market 
Value.--(1)(A)(i) If an individual who has not attained 18 
years of age (or any person acting on such individual's behalf) 
disposes of resources of the individual for less than fair 
market value on or after the look-back date specified in clause 
(ii)(I), the individual is ineligible for benefits under this 
title for months during the period beginning on the date 
specified in clause (iii) and equal to the number of months 
specified in clause (iv).
    ``(ii)(I) The look-back date specified in this subclause is 
a date that is 36 months before the date specified in subclause 
(II).
    ``(II) The date specified in this subclause is the date on 
which the individual applies for benefits under this title or, 
if later, the date on which the disposal of the individual's 
resources for less than fair market value occurs.
    ``(iii) The date specified in this clause is the first day 
of the first month that follows the month in which the 
individual's resources were disposed of for less than fair 
market value and that does not occur in any other period of 
ineligibility under this paragraph.
    ``(iv) The number of months of ineligibility under this 
clause for an individual shall be equal to--
            ``(I) the total, cumulative uncompensated value of 
        all the individual's resources so disposed of on or 
        after the look-back date specified in clause (ii)(I), 
        divided by
            ``(II) the amount of the maximum monthly benefit 
        payable under section 1611(b) to an eligible individual 
        for the month in which the date specified in clause 
        (ii)(II) occurs.
    ``(B) An individual shall not be ineligible for benefits 
under this title by reason of subparagraph (A) if the 
Commissioner determines that--
            ``(i) the individual intended to dispose of the 
        resources at fair market value;
            ``(ii) the resources were transferred exclusively 
        for a purpose other than to qualify for benefits under 
        this title;
            ``(iii) all resources transferred for less than 
        fair market value have been returned to the individual; 
        or
            ``(iv) the denial of eligibility would work an 
        undue hardship on the individual (as determined on the 
        basis of criteria established by the Commissioner in 
        regulations).
    ``(C) For purposes of this paragraph, in the case of a 
resource held by an individual in common with another person or 
persons in a joint tenancy, tenancy in common, or similar 
arrangement, the resource (or the affected portion of such 
resource) shall be considered to be disposed of by such 
individual when any action is taken, either by such individual 
or by any other person, that reduces or eliminates such 
individual's ownership or control of such resource.
    ``(D)(i) Notwithstanding subparagraph (A), this subsection 
shall not apply to a transfer of a resource to a trust if the 
portion of the trust attributable to such resource is 
considered a resource available to the individual pursuant to 
subsection (e)(3) (or would be so considered, but for the 
application of subsection (e)(4)).
    ``(ii) In the case of a trust established by an individual 
(within the meaning of paragraph (2)(A) of subsection (e)), if 
from such portion of the trust (if any) that is considered a 
resource available to the individual pursuant to paragraph (3) 
of such subsection (or would be so considered but for the 
application of paragraph (2) of such subsection) or the residue 
of such portion upon the termination of the trust--
            ``(I) there is made a payment other than to or for 
        the benefit of the individual, or
            ``(II) no payment could under any circumstance be 
        made to the individual,
then the payment described in subclause (I) or the foreclosure 
of payment described in subclause (II) shall be considered a 
disposal of resources by the individual subject to this 
subsection, as of the date of such payment or foreclosure, 
respectively.
    ``(2)(A) At the time an individual (and the individual's 
eligible spouse, if any) applies for benefits under this title, 
and at the time the eligibility of an individual (and such 
spouse, if any) for such benefits is redetermined, the 
Commissioner of Social Security shall--
            ``(i) inform such individual of the provisions of 
        paragraph (1) providing for a period of ineligibility 
        for benefits under this title for individuals who make 
        certain dispositions of resources for less than fair 
        market value, and inform such individual that 
        information obtained pursuant to clause (ii) will be 
        made available to the State agency administering a 
        State plan under title XXI (as provided in subparagraph 
        (B)); and
            ``(ii) obtain from such individual information 
        which may be used in determining whether or not a 
        period of ineligibility for such benefits would be 
        required by reason of paragraph (1).
    ``(B) The Commissioner of Social Security shall make the 
information obtained under subparagraph (A)(ii) available, on 
request, to any State agency administering a State plan 
approved under title XXI.
    ``(3) For purposes of this subsection--
            ``(A) the term `trust' includes any legal 
        instrument or device that is similar to a trust; and
            ``(B) the term `benefits under this title' includes 
        supplementary payments pursuant to an agreement for 
        Federal administration under section 1616(a), and 
        payments pursuant to an agreement entered into under 
        section 212(b) of Public Law 93-66.''.
            (2) Effective date.--The amendment made by this 
        subsection shall be effective with respect to transfers 
        of resources for less than fair market value that occur 
        at least 90 days after the date of the enactment of 
        this Act.
    (b) Treatment of Assets Held in Trust.--
            (1) Treatment as resource.--Section 1613 (42 U.S.C. 
        1382) is amended by adding at the end the following new 
        subsection:


                                ``trusts


    ``(e)(1) In determining the resources of an individual who 
has not attained 18 years of age, the provisions of paragraph 
(3) shall apply to a trust established by such individual.
    ``(2)(A) For purposes of this subsection, an individual 
shall be considered to have established a trust if any assets 
of the individual were transferred to the trust.
    ``(B) In the case of an irrevocable trust to which the 
assets of an individual and the assets of any other person or 
persons were transferred, the provisions of this subsection 
shall apply to the portion of the trust attributable to the 
assets of the individual.
    ``(C) This subsection shall apply without regard to--
            ``(i) the purposes for which the trust is 
        established;
            ``(ii) whether the trustees have or exercise any 
        discretion under the trust;
            ``(iii) any restrictions on when or whether 
        distributions may be made from the trust; or
            ``(iv) any restrictions on the use of distributions 
        from the trust.
    ``(3)(A) In the case of a revocable trust, the corpus of 
the trust shall be considered a resource available to the 
individual.
    ``(B) In the case of an irrevocable trust, if there are any 
circumstances under which payment from the trust could be made 
to or for the benefit of the individual, the portion of the 
corpus from which payment to or for the benefit of the 
individual could be made shall be considered a resource 
available to the individual.
    ``(4) The Commissioner may waive the application of this 
subsection with respect to any individual if the Commissioner 
determines, on the basis of criteria prescribed in regulations, 
that such application would work an undue hardship on such 
individual.
    ``(5) For purposes of this subsection--
            ``(A) the term `trust' includes any legal 
        instrument or device that is similar to a trust;
            ``(B) the term `corpus' means all property and 
        other interests held by the trust, including 
        accumulated earnings and any other addition to such 
        trust after its establishment (except that such term 
        does not include any such earnings or addition in the 
        month in which such earnings or addition is credited or 
        otherwise transferred to the trust);
            ``(C) the term `asset' includes any income or 
        resource of the individual, including--
                    ``(i) any income otherwise excluded by 
                section 1612(b);
                    ``(ii) any resource otherwise excluded by 
                this section; and
                    ``(iii) any other payment or property that 
                the individual is entitled to but does not 
                receive or have access to because of action 
                by--
                            ``(I) such individual;
                            ``(II) a person or entity 
                        (including a court) with legal 
                        authority to act in place of, or on 
                        behalf of, such individual; or
                            ``(III) a person or entity 
                        (including a court) acting at the 
                        direction of, or upon the request of, 
                        such individual; and
            ``(D) the term `benefits under this title' includes 
        supplementary payments pursuant to an agreement for 
        Federal administration under section 1616(a), and 
        payments pursuant to an agreement entered into under 
        section 212(b) of Public Law 93-66.''.
            (2) Treatment as income.--Section 1612(a)(2) (42 
        U.S.C. 1382a(a)(2)) is amended--
                    (A) by striking ``and'' at the end of 
                subparagraph (E);
                    (B) by striking the period at the end of 
                subparagraph (F) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(G) any earnings of, and additions to, 
                the corpus of a trust (as defined in section 
                1613(f)) established by an individual (within 
                the meaning of paragraph (2)(A) of section 
                1613(e)) and of which such individual is a 
                beneficiary (other than a trust to which 
                paragraph (4) of such section applies); except 
                that in the case of an irrevocable trust, there 
                shall exist circumstances under which payment 
                from such earnings or additions could be made 
                to, or for the benefit of, such individual.''.
            (3) Effective date.--The amendments made by this 
        subsection shall take effect on January 1, 1996, and 
        shall apply to trusts established on or after such 
        date.
    (c) Requirement To Establish Account.--
            (1) In general.--Section 1631(a)(2) (42 U.S.C. 
        1383(a)(2)) is amended--
                    (A) by redesignating subparagraphs (F) and 
                (G) as subparagraphs (G) and (H), respectively; 
                and
                    (B) by inserting after subparagraph (E) the 
                following new subparagraph:
    ``(F)(i)(I) Each representative payee of an eligible 
individual under the age of 18 who is eligible for the payment 
of benefits described in subclause (II) shall establish on 
behalf of such individual an account in a financial institution 
into which such benefits shall be paid, and shall thereafter 
maintain such account for use in accordance with clause (ii).
    ``(II) Benefits described in this subclause are past-due 
monthly benefits under this title (which, for purposes of this 
subclause, include State supplementary payments made by the 
Commissioner pursuant to an agreement under section 1616 or 
section 212(b) of Public Law 93-66) in an amount (after any 
withholding by the Commissioner for reimbursement to a State 
for interim assistance under subsection (g)) that exceeds the 
product of--
            ``(aa) 6, and
            ``(bb) the maximum monthly benefit payable under 
        this title to an eligible individual.
    ``(ii)(I) A representative payee may use funds in the 
account established under clause (i) to pay for allowable 
expenses described in subclause (II).
    ``(II) An allowable expense described in this subclause is 
an expense for--
            ``(aa) education or job skills training;
            ``(bb) personal needs assistance;
            ``(cc) special equipment;
            ``(dd) housing modification;
            ``(ee) medical treatment;
            ``(ff) therapy or rehabilitation; or
            ``(gg) any other item or service that the 
        Commissioner determines to be appropriate;
provided that such expense benefits such individual and, in the 
case of an expense described in division (cc), (dd), (ff), or 
(gg), is related to the impairment (or combination of 
impairments) of such individual.
    ``(III) The use of funds from an account established under 
clause (i) in any manner not authorized by this clause--
            ``(aa) by a representative payee shall constitute 
        misuse of benefits for all purposes of this paragraph, 
        and any representative payee who knowingly misuses 
        benefits from such an account shall be liable to the 
        Commissioner in an amount equal to the total amount of 
        such misused benefits; and
            ``(bb) by an eligible individual who is his or her 
        own representative payee shall be considered an 
        overpayment subject to recovery under subsection (b).
    ``(IV) This clause shall continue to apply to funds in the 
account after the child has reached age 18, regardless of 
whether benefits are paid directly to the beneficiary or 
through a representative payee.
    ``(iii) The representative payee may deposit into the 
account established pursuant to clause (i)--
            ``(I) past-due benefits payable to the eligible 
        individual in an amount less than that specified in 
        clause (i)(II), and
            ``(II) any other funds representing an underpayment 
        under this title to such individual, provided that the 
        amount of such underpayment is equal to or exceeds the 
        maximum monthly benefit payable under this title to an 
        eligible individual.
    ``(iv) The Commissioner of Social Security shall establish 
a system for accountability monitoring whereby such 
representative payee shall report, at such time and in such 
manner as the Commissioner shall require, on activity 
respecting funds in the account established pursuant to clause 
(i).''.
            (2) Exclusion from resources.--Section 1613(a) (42 
        U.S.C. 1382b(a)) is amended--
                    (A) in paragraph (9), by striking ``; and'' 
                and inserting a semicolon;
                    (B) in the first paragraph (10), by 
                striking the period and inserting a semicolon;
                    (C) by redesignating the second paragraph 
                (10) as paragraph (11), and by striking the 
                period and inserting ``; and''; and
                    (D) by adding at the end the following:
            ``(12) the assets and accrued interest or other 
        earnings of any account established and maintained in 
        accordance with section 1631(a)(2)(F).''.
            (3) Exclusion from income.--Section 1612(b) (42 
        U.S.C. 1382a(b)) is amended--
                    (A) by striking ``and'' at the end of 
                paragraph (19);
                    (B) by striking the period at the end of 
                paragraph (20) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(21) the interest or other earnings on any 
        account established and maintained in accordance with 
        section 1631(a)(2)(F).''.
            (4) Effective date.--The amendments made by this 
        subsection shall apply to payments made after the date 
        of the enactment of this Act.

SEC. 12214. REDUCTION IN CASH BENEFITS PAYABLE TO INSTITUTIONALIZED 
                    INDIVIDUALS WHOSE MEDICAL COSTS ARE COVERED BY 
                    PRIVATE INSURANCE.

    (a) In General.--Section 1611(e)(1)(B) (42 U.S.C. 
1382(e)(1)(B)) is amended--
            (1) by striking ``title XIX, or'' and inserting 
        ``title XIX,''; and
            (2) by inserting ``or, in the case of an eligible 
        individual under the age of 18 receiving payments (with 
        respect to such individual) under any health insurance 
        policy issued by a private provider of such insurance'' 
        after ``section 1614(f)(2)(B),''.
    (b) Effective Date.--The amendment made by this section 
shall apply to benefits for months beginning 90 or more days 
after the date of the enactment of this Act, without regard to 
whether regulations have been issued to implement such 
amendments.

SEC. 12215. REGULATIONS.

    Within 3 months after the date of the enactment of this 
Act, the Commissioner of Social Security shall prescribe such 
regulations as may be necessary to implement the amendments 
made by sections 12211, 12212, 12213, and 12214.

                       Subtitle C--Child Support

SEC. 12300. REFERENCE TO SOCIAL SECURITY ACT.

    Except as otherwise specifically provided, where ever in 
this subtitle an amendment is expressed in terms of an 
amendment to or repeal of a section or other provision, the 
reference shall be considered to be made to that section or 
other provision of the Social Security Act.

     CHAPTER 1--ELIGIBILITY FOR SERVICES; DISTRIBUTION OF PAYMENTS

SEC. 12301. STATE OBLIGATION TO PROVIDE CHILD SUPPORT ENFORCEMENT 
                    SERVICES.

    (a) State Plan Requirements.--Section 454 (42 U.S.C. 654) 
is amended--
            (1) by striking paragraph (4) and inserting the 
        following new paragraph:
            ``(4) provide that the State will--
                    ``(A) provide services relating to the 
                establishment of paternity or the 
                establishment, modification, or enforcement of 
                child support obligations, as appropriate, 
                under the plan with respect to--
                            ``(i) each child for whom (I) 
                        assistance is provided under the State 
                        program funded under part A of this 
                        title, (II) benefits or services for 
                        foster care maintenance and adoption 
                        assistance are provided under the State 
                        program funded under part B of this 
                        title, or (III) medical assistance is 
                        provided under the State plan approved 
                        under title XXI, unless the State 
                        agency administering the plan 
                        determines (in accordance with 
                        paragraph (29)) that it is against the 
                        best interests of the child to do so; 
                        and
                            ``(ii) any other child, if an 
                        individual applies for such services 
                        with respect to the child; and
                    ``(B) enforce any support obligation 
                established with respect to--
                            ``(i) a child with respect to whom 
                        the State provides services under the 
                        plan; or
                            ``(ii) the custodial parent of such 
                        a child.''; and
            (2) in paragraph (6)--
                    (A) by striking ``provide that'' and 
                inserting ``provide that--'';
                    (B) by striking subparagraph (A) and 
                inserting the following new subparagraph:
                    ``(A) services under the plan shall be made 
                available to residents of other States on the 
                same terms as to residents of the State 
                submitting the plan;'';
                    (C) in subparagraph (B), by inserting ``on 
                individuals not receiving assistance under any 
                State program funded under part A'' after 
                ``such services shall be imposed'';
                    (D) in each of subparagraphs (B), (C), (D), 
                and (E)--
                            (i) by indenting the subparagraph 
                        in the same manner as, and aligning the 
                        left margin of the subparagraph with 
                        the left margin of, the matter inserted 
                        by subparagraph (B) of this paragraph; 
                        and
                            (ii) by striking the final comma 
                        and inserting a semicolon; and
                    (E) in subparagraph (E), by indenting each 
                of clauses (i) and (ii) 2 additional ems.
    (b) Continuation of Services for Families Ceasing To 
Receive Assistance Under the State Program Funded Under Part 
A.--Section 454 (42 U.S.C. 654) is amended--
            (1) by striking ``and'' at the end of paragraph 
        (23);
            (2) by striking the period at the end of paragraph 
        (24) and inserting ``; and''; and
            (3) by adding after paragraph (24) the following 
        new paragraph:
            ``(25) provide that if a family with respect to 
        which services are provided under the plan ceases to 
        receive assistance under the State program funded under 
        part A, the State shall provide appropriate notice to 
        the family and continue to provide such services, 
        subject to the same conditions and on the same basis as 
        in the case of other individuals to whom services are 
        furnished under the plan, except that an application or 
        other request to continue services shall not be 
        required of such a family and paragraph (6)(B) shall 
        not apply to the family.''.
    (c) Conforming Amendments.--
            (1) Section 452(b) (42 U.S.C. 652(b)) is amended by 
        striking ``454(6)'' and inserting ``454(4)''.
            (2) Section 452(g)(2)(A) (42 U.S.C. 652(g)(2)(A)) 
        is amended by striking ``454(6)'' each place it appears 
        and inserting ``454(4)(A)(ii)''.
            (3) Section 466(a)(3)(B) (42 U.S.C. 666(a)(3)(B)) 
        is amended by striking ``in the case of overdue support 
        which a State has agreed to collect under section 
        454(6)'' and inserting ``in any other case''.
            (4) Section 466(e) (42 U.S.C. 666(e)) is amended by 
        striking ``paragraph (4) or (6) of section 454'' and 
        inserting ``section 454(4)''.

SEC. 12302. DISTRIBUTION OF CHILD SUPPORT COLLECTIONS.

    (a) In General.--Section 457 (42 U.S.C. 657) is amended to 
read as follows:

``SEC. 457. DISTRIBUTION OF COLLECTED SUPPORT.

    ``(a) In General.--An amount collected on behalf of a 
family as support by a State pursuant to a plan approved under 
this part shall be distributed as follows:
            ``(1) Families receiving assistance.--In the case 
        of a family receiving assistance from the State, the 
        State shall--
                    ``(A) retain, or distribute to the family, 
                the State share of the amount so collected; and
                    ``(B) pay to the Federal Government the 
                Federal share of the amount so collected.
            ``(2) Families that formerly received assistance.--
        In the case of a family that formerly received 
        assistance from the State:
                    ``(A) Current support payments.--To the 
                extent that the amount so collected does not 
                exceed the amount required to be paid to the 
                family for the month in which collected, the 
                State shall distribute the amount so collected 
                to the family.
                    ``(B) Payments of arrearages.--To the 
                extent that the amount so collected exceeds the 
                amount required to be paid to the family for 
                the month in which collected, the State shall 
                distribute the amount so collected as follows:
                            ``(i) Distribution of arrearages 
                        that accrued after the family ceased to 
                        receive assistance.--
                                    ``(I) Pre-October 1997.--
                                The provisions of this section 
                                (other than subsection (b)(1)) 
                                as in effect on the day before 
                                the date of the enactment of 
                                section 12302 of the Personal 
                                Responsibility and Work 
                                Opportunity Act of 1995 shall 
                                apply with respect to the 
                                distribution of support 
                                arrearages that--
                                            ``(aa) accrued 
                                        after the family ceased 
                                        to receive assistance, 
                                        and
                                            ``(bb) are 
                                        collected before 
                                        October 1, 1997.
                                    ``(II) Post-September 
                                1997.--With respect to amounts 
                                collected on or after October 
                                1, 1997--
                                            ``(aa) In 
                                        general.--The State 
                                        shall distribute any 
                                        amount collected (other 
                                        than amounts described 
                                        in clause (iv)) to the 
                                        family to the extent 
                                        necessary to satisfy 
                                        any support arrearages 
                                        with respect to the 
                                        family that accrued 
                                        after the family ceased 
                                        to receive assistance 
                                        from the State.
                                            ``(bb) 
                                        Reimbursement of 
                                        governments for 
                                        assistance provided to 
                                        the family.--To the 
                                        extent that division 
                                        (aa) does not apply to 
                                        the amount, the State 
                                        shall retain the State 
                                        share of the amount so 
                                        collected, and pay to 
                                        the Federal Government 
                                        the Federal share (as 
                                        defined in subsection 
                                        (c)(2)(A)) of the 
                                        amount so collected, to 
                                        the extent necessary to 
                                        reimburse amounts paid 
                                        to the family as 
                                        assistance by the 
                                        State.
                                            ``(cc) Distribution 
                                        of the remainder to the 
                                        family.--To the extent 
                                        that neither division 
                                        (aa) nor division (bb) 
                                        applies to the amount 
                                        so collected, the State 
                                        shall distribute the 
                                        amount to the family.
                            ``(ii) Distribution of arrearages 
                        that accrued before the family received 
                        assistance.--
                                    ``(I) Pre-October 2000.--
                                The provisions of this section 
                                (other than subsection (b)(1)) 
                                as in effect on the day before 
                                the date of the enactment of 
                                section 12302 of the Personal 
                                Responsibility and Work 
                                Opportunity Act of 1995 shall 
                                apply with respect to the 
                                distribution of support 
                                arrearages that--
                                            ``(aa) accrued 
                                        before the family 
                                        received assistance, 
                                        and
                                            ``(bb) are 
                                        collected before 
                                        October 1, 2000.
                                    ``(II) Post-September 
                                2000.--Unless based on the 
                                report required by paragraph 
                                (4), the Congress determines 
                                otherwise, with respect to 
                                amounts collected on or after 
                                October 1, 2000--
                                            ``(aa) In 
                                        general.--The State 
                                        shall first distribute 
                                        any amount collected 
                                        (other than amounts 
                                        described in clause 
                                        (iv)) to the family to 
                                        the extent necessary to 
                                        satisfy any support 
                                        arrears with respect to 
                                        the family that accrued 
                                        before the family 
                                        received assistance 
                                        from the State .
                                            ``(bb) 
                                        Reimbursement of 
                                        governments for 
                                        assistance provided to 
                                        the family.--The State 
                                        shall retain the State 
                                        share of the amounts so 
                                        collected in excess of 
                                        those distributed 
                                        pursuant to division 
                                        (aa) and pay to the 
                                        Federal Government the 
                                        Federal share (as 
                                        defined in subsection 
                                        (c)(2)) of the amount 
                                        so collected, to the 
                                        extent necessary to 
                                        reimburse all or part 
                                        of the amounts paid to 
                                        the family as 
                                        assistance by the 
                                        State.
                                            ``(cc) Distribution 
                                        of the remainder to the 
                                        family.--To the extent 
                                        that neither division 
                                        (aa) nor division (bb) 
                                        applies to the amount 
                                        so collected, the State 
                                        shall distribute the 
                                        amount to the family.
                            ``(iii) Distribution of arrearages 
                        that accrued while the family received 
                        assistance.--In the case of a family 
                        described in this subparagraph, the 
                        provisions of paragraph (1) shall apply 
                        with respect to the distribution of 
                        support arrearages that accrued while 
                        the family received assistance.
                            ``(iv) Amounts collected pursuant 
                        to section 464.--Notwithstanding any 
                        other provision of this section, any 
                        amount of support collected pursuant to 
                        section 464 shall be retained by the 
                        State to the extent necessary to 
                        reimburse amounts paid to the family as 
                        assistance by the State. The State 
                        shall pay to the Federal Government the 
                        Federal share of the amounts so 
                        retained. To the extent the amount 
                        collected pursuant to section 464 
                        exceeds the amount so retained, the 
                        State shall distribute the excess to 
                        the family.
                            ``(v) Ordering rules for 
                        distributions.--For purposes of this 
                        subparagraph, the State shall treat any 
                        support arrearages collected as 
                        accruing in the following order:
                                    ``(I) to the period after 
                                the family ceased to receive 
                                assistance;
                                    ``(II) to the period before 
                                the family received assistance; 
                                and
                                    ``(III) to the period while 
                                the family was receiving 
                                assistance.
            ``(3) Families that never received assistance.--In 
        the case of any other family, the State shall 
        distribute the amount so collected to the family.
            ``(4) Study and report.--Not later than October 1, 
        1998, the Secretary shall report to the Congress the 
        Secretary's findings with respect to--
                    ``(A) whether the distribution of post-
                assistance arrearages to families has been 
                effective in moving people off of welfare and 
                keeping them off of welfare;
                    ``(B) whether early implementation of a 
                pre-assistance arrearage program by some states 
                has been effective in moving people off of 
                welfare and keeping them off of welfare;
                    ``(C) what the overall impact has been of 
                the amendments made by the Personal 
                Responsibility and Work Opportunity Act of 1995 
                with respect to child support enforcement in 
                moving people off of welfare and keeping them 
                off of welfare; and
                    ``(D) based on the information and data the 
                Secretary has obtained, what changes, if any, 
                should be made in the policies related to the 
                distribution of child support arrearages.
    ``(b) Continuation of Assignments.--Any rights to support 
obligations, which were assigned to a State as a condition of 
receiving assistance from the State under part A and which were 
in effect on the day before the date of the enactment of the 
Personal Responsibility and Work Opportunity Act of 1995, shall 
remain assigned after such date.
    ``(c) Definitions.--As used in subsection (a):
            ``(1) Assistance.--The term `assistance from the 
        State' means--
                    ``(A) assistance under the State program 
                funded under part A or under the State plan 
                approved under part A of this title (as in 
                effect on the day before the date of the 
                enactment of the Personal Responsibility and 
                Work Opportunity Act of 1995); or
                    ``(B) benefits under the State plan 
                approved under part E of this title (as in 
                effect on the day before the date of the 
                enactment of the Personal Responsibility and 
                Work Opportunity Act of 1995).
            ``(2) Federal share.--The term `Federal share' 
        means--
                    ``(A) if the amounts collected and retained 
                by the State (to the extent necessary to 
                reimburse amounts paid to families as 
                assistance by the State) are equal to or 
                greater than such amounts collected in fiscal 
                year 1995 (reduced by amounts not retained by 
                the State in fiscal year 1995 as a result of 
                the application of subsection (b)(1) of this 
                section as in effect on the day before the date 
                of the enactment of the Personal Responsibility 
                and Work Opportunity Act of 1995), the highest 
                Federal medical assistance percentage in effect 
                for the State in fiscal year 1995 or any 
                succeeding year of the amount so collected; or
                    ``(B) if the amounts so collected and 
                retained by the State are less than such 
                amounts collected in fiscal year 1995 (reduced 
                by amounts not retained by the State in fiscal 
                year 1995 as a result of the application of 
                subsection (b)(1) of this section as in effect 
                on the day before the date of the enactment of 
                the Personal Responsibility and Work 
                Opportunity Act of 1995), the amounts so 
                collected and retained less the State share in 
                fiscal year 1995.
            ``(3) Federal medical assistance percentage.--The 
        term `Federal medical assistance percentage' means--
                    ``(A) the Federal medical assistance 
                percentage (as defined in section 1118), in the 
                case of Puerto Rico, the Virgin Islands, Guam, 
                and American Samoa; or
                    ``(B) the Federal medical assistance 
                percentage (as defined in section 2122(c)) in 
                the case of any other State.
            ``(4) State share.--The term `State share' means 
        100 percent minus the Federal share.
    ``(d) Continuation of Services for Families Ceasing To 
Receive Assistance Under the State Program Funded Under Part 
A.--When a family with respect to which services are provided 
under a State plan approved under this part ceases to receive 
assistance under the State program funded under part A, the 
State shall provide appropriate notice to the family and 
continue to provide such services, subject to the same 
conditions and on the same basis as in the case of individuals 
to whom services are furnished under section 454, except that 
an application or other request to continue services shall not 
be required of such a family and section 454(6)(B) shall not 
apply to the family.''.
    (b) Conforming Amendment.--Section 464(a)(1) (42 U.S.C. 
664(a)(1)) is amended by striking ``section 457(b)(4) or 
(d)(3)'' and inserting ``section 457''.
    (c) Effective Date.--The amendments made by this section 
shall be effective on October 1, 1996, or earlier at the 
State's option.

SEC. 12303. PRIVACY SAFEGUARDS.

    (a) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
as amended by section 12301(b) of this Act, is amended--
            (1) by striking ``and'' at the end of paragraph 
        (24);
            (2) by striking the period at the end of paragraph 
        (25) and inserting ``; and''; and
            (3) by adding after paragraph (25) the following 
        new paragraph:
            ``(26) will have in effect safeguards, applicable 
        to all confidential information handled by the State 
        agency, that are designed to protect the privacy rights 
        of the parties, including--
                    ``(A) safeguards against unauthorized use 
                or disclosure of information relating to 
                proceedings or actions to establish paternity, 
                or to establish or enforce support;
                    ``(B) prohibitions against the release of 
                information on the whereabouts of 1 party to 
                another party against whom a protective order 
                with respect to the former party has been 
                entered; and
                    ``(C) prohibitions against the release of 
                information on the whereabouts of 1 party to 
                another party if the State has reason to 
                believe that the release of the information may 
                result in physical or emotional harm to the 
                former party.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall become effective on October 1, 1997.

                  CHAPTER 2--LOCATE AND CASE TRACKING

SEC. 12311. STATE CASE REGISTRY.

    Section 454A, as added by section 12344(a)(2) of this Act, 
is amended by adding at the end the following new subsections:
    ``(e) State Case Registry.--
            ``(1) Contents.--The automated system required by 
        this section shall include a registry (which shall be 
        known as the `State case registry') that contains 
        records with respect to--
                    ``(A) each case in which services are being 
                provided by the State agency under the State 
                plan approved under this part; and
                    ``(B) each support order established or 
                modified in the State on or after October 1, 
                1998.
            ``(2) Linking of local registries.--The State case 
        registry may be established by linking local case 
        registries of support orders through an automated 
        information network, subject to this section.
            ``(3) Use of standardized data elements.--Such 
        records shall use standardized data elements for both 
        parents (such as names, social security numbers and 
        other uniform identification numbers, dates of birth, 
        and case identification numbers), and contain such 
        other information (such as on-case status) as the 
        Secretary may require.
            ``(4) Payment records.--Each case record in the 
        State case registry with respect to which services are 
        being provided under the State plan approved under this 
        part and with respect to which a support order has been 
        established shall include a record of--
                    ``(A) the amount of monthly (or other 
                periodic) support owed under the order, and 
                other amounts (including arrearages, interest 
                or late payment penalties, and fees) due or 
                overdue under the order;
                    ``(B) any amount described in subparagraph 
                (A) that has been collected;
                    ``(C) the distribution of such collected 
                amounts;
                    ``(D) the birth date of any child for whom 
                the order requires the provision of support; 
                and
                    ``(E) the amount of any lien imposed with 
                respect to the order pursuant to section 
                466(a)(4).
            ``(5) Updating and monitoring.--The State agency 
        operating the automated system required by this section 
        shall promptly establish and maintain, and regularly 
        monitor, case records in the State case registry with 
        respect to which services are being provided under the 
        State plan approved under this part, on the basis of--
                    ``(A) information on administrative actions 
                and administrative and judicial proceedings and 
                orders relating to paternity and support;
                    ``(B) information obtained from comparison 
                with Federal, State, or local sources of 
                information;
                    ``(C) information on support collections 
                and distributions; and
                    ``(D) any other relevant information.
    ``(f) Information Comparisons and Other Disclosures of 
Information.--The State shall use the automated system required 
by this section to extract information from (at such times, and 
in such standardized format or formats, as may be required by 
the Secretary), to share and compare information with, and to 
receive information from, other data bases and information 
comparison services, in order to obtain (or provide) 
information necessary to enable the State agency (or the 
Secretary or other State or Federal agencies) to carry out this 
part, subject to section 6103 of the Internal Revenue Code of 
1986. Such information comparison activities shall include the 
following:
            ``(1) Federal case registry of child support 
        orders.--Furnishing to the Federal Case Registry of 
        Child Support Orders established under section 453(h) 
        (and update as necessary, with information including 
        notice of expiration of orders) the minimum amount of 
        information on child support cases recorded in the 
        State case registry that is necessary to operate the 
        registry (as specified by the Secretary in 
        regulations).
            ``(2) Federal parent locator service.--Exchanging 
        information with the Federal Parent Locator Service for 
        the purposes specified in section 453.
            ``(3) Temporary family assistance and MediGrant 
        agencies.--Exchanging information with State agencies 
        (of the State and of other States) administering 
        programs funded under part A, programs operated under 
        State plans under title XXI, and other programs 
        designated by the Secretary, as necessary to perform 
        State agency responsibilities under this part and under 
        such programs.
            ``(4) Intrastate and interstate information 
        comparisons.--Exchanging information with other 
        agencies of the State, agencies of other States, and 
        interstate information networks, as necessary and 
        appropriate to carry out (or assist other States to 
        carry out) the purposes of this part.''.

SEC. 12312. COLLECTION AND DISBURSEMENT OF SUPPORT PAYMENTS.

    (a) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
as amended by sections 12301(b) and 12303(a) of this Act, is 
amended--
            (1) by striking ``and'' at the end of paragraph 
        (25);
            (2) by striking the period at the end of paragraph 
        (26) and inserting ``; and''; and
            (3) by adding after paragraph (26) the following 
        new paragraph:
            ``(27) provide that, on and after October 1, 1998, 
        the State agency will--
                    ``(A) operate a State disbursement unit in 
                accordance with section 454B; and
                    ``(B) have sufficient State staff 
                (consisting of State employees) and (at State 
                option) contractors reporting directly to the 
                State agency to--
                            ``(i) monitor and enforce support 
                        collections through the unit (including 
                        carrying out the automated data 
                        processing responsibilities described 
                        in section 454A(g)); and
                            ``(ii) take the actions described 
                        in section 466(c)(1) in appropriate 
                        cases.''.
    (b) Establishment of State Disbursement Unit.--Part D of 
title IV (42 U.S.C. 651-669), as amended by section 12344(a)(2) 
of this Act, is amended by inserting after section 454A the 
following new section:

``SEC. 454B. COLLECTION AND DISBURSEMENT OF SUPPORT PAYMENTS.

    ``(a) State Disbursement Unit.--
            ``(1) In general.--In order for a State to meet the 
        requirements of this section, the State agency must 
        establish and operate a unit (which shall be known as 
        the `State disbursement unit') for the collection and 
        disbursement of payments under support orders in all 
        cases being enforced by the State pursuant to section 
        454(4).
            ``(2) Operation.--The State disbursement unit shall 
        be operated--
                    ``(A) directly by the State agency (or 2 or 
                more State agencies under a regional 
                cooperative agreement), or (to the extent 
                appropriate) by a contractor responsible 
                directly to the State agency; and
                    ``(B) in coordination with the automated 
                system established by the State pursuant to 
                section 454A.
            ``(3) Linking of local disbursement units.--The 
        State disbursement unit may be established by linking 
        local disbursement units through an automated 
        information network, subject to this section, if the 
        Secretary agrees that the system will not cost more nor 
        take more time to establish or operate than a 
        centralized system. In addition, employers shall be 
        given 1 location to which income withholding is sent.
    ``(b) Required Procedures.--The State disbursement unit 
shall use automated procedures, electronic processes, and 
computer-driven technology to the maximum extent feasible, 
efficient, and economical, for the collection and disbursement 
of support payments, including procedures--
            ``(1) for receipt of payments from parents, 
        employers, and other States, and for disbursements to 
        custodial parents and other obligees, the State agency, 
        and the agencies of other States;
            ``(2) for accurate identification of payments;
            ``(3) to ensure prompt disbursement of the 
        custodial parent's share of any payment; and
            ``(4) to furnish to any parent, upon request, 
        timely information on the current status of support 
        payments under an order requiring payments to be made 
        by or to the parent.
    ``(c) Timing of Disbursements.--
            ``(1) In general.--Except as provided in paragraph 
        (2), the State disbursement unit shall distribute all 
        amounts payable under section 457(a) within 2 business 
        days after receipt from the employer or other source of 
        periodic income, if sufficient information identifying 
        the payee is provided.
            ``(2) Permissive retention of arrearages.--The 
        State disbursement unit may delay the distribution of 
        collections toward arrearages until the resolution of 
        any timely appeal with respect to such arrearages.
    ``(d) Business Day Defined.--As used in this section, the 
term `business day' means a day on which State offices are open 
for regular business.''.
    (c) Use of Automated System.--Section 454A, as added by 
section 12344(a)(2) and as amended by section 12311 of this 
Act, is amended by adding at the end the following new 
subsection:
    ``(g) Collection and Distribution of Support Payments.--
            ``(1) In general.--The State shall use the 
        automated system required by this section, to the 
        maximum extent feasible, to assist and facilitate the 
        collection and disbursement of support payments through 
        the State disbursement unit operated under section 
        454B, through the performance of functions, including, 
        at a minimum--
                    ``(A) transmission of orders and notices to 
                employers (and other debtors) for the 
                withholding of wages and other income--
                            ``(i) within 2 business days after 
                        receipt from a court, another State, an 
                        employer, the Federal Parent Locator 
                        Service, or another source recognized 
                        by the State of notice of, and the 
                        income source subject to, such 
                        withholding; and
                            ``(ii) using uniform formats 
                        prescribed by the Secretary;
                    ``(B) ongoing monitoring to promptly 
                identify failures to make timely payment of 
                support; and
                    ``(C) automatic use of enforcement 
                procedures (including procedures authorized 
                pursuant to section 466(c)) if payments are not 
                timely made.
            ``(2) Business day defined.--As used in paragraph 
        (1), the term `business day' means a day on which State 
        offices are open for regular business.''.
    (d) Effective Date.--The amendments made by this section 
shall become effective on October 1, 1998.

SEC. 12313. STATE DIRECTORY OF NEW HIRES.

    (a) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
as amended by sections 12301(b), 12303(a) and 12312(a) of this 
Act, is amended--
            (1) by striking ``and'' at the end of paragraph 
        (26);
            (2) by striking the period at the end of paragraph 
        (27) and inserting ``; and''; and
            (3) by adding after paragraph (27) the following 
        new paragraph:
            ``(28) provide that, on and after October 1, 1997, 
        the State will operate a State Directory of New Hires 
        in accordance with section 453A.''.
    (b) State Directory of New Hires.--Part D of title IV (42 
U.S.C. 651-669) is amended by inserting after section 453 the 
following new section:

``SEC. 453A. STATE DIRECTORY OF NEW HIRES.

    ``(a) Establishment.--
            ``(1) In general.--
                    ``(A) Requirement for States that have no 
                directory.--Except as provided in subparagraph 
                (B), not later than October 1, 1997, each State 
                shall establish an automated directory (to be 
                known as the `State Directory of New Hires') 
                which shall contain information supplied in 
                accordance with subsection (b) by employers on 
                each newly hired employee.
                    ``(B) States with new hire reporting in 
                existence.--A State which has a new hire 
                reporting law in existence on the date of the 
                enactment of this section may continue to 
                operate under the State law, but the State must 
                meet the requirements of this section (other 
                than subsection (f)) not later than October 1, 
                1997.
            ``(2) Definitions.--As used in this section:
                    ``(A) Employee.--The term `employee'--
                            ``(i) means an individual who is an 
                        employee within the meaning of chapter 
                        24 of the Internal Revenue Code of 
                        1986; and
                            ``(ii) does not include an employee 
                        of a Federal or State agency performing 
                        intelligence or counterintelligence 
                        functions, if the head of such agency 
                        has determined that reporting pursuant 
                        to paragraph (1) with respect to the 
                        employee could endanger the safety of 
                        the employee or compromise an ongoing 
                        investigation or intelligence mission.
                    ``(B) Employer.--
                            ``(i) In general.--The term 
                        `employer' has the meaning given such 
                        term in section 3401(d) of the Internal 
                        Revenue Code of 1996 and includes any 
                        governmental entity and any labor 
                        organization.
                            ``(ii) Labor organization.--The 
                        term `labor organization' shall have 
                        the meaning given such term in section 
                        2(5) of the National Labor Relations 
                        Act, and includes any entity (also 
                        known as a `hiring hall') which is used 
                        by the organization and an employer to 
                        carry out requirements described in 
                        section 8(f)(3) of such Act of an 
                        agreement between the organization and 
                        the employer.
    ``(b) Employer Information.--
            ``(1) Reporting requirement.--
                    ``(A) In general.--Except as provided in 
                subparagraphs (B) and (C), each employer shall 
                furnish to the Directory of New Hires of the 
                State in which a newly hired employee works, a 
                report that contains the name, address, and 
                social security number of the employee, and the 
                name of, and identifying number assigned under 
                section 6109 of the Internal Revenue Code of 
                1986 to, the employer.
                    ``(B) Multistate employers.--An employer 
                that has employees who are employed in 2 or 
                more States and that transmits reports 
                magnetically or electronically may comply with 
                subparagraph (A) by designating 1 State in 
                which such employer has employees to which the 
                employer will transmit the report described in 
                subparagraph (A), and transmitting such report 
                to such State. Any employer that transmits 
                reports pursuant to this subparagraph shall 
                notify the Secretary in writing as to which 
                State such employer designates for the purpose 
                of sending reports.
                    ``(C) Federal government employers.--Any 
                department, agency, or instrumentality of the 
                United States shall comply with subparagraph 
                (A) by transmitting the report described in 
                subparagraph (A) to the National Directory of 
                New Hires established pursuant to section 453.
            ``(2) Timing of report.--Each State may provide the 
        time within which the report required by paragraph (1) 
        shall be made with respect to an employee, but such 
        report shall be made not later than 20 days after the 
        date the employer hires the employee.
    ``(c) Reporting Format and Method.--Each report required by 
subsection (b) shall be made on a W-4 form or, at the option of 
the employer, an equivalent form, and may be transmitted by 1st 
class mail, magnetically, or electronically.
    ``(d) Civil Money Penalties on Noncomplying Employers.--The 
State shall have the option to set a State civil money penalty 
which shall be less than--
            ``(1) $25; or
            ``(2) $500 if, under State law, the failure is the 
        result of a conspiracy between the employer and the 
        employee to not supply the required report or to supply 
        a false or incomplete report.
    ``(e) Entry of Employer Information.--Information shall be 
entered into the data base maintained by the State Directory of 
New Hires within 5 business days of receipt from an employer 
pursuant to subsection (b).
    ``(f) Information Comparisons.--
            ``(1) In general.--Not later than May 1, 1998, an 
        agency designated by the State shall, directly or by 
        contract, conduct automated comparisons of the social 
        security numbers reported by employers pursuant to 
        subsection (b) and the social security numbers 
        appearing in the records of the State case registry for 
        cases being enforced under the State plan.
            ``(2) Notice of match.--When an information 
        comparison conducted under paragraph (1) reveals a 
        match with respect to the social security number of an 
        individual required to provide support under a support 
        order, the State Directory of New Hires shall provide 
        the agency administering the State plan approved under 
        this part of the appropriate State with the name, 
        address, and social security number of the employee to 
        whom the social security number is assigned, and the 
        name of, and identifying number assigned under section 
        6109 of the Internal Revenue Code of 1986 to, the 
        employer.
    ``(g) Transmission of Information.--
            ``(1) Transmission of wage withholding notices to 
        employers.--Within 2 business days after the date 
        information regarding a newly hired employee is entered 
        into the State Directory of New Hires, the State agency 
        enforcing the employee's child support obligation shall 
        transmit a notice to the employer of the employee 
        directing the employer to withhold from the wages of 
        the employee an amount equal to the monthly (or other 
        periodic) child support obligation (including any past 
        due support obligation) of the employee, unless the 
        employee's wages are not subject to withholding 
        pursuant to section 466(b)(3).
            ``(2) Transmissions to the national directory of 
        new hires.--
                    ``(A) New hire information.--Within 3 
                business days after the date information 
                regarding a newly hired employee is entered 
                into the State Directory of New Hires, the 
                State Directory of New Hires shall furnish the 
                information to the National Directory of New 
                Hires.
                    ``(B) Wage and unemployment compensation 
                information.--The State Directory of New Hires 
                shall, on a quarterly basis, furnish to the 
                National Directory of New Hires extracts of the 
                reports required under section 303(a)(6) to be 
                made to the Secretary of Labor concerning the 
                wages and unemployment compensation paid to 
                individuals, by such dates, in such format, and 
                containing such information as the Secretary of 
                Health and Human Services shall specify in 
                regulations.
            ``(3) Business day defined.--As used in this 
        subsection, the term `business day' means a day on 
        which State offices are open for regular business.
    ``(h) Other Uses of New Hire Information.--
            ``(1) Location of child support obligors.--The 
        agency administering the State plan approved under this 
        part shall use information received pursuant to 
        subsection (f)(2) to locate individuals for purposes of 
        establishing paternity and establishing, modifying, and 
        enforcing child support obligations.
            ``(2) Verification of eligibility for certain 
        programs.--A State agency responsible for administering 
        a program specified in section 1137(b) shall have 
        access to information reported by employers pursuant to 
        subsection (b) of this section for purposes of 
        verifying eligibility for the program.
            ``(3) Administration of employment security and 
        workers' compensation.--State agencies operating 
        employment security and workers' compensation programs 
        shall have access to information reported by employers 
        pursuant to subsection (b) for the purposes of 
        administering such programs.''.
    (c) Quarterly Wage Reporting.--Section 1137(a)(3) (42 
U.S.C. 1320b-7(a)(3)) is amended--
            (1) by inserting ``(including State and local 
        governmental entities and labor organizations (as 
        defined in section 453A(a)(2)(B)(iii))'' after 
        ``employers''; and
            (2) by inserting ``, and except that no report 
        shall be filed with respect to an employee of a State 
        or local agency performing intelligence or 
        counterintelligence functions, if the head of such 
        agency has determined that filing such a report could 
        endanger the safety of the employee or compromise an 
        ongoing investigation or intelligence mission'' after 
        ``paragraph (2)''.

SEC. 12314. AMENDMENTS CONCERNING INCOME WITHHOLDING.

    (a) Mandatory Income Withholding.--
            (1) In general.--Section 466(a)(1) (42 U.S.C. 
        666(a)(1)) is amended to read as follows:
            ``(1)(A) Procedures described in subsection (b) for 
        the withholding from income of amounts payable as 
        support in cases subject to enforcement under the State 
        plan.
            ``(B) Procedures under which the wages of a person 
        with a support obligation imposed by a support order 
        issued (or modified) in the State before October 1, 
        1996, if not otherwise subject to withholding under 
        subsection (b), shall become subject to withholding as 
        provided in subsection (b) if arrearages occur, without 
        the need for a judicial or administrative hearing.''.
            (2) Conforming amendments.--
                    (A) Section 466(b) (42 U.S.C. 666(b)) is 
                amended in the matter preceding paragraph (1), 
                by striking ``subsection (a)(1)'' and inserting 
                ``subsection (a)(1)(A)''.
                    (B) Section 466(b)(4) (42 U.S.C. 666(b)(4)) 
                is amended to read as follows:
            ``(4)(A) Such withholding must be carried out in 
        full compliance with all procedural due process 
        requirements of the State, and the State must send 
        notice to each noncustodial parent to whom paragraph 
        (1) applies--
                    ``(i) that the withholding has commenced; 
                and
                    ``(ii) of the procedures to follow if the 
                noncustodial parent desires to contest such 
                withholding on the grounds that the withholding 
                or the amount withheld is improper due to a 
                mistake of fact.
            ``(B) The notice under subparagraph (A) of this 
        paragraph shall include the information provided to the 
        employer under paragraph (6)(A).''.
                    (C) Section 466(b)(5) (42 U.S.C. 666(b)(5)) 
                is amended by striking all that follows 
                ``administered by'' and inserting ``the State 
                through the State disbursement unit established 
                pursuant to section 454B, in accordance with 
                the requirements of section 454B.''.
                    (D) Section 466(b)(6)(A) (42 U.S.C. 
                666(b)(6)(A)) is amended--
                            (i) in clause (i), by striking ``to 
                        the appropriate agency'' and all that 
                        follows and inserting ``to the State 
                        disbursement unit within 2 business 
                        days after the date the amount would 
                        (but for this subsection) have been 
                        paid or credited to the employee, for 
                        distribution in accordance with this 
                        part. The employer shall comply with 
                        the procedural rules relating to income 
                        withholding of the State in which the 
                        employee works, regardless of the State 
                        where the notice originates.''.
                            (ii) in clause (ii), by inserting 
                        ``be in a standard format prescribed by 
                        the Secretary, and'' after ``shall''; 
                        and
                            (iii) by adding at the end the 
                        following new clause:
            ``(iii) As used in this subparagraph, the term 
        `business day' means a day on which State offices are 
        open for regular business.''.
                    (E) Section 466(b)(6)(D) (42 U.S.C. 
                666(b)(6)(D)) is amended by striking ``any 
                employer'' and all that follows and inserting 
                ``any employer who--
                    ``(i) discharges from employment, refuses 
                to employ, or takes disciplinary action against 
                any noncustodial parent subject to wage 
                withholding required by this subsection because 
                of the existence of such withholding and the 
                obligations or additional obligations which it 
                imposes upon the employer; or
                    ``(ii) fails to withhold support from 
                wages, or to pay such amounts to the State 
                disbursement unit in accordance with this 
                subsection.''.
                    (F) Section 466(b) (42 U.S.C. 666(b)) is 
                amended by adding at the end the following new 
                paragraph:
            ``(11) Procedures under which the agency 
        administering the State plan approved under this part 
        may execute a withholding order without advance notice 
        to the obligor, including issuing the withholding order 
        through electronic means.''.
    (b) Conforming Amendment.--Section 466(c) (42 U.S.C. 
666(c)) is repealed.

SEC. 12315. LOCATOR INFORMATION FROM INTERSTATE NETWORKS.

    Section 466(a) (42 U.S.C. 666(a)) is amended by adding at 
the end the following new paragraph:
            ``(12) Locator information from interstate 
        networks.--Procedures to ensure that all Federal and 
        State agencies conducting activities under this part 
        have access to any system used by the State to locate 
        an individual for purposes relating to motor vehicles 
        or law enforcement.''.

SEC. 12316. EXPANSION OF THE FEDERAL PARENT LOCATOR SERVICE.

    (a) Expanded Authority To Locate Individuals and Assets.--
Section 453 (42 U.S.C. 653) is amended--
            (1) in subsection (a), by striking all that follows 
        ``subsection (c))'' and inserting ``, for the purpose 
        of establishing parentage, establishing, setting the 
        amount of, modifying, or enforcing child support 
        obligations, or enforcing child custody or visitation 
        orders--
            ``(1) information on, or facilitating the discovery 
        of, the location of any individual--
                    ``(A) who is under an obligation to pay 
                child support or provide child custody or 
                visitation rights;
                    ``(B) against whom such an obligation is 
                sought;
                    ``(C) to whom such an obligation is owed,
        including the individual's social security number (or 
        numbers), most recent address, and the name, address, 
        and employer identification number of the individual's 
        employer;
            ``(2) information on the individual's wages (or 
        other income) from, and benefits of, employment 
        (including rights to or enrollment in group health care 
        coverage); and
            ``(3) information on the type, status, location, 
        and amount of any assets of, or debts owed by or to, 
        any such individual.''; and
            (2) in subsection (b)--
                    (A) in the matter preceding paragraph (1), 
                by striking ``social security'' and all that 
                follows through ``absent parent'' and inserting 
                ``information described in subsection (a)''; 
                and
                    (B) in the flush paragraph at the end, by 
                adding the following: ``No information shall be 
                disclosed to any person if the State has 
                notified the Secretary that the State has 
                reasonable evidence of domestic violence or 
                child abuse and the disclosure of such 
                information could be harmful to the custodial 
                parent or the child of such parent. Information 
                received or transmitted pursuant to this 
                section shall be subject to the safeguard 
                provisions contained in section 454(26).''.
    (b) Authorized Person for Information Regarding Visitation 
Rights.--Section 453(c) (42 U.S.C. 653(c)) is amended--
            (1) in paragraph (1), by striking ``support'' and 
        inserting ``support or to seek to enforce orders 
        providing child custody or visitation rights''; and
            (2) in paragraph (2), by striking ``, or any agent 
        of such court; and'' and inserting ``or to issue an 
        order against a resident parent for child custody or 
        visitation rights, or any agent of such court;''.
    (c) Reimbursement for Information From Federal Agencies.--
Section 453(e)(2) (42 U.S.C. 653(e)(2)) is amended in the 4th 
sentence by inserting ``in an amount which the Secretary 
determines to be reasonable payment for the information 
exchange (which amount shall not include payment for the costs 
of obtaining, compiling, or maintaining the information)'' 
before the period.
    (d) Reimbursement for Reports by State Agencies.--Section 
453 (42 U.S.C. 653) is amended by adding at the end the 
following new subsection:
    ``(g) Reimbursement for Reports by State Agencies.--The 
Secretary may reimburse Federal and State agencies for the 
costs incurred by such entities in furnishing information 
requested by the Secretary under this section in an amount 
which the Secretary determines to be reasonable payment for the 
information exchange (which amount shall not include payment 
for the costs of obtaining, compiling, or maintaining the 
information).''.
    (e) Conforming Amendments.--
            (1) Sections 452(a)(9), 453(a), 453(b), 463(a), 
        463(e), and 463(f) (42 U.S.C. 652(a)(9), 653(a), 
        653(b), 663(a), 663(e), and 663(f)) are each amended by 
        inserting ``Federal'' before ``Parent'' each place such 
        term appears.
            (2) Section 453 (42 U.S.C. 653) is amended in the 
        heading by adding ``federal'' before ``parent''.
    (f) New Components.--Section 453 (42 U.S.C. 653), as 
amended by subsection (d) of this section, is amended by adding 
at the end the following new subsections:
    ``(h) Federal Case Registry of Child Support Orders.--
            ``(1) In general.--Not later than October 1, 1998, 
        in order to assist States in administering programs 
        under State plans approved under this part and programs 
        funded under part A, and for the other purposes 
        specified in this section, the Secretary shall 
        establish and maintain in the Federal Parent Locator 
        Service an automated registry (which shall be known as 
        the `Federal Case Registry of Child Support Orders'), 
        which shall contain abstracts of support orders and 
        other information described in paragraph (2) with 
        respect to each case in each State case registry 
        maintained pursuant to section 454A(e), as furnished 
        (and regularly updated), pursuant to section 454A(f), 
        by State agencies administering programs under this 
        part.
            ``(2) Case information.--The information referred 
        to in paragraph (1) with respect to a case shall be 
        such information as the Secretary may specify in 
        regulations (including the names, social security 
        numbers or other uniform identification numbers, and 
        State case identification numbers) to identify the 
        individuals who owe or are owed support (or with 
        respect to or on behalf of whom support obligations are 
        sought to be established), and the State or States 
        which have the case.
    ``(i) National Directory of New Hires.--
            ``(1) In general.--In order to assist States in 
        administering programs under State plans approved under 
        this part and programs funded under part A, and for the 
        other purposes specified in this section, the Secretary 
        shall, not later than October 1, 1996, establish and 
        maintain in the Federal Parent Locator Service an 
        automated directory to be known as the National 
        Directory of New Hires, which shall contain the 
        information supplied pursuant to section 453A(g)(2).
            ``(2) Entry of data.--Information shall be entered 
        into the data base maintained by the National Directory 
        of New Hires within 2 business days of receipt pursuant 
        to section 453A(g)(2).
            ``(3) Administration of federal tax laws.--The 
        Secretary of the Treasury shall have access to the 
        information in the National Directory of New Hires for 
        purposes of administering section 32 of the Internal 
        Revenue Code of 1986, or the advance payment of the 
        earned income tax credit under section 3507 of such 
        Code, and verifying a claim with respect to employment 
        in a tax return.
            ``(4) List of multistate employers.--The Secretary 
        shall maintain within the National Directory of New 
        Hires a list of multistate employers that report 
        information regarding newly hired employees pursuant to 
        section 453A(b)(1)(B), and the State which each such 
        employer has designated to receive such information.
    ``(j) Information Comparisons and Other Disclosures.--
            ``(1) Verification by social security 
        administration.--
                    ``(A) In general.--The Secretary shall 
                transmit information on individuals and 
                employers maintained under this section to the 
                Social Security Administration to the extent 
                necessary for verification in accordance with 
                subparagraph (B).
                    ``(B) Verification by ssa.--The Social 
                Security Administration shall verify the 
                accuracy of, correct, or supply to the extent 
                possible, and report to the Secretary, the 
                following information supplied by the Secretary 
                pursuant to subparagraph (A):
                            ``(i) The name, social security 
                        number, and birth date of each such 
                        individual.
                            ``(ii) The employer identification 
                        number of each such employer.
            ``(2) Information comparisons.--For the purpose of 
        locating individuals in a paternity establishment case 
        or a case involving the establishment, modification, or 
        enforcement of a support order, the Secretary shall--
                    ``(A) compare information in the National 
                Directory of New Hires against information in 
                the support case abstracts in the Federal Case 
                Registry of Child Support Orders not less often 
                than every 2 business days; and
                    ``(B) within 2 such days after such a 
                comparison reveals a match with respect to an 
                individual, report the information to the State 
                agency responsible for the case.
            ``(3) Information comparisons and disclosures of 
        information in all registries for title iv program 
        purposes.--To the extent and with the frequency that 
        the Secretary determines to be effective in assisting 
        States to carry out their responsibilities under 
        programs operated under this part and programs funded 
        under part A, the Secretary shall--
                    ``(A) compare the information in each 
                component of the Federal Parent Locator Service 
                maintained under this section against the 
                information in each other such component (other 
                than the comparison required by paragraph (2)), 
                and report instances in which such a comparison 
                reveals a match with respect to an individual 
                to State agencies operating such programs; and
                    ``(B) disclose information in such 
                registries to such State agencies.
            ``(4) Provision of new hire information to the 
        social security administration.--The National Directory 
        of New Hires shall provide the Commissioner of Social 
        Security with all information in the National 
        Directory, which shall be used to determine the 
        accuracy of payments under the supplemental security 
        income program under title XVI and in connection with 
        benefits under title II.
            ``(5) Research.--The Secretary may provide access 
        to information reported by employers pursuant to 
        section 453A(b) for research purposes found by the 
        Secretary to be likely to contribute to achieving the 
        purposes of part A or this part, but without personal 
        identifiers.
    ``(k) Fees.--
            ``(1) For ssa verification.--The Secretary shall 
        reimburse the Commissioner of Social Security, at a 
        rate negotiated between the Secretary and the 
        Commissioner, for the costs incurred by the 
        Commissioner in performing the verification services 
        described in subsection (j).
            ``(2) For information from state directories of new 
        hires.--The Secretary shall reimburse costs incurred by 
        State directories of new hires in furnishing 
        information as required by subsection (j)(3), at rates 
        which the Secretary determines to be reasonable (which 
        rates shall not include payment for the costs of 
        obtaining, compiling, or maintaining such information).
            ``(3) For information furnished to state and 
        federal agencies.--A State or Federal agency that 
        receives information from the Secretary pursuant to 
        this section shall reimburse the Secretary for costs 
        incurred by the Secretary in furnishing the 
        information, at rates which the Secretary determines to 
        be reasonable (which rates shall include payment for 
        the costs of obtaining, verifying, maintaining, and 
        comparing the information).
    ``(l) Restriction on Disclosure and Use.--Information in 
the Federal Parent Locator Service, and information resulting 
from comparisons using such information, shall not be used or 
disclosed except as expressly provided in this section, subject 
to section 6103 of the Internal Revenue Code of 1986.
    ``(m) Information Integrity and Security.--The Secretary 
shall establish and implement safeguards with respect to the 
entities established under this section designed to--
            ``(1) ensure the accuracy and completeness of 
        information in the Federal Parent Locator Service; and
            ``(2) restrict access to confidential information 
        in the Federal Parent Locator Service to authorized 
        persons, and restrict use of such information to 
        authorized purposes.
    ``(n) Federal Government Reporting.--Each department, 
agency, and instrumentality of the United States shall on a 
quarterly basis report to the Federal Parent Locator Service 
the name and social security number of each employee and the 
wages paid to the employee during the previous quarter, except 
that such a report shall not be filed with respect to an 
employee of a department, agency, or instrumentality performing 
intelligence or counterintelligence functions, if the head of 
such department, agency, or instrumentality has determined that 
filing such a report could endanger the safety of the employee 
or compromise an ongoing investigation or intelligence 
mission.''.
    (g) Conforming Amendments.--
            (1) To part d of title iv of the social security 
        act.--
                    (A) Section 454(8)(B) (42 U.S.C. 654(8)(B)) 
                is amended to read as follows:
                    ``(B) the Federal Parent Locator Service 
                established under section 453;''.
                    (B) Section 454(13) (42 U.S.C.654(13)) is 
                amended by inserting ``and provide that 
                information requests by parents who are 
                residents of other States be treated with the 
                same priority as requests by parents who are 
                residents of the State submitting the plan'' 
                before the semicolon.
            (2) To federal unemployment tax act.--Section 
        3304(a)(16) of the Internal Revenue Code of 1986 is 
        amended--
                    (A) by striking ``Secretary of Health, 
                Education, and Welfare'' each place such term 
                appears and inserting ``Secretary of Health and 
                Human Services'';
                    (B) in subparagraph (B), by striking ``such 
                information'' and all that follows and 
                inserting ``information furnished under 
                subparagraph (A) or (B) is used only for the 
                purposes authorized under such subparagraph;'';
                    (C) by striking ``and'' at the end of 
                subparagraph (A);
                    (D) by redesignating subparagraph (B) as 
                subparagraph (C); and
                    (E) by inserting after subparagraph (A) the 
                following new subparagraph:
                    ``(B) wage and unemployment compensation 
                information contained in the records of such 
                agency shall be furnished to the Secretary of 
                Health and Human Services (in accordance with 
                regulations promulgated by such Secretary) as 
                necessary for the purposes of the National 
                Directory of New Hires established under 
                section 453(i) of the Social Security Act, 
                and''.
            (3) To state grant program under title iii of the 
        social security act.--Subsection (h) of section 303 (42 
        U.S.C. 503) is amended to read as follows:
    ``(h)(1) The State agency charged with the administration 
of the State law shall, on a reimbursable basis--
            ``(A) disclose quarterly, to the Secretary of 
        Health and Human Services wage and claim information, 
        as required pursuant to section 453(i)(1), contained in 
        the records of such agency;
            ``(B) ensure that information provided pursuant to 
        subparagraph (A) meets such standards relating to 
        correctness and verification as the Secretary of Health 
        and Human Services, with the concurrence of the 
        Secretary of Labor, may find necessary; and
            ``(C) establish such safeguards as the Secretary of 
        Labor determines are necessary to insure that 
        information disclosed under subparagraph (A) is used 
        only for purposes of section 453(i)(1) in carrying out 
        the child support enforcement program under title IV.
    ``(2) Whenever the Secretary of Labor, after reasonable 
notice and opportunity for hearing to the State agency charged 
with the administration of the State law, finds that there is a 
failure to comply substantially with the requirements of 
paragraph (1), the Secretary of Labor shall notify such State 
agency that further payments will not be made to the State 
until the Secretary of Labor is satisfied that there is no 
longer any such failure. Until the Secretary of Labor is so 
satisfied, the Secretary shall make no future certification to 
the Secretary of the Treasury with respect to the State.
    ``(3) For purposes of this subsection--
            ``(A) the term `wage information' means information 
        regarding wages paid to an individual, the social 
        security account number of such individual, and the 
        name, address, State, and the Federal employer 
        identification number of the employer paying such wages 
        to such individual; and
            ``(B) the term `claim information' means 
        information regarding whether an individual is 
        receiving, has received, or has made application for, 
        unemployment compensation, the amount of any such 
        compensation being received (or to be received by such 
        individual), and the individual's current (or most 
        recent) home address.''.
            (4) Disclosure of certain information to agents of 
        child support enforcement agencies.--
                    (A) In general.--Paragraph (6) of section 
                6103(l) of the Internal Revenue Code of 1986 
                (relating to disclosure of return information 
                to Federal, State, and local child support 
                enforcement agencies) is amended by 
                redesignating subparagraph (B) as subparagraph 
                (C) and by inserting after subparagraph (A) the 
                following new subparagraph:
                    ``(B) Disclosure to certain agents.--The 
                address and social security account number (or 
                numbers) of an individual with respect to any 
                individual with respect to whom child support 
                obligations are sought to be established or 
                enforced may be disclosed by any child support 
                enforcement agency to any agent of such agency 
                which is under contract with such agency to 
                carry out the purposes described in 
                subparagraph (C).''
                    (B) Conforming amendments.--
                            (i) Paragraph (3) of section 
                        6103(a) of such Code is amended by 
                        striking ``(l)(12)'' and inserting 
                        ``paragraph (6) or (12) of subsection 
                        (l)''.
                            (ii) Subparagraph (C) of section 
                        6103(l)(6) of such Code, as 
                        redesignated by subsection (a), is 
                        amended to read as follows:
                    ``(C) Restriction on disclosure.--
                Information may be disclosed under this 
                paragraph only for purposes of, and to the 
                extent necessary in, establishing and 
                collecting child support obligations from, and 
                locating, individuals owing such obligations.''
                            (iii) The material following 
                        subparagraph (F) of section 6103(p)(4) 
                        of such Code is amended by striking 
                        ``subsection (l)(12)(B)'' and inserting 
                        ``paragraph (6)(A) or (12)(B) of 
                        subsection (l)''.

SEC. 12317. COLLECTION AND USE OF SOCIAL SECURITY NUMBERS FOR USE IN 
                    CHILD SUPPORT ENFORCEMENT.

    (a) State Law Requirement.--Section 466(a) (42 U.S.C. 
666(a)), as amended by section 12315 of this Act, is amended by 
adding at the end the following new paragraph:
            ``(13) Recording of social security numbers in 
        certain family matters.--Procedures requiring that the 
        social security number of--
                    ``(A) any applicant for a professional 
                license, commercial driver's license, 
                occupational license, or marriage license be 
                recorded on the application;
                    ``(B) any individual who is subject to a 
                divorce decree, support order, or paternity 
                determination or acknowledgment be placed in 
                the records relating to the matter; and
                    ``(C) any individual who has died be placed 
                in the records relating to the death and be 
                recorded on the death certificate.
        For purposes of subparagraph (A), if a State allows the 
        use of a number other than the social security number, 
        the State shall so advise any applicants.''.
    (b) Conforming Amendments.--Section 205(c)(2)(C) (42 U.S.C. 
405(c)(2)(C)), as amended by section 321(a)(9) of the Social 
Security Independence and Program Improvements Act of 1994, is 
amended--
            (1) in clause (i), by striking ``may require'' and 
        inserting ``shall require'';
            (2) in clause (ii), by inserting after the 1st 
        sentence the following: ``In the administration of any 
        law involving the issuance of a marriage certificate or 
        license, each State shall require each party named in 
        the certificate or license to furnish to the State (or 
        political subdivision thereof), or any State agency 
        having administrative responsibility for the law 
        involved, the social security number of the party.'';
            (3) in clause (ii), by inserting ``or marriage 
        certificate'' after ``Such numbers shall not be 
        recorded on the birth certificate''.
            (4) in clause (vi), by striking ``may'' and 
        inserting ``shall''; and
            (5) by adding at the end the following new clauses:
                            ``(x) An agency of a State (or a 
                        political subdivision thereof) charged 
                        with the administration of any law 
                        concerning the issuance or renewal of a 
                        license, certificate, permit, or other 
                        authorization to engage in a 
                        profession, an occupation, or a 
                        commercial activity shall require all 
                        applicants for issuance or renewal of 
                        the license, certificate, permit, or 
                        other authorization to provide the 
                        applicant's social security number to 
                        the agency for the purpose of 
                        administering such laws, and for the 
                        purpose of responding to requests for 
                        information from an agency operating 
                        pursuant to part D of title IV.
                            ``(xi) All divorce decrees, support 
                        orders, and paternity determinations 
                        issued, and all paternity 
                        acknowledgments made, in each State 
                        shall include the social security 
                        number of each party to the decree, 
                        order, determination, or 
                        acknowledgement in the records relating 
                        to the matter, for the purpose of 
                        responding to requests for information 
                        from an agency operating pursuant to 
                        part D of title IV.''.

          CHAPTER 3--STREAMLINING AND UNIFORMITY OF PROCEDURES

SEC. 12321. ADOPTION OF UNIFORM STATE LAWS.

    Section 466 (42 U.S.C. 666) is amended by adding at the end 
the following new subsection:
    ``(f) Uniform Interstate Family Support Act.--
            ``(1) Enactment and use.--In order to satisfy 
        section 454(20)(A), on or after January 1, 1998, each 
        State must have in effect the Uniform Interstate Family 
        Support Act, as approved by the American Bar 
        Association on February 9, 1993, together with any 
        amendments officially adopted before January 1, 1998 by 
        the National Conference of Commissioners on Uniform 
        State Laws.
            ``(2) Employers to follow procedural rules of State 
        where employee works.--The State law enacted pursuant 
        to paragraph (1) shall provide that an employer that 
        receives an income withholding order or notice pursuant 
        to section 501 of the Uniform Interstate Family Support 
        Act follow the procedural rules that apply with respect 
        to such order or notice under the laws of the State in 
        which the obligor works.

SEC. 12322. IMPROVEMENTS TO FULL FAITH AND CREDIT FOR CHILD SUPPORT 
                    ORDERS.

    Section 1738B of title 28, United States Code, is amended--
            (1) in subsection (a)(2), by striking ``subsection 
        (e)'' and inserting ``subsections (e), (f), and (i)'';
            (2) in subsection (b), by inserting after the 2nd 
        undesignated paragraph the following:
            `` `child's home State' means the State in which a 
        child lived with a parent or a person acting as parent 
        for at least 6 consecutive months immediately preceding 
        the time of filing of a petition or comparable pleading 
        for support and, if a child is less than 6 months old, 
        the State in which the child lived from birth with any 
        of them. A period of temporary absence of any of them 
        is counted as part of the 6-month period.'';
            (3) in subsection (c), by inserting ``by a court of 
        a State'' before ``is made'';
            (4) in subsection (c)(1), by inserting ``and 
        subsections (e), (f), and (g)'' after ``located'';
            (5) in subsection (d)--
                    (A) by inserting ``individual'' before 
                ``contestant''; and
                    (B) by striking ``subsection (e)'' and 
                inserting ``subsections (e) and (f)'';
            (6) in subsection (e), by striking ``make a 
        modification of a child support order with respect to a 
        child that is made'' and inserting ``modify a child 
        support order issued'';
            (7) in subsection (e)(1), by inserting ``pursuant 
        to subsection (i)'' before the semicolon;
            (8) in subsection (e)(2)--
                    (A) by inserting ``individual'' before 
                ``contestant'' each place such term appears; 
                and
                    (B) by striking ``to that court's making 
                the modification and assuming'' and inserting 
                ``with the State of continuing, exclusive 
                jurisdiction for a court of another State to 
                modify the order and assume'';
            (9) by redesignating subsections (f) and (g) as 
        subsections (g) and (h), respectively;
            (10) by inserting after subsection (e) the 
        following new subsection:
    ``(f) Recognition of Child Support Orders.--If 1 or more 
child support orders have been issued in this or another State 
with regard to an obligor and a child, a court shall apply the 
following rules in determining which order to recognize for 
purposes of continuing, exclusive jurisdiction and enforcement:
            ``(1) If only 1 court has issued a child support 
        order, the order of that court must be recognized.
            ``(2) If 2 or more courts have issued child support 
        orders for the same obligor and child, and only 1 of 
        the courts would have continuing, exclusive 
        jurisdiction under this section, the order of that 
        court must be recognized.
            ``(3) If 2 or more courts have issued child support 
        orders for the same obligor and child, and more than 1 
        of the courts would have continuing, exclusive 
        jurisdiction under this section, an order issued by a 
        court in the current home State of the child must be 
        recognized, but if an order has not been issued in the 
        current home State of the child, the order most 
        recently issued must be recognized.
            ``(4) If 2 or more courts have issued child support 
        orders for the same obligor and child, and none of the 
        courts would have continuing, exclusive jurisdiction 
        under this section, a court may issue a child support 
        order, which must be recognized.
            ``(5) The court that has issued an order recognized 
        under this subsection is the court having continuing, 
        exclusive jurisdiction.'';
            (11) in subsection (g) (as so redesignated)--
                    (A) by striking ``Prior'' and inserting 
                ``Modified''; and
                    (B) by striking ``subsection (e)'' and 
                inserting ``subsections (e) and (f)'';
            (12) in subsection (h) (as so redesignated)--
                    (A) in paragraph (2), by inserting 
                ``including the duration of current payments 
                and other obligations of support'' before the 
                comma; and
                    (B) in paragraph (3), by inserting 
                ``arrears under'' after ``enforce''; and
            (13) by adding at the end the following new 
        subsection:
    ``(i) Registration for Modification.--If there is no 
individual contestant or child residing in the issuing State, 
the party or support enforcement agency seeking to modify, or 
to modify and enforce, a child support order issued in another 
State shall register that order in a State with jurisdiction 
over the nonmovant for the purpose of modification.''.

SEC. 12323. ADMINISTRATIVE ENFORCEMENT IN INTERSTATE CASES.

    Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
12315 and 12317(a) of this Act, is amended by adding at the end 
the following new paragraph:
            ``(14) Administrative enforcement in interstate 
        cases.--Procedures under which--
                    ``(A)(i) the State shall respond within 5 
                business days to a request made by another 
                State to enforce a support order; and
                    ``(ii) the term `business day' means a day 
                on which State offices are open for regular 
                business;
                    ``(B) the State may, by electronic or other 
                means, transmit to another State a request for 
                assistance in a case involving the enforcement 
                of a support order, which request--
                            ``(i) shall include such 
                        information as will enable the State to 
                        which the request is transmitted to 
                        compare the information about the case 
                        to the information in the data bases of 
                        the State; and
                            ``(ii) shall constitute a 
                        certification by the requesting State--
                                    ``(I) of the amount of 
                                support under the order the 
                                payment of which is in arrears; 
                                and
                                    ``(II) that the requesting 
                                State has complied with all 
                                procedural due process 
                                requirements applicable to the 
                                case;
                    ``(C) if the State provides assistance to 
                another State pursuant to this paragraph with 
                respect to a case, neither State shall consider 
                the case to be transferred to the caseload of 
                such other State; and
                    ``(D) the State shall maintain records of--
                            ``(i) the number of such requests 
                        for assistance received by the State;
                            ``(ii) the number of cases for 
                        which the State collected support in 
                        response to such a request; and
                            ``(iii) the amount of such 
                        collected support.''.

SEC. 12324. USE OF FORMS IN INTERSTATE ENFORCEMENT.

    (a) Promulgation.--Section 452(a) (42 U.S.C. 652(a)) is 
amended--
            (1) by striking ``and'' at the end of paragraph 
        (9);
            (2) by striking the period at the end of paragraph 
        (10) and inserting ``; and''; and
            (3) by adding at the end the following new 
        paragraph:
            ``(11) not later than June 30, 1996, after 
        consulting with the State directors of programs under 
        this part, promulgate forms to be used by States in 
        interstate cases for--
                    ``(A) collection of child support through 
                income withholding;
                    ``(B) imposition of liens; and
                    ``(C) administrative subpoenas.''.
    (b) Use by States.--Section 454(9) (42 U.S.C. 654(9)) is 
amended--
            (1) by striking ``and'' at the end of subparagraph 
        (C);
            (2) by inserting ``and'' at the end of subparagraph 
        (D); and
            (3) by adding at the end the following new 
        subparagraph:
                    ``(E) no later than October 1, 1996, in 
                using the forms promulgated pursuant to section 
                452(a)(11) for income withholding, imposition 
                of liens, and issuance of administrative 
                subpoenas in interstate child support cases;''.

SEC. 12325. STATE LAWS PROVIDING EXPEDITED PROCEDURES.

    (a) State Law Requirements.--Section 466 (42 U.S.C. 666), 
as amended by section 12314 of this Act, is amended--
            (1) in subsection (a)(2), by striking the 1st 
        sentence and inserting the following: ``Expedited 
        administrative and judicial procedures (including the 
        procedures specified in subsection (c)) for 
        establishing paternity and for establishing, modifying, 
        and enforcing support obligations.''; and
            (2) by inserting after subsection (b) the following 
        new subsection:
    ``(c) Expedited Procedures.--The procedures specified in 
this subsection are the following:
            ``(1) Administrative action by state agency.--
        Procedures which give the State agency the authority to 
        take the following actions relating to establishment or 
        enforcement of support orders, without the necessity of 
        obtaining an order from any other judicial or 
        administrative tribunal, and to recognize and enforce 
        the authority of State agencies of other States) to 
        take the following actions:
                    ``(A) Genetic testing.--To order genetic 
                testing for the purpose of paternity 
                establishment as provided in section 466(a)(5).
                    ``(B) Financial or other information.--To 
                subpoena any financial or other information 
                needed to establish, modify, or enforce a 
                support order, and to impose penalties for 
                failure to respond to such a subpoena.
                    ``(C) Response to state agency request.--To 
                require all entities in the State (including 
                for-profit, nonprofit, and governmental 
                employers) to provide promptly, in response to 
                a request by the State agency of that or any 
                other State administering a program under this 
                part, information on the employment, 
                compensation, and benefits of any individual 
                employed by such entity as an employee or 
                contractor, and to sanction failure to respond 
                to any such request.
                    ``(D) Access to certain records.--To obtain 
                access, subject to safeguards on privacy and 
                information security, to the following records 
                (including automated access, in the case of 
                records maintained in automated data bases):
                            ``(i) Records of other State and 
                        local government agencies, including--
                                    ``(I) vital statistics 
                                (including records of marriage, 
                                birth, and divorce);
                                    ``(II) State and local tax 
                                and revenue records (including 
                                information on residence 
                                address, employer, income and 
                                assets);
                                    ``(III) records concerning 
                                real and titled personal 
                                property;
                                    ``(IV) records of 
                                occupational and professional 
                                licenses, and records 
                                concerning the ownership and 
                                control of corporations, 
                                partnerships, and other 
                                business entities;
                                    ``(V) employment security 
                                records;
                                    ``(VI) records of agencies 
                                administering public assistance 
                                programs;
                                    ``(VII) records of the 
                                motor vehicle department; and
                                    ``(VIII) corrections 
                                records.
                            ``(ii) Certain records held by 
                        private entities, including--
                                    ``(I) customer records of 
                                public utilities and cable 
                                television companies; and
                                    ``(II) information 
                                (including information on 
                                assets and liabilities) on 
                                individuals who owe or are owed 
                                support (or against or with 
                                respect to whom a support 
                                obligation is sought) held by 
                                financial institutions (subject 
                                to limitations on liability of 
                                such entities arising from 
                                affording such access), as 
                                provided pursuant to agreements 
                                described in subsection 
                                (a)(18).
                    ``(E) Change in payee.--In cases in which 
                support is subject to an assignment in order to 
                comply with a requirement imposed pursuant to 
                part A or section 1912, or to a requirement to 
                pay through the State disbursement unit 
                established pursuant to section 454B, upon 
                providing notice to obligor and obligee, to 
                direct the obligor or other payor to change the 
                payee to the appropriate government entity.
                    ``(F) Income withholding.--To order income 
                withholding in accordance with subsections 
                (a)(1) and (b) of section 466.
                    ``(G) Securing assets.--In cases in which 
                there is a support arrearage, to secure assets 
                to satisfy the arrearage by--
                            ``(i) intercepting or seizing 
                        periodic or lump-sum payments from--
                                    ``(I) a State or local 
                                agency, including unemployment 
                                compensation, workers' 
                                compensation, and other 
                                benefits; and
                                    ``(II) judgments, 
                                settlements, and lotteries;
                            ``(ii) attaching and seizing assets 
                        of the obligor held in financial 
                        institutions;
                            ``(iii) attaching public and 
                        private retirement funds; and
                            ``(iv) imposing liens in accordance 
                        with subsection (a)(4) and, in 
                        appropriate cases, to force sale of 
                        property and distribution of proceeds.
                    ``(H) Increase monthly payments.--For the 
                purpose of securing overdue support, to 
                increase the amount of monthly support payments 
                to include amounts for arrearages, subject to 
                such conditions or limitations as the State may 
                provide.
        Such procedures shall be subject to due process 
        safeguards, including (as appropriate) requirements for 
        notice, opportunity to contest the action, and 
        opportunity for an appeal on the record to an 
        independent administrative or judicial tribunal.
            ``(2) Substantive and procedural rules.--The 
        expedited procedures required under subsection (a)(2) 
        shall include the following rules and authority, 
        applicable with respect to all proceedings to establish 
        paternity or to establish, modify, or enforce support 
        orders:
                    ``(A) Locator information; presumptions 
                concerning notice.--Procedures under which--
                            ``(i) each party to any paternity 
                        or child support proceeding is required 
                        (subject to privacy safeguards) to file 
                        with the tribunal and the State case 
                        registry upon entry of an order, and to 
                        update as appropriate, information on 
                        location and identity of the party, 
                        including social security number, 
                        residential and mailing addresses, 
                        telephone number, driver's license 
                        number, and name, address, and name and 
                        telephone number of employer; and
                            ``(ii) in any subsequent child 
                        support enforcement action between the 
                        parties, upon sufficient showing that 
                        diligent effort has been made to 
                        ascertain the location of such a party, 
                        the tribunal may deem State due process 
                        requirements for notice and service of 
                        process to be met with respect to the 
                        party, upon delivery of written notice 
                        to the most recent residential or 
                        employer address filed with the 
                        tribunal pursuant to clause (i).
                    ``(B) Statewide jurisdiction.--Procedures 
                under which--
                            ``(i) the State agency and any 
                        administrative or judicial tribunal 
                        with authority to hear child support 
                        and paternity cases exerts statewide 
                        jurisdiction over the parties; and
                            ``(ii) in a State in which orders 
                        are issued by courts or administrative 
                        tribunals, a case may be transferred 
                        between local jurisdictions in the 
                        State without need for any additional 
                        filing by the petitioner, or service of 
                        process upon the respondent, to retain 
                        jurisdiction over the parties.
            ``(3) Coordination with erisa.--Notwithstanding 
        subsection (d) of section 514 of the Employee 
        Retirement Income Security Act of 1974 (relating to 
        effect on other laws), nothing in this subsection shall 
        be construed to alter, amend, modify, invalidate, 
        impair, or supersede subsections (a), (b), and (c) of 
        such section 514 as it applies with respect to any 
        procedure referred to in paragraph (1) and any 
        expedited procedure referred to in paragraph (2), 
        except to the extent that such procedure would be 
        consistent with the requirements of section 206(d)(3) 
        of such Act (relating to qualified domestic relations 
        orders) or the requirements of section 609(a) of such 
        Act (relating to qualified medical child support 
        orders) if the reference in such section 206(d)(3) to a 
        domestic relations order and the reference in such 
        section 609(a) to a medical child support order were a 
        reference to a support order referred to in paragraphs 
        (1) and (2) relating to the same matters, 
        respectively.''.
    (b) Automation of State Agency Functions.--Section 454A, as 
added by section 12344(a)(2) and as amended by sections 12311 
and 12312(c) of this Act, is amended by adding at the end the 
following new subsection:
    ``(h) Expedited Administrative Procedures.--The automated 
system required by this section shall be used, to the maximum 
extent feasible, to implement the expedited administrative 
procedures required by section 466(c).''.

                   CHAPTER 4--PATERNITY ESTABLISHMENT

SEC. 12331. STATE LAWS CONCERNING PATERNITY ESTABLISHMENT.

    (a) State Laws Required.--Section 466(a)(5) (42 U.S.C. 
666(a)(5)) is amended to read as follows:
            ``(5) Procedures concerning paternity 
        establishment.--
                    ``(A) Establishment process available from 
                birth until age 18.--
                            ``(i) Procedures which permit the 
                        establishment of the paternity of a 
                        child at any time before the child 
                        attains 18 years of age.
                            ``(ii) As of August 16, 1984, 
                        clause (i) shall also apply to a child 
                        for whom paternity has not been 
                        established or for whom a paternity 
                        action was brought but dismissed 
                        because a statute of limitations of 
                        less than 18 years was then in effect 
                        in the State.
                    ``(B) Procedures concerning genetic 
                testing.--
                            ``(i) Genetic testing required in 
                        certain contested cases.--Procedures 
                        under which the State is required, in a 
                        contested paternity case (unless 
                        otherwise barred by State law) to 
                        require the child and all other parties 
                        (other than individuals found under 
                        section 454(29) to have good cause for 
                        refusing to cooperate) to submit to 
                        genetic tests upon the request of any 
                        such party, if the request is supported 
                        by a sworn statement by the party--
                                    ``(I) alleging paternity, 
                                and setting forth facts 
                                establishing a reasonable 
                                possibility of the requisite 
                                sexual contact between the 
                                parties; or
                                    ``(II) denying paternity, 
                                and setting forth facts 
                                establishing a reasonable 
                                possibility of the nonexistence 
                                of sexual contact between the 
                                parties.
                            ``(ii) Other requirements.--
                        Procedures which require the State 
                        agency, in any case in which the agency 
                        orders genetic testing--
                                    ``(I) to pay costs of such 
                                tests, subject to recoupment 
                                (if the State so elects) from 
                                the alleged father if paternity 
                                is established; and
                                    ``(II) to obtain additional 
                                testing in any case if an 
                                original test result is 
                                contested, upon request and 
                                advance payment by the 
                                contestant.
                    ``(C) Voluntary paternity acknowledgment.--
                            ``(i) Simple civil process.--
                        Procedures for a simple civil process 
                        for voluntarily acknowledging paternity 
                        under which the State must provide 
                        that, before a mother and a putative 
                        father can sign an acknowledgment of 
                        paternity, the mother and the putative 
                        father must be given notice, orally and 
                        in writing, of the alternatives to, the 
                        legal consequences of, and the rights 
                        (including, if 1 parent is a minor, any 
                        rights afforded due to minority status) 
                        and responsibilities that arise from, 
                        signing the acknowledgment.
                            ``(ii) Hospital-based program.--
                        Such procedures must include a 
                        hospital-based program for the 
                        voluntary acknowledgment of paternity 
                        focusing on the period immediately 
                        before or after the birth of a child, 
                        subject to such good cause exceptions, 
                        taking into account the best interests 
                        of the child, as the State may 
                        establish.
                            ``(iii) Paternity establishment 
                        services.--
                                    ``(I) State-offered 
                                services.--Such procedures must 
                                require the State agency 
                                responsible for maintaining 
                                birth records to offer 
                                voluntary paternity 
                                establishment services.
                                    ``(II) Regulations.--
                                            ``(aa) Services 
                                        offered by hospitals 
                                        and birth record 
                                        agencies.--The 
                                        Secretary shall 
                                        prescribe regulations 
                                        governing voluntary 
                                        paternity establishment 
                                        services offered by 
                                        hospitals and birth 
                                        record agencies.
                                            ``(bb) Services 
                                        offered by other 
                                        entities.--The 
                                        Secretary shall 
                                        prescribe regulations 
                                        specifying the types of 
                                        other entities that may 
                                        offer voluntary 
                                        paternity establishment 
                                        services, and governing 
                                        the provision of such 
                                        services, which shall 
                                        include a requirement 
                                        that such an entity 
                                        must use the same 
                                        notice provisions used 
                                        by, use the same 
                                        materials used by, 
                                        provide the personnel 
                                        providing such services 
                                        with the same training 
                                        provided by, and 
                                        evaluate the provision 
                                        of such services in the 
                                        same manner as the 
                                        provision of such 
                                        services is evaluated 
                                        by, voluntary paternity 
                                        establishment programs 
                                        of hospitals and birth 
                                        record agencies.
                            ``(iv) Use of paternity 
                        acknowledgment affidavit.--Such 
                        procedures must require the State to 
                        develop and use an affidavit for the 
                        voluntary acknowledgment of paternity 
                        which includes the minimum requirements 
                        of the affidavit developed by the 
                        Secretary under section 452(a)(7) for 
                        the voluntary acknowledgment of 
                        paternity, and to give full faith and 
                        credit to such an affidavit signed in 
                        any other State according to its 
                        procedures.
                    ``(D) Status of signed paternity 
                acknowledgment.--
                            ``(i) Inclusion in birth records.--
                        Procedures under which the name of the 
                        father shall be included on the record 
                        of birth of the child only if--
                                    ``(I) the father and mother 
                                have signed a voluntary 
                                acknowledgment of paternity; or
                                    ``(II) a court or an 
                                administrative agency of 
                                competent jurisdiction has 
                                issued an adjudication of 
                                paternity.
                        Nothing in this clause shall preclude a 
                        State agency from obtaining an 
                        admission of paternity from the father 
                        for submission in a judicial or 
                        administrative proceeding, or prohibit 
                        the issuance of an order in a judicial 
                        or administrative proceeding which 
                        bases a legal finding of paternity on 
                        an admission of paternity by the father 
                        and any other additional showing 
                        required by State law.
                            ``(ii) Legal finding of 
                        paternity.--Procedures under which a 
                        signed voluntary acknowledgment of 
                        paternity is considered a legal finding 
                        of paternity, subject to the right of 
                        any signatory to rescind the 
                        acknowledgment within the earlier of--
                                    ``(I) 60 days; or
                                    ``(II) the date of an 
                                administrative or judicial 
                                proceeding relating to the 
                                child (including a proceeding 
                                to establish a support order) 
                                in which the signatory is a 
                                party.
                            ``(iii) Contest.--Procedures under 
                        which, after the 60-day period referred 
                        to in clause (ii), a signed voluntary 
                        acknowledgment of paternity may be 
                        challenged in court only on the basis 
                        of fraud, duress, or material mistake 
                        of fact, with the burden of proof upon 
                        the challenger, and under which the 
                        legal responsibilities (including child 
                        support obligations) of any signatory 
                        arising from the acknowledgment may not 
                        be suspended during the challenge, 
                        except for good cause shown.
                    ``(E) Bar on acknowledgment ratification 
                proceedings.--Procedures under which judicial 
                or administrative proceedings are not required 
                or permitted to ratify an unchallenged 
                acknowledgment of paternity.
                    ``(F) Admissibility of genetic testing 
                results.--Procedures--
                            ``(i) requiring the admission into 
                        evidence, for purposes of establishing 
                        paternity, of the results of any 
                        genetic test that is--
                                    ``(I) of a type generally 
                                acknowledged as reliable by 
                                accreditation bodies designated 
                                by the Secretary; and
                                    ``(II) performed by a 
                                laboratory approved by such an 
                                accreditation body;
                            ``(ii) requiring an objection to 
                        genetic testing results to be made in 
                        writing not later than a specified 
                        number of days before any hearing at 
                        which the results may be introduced 
                        into evidence (or, at State option, not 
                        later than a specified number of days 
                        after receipt of the results); and
                            ``(iii) making the test results 
                        admissible as evidence of paternity 
                        without the need for foundation 
                        testimony or other proof of 
                        authenticity or accuracy, unless 
                        objection is made.
                    ``(G) Presumption of paternity in certain 
                cases.--Procedures which create a rebuttable 
                or, at the option of the State, conclusive 
                presumption of paternity upon genetic testing 
                results indicating a threshold probability that 
                the alleged father is the father of the child.
                    ``(H) Default orders.--Procedures requiring 
                a default order to be entered in a paternity 
                case upon a showing of service of process on 
                the defendant and any additional showing 
                required by State law.
                    ``(I) No right to jury trial.--Procedures 
                providing that the parties to an action to 
                establish paternity are not entitled to a trial 
                by jury.
                    ``(J) Temporary support order based on 
                probable paternity in contested cases.--
                Procedures which require that a temporary order 
                be issued, upon motion by a party, requiring 
                the provision of child support pending an 
                administrative or judicial determination of 
                parentage, if there is clear and convincing 
                evidence of paternity (on the basis of genetic 
                tests or other evidence).
                    ``(K) Proof of certain support and 
                paternity establishment costs.--Procedures 
                under which bills for pregnancy, childbirth, 
                and genetic testing are admissible as evidence 
                without requiring third-party foundation 
                testimony, and shall constitute prima facie 
                evidence of amounts incurred for such services 
                or for testing on behalf of the child.
                    ``(L) Standing of putative fathers.--
                Procedures ensuring that the putative father 
                has a reasonable opportunity to initiate a 
                paternity action.
                    ``(M) Filing of acknowledgments and 
                adjudications in state registry of birth 
                records.--Procedures under which voluntary 
                acknowledgments and adjudications of paternity 
                by judicial or administrative processes are 
                filed with the State registry of birth records 
                for comparison with information in the State 
                case registry.''.
    (b) National Paternity Acknowledgment Affidavit.--Section 
452(a)(7) (42 U.S.C. 652(a)(7)) is amended by inserting ``, and 
develop an affidavit to be used for the voluntary 
acknowledgment of paternity which shall include the social 
security number of each parent and, after consultation with the 
States, other common elements as determined by such designee'' 
before the semicolon.
    (c) Conforming Amendment.--Section 468 (42 U.S.C. 668) is 
amended by striking ``a simple civil process for voluntarily 
acknowledging paternity and''.

SEC. 12332. OUTREACH FOR VOLUNTARY PATERNITY ESTABLISHMENT.

    Section 454(23) (42 U.S.C. 654(23)) is amended by inserting 
``and will publicize the availability and encourage the use of 
procedures for voluntary establishment of paternity and child 
support by means the State deems appropriate'' before the 
semicolon.

SEC. 12333. COOPERATION BY APPLICANTS FOR AND RECIPIENTS OF TEMPORARY 
                    FAMILY ASSISTANCE.

    Section 454 (42 U.S.C. 654), as amended by sections 
12301(b), 12303(a), 12312(a), and 12313(a) of this Act, is 
amended--
            (1) by striking ``and'' at the end of paragraph 
        (27);
            (2) by striking the period at the end of paragraph 
        (28) and inserting ``; and''; and
            (3) by inserting after paragraph (28) the following 
        new paragraph:
            ``(29) provide that the State agency responsible 
        for administering the State plan--
                    ``(A) shall make the determination (and 
                redetermination at appropriate intervals) as to 
                whether an individual who has applied for or is 
                receiving assistance under the State program 
                funded under part A or the State program under 
                title XXI is cooperating in good faith with the 
                State in establishing the paternity of, or in 
                establishing, modifying, or enforcing a support 
                order for, any child of the individual by 
                providing the State agency with the name of, 
                and such other information as the State agency 
                may require with respect to, the noncustodial 
                parent of the child, subject to such good cause 
                exceptions, taking into account the best 
                interests of the child, as the State may 
                establish through the State agency, or at the 
                option of the State, through the State agencies 
                administering the State programs funded under 
                part A and title XXI;
                    ``(B) shall require the individual to 
                supply additional necessary information and 
                appear at interviews, hearings, and legal 
                proceedings;
                    ``(C) shall require the individual and the 
                child to submit to genetic tests pursuant to 
                judicial or administrative order;
                    ``(D) may request that the individual sign 
                a voluntary acknowledgment of paternity, after 
                notice of the rights and consequences of such 
                an acknowledgment, but may not require the 
                individual to sign an acknowledgment or 
                otherwise relinquish the right to genetic tests 
                as a condition of cooperation and eligibility 
                for assistance under the State program funded 
                under part A or the State program under title 
                XXI; and
                    ``(E) shall promptly notify the individual 
                and the State agency administering the State 
                program funded under part A and the State 
                agency administering the State program under 
                title XXI of each such determination, and if 
                noncooperation is determined, the basis 
                therefore.''.

             CHAPTER 5--PROGRAM ADMINISTRATION AND FUNDING

SEC. 12341. PERFORMANCE-BASED INCENTIVES AND PENALTIES.

    (a) Development of New System.--The Secretary of Health and 
Human Services, in consultation with State directors of 
programs under part D of title IV of the Social Security Act, 
shall develop a new incentive system to replace the system 
under section 458 of such Act. The new system shall provide 
additional payments to any State based on such State's 
performance under such a program.
    (b) Conforming Amendments to Present System.--Section 458 
(42 U.S.C. 658) is amended--
            (1) in subsection (a), by striking ``aid to 
        families with dependent children under a State plan 
        approved under part A of this title'' and inserting 
        ``assistance under a program funded under part A'';
            (2) in subsection (b)(1)(A), by striking ``section 
        402(a)(26)'' and inserting ``section 407(a)(4)'';
            (3) in subsections (b) and (c)--
                    (A) by striking ``AFDC collections'' each 
                place it appears and inserting ``title IV-A 
                collections'', and
                    (B) by striking ``non-AFDC collections'' 
                each place it appears and inserting ``non-title 
                IV-A collections''; and
            (4) in subsection (c), by striking ``combined AFDC/
        non-AFDC administrative costs'' both places it appears 
        and inserting ``combined title IV-A/non-title IV-A 
        administrative costs''.
    (c) Calculation of IV-D Paternity Establishment 
Percentage.--
            (1) Section 452(g)(1) (42 U.S.C. 652(g)(1)) is 
        amended in each of subparagraphs (A) and (B), by 
        striking ``75'' and inserting ``90''.
            (2) Section 452(g)(2)(A) (42 U.S.C. 652(g)(2)(A)) 
        is amended in the matter preceding clause (i)--
                    (A) by striking ``paternity establishment 
                percentage'' and inserting ``IV-D paternity 
                establishment percentage''; and
                    (B) by striking ``(or all States, as the 
                case may be)''.
            (3) Section 452(g)(2) (42 U.S.C. 652(g)(2)) is 
        amended by adding at the end the following new 
        sentence: ``In meeting the 90 percent paternity 
        establishment requirement, a State may calculate either 
        the paternity establishment rate of cases in the 
        program funded under this part or the paternity 
        establishment rate of all out-of-wedlock births in the 
        State.''.
            (4) Section 452(g)(3) (42 U.S.C. 652(g)(3)) is 
        amended--
                    (A) by striking subparagraph (A) and 
                redesignating subparagraphs (B) and (C) as 
                subparagraphs (A) and (B), respectively;
                    (B) in subparagraph (A) (as so 
                redesignated), by striking ``the percentage of 
                children born out-of-wedlock in a State'' and 
                inserting ``the percentage of children in a 
                State who are born out of wedlock or for whom 
                support has not been established''; and
                    (C) in subparagraph (B) (as so 
                redesignated) by inserting ``and securing 
                support'' before the period.
    (d) Effective Dates.--
            (1) Incentive adjustments.--
            (A) In general.--The system developed under 
        subsection (a) and the amendments made by subsection 
        (b) shall become effective on October 1, 1997, except 
        to the extent provided in subparagraph (B).
            (B) Application of section 458.--Section 458 of the 
        Social Security Act, as in effect on the day before the 
        date of the enactment of this section, shall be 
        effective for purposes of incentive payments to States 
        for fiscal years before fiscal year 1999.
            (2) Penalty reductions.--The amendments made by 
        subsection (c) shall become effective with respect to 
        calendar quarters beginning on or after the date of the 
        enactment of this Act.

SEC. 12342. FEDERAL AND STATE REVIEWS AND AUDITS.

    (a) State Agency Activities.--Section 454 (42 U.S.C. 654) 
is amended--
            (1) in paragraph (14), by striking ``(14)'' and 
        inserting ``(14)(A)'';
            (2) by redesignating paragraph (15) as subparagraph 
        (B) of paragraph (14); and
            (3) by inserting after paragraph (14) the following 
        new paragraph:
            ``(15) provide for--
                    ``(A) a process for annual reviews of and 
                reports to the Secretary on the State program 
                operated under the State plan approved under 
                this part, including such information as may be 
                necessary to measure State compliance with 
                Federal requirements for expedited procedures, 
                using such standards and procedures as are 
                required by the Secretary, under which the 
                State agency will determine the extent to which 
                the program is operated in compliance with this 
                part; and
                    ``(B) a process of extracting from the 
                automated data processing system required by 
                paragraph (16) and transmitting to the 
                Secretary data and calculations concerning the 
                levels of accomplishment (and rates of 
                improvement) with respect to applicable 
                performance indicators (including IV-D 
                paternity establishment percentages to the 
                extent necessary for purposes of sections 
                452(g) and 458.''.
    (b) Federal Activities.--Section 452(a)(4) (42 U.S.C. 
652(a)(4)) is amended to read as follows:
            ``(4)(A) review data and calculations transmitted 
        by State agencies pursuant to section 454(15)(B) on 
        State program accomplishments with respect to 
        performance indicators for purposes of subsection (g) 
        of this section and section 458;
            ``(B) review annual reports submitted pursuant to 
        section 454(15)(A) and, as appropriate, provide to the 
        State comments, recommendations for additional or 
        alternative corrective actions, and technical 
        assistance; and
            ``(C) conduct audits, in accordance with the 
        Government auditing standards of the Comptroller 
        General of the United States--
                    ``(i) at least once every 3 years (or more 
                frequently, in the case of a State which fails 
                to meet the requirements of this part 
                concerning performance standards and 
                reliability of program data) to assess the 
                completeness, reliability, and security of the 
                data, and the accuracy of the reporting 
                systems, used in calculating performance 
                indicators under subsection (g) of this section 
                and section 458;
                    ``(ii) of the adequacy of financial 
                management of the State program operated under 
                the State plan approved under this part, 
                including assessments of--
                            ``(I) whether Federal and other 
                        funds made available to carry out the 
                        State program are being appropriately 
                        expended, and are properly and fully 
                        accounted for; and
                            ``(II) whether collections and 
                        disbursements of support payments are 
                        carried out correctly and are fully 
                        accounted for; and
                    ``(iii) for such other purposes as the 
                Secretary may find necessary;''.
    (c) Effective Date.--The amendments made by this section 
shall be effective with respect to calendar quarters beginning 
12 months or more after the date of the enactment of this Act.

SEC. 12343. REQUIRED REPORTING PROCEDURES.

    (a) Establishment.--Section 452(a)(5) (42 U.S.C. 652(a)(5)) 
is amended by inserting ``, and establish procedures to be 
followed by States for collecting and reporting information 
required to be provided under this part, and establish uniform 
definitions (including those necessary to enable the 
measurement of State compliance with the requirements of this 
part relating to expedited processes) to be applied in 
following such procedures'' before the semicolon.
    (b) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
as amended by sections 12301(b), 12303(a), 12312(a), 12313(a), 
and 12333 of this Act, is amended--
            (1) by striking ``and'' at the end of paragraph 
        (28);
            (2) by striking the period at the end of paragraph 
        (29) and inserting ``; and''; and
            (3) by adding after paragraph (29) the following 
        new paragraph:
            ``(30) provide that the State shall use the 
        definitions established under section 452(a)(5) in 
        collecting and reporting information as required under 
        this part.''.

SEC. 12344. AUTOMATED DATA PROCESSING REQUIREMENTS.

    (a) Revised Requirements.--
            (1) In general.--Section 454(16) (42 U.S.C. 
        654(16)) is amended--
                    (A) by striking ``, at the option of the 
                State,'';
                    (B) by inserting ``and operation by the 
                State agency'' after ``for the establishment'';
                    (C) by inserting ``meeting the requirements 
                of section 454A'' after ``information retrieval 
                system'';
                    (D) by striking ``in the State and 
                localities thereof, so as (A)'' and inserting 
                ``so as'';
                    (E) by striking ``(i)''; and
                    (F) by striking ``(including'' and all that 
                follows and inserting a semicolon.
            (2) Automated data processing.--Part D of title IV 
        (42 U.S.C. 651-669) is amended by inserting after 
        section 454 the following new section:

``SEC. 454A. AUTOMATED DATA PROCESSING.

    ``(a) In General.--In order for a State to meet the 
requirements of this section, the State agency administering 
the State program under this part shall have in operation a 
single statewide automated data processing and information 
retrieval system which has the capability to perform the tasks 
specified in this section with the frequency and in the manner 
required by or under this part.
    ``(b) Program Management.--The automated system required by 
this section shall perform such functions as the Secretary may 
specify relating to management of the State program under this 
part, including--
            ``(1) controlling and accounting for use of 
        Federal, State, and local funds in carrying out the 
        program; and
            ``(2) maintaining the data necessary to meet 
        Federal reporting requirements under this part on a 
        timely basis.
    ``(c) Calculation of Performance Indicators.--In order to 
enable the Secretary to determine the incentive payments and 
penalty adjustments required by sections 452(g) and 458, the 
State agency shall--
            ``(1) use the automated system--
                    ``(A) to maintain the requisite data on 
                State performance with respect to paternity 
                establishment and child support enforcement in 
                the State; and
                    ``(B) to calculate the IV-D paternity 
                establishment percentage for the State for each 
                fiscal year; and
            ``(2) have in place systems controls to ensure the 
        completeness and reliability of, and ready access to, 
        the data described in paragraph (1)(A), and the 
        accuracy of the calculations described in paragraph 
        (1)(B).
    ``(d) Information Integrity and Security.--The State agency 
shall have in effect safeguards on the integrity, accuracy, and 
completeness of, access to, and use of data in the automated 
system required by this section, which shall include the 
following (in addition to such other safeguards as the 
Secretary may specify in regulations):
            ``(1) Policies restricting access.--Written 
        policies concerning access to data by State agency 
        personnel, and sharing of data with other persons, 
        which--
                    ``(A) permit access to and use of data only 
                to the extent necessary to carry out the State 
                program under this part; and
                    ``(B) specify the data which may be used 
                for particular program purposes, and the 
                personnel permitted access to such data.
            ``(2) Systems controls.--Systems controls (such as 
        passwords or blocking of fields) to ensure strict 
        adherence to the policies described in paragraph (1).
            ``(3) Monitoring of access.--Routine monitoring of 
        access to and use of the automated system, through 
        methods such as audit trails and feedback mechanisms, 
        to guard against and promptly identify unauthorized 
        access or use.
            ``(4) Training and information.--Procedures to 
        ensure that all personnel (including State and local 
        agency staff and contractors) who may have access to or 
        be required to use confidential program data are 
        informed of applicable requirements and penalties 
        (including those in section 6103 of the Internal 
        Revenue Code of 1986), and are adequately trained in 
        security procedures.
            ``(5) Penalties.--Administrative penalties (up to 
        and including dismissal from employment) for 
        unauthorized access to, or disclosure or use of, 
        confidential data.''.
            (3) Regulations.--The Secretary of Health and Human 
        Services shall prescribe final regulations for 
        implementation of section 454A of the Social Security 
        Act not later than 2 years after the date of the 
        enactment of this Act.
            (4) Implementation timetable.--Section 454(24) (42 
        U.S.C. 654(24)), as amended by section 12303(a)(1) of 
        this Act, is amended to read as follows:
            ``(24) provide that the State will have in effect 
        an automated data processing and information retrieval 
        system--
                    ``(A) by October 1, 1997, which meets all 
                requirements of this part which were enacted on 
                or before the date of enactment of the Family 
                Support Act of 1988, and
                    ``(B) by October 1, 1999, which meets all 
                requirements of this part enacted on or before 
                the date of the enactment of the Personal 
                Responsibility and Work Opportunity Act of 
                1995, except that such deadline shall be 
                extended by 1 day for each day (if any) by 
                which the Secretary fails to meet the deadline 
                imposed by section 12344(a)(3) of the Personal 
                Responsibility and Work Opportunity Act of 
                1995;''.
    (b) Special Federal Matching Rate for Development Costs of 
Automated Systems.--
            (1) In general.--Section 455(a) (42 U.S.C. 655(a)) 
        is amended--
                    (A) in paragraph (1)(B)--
                            (i) by striking ``90 percent'' and 
                        inserting ``the percent specified in 
                        paragraph (3)'';
                            (ii) by striking ``so much of''; 
                        and
                            (iii) by striking ``which the 
                        Secretary'' and all that follows and 
                        inserting ``, and''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(3)(A) The Secretary shall pay to each State, for each 
quarter in fiscal years 1996 and 1997, 90 percent of so much of 
the State expenditures described in paragraph (1)(B) as the 
Secretary finds are for a system meeting the requirements 
specified in section 454(16) (as in effect on September 30, 
1995) but limited to the amount approved for States in the 
advance planning documents of such States submitted on or 
before May 1, 1995.
    ``(B)(i) The Secretary shall pay to each State, for each 
quarter in fiscal years 1997 through 2001, the percentage 
specified in clause (ii) of so much of the State expenditures 
described in paragraph (1)(B) as the Secretary finds are for a 
system meeting the requirements of sections 454(16) and 454A.
    ``(ii) The percentage specified in this clause is 80 
percent.''.
            (2) Temporary limitation on payments under special 
        federal matching rate.--
                    (A) In general.--The Secretary of Health 
                and Human Services may not pay more than 
                $400,000,000 in the aggregate under section 
                455(a)(3) of the Social Security Act for fiscal 
                years 1996, 1997, 1998, 1999, and 2000.
                    (B) Allocation of limitation among 
                states.--The total amount payable to a State 
                under section 455(a)(3) of such Act for fiscal 
                years 1996, 1997, 1998, 1999, and 2000 shall 
                not exceed the limitation determined for the 
                State by the Secretary of Health and Human 
                Services in regulations.
                    (C) Allocation formula.--The regulations 
                referred to in subparagraph (B) shall prescribe 
                a formula for allocating the amount specified 
                in subparagraph (A) among States with plans 
                approved under part D of title IV of the Social 
                Security Act, which shall take into account--
                            (i) the relative size of State 
                        caseloads under such part; and
                            (ii) the level of automation needed 
                        to meet the automated data processing 
                        requirements of such part.
    (c) Conforming Amendment.--Section 123(c) of the Family 
Support Act of 1988 (102 Stat. 2352; Public Law 100-485) is 
repealed.

SEC. 12345. TECHNICAL ASSISTANCE.

    (a) For Training of Federal and State Staff, Research and 
Demonstration Programs, and Special Projects of Regional or 
National Significance.--Section 452 (42 U.S.C. 652) is amended 
by adding at the end the following new subsection:
    ``(j) Out of any money in the Treasury of the United States 
not otherwise appropriated, there is hereby appropriated to the 
Secretary for each fiscal year an amount equal to 1 percent of 
the total amount paid to the Federal Government pursuant to 
section 457(a) during the immediately preceding fiscal year (as 
determined on the basis of the most recent reliable data 
available to the Secretary as of the end of the 3rd calendar 
quarter following the end of such preceding fiscal year), to 
cover costs incurred by the Secretary for--
            ``(1) information dissemination and technical 
        assistance to States, training of State and Federal 
        staff, staffing studies, and related activities needed 
        to improve programs under this part (including 
        technical assistance concerning State automated systems 
        required by this part); and
            ``(2) research, demonstration, and special projects 
        of regional or national significance relating to the 
        operation of State programs under this part.''.
    (b) Operation of Federal Parent Locator Service.--Section 
453 (42 U.S.C. 653), as amended by section 12316 of this Act, 
is amended by adding at the end the following new subsection:
    ``(o) Recovery of Costs.--Out of any money in the Treasury 
of the United States not otherwise appropriated, there is 
hereby appropriated to the Secretary for each fiscal year an 
amount equal to 2 percent of the total amount paid to the 
Federal Government pursuant to section 457(a) during the 
immediately preceding fiscal year (as determined on the basis 
of the most recent reliable data available to the Secretary as 
of the end of the 3rd calendar quarter following the end of 
such preceding fiscal year), to cover costs incurred by the 
Secretary for operation of the Federal Parent Locator Service 
under this section, to the extent such costs are not recovered 
through user fees.''.

SEC. 12346. REPORTS AND DATA COLLECTION BY THE SECRETARY.

    (a) Annual Report to Congress.--
            (1) Section 452(a)(10)(A) (42 U.S.C. 652(a)(10)(A)) 
        is amended--
                    (A) by striking ``this part;'' and 
                inserting ``this part, including--''; and
                    (B) by adding at the end the following new 
                clauses:
                            ``(i) the total amount of child 
                        support payments collected as a result 
                        of services furnished during the fiscal 
                        year to individuals receiving services 
                        under this part;
                            ``(ii) the cost to the States and 
                        to the Federal Government of so 
                        furnishing the services; and
                            ``(iii) the number of cases 
                        involving families--
                                    ``(I) who became ineligible 
                                for assistance under State 
                                programs funded under part A 
                                during a month in the fiscal 
                                year; and
                                    ``(II) with respect to whom 
                                a child support payment was 
                                received in the month;''.
            (2) Section 452(a)(10)(C) (42 U.S.C. 652(a)(10)(C)) 
        is amended--
                    (A) in the matter preceding clause (i)--
                            (i) by striking ``with the data 
                        required under each clause being 
                        separately stated for cases'' and 
                        inserting ``separately stated for (1) 
                        cases'';
                            (ii) by striking ``cases where the 
                        child was formerly receiving'' and 
                        inserting ``or formerly received'';
                            (iii) by inserting ``or 1912'' 
                        after ``471(a)(17)''; and
                            (iv) by inserting ``(2)'' before 
                        ``all other'';
                    (B) in each of clauses (i) and (ii), by 
                striking ``, and the total amount of such 
                obligations'';
                    (C) in clause (iii), by striking 
                ``described in'' and all that follows and 
                inserting ``in which support was collected 
                during the fiscal year;'';
                    (D) by striking clause (iv); and
                    (E) by redesignating clause (v) as clause 
                (vii), and inserting after clause (iii) the 
                following new clauses:
                            ``(iv) the total amount of support 
                        collected during such fiscal year and 
                        distributed as current support;
                            ``(v) the total amount of support 
                        collected during such fiscal year and 
                        distributed as arrearages;
                            ``(vi) the total amount of support 
                        due and unpaid for all fiscal years; 
                        and''.
            (3) Section 452(a)(10)(G) (42 U.S.C. 652(a)(10)(G)) 
        is amended by striking ``on the use of Federal courts 
        and''.
            (4) Section 452(a)(10) (42 U.S.C. 652(a)(10)) is 
        amended--
                    (A) in subparagraph (H), by striking 
                ``and'';
                    (B) in subparagraph (I), by striking the 
                period and inserting ``; and''; and
                    (C) by inserting after subparagraph (I) the 
                following new subparagraph:
                    ``(J) compliance, by State, with the 
                standards established pursuant to subsections 
                (h) and (i).''.
            (5) Section 452(a)(10) (42 U.S.C. 652(a)(10)) is 
        amended by striking all that follows subparagraph (J), 
        as added by paragraph (4).
    (b) Effective Date.--The amendments made by subsection (a) 
shall be effective with respect to fiscal year 1996 and 
succeeding fiscal years.

      CHAPTER 6--ESTABLISHMENT AND MODIFICATION OF SUPPORT ORDERS

SEC. 12351. SIMPLIFIED PROCESS FOR REVIEW AND ADJUSTMENT OF CHILD 
                    SUPPORT ORDERS.

    Section 466(a)(10) (42 U.S.C. 666(a)(10)) is amended to 
read as follows:
            ``(10) Review and adjustment of support orders upon 
        request.--Procedures under which the State shall review 
        and adjust each support order being enforced under this 
        part upon the request of either parent or the State if 
        there is an assignment. Such procedures shall provide 
        the following:
                    ``(A) In general.--
                            ``(i) 3-year cycle.--Except as 
                        provided in subparagraphs (B) and (C), 
                        the State shall review and, as 
                        appropriate, adjust the support order 
                        every 3 years, taking into account the 
                        best interests of the child involved.
                            ``(ii) Methods of adjustment.--The 
                        State may elect to review and, if 
                        appropriate, adjust an order pursuant 
                        to clause (i) by--
                                    ``(I) reviewing and, if 
                                appropriate, adjusting the 
                                order in accordance with the 
                                guidelines established pursuant 
                                to section 467(a) if the amount 
                                of the child support award 
                                under the order differs from 
                                the amount that would be 
                                awarded in accordance with the 
                                guidelines; or
                                    ``(II) applying a cost-of-
                                living adjustment to the order 
                                in accordance with a formula 
                                developed by the State and 
                                permit either party to contest 
                                the adjustment, within 30 days 
                                after the date of the notice of 
                                the adjustment, by making a 
                                request for review and, if 
                                appropriate, adjustment of the 
                                order in accordance with the 
                                child support guidelines 
                                established pursuant to section 
                                467(a).
                            ``(iii) No proof of change in 
                        circumstances necessary.--Any 
                        adjustment under this subparagraph (A) 
                        shall be made without a requirement for 
                        proof or showing of a change in 
                        circumstances.
                    ``(B) Automated method.--The State may use 
                automated methods (including automated 
                comparisons with wage or State income tax data) 
                to identify orders eligible for review, conduct 
                the review, identify orders eligible for 
                adjustment, and apply the appropriate 
                adjustment to the orders eligible for 
                adjustment under the threshold established by 
                the State.
                    ``(C) Request upon substantial change in 
                circumstances.--The State shall, at the request 
                of either parent subject to such an order or of 
                any State child support enforcement agency, 
                review and, if appropriate, adjust the order in 
                accordance with the guidelines established 
                pursuant to section 467(a) based upon a 
                substantial change in the circumstances of 
                either parent.
                    ``(D) Notice of right to review.--The State 
                shall provide notice not less than once every 3 
                years to the parents subject to such an order 
                informing them of their right to request the 
                State to review and, if appropriate, adjust the 
                order pursuant to this paragraph. The notice 
                may be included in the order.''.

SEC. 12352. FURNISHING CONSUMER REPORTS FOR CERTAIN PURPOSES RELATING 
                    TO CHILD SUPPORT.

    Section 604 of the Fair Credit Reporting Act (15 U.S.C. 
1681b) is amended by adding at the end the following new 
paragraphs:
            ``(4) In response to a request by the head of a 
        State or local child support enforcement agency (or a 
        State or local government official authorized by the 
        head of such an agency), if the person making the 
        request certifies to the consumer reporting agency 
        that--
                    ``(A) the consumer report is needed for the 
                purpose of establishing an individual's 
                capacity to make child support payments or 
                determining the appropriate level of such 
                payments;
                    ``(B) the paternity of the consumer for the 
                child to which the obligation relates has been 
                established or acknowledged by the consumer in 
                accordance with State laws under which the 
                obligation arises (if required by those laws);
                    ``(C) the person has provided at least 10 
                days' prior notice to the consumer whose report 
                is requested, by certified or registered mail 
                to the last known address of the consumer, that 
                the report will be requested; and
                    ``(D) the consumer report will be kept 
                confidential, will be used solely for a purpose 
                described in subparagraph (A), and will not be 
                used in connection with any other civil, 
                administrative, or criminal proceeding, or for 
                any other purpose.
            ``(5) To an agency administering a State plan under 
        section 454 of the Social Security Act (42 U.S.C. 654) 
        for use to set an initial or modified child support 
        award.''.

SEC. 12353. NONLIABILITY FOR FINANCIAL INSTITUTIONS PROVIDING FINANCIAL 
                    RECORDS TO STATE CHILD SUPPORT ENFORCEMENT AGENCIES 
                    IN CHILD SUPPORT CASES.

    (a) In General.--Notwithstanding any other provision of 
Federal or State law, a financial institution shall not be 
liable under any Federal or State law to any person for 
disclosing any financial record of an individual to a State 
child support enforcement agency attempting to establish, 
modify, or enforce a child support obligation of such 
individual.
    (b) Prohibition of Disclosure of Financial Record Obtained 
by State Child Support Enforcement Agency.--A State child 
support enforcement agency which obtains a financial record of 
an individual from a financial institution pursuant to 
subsection (a) may disclose such financial record only for the 
purpose of, and to the extent necessary in, establishing, 
modifying, or enforcing a child support obligation of such 
individual.
    (c) Civil Damages for Unauthorized Disclosure.--
            (1) Disclosure by state officer or employee.--If 
        any person knowingly, or by reason of negligence, 
        discloses a financial record of an individual in 
        violation of subsection (b), such individual may bring 
        a civil action for damages against such person in a 
        district court of the United States.
            (2) No liability for good faith but erroneous 
        interpretation.--No liability shall arise under this 
        subsection with respect to any disclosure which results 
        from a good faith, but erroneous, interpretation of 
        subsection (b).
            (3) Damages.--In any action brought under paragraph 
        (1), upon a finding of liability on the part of the 
        defendant, the defendant shall be liable to the 
        plaintiff in an amount equal to the sum of--
                    (A) the greater of--
                            (i) $1,000 for each act of 
                        unauthorized disclosure of a financial 
                        record with respect to which such 
                        defendant is found liable; or
                            (ii) the sum of--
                                    (I) the actual damages 
                                sustained by the plaintiff as a 
                                result of such unauthorized 
                                disclosure; plus
                                    (II) in the case of a 
                                willful disclosure or a 
                                disclosure which is the result 
                                of gross negligence, punitive 
                                damages; plus
                    (B) the costs (including attorney's fees) 
                of the action.
    (d) Definitions.--For purposes of this section--
            (1) Financial institution.--The term ``financial 
        institution'' means--
                    (A) a depository institution, as defined in 
                section 3(c) of the Federal Deposit Insurance 
                Act (12 U.S.C. 1813(c));
                    (B) an institution-affiliated party, as 
                defined in section 3(u) of such Act (12 U.S.C. 
                1813(v));
                    (C) any Federal credit union or State 
                credit union, as defined in section 101 of the 
                Federal Credit Union Act (12 U.S.C. 1752), 
                including an institution-affiliated party of 
                such a credit union, as defined in section 
                206(r) of such Act (12 U.S.C. 1786(r)); and
                    (D) any benefit association, insurance 
                company, safe deposit company, money-market 
                mutual fund, or similar entity authorized to do 
                business in the State.
            (2) Financial record.--The term ``financial 
        record'' has the meaning given such term in section 
        1101 of the Right to Financial Privacy Act of 1978 (12 
        U.S.C. 3401).
            (3) State child support enforcement agency.--The 
        term ``State child support enforcement agency'' means a 
        State agency which administers a State program for 
        establishing and enforcing child support obligations.

                CHAPTER 7--ENFORCEMENT OF SUPPORT ORDERS

SEC. 12361. INTERNAL REVENUE SERVICE COLLECTION OF ARREARAGES.

    (a) Collection of Fees.--Section 6305(a) of the Internal 
Revenue Code of 1986 (relating to collection of certain 
liability) is amended--
            (1) by striking ``and'' at the end of paragraph 
        (3);
            (2) by striking the period at the end of paragraph 
        (4) and inserting ``, and'';
            (3) by adding at the end the following new 
        paragraph:
            ``(5) no additional fee may be assessed for 
        adjustments to an amount previously certified pursuant 
        to such section 452(b) with respect to the same 
        obligor.''; and
            (4) by striking ``Secretary of Health, Education, 
        and Welfare'' each place it appears and inserting 
        ``Secretary of Health and Human Services''.
    (b) Effective Date.--The amendments made by this section 
shall become effective October 1, 1997.

SEC. 12362. AUTHORITY TO COLLECT SUPPORT FROM FEDERAL EMPLOYEES.

    (a) Consolidation and Streamlining of Authorities.--Section 
459 (42 U.S.C. 659) is amended to read as follows:

``SEC. 459. CONSENT BY THE UNITED STATES TO INCOME WITHHOLDING, 
                    GARNISHMENT, AND SIMILAR PROCEEDINGS FOR 
                    ENFORCEMENT OF CHILD SUPPORT AND ALIMONY 
                    OBLIGATIONS.

    ``(a) Consent to Support Enforcement.--Notwithstanding any 
other provision of law (including section 207 of this Act and 
section 5301 of title 38, United States Code), effective 
January 1, 1975, moneys (the entitlement to which is based upon 
remuneration for employment) due from, or payable by, the 
United States or the District of Columbia (including any 
agency, subdivision, or instrumentality thereof) to any 
individual, including members of the Armed Forces of the United 
States, shall be subject, in like manner and to the same extent 
as if the United States or the District of Columbia were a 
private person, to withholding in accordance with State law 
enacted pursuant to subsections (a)(1) and (b) of section 466 
and regulations of the Secretary under such subsections, and to 
any other legal process brought, by a State agency 
administering a program under a State plan approved under this 
part or by an individual obligee, to enforce the legal 
obligation of the individual to provide child support or 
alimony.
    ``(b) Consent to Requirements Applicable to Private 
Person.--With respect to notice to withhold income pursuant to 
subsection (a)(1) or (b) of section 466, or any other order or 
process to enforce support obligations against an individual 
(if the order or process contains or is accompanied by 
sufficient data to permit prompt identification of the 
individual and the moneys involved), each governmental entity 
specified in subsection (a) shall be subject to the same 
requirements as would apply if the entity were a private 
person, except as otherwise provided in this section.
    ``(c) Designation of Agent; Response to Notice or Process--
            ``(1) Designation of agent.--The head of each 
        agency subject to this section shall--
                    ``(A) designate an agent or agents to 
                receive orders and accept service of process in 
                matters relating to child support or alimony; 
                and
                    ``(B) annually publish in the Federal 
                Register the designation of the agent or 
                agents, identified by title or position, 
                mailing address, and telephone number.
            ``(2) Response to notice or process.--If an agent 
        designated pursuant to paragraph (1) of this subsection 
        receives notice pursuant to State procedures in effect 
        pursuant to subsection (a)(1) or (b) of section 466, or 
        is effectively served with any order, process, or 
        interrogatory, with respect to an individual's child 
        support or alimony payment obligations, the agent 
        shall--
                    ``(A) as soon as possible (but not later 
                than 15 days) thereafter, send written notice 
                of the notice or service (together with a copy 
                of the notice or service) to the individual at 
                the duty station or last-known home address of 
                the individual;
                    ``(B) within 30 days (or such longer period 
                as may be prescribed by applicable State law) 
                after receipt of a notice pursuant to such 
                State procedures, comply with all applicable 
                provisions of section 466; and
                    ``(C) within 30 days (or such longer period 
                as may be prescribed by applicable State law) 
                after effective service of any other such 
                order, process, or interrogatory, respond to 
                the order, process, or interrogatory.
    ``(d) Priority of Claims.--If a governmental entity 
specified in subsection (a) receives notice or is served with 
process, as provided in this section, concerning amounts owed 
by an individual to more than 1 person--
            ``(1) support collection under section 466(b) must 
        be given priority over any other process, as provided 
        in section 466(b)(7);
            ``(2) allocation of moneys due or payable to an 
        individual among claimants under section 466(b) shall 
        be governed by section 466(b) and the regulations 
        prescribed under such section; and
            ``(3) such moneys as remain after compliance with 
        paragraphs (1) and (2) shall be available to satisfy 
        any other such processes on a first-come, first-served 
        basis, with any such process being satisfied out of 
        such moneys as remain after the satisfaction of all 
        such processes which have been previously served.
    ``(e) No Requirement To Vary Pay Cycles.--A governmental 
entity that is affected by legal process served for the 
enforcement of an individual's child support or alimony payment 
obligations shall not be required to vary its normal pay and 
disbursement cycle in order to comply with the legal process.
    ``(f) Relief From Liability.--
            ``(1) Neither the United States, nor the government 
        of the District of Columbia, nor any disbursing officer 
        shall be liable with respect to any payment made from 
        moneys due or payable from the United States to any 
        individual pursuant to legal process regular on its 
        face, if the payment is made in accordance with this 
        section and the regulations issued to carry out this 
        section.
            ``(2) No Federal employee whose duties include 
        taking actions necessary to comply with the 
        requirements of subsection (a) with regard to any 
        individual shall be subject under any law to any 
        disciplinary action or civil or criminal liability or 
        penalty for, or on account of, any disclosure of 
        information made by the employee in connection with the 
        carrying out of such actions.
    ``(g) Regulations.--Authority to promulgate regulations for 
the implementation of this section shall, insofar as this 
section applies to moneys due from (or payable by)--
            ``(1) the United States (other than the legislative 
        or judicial branches of the Federal Government) or the 
        government of the District of Columbia, be vested in 
        the President (or the designee of the President);
            ``(2) the legislative branch of the Federal 
        Government, be vested jointly in the President pro 
        tempore of the Senate and the Speaker of the House of 
        Representatives (or their designees), and
            ``(3) the judicial branch of the Federal 
        Government, be vested in the Chief Justice of the 
        United States (or the designee of the Chief Justice).
    ``(h) Moneys Subject to Process.--
            ``(1) In general.--Subject to paragraph (2), moneys 
        paid or payable to an individual which are considered 
        to be based upon remuneration for employment, for 
        purposes of this section--
                    ``(A) consist of--
                            ``(i) compensation paid or payable 
                        for personal services of the 
                        individual, whether the compensation is 
                        denominated as wages, salary, 
                        commission, bonus, pay, allowances, or 
                        otherwise (including severance pay, 
                        sick pay, and incentive pay);
                            ``(ii) periodic benefits (including 
                        a periodic benefit as defined in 
                        section 228(h)(3)) or other payments--
                                    ``(I) under the insurance 
                                system established by title II;
                                    ``(II) under any other 
                                system or fund established by 
                                the United States which 
                                provides for the payment of 
                                pensions, retirement or retired 
                                pay, annuities, dependents' or 
                                survivors' benefits, or similar 
                                amounts payable on account of 
                                personal services performed by 
                                the individual or any other 
                                individual;
                                    ``(III) as compensation for 
                                death under any Federal 
                                program;
                                    ``(IV) under any Federal 
                                program established to provide 
                                `black lung' benefits; or
                                    ``(V) by the Secretary of 
                                Veterans Affairs as pension, or 
                                as compensation for a service-
                                connected disability or death; 
                                and
                            ``(iii) worker's compensation 
                        benefits paid under Federal or State 
                        law but
                    ``(B) do not include any payment--
                            ``(i) by way of reimbursement or 
                        otherwise, to defray expenses incurred 
                        by the individual in carrying out 
                        duties associated with the employment 
                        of the individual; or
                            ``(ii) as allowances for members of 
                        the uniformed services payable pursuant 
                        to chapter 7 of title 37, United States 
                        Code, as prescribed by the Secretaries 
                        concerned (defined by section 101(5) of 
                        such title) as necessary for the 
                        efficient performance of duty.
            ``(2) Certain amounts excluded.--In determining the 
        amount of any moneys due from, or payable by, the 
        United States to any individual, there shall be 
        excluded amounts which--
                    ``(A) are owed by the individual to the 
                United States;
                    ``(B) are required by law to be, and are, 
                deducted from the remuneration or other payment 
                involved, including Federal employment taxes, 
                and fines and forfeitures ordered by court-
                martial;
                    ``(C) are properly withheld for Federal, 
                State, or local income tax purposes, if the 
                withholding of the amounts is authorized or 
                required by law and if amounts withheld are not 
                greater than would be the case if the 
                individual claimed all dependents to which he 
                was entitled (the withholding of additional 
                amounts pursuant to section 3402(i) of the 
                Internal Revenue Code of 1986 may be permitted 
                only when the individual presents evidence of a 
                tax obligation which supports the additional 
                withholding);
                    ``(D) are deducted as health insurance 
                premiums;
                    ``(E) are deducted as normal retirement 
                contributions (not including amounts deducted 
                for supplementary coverage); or
                    ``(F) are deducted as normal life insurance 
                premiums from salary or other remuneration for 
                employment (not including amounts deducted for 
                supplementary coverage).
    ``(i) Definitions.--For purposes of this section--
            ``(1) United states.--The term `United States' 
        includes any department, agency, or instrumentality of 
        the legislative, judicial, or executive branch of the 
        Federal Government, the United States Postal Service, 
        the Postal Rate Commission, any Federal corporation 
        created by an Act of Congress that is wholly owned by 
        the Federal Government, and the governments of the 
        territories and possessions of the United States.
            ``(2) Child support.--The term `child support', 
        when used in reference to the legal obligations of an 
        individual to provide such support, means amounts 
        required to be paid under a judgment, decree, or order, 
        whether temporary, final, or subject to modification, 
        issued by a court or an administrative agency of 
        competent jurisdiction, for the support and maintenance 
        of a child, including a child who has attained the age 
        of majority under the law of the issuing State, or a 
        child and the parent with whom the child is living, 
        which provides for monetary support, health care, 
        arrearages or reimbursement, and which may include 
        other related costs and fees, interest and penalties, 
        income withholding, attorney's fees, and other relief.
            ``(3) Alimony.--
                    ``(A) In general.--The term `alimony', when 
                used in reference to the legal obligations of 
                an individual to provide the same, means 
                periodic payments of funds for the support and 
                maintenance of the spouse (or former spouse) of 
                the individual, and (subject to and in 
                accordance with State law) includes separate 
                maintenance, alimony pendente lite, 
                maintenance, and spousal support, and includes 
                attorney's fees, interest, and court costs when 
                and to the extent that the same are expressly 
                made recoverable as such pursuant to a decree, 
                order, or judgment issued in accordance with 
                applicable State law by a court of competent 
                jurisdiction.
                    ``(B) Exceptions.--Such term does not 
                include--
                            ``(i) any child support; or
                            ``(ii) any payment or transfer of 
                        property or its value by an individual 
                        to the spouse or a former spouse of the 
                        individual in compliance with any 
                        community property settlement, 
                        equitable distribution of property, or 
                        other division of property between 
                        spouses or former spouses.
            ``(4) Private person.--The term `private person' 
        means a person who does not have sovereign or other 
        special immunity or privilege which causes the person 
        not to be subject to legal process.
            ``(5) Legal process.--The term `legal process' 
        means any writ, order, summons, or other similar 
        process in the nature of garnishment--
                    ``(A) which is issued by--
                            ``(i) a court or an administrative 
                        agency of competent jurisdiction in any 
                        State, territory, or possession of the 
                        United States;
                            ``(ii) a court or an administrative 
                        agency of competent jurisdiction in any 
                        foreign country with which the United 
                        States has entered into an agreement 
                        which requires the United States to 
                        honor the process; or
                            ``(iii) an authorized official 
                        pursuant to an order of such a court or 
                        an administrative agency of competent 
                        jurisdiction or pursuant to State or 
                        local law; and
                    ``(B) which is directed to, and the purpose 
                of which is to compel, a governmental entity 
                which holds moneys which are otherwise payable 
                to an individual to make a payment from the 
                moneys to another party in order to satisfy a 
                legal obligation of the individual to provide 
                child support or make alimony payments.''.
    (b) Conforming Amendments.--
            (1) To part d of title iv.--Sections 461 and 462 
        (42 U.S.C. 661 and 662) are repealed.
            (2) To title 5, united states code.--Section 5520a 
        of title 5, United States Code, is amended, in 
        subsections (h)(2) and (i), by striking ``sections 459, 
        461, and 462 of the Social Security Act (42 U.S.C. 659, 
        661, and 662)'' and inserting ``section 459 of the 
        Social Security Act (42 U.S.C. 659)''.
    (c) Military Retired and Retainer Pay.--
            (1) Definition of court.--Section 1408(a)(1) of 
        title 10, United States Code, is amended--
                    (A) by striking ``and'' at the end of 
                subparagraph (B);
                    (B) by striking the period at the end of 
                subparagraph (C) and inserting ``; and''; and
                    (C) by adding after subparagraph (C) the 
                following: new subparagraph
                    ``(D) any administrative or judicial 
                tribunal of a State competent to enter orders 
                for support or maintenance (including a State 
                agency administering a program under a State 
                plan approved under part D of title IV of the 
                Social Security Act), and, for purposes of this 
                subparagraph, the term `State' includes the 
                District of Columbia, the Commonwealth of 
                Puerto Rico, the Virgin Islands, Guam, and 
                American Samoa.''.
            (2) Definition of court order.--Section 1408(a)(2) 
        of such title is amended--
                    (A) by inserting ``or a support order, as 
                defined in section 453(p) of the Social 
                Security Act (42 U.S.C. 653(p)),'' before 
                ``which--'';
                    (B) in subparagraph (B)(i), by striking 
                ``(as defined in section 462(b) of the Social 
                Security Act (42 U.S.C. 662(b)))'' and 
                inserting ``(as defined in section 459(i)(2) of 
                the Social Security Act (42 U.S.C. 
                662(i)(2)))''; and
                    (C) in subparagraph (B)(ii), by striking 
                ``(as defined in section 462(c) of the Social 
                Security Act (42 U.S.C. 662(c)))'' and 
                inserting ``(as defined in section 459(i)(3) of 
                the Social Security Act (42 U.S.C. 
                662(i)(3)))''.
            (3) Public payee.--Section 1408(d) of such title is 
        amended--
                    (A) in the heading, by inserting ``(or for 
                Benefit of)'' before ``Spouse or''; and
                    (B) in paragraph (1), in the 1st sentence, 
                by inserting ``(or for the benefit of such 
                spouse or former spouse to a State disbursement 
                unit established pursuant to section 454B of 
                the Social Security Act or other public payee 
                designated by a State, in accordance with part 
                D of title IV of the Social Security Act, as 
                directed by court order, or as otherwise 
                directed in accordance with such part D)'' 
                before ``in an amount sufficient''.
            (4) Relationship to part d of title iv.--Section 
        1408 of such title is amended by adding at the end the 
        following new subsection:
    ``(j) Relationship to Other Laws.--In any case involving an 
order providing for payment of child support (as defined in 
section 459(i)(2) of the Social Security Act) by a member who 
has never been married to the other parent of the child, the 
provisions of this section shall not apply, and the case shall 
be subject to the provisions of section 459 of such Act.''.
    (d) Effective Date.--The amendments made by this section 
shall become effective 6 months after the date of the enactment 
of this Act.

SEC. 12363. ENFORCEMENT OF CHILD SUPPORT OBLIGATIONS OF MEMBERS OF THE 
                    ARMED FORCES.

    (a) Availability of Locator Information.--
            (1) Maintenance of address information.--The 
        Secretary of Defense shall establish a centralized 
        personnel locator service that includes the address of 
        each member of the Armed Forces under the jurisdiction 
        of the Secretary. Upon request of the Secretary of 
        Transportation, addresses for members of the Coast 
        Guard shall be included in the centralized personnel 
        locator service.
            (2) Type of address.--
                    (A) Residential address.--Except as 
                provided in subparagraph (B), the address for a 
                member of the Armed Forces shown in the locator 
                service shall be the residential address of 
                that member.
                    (B) Duty address.--The address for a member 
                of the Armed Forces shown in the locator 
                service shall be the duty address of that 
                member in the case of a member--
                            (i) who is permanently assigned 
                        overseas, to a vessel, or to a 
                        routinely deployable unit; or
                            (ii) with respect to whom the 
                        Secretary concerned makes a 
                        determination that the member's 
                        residential address should not be 
                        disclosed due to national security or 
                        safety concerns.
            (3) Updating of locator information.--Within 30 
        days after a member listed in the locator service 
        establishes a new residential address (or a new duty 
        address, in the case of a member covered by paragraph 
        (2)(B)), the Secretary concerned shall update the 
        locator service to indicate the new address of the 
        member.
            (4) Availability of information.--The Secretary of 
        Defense shall make information regarding the address of 
        a member of the Armed Forces listed in the locator 
        service available, on request, to the Federal Parent 
        Locator Service established under section 453 of the 
        Social Security Act.
    (b) Facilitating Granting of Leave for Attendance at 
Hearings.--
            (1) Regulations.--The Secretary of each military 
        department, and the Secretary of Transportation with 
        respect to the Coast Guard when it is not operating as 
        a service in the Navy, shall prescribe regulations to 
        facilitate the granting of leave to a member of the 
        Armed Forces under the jurisdiction of that Secretary 
        in a case in which--
                    (A) the leave is needed for the member to 
                attend a hearing described in paragraph (2);
                    (B) the member is not serving in or with a 
                unit deployed in a contingency operation (as 
                defined in section 101 of title 10, United 
                States Code); and
                    (C) the exigencies of military service (as 
                determined by the Secretary concerned) do not 
                otherwise require that such leave not be 
                granted.
            (2) Covered hearings.--Paragraph (1) applies to a 
        hearing that is conducted by a court or pursuant to an 
        administrative process established under State law, in 
        connection with a civil action--
                    (A) to determine whether a member of the 
                Armed Forces is a natural parent of a child; or
                    (B) to determine an obligation of a member 
                of the Armed Forces to provide child support.
            (3) Definitions.--For purposes of this subsection--
                    (A) The term ``court'' has the meaning 
                given that term in section 1408(a) of title 10, 
                United States Code.
                    (B) The term ``child support'' has the 
                meaning given such term in section 459(i) of 
                the Social Security Act (42 U.S.C. 659(i)).
    (c) Payment of Military Retired Pay in Compliance With 
Child Support Orders.--
            (1) Date of certification of court order.--Section 
        1408 of title 10, United States Code, as amended by 
        section 362(c)(4) of this Act, is amended--
                    (A) by redesignating subsections (i) and 
                (j) as subsections (j) and (k), respectively; 
                and
                    (B) by inserting after subsection (h) the 
                following new subsection:
    ``(i) Certification Date.--It is not necessary that the 
date of a certification of the authenticity or completeness of 
a copy of a court order for child support received by the 
Secretary concerned for the purposes of this section be recent 
in relation to the date of receipt by the Secretary.''.
            (2) Payments consistent with assignments of rights 
        to states.--Section 1408(d)(1) of such title is amended 
        by inserting after the 1st sentence the following new 
        sentence: ``In the case of a spouse or former spouse 
        who, pursuant to section 407(a)(4) of the Social 
        Security Act (42 U.S.C. 607(a)(4)), assigns to a State 
        the rights of the spouse or former spouse to receive 
        support, the Secretary concerned may make the child 
        support payments referred to in the preceding sentence 
        to that State in amounts consistent with that 
        assignment of rights.''.
            (3) Arrearages owed by members of the uniformed 
        services.--Section 1408(d) of such title is amended by 
        adding at the end the following new paragraph:
    ``(6) In the case of a court order for which effective 
service is made on the Secretary concerned on or after the date 
of the enactment of this paragraph and which provides for 
payments from the disposable retired pay of a member to satisfy 
the amount of child support set forth in the order, the 
authority provided in paragraph (1) to make payments from the 
disposable retired pay of a member to satisfy the amount of 
child support set forth in a court order shall apply to payment 
of any amount of child support arrearages set forth in that 
order as well as to amounts of child support that currently 
become due.''.
            (4) Payroll deductions.--The Secretary of Defense 
        shall begin payroll deductions within 30 days after 
        receiving notice of withholding, or for the 1st pay 
        period that begins after such 30-day period.

SEC. 12364. VOIDING OF FRAUDULENT TRANSFERS.

    Section 466 (42 U.S.C. 666), as amended by section 321 of 
this Act, is amended by adding at the end the following new 
subsection:
    ``(g) Laws Voiding Fraudulent Transfers.--In order to 
satisfy section 454(20)(A), each State must have in effect--
            ``(1)(A) the Uniform Fraudulent Conveyance Act of 
        1981;
                    ``(B) the Uniform Fraudulent Transfer Act 
                of 1984; or
                    ``(C) another law, specifying indicia of 
                fraud which create a prima facie case that a 
                debtor transferred income or property to avoid 
                payment to a child support creditor, which the 
                Secretary finds affords comparable rights to 
                child support creditors; and
            ``(2) procedures under which, in any case in which 
        the State knows of a transfer by a child support debtor 
        with respect to which such a prima facie case is 
        established, the State must--
                    ``(A) seek to void such transfer; or
                    ``(B) obtain a settlement in the best 
                interests of the child support creditor.''.

SEC. 12365. WORK REQUIREMENT FOR PERSONS OWING PAST-DUE CHILD SUPPORT.

    (a) In General.--Section 466(a) of the Social Security Act 
(42 U.S.C. 666(a)), as amended by sections 12315, 12317(a), and 
12323 of this Act, is amended by adding at the end the 
following new paragraph:
            ``(15) Procedures to ensure that persons owing 
        past-due support work or have a plan for payment of 
        such support.--
                    ``(A) In general.--Procedures under which 
                the State has the authority, in any case in 
                which an individual owes past-due support with 
                respect to a child receiving assistance under a 
                State program funded under part A, to seek a 
                court order that requires the individual to--
                            ``(i) pay such support in 
                        accordance with a plan approved by the 
                        court, or, at the option of the State, 
                        a plan approved by the State agency 
                        administering the State program under 
                        this part; or
                            ``(ii) if the individual is subject 
                        to such a plan and is not 
                        incapacitated, participate in such work 
                        activities (as defined in section 
                        406(d)) as the court, or, at the option 
                        of the State, the State agency 
                        administering the State program under 
                        this part, deems appropriate.
                    ``(B) Past-due support defined.--For 
                purposes of subparagraph (A), the term `past-
                due support' means the amount of a delinquency, 
                determined under a court order, or an order of 
                an administrative process established under 
                State law, for support and maintenance of a 
                child, or of a child and the parent with whom 
                the child is living.''.
    (b) Conforming amendment.--The flush paragraph at the end 
of section 466(a) (42 U.S.C.666(a)) is amended by striking 
``and (7)'' and inserting ``(7), and (15)''.

SEC. 12366. DEFINITION OF SUPPORT ORDER.

    Section 453 (42 U.S.C. 653) as amended by sections 12316 
and 12345(b) of this Act, is amended by adding at the end the 
following new subsection:
    ``(p) Support Order Defined.--As used in this part, the 
term `support order' means a judgment, decree, or order, 
whether temporary, final, or subject to modification, issued by 
a court or an administrative agency of competent jurisdiction, 
for the support and maintenance of a child, including a child 
who has attained the age of majority under the law of the 
issuing State, or a child and the parent with whom the child is 
living, which provides for monetary support, health care, 
arrearages, or reimbursement, and which may include related 
costs and fees, interest and penalties, income withholding, 
attorneys' fees, and other relief.''.

SEC. 12367. REPORTING ARREARAGES TO CREDIT BUREAUS.

    Section 466(a)(7) (42 U.S.C. 666(a)(7)) is amended to read 
as follows:
            ``(7) Reporting arrearages to credit bureaus.--
                    ``(A) In general.--Procedures (subject to 
                safeguards pursuant to subparagraph (B)) 
                requiring the State to report periodically to 
                consumer reporting agencies (as defined in 
                section 603(f) of the Fair Credit Reporting Act 
                (15 U.S.C. 1681a(f)) the name of any 
                noncustodial parent who is delinquent in the 
                payment of support, and the amount of overdue 
                support owed by such parent.
                    ``(B) Safeguards.--Procedures ensuring 
                that, in carrying out subparagraph (A), 
                information with respect to a noncustodial 
                parent is reported--
                            ``(i) only after such parent has 
                        been afforded all due process required 
                        under State law, including notice and a 
                        reasonable opportunity to contest the 
                        accuracy of such information; and
                            ``(ii) only to an entity that has 
                        furnished evidence satisfactory to the 
                        State that the entity is a consumer 
                        reporting agency (as so defined).''.

SEC. 12368. LIENS.

    Section 466(a)(4) (42 U.S.C. 666(a)(4)) is amended to read 
as follows:
            ``(4) Liens.--Procedures under which--
                    ``(A) liens arise by operation of law 
                against real and personal property for amounts 
                of overdue support owed by a noncustodial 
                parent who resides or owns property in the 
                State; and
                    ``(B) the State accords full faith and 
                credit to liens described in subparagraph (A) 
                arising in another State, without registration 
                of the underlying order.''.

SEC. 12369. STATE LAW AUTHORIZING SUSPENSION OF LICENSES.

    Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
12315, 12317(a), 12323, and 12365 of this Act, is amended by 
adding at the end the following:
            ``(16) Authority to withhold or suspend licenses.--
        Procedures under which the State has (and uses in 
        appropriate cases) authority to withhold or suspend, or 
        to restrict the use of driver's licenses, professional 
        and occupational licenses, and recreational licenses of 
        individuals owing overdue support or failing, after 
        receiving appropriate notice, to comply with subpoenas 
        or warrants relating to paternity or child support 
        proceedings.''.

SEC. 12370. INTERNATIONAL CHILD SUPPORT ENFORCEMENT.

    (a) Authority for International Agreements.--Part D of 
title IV, as amended by section 362(a) of this Act, is amended 
by adding after section 459 the following new section:

``SEC. 459A. INTERNATIONAL CHILD SUPPORT ENFORCEMENT.

    ``(a) Authority for Declarations.--
            ``(1) Declaration.--The Secretary of State, with 
        the concurrence of the Secretary of Health and Human 
        Services, is authorized to declare any foreign country 
        (or a political subdivision thereof) to be a foreign 
        reciprocating country if the foreign country has 
        established, or undertakes to establish, procedures for 
        the establishment and enforcement of duties of support 
        owed to obligees who are residents of the United 
        States, and such procedures are substantially in 
        conformity with the standards prescribed under 
        subsection (b).
            ``(2) Revocation.--A declaration with respect to a 
        foreign country made pursuant to paragraph (1) may be 
        revoked if the Secretaries of State and Health and 
        Human Services determine that--
                    ``(A) the procedures established by the 
                foreign nation regarding the establishment and 
                enforcement of duties of support have been so 
                changed, or the foreign nation's implementation 
                of such procedures is so unsatisfactory, that 
                such procedures do not meet the criteria for 
                such a declaration; or
                    ``(B) continued operation of the 
                declaration is not consistent with the purposes 
                of this part.
            ``(3) Form of declaration.--A declaration under 
        paragraph (1) may be made in the form of an 
        international agreement, in connection with an 
        international agreement or corresponding foreign 
        declaration, or on a unilateral basis.
    ``(b) Standards for Foreign Support Enforcement 
Procedures.--
            ``(1) Mandatory elements.--Child support 
        enforcement procedures of a foreign country which may 
        be the subject of a declaration pursuant to subsection 
        (a)(1) shall include the following elements:
                    ``(A) The foreign country (or political 
                subdivision thereof) has in effect procedures, 
                available to residents of the United States--
                            ``(i) for establishment of 
                        paternity, and for establishment of 
                        orders of support for children and 
                        custodial parents; and
                            ``(ii) for enforcement of orders to 
                        provide support to children and 
                        custodial parents, including procedures 
                        for collection and appropriate 
                        distribution of support payments under 
                        such orders.
                    ``(B) The procedures described in 
                subparagraph (A), including legal and 
                administrative assistance, are provided to 
                residents of the United States at no cost.
                    ``(C) An agency of the foreign country is 
                designated as a Central Authority responsible 
                for--
            ``(i) facilitating child support enforcement in 
        cases involving residents of the foreign nation and 
        residents of the United States; and
            ``(ii) ensuring compliance with the standards 
        established pursuant to this subsection.
            ``(2) Additional elements.--The Secretary of Health 
        and Human Services and the Secretary of State, in 
        consultation with the States, may establish such 
        additional standards as may be considered necessary to 
        further the purposes of this section.
    ``(c) Designation of United States Central Authority.--It 
shall be the responsibility of the Secretary of Health and 
Human Services to facilitate child support enforcement in cases 
involving residents of the United States and residents of 
foreign nations that are the subject of a declaration under 
this section, by activities including--
            ``(1) development of uniform forms and procedures 
        for use in such cases;
            ``(2) notification of foreign reciprocating 
        countries of the State of residence of individuals 
        sought for support enforcement purposes, on the basis 
        of information provided by the Federal Parent Locator 
        Service; and
            ``(3) such other oversight, assistance, and 
        coordination activities as the Secretary may find 
        necessary and appropriate.
    ``(d) Effect on Other Laws.--States may enter into 
reciprocal arrangements for the establishment and enforcement 
of child support obligations with foreign countries that are 
not the subject of a declaration pursuant to subsection (a), to 
the extent consistent with Federal law.''.
    (b) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
as amended by sections 12301(b), 12303(a), 12312(b), 12313(a), 
12333, and 12343(b) of this Act, is amended--
            (1) by striking ``and'' at the end of paragraph 
        (29);
            (2) by striking the period at the end of paragraph 
        (30) and inserting ``; and''; and
            (3) by adding after paragraph (30) the following 
        new paragraph:
            ``(31)(A) provide that any request for services 
        under this part by a foreign reciprocating country or a 
        foreign country with which the State has an arrangement 
        described in section 459A(d)(2) shall be treated as a 
        request by a State;
            ``(B) provide, at State option, notwithstanding 
        paragraph (4) or any other provision of this part, for 
        services under the plan for enforcement of a spousal 
        support order not described in paragraph (4)(B) entered 
        by such a country (or subdivision); and
            ``(C) provide that no applications will be required 
        from, and no costs will be assessed for such services 
        against, the foreign reciprocating country or foreign 
        obligee (but costs may at State option be assessed 
        against the obligor).''.

SEC. 12371. FINANCIAL INSTITUTION DATA MATCHES.

    Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
12315, 12317(a), 12323, 12365, and 12369 of this Act, is 
amended by adding at the end the following new paragraph:
            ``(17) Financial institution data matches.--
                    ``(A) In general.--Procedures under which 
                the State agency shall enter into agreements 
                with financial institutions doing business in 
                the State--
                            ``(i) to develop and operate, in 
                        coordination with such financial 
                        institutions, a data match system, 
                        using automated data exchanges to the 
                        maximum extent feasible, in which each 
                        such financial institution is required 
                        to provide for each calendar quarter 
                        the name, record address, social 
                        security number or other taxpayer 
                        identification number, and other 
                        identifying information for each 
                        noncustodial parent who maintains an 
                        account at such institution and who 
                        owes past-due support, as identified by 
                        the State by name and social security 
                        number or other taxpayer identification 
                        number; and
                            ``(ii) in response to a notice of 
                        lien or levy, encumber or surrender, as 
                        the case may be, assets held by such 
                        institution on behalf of any 
                        noncustodial parent who is subject to a 
                        child support lien pursuant to 
                        paragraph (4).
                    ``(B) Reasonable fees.--The State agency 
                may pay a reasonable fee to a financial 
                institution for conducting the data match 
                provided for in subparagraph (A)(i), not to 
                exceed the actual costs incurred by such 
                financial institution.
                    ``(C) Liability.--A financial institution 
                shall not be liable under any Federal or State 
                law to any person--
                            ``(i) for any disclosure of 
                        information to the State agency under 
                        subparagraph (A)(i);
                            ``(ii) for encumbering or 
                        surrendering any assets held by such 
                        financial institution in response to a 
                        notice of lien or levy issued by the 
                        State agency as provided for in 
                        subparagraph (A)(ii); or
                            ``(iii) for any other action taken 
                        in good faith to comply with the 
                        requirements of subparagraph (A).
                    ``(D) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Financial institution.--The 
                        term `financial institution' means any 
                        Federal or State commercial savings 
                        bank, including savings association or 
                        cooperative bank, Federal- or State-
                        chartered credit union, benefit 
                        association, insurance company, safe 
                        deposit company, money-market mutual 
                        fund, or any similar entity authorized 
                        to do business in the State; and
                            ``(ii) Account.--The term `account' 
                        means a demand deposit account, 
                        checking or negotiable withdrawal order 
                        account, savings account, time deposit 
                        account, or money-market mutual fund 
                        account.''.

SEC. 12372. ENFORCEMENT OF ORDERS AGAINST PATERNAL OR MATERNAL 
                    GRANDPARENTS IN CASES OF MINOR PARENTS.

    Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
12315, 12317(a), 12323, 12365, 12369, and 12371 of this Act, is 
amended by adding at the end the following new paragraph:
            ``(18) Enforcement of orders against paternal or 
        maternal grandparents.--Procedures under which, at the 
        State's option, any child support order enforced under 
        this part with respect to a child of minor parents, if 
        the custodial parents of such child is receiving 
        assistance under the State program under part A, shall 
        be enforceable, jointly and severally, against the 
        parents of the noncustodial parents of such child.''.

                       CHAPTER 8--MEDICAL SUPPORT

SEC. 12376. CORRECTION TO ERISA DEFINITION OF MEDICAL CHILD SUPPORT 
                    ORDER.

    (a) In General.--Section 609(a)(2)(B) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1169(a)(2)(B)) is amended--
            (1) by striking ``issued by a court of competent 
        jurisdiction'';
            (2) by striking the period at the end of clause 
        (ii) and inserting a comma; and
            (3) by adding, after and below clause (ii), the 
        following:
                ``if such judgment, decree, or order (I) is 
                issued by a court of competent jurisdiction or 
                (II) is issued through an administrative 
                process established under State law and has the 
                force and effect of law under applicable State 
                law.''.
    (b) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall take effect on the date of the enactment 
        of this Act.
            (2) Plan amendments not required until january 1, 
        1996.--Any amendment to a plan required to be made by 
        an amendment made by this section shall not be required 
        to be made before the 1st plan year beginning on or 
        after January 1, 1996, if--
                    (A) during the period after the date before 
                the date of the enactment of this Act and 
                before such 1st plan year, the plan is operated 
                in accordance with the requirements of the 
                amendments made by this section; and
                    (B) such plan amendment applies 
                retroactively to the period after the date 
                before the date of the enactment of this Act 
                and before such 1st plan year.
        A plan shall not be treated as failing to be operated 
        in accordance with the provisions of the plan merely 
        because it operates in accordance with this paragraph.

SEC. 12377. ENFORCEMENT OF ORDERS FOR HEALTH CARE COVERAGE.

    Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
12315, 12317(a), 12323, 12365, 12369, 12371, and 12372 of this 
Act, is amended by adding at the end the following new 
paragraph:
            ``(19) Health care coverage.--Procedures under 
        which all child support orders enforced pursuant to 
        this part shall include a provision for the health care 
        coverage of the child, and in the case in which a 
        noncustodial parent provides such coverage and changes 
        employment, and the new employer provides health care 
        coverage, the State agency shall transfer notice of the 
        provision to the employer, which notice shall operate 
        to enroll the child in the noncustodial parent's health 
        plan, unless the noncustodial parent contests the 
        notice.''.

CHAPTER 9--ENHANCING RESPONSIBILITY AND OPPORTUNITY FOR NON-RESIDENTIAL 
                                PARENTS

SEC. 12381. GRANTS TO STATES FOR ACCESS AND VISITATION PROGRAMS.

    Part D of title IV (42 U.S.C. 651-669) is amended by adding 
at the end the following:

``SEC. 469A. GRANTS TO STATES FOR ACCESS AND VISITATION PROGRAMS.

    ``(a) In General.--The Administration for Children and 
Families shall make grants under this section to enable States 
to establish and administer programs to support and facilitate 
noncustodial parents' access to and visitation of their 
children, by means of activities including mediation (both 
voluntary and mandatory), counseling, education, development of 
parenting plans, visitation enforcement (including monitoring, 
supervision and neutral drop-off and pickup), and development 
of guidelines for visitation and alternative custody 
arrangements.
    ``(b) Amount of Grant.--The amount of the grant to be made 
to a State under this section for a fiscal year shall be an 
amount equal to the lesser of--
            ``(1) 90 percent of State expenditures during the 
        fiscal year for activities described in subsection (a); 
        or
            ``(2) the allotment of the State under subsection 
        (c) for the fiscal year.
    ``(c) Allotments to States.--
            ``(1) In general.--The allotment of a State for a 
        fiscal year is the amount that bears the same ratio to 
        the amount appropriated for grants under this section 
        for the fiscal year as the number of children in the 
        State living with only 1 biological parent bears to the 
        total number of such children in all States.
            ``(2) Minimum allotment.--The Administration for 
        Children and Families shall adjust allotments to States 
        under paragraph (1) as necessary to ensure that no 
        State is allotted less than--
                    ``(A) $50,000 for fiscal year 1996 or 1997; 
                or
                    ``(B) $100,000 for any succeeding fiscal 
                year.
    ``(d) No Supplantation of State Expenditures for Similar 
Activities.--A State to which a grant is made under this 
section may not use the grant to supplant expenditures by the 
State for activities specified in subsection (a), but shall use 
the grant to supplement such expenditures at a level at least 
equal to the level of such expenditures for fiscal year 1995.
    ``(e) State Administration.--Each State to which a grant is 
made under this section--
            ``(1) may administer State programs funded with the 
        grant, directly or through grants to or contracts with 
        courts, local public agencies, or non-profit private 
        entities;
            ``(2) shall not be required to operate such 
        programs on a statewide basis; and
            ``(3) shall monitor, evaluate, and report on such 
        programs in accordance with regulations prescribed by 
        the Secretary.''.

                    CHAPTER 10--EFFECT OF ENACTMENT

SEC. 12391. EFFECTIVE DATES.

    (a) In General.--Except as otherwise specifically provided 
(but subject to subsections (b) and (c))--
            (1) the provisions of this subtitle requiring the 
        enactment or amendment of State laws under section 466 
        of the Social Security Act, or revision of State plans 
        under section 454 of such Act, shall be effective with 
        respect to periods beginning on and after October 1, 
        1996; and
            (2) all other provisions of this subtitle shall 
        become effective upon the date of the enactment of this 
        Act.
    (b) Grace Period for State Law Changes.--The provisions of 
this subtitle shall become effective with respect to a State on 
the later of--
            (1) the date specified in this subtitle, or
            (2) the effective date of laws enacted by the 
        legislature of such State implementing such provisions,
but in no event later than the 1st day of the 1st calendar 
quarter beginning after the close of the 1st regular session of 
the State legislature that begins after the date of the 
enactment of this Act. For purposes of the previous sentence, 
in the case of a State that has a 2-year legislative session, 
each year of such session shall be deemed to be a separate 
regular session of the State legislature.
    (c) Grace Period for State Constitutional Amendment.--A 
State shall not be found out of compliance with any requirement 
enacted by this subtitle if the State is unable to so comply 
without amending the State constitution until the earlier of--
            (1) 1 year after the effective date of the 
        necessary State constitutional amendment; or
            (2) 5 years after the date of the enactment of this 
        Act.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens

              CHAPTER 1--ELIGIBILITY FOR FEDERAL BENEFITS

SEC. 12401. ALIENS WHO ARE NOT QUALIFIED ALIENS INELIGIBLE FOR FEDERAL 
                    PUBLIC BENEFITS.

    (a) In General.--Notwithstanding any other provision of law 
and except as provided in subsection (b), an alien who is not a 
qualified alien (as defined section 12431) is not eligible for 
any Federal public benefit (as defined in subsection (c)).
    (b) Exceptions.--Subsection (a) shall not apply with 
respect to the following Federal public benefits:
            (1) Emergency medical services under title XIX or 
        XXI of the Social Security Act.
            (2) Short-term, non-cash, in-kind emergency 
        disaster relief.
            (3)(A) Public health assistance for immunizations.
                    (B) Public health assistance for testing 
                and treatment of a serious communicable disease 
                if the Secretary of Health and Human Services 
                determines that it is necessary to prevent the 
                spread of such disease.
            (4) Programs, services, or assistance (such as soup 
        kitchens, crisis counseling and intervention, and 
        short-term shelter) specified by the Attorney General, 
        in the Attorney General's sole and unreviewable 
        discretion after consultation with appropriate Federal 
        agencies and departments, which (A) deliver in-kind 
        services at the community level, including through 
        public or private nonprofit agencies; (B) do not 
        condition the provision of assistance, the amount of 
        assistance provided, or the cost of assistance provided 
        on the individual recipient's income or resources; and 
        (C) are necessary for the protection of life or safety.
            (5) Programs for housing or community development 
        assistance or financial assistance administered by the 
        Secretary of Housing and Urban Development, any program 
        under title V of the Housing Act of 1949, or any 
        assistance under section 306C of the Consolidated Farm 
        and Rural Development Act, to the extent that the alien 
        is receiving such a benefit on the date of the 
        enactment of this Act.
    (c) Federal Public Benefit Defined.--
            (1) Except as provided in paragraph (2), for 
        purposes of this subtitle the term ``Federal public 
        benefit'' means a Federal public benefit providing 
        direct spending for--
                    (A) any grant, contract, loan, professional 
                license, or commercial license provided by an 
                agency of the United States or by appropriated 
                funds of the United States; and
                    (B) any retirement, welfare, health, 
                disability, public or assisted housing, post-
                secondary education, food assistance, 
                unemployment benefit, or any other similar 
                benefit for which payments or assistance are 
                provided to an individual, household, or family 
                eligibility unit by an agency of the United 
                States or by appropriated funds of the United 
                States.
            (2) Such term shall not apply--
                    (A) to any contract, professional license, 
                or commercial license for a nonimmigrant whose 
                visa for entry is related to such employment in 
                the United States; or
                    (B) with respect to benefits for an alien 
                who as a work authorized nonimmigrant or as an 
                alien lawfully admitted for permanent residence 
                under the Immigration and Nationality Act 
                qualified for such benefits and for whom the 
                United States under reciprocal treaty 
                agreements is required to pay benefits, as 
                determined by the Attorney General, after 
                consultation with the Secretary of State.

SEC. 12402. LIMITED ELIGIBILITY OF CERTAIN QUALIFIED ALIENS FOR CERTAIN 
                    FEDERAL PROGRAMS.

    (a) Limited Eligibility for Specified Federal Programs.--
            (1) In general.--Notwithstanding any other 
        provision of law and except as provided in paragraph 
        (2), an alien who is a qualified alien (as defined in 
        section 12431) is not eligible for any specified 
        Federal program (as defined in paragraph (3)).
            (2) Exceptions.--
                    (A) Time-limited exception for refugees and 
                asylees.--Paragraph (1) shall not apply to an 
                alien until 5 years after the date--
                            (i) an alien is admitted to the 
                        United States as a refugee under 
                        section 207 of the Immigration and 
                        Nationality Act;
                            (ii) an alien is granted asylum 
                        under section 208 of such Act; or
                            (iii) an alien's deportation is 
                        withheld under section 243(h) of such 
                        Act.
                    (B) Certain permanent resident aliens.--
                Paragraph (1) shall not apply to an alien who--
                            (i) is lawfully admitted to the 
                        United States for permanent residence 
                        under the Immigration and Nationality 
                        Act; and
                            (ii)(I) has worked 40 qualifying 
                        quarters of coverage as defined under 
                        title II of the Social Security Act, 
                        and (II) did not receive any Federal 
                        means-tested public benefit (as defined 
                        in section 12403(c)) during any such 
                        quarter.
                    (C) Veteran and active duty exception.--
                Paragraph (1) shall not apply to an alien who 
                is lawfully residing in any State and is--
                            (i) a veteran (as defined in 
                        section 101 of title 38, United States 
                        Code) with a discharge characterized as 
                        an honorable discharge and not on 
                        account of alienage,
                            (ii) on active duty (other than 
                        active duty for training) in the Armed 
                        Forces of the United States, or
                            (iii) the spouse or unmarried 
                        dependent child of an individual 
                        described in clause (i) or (ii).
                    (D) Transition for aliens currently 
                receiving benefits.--Paragraph (1) shall apply 
                to the eligibility of an alien for a program 
                for months beginning on or after January 1, 
                1997, if, on the date of the enactment of this 
                Act, the alien is lawfully residing in any 
                State and is receiving benefits under such 
                program on the date of the enactment of this 
                Act.
            (3) Specified Federal program defined.--For 
        purposes of this subtitle, the term ``specified Federal 
        program'' means any of the following:
                    (A) SSI.--The supplemental security income 
                program under title XVI of the Social Security 
                Act.
                    (B) Food stamps.--The food stamp program as 
                defined in section 3(h) of the Food Stamp Act 
                of 1977.
    (b) Limited Eligibility for Designated Federal Programs.--
            (1) In general.--Notwithstanding any other 
        provision of law and except as provided in section 
        12403 and paragraph (2), a State is authorized to 
        determine the eligibility of an alien who is a 
        qualified alien (as defined in section 12431) for any 
        designated Federal program (as defined in paragraph 
        (3)).
            (2) Exceptions.--Qualified aliens under this 
        paragraph shall be eligible for any designated Federal 
        program.
                    (A) Time-limited exception for refugees and 
                asylees.--
                            (i) An alien who is admitted to the 
                        United States as a refugee under 
                        section 207 of the Immigration and 
                        Nationality Act until 5 years after the 
                        date of an alien's entry into the 
                        United States.
                            (ii) An alien who is granted asylum 
                        under section 208 of such Act until 5 
                        years after the date of such grant of 
                        asylum.
                            (iii) An alien whose deportation is 
                        being withheld under section 243(h) of 
                        such Act until 5 years after such 
                        withholding.
                    (B) Certain permanent resident aliens.--An 
                alien who--
                            (i) is lawfully admitted to the 
                        United States for permanent residence 
                        under the Immigration and Nationality 
                        Act; and
                            (ii)(I) has worked 40 qualifying 
                        quarters of coverage to be a fully 
                        insured individual for old-age 
                        retirement benefits under title II of 
                        the Social Security Act, (II) did not 
                        receive any Federal means-tested public 
                        benefit (as defined in section 
                        12403(c)) during any such quarter, and 
                        (III) at the time of application is 
                        otherwise eligible for such benefits.
                    (C) Veteran and active duty exception.--An 
                alien who is lawfully residing in any State and 
                is--
                            (i) a veteran (as defined in 
                        section 101 of title 38, United States 
                        Code) with a discharge characterized as 
                        an honorable discharge and not on 
                        account of alienage,
                            (ii) on active duty (other than 
                        active duty for training) in the Armed 
                        Forces of the United States, or
                            (iii) the spouse or unmarried 
                        dependent child of an individual 
                        described in clause (i) or (ii).
                    (D) Transition for those currently 
                receiving benefits.--An alien who on the date 
                of the enactment of this Act is lawfully 
                residing in any State and is receiving benefits 
                under such program on the date of the enactment 
                of this Act shall continue to be eligible to 
                receive such benefits until January 1, 1997.
            (3) Designated federal program defined.--For 
        purposes of this subtitle, the term ``designated 
        Federal program'' means any of the following:
                    (A) Temporary assistance for needy 
                families.--The program of block grants to 
                States for temporary assistance for needy 
                families under part A of title IV of the Social 
                Security Act.
                    (B) Social services block grant.--The 
                program of block grants to States for social 
                services under title XX of the Social Security 
                Act.
                    (C) Medicaid and medigrant.--The program of 
                medical assistance under title XIX and XXI of 
                the Social Security Act.

SEC. 12403. FIVE-YEAR LIMITED ELIGIBILITY OF QUALIFIED ALIENS FOR 
                    FEDERAL MEANS-TESTED PUBLIC BENEFIT.

    (a) In General.--Notwithstanding any other provision of law 
and except as provided in subsection (b), an alien who is a 
qualified alien (as defined in section 12431) and who enters 
the United States on or after the date of the enactment of this 
Act is not eligible for any Federal means-tested public benefit 
(as defined in subsection (c)) for a period of five years 
beginning on the date of the alien's entry into the United 
States with a status within the meaning of the term ``qualified 
alien''.
    (b) Exceptions.--The limitation under subsection (a) shall 
not apply to the following aliens:
            (1) Exception for refugees and asylees.--
                    (A) An alien who is admitted to the United 
                States as a refugee under section 207 of the 
                Immigration and Nationality Act.
                    (B) An alien who is granted asylum under 
                section 208 of such Act.
                    (C) An alien whose deportation is being 
                withheld under section 243(h) of such Act.
            (2) Veteran and active duty exception.--An alien 
        who is lawfully residing in any State and is--
                    (A) a veteran (as defined in section 101 of 
                title 38, United States Code) with a discharge 
                characterized as an honorable discharge and not 
                on account of alienage,
                    (B) on active duty (other than active duty 
                for training) in the Armed Forces of the United 
                States, or
                    (C) the spouse or unmarried dependent child 
                of an individual described in subparagraph (A) 
                or (B).
    (c) Federal Means-Tested Public Benefit Defined.--
            (1) Except as provided in paragraph (2), for 
        purposes of this subtitle, the term ``Federal means-
        tested public benefit'' means a Federal public benefit 
        providing direct spending (including cash, medical, 
        housing, and food assistance and social services) by 
        the Federal Government in which the eligibility of an 
        individual, household, or family eligibility unit for 
        benefits, or the amount of such benefits, or both are 
        determined on the basis of income, resources, or 
        financial need of the individual, household, or unit.
            (2) Such term does not include the following:
                    (A) Emergency medical services under title 
                XIX or XXI of the Social Security Act.
                    (B) Short-term, non-cash, in-kind emergency 
                disaster relief.
                    (C) Assistance or benefits under the 
                National School Lunch Act.
                    (D) Assistance or benefits under the Child 
                Nutrition Act of 1966.
                    (E)(i) Public health assistance for 
                immunizations.
                            (ii) Public health assistance for 
                        testing and treatment of a serious 
                        communicable disease if the Secretary 
                        of Health and Human Services determines 
                        that it is necessary to prevent the 
                        spread of such disease.
                    (F) Payments for foster care and adoption 
                assistance under part B of title IV of the 
                Social Security Act for a child who would, in 
                the absence of subsection (a), be eligible to 
                have such payments made on the child's behalf 
                under such part, but only if the foster or 
                adoptive parent or parents of such child are 
                not described under subsection (a).
                    (G) Programs, services, or assistance (such 
                as soup kitchens, crisis counseling and 
                intervention, and short-term shelter) specified 
                by the Attorney General, in the Attorney 
                General's sole and unreviewable discretion 
                after consultation with appropriate Federal 
                agencies and departments, which (i) deliver in-
                kind services at the community level, including 
                through public or private nonprofit agencies; 
                (ii) do not condition the provision of 
                assistance, the amount of assistance provided, 
                or the cost of assistance provided on the 
                individual recipient's income or resources; and 
                (iii) are necessary for the protection of life 
                or safety.
                    (H) Programs of student assistance under 
                titles IV, V, IX, and X of the Higher Education 
                Act of 1965.
                    (I) Means-tested programs under the 
                Elementary and Secondary Education Act of 1965.

       CHAPTER 2--ATTRIBUTION OF INCOME AND AFFIDAVITS OF SUPPORT

SEC. 12421. ATTRIBUTION OF SPONSOR'S INCOME AND RESOURCES TO ALIEN.

    (a) In General.--Notwithstanding any other provision of law 
and except as provided in subsection (c), in determining the 
eligibility and the amount of benefits of an alien for any 
means-tested public benefits program (as defined in subsection 
(e)) the income and resources of the alien shall be deemed to 
include the following:
            (1) The income and resources of any person who 
        executed an affidavit of support pursuant to section 
        213A of the Immigration and Nationality Act (as added 
        by section 12422) in behalf of such alien.
            (2) The income and resources of the spouse (if any) 
        of the person.
    (b) Application.--Subsection (a) shall apply with respect 
to an alien until such time as the alien achieves United States 
citizenship through naturalization pursuant to chapter 2 of 
title III of the Immigration and Nationality Act.
    (c) Exceptions.--Subsection (a) shall not apply with 
respect to the following Federal public benefits:
            (1) Emergency medical services under title XIX or 
        XXI of the Social Security Act.
            (2) Short-term, non-cash, in-kind emergency 
        disaster relief.
            (3) Assistance or benefits under the National 
        School Lunch Act.
            (4) Assistance or benefits under the Child 
        Nutrition Act of 1966.
            (5)(A) Public health assistance for immunizations.
                    (B) Public health assistance for testing 
                and treatment of a serious communicable disease 
                if the Secretary of Health and Human Services 
                determines that it is necessary to prevent the 
                spread of such disease.
            (6) Payments for foster care and adoption 
        assistance under part B of title IV of the Social 
        Security Act for a child who would, in the absence of 
        subsection (a), be eligible to have such payments made 
        on the child's behalf under such part, but only if the 
        foster or adoptive parent or parents of such child are 
        not described under subsection (a).
            (7) Programs, services, or assistance (such as soup 
        kitchens, crisis counseling and intervention, and 
        short-term shelter) specified by the Attorney General, 
        in the Attorney General's sole and unreviewable 
        discretion after consultation with appropriate Federal 
        agencies and departments, which (A) deliver in-kind 
        services at the community level, including through 
        public or private nonprofit agencies; (B) do not 
        condition the provision of assistance, the amount of 
        assistance provided, or the cost of assistance provided 
        on the individual recipient's income or resources; and 
        (C) are necessary for the protection of life or safety.
            (8) Programs of student assistance under titles IV, 
        V, IX, and X of the Higher Education Act of 1965.
    (d) Review of Income and Resources of Alien Upon 
Reapplication.--Whenever an alien is required to reapply for 
benefits under any means-tested public benefits program, the 
applicable agency shall review the income and resources 
attributed to the alien under subsection (a).
    (e) Means-Tested Public Benefits Program Defined.--The term 
``means-tested public benefits program'' means a program of 
Federal public benefits providing direct spending (including 
cash, medical, housing, and food assistance and social 
services) by the Federal government in which the eligibility of 
an individual, household, or family eligibility unit for 
benefits, or the amount of such benefits, or both are 
determined on the basis of income, resources, or financial need 
of the individual, household, or unit.
    (f) Application.--
            (1) If on the date of the enactment of this Act, a 
        means-tested public benefits program attributes a 
        sponsor's income and resources to an alien in 
        determining the alien's eligibility and the amount of 
        benefits for an alien, this section shall apply to any 
        such determination beginning on the day after the date 
        of the enactment of this Act.
            (2) If on the date of the enactment of this Act, a 
        means-tested public benefits program does not attribute 
        a sponsor's income and resources to an alien in 
        determining the alien's eligibility and the amount of 
        benefits for an alien, this section shall apply to any 
        such determination beginning 180 days after the date of 
        the enactment of this Act.

SEC. 12422. REQUIREMENTS FOR SPONSOR'S AFFIDAVIT OF SUPPORT.

    (a) In General.--Title II of the Immigration and 
Nationality Act is amended by inserting after section 213 the 
following new section:


           ``requirements for sponsor's affidavit of support


    ``Sec. 213A. (a) Enforceability.--(1) No affidavit of 
support may be accepted by the Attorney General or by any 
consular officer to establish that an alien is not excludable 
as a public charge under section 212(a)(4) unless such 
affidavit is executed as a contract--
            ``(A) which is legally enforceable against the 
        sponsor by the sponsored alien, the Federal Government, 
        and by any State (or any political subdivision of such 
        State) which provides any means-tested public benefits 
        program, but not later than 10 years after the alien 
        last receives any such benefit;
            ``(B) in which the sponsor agrees to financially 
        support the alien, so that the alien will not become a 
        public charge; and
            ``(C) in which the sponsor agrees to submit to the 
        jurisdiction of any Federal or State court for the 
        purpose of actions brought under subsection (e)(2).
    ``(2) A contract under paragraph (1) shall be enforceable 
with respect to benefits provided to the alien until such time 
as the alien achieves United States citizenship through 
naturalization pursuant to chapter 2 of title III.
    ``(b) Forms.--Not later than 90 days after the date of 
enactment of this section, the Attorney General, in 
consultation with the Secretary of State and the Secretary of 
Health and Human Services, shall formulate an affidavit of 
support consistent with the provisions of this section.
    ``(c) Remedies.--Remedies available to enforce an affidavit 
of support under this section include any or all of the 
remedies described in section 3201, 3203, 3204, or 3205 of 
title 28, United States Code, as well as an order for specific 
performance and payment of legal fees and other costs of 
collection, and include corresponding remedies available under 
State law. A Federal agency may seek to collect amounts owed 
under this section in accordance with the provisions of 
subchapter II of chapter 37 of title 31, United States Code.
    ``(d) Notification of Change of Address.--
            ``(1) In general.--The sponsor shall notify the 
        Attorney General and the State in which the sponsored 
        alien is currently resident within 30 days of any 
        change of address of the sponsor during the period 
        specified in subsection (a)(2).
            ``(2) Penalty.--Any person subject to the 
        requirement of paragraph (1) who fails to satisfy such 
        requirement shall be subject to a civil penalty of--
                    ``(A) not less than $250 or more than 
                $2,000, or
                    ``(B) if such failure occurs with knowledge 
                that the alien has received any means-tested 
                public benefit, not less than $2,000 or more 
                than $5,000.
    ``(e) Reimbursement of Government Expenses.--(1)(A) Upon 
notification that a sponsored alien has received any benefit 
under any means-tested public benefits program, the appropriate 
Federal, State, or local official shall request reimbursement 
by the sponsor in the amount of such assistance.
    ``(B) The Attorney General, in consultation with the 
Secretary of Health and Human Services, shall prescribe such 
regulations as may be necessary to carry out subparagraph (A).
    ``(2) If within 45 days after requesting reimbursement, the 
appropriate Federal, State, or local agency has not received a 
response from the sponsor indicating a willingness to commence 
payments, an action may be brought against the sponsor pursuant 
to the affidavit of support.
    ``(3) If the sponsor fails to abide by the repayment terms 
established by such agency, the agency may, within 60 days of 
such failure, bring an action against the sponsor pursuant to 
the affidavit of support.
    ``(4) No cause of action may be brought under this 
subsection later than 10 years after the alien last received 
any benefit under any means-tested public benefits program.
    ``(5) If, pursuant to the terms of this subsection, a 
Federal, State, or local agency requests reimbursement from the 
sponsor in the amount of assistance provided, or brings an 
action against the sponsor pursuant to the affidavit of 
support, the appropriate agency may appoint or hire an 
individual or other person to act on behalf of such agency 
acting under the authority of law for purposes of collecting 
any moneys owed. Nothing in this subsection shall preclude any 
appropriate Federal, State, or local agency from directly 
requesting reimbursement from a sponsor for the amount of 
assistance provided, or from bringing an action against a 
sponsor pursuant to an affidavit of support.
    ``(f) Definitions.--For the purposes of this section--
            ``(1) Sponsor.--The term `sponsor' means an 
        individual who--
                    ``(A) is a citizen or national of the 
                United States or an alien who is lawfully 
                admitted to the United States for permanent 
                residence;
                    ``(B) is 18 years of age or over;
                    ``(C) is domiciled in any State; and
                    ``(D) is the person petitioning for the 
                admission of the alien under section 204.
            ``(2) Means-tested public benefits program 
        defined.--The term `means-tested public benefits 
        program' means a program of Federal public benefits 
        providing direct spending (including cash, medical, 
        housing, and food assistance and social services) by 
        the Federal Government in which the eligibility of an 
        individual, household, or family eligibility unit for 
        benefits, or the amount of such benefits, or both are 
        determined on the basis of income, resources, or 
        financial need of the individual, household, or 
        unit.''.
    (b) Clerical Amendment.--The table of contents of such Act 
is amended by inserting after the item relating to section 213 
the following:

``Sec. 213A. Requirements for sponsor's affidavit of support.''.

    (c) Effective Date.--Subsection (a) of section 213A of the 
Immigration and Nationality Act, as inserted by subsection (a) 
of this section, shall apply to affidavits of support executed 
on or after a date specified by the Attorney General, which 
date shall be not earlier than 60 days (and not later than 90 
days) after the date the Attorney General formulates the form 
for such affidavits under subsection (b) of such section.
    (d) Benefits Not Subject to Reimbursement.--Requirements 
for reimbursement by a sponsor for benefits provided to a 
sponsored alien pursuant to an affidavit of support under 
section 213A of the Immigration and Nationality Act shall not 
apply with respect to the following:
            (1) Emergency medical services under title XIX or 
        XXI of the Social Security Act.
            (2) Short-term, non-cash, in-kind emergency 
        disaster relief.
            (3) Assistance or benefits under the National 
        School Lunch Act.
            (4) Assistance or benefits under the Child 
        Nutrition Act of 1966.
            (5)(A) Public health assistance for immunizations.
            (B) Public health assistance for testing and 
        treatment of a serious communicable disease if the 
        Secretary of Health and Human Services determines that 
        it is necessary to prevent the spread of such disease.
            (6) Payments for foster care and adoption 
        assistance under part B of title IV of the Social 
        Security Act for a child who would, in the absence of 
        subsection (a), be eligible to have such payments made 
        on the child's behalf under such part, but only if the 
        foster or adoptive parent or parents of such child are 
        not described under subsection (a).
            (7) Programs, services, or assistance (such as soup 
        kitchens, crisis counseling and intervention, and 
        short-term shelter) specified by the Attorney General, 
        in the Attorney General's sole and unreviewable 
        discretion after consultation with appropriate Federal 
        agencies and departments, which (A) deliver in-kind 
        services at the community level, including through 
        public or private nonprofit agencies; (B) do not 
        condition the provision of assistance, the amount of 
        assistance provided, or the cost of assistance provided 
        on the individual recipient's income or resources; and 
        (C) are necessary for the protection of life or safety.
            (8) Programs of student assistance under titles IV, 
        V, IX, and X of the Higher Education Act of 1965.

SEC. 12423. COSIGNATURE OF ALIEN STUDENT LOANS.

    Section 484(b) of the Higher Education Act of 1965 (20 
U.S.C. 1091(b)) is amended by adding at the end the following 
new paragraph:
            ``(6) Notwithstanding sections 427(a)(2)(C), 
        428B(a), 428C(b)(4)(A), and 464(c)(1)(E), a student who 
        is an alien lawfully admitted for permanent residence 
        under the Immigration and Nationality Act shall not be 
        eligible for a loan under this title unless the loan is 
        endorsed and cosigned by the alien's sponsor under 
        section 213A of the Immigration and Nationality Act or 
        by another individual who is a United States 
        citizen.''.

                     CHAPTER 3--GENERAL PROVISIONS

SEC. 12431. DEFINITIONS.

    (a) In General.--Except as otherwise provided in this 
subtitle, the terms used in this subtitle have the same meaning 
given such terms in section 101(a) of the Immigration and 
Nationality Act.
    (b) Qualified Alien.--For purposes of this subtitle, the 
term ``qualified alien'' means an alien who, at the time the 
alien applies for, receives, or attempts to receive a Federal 
public benefit, is--
            (1) an alien who is lawfully admitted for permanent 
        residence under the Immigration and Nationality Act,
            (2) an alien who is granted asylum under section 
        208 of such Act,
            (3) a refugee who is admitted to the United States 
        under section 207 of such Act,
            (4) an alien who is paroled into the United States 
        under section 212(d)(5) of such Act for a period of at 
        least 1 year,
            (5) an alien whose deportation is being withheld 
        under section 243(h) of such Act, or
            (6) an alien who is granted conditional entry 
        pursuant to section 203(a)(7) of such Act as in effect 
        prior to April 1, 1980.

SEC. 12432. REAPPLICATION FOR SSI BENEFITS.

    (a) Application and Notice.--Notwithstanding any other 
provision of law, in the case of an individual who is receiving 
supplemental security income benefits under title XVI of the 
Social Security Act as of the date of the enactment of this Act 
and whose eligibility for such benefits would terminate by 
reason of the application of section 12402(a)(2)(D), the 
Commissioner of Social Security shall so notify the individual 
not later than 90 days after the date of the enactment of this 
Act.
    (b) Reapplication.--
            (1) In general.--Not later than 120 days after the 
        date of the enactment of this Act, each individual 
        notified pursuant to subsection (a) who desires to 
        reapply for benefits under title XVI of the Social 
        Security Act shall reapply to the Commissioner of 
        Social Security.
            (2) Determination of eligibility.--Not later than 1 
        year after the date of the enactment of this Act, the 
        Commissioner of Social Security shall determine the 
        eligibility of each individual who reapplies for 
        benefits under paragraph (1) pursuant to the procedures 
        of such title XVI.

SEC. 12433. STATUTORY CONSTRUCTION.

    (a) Limitation.--
            (1) Nothing in this subtitle may be construed as an 
        entitlement or a determination of an individual's 
        eligibility or fulfillment of the requisite 
        requirements for any Federal, State, or local 
        governmental program, assistance, or benefits. For 
        purposes of this subtitle, eligibility relates only to 
        the general issue of eligibility or ineligibility on 
        the basis of alienage.
            (2) Nothing in this subtitle may be construed as 
        addressing alien eligibility for a basic public 
        education as determined by the Supreme Court of the 
        United States under Plyler v. Doe (457 U.S. 202)(1982).
    (b) Not Applicable to Foreign Assistance.--This subtitle 
does not apply to any Federal, State, or local governmental 
program, assistance, or benefits provided to an alien under any 
program of foreign assistance as determined by the Secretary of 
State in consultation with the Attorney General.
    (c) Severability.--If any provision of this subtitle or the 
application of such provision to any person or circumstance is 
held to be unconstitutional, the remainder of this subtitle and 
the application of the provisions of such to any person or 
circumstance shall not be affected thereby.

Subtitle E--Teaching Hospital and Graduate Medical Education Trust Fund

                         CHAPTER 1--TRUST FUND

SEC. 12501. ESTABLISHMENT OF FUND; PAYMENTS TO TEACHING HOSPITALS.

    The Social Security Act (42 U.S.C. 300 et seq.) is amended 
by adding after title XXI the following title:

 ``TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST 
                                  FUND


                      ``table of contents of title


                     ``Part A--Establishment of Fund

    ``Sec. 2201. Establishment of Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

    ``Sec. 2211. Formula payments to teaching hospitals.
    ``Sec. 2212. Additional provisions regarding annual payment 
              document.

          ``Subpart 2--Amount Relating to MedicarePlus Program

    ``Sec. 2221. Determination of amount relating to MedicarePlus 
              program.

   ``Subpart 3--Amount Relating to Indirect Costs of Graduate Medical 
                                Education

    ``Sec. 2231. Determination of amount relating to indirect costs.
    ``Sec. 2232. Indirect costs; special rules regarding payments from 
              general account.

    ``Subpart 4--Amount Relating to Direct Costs of Graduate Medical 
                                Education

    ``Sec. 2241. Determination of amount relating to direct costs.
    ``Sec. 2242. Direct costs; special rules regarding payments from 
              general account.
    ``Sec. 2243. Direct costs; authority for payments to consortia of 
              providers.

                    ``Part A--Establishment of Fund

``SEC. 2201. ESTABLISHMENT OF FUND.

    ``(a) In General.--There is established in the Treasury of 
the United States a fund to be known as the Teaching Hospital 
and Graduate Medical Education Trust Fund (in this title 
referred to as the `Fund'), consisting of amounts appropriated 
to the Fund in subsections (d), (f)(3), and (g), and amounts 
transferred to the Fund under section 1886(j). Amounts in the 
Fund are available until expended.
    ``(b) Expenditures From Fund.--Amounts in the Fund are 
available to the Secretary for making payments under section 
2211.
    ``(c) Accounts in Fund.--There are established within the 
Fund the following accounts:
            ``(1) The General MedicarePlus Incentive Account.
            ``(2) The General Indirect-Costs Medical Education 
        Account.
            ``(3) The General Direct-Costs Medical Education 
        Account.
            ``(4) The Medicare Indirect-Costs Medical Education 
        Account.
            ``(5) The Medicare Direct-Costs Medical Education 
        Account.
    ``(d) General Transfers to Fund.--
            ``(1) In general.--For fiscal year 1997 and each 
        subsequent fiscal year, there are appropriated to the 
        Fund (effective on the date specified in paragraph 
        (2)), out of any money in the Treasury not otherwise 
        appropriated, the following amounts (as applicable to 
        the fiscal year involved):
                    ``(A) For fiscal year 1997, $1,100,000,000.
                    ``(B) For fiscal year 1998, $1,300,000,000.
                    ``(C) For fiscal year 1999, $2,000,000,000.
                    ``(D) For fiscal year 2000, $2,600,000,000.
                    ``(E) For fiscal year 2001, $3,100,000,000.
                    ``(F) For fiscal year 2002, $3,400,000,000.
                    ``(G) For fiscal year 2003 and each 
                subsequent fiscal year, the greater of the 
                amount appropriated for the preceding fiscal 
                year or an amount equal to the product of--
                            ``(i) the amount appropriated for 
                        the preceding fiscal year; and
                            ``(ii) 1 plus the percentage 
                        increase in the nominal gross domestic 
                        product for the one-year period ending 
                        upon July 1 of such preceding fiscal 
                        year.
            ``(2) Effective date for annual appropriation.--For 
        purposes of paragraph (1), the date specified in this 
        paragraph for a fiscal year is the first day of the 
        fiscal year.
            ``(3) Allocation for general medicareplus incentive 
        account.--Of the amount appropriated in paragraph (1) 
        for a fiscal year, there shall be allocated to the 
        General MedicarePlus Incentive Account the following 
        percentage (as applicable to the fiscal year involved):
                    ``(A) For fiscal year 1997, 20 percent.
                    ``(B) For fiscal year 1998, 30 percent.
                    ``(C) For fiscal year 1999, 40 percent.
                    ``(D) For fiscal year 2000 and each 
                subsequent fiscal year, 50 percent.
            ``(4) Allocations for general medical education 
        accounts.--
                    ``(A) In general.--Of the amount 
                appropriated in paragraph (1) for a fiscal year 
                and remaining after the allocation required in 
                paragraph (3) for the year has been made--
                            ``(i) there shall be allocated to 
                        the General Indirect-Costs Medical 
                        Education Account the percentage 
                        determined under subparagraph (B)(ii); 
                        and
                            ``(ii) there shall be allocated to 
                        the General Direct-Costs Medical 
                        Education Account the percentage 
                        determined under subparagraph (B)(iii).
                    ``(B) Determination of fixed percentages.--
                The Secretary of Health and Human Services, 
                acting through the Administrator of the Health 
                Care Financing Administration, shall determine 
                the following:
                            ``(i) The total amount of payments 
                        that were made under subsections 
                        (d)(5)(B) and (h) of section 1886 for 
                        fiscal year 1994.
                            ``(ii) The percentage of such total 
                        that was constituted by payments under 
                        subsection (d)(5)(B) of such section.
                            ``(iii) The percentage of such 
                        total that was constituted by payments 
                        under subsection (h) of such section.
    ``(e) Transfers From Medicare Program.--Amounts shall, in 
accordance with section 1886(j), be transferred to the Fund 
from the trust funds established under parts A and B of title 
XVIII.
    ``(f) Investment.--
            ``(1) In general.--The Secretary of the Treasury 
        shall invest such amounts of the Fund as such Secretary 
        determines are not required to meet current withdrawals 
        from the Fund. Such investments may be made only in 
        interest-bearing obligations of the United States. For 
        such purpose, such obligations may be acquired on 
        original issue at the issue price, or by purchase of 
        outstanding obligations at the market price.
            ``(2) Sale of obligations.--Any obligation acquired 
        by the Fund may be sold by the Secretary of the 
        Treasury at the market price.
            ``(3) Availability of income.--Any interest derived 
        from obligations acquired by the Fund, and proceeds 
        from any sale or redemption of such obligations, are 
        hereby appropriated to the Fund.
    ``(g) Monetary Gifts to Fund.--There are appropriated to 
the Fund such amounts as may be unconditionally donated to the 
Federal Government as gifts to the Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

``SEC. 2211. FORMULA PAYMENTS TO TEACHING HOSPITALS.

    ``(a) In General.--Subject to subsection (d), in the case 
of each teaching hospital that in accordance with subsection 
(b) submits to the Secretary a payment document for fiscal year 
1997 or any subsequent fiscal year, the Secretary shall make 
payments for the year to the teaching hospital for the direct 
and indirect costs of operating approved medical residency 
training programs. Such payments shall be made from the Fund, 
and the total of the payments to the hospital for the fiscal 
year shall equal the sum of the following:
            ``(1) An amount determined under section 2221 
        (relating to the MedicarePlus program).
            ``(2) An amount determined under section 2231 
        (relating to the indirect costs of graduate medical 
        education).
            ``(3) An amount determined under section 2241 
        (relating to the direct costs of graduate medical 
        education).
    ``(b) Payment Document.--For purposes of subsection (a), a 
payment document is a document containing such information as 
may be necessary for the Secretary to make payments under such 
subsection to a teaching hospital during a fiscal year. The 
document is submitted in accordance with this subsection if the 
document is submitted not later than the date specified by the 
Secretary, and the document is in such form and is made in such 
manner as the Secretary may require. This subsection is subject 
to section 2212.
    ``(c) Periodic Payments.--Payments under subsection (a) for 
a teaching hospital for a fiscal year shall be made 
periodically, at such intervals and in such amounts as the 
Secretary determines to be appropriate (subject to applicable 
Federal law regarding Federal payments).
    ``(d) Special Rules.--
            ``(1) Payments to consortia of providers.--In the 
        case of payments under subsection (a) that are 
        determined under section 2241:
                    ``(A) The requirement under such subsection 
                to make the payments to teaching hospitals is 
                subject to the authority of the Secretary under 
                section 2243(a) to make payments to qualifying 
                consortia.
                    ``(B) If the Secretary authorizes payments 
                to a consortium under section 2243(a), 
                subsections (a) and (b) of this section (other 
                than subsection (a)(2)) apply to the consortium 
                to the same extent and in the same manner as 
                the subsections apply to teaching hospitals.
            ``(2) Hospitals in states with certain 
        demonstration projects.--Paragraph (2) of subsection 
        (a) is subject to section 2232(d)(1)(B), and paragraph 
        (3) of such subsection is subject to section 
        2242(d)(1)(B).
    ``(e) Administrator of Programs.--This part, and the 
subsequent parts of this title, shall be carried out by the 
Secretary acting through the Administrator of the Health Care 
Financing Administration.
    ``(f) Approved Medical Residency Training Program .--For 
purposes of this title, the term `approved medical residency 
training program' has the meaning given such term in section 
1886(h)(5)(A).

``SEC. 2212. ADDITIONAL PROVISIONS REGARDING ANNUAL PAYMENT DOCUMENT.

    ``(a) Periodic Reports.--In collecting information under 
section 2211(b), the Secretary may require that information be 
submitted to the Secretary in periodic reports.
    ``(b) Information Relating to Medicare Program.--
Information collected by the Secretary under section 2211(b) 
with respect to a teaching hospital for a fiscal year shall 
include information on the following:
            ``(1) The number of inpatient discharges for the 
        fiscal year attributable to individuals enrolled in the 
        MedicarePlus program under part C of title XVIII.
            ``(2) For each discharge with respect to which 
        payment is received from the Secretary pursuant to part 
        A of title XVIII, the diagnosis-related group within 
        which the discharge is classified (as determined in 
        accordance with section 1886(d)(4)(A)).
            ``(3) The medicare patient load of the hospital (as 
        defined in section 1886(h)(3)(C)).

          ``Subpart 2--Amount Relating to MedicarePlus Program

``SEC. 2221. DETERMINATION OF AMOUNT RELATING TO MEDICAREPLUS PROGRAM.

    ``(a) In General.--For purposes of section 2211(a)(1), the 
amount determined under this section for a teaching hospital 
for a fiscal year is the product of--
            ``(1) the amount in the General MedicarePlus 
        Incentive Account on the date specified in section 
        2201(d)(2) (once the appropriation under such section 
        is made); and
            ``(2) the percentage determined for the hospital 
        under subsection (b) for the fiscal year.
    ``(b) Annual Hospital-Specific Percentage.--For purposes of 
subsection (a)(2), the percentage determined under this 
subsection for a teaching hospital for a fiscal year is the 
percentage constituted by the ratio of--
            ``(1) the number of inpatient discharges for the 
        fiscal year attributable to individuals enrolled in the 
        MedicarePlus program under part C of title XVIII; to
            ``(2) the sum of the respective numbers determined 
        under paragraph (1) for the fiscal year for all 
        teaching hospitals.

  ``Subpart 3--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

``SEC. 2231. DETERMINATION OF AMOUNT RELATING TO INDIRECT COSTS.

    ``(a) In General.--For purposes of section 2211(a)(2), the 
amount determined under this section for a teaching hospital 
for a fiscal year is the sum of--
            ``(1) the amount determined under subsection (b) 
        (relating to the General Indirect-Costs Medical 
        Education Account); and
            ``(2) the amount determined under subsection (c) 
        (relating to the Medicare Indirect-Costs Medical 
        Education Account), subject to section 2232(d)(1)(B).
    ``(b) Payment From General Account.--
            ``(1) In general.--For purposes of subsection 
        (a)(1), the amount determined under this subsection for 
        a teaching hospital for a fiscal year is the product 
        of--
                    ``(A) the amount in the General Indirect-
                Costs Medical Education Account on the date 
                specified in section 2201(d)(2) (once the 
                appropriation under such section is made); and
                    ``(B) the percentage determined for the 
                hospital under paragraph (2).
            ``(2) Fixed hospital-specific percentage.--
                    ``(A) In general.--For purposes of 
                paragraph (1)(B), the percentage determined 
                under this paragraph for a teaching hospital is 
                the mean average of the respective percentages 
                determined under subparagraph (C) for each 
                fiscal year of the applicable period (as 
                defined in subparagraph (B)), adjusted by the 
                Secretary (upward or downward, as the case may 
                be) on a pro rata basis to the extent necessary 
                to ensure that the sum of the percentages 
                determined under this paragraph for all 
                teaching hospitals is equal to 100 percent. The 
                preceding sentence is subject to section 2232.
                    ``(B) Applicable period regarding relevant 
                data; fiscal years 1992 through 1994.--For 
                purposes of this part, the term `applicable 
                period' means the period beginning on the first 
                day of fiscal year 1992 and continuing through 
                the end of fiscal year 1994.
                    ``(C) Respective determinations for fiscal 
                years of applicable period.--For purposes of 
                subparagraph (A), the percentage determined 
                under this subparagraph for a teaching hospital 
                for a fiscal year of the applicable period is 
                the percentage constituted by the ratio of--
                            ``(i) the total amount of payments 
                        received by the hospital under section 
                        1886(d)(5)(B) for discharges occurring 
                        during the fiscal year involved; to
                            ``(ii) the sum of the respective 
                        amounts determined under clause (i) for 
                        the fiscal year for all teaching 
                        hospitals.
            ``(3) Availability of data.--If a teaching hospital 
        received the payments specified in paragraph (2)(C)(i) 
        during the applicable period but a complete set of the 
        relevant data is not available to the Secretary for 
        purposes of determining an amount under such paragraph 
        for the fiscal year involved, the Secretary shall for 
        purposes of such subsection make an estimate on the 
        basis of such data as are available to the Secretary 
        for the applicable period.
    ``(c) Payment From Medicare Account.--For purposes of 
subsection (a)(2), the amount determined under this subsection 
for a teaching hospital for a fiscal year is an amount 
determined in accordance with the methodology in effect under 
section 1886(d)(5)(B) for such year. Payments made under 
section 2211 pursuant to the preceding sentence shall be made 
from the Medicare Indirect-Costs Medical Education Account.

``SEC. 2232. INDIRECT COSTS; SPECIAL RULES REGARDING PAYMENTS FROM 
                    GENERAL ACCOUNT.

    ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
            ``(1) In general.--In the case of a teaching 
        hospital whose first payments under section 
        1886(d)(5)(B) were for discharges occurring in fiscal 
        year 1995 or in fiscal year 1996 (referred to in this 
        subsection individually as a `first payment year'), the 
        percentage determined under paragraph (2) for the 
        hospital is deemed to be the percentage applicable 
        under section 2231(b)(2) to the hospital, subject to 
        paragraph (3).
            ``(2) Determination of fixed percentage.--For 
        purposes of paragraph (1), the percentage determined 
        under this paragraph for a teaching hospital is the 
        percentage constituted by the ratio of the amount 
        determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                    ``(A)(i) If the first payment year for the 
                hospital is fiscal year 1995, the amount 
                determined under this subparagraph is the total 
                amount of payments received by the hospital 
                under section 1886(d)(5)(B) for discharges 
                occurring during fiscal year 1995.
                    ``(ii) If the first payment year for the 
                hospital is fiscal year 1996, the amount 
                determined under this subparagraph is an amount 
                equal to an estimate by the Secretary of the 
                total amount of payments that would have been 
                paid to the hospital under section 
                1886(d)(5)(B) for discharges occurring during 
                fiscal year 1995 if such section, as in effect 
                for fiscal year 1996, had applied to the 
                hospital for discharges occurring during fiscal 
                year 1995.
                    ``(B)(i) If the first payment year for the 
                hospital is fiscal year 1995, the amount 
                determined under this subparagraph is the 
                aggregate total of the payments received by 
                teaching hospitals under section 1886(d)(5)(B) 
                for discharges occurring during fiscal year 
                1995.
                    ``(ii) If the first payment year for the 
                hospital is fiscal year 1996--
                            ``(I) the Secretary shall make an 
                        estimate in accordance with 
                        subparagraph (A)(ii) for all teaching 
                        hospitals; and
                            ``(II) the amount determined under 
                        this subparagraph is the sum of the 
                        estimates made by the Secretary under 
                        subclause (I).
            ``(3) Adjustment of percentage.--The percentage 
        determined under paragraph (2) shall be adjusted by the 
        Secretary in accordance with section 2231(b)(2)(A) to 
        the extent determined by the Secretary to be necessary 
        with respect to a sum that equals 100 percent.
    ``(b) New Teaching Hospitals.--
            ``(1) In general.--In the case of a teaching 
        hospital that did not receive payments under section 
        1886(d)(5)(B) for any of the fiscal years 1992 through 
        1996, the percentage determined under paragraph (3) for 
        the hospital is deemed to be the percentage applicable 
        under section 2231(b)(2) to the hospital, subject to 
        paragraphs (4) and (5).
            ``(2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be 
        made for the most recent fiscal year for which the 
        Secretary has sufficient data to make the determination 
        (referred to in this subsection as the `designated 
        fiscal year').
            ``(3) Determination of fixed percentage.--For 
        purposes of paragraph (1), the percentage determined 
        under this paragraph for the teaching hospital involved 
        is the percentage constituted by the ratio of the 
        amount determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                    ``(A) The amount determined under this 
                subparagraph is an amount equal to an estimate 
                by the Secretary of the total amount of 
                payments that would have been paid to the 
                hospital under section 1886(d)(5)(B) for the 
                designated fiscal year if such section, as in 
                effect for the first fiscal year for which 
                payments pursuant to this subsection are to be 
                made to the hospital, had applied to the 
                hospital for the designated fiscal year.
                    ``(B) The Secretary shall make an estimate 
                in accordance with subparagraph (A) for all 
                teaching hospitals. The amount determined under 
                this subparagraph is the sum of the estimates 
                made by the Secretary under the preceding 
                sentence.
            ``(4) Adjustment of percentage.--The percentage 
        determined under paragraph (3) shall be adjusted by the 
        Secretary in accordance with section 2231(b)(2)(A) to 
        the extent determined by the Secretary to be necessary 
        with respect to a sum that equals 100 percent.
            ``(5) Limitation.--This subsection does not apply 
        to a teaching hospital described in paragraph (1) if 
        the hospital is in a State for which a demonstration 
        project under section 1814(b)(3) is in effect.
    ``(c) Consolidations and Mergers.--In the case of two or 
more teaching hospitals that have each received payments 
pursuant to section 2231 for one or more fiscal years and that 
undergo a consolidation or merger, the percentage applicable to 
the resulting teaching hospital for purposes of section 
2231(b)(2) is the sum of the respective percentages that would 
have applied pursuant to such section if the hospitals had not 
undergone the consolidation or merger.
    ``(d) States With Certain Demonstration Projects.--
            ``(1) In general.--In the case of a teaching 
        hospital in a State for which a demonstration project 
        under section 1814(b)(3) is in effect--
                    ``(A) the percentage determined under 
                paragraph (2) for the hospital is deemed to be 
                the percentage applicable under section 
                2231(b)(2) to the hospital; and
                    ``(B) the hospital is not eligible for any 
                payments from the Medicare Indirect-Costs 
                Medical Education Account.
            ``(2) Determination of fixed percentage.--For 
        purposes of paragraph (1)(A):
                    ``(A) The Secretary shall make an estimate 
                of the total amount of payments that would have 
                been received under section 1886(d)(5)(b) by 
                the hospital involved with respect to each of 
                the fiscal years of the applicable period if 
                such section (as in effect for such fiscal 
                years) had applied to the hospital for such 
                years.
                    ``(B) The percentage determined under this 
                paragraph for the hospital for a fiscal year is 
                a mean average percentage determined for the 
                hospital in accordance with the methodology of 
                section 2231(b)(2), except that the estimate 
                made by the Secretary under subparagraph (A) of 
                this paragraph for a fiscal year of the 
                applicable period is deemed to be the amount 
                that applies for purposes of section 
                2231(b)(2)(C)(i) for such year.

   ``Subpart 4--Amount Relating to Direct Costs of Graduate Medical 
                               Education

``SEC. 2241. DETERMINATION OF AMOUNT RELATING TO DIRECT COSTS.

    ``(a) In General.--For purposes of section 2211(a)(3), the 
amount determined under this section for a teaching hospital 
for a fiscal year is the sum of--
            ``(1) the amount determined under subsection (b) 
        (relating to the General Direct-Costs Medical Education 
        Account); and
            ``(2) the amount determined under subsection (c) 
        (relating to the Medicare Direct-Costs Medical 
        Education Account), subject to section 2242(d)(1)(B).
    ``(b) Payment From General Account.--
            ``(1) In general.--For purposes of subsection 
        (a)(1), the amount determined under this subsection for 
        a teaching hospital for a fiscal year is the product 
        of--
                    ``(A) the amount in the General Direct-
                Costs Medical Education Account on the 
                applicable date under section 2201(d)(2) (once 
                the appropriation under such section is made); 
                and
                    ``(B) the percentage determined for the 
                hospital under paragraph (2).
            ``(2) Fixed hospital-specific percentage.--
                    ``(A) In general.--For purposes of 
                paragraph (1)(B), the percentage determined 
                under this paragraph for a teaching hospital is 
                the mean average of the respective percentages 
                determined under subparagraph (B) for each 
                fiscal year of the applicable period (as 
                defined in section 2231(b)(2)(B)), adjusted by 
                the Secretary (upward or downward, as the case 
                may be) on a pro rata basis to the extent 
                necessary to ensure that the sum of the 
                percentages determined under this subparagraph 
                for all teaching hospitals is equal to 100 
                percent. The preceding sentence is subject to 
                section 2242.
                    ``(B) Respective determinations for fiscal 
                years of applicable period.--For purposes of 
                subparagraph (A), the percentage determined 
                under this subparagraph for a teaching hospital 
                for a fiscal year of the applicable period is 
                the percentage constituted by the ratio of--
                            ``(i) the total amount of payments 
                        received by the hospital under section 
                        1886(h) for cost reporting periods 
                        beginning during the fiscal year 
                        involved; to
                            ``(ii) the sum of the respective 
                        amounts determined under clause (i) for 
                        the fiscal year for all teaching 
                        hospitals.
            ``(3) Availability of data.--If a teaching hospital 
        received the payments specified in paragraph (2)(B)(i) 
        during the applicable period but a complete set of the 
        relevant data is not available to the Secretary for 
        purposes of determining an amount under such paragraph 
        for the fiscal year involved, the Secretary shall for 
        purposes of such paragraph make an estimate on the 
        basis of such data as are available to the Secretary 
        for the applicable period.
    ``(c) Payment From Medicare Account.--For purposes of 
subsection (a)(2), the amount determined under this subsection 
for a teaching hospital for a fiscal year is an amount 
determined in accordance with the methodology in effect under 
section 1886(h) for such year. Payments made under section 2211 
pursuant to the preceding sentence shall be made from the 
Medicare Direct-Costs Medical Education Account.

``SEC. 2242. DIRECT COSTS; SPECIAL RULES REGARDING PAYMENTS FROM 
                    GENERAL ACCOUNT.

    ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
            ``(1) In general.--In the case of a teaching 
        hospital whose first payments under section 1886(h) 
        were for the cost reporting period beginning in fiscal 
        year 1995 or in fiscal year 1996 (referred to in this 
        subsection individually as a `first payment year'), the 
        percentage determined under paragraph (2) for the 
        hospital is deemed to be the percentage applicable 
        under section 2241(b)(2) to the hospital, subject to 
        paragraph (3).
            ``(2) Determination of fixed percentage.--For 
        purposes of paragraph (1), the percentage determined 
        under this paragraph for a teaching hospital is the 
        percentage constituted by the ratio of the amount 
        determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                    ``(A)(i) If the first payment year for the 
                hospital is fiscal year 1995, the amount 
                determined under this subparagraph is the total 
                amount of payments received by the hospital 
                under section 1886(h) for cost reporting 
                periods beginning in fiscal year 1995.
                    ``(ii) If the first payment year for the 
                hospital is fiscal year 1996, the amount 
                determined under this subparagraph is an amount 
                equal to an estimate by the Secretary of the 
                total amount of payments that would have been 
                paid to the hospital under section 1886(h) for 
                cost reporting periods beginning in fiscal year 
                1995 if such section, as in effect for fiscal 
                year 1996, had applied to the hospital for 
                fiscal year 1995.
                    ``(B)(i) If the first payment year for the 
                hospital is fiscal year 1995, the amount 
                determined under this subparagraph is the 
                aggregate total of the payments received by 
                teaching hospitals under section 1886(h) for 
                cost reporting periods beginning in fiscal year 
                1995.
                    ``(ii) If the first payment year for the 
                hospital is fiscal year 1996--
                            ``(I) the Secretary shall make an 
                        estimate in accordance with 
                        subparagraph (A)(ii) for all teaching 
                        hospitals; and
                            ``(II) the amount determined under 
                        this subparagraph is the sum of the 
                        estimates made by the Secretary under 
                        subclause (I).
            ``(3) Adjustment of percentage.--The percentage 
        determined under paragraph (2) shall be adjusted by the 
        Secretary in accordance with section 2241(b)(2)(A) to 
        the extent determined by the Secretary to be necessary 
        with respect to a sum that equals 100 percent.
    ``(b) New Teaching Hospitals.--
            ``(1) In general.--In the case of a teaching 
        hospital that did not receive payments under section 
        1886(h) for any of the fiscal years 1992 through 1996, 
        the percentage determined under paragraph (3) for the 
        hospital is deemed to be the percentage applicable 
        under section 2241(b)(2) to the hospital, subject to 
        paragraphs (4) and (5).
            ``(2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be 
        made for the most recent fiscal year for which the 
        Secretary has sufficient data to make the determination 
        (referred to in this subsection as the `designated 
        fiscal year').
            ``(3) Determination of fixed percentage.--For 
        purposes of paragraph (1), the percentage determined 
        under this paragraph for the teaching hospital involved 
        is the percentage constituted by the ratio of the 
        amount determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                    ``(A) The amount determined under this 
                subparagraph is an amount equal to an estimate 
                by the Secretary of the total amount of 
                payments that would have been paid to the 
                hospital under section 1886(h) for the 
                designated fiscal year if such section, as in 
                effect for the first fiscal year for which 
                payments pursuant to this subsection are to be 
                made to the hospital, had applied to the 
                hospital for cost reporting periods beginning 
                in the designated fiscal year.
                    ``(B) The Secretary shall make an estimate 
                in accordance with subparagraph (A) for all 
                teaching hospitals. The amount determined under 
                this subparagraph is the sum of the estimates 
                made by the Secretary under the preceding 
                sentence.
            ``(4) Adjustment of percentage.--The percentage 
        determined under paragraph (3) shall be adjusted by the 
        Secretary in accordance with section 2223(b)(2)(A) to 
        the extent determined by the Secretary to be necessary 
        with respect to a sum that equals 100 percent.
            ``(5) Limitation.--This subsection does not apply 
        to a teaching hospital described in paragraph (1) if 
        the hospital is in a State for which a demonstration 
        project under section 1814(b)(3) is in effect.
    ``(c) Consolidations and Mergers.--In the case of two or 
more teaching hospitals that have each received payments 
pursuant to section 2241 for one or more fiscal years and that 
undergo a consolidation or merger, the percentage applicable to 
the resulting teaching hospital for purposes of section 
2241(b)(2) is the sum of the respective percentages that would 
have applied pursuant to such section if the hospitals had not 
undergone the consolidation or merger.
    ``(d) States With Certain Demonstration Projects.--
            ``(1) In general.--In the case of a teaching 
        hospital in a State for which a demonstration project 
        under section 1814(b)(3) is in effect--
                    ``(A) the percentage determined under 
                paragraph (2) for the hospital is deemed to be 
                the percentage applicable under section 
                2241(b)(2) to the hospital; and
                    ``(B) the hospital is not eligible for any 
                payments from the Medicare Direct-Costs Medical 
                Education Account.
            ``(2) Determination of fixed percentage.--For 
        purposes of paragraph (1)(A):
                    ``(A) The Secretary shall make an estimate 
                of the total amount of payments that would have 
                been received under section 1886(h) by the 
                hospital involved with respect to each of the 
                fiscal years of the applicable period if such 
                section (as in effect for such fiscal years) 
                had applied to the hospital for such years.
                    ``(B) The percentage determined under this 
                paragraph for the hospital for a fiscal year is 
                a mean average percentage determined for the 
                hospital in accordance with the methodology of 
                section 2241(b)(2), except that the estimate 
                made by the Secretary under subparagraph (A) of 
                this paragraph for a fiscal year of the 
                applicable period is deemed to be the amount 
                that applies for purposes of section 
                2241(b)(2)(B)(i) for such year.

``SEC. 2243. DIRECT COSTS; AUTHORITY FOR PAYMENTS TO CONSORTIA OF 
                    PROVIDERS.

    ``(a) In General.--In lieu of making payments to teaching 
hospitals pursuant to sections 2221 and 2241, the Secretary may 
make payments under this section to consortia that meet the 
requirements of subsection (b).
    ``(b) Qualifying Consortium.--For purposes of subsection 
(a), a consortium meets the requirements of this subsection if 
the consortium is in compliance with the following:
            ``(1) The consortium consists of a teaching 
        hospital and one or more of the following entities:
                    ``(A) Schools of allopathic medicine or 
                osteopathic medicine.
                    ``(B) Other teaching hospitals.
                    ``(C) Approved medical residency training 
                programs.
                    ``(D) Federally qualified health centers.
                    ``(E) Medical group practices.
                    ``(F) Managed care entities.
                    ``(G) Entities furnishing outpatient 
                services.
                    ``(H) Such other entities as the Secretary 
                determines to be appropriate.
            ``(2) The members of the consortium have agreed to 
        collaborate in the programs of graduate medical 
        education that are operated by such members.
            ``(3) With respect to the receipt by the consortium 
        of payments made pursuant to this section, the members 
        of the consortium have agreed on a method for 
        allocating the payments among the members.
            ``(4) The consortium meets such additional 
        requirements as the Secretary may establish.
    ``(c) Payments From Accounts.--The total amount of payments 
to a qualifying consortium for a fiscal year pursuant to 
subsection (a) shall be the sum of--
            ``(1) the aggregate amount determined for the 
        teaching hospitals of the consortium pursuant to 
        section 2221(a) (relating to the General MedicarePlus 
        Incentive Account);
            ``(2) the aggregate amount determined for the 
        teaching hospitals of the consortium pursuant to 
        section 2241(a)(1) (relating to the General Direct-
        Costs Account); and
            ``(3) an amount determined for the consortium in 
        accordance with the methodology in effect under section 
        1886(j)(2)(C)(i) for the fiscal year (relating to the 
        Medicare Direct-Costs Account).
    ``(d) Definition.--For purposes of this title, the term 
`qualifying consortium' means a consortium that meets the 
requirements of subsection (b).''.

               CHAPTER 2--AMENDMENTS TO MEDICARE PROGRAM

SEC. 12511. TRANSFER OF FUNDS.

    Section 1886 (42 U.S.C. 1395ww) is amended--
            (1) in subsection (d)(5)(B), in the matter 
        preceding clause (i), by striking ``The Secretary shall 
        provide'' and inserting the following: ``For discharges 
        occurring on or before September 30, 1996, the 
        Secretary shall provide'';
            (2) in subsection (h)--
                    (A) in paragraph (1), in the first 
                sentence, by striking ``the Secretary shall 
                provide'' and inserting ``the Secretary shall, 
                subject to paragraph (6), provide''; and
                    (B) by adding at the end the following 
                paragraph:
            ``(6) Limitation.--
                    ``(A) In general.--The authority to make 
                payments under this subsection applies only 
                with respect to cost reporting periods ending 
                on or before September 30, 1996, except as 
                provided in subparagraph (B).
                    ``(B) Rule regarding portion of last cost 
                reporting period.--In the case of a cost 
                reporting period that extends beyond September 
                30, 1996, payments under this subsection shall 
                be made with respect to such portion of the 
                period as has lapsed as of such date.
                    ``(C) Rule of construction.--This paragraph 
                may not be construed as authorizing any payment 
                under section 1861(v) with respect to graduate 
                medical education.''; and
            (3) by adding at the end the following subsection:
    ``(j) Transfers to Teaching Hospital and Graduate Medical 
Education Trust Fund.--
            ``(1) Indirect costs of medical education.--
                    ``(A) In general.--From the Federal 
                Hospital Insurance Trust Fund, the Secretary 
                shall, for fiscal year 1997 and each subsequent 
                fiscal year, transfer to the Medicare Indirect-
                Costs Medical Education Account under section 
                2201 an amount determined by the Secretary in 
                accordance with subparagraph (B).
                    ``(B) Determination of amounts.--The 
                Secretary shall make an estimate for the fiscal 
                year involved of the nationwide total of the 
                amounts that would have been paid under 
                subsection (d)(5)(B) to hospitals during the 
                fiscal year if such payments had not been 
                terminated for discharges occurring after 
                September 30, 1996. For purposes of 
                subparagraph (A), the amount determined under 
                this subparagraph for the fiscal year is the 
                estimate made by the Secretary under the 
                preceding sentence.
                    ``(C) Supplemental transfers.--If the 
                Secretary determines that the amount of a 
                transfer under subparagraph (A) for a fiscal 
                year is insufficient for making payments in the 
                amounts required pursuant to section 2231(a)(2) 
                for the year, the Secretary shall make such 
                additional transfers for the year between the 
                funds and accounts involved as the Secretary 
                determines to be necessary for making the 
                payments.
            ``(2) Direct costs of medical education.--
                    ``(A) In general.--From the Federal 
                Hospital Insurance Trust Fund and the Federal 
                Supplementary Medical Insurance Trust Fund, the 
                Secretary shall, for fiscal year 1997 and each 
                subsequent fiscal year, transfer to the 
                Medicare Direct-Costs Medical Education Account 
                (under section 2201) the sum of--
                            ``(i) an amount determined by the 
                        Secretary in accordance with 
                        subparagraph (B); and
                            ``(ii) as applicable, an amount 
                        determined by the Secretary in 
                        accordance with subparagraph (C)(ii).
                    ``(B) Determination of amounts.--For each 
                hospital (other than a hospital that is a 
                member of a qualifying consortium referred to 
                in subparagraph (C)), the Secretary shall make 
                an estimate for the fiscal year involved of the 
                amount that would have been paid under 
                subsection (h) to the hospital during the 
                fiscal year if such payments had not been 
                terminated for cost reporting periods ending on 
                or before September 30, 1996. For purposes of 
                subparagraph (A)(i), the amount determined 
                under this subparagraph for the fiscal year is 
                the sum of all estimates made by the Secretary 
                under the preceding sentence.
                    ``(C) Estimates regarding qualifying 
                consortia.--If the Secretary authorizes 
                payments under section 2243(a) to one or more 
                qualifying consortia, the Secretary shall carry 
                out the following:
                            ``(i) The Secretary shall establish 
                        a methodology for making payments to 
                        qualifying consortia with respect to 
                        the reasonable direct costs of such 
                        consortia in carrying out programs of 
                        graduate medical education. The 
                        methodology shall be the methodology 
                        established in subsection (h), modified 
                        to the extent necessary to take into 
                        account the participation in such 
                        programs of entities other than 
                        hospitals.
                            ``(ii) For each qualifying 
                        consortium, the Secretary shall make an 
                        estimate for the fiscal year involved 
                        of the amount that would have been paid 
                        to the consortium during the fiscal 
                        year if, using the methodology under 
                        clause (i), payments had been made to 
                        the consortium for the fiscal year as 
                        reimbursements with respect to cost 
                        reporting periods. For purposes of 
                        subparagraph (A)(ii), the amount 
                        determined under this clause for the 
                        fiscal year is the sum of all estimates 
                        made by the Secretary under the 
                        preceding sentence.
                    ``(D) Allocation between funds.--In 
                providing for a transfer under subparagraph (A) 
                for a fiscal year, the Secretary shall provide 
                for an allocation of the amounts involved 
                between part A and part B (and the trust funds 
                established under the respective parts) as 
                reasonably reflects the proportion of direct 
                graduate medical education costs of hospitals 
                associated with the provision of services under 
                each respective part.
                    ``(E) Supplemental transfers.--If the 
                Secretary determines that the amount of a 
                transfer under subparagraph (A) for a fiscal 
                year is insufficient for making payments in the 
                amounts required pursuant to sections 
                2241(a)(2) and 2243(c)(3) for the year, the 
                Secretary shall make such additional transfers 
                for the year between the funds and accounts 
                involved as the Secretary determines to be 
                necessary for making the payments.
            ``(3) Applicability of certain amendments.--
        Amendments made to subsection (d)(5)(B) and subsection 
        (h) that are effective on or after October 1, 1996, 
        apply only for purposes of estimates under paragraphs 
        (1) and (2) and for purposes of determining the amount 
        of payments under 2211. Such amendments do not require 
        any adjustment to amounts paid under subsection 
        (d)(5)(B) or (h) with respect to fiscal year 1996 or 
        any prior fiscal year.
            ``(4) Relationship to certain demonstration 
        projects.--In the case of a State for which a 
        demonstration project under section 1814(b)(3) is in 
        effect, the Secretary, in making determinations of the 
        rates of increase under such section, shall include all 
        amounts transferred under this subsection. Such amounts 
        shall be so included to the same extent and in the same 
        manner as amounts determined under subsections 
        (d)(5)(B) and (h) were included in such determination 
        under the provisions of this title in effect on 
        September 30, 1996.''.

                      Title XII--Other Provisions

                 Subtitle F--National Defense Stockpile

SEC. 12601. DISPOSAL OF CERTAIN MATERIALS IN NATIONAL DEFENSE STOCKPILE 
                    FOR DEFICIT REDUCTION.

    (a) Disposals Required.--(1) During fiscal year 1996, the 
President shall dispose of all cobalt contained in the National 
Defense Stockpile that, as of the date of the enactment of this 
Act, is authorized for disposal under any law (other than this 
Act).
    (2) In addition to the disposal of cobalt under paragraph 
(1), the President shall dispose of additional quantities of 
cobalt and quantities of other materials contained in the 
National Defense Stockpile and specified in the table in 
subsection (b) so as to result in receipts to the United States 
in amounts equal to--
            (A) $21,000,000 during the fiscal year ending 
        September 30, 1996;
            (B) $338,000,000 during the five-fiscal year period 
        ending on September 30, 2000; and
            (C) $649,000,000 during the seven-fiscal year 
        period ending on September 30, 2002.
    (b) Limitation on Disposal Quantity.--The total quantities 
of materials authorized for disposal by the President under 
subsection (a)(2) may not exceed the amounts set forth in the 
following table:

                     Authorized Stockpile Disposals                     
------------------------------------------------------------------------
           Material for disposal                      Quantity          
------------------------------------------------------------------------
Aluminum..................................  62,881 short tons           
Cobalt....................................  30,000,000 pounds contained 
Columbium Ferro...........................  930,911 pounds contained    
Germanium Metal...........................  40,000 kilograms            
Indium....................................  35,000 troy ounces          
Palladium.................................  15,000 troy ounces          
Platinum..................................  10,000 troy ounces          
Rubber, Natural...........................  125,138 long tons           
Tantalum, Carbide Powder..................  6,000 pounds contained      
Tantalum, Minerals........................  750,000 pounds contained    
Tantalum, Oxide...........................  40,000 pounds contained     
------------------------------------------------------------------------

    (c) Deposit of Receipts.--Notwithstanding section 9 of the 
Strategic and Critical Materials Stock Piling Act (50 U.S.C. 
98h), funds received as a result of the disposal of materials 
under subsection (a)(2) shall be deposited into the general 
fund of the Treasury for the purpose of deficit reduction.
    (d) Relationship to Other Disposal Authority.--The disposal 
authority provided in subsection (a)(2) is new disposal 
authority and is in addition to, and shall not affect, any 
other disposal authority provided by law regarding the 
materials specified in such subsection.
    (e) Termination of Disposal Authority.--The President may 
not use the disposal authority provided in subsection (a)(2) 
after the date on which the total amount of receipts specified 
in subparagraph (C) of such subsection is achieved.
    (f) Definition.--The term ``National Defense Stockpile'' 
means the National Defense Stockpile provided for in section 4 
of the Strategic and Critical Materials Stock Piling Act (50 
U.S.C. 98c).

Subtitle G----Child Protection Block Grant Program And Foster Care and 
                          Adoption Assistance

SEC. 12701. ESTABLISHMENT OF PROGRAM.

    Title IV of the Social Security Act (42 U.S.C. 601 et seq.) 
is amended by striking subpart 2 of part B and inserting the 
following:

``Subpart 2--Block Grants to States for the Protection of Children and 
       Matching Payments for Foster Care and Adoption Assistance

``SEC. 430. ELIGIBLE STATES.

    ``(a) In General.--As used in this subpart, the term 
`eligible State' means a State that has submitted to the 
Secretary, not later than October 1, 1996, and every 3 years 
thereafter, a plan which has been signed by the chief executive 
officer of the State and that includes the following:
            ``(1) Outline of child protection program.--A 
        written document that outlines the activities the State 
        intends to conduct to achieve the child protection 
        goals of the program funded under this subpart, 
        including the procedures to be used for--
                    ``(A) receiving and assessing reports of 
                child abuse or neglect;
                    ``(B) investigating such reports;
                    ``(C) with respect to families in which 
                abuse or neglect has been confirmed, providing 
                services or referral for services for families 
                and children where the State makes a 
                determination that the child may safely remain 
                with the family;
                    ``(D) protecting children by removing them 
                from dangerous settings and ensuring their 
                placement in a safe environment;
                    ``(E) providing training for individuals 
                mandated to report suspected cases of child 
                abuse or neglect;
                    ``(F) protecting children in foster care;
                    ``(G) promoting timely adoptions;
                    ``(H) protecting the rights of families, 
                using adult relatives as the preferred 
                placement for children separated from their 
                parents where such relatives meet the relevant 
                State child protection standards;
                    ``(I) providing services to individuals, 
                families, or communities, either directly or 
                through referral, that are aimed at preventing 
                the occurrence of child abuse and neglect; and
                    ``(J) establishing and responding to 
                citizen review panels under section 434.
            ``(2) Certification of state law requiring the 
        reporting of child abuse and neglect.--A certification 
        that the State has in effect laws that require public 
        officials and other professionals to report, in good 
        faith, actual or suspected instances of child abuse or 
        neglect.
            ``(3) Certification of procedures for screening, 
        safety assessment, and prompt investigation.--A 
        certification that the State has in effect procedures 
        for receiving and responding to reports of child abuse 
        or neglect, including the reports described in 
        paragraph (2), and for the immediate screening, safety 
        assessment, and prompt investigation of such reports.
            ``(4) Certification of state procedures for removal 
        and placement of abused or neglected children.--A 
        certification that the State has in effect procedures 
        for the removal from families and placement of abused 
        or neglected children and of any other child in the 
        same household who may also be in danger of abuse or 
        neglect.
            ``(5) Certification of provisions for immunity from 
        prosecution.--A certification that the State has in 
        effect laws requiring immunity from prosecution under 
        State and local laws and regulations for individuals 
        making good faith reports of suspected or known 
        instances of child abuse or neglect.
            ``(6) Certification of provisions and procedures 
        for expungement of certain records.--A certification 
        that the State has in effect laws and procedures 
        requiring the facilitation of the prompt expungement of 
        any records that are accessible to the general public 
        or are used for purposes of employment or other 
        background checks in cases determined to be 
        unsubstantiated or false.
            ``(7) Certification of provisions and procedures 
        relating to appeals.--A certification that not later 
        then 2 years after the date of the enactment of this 
        subpart, the State shall have laws and procedures in 
        effect affording individuals an opportunity to appeal 
        an official finding of abuse or neglect.
            ``(8) Certification of state procedures for 
        developing and reviewing written plans for permanent 
        placement of removed children.--A certification that 
        the State has in effect procedures for ensuring that a 
        written plan is prepared for children who have been 
        removed from their families. Such plan shall specify 
        the goals for achieving a permanent placement for the 
        child in a timely fashion, for ensuring that the 
        written plan is reviewed every 6 months (until such 
        placement is achieved), and for ensuring that 
        information about such children is collected regularly 
        and recorded in case records, and include a description 
        of such procedures.
            ``(9) Certification of state program to provide 
        independent living services.--A certification that the 
        State has in effect a program to provide independent 
        living services, for assistance in making the 
        transition to self-sufficient adulthood, to individuals 
        in the child protection program of the State who are 
        16, but who are not 20 (or, at the option of the State, 
        22), years of age, and who do not have a family to 
        which to be returned.
            ``(10) Certification of state procedures to respond 
        to reporting of medical neglect of disabled infants.--
                    ``(A) In general.--A certification that the 
                State has in place for the purpose of 
                responding to the reporting of medical neglect 
                of infants (including instances of withholding 
                of medically indicated treatment from disabled 
                infants with life-threatening conditions), 
                procedures or programs, or both (within the 
                State child protective services system), to 
                provide for--
                            ``(i) coordination and consultation 
                        with individuals designated by and 
                        within appropriate health-care 
                        facilities;
                            ``(ii) prompt notification by 
                        individuals designated by and within 
                        appropriate health-care facilities of 
                        cases of suspected medical neglect 
                        (including instances of withholding of 
                        medically indicated treatment from 
                        disabled infants with life-threatening 
                        conditions); and
                            ``(iii) authority, under State law, 
                        for the State child protective service 
                        to pursue any legal remedies, including 
                        the authority to initiate legal 
                        proceedings in a court of competent 
                        jurisdiction, as may be necessary to 
                        prevent the withholding of medically 
                        indicated treatment from disabled 
                        infants with life-threatening 
                        conditions.
                    ``(B) Withholding of medically indicated 
                treatment.--As used in subparagraph (A), the 
                term `withholding of medically indicated 
                treatment' means the failure to respond to the 
                infant's life-threatening conditions by 
                providing treatment (including appropriate 
                nutrition, hydration, and medication) which, in 
                the treating physician's or physicians' 
                reasonable medical judgment, will be most 
                likely to be effective in ameliorating or 
                correcting all such conditions, except that 
                such term does not include the failure to 
                provide treatment (other than appropriate 
                nutrition, hydration, or medication) to an 
                infant when, in the treating physician's or 
                physicians' reasonable medical judgment--
                            ``(i) the infant is chronically and 
                        irreversibly comatose;
                            ``(ii) the provision of such 
                        treatment would--
                                    ``(I) merely prolong dying;
                                    ``(II) not be effective in 
                                ameliorating or correcting all 
                                of the infant's life-
                                threatening conditions; or
                                    ``(III) otherwise be futile 
                                in terms of the survival of the 
                                infant; or
                            ``(iii) the provision of such 
                        treatment would be virtually futile in 
                        terms of the survival of the infant and 
                        the treatment itself under such 
                        circumstances would be inhumane.
            ``(11) Identification of child protection goals.--
        The quantitative goals of the State child protection 
        program.
            ``(12) Certification of child protection 
        standards.--With respect to fiscal years beginning on 
        or after April 1, 1996, a certification that the 
        State--
                    ``(A) has completed an inventory of all 
                children who, before the inventory, had been in 
                foster care under the responsibility of the 
                State for 6 months or more, which determined--
                            ``(i) the appropriateness of, and 
                        necessity for, the foster care 
                        placement;
                            ``(ii) whether the child could or 
                        should be returned to the parents of 
                        the child or should be freed for 
                        adoption or other permanent placement; 
                        and
                            ``(iii) the services necessary to 
                        facilitate the return of the child or 
                        the placement of the child for adoption 
                        or legal guardianship;
                    ``(B) is operating, to the satisfaction of 
                the Secretary--
                            ``(i) a statewide information 
                        system from which can be readily 
                        determined the status, demographic 
                        characteristics, location, and goals 
                        for the placement of every child who is 
                        (or, within the immediately preceding 
                        12 months, has been) in foster care;
                            ``(ii) a case review system for 
                        each child receiving foster care under 
                        the supervision of the State;
                            ``(iii) a service program designed 
                        to help children--
                                    ``(I) where appropriate, 
                                return to families from which 
                                they have been removed; or
                                    ``(II) be placed for 
                                adoption, with a legal 
                                guardian, or if adoption or 
                                legal guardianship is 
                                determined not to be 
                                appropriate for a child, in 
                                some other planned, permanent 
                                living arrangement; and
                            ``(iv) a preplacement preventive 
                        services program designed to help 
                        children at risk for foster care 
                        placement remain with their families; 
                        and
                    ``(C)(i) has reviewed (or not later than 
                October 1, 1997, will review) State policies 
                and administrative and judicial procedures in 
                effect for children abandoned at or shortly 
                after birth (including policies and procedures 
                providing for legal representation of such 
                children); and
                    ``(ii) is implementing (or not later than 
                October 1, 1997, will implement) such policies 
                and procedures as the State determines, on the 
                basis of the review described in clause (i), to 
                be necessary to enable permanent decisions to 
                be made expeditiously with respect to the 
                placement of such children.
            ``(13) Certification of reasonable efforts before 
        placement of children in foster care.--A certification 
        that the State in each case will--
                    ``(A) make reasonable efforts prior to the 
                placement of a child in foster care, to prevent 
                or eliminate the need for removal of the child 
                from the child's home, and to make it possible 
                for the child to return home; and
                    ``(B) with respect to families in which 
                abuse or neglect has been confirmed, provide 
                services or referral for services for families 
                and children where the State makes a 
                determination that the child may safely remain 
                with the family.
            ``(14) Certification of cooperative efforts.--A 
        certification by the State, where appropriate, that all 
        steps will be taken, including cooperative efforts with 
        the State agencies administering the plans approved 
        under parts A and D, to secure an assignment to the 
        State of any rights to support on behalf of each child 
        receiving foster care maintenance payments under this 
        subpart.
    ``(b) Determinations.--The Secretary shall determine 
whether a plan submitted pursuant to subsection (a) contains 
the material required by subsection (a), other than the 
material described in paragraph (10) of such subsection. The 
Secretary may not require a State to include in such a plan any 
material not described in subsection (a).

``SEC. 431. GRANTS TO STATES FOR CHILD PROTECTION AND PAYMENTS FOR 
                    FOSTER CARE AND ADOPTION ASSISTANCE..

    ``(a) Funding of Block Grants.--Each eligible State shall 
be entitled to receive from the Secretary for each fiscal year 
specified in subsection (c)(1) a grant in an amount equal to 
the State share of the child protection amount for the fiscal 
year.
    ``(b) Maintenance Payments.--
            ``(1) In general.--In addition to the grants 
        described in subsection (a), each eligible State shall 
        be entitled to receive from the Secretary for each 
        quarter of each fiscal year specified in subsection 
        (c)(1) an amount equal to the sum of--
                    ``(A) an amount equal to the Federal 
                medical assistance percentage (as defined in 
                section 1905(b) of this Act as in effect on the 
                day before the date of enactment of this 
                subpart) of the total amount expended during 
                such quarter as foster care maintenance 
                payments under the child protection program 
                under this subpart for children in foster 
                family homes or child-care institutions; plus
                    ``(B) an amount equal to the Federal 
                medical assistance percentage (as defined in 
                section 1905(b) of this Act (as so in effect)) 
                of the total amount expended during such 
                quarter as adoption assistance payments under 
                the child protection program under this subpart 
                pursuant to adoption assistance agreements.
            ``(2) Estimates by the secretary.--
                    ``(A) In general.--The Secretary shall, 
                prior to the beginning of each quarter, 
                estimate the amount to which a State will be 
                entitled to receive under paragraph (1) for 
                such quarter, such estimates to be based on--
                            ``(i) a report filed by the State 
                        containing its estimate of the total 
                        sum to be expended in such quarter in 
                        accordance with paragraph (1), and 
                        stating the amount appropriated or made 
                        available by the State and its 
                        political subdivisions for such 
                        expenditures in such quarter, and if 
                        such amount is less than the State's 
                        proportionate share of the total sum of 
                        such estimated expenditures, the source 
                        or sources from which the difference is 
                        expected to be derived;
                            ``(ii) records showing the number 
                        of children in the State receiving 
                        assistance under this subpart; and
                            ``(iii) such other information as 
                        the Secretary may find necessary.
                    ``(B) Payments.--The Secretary shall pay to 
                the States the amounts so estimated under 
                subparagraph (A), reduced or increased to the 
                extent of any overpayment or underpayment which 
                the Secretary determines was made under this 
                subsection to such State for any prior quarter 
                and with respect to which adjustment has not 
                already been made under this paragraph.
                    ``(C) Pro Rata Share.-- The pro rata share 
                to which the United States is equitably 
                entitled, as determined by the Secretary, of 
                the net amount recovered during any quarter by 
                the State or any political subdivision thereof 
                with respect to foster care and adoption 
                assistance furnished under this subpart shall 
                be considered an overpayment to be adjusted 
                under this paragraph.
            ``(3) Allowance or disallowance of claim.--
                    ``(A) In general.--Within 60 days after 
                receipt of a State claim for expenditures 
                pursuant to paragraph (2)(A), the Secretary 
                shall allow, disallow, or defer such claim.
                    ``(B) Notice.--Within 15 days after a 
                decision to defer a State claim, the Secretary 
                shall notify the State of the reasons for the 
                deferral and of the additional information 
                necessary to determine the allowability of the 
                claim.
                    ``(C) Decision.--Within 90 days after 
                receiving such necessary information (in 
                readily reviewable form), the Secretary shall--
                            ``(i) disallow the claim, if able 
                        to complete the review and determine 
                        that the claim is not allowable; or
                            ``(ii) in any other case, allow the 
                        claim, subject to disallowance (as 
                        necessary)--
                                    ``(I) upon completion of 
                                the review, if it is determined 
                                that the claim is not 
                                allowable; or
                                    ``(II) on the basis of 
                                findings of an audit or 
                                financial management review.
    ``(c) Definitions.--As used in this section:
            ``(1) Child protection amount.--The term `child 
        protection amount' means--
                    ``(A) $1,936,000,000 for fiscal year 1996;
                    ``(B) $1,942,000,000 for fiscal year 1997;
                    ``(C) $2,063,000,000 for fiscal year 1998;
                    ``(D) $2,167,000,000 for fiscal year 1999;
                    ``(E) $2,297,000,000 for fiscal year 2000;
                    ``(F) $2,432,000,000 for fiscal year 2001; 
                and
                    ``(G) $2,593,000,000 for fiscal year 2002;
            ``(2) State share.--
                    ``(A) In general.--The term `State share' 
                means the qualified child protection expenses 
                of the State divided by the sum of the 
                qualified child protection expenses of all of 
                the States.
                    ``(B) Qualified child protection 
                expenses.--The term `qualified child protection 
                expenses' means, with respect to a State the 
                greater of--
                            ``(i) the total amount of--
                                    ``(I) \1/3\ of the total 
                                obligations to the State under 
                                the provisions of law specified 
                                in clauses (i), (ii), and (iii) 
                                of subparagraph (C) for fiscal 
                                years 1992, 1993, and 1994; and
                                    ``(II) \1/3\ of the total 
                                claims submitted by the State 
                                (without regard to disputed 
                                claims) under the provision of 
                                law specified in subparagraph 
                                (C)(iv) for fiscal years 1992, 
                                1993, and 1994; or
                            ``(ii) the total amount of--
                                    ``(I) the total obligations 
                                to the State under the 
                                provisions of law specified in 
                                clauses (i), (ii), and (iii) of 
                                subparagraph (C) for fiscal 
                                year 1995; and
                                    ``(II) the total claims 
                                submitted by the State (without 
                                regard to disputed claims) 
                                under the provision of law 
                                specified in subparagraph 
                                (C)(iv) for fiscal year 1995.
                    ``(C) Provisions of law.--The provisions of 
                law specified in this subparagraph are the 
                following (as in effect on the day before the 
                date of enactment of this subpart):
                            ``(i) Section 434 of this Act.
                            ``(ii) Section 474(a)(4) of this 
                        Act.
                            ``(iii) Section 474(a)(3) of this 
                        Act.
    ``(d) Use of Grant.--
            ``(1) In general.--A State to which a grant is made 
        under this section may use the grant in any manner that 
        the State deems appropriate to accomplish the child 
        protection goals of the State program funded under this 
        subpart.
            ``(2) Timing of expenditures.--A State to which a 
        grant is made under this section for a fiscal year 
        shall expend the total amount of the grant not later 
        than the end of the immediately succeeding fiscal year.
            ``(3) Rule of interpretation.--This subpart shall 
        not be interpreted to prohibit short- and long-term 
        foster care facilities operated for profit from 
        receiving funds provided under this subpart.
    ``(e) Timing of Payments.--The Secretary shall pay each 
eligible State the amount of the grant payable to the State 
under this section in quarterly installments.
    ``(f) Penalties.--
            ``(1) For use of grant in violation of this 
        subpart.--If an audit conducted pursuant to chapter 75 
        of title 31, United States Code, finds that an amount 
        paid to a State under this section for a fiscal year 
        has been used in violation of this subpart, then the 
        Secretary shall reduce the amount of the grant that 
        would (in the absence of this paragraph) be payable to 
        the State under this section for the immediately 
        succeeding fiscal year by the amount so used, plus 5 
        percent of the grant paid under this section to the 
        State for such fiscal year.
            ``(2) For failure to maintain effort.--
                    ``(A) In general.--If an audit conducted 
                pursuant to chapter 75 of title 31, United 
                States Code, finds that the amount expended by 
                a State (other than from amounts provided by 
                the Federal Government) during the fiscal years 
                specified in subparagraph (B), to carry out the 
                State program funded under this subpart is less 
                than the applicable percentage specified in 
                such subparagraph of the total amount expended 
                by the State (other than from amounts provided 
                by the Federal Government) during fiscal year 
                1995 under subpart 2 of part B and part E of 
                this title (as in effect on the day before the 
                date of the enactment of this subpart), then 
                the Secretary shall reduce the amount of the 
                grant that would (in the absence of this 
                paragraph) be payable to the State under this 
                section for the immediately succeeding fiscal 
                year by the amount of the difference, plus 5 
                percent of the grant paid under this section to 
                the State for such fiscal year.
                    ``(B) Specification of fiscal years and 
                applicable percentages.--The fiscal years and 
                applicable percentages specified in this 
                subparagraph are as follows:
                            ``(i) For fiscal years 1996 and 
                        1997, 100 percent.
                            ``(ii) For fiscal years 1998 
                        through 2002, 75 percent.
            ``(3) For failure to submit required report.--
                    ``(A) In general.--The Secretary shall 
                reduce by 3 percent the amount of the grant 
                that would (in the absence of this paragraph) 
                be payable to a State under this section for a 
                fiscal year if the Secretary determines that 
                the State has not submitted the report required 
                by section 436(b) for the immediately preceding 
                fiscal year, within 6 months after the end of 
                the immediately preceding fiscal year.
                    ``(B) Rescission of penalty.--The Secretary 
                shall rescind a penalty imposed on a State 
                under subparagraph (A) with respect to a report 
                for a fiscal year if the State submits the 
                report before the end of the immediately 
                succeeding fiscal year.
            ``(4) For failure to comply with sampling methods 
        requirements.--The Secretary may reduce by not more 
        than 1 percent the amount of the grant that would (in 
        the absence of this paragraph) be payable to a State 
        under this section for a succeeding fiscal year if the 
        Secretary determines that the State has not complied 
        with the Secretary's sampling methods requirements 
        under section 436(c)(2) during the prior fiscal year.
            ``(5) State funds to replace reductions in grant.--
        A State which has a penalty imposed against it under 
        this subsection for a fiscal year shall expend 
        additional State funds in an amount equal to the amount 
        of the penalty for the purpose of carrying out the 
        State program under this subpart during the immediately 
        succeeding fiscal year.
            ``(6) Reasonable cause exception.--The Secretary 
        may not impose a penalty on a State under this 
        subsection with respect to a requirement if the 
        Secretary determines that the State has reasonable 
        cause for failing to comply with the requirement.
            ``(7) Corrective compliance plan.--
                    ``(A) In general.--
                            ``(i) Notification of violation.--
                        Notwithstanding any other provision of 
                        law, the Federal Government shall, 
                        before assessing a penalty against a 
                        State under this subsection, notify the 
                        State of the violation of law for which 
                        the penalty would be assessed and allow 
                        the State the opportunity to enter into 
                        a corrective compliance plan in 
                        accordance with this subsection which 
                        outlines how the State will correct any 
                        such violations and how the State will 
                        insure continuing compliance with the 
                        requirements of this subpart.
                            ``(ii) 60-day period to propose a 
                        corrective compliance plan.--Any State 
                        notified under clause (i) shall have 60 
                        days in which to submit to the Federal 
                        Government a corrective compliance plan 
                        to correct any violations described in 
                        clause (i).
                            ``(iii) Acceptance of plan.--The 
                        Federal Government shall have 60 days 
                        to accept or reject the State's 
                        corrective compliance plan and may 
                        consult with the State during this 
                        period to modify the plan. If the 
                        Federal Government does not accept or 
                        reject the corrective compliance plan 
                        during the period, the corrective 
                        compliance plan shall be deemed to be 
                        accepted.
                    ``(B) Failure to correct.--If a corrective 
                compliance plan is accepted by the Federal 
                Government, no penalty shall be imposed with 
                respect to a violation described in this 
                subsection if the State corrects the violation 
                pursuant to the plan. If a State has not 
                corrected the violation in a timely manner 
                under the plan, some or all of the penalty 
                shall be assessed.
            ``(8) Limitation on amount of penalty.--
                    ``(A) In general.--In imposing the 
                penalties described in this subsection, the 
                Secretary shall not reduce any quarterly 
                payment to a State by more than 25 percent.
                    ``(B) Carryforward of unrecovered 
                penalties.--To the extent that subparagraph (A) 
                prevents the Secretary from recovering during a 
                fiscal year the full amount of all penalties 
                imposed on a State under this subsection for a 
                prior fiscal year, the Secretary shall apply 
                any remaining amount of such penalties to the 
                grant payable to the State under section 431(a) 
                for the immediately succeeding fiscal year.
    ``(g) Treatment of Territories.--
            ``(1) In general.--A territory, as defined in 
        section 1108(b)(1), shall carry out a child protection 
        program in accordance with the provisions of this 
        subpart.
            ``(2) Payments.--Each territory, as so defined, 
        shall be entitled to receive from the Secretary for any 
        fiscal year an amount, in accordance with section 1108, 
        which shall be used for the purpose of carrying out a 
        child protection program in accordance with the 
        provisions of this subpart.
    ``(h) Limitation on Federal Authority.--Except as expressly 
provided in this Act, the Secretary may not regulate the 
conduct of States under this subpart or enforce any provision 
of this subpart.

``SEC. 432. REQUIREMENTS FOR FOSTER CARE MAINTENANCE PAYMENTS.

    ``(a) In general.--Each State operating a program under 
this subpart shall make foster care maintenance payments under 
section 431(b) with respect to a child who would meet the 
requirements of section 406(a) or of section 407 (as in effect 
on the day before the date of the enactment of this subpart) 
but for the removal of the child from the home of a relative 
(specified in section 406(a)(as so in effect)), if--
            ``(1) the removal from the home occurred pursuant 
        to a voluntary placement agreement entered into by the 
        child's parent or legal guardian, or was the result of 
        a judicial determination to the effect that 
        continuation therein would be contrary to the welfare 
        of such child and that reasonable efforts of the type 
        described in section 430(a)(13) have been made;
            ``(2) such child's placement and care are the 
        responsibility of--
                    ``(A) the State; or
                    ``(B) any other public agency with whom the 
                State has made an agreement for the 
                administration of the State program under this 
                subpart which is still in effect;
            ``(3) such child has been placed in a foster family 
        home or child-care institution as a result of the 
        voluntary placement agreement or judicial determination 
        referred to in paragraph (1); and
            ``(4) such child--
                    ``(A) would have been eligible to receive 
                aid under the eligibility standards under the 
                State plan approved under section 402 (as in 
                effect on the day before the date of the 
                enactment of this subpart and adjusted for 
                inflation, in accordance with regulations 
                issued by the Secretary) in or for the month in 
                which such agreement was entered into or court 
                proceedings leading to the removal of such 
                child from the home were initiated; or
                    ``(B) would have received such aid in or 
                for such month if application had been made 
                therefore, or the child had been living with a 
                relative specified in section 406(a) (as so in 
                effect) within 6 months prior to the month in 
                which such agreement was entered into or such 
                proceedings were initiated, and would have 
                received such aid in or for such month if in 
                such month such child had been living with such 
                a relative and application therefore had been 
                made.
    ``(b) Limitation on Foster Care Payments.--Foster care 
maintenance payments may be made under this subpart only on 
behalf of a child described in subsection (a) of this section 
who is--
            ``(1) in the foster family home of an individual, 
        whether the payments therefore are made to such 
        individual or to a public or private child-placement or 
        child-care agency; or
            ``(2) in a child-care institution, whether the 
        payments therefore are made to such institution or to a 
        public or private child-placement or child-care agency, 
        which payments shall be limited so as to include in 
        such payments only those items which are included in 
        the term `foster care maintenance payments' (as defined 
        in section 437(6)).
    ``(c) Voluntary Placements.--
            ``(1) Satisfaction of child protection standards.--
        Notwithstanding any other provision of this section, 
        Federal payments may be made under this subpart with 
        respect to amounts expended by any State as foster care 
        maintenance payments under this subpart, in the case of 
        children removed from their homes pursuant to voluntary 
        placement agreements as described in subsection (a), 
        only if (at the time such amounts were expended) the 
        State has fulfilled all of the requirements of section 
        435(b) or 430(a)(12).
            ``(2) Removal in excess of 180 days.--No Federal 
        payment may be made under this subpart with respect to 
        amounts expended by any State as foster care 
        maintenance payments, in the case of any child who was 
        removed from such child's home pursuant to a voluntary 
        placement agreement as described in subsection (a) and 
        has remained in voluntary placement for a period in 
        excess of 180 days, unless there has been a judicial 
        determination by a court of competent jurisdiction 
        (within the first 180 days of such placement) to the 
        effect that such placement is in the best interests of 
        the child.
            ``(3) Deemed revocation of agreements.--In any case 
        where--
                    ``(A) the placement of a minor child in 
                foster care occurred pursuant to a voluntary 
                placement agreement entered into by the parents 
                or guardians of such child as provided in 
                subsection (a); and
                    ``(B) such parents or guardians request (in 
                such manner and form as the Secretary may 
                prescribe) that the child be returned to their 
                home or to the home of a relative,
        the voluntary placement agreement shall be deemed to be 
        revoked unless the State opposes such request and 
        obtains a judicial determination, by a court of 
        competent jurisdiction, that the return of the child to 
        such home would be contrary to the child's best 
        interests.

``SEC. 433. REQUIREMENTS FOR ADOPTION ASSISTANCE PAYMENTS.

    ``(a) In General.--A State operating a program under this 
subpart shall enter into adoption assistance agreements with 
the adoptive parents of children with special needs.
    ``(b) Payments Under Agreements.--Under any adoption 
assistance agreement entered into by a State with parents who 
adopt a child with special needs who meets the requirements of 
subsection (c), the State may make adoption assistance payments 
to such parents or through another public or nonprofit private 
agency, in amounts determined under subsection (d).
    ``(c) Children With Special Needs.--For purposes of 
subsection (b), a child meets the requirements of this 
subsection if such child--
            ``(1)(A) at the time adoption proceedings were 
        initiated, met the requirements of section 406(a) or 
        section 407 (as in effect on the day before the date of 
        the enactment of this subpart) or would have met such 
        requirements except for such child's removal from the 
        home of a relative (specified in section 406(a) (as so 
        in effect)), either pursuant to a voluntary placement 
        agreement with respect to which Federal payments are 
        provided under section 431(b) (or 403 (as so in 
        effect)) or as a result of a judicial determination to 
        the effect that continuation therein would be contrary 
        to the welfare of such child;
            ``(B) meets all of the requirements of title XVI 
        with respect to eligibility for supplemental security 
        income benefits; or
            ``(C) is a child whose costs in a foster family 
        home or child-care institution are covered by the 
        foster care maintenance payments being made with 
        respect to his or her minor parent;
            ``(2)(A) would have received aid under the 
        eligibility standards under the State plan approved 
        under section 402 (as in effect on the day before the 
        date of the enactment of this subpart, adjusted for 
        inflation, in accordance with regulations issued by the 
        Secretary) in or for the month in which such agreement 
        was entered into or court proceedings leading to the 
        removal of such child from the home were initiated;
            ``(B) would have received such aid in or for such 
        month if application had been made therefore, or had 
        been living with a relative specified in section 406(a) 
        (as so in effect) within 6 months prior to the month in 
        which such agreement was entered into or such 
        proceedings were initiated, and would have received 
        such aid in or for such month if in such month such 
        child had been living with such a relative and 
        application therefore had been made; or
            ``(C) is a child described in subparagraph (A) or 
        (B); and
            ``(3) has been determined by the State, pursuant to 
        subsection (g) of this section, to be a child with 
        special needs.
    ``(d) Determination of Payments.--The amount of the 
payments to be made in any case under subsection (b) shall be 
determined through agreement between the adoptive parents and 
the State or a public or nonprofit private agency administering 
the program under this subpart, which shall take into 
consideration the circumstances of the adopting parents and the 
needs of the child being adopted, and may be readjusted 
periodically, with the concurrence of the adopting parents 
(which may be specified in the adoption assistance agreement), 
depending upon changes in such circumstances. However, in no 
case may the amount of the adoption assistance payment exceed 
the foster care maintenance payment which would have been paid 
during the period if the child with respect to whom the 
adoption assistance payment is made had been in a foster family 
home.
    ``(e) Payment Exception.--Notwithstanding subsection (d), 
no payment may be made to parents with respect to any child who 
has attained the age of 18 (or, where the State determines that 
the child has a mental or physical disability which warrants 
the continuation of assistance, the age of 21), and no payment 
may be made to parents with respect to any child if the State 
determines that the parents are no longer legally responsible 
for the support of the child or if the State determines that 
the child is no longer receiving any support from such parents. 
Parents who have been receiving adoption assistance payments 
under this subpart shall keep the State or public or nonprofit 
private agency administering the program under this subpart 
informed of circumstances which would, pursuant to this 
section, make them ineligible for such assistance payments, or 
eligible for assistance payments in a different amount.
    ``(f) Pre-adoption Payments.--For purposes of this subpart, 
individuals with whom a child who has been determined by the 
State, pursuant to subsection (g), to be a child with special 
needs is placed for adoption in accordance with applicable 
State and local law shall be eligible for adoption assistance 
payments during the period of the placement, on the same terms 
and subject to the same conditions as if such individuals had 
adopted such child.
    ``(g) Determination of Child With Special Needs.--For 
purposes of this section, a child shall not be considered a 
child with special needs unless--
            ``(1) the State has determined that the child 
        cannot or should not be returned to the home of the 
        child's parents; and
            ``(2) the State had first determined--
                    ``(A) that there exists with respect to the 
                child a specific factor or condition such as 
                the child's ethnic background, age, or 
                membership in a minority or sibling group, or 
                the presence of factors such as medical 
                conditions or physical, mental, or emotional 
                handicaps because of which it is reasonable to 
                conclude that such child cannot be placed with 
                adoptive parents without providing adoption 
                assistance under this subpart or medical 
                assistance under title XIX or XXI; and
                    ``(B) that, except where it would be 
                against the best interests of the child because 
                of such factors as the existence of significant 
                emotional ties with prospective adoptive 
                parents while in the care of such parents as a 
                foster child, a reasonable, but unsuccessful, 
                effort has been made to place the child with 
                appropriate adoptive parents without providing 
                adoption assistance under this section or 
                medical assistance under title XIX or XXI.

``SEC. 434. CITIZEN REVIEW PANELS.

    ``(a) Establishment.--Each State to which a grant is made 
under section 431(a) shall establish at least 3 citizen review 
panels.
    ``(b) Composition.--Each panel established under subsection 
(a) shall be broadly representative of the community from which 
drawn.
    ``(c) Frequency of Meetings.--Each panel established under 
subsection (a) shall meet not less frequently than quarterly.
    ``(d) Duties.--
            ``(1) In general.--Each panel established under 
        subsection (a) shall, by examining specific cases, 
        determine the extent to which the State and local 
        agencies responsible for carrying out activities under 
        this subpart are doing so in accordance with the State 
        plan, with the child protection standards set forth in 
        section 430(a)(12) and 435, and with any other criteria 
        that the panel considers important to ensure the 
        protection of children.
            ``(2) Confidentiality.--The members and staff of 
        any panel established under subsection (a) shall not 
        disclose to any person or government any information 
        about any specific child protection case with respect 
        to which the panel is provided information.
    ``(e) State Assistance.--Each State that establishes a 
panel under subsection (a) shall afford the panel access to any 
information on any case that the panel desires to review, and 
shall provide the panel with staff assistance in performing its 
duties.
    ``(f) Reports.--Each panel established under subsection (a) 
shall make a public report of its activities after each 
meeting.

``SEC. 435. FOSTER CARE PROTECTION REQUIRED FOR ADDITIONAL FEDERAL 
                    PAYMENTS.

    ``(a) Reduction of Grant.--A State shall not receive a 
grant under section 431(a) unless such State--
            ``(1) has conducted an inventory of all children 
        who have been in foster care under the responsibility 
        of the State for a period of 6 months preceding the 
        inventory, and determined the appropriateness of, and 
        necessity for, the current foster placement, whether 
        the child can be or should be returned to his parents 
        or should be freed for adoption, and the services 
        necessary to facilitate either the return of the child 
        or the placement of the child for adoption or legal 
        guardianship; and
            ``(2) has implemented and is operating to the 
        satisfaction of the Secretary--
                    ``(A) a statewide information system from 
                which the status, demographic characteristics, 
                location, and goals for the placement of every 
                child in foster care or who has been in such 
                care within the preceding 12 months can readily 
                be determined;
                    ``(B) a case review system (as defined in 
                section 437(4)) for each child receiving foster 
                care under the supervision of the State; and
                    ``(C) a service program designed to help 
                children, where appropriate, return to families 
                from which they have been removed or be placed 
                for adoption or legal guardianship.
    ``(b) Additional Requirements.--A State shall not receive a 
grant under section 431(a) unless such State--
            ``(1) has completed an inventory of the type 
        specified in subsection (a)(1);
            ``(2) has implemented and is operating the program 
        and systems specified in subsection (a)(2); and
            ``(3) has implemented a preplacement preventive 
        service program designed to help children remain with 
        their families.
    ``(c) Presumption for Expenditures.--Any amounts expended 
by a State for the purpose of complying with the requirements 
of subsection (a) or (b) shall be conclusively presumed to have 
been expended for child welfare services.

``SEC. 436. DATA COLLECTION AND REPORTING.

    ``(a) Annual Reports on State Child Welfare Goals.--On the 
date that is 3 years after the effective date of this subpart 
and annually thereafter, each State to which a grant is made 
under section 431(a) shall submit to the Secretary a report 
that contains quantitative information on the extent to which 
the State is making progress toward achieving the goals of the 
State child protection program.
    ``(b) State Data Reports.--
            ``(1) Biannual reports.--Each State to which a 
        grant is made under section 431(a) shall biannually 
        submit to the Secretary a report that includes the 
        following information with respect to each child within 
        the State receiving publicly-supported child welfare 
        services under the State program funded under this 
        subpart:
                    ``(A) Whether the child received services 
                under the program funded under this subpart.
                    ``(B) The age, gender, and family income of 
                the parents and child.
                    ``(C) The county of residence of the child.
                    ``(D) Whether the child was removed from 
                the family.
                    ``(E) Whether the child entered foster care 
                under the responsibility of the State.
                    ``(F) The type of out-of-home care in which 
                the child was placed (including institutional 
                care, group home care, family foster care, or 
                relative placement).
                    ``(G) The child's permanency planning goal, 
                such as family reunification, kinship care, 
                adoption, or independent living.
                    ``(H) Whether the child was released for 
                adoption.
                    ``(I) Whether the child exited from foster 
                care, and, if so, the reason for the exit, such 
                as return to family, placement with relatives, 
                adoption, independent living, or death.
                    ``(J) Other information as required by the 
                Secretary and agreed to by a majority of the 
                States, including information necessary to 
                ensure a that there is a smooth transition of 
                data from the Adoption and Foster Care Analysis 
                and Reporting Systems and the National Center 
                on Abuse and Neglect Data System to the data 
                reporting system required under this section.
            ``(2) Annual reports.--Each State to which a grant 
        is made under section 431(a) shall annually submit to 
        the Secretary a report that includes the following 
        information:
                    ``(A) The number of children reported to 
                the State during the year as alleged victims of 
                abuse or neglect.
                    ``(B) The number of children for whom an 
                investigation of alleged maltreatment resulted 
                in a determination of substantiated abuse or 
                neglect, the number for whom a report of 
                maltreatment was unsubstantiated, and the 
                number for whom a report of maltreatment was 
                determined to be false.
                    ``(C) The number of families that received 
                preventive services.
                    ``(D) The number of infants abandoned 
                during the year, the number of such infants who 
                were adopted, and the length of time between 
                abandonment and adoption.
                    ``(E) The number of deaths of children 
                resulting from child abuse or neglect.
                    ``(F) The number of deaths occurring while 
                children were in the custody of the State.
                    ``(G) The number of children served by the 
                State independent living program.
                    ``(H) Quantitative measurements 
                demonstrating whether the State is making 
                progress toward the child protection goals 
                identified by the State.
                    ``(I) The types of maltreatment suffered by 
                victims of child abuse and neglect.
                    ``(J) The number of abused and neglected 
                children receiving services.
                    ``(K) The average length of stay of 
                children in out-of-home care.
                    ``(L) The response of the State to the 
                findings and recommendations of the citizen 
                review panels established under section 434.
                    ``(M) Other information as required by the 
                Secretary and agreed to by a majority of the 
                States, including information necessary to 
                ensure a that there is a smooth transition of 
                data from the Adoption and Foster Care Analysis 
                and Reporting Systems and the National Center 
                on Abuse and Neglect Data System to the data 
                reporting system required under this section.
    ``(c) Authority of States to Use Estimates.--
            ``(1) In general.--A State may comply with a 
        requirement to provide precise numerical information 
        described in subsection (b) by submitting an estimate 
        which is obtained through the use of scientifically 
        acceptable sampling methods.
            ``(2) Secretarial review of sampling methods.--The 
        Secretary shall periodically review the sampling 
        methods used by a State to comply with a requirement to 
        provide information described in subsection (b). The 
        Secretary may require a State to revise the sampling 
        methods so used if such methods do not meet scientific 
        standards and shall impose the penalty described in 
        section 431(f)(4) upon a State if a State has not 
        complied with such requirements.
    ``(d) Scope of State Program Funded Under This Subpart.--As 
used in subsection (b), the term `State program funded under 
this subpart' includes any equivalent State program.

``SEC. 437. DEFINITIONS.

    ``For purposes of this subpart, the following definitions 
shall apply:
            ``(1) Administrative review.--The term 
        `administrative review' means a review open to the 
        participation of the parents of the child, conducted by 
        a panel of appropriate persons at least one of whom is 
        not responsible for the case management of, or the 
        delivery of services to, either the child or the 
        parents who are the subject of the review.
            ``(2) Adoption assistance agreement.--The term 
        `adoption assistance agreement' means a written 
        agreement, binding on the parties to the agreement, 
        between the State, other relevant agencies, and the 
        prospective adoptive parents of a minor child which at 
        a minimum--
                    ``(A) specifies the nature and amount of 
                any payments, services, and assistance to be 
                provided under such agreement; and
                    ``(B) stipulates that the agreement shall 
                remain in effect regardless of the State of 
                which the adoptive parents are residents at any 
                given time.
        The agreement shall contain provisions for the 
        protection (under an interstate compact approved by the 
        Secretary or otherwise) of the interests of the child 
        in cases where the adoptive parents and child move to 
        another State while the agreement is effective.
            ``(3) Case plan.--The term `case plan' means a 
        written document which includes at least the following:
                    ``(A) A description of the type of home or 
                institution in which a child is to be placed, 
                including a discussion of the appropriateness 
                of the placement and how the agency which is 
                responsible for the child plans to carry out 
                the voluntary placement agreement entered into 
                or judicial determination made with respect to 
                the child in accordance with section 432(a)(1).
                    ``(B) A plan for assuring that the child 
                receives proper care and that services are 
                provided to the parents, child, and foster 
                parents in order to improve the conditions in 
                the parents' home, facilitate return of the 
                child to his or her own home or the permanent 
                placement of the child, and address the needs 
                of the child while in foster care, including a 
                discussion of the appropriateness of the 
                services that have been provided to the child 
                under the plan.
                    ``(C) To the extent available and 
                accessible, the health and education records of 
                the child, including--
                            ``(i) the names and addresses of 
                        the child's health and educational 
                        providers;
                            ``(ii) the child's grade level 
                        performance;
                            ``(iii) the child's school record;
                            ``(iv) assurances that the child's 
                        placement in foster care takes into 
                        account proximity to the school in 
                        which the child is enrolled at the time 
                        of placement;
                            ``(v) a record of the child's 
                        immunizations;
                            ``(vi) the child's known medical 
                        problems;
                            ``(vii) the child's medications; 
                        and
                            ``(viii) any other relevant health 
                        and education information concerning 
                        the child determined to be appropriate 
                        by the State.
                Where appropriate, for a child age 16 or over, 
                the case plan must also include a written 
                description of the programs and services which 
                will help such child prepare for the transition 
                from foster care to independent living.
            ``(4) Case review system.--The term `case review 
        system' means a procedure for assuring that--
                    ``(A) each child has a case plan designed 
                to achieve placement in the least restrictive 
                (most family like) and most appropriate setting 
                available and in close proximity to the 
                parents' home, consistent with the best 
                interest and special needs of the child, 
                which--
                            ``(i) if the child has been placed 
                        in a foster family home or child-care 
                        institution a substantial distance from 
                        the home of the parents of the child, 
                        or in a State different from the State 
                        in which such home is located, sets 
                        forth the reasons why such placement is 
                        in the best interests of the child; and
                            ``(ii) if the child has been placed 
                        in foster care outside the State in 
                        which the home of the parents of the 
                        child is located, requires that, 
                        periodically, but not less frequently 
                        than every 12 months, a caseworker on 
                        the staff of the State in which the 
                        home of the parents of the child is 
                        located, or of the State in which the 
                        child has been placed, visit such child 
                        in such home or institution and submit 
                        a report on such visit to the State in 
                        which the home of the parents of the 
                        child is located;
                    ``(B) the status of each child is reviewed 
                periodically but no less frequently than once 
                every 6 months by either a court or by 
                administrative review (as defined in paragraph 
                (1)) in order to determine the continuing 
                necessity for and appropriateness of the 
                placement, the extent of compliance with the 
                case plan, and the extent of progress which has 
                been made toward alleviating or mitigating the 
                causes necessitating placement in foster care, 
                and to project a likely date by which the child 
                may be returned to the home or placed for 
                adoption or legal guardianship;
                    ``(C) with respect to each such child, 
                procedural safeguards will be applied, among 
                other things, to assure each child in foster 
                care under the supervision of the State of a 
                dispositional hearing to be held, in a family 
                or juvenile court or another court (including a 
                tribal court) of competent jurisdiction, or by 
                an administrative body appointed or approved by 
                the court, no later than 18 months after the 
                original placement (and not less frequently 
                than every 12 months thereafter during the 
                continuation of foster care), which hearing 
                shall determine the future status of the child 
                (including whether the child should be returned 
                to the parent, should be continued in foster 
                care for a specified period, should be placed 
                for adoption, or should (because of the child's 
                special needs or circumstances) be continued in 
                foster care on a permanent or long-term basis) 
                and, in the case of a child described in 
                subparagraph (A)(ii), whether the out-of-State 
                placement continues to be appropriate and in 
                the best interests of the child, and, in the 
                case of a child who has attained age 16, the 
                services needed to assist the child to make the 
                transition from foster care to independent 
                living; and procedural safeguards shall also be 
                applied with respect to parental rights 
                pertaining to the removal of the child from the 
                home of his parents, to a change in the child's 
                placement, and to any determination affecting 
                visitation privileges of parents; and
                    ``(D) a child's health and education record 
                (as described in paragraph (3)(C)) is reviewed 
                and updated, and supplied to the foster parent 
                or foster care provider with whom the child is 
                placed, at the time of each placement of the 
                child in foster care.
            ``(5) Child-care institution.--The term `child-care 
        institution' means a private child-care institution, or 
        a public child-care institution which accommodates no 
        more than 25 children, which is licensed by the State 
        in which it is situated or has been approved, by the 
        agency of such State responsible for licensing or 
        approval of institutions of this type, as meeting the 
        standards established for such licensing, but the term 
        shall not include detention facilities, forestry camps, 
        training schools, or any other facility operated 
        primarily for the detention of children who are 
        determined to be delinquent.
            ``(6) Foster care maintenance payments.--
                    ``(A) In general.--The term `foster care 
                maintenance payments' means payments to cover 
                the cost of (and the cost of providing) food, 
                clothing, shelter, daily supervision, school 
                supplies, a child's personal incidentals, 
                liability insurance with respect to a child, 
                and reasonable travel to the child's home for 
                visitation. In the case of institutional care, 
                such term shall include the reasonable costs of 
                administration and operation of such 
                institution as are necessarily required to 
                provide the items described in the preceding 
                sentence.
                    ``(B) Special rule.--In cases where--
                            ``(i) a child placed in a foster 
                        family home or child-care institution 
                        is the parent of a son or daughter who 
                        is in the same home or institution; and
                            ``(ii) payments described in 
                        subparagraph (A) are being made under 
                        this subpart with respect to such 
                        child,
                the foster care maintenance payments made with 
                respect to such child as otherwise determined 
                under subparagraph (A) shall also include such 
                amounts as may be necessary to cover the cost 
                of the items described in that subparagraph 
                with respect to such son or daughter.
            ``(7) Foster family home.--The term `foster family 
        home' means a foster family home for children which is 
        licensed by the State in which it is situated or has 
        been approved, by the agency of such State having 
        responsibility for licensing homes of this type, as 
        meeting the standards established for such licensing.
            ``(8) State.--The term `State' means the 50 States 
        and the District of Columbia.
            ``(9) Voluntary placement.--The term `voluntary 
        placement' means an out-of-home placement of a minor, 
        by or with participation of the State, after the 
        parents or guardians of the minor have requested the 
        assistance of the State and signed a voluntary 
        placement agreement.
            ``(10) Voluntary placement agreement.--The term 
        `voluntary placement agreement' means a written 
        agreement, binding on the parties to the agreement, 
        between the State, any other agency acting on its 
        behalf, and the parents or guardians of a minor child 
        which specifies, at a minimum, the legal status of the 
        child and the rights and obligations of the parents or 
        guardians, the child, and the agency while the child is 
        in placement.''.

SEC. 12702. CONFORMING AMENDMENTS.

    (a) Repeal of Part E of Title IV of the Social Security 
Act.--Part E of title IV of the Social Security Act (42 U.S.C. 
671-679) is hereby repealed.
    (b) Repeal of Section 13712 of the Omnibus Budget 
Reconciliation Act of 1993.--Section 13712 of the Omnibus 
Budget Reconciliation Act of 1993 (42 U.S.C. 670 note) is 
hereby repealed.
    (c) Repeal of Section 435.--Section 435 of the Social 
Security Act, as amended by section 12701, is repealed on April 
1, 1996.

SEC. 12703. EFFECTIVE DATE; TRANSITION RULE.

    (a) In General.--Except as otherwise provided in this 
subtitle, this subtitle and the amendments made by this 
subtitle shall take effect as if enacted on October 1, 1995.
    (b) Transition Rule.--
            (1) State option to continue programs.--
                    (A) 9-month extension.--A State may 
                continue the State programs under subpart 2 of 
                part B and part E of title IV of the Social 
                Security Act, as in effect on September 30, 
                1995 (for purposes of this paragraph, the 
                ``State programs'') until June 30, 1996.
                    (B) No individual or family entitlement 
                under continued state programs.--
                Notwithstanding any other provision of law or 
                any rule of law, no individual or family is 
                entitled to aid under the State programs of any 
                State on or after the date of the enactment of 
                this Act.
                    (C) Limitations on federal obligations.--If 
                a State elects to continue the State programs 
                pursuant to subparagraph (A), the total 
                obligations of the Federal Government to the 
                State under subpart 2 of part B and part E of 
                title IV of the Social Security Act (as such 
                subpart and part are in effect on September 30, 
                1995) after the date of the enactment of this 
                Act shall not exceed an amount equal to--
                                    (I) the grant to the State 
                                under section 431(a) (as in 
                                effect pursuant to the 
                                amendment made by section 12701 
                                of this Act)); minus
                                    (II) any obligations of the 
                                Federal Government to the State 
                                under such subpart and part (as 
                                in effect on September 30, 
                                1995) with respect to 
                                expenditures by the State 
                                during the period that begins 
                                on October 1, 1995, and ends on 
                                the day before the date of the 
                                enactment of this Act.
                    (D) Submission of state plan for fiscal 
                year 1996 deemed acceptance of grant 
                limitations and formula.--The submission of a 
                plan by a State under section 430(a) of the 
                Social Security Act (as in effect pursuant to 
                the amendment made by section 12701 of this 
                Act) for fiscal year 1996 is deemed to 
                constitute the State's acceptance of the grant 
                reduction under subparagraph (C) of this 
                paragraph (including the formula for computing 
                the amount of the reduction).
            (2) Claims, actions, and proceedings.--The 
        amendments made by this subtitle shall not apply with 
        respect to--
                    (A) powers, duties, functions, rights, 
                claims, penalties, or obligations applicable to 
                aid, assistance, or services provided before 
                the effective date of this subtitle under the 
                provisions amended; and
                    (B) administrative actions and proceedings 
                commenced before such date, or authorized 
                before such date to be commenced, under such 
                provisions.
            (3) Closing out account for those programs 
        terminated or substantially modified by this 
        subtitle.--In closing out accounts, Federal and State 
        officials may use scientifically acceptable statistical 
        sampling techniques. Claims made under programs which 
        are repealed or substantially amended in this subtitle 
        and which involve State expenditures in cases where 
        assistance or services were provided during a prior 
        fiscal year, shall be treated as expenditures during 
        fiscal year 1995 for purposes of reimbursement even if 
        payment was made by a State on or after October 1, 
        1995. States shall complete the filing of all claims no 
        later than September 30, 1997. Federal department heads 
        shall--
                    (A) use the single audit procedure to 
                review and resolve any claims in connection 
                with the close out of programs; and
                    (B) reimburse States for any payments made 
                for assistance or services provided during a 
                prior fiscal year from funds for fiscal year 
                1995, rather than the funds authorized by this 
                subtitle.

                         Subtitle H--Child Care

SEC. 12801. SHORT TITLE AND REFERENCES.

    (a) Short Title.--This subtitle may be cited as the ``Child 
Care and Development Block Grant Amendments of 1995''.
    (b) References.--Except as otherwise expressly provided, 
whenever in this subtitle an amendment or repeal is expressed 
in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a 
section or other provision of the Child Care and Development 
Block Grant Act of 1990 (42 U.S.C. 9858 et seq.).

SEC. 12802. AUTHORIZATION OF APPROPRIATIONS AND ENTITLEMENT AUTHORITY.

    (a) In General.--Section 658B (42 U.S.C. 9858) is amended 
to read as follows:

``SEC. 658B. AUTHORIZATION OF APPROPRIATIONS.

    ``There is authorized to be appropriated to carry out this 
subchapter $1,000,000,000 for each of the fiscal years 1996 
through 2002.''.
    (b) Social Security Act.--Part A of title IV of the Social 
Security Act (as amended by section 12101) is amended by adding 
at the end thereof the following new section:

``SEC. 418. FUNDING FOR CHILD CARE.

    ``(a) General Child Care Entitlement.--
            ``(1) General entitlement.--Subject to the amount 
        appropriated under paragraph (3), each State shall, for 
        the purpose of providing child care assistance, be 
        entitled to payments under a grant under this 
        subsection for a fiscal year in an amount equal to--
                    ``(A) the sum of the total amounts of 
                Federal payments for fiscal year 1994 to the 
                State under section--
                            ``(i) 402(g)(3)(A) of this Act (as 
                        such section was in effect before 
                        October 1, 1995) for amounts expended 
                        for child care pursuant to paragraph 
                        (1) of such section;
                            ``(ii) 403(l)(1)(A) of this Act (as 
                        so in effect) for amounts expended for 
                        child care pursuant to section 
                        402(g)(1)(A) of this Act, in the case 
                        of a State with respect to which 
                        section 1108 of this Act applies; and
                            ``(iii) 403(n) of this Act (as so 
                        in effect) for child care services 
                        pursuant to section 402(i) of this Act; 
                        or
                    ``(B) the average of the sum of the total 
                amount of Federal payments for each of the 
                fiscal years 1992 through 1994 to the State 
                under the sections referred to in subparagraph 
                (A);
        whichever is greater.
            ``(2) Remainder.--
                    ``(A) Grants.--The Secretary shall use any 
                amounts appropriated for a fiscal year under 
                paragraph (3), and remaining after grants are 
                awarded under paragraph (1), to make grants to 
                States under this paragraph.
                    ``(B) Amount.--Subject to subparagraph (C), 
                the amount of a grant awarded to a State for a 
                fiscal year under this paragraph shall be based 
                on the formula used for determining the amount 
                of Federal payments to the State for fiscal 
                year 1994 under section 403(n) (as such section 
                was in effect before October 1, 1995) for child 
                care services pursuant to section 402(i) as 
                such amount relates to the total amount of such 
                Federal payments to all States for such fiscal 
                year.
                    ``(C) Matching requirement.--The Secretary 
                shall pay to each eligible State in a fiscal 
                year an amount, under a grant under 
                subparagraph (A), equal to the Federal medical 
                assistance percentage for such State for fiscal 
                year 1995 (as defined in section 1905(b)) of so 
                much of the expenditures by the State for child 
                care in such year as exceed the State set-aside 
                for such State under subparagraph (A) for such 
                year and the amount of State expenditures in 
                fiscal year 1995 that equal the non-Federal 
                share for the programs described in 
                subparagraphs (A), (B) and (C) of paragraph 
                (1).
            ``(3) Appropriation.--There is authorized to be 
        appropriated, and there is appropriated, to carry out 
        this section--
                    ``(A) $1,170,000,000 for fiscal year 1996;
                    ``(B) $1,240,000,000 for fiscal year 1997;
                    ``(C) $1,320,000,000 for fiscal year 1998;
                    ``(D) $1,400,000,000 for fiscal year 1999;
                    ``(E) $1,500,000,000 for fiscal year 2000;
                    ``(F) $1,625,000,000 for fiscal year 2001; 
                and
                    ``(G) $1,745,000,000 for fiscal year 2002.
            ``(4) Redistribution.--With respect to any fiscal 
        year, if the Secretary determines that amounts under 
        any grant awarded to a State under this subsection for 
        such fiscal year will not be used by such State for 
        carrying out the purpose for which the grant is made, 
        the Secretary shall make such amounts available for 
        carrying out such purpose to 1 or more other States 
        which apply for such funds to the extent the Secretary 
        determines that such other States will be able to use 
        such additional amounts for carrying out such purpose. 
        Such available amounts shall be redistributed to a 
        State pursuant to section 402(i) (as such section was 
        in effect before October 1, 1995) by substituting `the 
        number of children residing in all States applying for 
        such funds' for `the number of children residing in the 
        United States in the second preceding fiscal year'. Any 
        amount made available to a State from an appropriation 
        for a fiscal year in accordance with the preceding 
        sentence shall, for purposes of this part, be regarded 
        as part of such State's payment (as determined under 
        this subsection) for such year.
    ``(b) Use of funds.--
            ``(1) In general.--Amounts received by a State 
        under this section shall only be used to provide child 
        care assistance.
            ``(2) Use for certain populations.--A State shall 
        ensure that not less than 70 percent of the total 
        amount of funds received by the State in a fiscal year 
        under this section are used to provide child care 
        assistance to families who are receiving assistance 
        under a State program under this part, families who are 
        attempting through work activities to transition off of 
        such assistance program, and families who are at risk 
        of becoming dependent on such assistance program.
    ``(c) Application of Child Care and Development Block Grant 
Act.--Notwithstanding any other provision of law, amounts 
provided to a State under this section shall be transferred to 
the lead agency under the Child Care and Development Block 
Grant Act, integrated by the State into the programs 
established by the State under such Act, and be subject to 
requirements and limitations of such Act.
    ``(d) Transition Rule.--
            ``(1) In general.--Amounts obligated to a State 
        under this section for fiscal year 1996 shall not 
        exceed--
                    ``(A) the amount for which a State is 
                eligible under this section for such fiscal 
                year; less
                    ``(B) the amounts obligated to the State 
                for such fiscal year under the provisions of 
                law referred to in subsection (a)(1)(A) (as 
                such provisions were in effect on the day 
                before the date of enactment of this section).
            ``(2) Acceptance of limitation.--The submission of 
        a plan by a State under section 401(a) for fiscal year 
        1996 is deemed to constitute the State's acceptance of 
        the grant reductions under paragraph (1). If amounts 
        are provided to a State under this section prior to the 
        submission of such a State plan, the acceptance of such 
        amounts by the State shall constitute the State's 
        acceptance of such reductions.''.

SEC. 12803. LEAD AGENCY.

    Section 658D(b) (42 U.S.C. 9858b(b)) is amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (A), by striking 
                ``State'' the first place that such appears and 
                inserting ``governmental or nongovernmental''; 
                and
                    (B) in subparagraph (C), by inserting 
                ``with sufficient time and Statewide 
                distribution of the notice of such hearing,'' 
                after ``hearing in the State''; and
            (2) in paragraph (2), by striking the second 
        sentence.

SEC. 12804. APPLICATION AND PLAN.

    Section 658E (42 U.S.C. 9858c) is amended--
            (1) in subsection (b)--
                    (A) by striking ``implemented--'' and all 
                that follows through ``(2)'' and inserting 
                ``implemented''; and
                    (B) by striking ``for subsequent State 
                plans'';
            (2) in subsection (c)--
                    (A) in paragraph (2)--
                            (i) in subparagraph (A)--
                                    (I) in clause (i) by 
                                striking ``, other than through 
                                assistance provided under 
                                paragraph (3)(C),''; and
                                    (II) by striking ``except'' 
                                and all that follows through 
                                ``1992'', and inserting ``and 
                                provide a detailed description 
                                of the procedures the State 
                                will implement to carry out the 
                                requirements of this 
                                subparagraph'';
                            (ii) in subparagraph (B)--
                                    (I) by striking ``Provide 
                                assurances'' and inserting 
                                ``Certify''; and
                                    (II) by inserting before 
                                the period at the end ``and 
                                provide a detailed description 
                                of such procedures'';
                            (iii) in subparagraph (C)--
                                    (I) by striking ``Provide 
                                assurances'' and inserting 
                                ``Certify''; and
                                    (II) by inserting before 
                                the period at the end ``and 
                                provide a detailed description 
                                of how such record is 
                                maintained and is made 
                                available'';
                            (iv) by amending subparagraph (D) 
                        to read as follows:
                    ``(D) Consumer education information.--
                Certify that the State will collect and 
                disseminate to parents of eligible children and 
                the general public, consumer education 
                information that will promote informed child 
                care choices.'';
                            (v) in subparagraph (E), to read as 
                        follows:
                    ``(E) Compliance with state licensing 
                requirements.--
                            ``(i) In general.--Certify that the 
                        State has in effect licensing 
                        requirements applicable to child care 
                        services provided within the State, and 
                        provide a detailed description of such 
                        requirements and of how such 
                        requirements are effectively enforced. 
                        Nothing in the preceding sentence shall 
                        be construed to require that licensing 
                        requirements be applied to specific 
                        types of providers of child care 
                        services.
                            ``(ii) Uniform application of 
                        requirements.--A certification under 
                        clause (i) shall include an assurance 
                        by the State that the State shall apply 
                        all such licensing requirements in a 
                        uniform manner to child care providers 
                        of the same type regardless of whether 
                        a child care provider is receiving 
                        assistance under this subchapter. 
                        Nothing in this subchapter shall be 
                        construed to require that a State 
                        apply, or prohibit a State from 
                        applying, licensing requirements with 
                        respect to a particular type of child 
                        care.
                            ``(iii) Indian tribes and tribal 
                        organizations.--In lieu of any 
                        licensing and regulatory requirements 
                        applicable under State and local law, 
                        the Secretary, in consultation with 
                        Indian tribes and tribal organizations, 
                        shall develop minimum child care 
                        standards (that appropriately reflect 
                        tribal needs and available resources) 
                        that shall be applicable to Indian 
                        tribes and tribal organization 
                        receiving assistance under this 
                        subchapter.''; and
                            (vi) by striking subparagraphs (F), 
                        (G), (H), (I), and (J) and inserting 
                        the following:
                    ``(F) Meeting the needs of certain 
                populations.--Demonstrate the manner in which 
                the State will meet the specific child care 
                needs of families who are receiving assistance 
                under a State program under part A of title IV 
                of the Social Security Act, families who are 
                attempting through work activities to 
                transition off of such assistance program, and 
                families who are at risk of becoming dependent 
                on such assistance program.'';
                    (B) in paragraph (3)--
                            (i) in subparagraph (A), by 
                        striking ``(B) and (C)'' and inserting 
                        ``(B) through (D)'';
                            (ii) in subparagraph (B)--
                                    (I) by striking ``.--
                                Subject to the reservation 
                                contained in subparagraph (C), 
                                the'' and inserting ``and 
                                related activities.--The'';
                                    (II) in clause (i) by 
                                striking ``; and'' at the end 
                                and inserting a period;
                                    (III) by striking ``for--'' 
                                and all that follows through 
                                ``section 658E(c)(2)(A)'' and 
                                inserting ``for child care 
                                services on sliding fee scale 
                                basis, activities that improve 
                                the quality or availability of 
                                such services, and any other 
                                activity that the State deems 
                                appropriate''; and
                                    (IV) by striking clause 
                                (ii);
                            (iii) by amending subparagraph (C) 
                        to read as follows:
                    ``(C) Limitation on administrative costs.--
                Not more than 3 percent of the aggregate amount 
                of funds available to the State to carry out 
                this subchapter by a State in each fiscal year 
                may be expended for administrative costs 
                incurred by such State to carry out all of its 
                functions and duties under this subchapter. As 
                used in the preceding sentence, the term 
                `administrative costs' shall not include the 
                costs of providing direct services.''; and
                            (iv) by adding at the end thereof 
                        the following:
                    ``(D) Assistance for certain families.--A 
                State shall ensure that a substantial portion 
                of the amounts available (after the State has 
                complied with the requirement of section 
                419(b)(2) of the Social Security Act) to the 
                State to carry out activities this subchapter 
                in each fiscal year is used to provide 
                assistance to low-income working families other 
                than families described in paragraph (2)(F).''; 
                and 419(b)(2)
                    (C) in paragraph (4)(A)--
                            (i) by striking ``provide 
                        assurances'' and inserting ``certify'';
                            (ii) in the first sentence by 
                        inserting ``and shall provide a summary 
                        of the facts relied on by the State to 
                        determine that such rates are 
                        sufficient to ensure such access'' 
                        before the period; and
                            (iii) by striking the last 
                        sentence.

SEC. 12805. LIMITATION ON STATE ALLOTMENTS.

    Section 658F(b) (42 U.S.C. 9858d(b)) is amended--
            (1) in paragraph (1), by striking ``No'' and 
        inserting ``Except as provided for in section 
        658O(c)(6), no''; and
            (2) in paragraph (2), by striking ``referred to in 
        section 658E(c)(2)(F)''.

SEC. 12806. ACTIVITIES TO IMPROVE THE QUALITY OF CHILD CARE.

    Section 658G (42 U.S.C. 9858e) is amended to read as 
follows:

``SEC. 658G. ACTIVITIES TO IMPROVE THE QUALITY OF CHILD CARE.

    ``A State that receives financial assistance under this 
subchapter, shall use not less than 3 percent of the total 
amounts received in each fiscal year for activities that are 
designed to provide comprehensive consumer education to parents 
and the public, activities that increase parental choice, and 
activities designed to improve the quality and availability of 
child care (such as resource and referral services).''.

SEC. 12807. ADMINISTRATION AND ENFORCEMENT.

    Section 658I(b) (42 U.S.C. 9858g(b)) is amended--
            (1) in paragraph (1), by striking ``, and shall 
        have'' and all that follows through ``(2)'';
            (2) by striking paragraph (2); and
            (3) by redesignating paragraph (3) as paragraph 
        (2).

SEC. 12808. PAYMENTS.

    Section 658J(c) (42 U.S.C. 9858h(c)) is amended--
            (1) by striking ``expended'' and inserting 
        ``obligated''; and
            (2) by striking ``3 fiscal years'' and inserting 
        ``fiscal year''.

SEC. 12809. ANNUAL REPORT AND AUDITS.

    Section 658K (42 U.S.C. 9858i) is amended--
            (1) in the section heading by striking ``annual 
        report'' and inserting ``reports'';
            (2) in subsection (a), to read as follows:
    ``(a) Reports.--
            ``(1) Collection of information by states.--
                    ``(A) In general.--A State that receives 
                funds to carry out this subchapter shall 
                collect the information described in 
                subparagraph (B) on a monthly basis.
                    ``(B) Required information.--The 
                information required under this subparagraph 
                shall include, with respect to a family unit 
                receiving assistance under this subchapter 
                information concerning--
                            ``(i) family income;
                            ``(ii) county of residence;
                            ``(iii) the gender and age of 
                        children receiving such assistance;
                            ``(iv) whether the family includes 
                        only 1 parent;
                            ``(v) the sources of family income, 
                        including the amount obtained from (and 
                        separately identified)--
                                    ``(I) employment, including 
                                self-employment;
                                    ``(II) cash or other 
                                assistance under part A of 
                                title IV of the Social Security 
                                Act;
                                    ``(III) housing assistance;
                                    ``(IV) assistance under the 
                                Food Stamp Act of 1977; and
                                    ``(V) other assistance 
                                programs;
                            ``(vi) the number of months the 
                        family has received benefits;
                            ``(vii) the type of child care in 
                        which the child was enrolled (such as 
                        family child care, home care, or 
                        center-based child care);
                            ``(viii) whether the child care 
                        provider involved was a relative;
                            ``(ix) the cost of child care for 
                        such families; and
                            ``(x) the average hours per week of 
                        such care;
                during the period for which such information is 
                required to be submitted.
                    ``(C) Submission to secretary.--A State 
                described in subparagraph (A) shall, on a 
                quarterly basis, submit the information 
                required to be collected under subparagraph (B) 
                to the Secretary.
                    ``(D) Sampling.--The Secretary may 
                disapprove the information collected by a State 
                under this paragraph if the State uses sampling 
                methods to collect such information.
            ``(2) Biannual reports.--Not later than December 
        31, following the end of the first fiscal year with 
        respect to which the amendments made by the Child Care 
        and Development Block Grants Amendments of 1995 apply, 
        and every 6 months thereafter, a State described in 
        paragraph (1)(A) shall prepare and submit to the 
        Secretary a report that includes aggregate data 
        concerning--
                    ``(A) the number of child care providers 
                that received funding under this subchapter as 
                separately identified based on the types of 
                providers listed in section 658Q(5);
                    ``(B) the monthly cost of child care 
                services, and the portion of such cost that is 
                paid for with assistance provided under this 
                subchapter, listed by the type of child care 
                services provided;
                    ``(C) the number of payments made by the 
                State through vouchers, contracts, cash, and 
                disregards under public benefit programs, 
                listed by the type of child care services 
                provided;
                    ``(D) the manner in which consumer 
                education information was provided to parents 
                and the number of parents to whom such 
                information was provided; and
                    ``(E) the total number (without 
                duplication) of children and families served 
                under this subchapter;
        during the period for which such report is required to 
        be submitted.''; and
            (2) in subsection (b)--
                    (A) in paragraph (1) by striking ``a 
                application'' and inserting ``an application'';
                    (B) in paragraph (2) by striking ``any 
                agency administering activities that receive'' 
                and inserting ``the State that receives''; and
                    (C) in paragraph (4) by striking 
                ``entitles'' and inserting ``entitled''.

SEC. 12810. ALLOTMENTS.

    Section 658O (42 U.S.C. 9858m) is amended--
            (1) in subsection (a)--
                    (A) in paragraph (1)
                            (i) by striking ``Possessions'' and 
                        inserting ``possessions'';
                            (ii) by inserting ``and'' after 
                        ``States,''; and
                            (iii) by striking ``, and the Trust 
                        Territory of the Pacific Islands''; and
                    (B) in paragraph (2), by striking ``3 
                percent of the amount appropriated under 
                section 658B'' and inserting ``1 percent of the 
                aggregate amount of funds available to the 
                State to carry out this subchapter'';
            (2) in subsection (c)--
                    (A) in paragraph (5) by striking ``our'' 
                and inserting ``out''; and
                    (B) by adding at the end thereof the 
                following new paragraph:
            ``(6) Construction or Renovation of Facilities.--
                    ``(A) Request for use of funds.--An Indian 
                tribe or tribal organization may submit to the 
                Secretary a request to use amounts provided 
                under this subsection for construction or 
                renovation purposes.
                    ``(B) Determination.--With respect to a 
                request submitted under subparagraph (A), and 
                except as provided in subparagraph (C), upon a 
                determination by the Secretary that adequate 
                facilities are not otherwise available to an 
                Indian tribe or tribal organization to enable 
                such tribe or organization to carry out child 
                care programs in accordance with this 
                subchapter, and that the lack of such 
                facilities will inhibit the operation of such 
                programs in the future, the Secretary may 
                permit the tribe or organization to use 
                assistance provided under this subsection to 
                make payments for the construction or 
                renovation of facilities that will be used to 
                carry out such programs.
                    ``(C) Limitation.--The Secretary may not 
                permit an Indian tribe or tribal organization 
                to use amounts provided under this subsection 
                for construction or renovation if such use will 
                result in a decrease in the level of child care 
                services provided by the tribe or organization 
                as compared to the level of such services 
                provided by the tribe or organization in the 
                fiscal year preceding the year for which the 
                determination under subparagraph (A) is being 
                made.
                    ``(D) Uniform procedures.--The Secretary 
                shall develop and implement uniform procedures 
                for the solicitation and consideration of 
                requests under this paragraph.''; and
            (3) in subsection (e), by adding at the end thereof 
        the following new paragraph:
            ``(4) Indian tribes or tribal organizations.--Any 
        portion of a grant or contract made to an Indian tribe 
        or tribal organization under subsection (c) that the 
        Secretary determines is not being used in a manner 
        consistent with the provision of this subchapter in the 
        period for which the grant or contract is made 
        available, shall be allotted by the Secretary to other 
        tribes or organizations that have submitted 
        applications under subsection (c) in accordance with 
        their respective needs.''.

SEC. 12811. DEFINITIONS.

    Section 658P (42 U.S.C. 9858n) is amended--
            (1) in paragraph (2), in the first sentence by 
        inserting ``or as a deposit for child care services if 
        such a deposit is required of other children being 
        cared for by the provider'' after ``child care 
        services''; and
            (2) by striking paragraph (3);
            (3) in paragraph (4)(B), by striking ``75 percent'' 
        and inserting ``85 percent'';
            (4) in paragraph (5)(B)--
                    (A) by inserting ``great grandchild, 
                sibling (if such provider lives in a separate 
                residence),'' after ``grandchild,'';
                    (B) by striking ``is registered and''; and
                    (C) by striking ``State'' and inserting 
                ``applicable''.
            (5) by striking paragraph (10);
            (6) in paragraph (3)--
                    (A) by inserting ``or'' after ``Samoa,''; 
                and
                    (B) by striking ``, and the Trust Territory 
                of the Pacific Islands'';
            (7) in paragraph (14)--
                    (A) by striking ``The term'' and inserting 
                the following:
                    ``(A) In general.--The term''; and
                    (B) by adding at the end thereof the 
                following new subparagraph:
                    ``(B) Other organizations.--Such term 
                includes a Native Hawaiian Organization, as 
                defined in section 4009(4) of the Augustus F. 
                Hawkins-Robert T. Stafford Elementary and 
                Secondary School Improvement Amendments of 1988 
                (20 U.S.C. 4909(4)) and a private nonprofit 
                organization established for the purpose of 
                serving youth who are Indians or Native 
                Hawaiians.''.

                  Subtitle I--Child Nutrition Programs

                  CHAPTER 1--NATIONAL SCHOOL LUNCH ACT

SEC. 12901. TERMINATION OF ADDITIONAL PAYMENT FOR LUNCHES SERVED IN 
                    HIGH FREE AND REDUCED PRICE PARTICIPATION SCHOOLS.

    Section 4(b)(2) of the National School Lunch Act (42 U.S.C. 
1753(b)(2)) is amended by inserting before the period at the 
end the following: ``for the 1995 school year and 1 cent more 
for each of the 1996 and 1997 school years''.

SEC. 12902. DIRECT FEDERAL EXPENDITURES.

    (a) Administrative Expenses.--Section 6(a) of the National 
School Lunch Act (42 U.S.C. 1755(a)) is amended by striking the 
second and fourth sentences.
    (b) Amount of Commodity Assistance.--Section 6(e) of the 
Act is amended--
            (1) in paragraph (1), by striking subparagraph (E); 
        and
            (2) in paragraph (2), by striking the second 
        sentence and inserting the following: ``Each State 
        agency shall offer and equitably distribute commodities 
        among schools participating in the school lunch 
        program.''.
    (c) Breakfast Commodity Assistance.--Section 6 of the Act 
is amended--
            (1) by striking subsection (f); and
            (2) by redesignating subsection (g) as subsection 
        (f).
    (d) Commodity Assistance.--
            (1) In general.--Section 6(f) of the Act (as 
        redesignated by subsection (c)) is amended by striking 
        ``12 percent'' and inserting ``8 percent''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall become effective on July 1, 1996.

SEC. 12903. VALUE OF FOOD ASSISTANCE.

    (a) In General.--Section 6(e)(1) of the National School 
Lunch Act (42 U.S.C. 1755(e)(1)) is amended--
            (1) in subparagraph (A)--
                    (A) in the first sentence--
                            (i) by inserting ``for free and 
                        reduced price meals'' after 
                        ``thereof,'';
                            (ii) by striking ``11 cents'' and 
                        inserting ``14.5 cents''; and
                            (iii) by striking ``1982'' and 
                        inserting ``1998''; and
                    (B) by inserting after the first sentence 
                the following: ``The national average value of 
                donated foods, or cash payments in lieu 
                thereof, for paid meals, shall be 12 cents, 
                adjusted on July 1, 2001, and each July 1 
                thereafter to reflect changes in the Price 
                Index for Food Used in Schools and 
                Institutions.''; and
            (2) by striking subparagraph (B) and inserting the 
        following:
                    ``(B) Adjustments.--
                            ``(i) In general.--Except as 
                        provided in subparagraph (A), the value 
                        of food assistance for each meal shall 
                        be adjusted each July 1 by the annual 
                        percentage change in a 3-month average 
                        value of the Price Index for Foods Used 
                        in Schools and Institutions for March, 
                        April, and May each year.
                            ``(ii) Method of adjustments.--
                        Except as otherwise provided in this 
                        subparagraph, in the case of each 
                        school year, the Secretary shall--
                                    ``(I) base the adjustment 
                                made under clause (i) on the 
                                amount of the unrounded 
                                adjustment for the preceding 
                                school year;
                                    ``(II) adjust the resulting 
                                amount in accordance with 
                                clause (i); and
                                    ``(III) round the result to 
                                the nearest lower cent 
                                increment.
                            ``(iii) Adjustment on january 1, 
                        1996.--On January 1, 1996, the 
                        Secretary shall adjust the value of 
                        food assistance for all meals for the 
                        remainder of the school year by 
                        rounding the previously established 
                        value of food assistance to the nearest 
                        lower cent increment.''.
    (b) Effective Date.--The amendment made by subsection 
(a)(1) shall become effective on July 1, 1996.

SEC. 12904. REDUCED PRICE LUNCHES.

    (a) Maximum Price.--Section 9(b)(3) of the National School 
Lunch Act (42 U.S.C. 1758(b)(3)) is amended--
            (1) in the last sentence, by striking ``The'' and 
        inserting ``Except as provided in the succeeding 2 
        sentences, the''; and
            (2) by adding at the end the following: ``In the 
        case of the school year beginning July 1, 2000, the 
        price charged for a reduced price lunch shall not 
        exceed 45 cents. In the case of the school year 
        beginning July 1, 2001, and each school year 
        thereafter, the price charged for a reduced price lunch 
        shall not exceed 50 cents.''.
    (b) Reduced Price Meal Payment.--Section 11(a)(2) of the 
Act (42 U.S.C. 1759a(a)(2)) is amended--
            (1) by striking ``cents and the'' and inserting 
        ``cents. Except as provided in the succeeding 2 
        sentences, the''; and
            (2) by adding at the end the following: ``In the 
        case of the school year beginning July 1, 2000, the 
        special assistance factor for reduced price lunches 
        shall be 45 cents less than the special assistance 
        factor for free lunches. In the case of the school year 
        beginning July 1, 2001, and each school year 
        thereafter, the special assistance factor for reduced 
        price lunches shall be 50 cents less than the special 
        assistance factor for free lunches.''.

SEC. 12905. LUNCHES, BREAKFASTS, AND SUPPLEMENTS.

    (a) In General.--Section 11(a)(3)(B) of the National School 
Lunch Act (42 U.S.C. 1759a(a)(3)(B)) is amended--
            (1) by designating the second and third sentences 
        as subparagraphs (C) and (D), respectively; and
            (2) by striking subparagraph (D) (as so designated) 
        and inserting the following:
                    ``(D) Rounding.--Except as otherwise 
                provided in this paragraph, in the case of each 
                school year, the Secretary shall--
                            ``(i) base the adjustment made 
                        under this paragraph on the amount of 
                        the unrounded adjustment for the 
                        preceding school year;
                            ``(ii) adjust the resulting amount 
                        in accordance with subparagraphs (B) 
                        and (C); and
                            ``(iii) round the result to the 
                        nearest lower cent increment.
                    ``(E) Adjustment on january 1 and july 1, 
                1996.--The Secretary shall adjust the rates for 
                breakfasts and supplements on January 1, 1996, 
                for the remainder of the school year, and shall 
                adjust the rates for lunches on July 1, 1996, 
                by rounding the previously established rates to 
                the nearest lower cent increment.
                    ``(F) Adjustment for 24-month period 
                beginning july 1, 1996.--In the case of the 24-
                month period beginning July 1, 1996, the 
                national average payment rates for paid 
                lunches, paid breakfasts, and paid supplements 
                shall be the same as the national average 
                payment rate for paid lunches, paid breakfasts, 
                and paid supplements, respectively, for the 
                school year beginning July 1, 1995, rounded to 
                the nearest lower cent increment.
                    ``(G) Adjustment for school year beginning 
                july 1, 1998.--In the case of the school year 
                beginning July 1, 1998, the Secretary shall--
                            ``(i) base the adjustments made 
                        under this paragraph for--
                                    ``(I) paid lunches and paid 
                                breakfasts on the amount of the 
                                unrounded adjustment for paid 
                                lunches for the school year 
                                beginning July 1, 1995; and
                                    ``(II) paid supplements on 
                                the amount of the unrounded 
                                adjustment for paid supplements 
                                for the school year beginning 
                                July 1, 1995;
                            ``(ii) adjust each resulting amount 
                        in accordance with subparagraph (C); 
                        and
                            ``(iii) round each result to the 
                        nearest lower cent increment.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall become effective on January 1, 1996.

SEC. 12906. SUMMER FOOD SERVICE PROGRAM FOR CHILDREN.

    (a) Establishment of Program.--Section 13(a) of the 
National School Lunch Act (42 U.S.C. 1761(a)) is amended--
            (1) in paragraph (1)--
                    (A) in the first sentence, by striking 
                ``initiate, maintain, and expand'' and insert 
                ``initiate and maintain''; and
                    (B) in subparagraph (E) of the second 
                sentence, by striking ``the Trust Territory of 
                the Pacific Islands,''; and
            (2) in paragraph (7)(A), by striking ``Except as 
        provided in subparagraph (C), private'' and inserting 
        ``Private''.
    (b) Service Institutions.--Section 13(b) of the Act is 
amended by striking ``(b)(1)'' and all that follows through the 
end of paragraph (1) and inserting the following:
    ``(b) Service Institutions.--
            ``(1) Payments.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, payments to service 
                institutions shall equal the full cost of food 
                service operations (which cost shall include 
                the costs of obtaining, preparing, and serving 
                food, but shall not include administrative 
                costs).
                    ``(B) Maximum amounts.--Subject to 
                subparagraph (C), payments to any institution 
                under subparagraph (A) shall not exceed--
                            ``(i) $1.82 for each lunch and 
                        supper served;
                            ``(ii) $1.13 for each breakfast 
                        served; and
                            ``(iii) 46 cents for each meal 
                        supplement served.
                    ``(C) Adjustments.--Amounts specified in 
                subparagraph (B) shall be adjusted each January 
                1 to the nearest lower cent increment in 
                accordance with the changes for the 12-month 
                period ending the preceding November 30 in the 
                series for food away from home of the Consumer 
                Price Index for All Urban Consumers published 
                by the Bureau of Labor Statistics of the 
                Department of Labor. Each adjustment shall be 
                based on the unrounded adjustment for the prior 
                12-month period.''.
    (c) Administration of Service Institutions.--Section 
13(b)(2) of the Act is amended--
            (1) in the first sentence, by striking ``four 
        meals'' and inserting ``3 meals, or 2 meals and 1 
        supplement,''; and
            (2) by striking the second sentence.
    (d) Reimbursements.--Section 13(c)(2) of the Act is 
amended--
            (1) by striking subparagraph (A);
            (2) in subparagraph (B)--
                    (A) in the first sentence--
                            (i) by striking ``, and such higher 
                        education institutions,''; and
                            (ii) by striking ``without 
                        application'' and inserting ``upon 
                        showing residence in areas in which 
                        poor economic conditions exist''; and
                    (B) by adding at the end the following: 
                ``The higher education institutions referred to 
                in the preceding sentence shall be eligible to 
                participate in the program under this paragraph 
                without application.'';
            (3) in subparagraph (C)(ii), by striking ``severe 
        need''; and
            (4) by redesignating subparagraphs (B) through (E), 
        as so amended, as subparagraphs (A) through (D), 
        respectively.
    (e) Permitting Offer Versus Serve.--Section 13(f) of the 
Act is amended--
            (1) by redesignating the first through seventh 
        sentences as paragraphs (1) through (7), respectively; 
        and
            (2) by adding at the end the following:
            ``(8) Offer versus serve.--A school food authority 
        participating as a service institution may permit a 
        child attending a site on school premises operated 
        directly by the authority to refuse not more than 1 
        item of a meal that the child does not intend to 
        consume. A refusal of an offered food item shall not 
        affect the amount of payments made under this section 
        to a school for the meal.''.
    (f) Effective Date.--The amendments made by subsection (b) 
shall become effective on January 1, 1996.

SEC. 12907. CHILD CARE FOOD PROGRAM.

    (a) Establishment of Program.--Section 17 of the National 
School Lunch Act (42 U.S.C. 1766) is amended--
            (1) in the section heading, by striking ``and 
        adult''; and
            (2) in the first sentence of subsection (a), by 
        striking ``initiate, maintain, and expand'' and 
        inserting ``initiate and maintain''.
    (b) Payments to Sponsor Employees.--Paragraph (2) of the 
last sentence of section 17(a) of the Act (42 U.S.C. 1766(a)) 
is amended--
            (1) by striking ``and'' at the end of subparagraph 
        (B);
            (2) by striking the period at the end of 
        subparagraph (C) and inserting ``; and''; and
            (3) by adding at the end the following:
                    ``(D) in the case of a family or group day 
                care home sponsoring organization that employs 
                more than 1 employee, the organization does not 
                base payments to an employee of the 
                organization on the number of family or group 
                day care homes recruited, managed, or 
                monitored.''.
    (c) Technical Assistance.--The last sentence of section 
17(d)(1) of the Act is amended by striking ``, and shall 
provide technical assistance'' and all that follows through 
``its application''.
    (d) Reimbursement of Child Care Institutions.--Section 
17(f)(2)(B) of the Act (42 U.S.C. 1766(f)(2)(B)) is amended by 
striking ``two meals and two supplements or three meals and one 
supplement'' and inserting ``two meals and one supplement''.
    (e) Improved Targeting of Day Care Home Reimbursements.--
            (1) Restructured day care home reimbursements.--
        Section 17(f)(3) of the Act is amended by striking 
        ``(3)(A) Institutions'' and all that follows through 
        the end of subparagraph (A) and inserting the 
        following:
            ``(3) Reimbursement of family or group day care 
        home sponsoring organizations.--
                    ``(A) Reimbursement factor.--
                            ``(i) In general.--An institution 
                        that participates in the program under 
                        this section as a family or group day 
                        care home sponsoring organization shall 
                        be provided, for payment to a home 
                        sponsored by the organization, 
                        reimbursement factors in accordance 
                        with this subparagraph for the cost of 
                        obtaining and preparing food and 
                        prescribed labor costs involved in 
                        providing meals under this section.
                            ``(ii) Tier i family or group day 
                        care homes.--
                                    ``(I) Definition.--In this 
                                paragraph, the term `tier I 
                                family or group day care home' 
                                means--
                                            ``(aa) a family or 
                                        group day care home 
                                        that is located in a 
                                        geographic area, as 
                                        defined by the 
                                        Secretary based on 
                                        census data, in which 
                                        at least 50 percent of 
                                        the children residing 
                                        in the area are members 
                                        of households whose 
                                        incomes meet the income 
                                        eligibility guidelines 
                                        for free or reduced 
                                        price meals under 
                                        section 9;
                                            ``(bb) a family or 
                                        group day care home 
                                        that is located in an 
                                        area served by a school 
                                        enrolling elementary 
                                        students in which at 
                                        least 50 percent of the 
                                        total number of 
                                        children enrolled are 
                                        certified eligible to 
                                        receive free or reduced 
                                        price school meals 
                                        under this Act or the 
                                        Child Nutrition Act of 
                                        1966 (42 U.S.C. 1771 et 
                                        seq.); or
                                            ``(cc) a family or 
                                        group day care home 
                                        that is operated by a 
                                        provider whose 
                                        household meets the 
                                        income eligibility 
                                        guidelines for free or 
                                        reduced price meals 
                                        under section 9 and 
                                        whose income is 
                                        verified by the 
                                        sponsoring organization 
                                        of the home under 
                                        regulations established 
                                        by the Secretary.
                                    ``(II) Reimbursement.--
                                Except as provided in subclause 
                                (III), a tier I family or group 
                                day care home shall be provided 
                                reimbursement factors under 
                                this clause without a 
                                requirement for documentation 
                                of the costs described in 
                                clause (i), except that 
                                reimbursement shall not be 
                                provided under this subclause 
                                for meals or supplements served 
                                to the children of a person 
                                acting as a family or group day 
                                care home provider unless the 
                                children meet the income 
                                eligibility guidelines for free 
                                or reduced price meals under 
                                section 9.
                                    ``(III) Factors.--Except as 
                                provided in subclause (IV), the 
                                reimbursement factors applied 
                                to a home referred to in 
                                subclause (II) shall be the 
                                factors in effect on the date 
                                of enactment of this subclause.
                                    ``(IV) Adjustments.--The 
                                reimbursement factors under 
                                this subparagraph shall be 
                                adjusted on August 1, 1996, 
                                July 1, 1997, and each July 1 
                                thereafter, to reflect changes 
                                in the Consumer Price Index for 
                                food at home for the most 
                                recent 12-month period for 
                                which the data are available. 
                                The reimbursement factors under 
                                this subparagraph shall be 
                                rounded to the nearest lower 
                                cent increment and based on the 
                                unrounded adjustment in effect 
                                on June 30 of the preceding 
                                school year.
                            ``(iii) Tier ii family or group day 
                        care homes.--
                                    ``(I) In general.--
                                            ``(aa) Factors.--
                                        Except as provided in 
                                        subclause (II), with 
                                        respect to meals or 
                                        supplements served 
                                        under this clause by a 
                                        family or group day 
                                        care home that does not 
                                        meet the criteria set 
                                        forth in clause 
                                        (ii)(I), the 
                                        reimbursement factors 
                                        shall be 90 cents for 
                                        lunches and suppers, 25 
                                        cents for breakfasts, 
                                        and 10 cents for 
                                        supplements.
                                            ``(bb) 
                                        Adjustments.--The 
                                        factors shall be 
                                        adjusted on July 1, 
                                        1997, and each July 1 
                                        thereafter, to reflect 
                                        changes in the Consumer 
                                        Price Index for food at 
                                        home for the most 
                                        recent 12-month period 
                                        for which the data are 
                                        available. The 
                                        reimbursement factors 
                                        under this item shall 
                                        be rounded down to the 
                                        nearest lower cent 
                                        increment and based on 
                                        the unrounded 
                                        adjustment for the 
                                        preceding 12-month 
                                        period.
                                            ``(cc) 
                                        Reimbursement.--A 
                                        family or group day 
                                        care home shall be 
                                        provided reimbursement 
                                        factors under this 
                                        subclause without a 
                                        requirement for 
                                        documentation of the 
                                        costs described in 
                                        clause (i), except that 
                                        reimbursement shall not 
                                        be provided under this 
                                        subclause for meals or 
                                        supplements served to 
                                        the children of a 
                                        person acting as a 
                                        family or group day 
                                        care home provider 
                                        unless the children 
                                        meet the income 
                                        eligibility guidelines 
                                        for free or reduced 
                                        price meals under 
                                        section 9.
                                    ``(II) Other factors.--A 
                                family or group day care home 
                                that does not meet the criteria 
                                set forth in clause (ii)(I) may 
                                elect to be provided 
                                reimbursement factors 
                                determined in accordance with 
                                the following requirements:
                                            ``(aa) Children 
                                        eligible for free or 
                                        reduced price meals.--
                                        In the case of meals or 
                                        supplements served 
                                        under this subsection 
                                        to children who are 
                                        members of households 
                                        whose incomes meet the 
                                        income eligibility 
                                        guidelines for free or 
                                        reduced price meals 
                                        under section 9, the 
                                        family or group day 
                                        care home shall be 
                                        provided reimbursement 
                                        factors set by the 
                                        Secretary in accordance 
                                        with clause (ii)(III).
                                            ``(bb) Ineligible 
                                        children.--In the case 
                                        of meals or supplements 
                                        served under this 
                                        subsection to children 
                                        who are members of 
                                        households whose 
                                        incomes do not meet the 
                                        income eligibility 
                                        guidelines, the family 
                                        or group day care home 
                                        shall be provided 
                                        reimbursement factors 
                                        in accordance with 
                                        subclause (I).
                                    ``(III) Information and 
                                determinations.--
                                            ``(aa) In 
                                        general.--If a family 
                                        or group day care home 
                                        elects to claim the 
                                        factors described in 
                                        subclause (II), the 
                                        family or group day 
                                        care home sponsoring 
                                        organization serving 
                                        the home shall collect 
                                        the necessary income 
                                        information, as 
                                        determined by the 
                                        Secretary, from any 
                                        parent or other 
                                        caretaker to make the 
                                        determinations 
                                        specified in subclause 
                                        (II) and shall make the 
                                        determinations in 
                                        accordance with rules 
                                        prescribed by the 
                                        Secretary.
                                            ``(bb) Categorical 
                                        eligibility.--In making 
                                        a determination under 
                                        item (aa), a family or 
                                        group day care home 
                                        sponsoring organization 
                                        may consider a child 
                                        participating in or 
                                        subsidized under, or a 
                                        child with a parent 
                                        participating in or 
                                        subsidized under, a 
                                        federally or State 
                                        supported child care or 
                                        other benefit program 
                                        with an income 
                                        eligibility limit that 
                                        does not exceed the 
                                        eligibility standard 
                                        for free or reduced 
                                        price meals under 
                                        section 9 to be a child 
                                        who is a member of a 
                                        household whose income 
                                        meets the income 
                                        eligibility guidelines 
                                        under section 9.
                                            ``(cc) Factors for 
                                        children only.--A 
                                        family or group day 
                                        care home may elect to 
                                        receive the 
                                        reimbursement factors 
                                        prescribed under clause 
                                        (ii)(III) solely for 
                                        the children 
                                        participating in a 
                                        program referred to in 
                                        item (bb) if the home 
                                        elects not to have 
                                        income statements 
                                        collected from parents 
                                        or other caretakers.
                                    ``(IV) Simplified meal 
                                counting and reporting 
                                procedures.--The Secretary 
                                shall prescribe simplified meal 
                                counting and reporting 
                                procedures for use by a family 
                                or group day care home that 
                                elects to claim the factors 
                                under subclause (II) and by a 
                                family or group day care home 
                                sponsoring organization that 
                                sponsors the home. The 
                                procedures the Secretary 
                                prescribes may include 1 or 
                                more of the following:
                                            ``(aa) Setting an 
                                        annual percentage for 
                                        each home of the number 
                                        of meals served that 
                                        are to be reimbursed in 
                                        accordance with the 
                                        reimbursement factors 
                                        prescribed under clause 
                                        (ii)(III) and an annual 
                                        percentage of the 
                                        number of meals served 
                                        that are to be 
                                        reimbursed in 
                                        accordance with the 
                                        reimbursement factors 
                                        prescribed under 
                                        subclause (I), based on 
                                        the family income of 
                                        children enrolled in 
                                        the home in a specified 
                                        month or other period.
                                            ``(bb) Placing a 
                                        home into 1 of 2 or 
                                        more reimbursement 
                                        categories annually 
                                        based on the percentage 
                                        of children in the home 
                                        whose households have 
                                        incomes that meet the 
                                        income eligibility 
                                        guidelines under 
                                        section 9, with each 
                                        such reimbursement 
                                        category carrying a set 
                                        of reimbursement 
                                        factors such as the 
                                        factors prescribed 
                                        under clause (ii)(III) 
                                        or subclause (I) or 
                                        factors established 
                                        within the range of 
                                        factors prescribed 
                                        under clause (ii)(III) 
                                        and subclause (I).
                                            ``(cc) Such other 
                                        simplified procedures 
                                        as the Secretary may 
                                        prescribe.
                                    ``(V) Minimum verification 
                                requirements.--The Secretary 
                                may establish any necessary 
                                minimum verification 
                                requirements.''.
            (2) Grants to states to provide assistance to 
        family or group day care homes.--Section 17(f)(3) of 
        the Act is amended by adding at the end the following:
                    ``(D) Grants to states to provide 
                assistance to family or group day care homes.--
                            ``(i) In general.--
                                    ``(I) Reservation.--From 
                                amounts made available to carry 
                                out this section, the Secretary 
                                shall reserve $5,000,000 of the 
                                amount made available for 
                                fiscal year 1996.
                                    ``(II) Purpose.--The 
                                Secretary shall use the funds 
                                made available under subclause 
                                (I) to provide grants to States 
                                for the purpose of providing--
                                            ``(aa) assistance, 
                                        including grants, to 
                                        family and day care 
                                        home sponsoring 
                                        organizations and other 
                                        appropriate 
                                        organizations, in 
                                        securing and providing 
                                        training, materials, 
                                        automated data 
                                        processing assistance, 
                                        and other assistance 
                                        for the staff of the 
                                        sponsoring 
                                        organizations; and
                                            ``(bb) training and 
                                        other assistance to 
                                        family and group day 
                                        care homes in the 
                                        implementation of the 
                                        amendment to 
                                        subparagraph (A) made 
                                        by section 12907(e)(1) 
                                        of the Balanced Budget 
                                        Act of 1995.
                            ``(ii) Allocation.--The Secretary 
                        shall allocate from the funds reserved 
                        under clause (i)(I)--
                                    ``(I) $30,000 in base 
                                funding to each State; and
                                    ``(II) any remaining amount 
                                among the States, based on the 
                                number of family day care homes 
                                participating in the program in 
                                a State during fiscal year 1994 
                                as a percentage of the number 
                                of all family day care homes 
                                participating in the program 
                                during fiscal year 1994.
                            ``(iii) Retention of funds.--Of the 
                        amount of funds made available to a 
                        State for fiscal year 1996 under clause 
                        (i), the State may retain not to exceed 
                        30 percent of the amount to carry out 
                        this subparagraph.
                            ``(iv) Additional payments.--Any 
                        payments received under this 
                        subparagraph shall be in addition to 
                        payments that a State receives under 
                        subparagraph (A).''.
            (3) Provision of data.--Section 17(f)(3) of the Act 
        (as amended by paragraph (2)) is further amended by 
        adding at the end the following:
                    ``(E) Provision of data to family or group 
                day care home sponsoring organizations.--
                            ``(i) Census data.--The Secretary 
                        shall provide to each State agency 
                        administering a child care food program 
                        under this section data from the most 
                        recent decennial census survey or other 
                        appropriate census survey for which the 
                        data are available showing which areas 
                        in the State meet the requirements of 
                        subparagraph (A)(ii)(I)(aa). The State 
                        agency shall provide the data to family 
                        or group day care home sponsoring 
                        organizations located in the State.
                            ``(ii) School data.--
                                    ``(I) In general.--A State 
                                agency administering the school 
                                lunch program under this Act or 
                                the school breakfast program 
                                under the Child Nutrition Act 
                                of 1966 (42 U.S.C. 1771 et 
                                seq.) shall provide to approved 
                                family or group day care home 
                                sponsoring organizations a list 
                                of schools serving elementary 
                                school children in the State in 
                                which not less than \1/2\ of 
                                the children enrolled are 
                                certified to receive free or 
                                reduced price meals. The State 
                                agency shall collect the data 
                                necessary to create the list 
                                annually and provide the list 
                                on a timely basis to any 
                                approved family or group day 
                                care home sponsoring 
                                organization that requests the 
                                list.
                                    ``(II) Use of data from 
                                preceding school year.--In 
                                determining for a fiscal year 
                                or other annual period whether 
                                a home qualifies as a tier I 
                                family or group day care home 
                                under subparagraph (A)(ii)(I), 
                                the State agency administering 
                                the program under this section, 
                                and a family or group day care 
                                home sponsoring organization, 
                                shall use the most current 
                                available data at the time of 
                                the determination.
                            ``(iii) Duration of 
                        determination.--For purposes of this 
                        section, a determination that a family 
                        or group day care home is located in an 
                        area that qualifies the home as a tier 
                        I family or group day care home (as the 
                        term is defined in subparagraph 
                        (A)(ii)(I)), shall be in effect for 3 
                        years (unless the determination is made 
                        on the basis of census data, in which 
                        case the determination shall remain in 
                        effect until more recent census data 
                        are available) unless the State agency 
                        determines that the area in which the 
                        home is located no longer qualifies the 
                        home as a tier I family or group day 
                        care home.''.
            (4) Conforming amendments.--Section 17(c) of the 
        Act is amended by inserting ``except as provided in 
        subsection (f)(3),'' after ``For purposes of this 
        section,'' each place it appears in paragraphs (1), 
        (2), and (3).
    (f) Reimbursement.--Section 17(f) of the Act is amended--
            (1) in paragraph (3)--
                    (A) in subparagraph (B), by striking the 
                third and fourth sentences; and
                    (B) in subparagraph (C)--
                            (i) in clause (i)--
                                    (I) by striking ``(i)'';
                                    (II) in the first sentence, 
                                by striking ``and expansion 
                                funds'' and all that follows 
                                through ``rural areas'';
                                    (III) by striking the 
                                second sentence; and
                                    (IV) by striking ``and 
                                expansion funds'' each place it 
                                appears; and
                            (ii) by striking clause (ii); and
            (2) by striking paragraph (4).
    (g) Elimination of State Paperwork and Outreach Burden.--
Section 17 of the Act is amended by striking subsection (k) and 
inserting the following:
    ``(k) Training and Technical Assistance.--A State 
participating in the program established under this section 
shall provide sufficient training, technical assistance, and 
monitoring to facilitate effective operation of the program. 
The Secretary shall assist the State in developing plans to 
fulfill the requirements of this subsection.''.
    (h) Modification of Adult Care Food Program.--Section 17(o) 
of the Act is amended--
            (1) in the first sentence of paragraph (1)--
                    (A) by striking ``adult day care centers'' 
                and inserting ``day care centers for 
                chronically impaired disabled persons'' ; and
                    (B) by striking ``to persons 60 years of 
                age or older or''; and
            (2) in paragraph (2)--
                    (A) in subparagraph (A)--
                            (i) by striking ``adult day care 
                        center'' and inserting ``day care 
                        center for chronically impaired 
                        disabled persons''; and
                            (ii) in clause (i)--
                                    (I) by striking ``adult'';
                                    (II) by striking ``adults'' 
                                and inserting ``persons''; and
                                    (III) by striking ``or 
                                persons 60 years of age or 
                                older''; and
                    (B) in subparagraph (B), by striking 
                ``adult day care services'' and inserting ``day 
                care services for chronically impaired disabled 
                persons''.
    (i) Unneeded Provisions.--Section 17 of the Act is 
amended--
            (1) by striking subsections (b) and (q);
            (2) by redesignating subsections (c) through (p), 
        as so amended, as subsections (b) through (o), 
        respectively; and
            (3) in subsection (e), as redesignated by paragraph 
        (2)--
                    (A) in paragraph (2)(A), by striking 
                ``subsection (c)'' and inserting ``subsection 
                (b)''; and
                    (B) in paragraph (3)(C), by striking 
                ``subsection (d)'' and inserting ``subsection 
                (c)''.
    (j) Conforming Amendments.--
            (1) Section 11(a)(3)(A)(iv) of the Act (42 U.S.C. 
        1759a(a)(3)(A)(iv)) is amended by striking ``17(c)'' 
        and inserting ``17(b)''.
            (2) Section 17A(c) of the Act (42 U.S.C. 1766a(c)) 
        is amended by striking ``17(c)(3)'' and inserting 
        ``17(b)(3)''.
            (3) Section 17B(f) of the Act (42 U.S.C. 1766b(f)) 
        is amended--
                    (A) in the subsection heading, by striking 
                ``and Adult''; and
                    (B) in paragraph (1), by striking ``and 
                adult''.
            (4) Section 18(e)(3)(B) of the Act (42 U.S.C. 
        1769(e)(3)(B)) is amended by striking ``and adult''.
            (5) Section 25(b)(1)(C) of the Act (42 U.S.C. 
        1769f(b)(1)(C)) is amended by striking ``and adult''.
            (6) Section 3(1) of the Healthy Meals for Healthy 
        Americans Act of 1994 (Public Law 103-448) is amended 
        by striking ``and adult''.
    (k) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall become 
        effective on the date of enactment of this Act.
            (2) Improved targeting of day care home 
        reimbursements.--The amendments made by paragraphs (1), 
        (3), and (4) of subsection (e) shall become effective 
        on August 1, 1996.
            (3) Regulations.--
                    (A) Interim regulations.--Not later than 
                February 1, 1996, the Secretary shall issue 
                interim regulations to implement--
                            (i) the amendments made by 
                        paragraphs (1), (3), and (4) of 
                        subsection (e); and
                            (ii) section 17(f)(3)(C) of the 
                        National School Lunch Act (42 U.S.C. 
                        1766(f)(3)(C)).
                    (B) Final regulations.--Not later than 
                August 1, 1996, the Secretary shall issue final 
                regulations to implement the provisions of law 
                referred to in subparagraph (A).
    (l) Study of Impact of Amendments on Program Participation 
and Family Day Care Licensing.--
            (1) In general.--The Secretary of Agriculture, in 
        conjunction with the Secretary of Health and Human 
        Services, shall study the impact of the amendments made 
        by this section on--
                    (A) the number of family day care homes 
                participating in the child care food program 
                established under section 17 of the National 
                School Lunch Act (42 U.S.C. 1766);
                    (B) the number of day care home sponsoring 
                organizations participating in the program;
                    (C) the number of day care homes that are 
                licensed, certified, registered, or approved by 
                each State in accordance with regulations 
                issued by the Secretary;
                    (D) the rate of growth of the numbers 
                referred to in subparagraphs (A) through (C);
                    (E) the nutritional adequacy and quality of 
                meals served in family day care homes that--
                            (i) received reimbursement under 
                        the program prior to the amendments 
                        made by this section but do not receive 
                        reimbursement after the amendments made 
                        by this section; or
                            (ii) received full reimbursement 
                        under the program prior to the 
                        amendments made by this section but do 
                        not receive full reimbursement after 
                        the amendments made by this section; 
                        and
                    (F) the proportion of low-income children 
                participating in the program prior to the 
                amendments made by this section and the 
                proportion of low-income children participating 
                in the program after the amendments made by 
                this section.
            (2) Required data.--Each State agency participating 
        in the child care food program under section 17 of the 
        National School Lunch Act (42 U.S.C. 1766) shall submit 
        to the Secretary data on--
                    (A) the number of family day care homes 
                participating in the program on July 31, 1996, 
                and July 31, 1997;
                    (B) the number of family day care homes 
                licensed, certified, registered, or approved 
                for service on July 31, 1996, and July 31, 
                1997; and
                    (C) such other data as the Secretary may 
                require to carry out this subsection.

SEC. 12908. PILOT PROJECTS.

    (a) Universal Free Pilot.--Section 18(d) of the National 
School Lunch Act (42 U.S.C. 1769(d)) is amended--
            (1) by striking paragraph (3); and
            (2) by redesignating paragraphs (4) and (5) as 
        paragraphs (3) and (4), respectively.
    (b) Demo Project Outside School Hours.--Section 18(e) of 
the Act is amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (A)--
                            (i) by striking ``(A)''; and
                            (ii) by striking ``shall'' and 
                        inserting ``may''; and
                    (B) by striking subparagraph (B); and
            (2) by striking paragraph (5) and inserting the 
        following:
            ``(5) Authorization of appropriations.--There are 
        authorized to be appropriated to carry out this 
        subsection such sums as are necessary for each of 
        fiscal years 1997 and 1998.''.

SEC. 12909. INFORMATION CLEARINGHOUSE.

    Section 26 of the National School Lunch Act (42 U.S.C. 
1769g) is repealed.

                     CHAPTER 2--CHILD NUTRITION ACT

SEC. 12921. SPECIAL MILK PROGRAM.

    (a) In General.--Section 3(a) of the Child Nutrition Act of 
1966 (42 U.S.C. 1772(a)) is amended--
            (1) in paragraph (3), by striking ``the Trust 
        Territory of the Pacific Islands'' and inserting ``the 
        Commonwealth of the Northern Mariana Islands''; and
            (2) by striking paragraph (8) and inserting the 
        following:
            ``(8) Adjustments.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, in the case of each 
                school year, the Secretary shall--
                            ``(i) base the adjustment made 
                        under paragraph (7) on the amount of 
                        the unrounded adjustment for the 
                        preceding school year;
                            ``(ii) adjust the resulting amount 
                        in accordance with paragraph (7); and
                            ``(iii) round the result to the 
                        nearest lower cent increment.
                    ``(B) Adjustment on january 1, 1996.--On 
                January 1, 1996, the Secretary shall adjust the 
                minimum rate for the remainder of the school 
                year by rounding the previously established 
                minimum rate to the nearest lower cent 
                increment.
                    ``(C) Adjustment for 24-month period 
                beginning july 1, 1996.--In the case of the 24-
                month period beginning July 1, 1996, the 
                minimum rate shall be the same as the minimum 
                rate in effect on June 30, 1996.
                    ``(D) Adjustment for school year beginning 
                july 1, 1998.--In the case of the school year 
                beginning July 1, 1998, the Secretary shall--
                            ``(i) base the adjustment made 
                        under paragraph (7) on the amount of 
                        the unrounded adjustment for the 
                        minimum rate for the school year 
                        beginning July 1, 1995;
                            ``(ii) adjust the resulting amount 
                        to reflect changes in the Producer 
                        Price Index for Fresh Processed Milk 
                        published by the Bureau of Labor 
                        Statistics of the Department of Labor 
                        for the most recent 12-month period for 
                        which the data are available; and
                            ``(iii) round the result to the 
                        nearest lower cent increment.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall become effective on January 1, 1996.

SEC. 12922. FREE AND REDUCED PRICE BREAKFASTS.

    (a) In General.--Section 4(b) of the Child Nutrition Act of 
1966 (42 U.S.C. 1773(b)) is amended--
            (1) in the second sentence of paragraph (1)(B), by 
        striking ``, adjusted to the nearest one-fourth cent'' 
        and inserting ``(as adjusted pursuant to section 11(a) 
        of the National School Lunch Act (42 U.S.C. 
        1759a(a))''; and
            (2) in paragraph (2)(B)(ii)--
                    (A) by striking ``nearest one-fourth cent'' 
                and inserting ``nearest lower cent increment 
                for the applicable school year''; and
                    (B) by inserting before the period at the 
                end the following: ``, and the adjustment 
                required by this clause shall be based on the 
                unrounded adjustment for the preceding school 
                year''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall become effective on July 1, 1996.

SEC. 12923. CONFORMING REIMBURSEMENT FOR PAID BREAKFASTS AND LUNCHES.

    (a) In General.--The last sentence of section 4(b)(1)(B) of 
the Child Nutrition Act of 1966 (42 U.S.C. 1773(b)(1)(B)) is 
amended by striking ``8.25 cents'' and all that follows through 
``Act)'' and inserting ``the same as the national average lunch 
payment for paid meals established under section 4(b) of the 
National School Lunch Act (42 U.S.C. 1753(b))''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall become effective on January 1, 1996.

SEC. 12924. SCHOOL BREAKFAST PROGRAM AUTHORIZATION.

    Section 4 of the Child Nutrition Act of 1966 (42 U.S.C. 
1773) is amended by striking subsections (f) and (g).

SEC. 12925. MISCELLANEOUS PROVISIONS AND DEFINITIONS.

    Section 15 of the Child Nutrition Act of 1966 (42 U.S.C. 
1784) is amended--
            (1) in paragraph (1), by striking ``the Trust 
        Territory of the Pacific Islands'' and inserting ``the 
        Commonwealth of the Northern Mariana Islands''; and
            (2) in the first sentence of paragraph (3)--
                    (A) in subparagraph (A), by inserting 
                ``and'' at the end; and
                    (B) by striking ``, and (C)'' and all that 
                follows through ``Governor of Puerto Rico''.

SEC. 12926. NUTRITION EDUCATION AND TRAINING.

    (a) Use of Funds.--Section 19(f) of the Child Nutrition Act 
of 1966 (42 U.S.C. 1788(f)) is amended--
            (1) in paragraph (1)--
                    (A) by striking subparagraph (B); and
                    (B) in subparagraph (A)--
                            (i) by striking ``(A)'';
                            (ii) by striking clauses (ix) 
                        through (xix);
                            (iii) by redesignating clauses (i) 
                        through (viii) and (xx) as 
                        subparagraphs (A) through (H) and (I), 
                        respectively; and
                            (iv) in subparagraph (H), as so 
                        redesignated, by inserting ``and'' at 
                        the end;
            (2) by striking paragraphs (2) and (4); and
            (3) by redesignating paragraph (3) as paragraph 
        (2).
    (b) Authorization of Appropriations.--Section 19(i) of the 
Act is amended--
            (1) in the first sentence of paragraph (2)(A), by 
        striking ``and each succeeding fiscal year'';
            (2) by redesignating paragraphs (3) and (4) as 
        paragraphs (4) and (5), respectively; and
            (3) by inserting after paragraph (2) the following:
            ``(2) Fiscal years 1997 through 2002.--
                    ``(A) In general.--There are authorized to 
                be appropriated to carry out this section 
                $10,000,000 for each of fiscal years 1997 
                through 2002.
                    ``(B) Grants.--
                            ``(i) In general.--Grants to each 
                        State from the amounts made available 
                        under subparagraph (A) shall be based 
                        on a rate of 50 cents for each child 
                        enrolled in schools or institutions 
                        within the State, except that no State 
                        shall receive an amount less than 
                        $75,000 per fiscal year.
                            ``(ii) Insufficient funds.--If the 
                        amount made available for any fiscal 
                        year is insufficient to pay the amount 
                        to which each State is entitled under 
                        clause (i), the amount of each grant 
                        shall be ratably reduced.''.

           Subtitle J--Food Stamps and Commodity Distribution

SEC. 13001. SHORT TITLE.

    This subtitle may be cited as the ``Food Stamp Reform and 
Commodity Distribution Act of 1995''.

                     CHAPTER 1--FOOD STAMP PROGRAM

SEC. 13011. DEFINITION OF CERTIFICATION PERIOD.

    Section 3(c) of the Food Stamp Act of 1977 (7 U.S.C. 
2012(c)) is amended by striking ``Except as provided'' and all 
that follows and inserting the following: ``The certification 
period shall not exceed 12 months, except that the 
certification period may be up to 24 months if all adult 
household members are elderly or disabled. A State agency shall 
have at least 1 contact with each certified household every 12 
months.''.

SEC. 13012. DEFINITION OF COUPON.

    Section 3(d) of the Food Stamp Act of 1977 (7 U.S.C. 
2012(d)) is amended by striking ``or type of certificate'' and 
inserting ``type of certificate, authorization card, cash or 
check issued in lieu of a coupon, or an access device, 
including an electronic benefit transfer card or personal 
identification number,''.

SEC. 13013. TREATMENT OF CHILDREN LIVING AT HOME.

    The second sentence of section 3(i) of the Food Stamp Act 
of 1977 (7 U.S.C. 2012(i)) is amended by striking ``(who are 
not themselves parents living with their children or married 
and living with their spouses)''.

SEC. 13014. OPTIONAL ADDITIONAL CRITERIA FOR SEPARATE HOUSEHOLD 
                    DETERMINATIONS.

    Section 3(i) of the Food Stamp Act of 1977 (7 U.S.C. 
2012(i)) is amended by inserting after the third sentence the 
following: ``Notwithstanding the preceding sentences, a State 
may establish criteria that prescribe when individuals who live 
together, and who would be allowed to participate as separate 
households under the preceding sentences, shall be considered a 
single household, without regard to the common purchase of food 
and preparation of meals.''.

SEC. 13015. ADJUSTMENT OF THRIFTY FOOD PLAN.

    The second sentence of section 3(o) of the Food Stamp Act 
of 1977 (7 U.S.C. 2012(o)) is amended--
            (1) by striking ``shall (1) make'' and inserting 
        the following: ``shall--
            ``(1) make'';
            (2) by striking ``scale, (2) make'' and inserting 
        ``scale;
            ``(2) make'';
            (3) by striking ``Alaska, (3) make'' and inserting 
        the following: ``Alaska;
            ``(3) make''; and
            (4) by striking ``Columbia, (4) through'' and all 
        that follows through the end of the subsection and 
        inserting the following: ``Columbia; and
            ``(4) on October 1, 1996, and each October 1 
        thereafter, adjust the cost of the diet to reflect the 
        cost of the diet, in the preceding June, and round the 
        result to the nearest lower dollar increment for each 
        household size, except that on October 1, 1996, the 
        Secretary may not reduce the cost of the diet in effect 
        on September 30, 1996.''.

SEC. 13016. DEFINITION OF HOMELESS INDIVIDUAL.

    Section 3(s)(2)(C) of the Food Stamp Act of 1977 (7 U.S.C. 
2012(s)(2)(C)) is amended by inserting ``for not more than 90 
days'' after ``temporary accommodation''.

SEC. 13017. STATE OPTION FOR ELIGIBILITY STANDARDS.

    Section 5(b) of the Food Stamp Act of 1977 (7 U.S.C. 
2014(d)) is amended by striking ``(b) The Secretary'' and 
inserting the following:
    ``(b) Eligibility Standards.--Except as otherwise provided 
in this Act, the Secretary''.

SEC. 13018. EARNINGS OF STUDENTS.

    Section 5(d)(7) of the Food Stamp Act of 1977 (7 U.S.C. 
2014(d)(7)) is amended by striking ``21'' and inserting ``19''.

SEC. 13019. ENERGY ASSISTANCE.

    (a) In General.--Section 5(d) of the Food Stamp Act of 1977 
(7 U.S.C. 2014(d)) is amended by striking paragraph (11) and 
inserting the following: ``(11) a 1-time payment or allowance 
made under a Federal or State law for the costs of 
weatherization or emergency repair or replacement of an unsafe 
or inoperative furnace or other heating or cooling device,''.
    (b) Conforming Amendments.--
            (1) Section 5(k) of the Act (7 U.S.C. 2014(k)) is 
        amended--
                    (A) in paragraph (1)--
                            (i) in subparagraph (A), by 
                        striking ``plan for aid to families 
                        with dependent children approved'' and 
                        inserting ``program funded''; and
                            (ii) in subparagraph (B), by 
                        striking ``, not including energy or 
                        utility-cost assistance,'';
                    (B) in paragraph (2), by striking 
                subparagraph (C) and inserting the following:
            ``(C) a payment or allowance described in 
        subsection (d)(11);''; and
                    (C) by adding at the end the following:
            ``(4) Third party energy assistance payments.--
                    ``(A) Energy assistance payments.--For 
                purposes of subsection (d)(1), a payment made 
                under a Federal or State law to provide energy 
                assistance to a household shall be considered 
                money payable directly to the household.
                    ``(B) Energy assistance expenses.--For 
                purposes of subsection (e)(7), an expense paid 
                on behalf of a household under a Federal or 
                State law to provide energy assistance shall be 
                considered an out-of-pocket expense incurred 
                and paid by the household.''.
            (2) Section 2605(f) of the Low-Income Home Energy 
        Assistance Act of 1981 (42 U.S.C. 8624(f)) is amended--
                    (A) by striking ``(f)(1) Notwithstanding'' 
                and inserting ``(f) Notwithstanding'';
                    (B) in paragraph (1), by striking ``food 
                stamps,''; and
                    (C) by striking paragraph (2).

SEC. 13020. DEDUCTIONS FROM INCOME.

    (a) In General.--Section 5 of the Food Stamp Act of 1977 (7 
U.S.C. 2014) is amended by striking subsection (e) and 
inserting the following:
    ``(e) Deductions From Income.--
            ``(1) Standard deduction.--The Secretary shall 
        allow a standard deduction for each household in the 48 
        contiguous States and the District of Columbia, Alaska, 
        Hawaii, Guam, and the Virgin Islands of the United 
        States of $134, $229, $189, $269, and $118, 
        respectively.
            ``(2) Earned income deduction.--
                    ``(A) Definition of earned income.--In this 
                paragraph, the term `earned income' does not 
                include income excluded by subsection (d) or 
                any portion of income earned under a work 
                supplementation or support program, as defined 
                under section 16(b), that is attributable to 
                public assistance.
                    ``(B) Deduction.--Except as provided in 
                subparagraph (C), a household with earned 
                income shall be allowed a deduction of 20 
                percent of all earned income (other than income 
                excluded by subsection (d)) to compensate for 
                taxes, other mandatory deductions from salary, 
                and work expenses.
                    ``(C) Exception.--The deduction described 
                in subparagraph (B) shall not be allowed with 
                respect to determining an overissuance due to 
                the failure of a household to report earned 
                income in a timely manner.
            ``(3) Dependent care deduction.--
                    ``(A) In general.--A household shall be 
                entitled, with respect to expenses (other than 
                excluded expenses described in subparagraph 
                (B)) for dependent care, to a dependent care 
                deduction, the maximum allowable level of which 
                shall be $200 per month for each dependent 
                child under 2 years of age and $175 per month 
                for each other dependent, for the actual cost 
                of payments necessary for the care of a 
                dependent if the care enables a household 
                member to accept or continue employment, or 
                training or education that is preparatory for 
                employment.
                    ``(B) Excluded expenses.--The excluded 
                expenses referred to in subparagraph (A) are--
                            ``(i) expenses paid on behalf of 
                        the household by a third party;
                            ``(ii) amounts made available and 
                        excluded for the expenses referred to 
                        in subparagraph (A) under subsection 
                        (d)(3); and
                            ``(iii) expenses that are paid 
                        under section 6(d)(4).
            ``(4) Deduction for child support payments.--
                    ``(A) In general.--A household shall be 
                entitled to a deduction for child support 
                payments made by a household member to or for 
                an individual who is not a member of the 
                household if the household member is legally 
                obligated to make the payments.
                    ``(B) Methods for determining amount.--The 
                Secretary may prescribe by regulation the 
                methods, including calculation on a 
                retrospective basis, that a State agency shall 
                use to determine the amount of the deduction 
                for child support payments.
            ``(5) Homeless shelter allowance.--A State agency 
        may develop a standard homeless shelter allowance, 
        which shall not exceed $139 per month, for such 
        expenses as may reasonably be expected to be incurred 
        by households in which all members are homeless 
        individuals but are not receiving free shelter 
        throughout the month. A State agency that develops the 
        allowance may use the allowance in determining 
        eligibility and allotments for the households, except 
        that the State agency may prohibit the use of the 
        allowance for households with extremely low shelter 
        costs.
            ``(6) Excess medical expense deduction.--
                    ``(A) In general.--A household containing 
                an elderly or disabled member shall be 
                entitled, with respect to expenses other than 
                expenses paid on behalf of the household by a 
                third party, to an excess medical expense 
                deduction for the portion of the actual costs 
                of allowable medical expenses, incurred by the 
                elderly or disabled member, exclusive of 
                special diets, that exceeds $35 per month.
                    ``(B) Method of claiming deduction.--
                            ``(i) In general.--A State agency 
                        shall offer an eligible household under 
                        subparagraph (A) a method of claiming a 
                        deduction for recurring medical 
                        expenses that are initially verified 
                        under the excess medical expense 
                        deduction in lieu of submitting 
                        information or verification on actual 
                        expenses on a monthly basis.
                            ``(ii) Method.--The method 
                        described in clause (i) shall--
                                    ``(I) be designed to 
                                minimize the burden for the 
                                eligible elderly or disabled 
                                household member choosing to 
                                deduct the recurrent medical 
                                expenses of the member pursuant 
                                to the method;
                                    ``(II) rely on reasonable 
                                estimates of the expected 
                                medical expenses of the member 
                                for the certification period 
                                (including changes that can be 
                                reasonably anticipated based on 
                                available information about the 
                                medical condition of the 
                                member, public or private 
                                medical insurance coverage, and 
                                the current verified medical 
                                expenses incurred by the 
                                member); and
                                    ``(III) not require further 
                                reporting or verification of a 
                                change in medical expenses if 
                                such a change has been 
                                anticipated for the 
                                certification period.
            ``(7) Excess shelter expense deduction.--
                    ``(A) In general.--A household shall be 
                entitled, with respect to expenses other than 
                expenses paid on behalf of the household by a 
                third party, to an excess shelter expense 
                deduction to the extent that the monthly amount 
                expended by a household for shelter exceeds an 
                amount equal to 50 percent of monthly household 
                income after all other applicable deductions 
                have been allowed.
                    ``(B) Maximum amount of deduction.--In the 
                case of a household that does not contain an 
                elderly or disabled individual, the excess 
                shelter expense deduction shall not exceed--
                            ``(i) in the 48 contiguous States 
                        and the District of Columbia, $247 per 
                        month; and
                            ``(ii) in Alaska, Hawaii, Guam, and 
                        the Virgin Islands of the United 
                        States, $429, $353, $300, and $182 per 
                        month, respectively.
                    ``(C) Standard utility allowance.--
                            ``(i) In general.--In computing the 
                        excess shelter expense deduction, a 
                        State agency may use a standard utility 
                        allowance in accordance with 
                        regulations promulgated by the 
                        Secretary, except that a State agency 
                        may use an allowance that does not 
                        fluctuate within a year to reflect 
                        seasonal variations.
                            ``(ii) Restrictions on heating and 
                        cooling expenses.--An allowance for a 
                        heating or cooling expense may not be 
                        used in the case of a household that--
                                    ``(I) does not incur a 
                                heating or cooling expense, as 
                                the case may be;
                                    ``(II) does incur a heating 
                                or cooling expense but is 
                                located in a public housing 
                                unit that has central utility 
                                meters and charges households, 
                                with regard to the expense, 
                                only for excess utility costs; 
                                or
                                    ``(III) shares the expense 
                                with, and lives with, another 
                                individual not participating in 
                                the food stamp program, another 
                                household participating in the 
                                food stamp program, or both, 
                                unless the allowance is 
                                prorated between the household 
                                and the other individual, 
                                household, or both.
                            ``(iii) Mandatory allowance.--
                                    ``(I) In general.--A State 
                                agency may make the use of a 
                                standard utility allowance 
                                mandatory for all households 
                                with qualifying utility costs 
                                if--
                                            ``(aa) the State 
                                        agency has developed 1 
                                        or more standards that 
                                        include the cost of 
                                        heating and cooling and 
                                        1 or more standards 
                                        that do not include the 
                                        cost of heating and 
                                        cooling; and
                                            ``(bb) the 
                                        Secretary finds that 
                                        the standards will not 
                                        result in an increased 
                                        cost to the Secretary.
                                    ``(II) Household 
                                election.--A State agency that 
                                has not made the use of a 
                                standard utility allowance 
                                mandatory under subclause (I) 
                                shall allow a household to 
                                switch, at the end of a 
                                certification period, between 
                                the standard utility allowance 
                                and a deduction based on the 
                                actual utility costs of the 
                                household.
                            ``(iv) Availability of allowance to 
                        recipients of energy assistance.--
                                    ``(I) In general.--Subject 
                                to subclause (II), if a State 
                                agency elects to use a standard 
                                utility allowance that reflects 
                                heating or cooling costs, the 
                                standard utility allowance 
                                shall be made available to 
                                households receiving a payment, 
                                or on behalf of which a payment 
                                is made, under the Low-Income 
                                Home Energy Assistance Act of 
                                1981 (42 U.S.C. 8621 et seq.) 
                                or other similar energy 
                                assistance program, if the 
                                household still incurs out-of-
                                pocket heating or cooling 
                                expenses in excess of any 
                                assistance paid on behalf of 
                                the household to an energy 
                                provider.
                                    ``(II) Separate 
                                allowance.--A State agency may 
                                use a separate standard utility 
                                allowance for households on 
                                behalf of which a payment 
                                described in subclause (I) is 
                                made, but may not be required 
                                to do so.
                                    ``(III) States not electing 
                                to use separate allowance.--A 
                                State agency that does not 
                                elect to use a separate 
                                allowance but makes a single 
                                standard utility allowance 
                                available to households 
                                incurring heating or cooling 
                                expenses (other than a 
                                household described in 
                                subclause (I) or (II) of 
                                subparagraph (C)(ii)) may not 
                                be required to reduce the 
                                allowance due to the provision 
                                (directly or indirectly) of 
                                assistance under the Low-Income 
                                Home Energy Assistance Act of 
                                1981 (42 U.S.C. 8621 et seq.).
                                    ``(IV) Proration of 
                                assistance.--For the purpose of 
                                the food stamp program, 
                                assistance provided under the 
                                Low-Income Home Energy 
                                Assistance Act of 1981 (42 
                                U.S.C. 8621 et seq.) shall be 
                                considered to be prorated over 
                                the entire heating or cooling 
                                season for which the assistance 
                                was provided.''.
    (b) Conforming Amendment.--Section 11(e)(3) of the Act (7 
U.S.C. 2020(e)(3)) is amended by striking ``. Under rules 
prescribed'' and all that follows through ``verifies higher 
expenses''.

SEC. 13021. VEHICLE ALLOWANCE.

    Section 5(g) of the Food Stamp Act of 1977 (7 U.S.C. 
2014(g)) is amended by striking paragraph (2) and inserting the 
following:
            ``(2) Included assets.--
                    ``(A) In general.--Subject to the other 
                provisions of this paragraph, the Secretary 
                shall, in prescribing inclusions in, and 
                exclusions from, financial resources, follow 
                the regulations in force as of June 1, 1982 
                (other than those relating to licensed vehicles 
                and inaccessible resources).
                    ``(B) Additional included assets.--The 
                Secretary shall include in financial 
                resources--
                            ``(i) any boat, snowmobile, or 
                        airplane used for recreational 
                        purposes;
                            ``(ii) any vacation home;
                            ``(iii) any mobile home used 
                        primarily for vacation purposes;
                            ``(iv) subject to subparagraph (C), 
                        any licensed vehicle that is used for 
                        household transportation or to obtain 
                        or continue employment to the extent 
                        that the fair market value of the 
                        vehicle exceeds $4,600; and
                            ``(v) any savings or retirement 
                        account (including an individual 
                        account), regardless of whether there 
                        is a penalty for early withdrawal.
                    ``(C) Excluded vehicles.--A vehicle (and 
                any other property, real or personal, to the 
                extent the property is directly related to the 
                maintenance or use of the vehicle) shall not be 
                included in financial resources under this 
                paragraph if the vehicle is--
                            ``(i) used to produce earned 
                        income;
                            ``(ii) is necessary for the 
                        transportation of a physically disabled 
                        household member; or
                            ``(iii) is depended on by a 
                        household to carry fuel for heating or 
                        water for home use and provides the 
                        primary source of fuel or water, 
                        respectively, for the household.''.

SEC. 13022. VENDOR PAYMENTS FOR TRANSITIONAL HOUSING COUNTED AS INCOME.

    Section 5(k)(2) of the Food Stamp Act of 1977 (7 U.S.C. 
2014(k)(2)) is amended--
            (1) by striking subparagraph (F); and
            (2) by redesignating subparagraphs (G) and (H) as 
        subparagraphs (F) and (G), respectively.

SEC. 13023. DOUBLED PENALTIES FOR VIOLATING FOOD STAMP PROGRAM 
                    REQUIREMENTS.

    Section 6(b)(1) of the Food Stamp Act of 1977 (7 U.S.C. 
2015(b)(1)) is amended--
            (1) in clause (i), by striking ``six months'' and 
        inserting ``1 year''; and
            (2) in clause (ii), by striking ``1 year'' and 
        inserting ``2 years''.

SEC. 13024. DISQUALIFICATION OF CONVICTED INDIVIDUALS.

    Section 6(b)(1)(iii) of the Food Stamp Act of 1977 (7 
U.S.C. 2015(b)(1)(iii)) is amended--
            (1) in subclause (II), by striking ``or'' at the 
        end;
            (2) in subclause (III), by striking the period at 
        the end and inserting ``; or''; and
            (3) by inserting after subclause (III) the 
        following:
                    ``(IV) a conviction of an offense under 
                subsection (b) or (c) of section 15 involving 
                an item covered by subsection (b) or (c) of 
                section 15 having a value of $500 or more.''.

SEC. 13025. DISQUALIFICATION.

    (a) In General.--Section 6(d) of the Food Stamp Act of 1977 
(7 U.S.C. 2015(d)) is amended by striking ``(d)(1) Unless 
otherwise exempted by the provisions'' and all that follows 
through the end of paragraph (1) and inserting the following:
    ``(d) Conditions of Participation.--
            ``(1) Work requirements.--
                    ``(A) In general.--No physically and 
                mentally fit individual over the age of 15 and 
                under the age of 60 shall be eligible to 
                participate in the food stamp program if the 
                individual--
                            ``(i) refuses, at the time of 
                        application and every 12 months 
                        thereafter, to register for employment 
                        in a manner prescribed by the 
                        Secretary;
                            ``(ii) refuses without good cause 
                        to participate in an employment and 
                        training program under paragraph (4), 
                        to the extent required by the State 
                        agency;
                            ``(iii) refuses without good cause 
                        to accept an offer of employment, at a 
                        site or plant not subject to a strike 
                        or lockout at the time of the refusal, 
                        at a wage not less than the higher of--
                                    ``(I) the applicable 
                                Federal or State minimum wage; 
                                or
                                    ``(II) 80 percent of the 
                                wage that would have governed 
                                had the minimum hourly rate 
                                under section 6(a)(1) of the 
                                Fair Labor Standards Act of 
                                1938 (29 U.S.C. 206(a)(1)) been 
                                applicable to the offer of 
                                employment;
                            ``(iv) refuses without good cause 
                        to provide a State agency with 
                        sufficient information to allow the 
                        State agency to determine the 
                        employment status or the job 
                        availability of the individual;
                            ``(v) voluntarily and without good 
                        cause--
                                    ``(I) quits a job; or
                                    ``(II) reduces work effort 
                                and, after the reduction, the 
                                individual is working less than 
                                30 hours per week; or
                            ``(vi) fails to comply with section 
                        20.
                    ``(B) Household ineligibility.--If an 
                individual who is the head of a household 
                becomes ineligible to participate in the food 
                stamp program under subparagraph (A), the 
                household shall, at the option of the State 
                agency, become ineligible to participate in the 
                food stamp program for a period, determined by 
                the State agency, that does not exceed the 
                lesser of--
                            ``(i) the duration of the 
                        ineligibility of the individual 
                        determined under subparagraph (C); or
                            ``(ii) 180 days.
                    ``(C) Duration of ineligibility.--
                            ``(i) First violation.--The first 
                        time that an individual becomes 
                        ineligible to participate in the food 
                        stamp program under subparagraph (A), 
                        the individual shall remain ineligible 
                        until the later of--
                                    ``(I) the date the 
                                individual becomes eligible 
                                under subparagraph (A);
                                    ``(II) the date that is 1 
                                month after the date the 
                                individual became ineligible; 
                                or
                                    ``(III) a date determined 
                                by the State agency that is not 
                                later than 3 months after the 
                                date the individual became 
                                ineligible.
                            ``(ii) Second violation.--The 
                        second time that an individual becomes 
                        ineligible to participate in the food 
                        stamp program under subparagraph (A), 
                        the individual shall remain ineligible 
                        until the later of--
                                    ``(I) the date the 
                                individual becomes eligible 
                                under subparagraph (A);
                                    ``(II) the date that is 3 
                                months after the date the 
                                individual became ineligible; 
                                or
                                    ``(III) a date determined 
                                by the State agency that is not 
                                later than 6 months after the 
                                date the individual became 
                                ineligible.
                            ``(iii) Third or subsequent 
                        violation.--The third or subsequent 
                        time that an individual becomes 
                        ineligible to participate in the food 
                        stamp program under subparagraph (A), 
                        the individual shall remain ineligible 
                        until the later of--
                                    ``(I) the date the 
                                individual becomes eligible 
                                under subparagraph (A);
                                    ``(II) the date that is 6 
                                months after the date the 
                                individual became ineligible;
                                    ``(III) a date determined 
                                by the State agency; or
                                    ``(IV) at the option of the 
                                State agency, permanently.
                    ``(D) Administration.--
                            ``(i) Good cause.--The Secretary 
                        shall determine the meaning of good 
                        cause for the purpose of this 
                        paragraph.
                            ``(ii) Voluntary quit.--The 
                        Secretary shall determine the meaning 
                        of voluntarily quitting and reducing 
                        work effort for the purpose of this 
                        paragraph.
                            ``(iii) Determination by state 
                        agency.--
                                    ``(I) In general.--Subject 
                                to subclause (II) and clauses 
                                (i) and (ii), a State agency 
                                shall determine--
                                            ``(aa) the meaning 
                                        of any term in 
                                        subparagraph (A);
                                            ``(bb) the 
                                        procedures for 
                                        determining whether an 
                                        individual is in 
                                        compliance with a 
                                        requirement under 
                                        subparagraph (A); and
                                            ``(cc) whether an 
                                        individual is in 
                                        compliance with a 
                                        requirement under 
                                        subparagraph (A).
                                    ``(II) Not less 
                                restrictive.--A State agency 
                                may not determine a meaning, 
                                procedure, or determination 
                                under subclause (I) to be less 
                                restrictive than a comparable 
                                meaning, procedure, or 
                                determination under a State 
                                program funded under part A of 
                                title IV of the Social Security 
                                Act (42 U.S.C. 601 et seq.).
                            ``(iv) Strike against the 
                        government.--For the purpose of 
                        subparagraph (A)(v), an employee of the 
                        Federal Government, a State, or a 
                        political subdivision of a State, who 
                        is dismissed for participating in a 
                        strike against the Federal Government, 
                        the State, or the political subdivision 
                        of the State shall be considered to 
                        have voluntarily quit without good 
                        cause.
                            ``(v) Selecting a head of 
                        household.--
                                    ``(I) In general.--For the 
                                purpose of this paragraph, the 
                                State agency shall allow the 
                                household to select any adult 
                                parent of a child in the 
                                household as the head of the 
                                household if all adult 
                                household members making 
                                application under the food 
                                stamp program agree to the 
                                selection.
                                    ``(II) Time for making 
                                designation.--A household may 
                                designate the head of the 
                                household under subclause (I) 
                                each time the household is 
                                certified for participation in 
                                the food stamp program, but may 
                                not change the designation 
                                during a certification period 
                                unless there is a change in the 
                                composition of the household.
                            ``(vi) Change in head of 
                        household.--If the head of a household 
                        leaves the household during a period in 
                        which the household is ineligible to 
                        participate in the food stamp program 
                        under subparagraph (B)--
                                    ``(I) the household shall, 
                                if otherwise eligible, become 
                                eligible to participate in the 
                                food stamp program; and
                                    ``(II) if the head of the 
                                household becomes the head of 
                                another household, the 
                                household that becomes headed 
                                by the individual shall become 
                                ineligible to participate in 
                                the food stamp program for the 
                                remaining period of 
                                ineligibility.''.
    (b) Conforming Amendment.--
            (1) The second sentence of section 17(b)(2) of the 
        Act (7 U.S.C. 2026(b)(2)) is amended by striking 
        ``6(d)(1)(i)'' and inserting ``6(d)(1)(A)(i)''.
            (2) Section 20 of the Act (7 U.S.C. 2029) is 
        amended by striking subsection (f) and inserting the 
        following:
    ``(f) Disqualification.--An individual or a household may 
become ineligible under section 6(d)(1) to participate in the 
food stamp program for failing to comply with this section.''.

SEC. 13026. CARETAKER EXEMPTION.

    Section 6(d)(2) of the Food Stamp Act of 1977 (7 U.S.C. 
2015(d)(2)) is amended by striking subparagraph (B) and 
inserting the following: ``(B) a parent or other member of a 
household with responsibility for the care of (i) a dependent 
child under the age of 6 or any lower age designated by the 
State agency that is not under the age of 1, or (ii) an 
incapacitated person;''.

SEC. 13027. EMPLOYMENT AND TRAINING.

    (a) In General.--Section 6(d)(4) of the Food Stamp Act of 
1977 (7 U.S.C. 2015(d)(4)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``Not later than April 1, 
                1987, each'' and inserting ``Each'';
                    (B) by inserting ``work,'' after ``skills, 
                training,''; and
                    (C) by adding at the end the following: 
                ``Each component of an employment and training 
                program carried out under this paragraph shall 
                be delivered through a statewide workforce 
                development system, unless the component is not 
                available locally through the statewide 
                workforce development system.'';
            (2) in subparagraph (B)--
                    (A) in the matter preceding clause (i), by 
                striking the colon at the end and inserting the 
                following: ``, except that the State agency 
                shall retain the option to apply employment 
                requirements prescribed under this subparagraph 
                to a program applicant at the time of 
                application:'';
                    (B) in clause (i), by striking ``with terms 
                and conditions'' and all that follows through 
                ``time of application''; and
                    (C) in clause (iv)--
                            (i) by striking subclauses (I) and 
                        (II); and
                            (ii) by redesignating subclauses 
                        (III) and (IV) as subclauses (I) and 
                        (II), respectively;
            (3) in subparagraph (D)--
                    (A) in clause (i), by striking ``to which 
                the application'' and all that follows through 
                ``30 days or less'';
                    (B) in clause (ii), by striking ``but with 
                respect'' and all that follows through ``child 
                care''; and
                    (C) in clause (iii), by striking ``, on the 
                basis of'' and all that follows through 
                ``clause (ii)'' and inserting ``the exemption 
                continues to be valid'';
            (4) in subparagraph (E), by striking the third 
        sentence;
            (5) in subparagraph (G)--
                    (A) by striking ``(G)(i) The State'' and 
                inserting ``(G) The State''; and
                    (B) by striking clause (ii);
            (6) in subparagraph (H), by striking ``(H)(i) The 
        Secretary'' and all that follows through ``(ii) Federal 
        funds'' and inserting ``(H) Federal funds'';
            (7) in subparagraph (I)(i)(II), by striking ``, or 
        was in operation,'' and all that follows through 
        ``Social Security Act'' and inserting the following: 
        ``), except that no such payment or reimbursement shall 
        exceed the applicable local market rate'';
            (8)(A) by striking subparagraphs (K) and (L) and 
        inserting the following:
                    ``(K) Limitation on funding.--
                Notwithstanding any other provision of this 
                paragraph, the amount of funds a State agency 
                uses to carry out this paragraph (including 
                under subparagraph (I)) for participants who 
                are receiving benefits under a State program 
                funded under part A of title IV of the Social 
                Security Act (42 U.S.C. 601 et seq.) shall not 
                exceed the amount of funds the State agency 
                used in fiscal year 1995 to carry out this 
                paragraph for participants who were receiving 
                benefits in fiscal year 1995 under a State 
                program funded under part A of title IV of the 
                Act (42 U.S.C. 601 et seq.).''; and
                    (B) by redesignating subparagraphs (M) and 
                (N) as subparagraphs (L) and (M), respectively; 
                and
            (9) in subparagraph (L), as redesignated by 
        paragraph (8)(B)--
                    (A) by striking ``(L)(i) The Secretary'' 
                and inserting ``(L) The Secretary''; and
                    (B) by striking clause (ii).
    (b) Funding.--Section 16(h) of the Act (7 U.S.C. 2025(h)) 
is amended by striking ``(h)(1)(A) The Secretary'' and all that 
follows through the end of paragraph (1) and inserting the 
following:
    ``(h) Funding of Employment and Training Programs.--
            ``(1) In general.--
                    ``(A) Amounts.--To carry out employment and 
                training programs, the Secretary shall reserve 
                for allocation to State agencies from funds 
                made available for each fiscal year under 
                section 18(a)(1) the amount of--
                            ``(i) for fiscal year 1996, 
                        $77,000,000;
                            ``(ii) for fiscal year 1997, 
                        $80,000,000;
                            ``(iii) for fiscal year 1998, 
                        $83,000,000;
                            ``(iv) for fiscal year 1999, 
                        $86,000,000;
                            ``(v) for fiscal year 2000, 
                        $89,000,000;
                            ``(vi) for fiscal year 2001, 
                        $92,000,000; and
                            ``(vii) for fiscal year 2002, 
                        $95,000,000.
                    ``(B) Allocation.--The Secretary shall 
                allocate the amounts reserved under 
                subparagraph (A) among the State agencies using 
                a reasonable formula (as determined by the 
                Secretary) that gives consideration to the 
                population in each State affected by section 
                6(o).
                    ``(C) Reallocation.--
                            ``(i) Notification.--A State agency 
                        shall promptly notify the Secretary if 
                        the State agency determines that the 
                        State agency will not expend all of the 
                        funds allocated to the State agency 
                        under subparagraph (B).
                            ``(ii) Reallocation.--On 
                        notification under clause (i), the 
                        Secretary shall reallocate the funds 
                        that the State agency will not expend 
                        as the Secretary considers appropriate 
                        and equitable.
                    ``(D) Minimum allocation.--Notwithstanding 
                subparagraphs (A) through (C), the Secretary 
                shall ensure that each State agency operating 
                an employment and training program shall 
                receive not less than $50,000 in each fiscal 
                year.''.
    (c) Additional Matching Funds.--Section 16(h)(2) of the Act 
(7 U.S.C. 2025(h)(2)) is amended by inserting before the period 
at the end the following: ``, including the costs for case 
management and casework to facilitate the transition from 
economic dependency to self-sufficiency through work''.
    (d) Reports.--Section 16(h) of the Act (7 U.S.C. 2025(h)) 
is amended--
            (1) in paragraph (5)--
                    (A) by striking ``(5)(A) The Secretary'' 
                and inserting ``(5) The Secretary''; and
                    (B) by striking subparagraph (B); and
            (2) by striking paragraph (6).

SEC. 13028. COMPARABLE TREATMENT FOR DISQUALIFICATION.

    (a) In General.--Section 6 of the Food Stamp Act of 1977 (7 
U.S.C. 2015) is amended--
            (1) by redesignating subsection (i), as added by 
        section 12104, as subsection (p); and
            (2) by inserting after subsection (h) the 
        following:
    ``(i) Comparable Treatment for Disqualification.--
            ``(1) In general.--If a disqualification is imposed 
        on a member of a household for a failure of the member 
        to perform an action required under a Federal, State, 
        or local law relating to a means-tested public 
        assistance program, the State agency may impose the 
        same disqualification on the member of the household 
        under the food stamp program.
            ``(2) Rules and procedures.--If a disqualification 
        is imposed under paragraph (1) for a failure of an 
        individual to perform an action required under part A 
        of title IV of the Social Security Act (42 U.S.C. 601 
        et seq.), the State agency may use the rules and 
        procedures that apply under part A of title IV of the 
        Act to impose the same disqualification under the food 
        stamp program.
            ``(3) Application after disqualification period.--A 
        member of a household disqualified under paragraph (1) 
        may, after the disqualification period has expired, 
        apply for benefits under this Act and shall be treated 
        as a new applicant, except that a prior 
        disqualification under subsection (d) shall be 
        considered in determining eligibility.''.
    (b) State Plan Provisions.--Section 11(e) of the Act (7 
U.S.C. 2020(e)) is amended--
            (1) in paragraph (24), by striking ``and'' at the 
        end;
            (2) in paragraph (25), by striking the period at 
        the end and inserting a semicolon; and
            (3) by adding at the end the following:
            ``(26) the guidelines the State agency uses in 
        carrying out section 6(i); and''.
    (c) Conforming Amendment.--Section 6(d)(2)(A) of the Act (7 
U.S.C. 2015(d)(2)(A)) is amended by striking ``that is 
comparable to a requirement of paragraph (1)''.

SEC. 13029. DISQUALIFICATION FOR RECEIPT OF MULTIPLE FOOD STAMP 
                    BENEFITS.

    Section 6 of the Food Stamp Act of 1977 (7 U.S.C. 2015), as 
amended by section 13028, is further amended by inserting after 
subsection (i) the following:
    ``(j) Disqualification for Receipt of Multiple Food Stamp 
Benefits.--An individual shall be ineligible to participate in 
the food stamp program as a member of any household for a 10-
year period if the individual is found by a State agency to 
have made, or is convicted in a Federal or State court of 
having made, a fraudulent statement or representation with 
respect to the identity or place of residence of the individual 
in order to receive multiple benefits simultaneously under the 
food stamp program.''.

SEC. 13030. DISQUALIFICATION OF FLEEING FELONS.

    Section 6 of the Food Stamp Act of 1977 (7 U.S.C. 2015), as 
amended by section 13029, is further amended by inserting after 
subsection (j) the following:
    ``(k) Disqualification of Fleeing Felons.--No member of a 
household who is otherwise eligible to participate in the food 
stamp program shall be eligible to participate in the program 
as a member of that or any other household during any period 
during which the individual is--
            ``(1) fleeing to avoid prosecution, or custody or 
        confinement after conviction, under the law of the 
        place from which the individual is fleeing, for a 
        crime, or attempt to commit a crime, that is a felony 
        under the law of the place from which the individual is 
        fleeing or that, in the case of New Jersey, is a high 
        misdemeanor under the law of New Jersey; or
            ``(2) violating a condition of probation or parole 
        imposed under a Federal or State law.''.

SEC. 13031. COOPERATION WITH CHILD SUPPORT AGENCIES.

    Section 6 of the Food Stamp Act of 1977 (7 U.S.C. 2015), as 
amended by section 13030, is further amended by inserting after 
subsection (k) the following:
    ``(l) Custodial Parent's Cooperation With Child Support 
Agencies.--
            ``(1) In general.--At the option of a State agency, 
        subject to paragraphs (2) and (3), no natural or 
        adoptive parent or other individual (collectively 
        referred to in this subsection as `the individual') who 
        is living with and exercising parental control over a 
        child under the age of 18 who has an absent parent 
        shall be eligible to participate in the food stamp 
        program unless the individual cooperates with the State 
        agency administering the program established under part 
        D of title IV of the Social Security Act (42 U.S.C. 651 
        et seq.)--
                    ``(A) in establishing the paternity of the 
                child (if the child is born out of wedlock); 
                and
                    ``(B) in obtaining support for--
                            ``(i) the child; or
                            ``(ii) the individual and the 
                        child.
            ``(2) Good cause for noncooperation.--Paragraph (1) 
        shall not apply to the individual if good cause is 
        found for refusing to cooperate, as determined by the 
        State agency in accordance with standards prescribed by 
        the Secretary in consultation with the Secretary of 
        Health and Human Services. The standards shall take 
        into consideration circumstances under which 
        cooperation may be against the best interests of the 
        child.
            ``(3) Fees.--Paragraph (1) shall not require the 
        payment of a fee or other cost for services provided 
        under part D of title IV of the Social Security Act (42 
        U.S.C. 651 et seq.).
    ``(m) Non-Custodial Parent's Cooperation With Child Support 
Agencies.--
            ``(1) In general.--At the option of a State agency, 
        subject to paragraphs (2) and (3), a putative or 
        identified non-custodial parent of a child under the 
        age of 18 (referred to in this subsection as `the 
        individual') shall not be eligible to participate in 
        the food stamp program if the individual refuses to 
        cooperate with the State agency administering the 
        program established under part D of title IV of the 
        Social Security Act (42 U.S.C. 651 et seq.)--
                    ``(A) in establishing the paternity of the 
                child (if the child is born out of wedlock); 
                and
                    ``(B) in providing support for the child.
            ``(2) Refusal to cooperate.--
                    ``(A) Guidelines.--The Secretary, in 
                consultation with the Secretary of Health and 
                Human Services, shall develop guidelines on 
                what constitutes a refusal to cooperate under 
                paragraph (1).
                    ``(B) Procedures.--The State agency shall 
                develop procedures, using guidelines developed 
                under subparagraph (A), for determining whether 
                an individual is refusing to cooperate under 
                paragraph (1).
            ``(3) Fees.--Paragraph (1) shall not require the 
        payment of a fee or other cost for services provided 
        under part D of title IV of the Social Security Act (42 
        U.S.C. 651 et seq.).
            ``(4) Privacy.--The State agency shall provide 
        safeguards to restrict the use of information collected 
        by a State agency administering the program established 
        under part D of title IV of the Social Security Act (42 
        U.S.C. 651 et seq.) to purposes for which the 
        information is collected.''.

SEC. 13032. DISQUALIFICATION RELATING TO CHILD SUPPORT ARREARS.

    Section 6 of the Food Stamp Act of 1977 (7 U.S.C. 2015), as 
amended by section 13031, is further amended by inserting after 
subsection (m) the following:
    ``(n) Disqualification for Child Support Arrears.--
            ``(1) In general.--No individual shall be eligible 
        to participate in the food stamp program as a member of 
        any household during any month that the individual is 
        delinquent in any payment due under a court order for 
        the support of a child of the individual.
            ``(2) Exceptions.--Paragraph (1) shall not apply 
        if--
                    ``(A) a court is allowing the individual to 
                delay payment; or
                    ``(B) the individual is complying with a 
                payment plan approved by a court or the State 
                agency designated under part D of title IV of 
                the Social Security Act (42 U.S.C. 651 et seq.) 
                to provide support for the child of the 
                individual.''.

SEC. 13033. WORK REQUIREMENT.

    (a) In General.--Section 6 of the Food Stamp Act of 1977 (7 
U.S.C. 2015), as amended by section 13032, is further amended 
by inserting after subsection (n) the following:
    ``(o) Work Requirement.--
            ``(1) Definition of work program.--In this 
        subsection, the term `work program' means--
                    ``(A) a program under the Job Training 
                Partnership Act (29 U.S.C. 1501 et seq.);
                    ``(B) a program under section 236 of the 
                Trade Act of 1974 (19 U.S.C. 2296); or
                    ``(C) a program of employment or training 
                operated or supervised by a State or political 
                subdivision of a State that meets standards 
                approved by the Governor of the State, 
                including a program under section 6(d)(4), 
                other than a job search program or a job search 
                training program.
            ``(2) Work requirement.--Subject to the other 
        provisions of this subsection, no individual shall be 
        eligible to participate in the food stamp program as a 
        member of any household if, during the preceding 12-
        month period, the individual received food stamp 
        benefits for not less than 4 months during which the 
        individual did not--
                    ``(A) work 20 hours or more per week, 
                averaged monthly; or
                    ``(B) participate in and comply with the 
                requirements of a work program for 20 hours or 
                more per week, as determined by the State 
                agency; or
                    ``(C) participate in a program under 
                section 20 or a comparable program established 
                by a State or political subdivision of a State.
            ``(3) Exception.--Paragraph (2) shall not apply to 
        an individual if the individual is--
                    ``(A) under 18 or over 50 years of age;
                    ``(B) medically certified as physically or 
                mentally unfit for employment;
                    ``(C) a parent or other member of a 
                household with responsibility for a dependent 
                child;
                    ``(D) otherwise exempt under section 
                6(d)(2); or
                    ``(E) a pregnant woman.
            ``(4) Waiver.--
                    ``(A) In general.--On the request of a 
                State agency, the Secretary may waive the 
                applicability of paragraph (2) to any group of 
                individuals in the State if the Secretary makes 
                a determination that the area in which the 
                individuals reside--
                            ``(i) has an unemployment rate of 
                        over 10 percent; or
                            ``(ii) does not have a sufficient 
                        number of jobs to provide employment 
                        for the individuals.
                    ``(B) Report.--The Secretary shall report 
                the basis for a waiver under subparagraph (A) 
                to the Committee on Agriculture of the House of 
                Representatives and the Committee on 
                Agriculture, Nutrition, and Forestry of the 
                Senate.
            ``(5) Subsequent eligibility.--
                    ``(A) In general.--Paragraph (2) shall 
                cease to apply to an individual if, during a 
                30-day period, the individual--
                            ``(i) works 80 or more hours;
                            ``(ii) participates in and complies 
                        with the requirements of a work program 
                        for 80 or more hours, as determined by 
                        a State agency; or
                            ``(iii) participates in a program 
                        under section 20 or a comparable 
                        program established by a State or 
                        political subdivision of a State.
                    ``(B) Limitation.--During the subsequent 
                12-month period, the individual shall be 
                eligible to participate in the food stamp 
                program for not more than 4 months during which 
                the individual does not--
                            ``(i) work 20 hours or more per 
                        week, averaged monthly;
                            ``(ii) participate in and comply 
                        with the requirements of a work program 
                        for 20 hours or more per week, as 
                        determined by the State agency; or
                            ``(iii) participate in a program 
                        under section 20 or a comparable 
                        program established by a State or 
                        political subdivision of a State.''.
    (b) Transition Provision.--Prior to 1 year after the date 
of enactment of this Act, the term ``preceding 12-month 
period'' in section 6(o) of the Food Stamp Act of 1977, as 
amended by subsection (a), means the preceding period that 
begins on the date of enactment of this Act.

SEC. 13034. ENCOURAGE ELECTRONIC BENEFIT TRANSFER SYSTEMS.

    Section 7(i) of the Food Stamp Act of 1977 (7 U.S.C. 
2016(i)) is amended--
            (1) by striking paragraph (1) and inserting the 
        following:
            ``(1) Electronic Benefit Transfers.--
                    ``(A) Implementation.--Each State agency 
                shall implement an electronic benefit transfer 
                system in which household benefits determined 
                under section 8(a) or 24 are issued from and 
                stored in a central databank before October 1, 
                2002, unless the Secretary provides a waiver 
                for a State agency that faces unusual barriers 
                to implementing an electronic benefit transfer 
                system.
                    ``(B) Timely implementation.--State 
                agencies are encouraged to implement an 
                electronic benefit transfer system under 
                subparagraph (A) as soon as practicable.
                    ``(C) State flexibility.--Subject to 
                paragraph (2), a State agency may procure and 
                implement an electronic benefit transfer system 
                under the terms, conditions, and design that 
                the State agency considers appropriate.
                    ``(D) Operation.--An electronic benefit 
                transfer system should take into account 
                generally accepted standard operating rules 
                based on--
                            ``(i) commercial electronic funds 
                        transfer technology;
                            ``(ii) the need to permit 
                        interstate operation and law 
                        enforcement monitoring; and
                    ``(iii) the need to permit monitoring and 
                investigations by authorized law enforcement 
                agencies.'';
            (2) in paragraph (2)--
                    (A) by striking ``effective no later than 
                April 1, 1992,'';
                    (B) in subparagraph (A)--
                            (i) by striking ``, in any 1 
                        year,''; and
                            (ii) by striking ``on-line'';
                    (C) by striking subparagraph (D) and 
                inserting the following:
                    ``(D)(i) measures to maximize the security 
                of a system using the most recent technology 
                available that the State agency considers 
                appropriate and cost effective and which may 
                include personal identification numbers, 
                photographic identification on electronic 
                benefit transfer cards, and other measures to 
                protect against fraud and abuse; and
                    ``(ii) effective not later than 2 years 
                after the effective date of this clause, to the 
                extent practicable, measures that permit a 
                system to differentiate items of food that may 
                be acquired with an allotment from items of 
                food that may not be acquired with an 
                allotment.'';
                    (D) in subparagraph (G), by striking 
                ``and'' at the end;
                    (E) in subparagraph (H), by striking the 
                period at the end and inserting ``; and''; and
                    (F) by adding at the end the following:
                    ``(I) procurement standards.''; and
            (3) by adding at the end the following:
            ``(7) Replacement of benefits.--Regulations issued 
        by the Secretary regarding the replacement of benefits 
        and liability for replacement of benefits under an 
        electronic benefit transfer system shall be similar to 
        the regulations in effect for a paper food stamp 
        issuance system.
            ``(8) Replacement card fee.--A State agency may 
        collect a charge for replacement of an electronic 
        benefit transfer card by reducing the monthly allotment 
        of the household receiving the replacement card.
            ``(9) Optional photographic identification.--
                    ``(A) In general.--A State agency may 
                require that an electronic benefit card contain 
                a photograph of 1 or more members of a 
                household.
                    ``(B) Other authorized users.--If a State 
                agency requires a photograph on an electronic 
                benefit card under subparagraph (A), the State 
                agency shall establish procedures to ensure 
                that any other appropriate member of the 
                household or any authorized representative of 
                the household may utilize the card.''.

SEC. 13035. VALUE OF MINIMUM ALLOTMENT.

    The proviso in section 8(a) of the Food Stamp Act of 1977 
(7 U.S.C. 2017(a)) is amended by striking ``, and shall be 
adjusted'' and all that follows through ``$5''.

SEC. 13036. BENEFITS ON RECERTIFICATION.

    Section 8(c)(2)(B) of the Food Stamp Act of 1977 (7 U.S.C. 
2017(c)(2)(B)) is amended by striking ``of more than one 
month''.

SEC. 13037. OPTIONAL COMBINED ALLOTMENT FOR EXPEDITED HOUSEHOLDS.

    Section 8(c) of the Food Stamp Act of 1977 (7 U.S.C. 
2017(c)) is amended by striking paragraph (3) and inserting the 
following:
            ``(3) Optional combined allotment for expedited 
        households.--A State agency may provide to an eligible 
        household applying after the 15th day of a month, in 
        lieu of the initial allotment of the household and the 
        regular allotment of the household for the following 
        month, an allotment that is equal to the total amount 
        of the initial allotment and the first regular 
        allotment. The allotment shall be provided in 
        accordance with section 11(e)(3) in the case of a 
        household that is not entitled to expedited service and 
        in accordance with paragraphs (3) and (9) of section 
        11(e) in the case of a household that is entitled to 
        expedited service.''.

SEC. 13038. FAILURE TO COMPLY WITH OTHER MEANS-TESTED PUBLIC ASSISTANCE 
                    PROGRAMS.

    Section 8 of the Food Stamp Act of 1977 (7 U.S.C. 2017) is 
amended by striking subsection (d) and inserting the following:
    ``(d) Reduction of Public Assistance Benefits.--
            ``(1) In general.--If the benefits of a household 
        are reduced under a Federal, State, or local law 
        relating to a means-tested public assistance program 
        for the failure of a member of the household to perform 
        an action required under the law or program, for the 
        duration of the reduction--
                    ``(A) the household may not receive an 
                increased allotment as the result of a decrease 
                in the income of the household to the extent 
                that the decrease is the result of the 
                reduction; and
                    ``(B) the State agency may reduce the 
                allotment of the household by not more than 25 
                percent.
            ``(2) Rules and procedures.--If the allotment of a 
        household is reduced under this subsection for a 
        failure to perform an action required under part A of 
        title IV of the Social Security Act (42 U.S.C. 601 et 
        seq.), the State agency may use the rules and 
        procedures that apply under part A of title IV of the 
        Act to reduce the allotment under the food stamp 
        program.''.

SEC. 13039. ALLOTMENTS FOR HOUSEHOLDS RESIDING IN CENTERS.

    Section 8 of the Food Stamp Act of 1977 (7 U.S.C. 2017) is 
amended by adding at the end the following:
    ``(f) Allotments for Households Residing in Centers.--
            ``(1) In general.--In the case of an individual who 
        resides in a center for the purpose of a drug or 
        alcoholic treatment program described in the last 
        sentence of section 3(i), a State agency may provide an 
        allotment for the individual to--
                    ``(A) the center as an authorized 
                representative of the individual for a period 
                that is less than 1 month; and
                    ``(B) the individual, if the individual 
                leaves the center.
            ``(2) Direct payment.--A State agency may require 
        an individual referred to in paragraph (1) to designate 
        the center in which the individual resides as the 
        authorized representative of the individual for the 
        purpose of receiving an allotment.''.

SEC. 13040. CONDITION PRECEDENT FOR APPROVAL OF RETAIL FOOD STORES AND 
                    WHOLESALE FOOD CONCERNS.

    Section 9(a)(1) of the Food Stamp Act of 1977 (7 U.S.C. 
2018(a)(1)) is amended by adding at the end the following: ``No 
retail food store or wholesale food concern of a type 
determined by the Secretary, based on factors that include 
size, location, and type of items sold, shall be approved to be 
authorized or reauthorized for participation in the food stamp 
program unless an authorized employee of the Department of 
Agriculture, a designee of the Secretary, or, if practicable, 
an official of the State or local government designated by the 
Secretary has visited the store or concern for the purpose of 
determining whether the store or concern should be approved or 
reauthorized, as appropriate.''.

SEC. 13041. AUTHORITY TO ESTABLISH AUTHORIZATION PERIODS.

    Section 9(a) of the Food Stamp Act of 1977 (7 U.S.C. 
2018(a)) is amended by adding at the end the following:
            ``(3) Authorization periods.--The Secretary shall 
        establish specific time periods during which 
        authorization to accept and redeem coupons, or to 
        redeem benefits through an electronic benefit transfer 
        system, shall be valid under the food stamp program.''.

SEC. 13042. INFORMATION FOR VERIFYING ELIGIBILITY FOR AUTHORIZATION.

    Section 9(c) of the Food Stamp Act of 1977 (7 U.S.C. 
2018(c)) is amended--
            (1) in the first sentence, by inserting ``, which 
        may include relevant income and sales tax filing 
        documents,'' after ``submit information''; and
            (2) by inserting after the first sentence the 
        following: ``The regulations may require retail food 
        stores and wholesale food concerns to provide written 
        authorization for the Secretary to verify all relevant 
        tax filings with appropriate agencies and to obtain 
        corroborating documentation from other sources so that 
        the accuracy of information provided by the stores and 
        concerns may be verified.''.

SEC. 13043. WAITING PERIOD FOR STORES THAT FAIL TO MEET AUTHORIZATION 
                    CRITERIA.

    Section 9(d) of the Food Stamp Act of 1977 (7 U.S.C. 
2018(d)) is amended by adding at the end the following: ``A 
retail food store or wholesale food concern that is denied 
approval to accept and redeem coupons because the store or 
concern does not meet criteria for approval established by the 
Secretary may not, for at least 6 months, submit a new 
application to participate in the program. The Secretary may 
establish a longer time period under the preceding sentence, 
including permanent disqualification, that reflects the 
severity of the basis of the denial.''.

SEC. 13044. EXPEDITED COUPON SERVICE.

    Section 11(e)(9) of the Food Stamp Act of 1977 (7 U.S.C. 
2020(e)(9)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``five days'' and inserting 
                ``7 days''; and
                    (B) by inserting ``and'' at the end;
            (2) by striking subparagraphs (B) and (C);
            (3) by redesignating subparagraph (D) as 
        subparagraph (B); and
            (4) in subparagraph (B), as redesignated by 
        paragraph (3), by striking ``, (B), or (C)''.

SEC. 13045. WITHDRAWING FAIR HEARING REQUESTS.

    Section 11(e)(10) of the Food Stamp Act of 1977 (7 U.S.C. 
2020(e)(10)) is amended by inserting before the semicolon at 
the end a period and the following: ``At the option of a State, 
at any time prior to a fair hearing determination under this 
paragraph, a household may withdraw, orally or in writing, a 
request by the household for the fair hearing. If the 
withdrawal request is an oral request, the State agency shall 
provide a written notice to the household confirming the 
withdrawal request and providing the household with an 
opportunity to request a hearing''.

SEC. 13046. DISQUALIFICATION OF RETAILERS WHO INTENTIONALLY SUBMIT 
                    FALSIFIED APPLICATIONS.

    Section 12(b) of the Food Stamp Act of 1977 (7 U.S.C. 
2021(b)) is amended--
            (1) in paragraph (2), by striking ``and'' at the 
        end;
            (2) in paragraph (3), by striking the period at the 
        end and inserting ``; and''; and
            (3) by adding at the end the following:
            ``(4) for a reasonable period of time to be 
        determined by the Secretary, including permanent 
        disqualification, on the knowing submission of an 
        application for the approval or reauthorization to 
        accept and redeem coupons that contains false 
        information about a substantive matter that was a part 
        of the application.''.

SEC. 13047. DISQUALIFICATION OF RETAILERS WHO ARE DISQUALIFIED UNDER 
                    THE WIC PROGRAM.

    Section 12 of the Food Stamp Act of 1977 (7 U.S.C. 2021) is 
amended by adding at the end the following:
    ``(g) Disqualification of Retailers Who Are Disqualified 
Under the WIC Program.--
            ``(1) In general.--The Secretary shall issue 
        regulations providing criteria for the disqualification 
        under this Act of an approved retail food store and a 
        wholesale food concern that is disqualified from 
        accepting benefits under the special supplemental 
        nutrition program for women, infants, and children 
        established under section 17 of the Child Nutrition Act 
        of 1966 (7 U.S.C. 1786).
            ``(2) Terms.--A disqualification under paragraph 
        (1)--
                    ``(A) shall be for the same length of time 
                as the disqualification from the program 
                referred to in paragraph (1);
                    ``(B) may begin at a later date than the 
                disqualification from the program referred to 
                in paragraph (1); and
                    ``(C) notwithstanding section 14, shall not 
                be subject to judicial or administrative 
                review.''.

SEC. 13048. COLLECTION OF OVERISSUANCES.

    (a) Collection of Overissuances.--Section 13 of the Food 
Stamp Act of 1977 (7 U.S.C. 2022) is amended--
            (1) by striking subsection (b) and inserting the 
        following:
    ``(b) Collection of Overissuances.--
            ``(1) In general.--Except as otherwise provided in 
        this subsection, a State agency shall collect any 
        overissuance of coupons issued to a household by--
                    ``(A) reducing the allotment of the 
                household;
                    ``(B) withholding amounts from unemployment 
                compensation from a member of the household 
                under subsection (c);
                    ``(C) recovering from Federal pay or a 
                Federal income tax refund under subsection (d); 
                or
                    ``(D) any other means.
            ``(2) Cost effectiveness.--Paragraph (1) shall not 
        apply if the State agency demonstrates to the 
        satisfaction of the Secretary that all of the means 
        referred to in paragraph (1) are not cost effective.
            ``(3) Maximum reduction absent fraud.--If a 
        household received an overissuance of coupons without 
        any member of the household being found eligible to 
        participate in the program under section 6(b)(1) and a 
        State agency elects to reduce the allotment of the 
        household under paragraph (1)(A), the State agency 
        shall not reduce the monthly allotment of the household 
        under paragraph (1)(A) by an amount in excess of the 
        greater of--
                    ``(A) 10 percent of the monthly allotment 
                of the household; or
                    ``(B) $10.
            ``(4) Procedures.--A State agency shall collect an 
        overissuance of coupons issued to a household under 
        paragraph (1) in accordance with the requirements 
        established by the State agency for providing notice, 
        electing a means of payment, and establishing a time 
        schedule for payment.''; and
            (2) in subsection (d)--
                    (A) by striking ``as determined under 
                subsection (b) and except for claims arising 
                from an error of the State agency,'' and 
                inserting ``, as determined under subsection 
                (b)(1),''; and
                    (B) by inserting before the period at the 
                end the following: ``or a Federal income tax 
                refund as authorized by section 3720A of title 
                31, United States Code''.
    (b) Conforming Amendments.--Section 11(e)(8) of the Act (7 
U.S.C. 2020(e)(8)) is amended--
            (1) by striking ``and excluding claims'' and all 
        that follows through ``such section''; and
            (2) by inserting before the semicolon at the end 
        the following: ``or a Federal income tax refund as 
        authorized by section 3720A of title 31, United States 
        Code''.
    (c) Retention Rate.--Section 16(a) of the Act (7 U.S.C. 
2025(a)) is amended by striking ``25 percent during the period 
beginning October 1, 1990'' and all that follows through 
``error of a State agency'' and inserting the following: ``25 
percent of the overissuances collected by the State agency 
under section 13, except those overissuances arising from an 
error of the State agency''.

SEC. 13049. AUTHORITY TO SUSPEND STORES VIOLATING PROGRAM REQUIREMENTS 
                    PENDING ADMINISTRATIVE AND JUDICIAL REVIEW.

    Section 14(a) of the Food Stamp Act of 1977 (7 U.S.C. 
2023(a)) is amended--
            (1) by redesignating the first through seventeenth 
        sentences as paragraphs (1) through (17), respectively; 
        and
            (2) by adding at the end the following:
            ``(18) Suspension of stores pending review.--
        Notwithstanding any other provision of this subsection, 
        any permanent disqualification of a retail food store 
        or wholesale food concern under paragraph (3) or (4) of 
        section 12(b) shall be effective from the date of 
        receipt of the notice of disqualification. If the 
        disqualification is reversed through administrative or 
        judicial review, the Secretary shall not be liable for 
        the value of any sales lost during the disqualification 
        period.''.

SEC. 13050. LIMITATION OF FEDERAL MATCH.

    Section 16(a)(4) of the Food Stamp Act of 1977 (7 U.S.C. 
2025(a)(4)) is amended by inserting after the comma at the end 
the following: ``but not including recruitment activities,''.

SEC. 13051. WORK SUPPLEMENTATION OR SUPPORT PROGRAM.

    Section 16 of the Food Stamp Act of 1977 (7 U.S.C. 2025) is 
amended by adding at the end the following:
    ``(c) Work Supplementation or Support Program.--
            ``(1) Definition of work supplementation or support 
        program.--In this subsection, the term `work 
        supplementation or support program' means a program 
        under which, as determined by the Secretary, public 
        assistance (including any benefits provided under a 
        program established by the State and the food stamp 
        program) is provided to an employer to be used for 
        hiring and employing a public assistance recipient who 
        was not employed by the employer at the time the public 
        assistance recipient entered the program.
            ``(2) Program.--A State agency may elect to use an 
        amount equal to the allotment that would otherwise be 
        issued to a household under the food stamp program, but 
        for the operation of this subsection, for the purpose 
        of subsidizing or supporting a job under a work 
        supplementation or support program established by the 
        State.
            ``(3) Procedure.--If a State agency makes an 
        election under paragraph (2) and identifies each 
        household that participates in the food stamp program 
        that contains an individual who is participating in the 
        work supplementation or support program--
                    ``(A) the Secretary shall pay to the State 
                agency an amount equal to the value of the 
                allotment that the household would be eligible 
                to receive but for the operation of this 
                subsection;
                    ``(B) the State agency shall expend the 
                amount received under subparagraph (A) in 
                accordance with the work supplementation or 
                support program in lieu of providing the 
                allotment that the household would receive but 
                for the operation of this subsection;
                    ``(C) for purposes of--
                            ``(i) sections 5 and 8(a), the 
                        amount received under this subsection 
                        shall be excluded from household income 
                        and resources; and
                            ``(ii) section 8(b), the amount 
                        received under this subsection shall be 
                        considered to be the value of an 
                        allotment provided to the household; 
                        and
                    ``(D) the household shall not receive an 
                allotment from the State agency for the period 
                during which the member continues to 
                participate in the work supplementation or 
                support program.
            ``(4) Other work requirements.--No individual shall 
        be excused, by reason of the fact that a State has a 
        work supplementation or support program, from any work 
        requirement under section 6(d), except during the 
        periods in which the individual is employed under the 
        work supplementation or support program.
            ``(5) Length of participation.--A State agency 
        shall provide a description of how the public 
        assistance recipients in the program shall, within a 
        specific period of time, be moved from supplemented or 
        supported employment to employment that is not 
        supplemented or supported.
            ``(6) Displacement.--A work supplementation or 
        support program shall not displace the employment of 
        individuals who are not supplemented or supported.''.

SEC. 13052. AUTHORIZATION OF PILOT PROJECTS.

    The last sentence of section 17(b)(1)(A) of the Food Stamp 
Act of 1977 (7 U.S.C. 2026(b)(1)(A)) is amended by striking 
``1995'' and inserting ``2002''.

SEC. 13053. EMPLOYMENT INITIATIVES PROGRAM.

    Section 17 of the Food Stamp Act of 1977 (7 U.S.C. 2026) is 
amended by striking subsection (d) and inserting the following:
    ``(d) Employment Initiatives Program.--
            ``(1) Election to participate.--
                    ``(A) In general.--Subject to the other 
                provisions of this subsection, a State may 
                elect to carry out an employment initiatives 
                program under this subsection.
                    ``(B) Requirement.--A State shall be 
                eligible to carry out an employment initiatives 
                program under this subsection only if not less 
                than 50 percent of the households that received 
                food stamp benefits during the summer of 1993 
                also received benefits under a State program 
                funded under part A of title IV of the Social 
                Security Act (42 U.S.C. 601 et seq.) during the 
                summer of 1993.
            ``(2) Procedure.--
                    ``(A) In general.--A State that has elected 
                to carry out an employment initiatives program 
                under paragraph (1) may use amounts equal to 
                the food stamp allotments that would otherwise 
                be issued to a household under the food stamp 
                program, but for the operation of this 
                subsection, to provide cash benefits in lieu of 
                the food stamp allotments to the household if 
                the household is eligible under paragraph (3).
                    ``(B) Payment.--The Secretary shall pay to 
                each State that has elected to carry out an 
                employment initiatives program under paragraph 
                (1) an amount equal to the value of the 
                allotment that each household would be eligible 
                to receive under this Act but for the operation 
                of this subsection.
                    ``(C) Other provisions.--For purposes of 
                the food stamp program (other than this 
                subsection)--
                            ``(i) cash assistance under this 
                        subsection shall be considered to be an 
                        allotment; and
                            ``(ii) each household receiving 
                        cash benefits under this subsection 
                        shall not receive any other food stamp 
                        benefit for the period for which the 
                        cash assistance is provided.
                    ``(D) Additional payments.--Each State that 
                has elected to carry out an employment 
                initiatives program under paragraph (1) shall--
                            ``(i) increase the cash benefits 
                        provided to each household under this 
                        subsection to compensate for any State 
                        or local sales tax that may be 
                        collected on purchases of food by any 
                        household receiving cash benefits under 
                        this subsection, unless the Secretary 
                        determines on the basis of information 
                        provided by the State that the increase 
                        is unnecessary on the basis of the 
                        limited nature of the items subject to 
                        the State or local sales tax; and
                            ``(ii) pay the cost of any increase 
                        in cash benefits required by clause 
                        (i).
            ``(3) Eligibility.--A household shall be eligible 
        to receive cash benefits under paragraph (2) if an 
        adult member of the household--
                    ``(A) has worked in unsubsidized employment 
                for not less than the preceding 90 days;
                    ``(B) has earned not less than $350 per 
                month from the employment referred to in 
                subparagraph (A) for not less than the 
                preceding 90 days;
                    ``(C)(i) is receiving benefits under a 
                State program funded under part A of title IV 
                of the Social Security Act (42 U.S.C. 601 et 
                seq.); or
                    ``(ii) was receiving benefits under a State 
                program funded under part A of title IV of the 
                Social Security Act (42 U.S.C. 601 et seq.) at 
                the time the member first received cash 
                benefits under this subsection and is no longer 
                eligible for the State program because of 
                earned income;
                    ``(D) is continuing to earn not less than 
                $350 per month from the employment referred to 
                in subparagraph (A); and
                    ``(E) elects to receive cash benefits in 
                lieu of food stamp benefits under this 
                subsection.
            ``(4) Evaluation.--A State that operates a program 
        under this subsection for 2 years shall provide to the 
        Secretary a written evaluation of the impact of cash 
        assistance under this subsection. The State agency, 
        with the concurrence of the Secretary, shall determine 
        the content of the evaluation.''.

SEC. 13054. REAUTHORIZATION OF PUERTO RICO NUTRITION ASSISTANCE 
                    PROGRAM.

    The first sentence of section 19(a)(1)(A) of the Food Stamp 
Act of 1977 (7 U.S.C. 2028(a)(1)(A)) is amended by striking 
``$974,000,000'' and all that follows through ``fiscal year 
1995'' and inserting ``$1,143,000,000 for each of fiscal years 
1995 and 1996, $1,182,000,000 for fiscal year 1997, 
$1,223,000,000 for fiscal year 1998, $1,266,000,000 for fiscal 
year 1999, $1,310,000,000 for fiscal year 2000, $1,357,000,000 
for fiscal year 2001, and $1,404,000,000 for fiscal year 
2002''.

SEC. 13055. SIMPLIFIED FOOD STAMP PROGRAM.

    (a) In General.--The Act (7 U.S.C. 2011 et seq.) is amended 
by adding at the end the following:

``SEC. 24. SIMPLIFIED FOOD STAMP PROGRAM.

    ``(a) Definition of Federal Costs.--In this section, the 
term `Federal costs' does not include any Federal costs 
incurred under section 17.
    ``(b) Election.--Subject to subsection (d), a State agency 
may elect to carry out a Simplified Food Stamp Program 
(referred to in this section as a `Program') in accordance with 
this section.
    ``(c) Operation of Program.--If a State agency elects to 
carry out a Program, within the State or a political 
subdivision of the State--
            ``(1) a household in which all members receive 
        assistance under a State program funded under part A of 
        title IV of the Social Security Act (42 U.S.C. 601 et 
        seq.) shall automatically be eligible to participate in 
        the Program; and
            ``(2) subject to subsection (f), benefits under the 
        Program shall be determined under rules and procedures 
        established by the State under--
                    ``(A) a State program funded under part A 
                of title IV of the Social Security Act (42 
                U.S.C. 601 et seq.);
                    ``(B) the food stamp program (other than 
                section 25); or
                    ``(C) a combination of a State program 
                funded under part A of title IV of the Social 
                Security Act (42 U.S.C. 601 et seq.) and the 
                food stamp program (other than section 25).
    ``(d) Approval of Program.--
            ``(1) State plan.--A State agency may not operate a 
        Program unless the Secretary approves a State plan for 
        the operation of the Program under paragraph (2).
            ``(2) Approval of plan.--The Secretary shall 
        approve any State plan to carry out a Program if the 
        Secretary determines that the plan--
                    ``(A) complies with this section; and
                    ``(B) contains sufficient documentation 
                that the plan will not increase Federal costs 
                for any fiscal year.
    ``(e) Increased Federal Costs.--
            ``(1) Determination.--During each fiscal year and 
        not later than 90 days after the end of each fiscal 
        year, the Secretary shall determine whether a Program 
        being carried out by a State agency is increasing 
        Federal costs under this Act above the Federal costs 
        incurred under the food stamp program in operation in 
        the State or political subdivision of the State for the 
        fiscal year prior to the implementation of the Program, 
        adjusted for any changes in--
                    ``(A) participation;
                    ``(B) the income of participants in the 
                food stamp program that is not attributable to 
                public assistance; and
                    ``(C) the thrifty food plan under section 
                3(o).
            ``(2) Notification.--If the Secretary determines 
        that the Program has increased Federal costs under this 
        Act for any fiscal year or any portion of any fiscal 
        year, the Secretary shall notify the State agency not 
        later than 30 days after the Secretary makes the 
        determination under paragraph (1).
            ``(3) Enforcement.--
                    ``(A) Corrective action.--Not later than 90 
                days after the date of a notification under 
                paragraph (2), the State agency shall submit a 
                plan for approval by the Secretary for prompt 
                corrective action that is designed to prevent 
                the Program from increasing Federal costs under 
                this Act.
                    ``(B) Termination.--If the State agency 
                does not submit a plan under subparagraph (A) 
                or carry out a plan approved by the Secretary, 
                the Secretary shall terminate the approval of 
                the State agency to operate a Program and the 
                State agency shall be ineligible to operate a 
                future Program.
    ``(f) Rules and Procedures.--
            ``(1) In general.--In operating a Program, a State 
        or political subdivision of a State may follow the 
        rules and procedures established by the State or 
        political subdivision under a State program funded 
        under part A of title IV of the Social Security Act (42 
        U.S.C. 601 et seq.) or under the food stamp program.
            ``(2) Standardized deductions.--In operating a 
        Program, a State may standardize the deductions 
        provided under section 5(e). In developing the 
        standardized deduction, the State shall consider the 
        work expenses, dependent care costs, and shelter costs 
        of participating households.
            ``(3) Requirements.--In operating a Program, a 
        State or political subdivision shall comply with the 
        requirements of--
                    ``(A) subsections (a) through (g) of 
                section 7;
                    ``(B) section 8(a) (except that the income 
                of a household may be determined under a State 
                program funded under part A of title IV of the 
                Social Security Act (42 U.S.C. 601 et seq.));
                    ``(C) subsection (b) and (d) of section 8;
                    ``(D) subsections (a), (c), (d), and (n) of 
                section 11;
                    ``(E) paragraphs (8), (12), (17), (19), 
                (21), (26), and (27) of section 11(e);
                    ``(F) section 11(e)(10) (or a comparable 
                requirement established by the State under a 
                State program funded under part A of title IV 
                of the Social Security Act (42 U.S.C. 601 et 
                seq.)); and
                    ``(G) section 16.
            ``(4) Limitation on eligibility.--Notwithstanding 
        any other provision of this section, a household may 
        not receive benefits under this section as a result of 
        the eligibility of the household under a State program 
        funded under part A of title IV of the Social Security 
        Act (42 U.S.C. 601 et seq.), unless the Secretary 
        determines that any household with income above 130 
        percent of the poverty guidelines is not eligible for 
        the program.''.
    (b) State Plan Provisions.--Section 11(e) of the Act (7 
U.S.C. 2020(e)), as amended by sections 13028(b), is further 
amended by adding at the end the following:
            ``(27) if a State agency elects to carry out a 
        Simplified Food Stamp Program under section 24, the 
        plans of the State agency for operating the program, 
        including--
                    ``(A) the rules and procedures to be 
                followed by the State to determine food stamp 
                benefits;
                    ``(B) how the State will address the needs 
                of households that experience high shelter 
                costs in relation to the incomes of the 
                households; and
                    ``(C) a description of the method by which 
                the State will carry out a quality control 
                system under section 16(c).''.
    (c) Conforming Amendments.--
            (1) Section 8 of the Act (7 U.S.C. 2017), as 
        amended by section 13039, is further amended--
                    (A) by striking subsection (e); and
                    (B) by redesignating subsection (f) as 
                subsection (e).
            (2) Section 17 of the Act (7 U.S.C. 2026) is 
        amended--
                    (A) by striking subsection (i); and
                    (B) by redesignating subsections (j) 
                through (l) as subsections (i) through (k), 
                respectively.

SEC. 13056. STATE FOOD ASSISTANCE BLOCK GRANT.

    (a) In General.--The Food Stamp Act of 1977 (7 U.S.C. 2011 
et seq.), as amended by section 13055, is further amended by 
adding at the end the following:

``SEC. 25. STATE FOOD ASSISTANCE BLOCK GRANT.

    ``(a) Definitions.--In this section:
            ``(1) Food assistance.--The term `food assistance' 
        means assistance that may be used only to obtain food, 
        as defined in section 3(g).
            ``(2) State.--The term `State' means each of the 50 
        States, the District of Columbia, Guam, and the Virgin 
        Islands of the United States.
    ``(b) Establishment.--The Secretary shall establish a 
program to make grants to States in accordance with this 
section to provide--
            ``(1) food assistance to needy individuals and 
        families residing in the State; and
            ``(2) funds for administrative costs incurred in 
        providing the assistance.
    ``(c) Election.--
            ``(1) In general.--A State may annually elect to 
        participate in the program established under subsection 
        (b) if the State--
                    ``(A) has fully implemented an electronic 
                benefit transfer system that operates in the 
                entire State;
                    ``(B) has a payment error rate under 
                section 16(c) that is not more than 6 percent 
                as announced most recently by the Secretary; or
                    ``(C) has a payment error rate in excess of 
                6 percent and agrees to contribute non-Federal 
                funds for the fiscal year of the grant, for 
                benefits and administration of the State's food 
                assistance program, the amount determined under 
                paragraph (2).
            ``(2) State mandatory contributions.--
                    ``(A) In general.--In the case of a State 
                that elects to participate in the program under 
                paragraph (1)(C), the State shall agree to 
                contribute, for a fiscal year, an amount equal 
                to--
                    ``(A)(i) the benefits issued in the State; 
                multiplied by
                    ``(ii) the payment error rate of the State; 
                minus
                    ``(B)(i) the benefits issued in the State; 
                multiplied by
                    ``(ii) 6 percent.
                    ``(B) Determination.--Notwithstanding 
                sections 13 and 14, the calculation of the 
                contribution shall be based solely on the 
                determination of the Secretary of the payment 
                error rate.
                    ``(C) Data.--For purposes of implementing 
                subparagraph (A) for a fiscal year, the 
                Secretary shall use the data for the most 
                recent fiscal year available.
            ``(3) Election limitation.--
                    ``(A) Re-entering food stamp program.--A 
                State that elects to participate in the program 
                under paragraph (1) may in a subsequent year 
                decline to elect to participate in the program 
                and instead participate in the food stamp 
                program in accordance with the other sections 
                of this Act.
                    ``(B) Limitation.--Subsequent to re-
                entering the food stamp program under 
                subparagraph (A), the State shall only be 
                eligible to participate in the food stamp 
                program in accordance with the other sections 
                of this Act and shall not be eligible to elect 
                to participate in the program established under 
                subsection (b).
            ``(4) Program exclusive.--
                    ``(A) In general.--A State that is 
                participating in the program established under 
                subsection (b) shall not be subject to, or 
                receive any benefit under, this Act except as 
                provided in this section.
                    ``(B) Contract with federal government.--
                Nothing in this section shall prohibit a State 
                from contracting with the Federal Government 
                for the provision of services or materials 
                necessary to carry out a program under this 
                section.
    ``(d) Lead Agency.--A State desiring to receive a grant 
under this section shall designate, in an application submitted 
to the Secretary under subsection (e)(1), an appropriate State 
agency responsible for the administration of the program under 
this section as the lead agency.
    ``(e) Application and Plan.--
            ``(1) Application.--To be eligible to receive 
        assistance under this section, a State shall prepare 
        and submit to the Secretary an application at such 
        time, in such manner, and containing such information 
        as the Secretary shall by regulation require, 
        including--
                    ``(A) an assurance that the State will 
                comply with the requirements of this section;
                    ``(B) a State plan that meets the 
                requirements of paragraph (3); and
                    ``(C) an assurance that the State will 
                comply with the requirements of the State plan 
                under paragraph (3).
            ``(2) Annual plan.--The State plan contained in the 
        application under paragraph (1) shall be submitted for 
        approval annually.
            ``(3) Requirements of plan.--
                    ``(A) Lead agency.--The State plan shall 
                identify the lead agency.
                    ``(B) Use of block grant funds.--The State 
                plan shall provide that the State shall use the 
                amounts provided to the State for each fiscal 
                year under this section--
                            ``(i) to provide food assistance to 
                        needy individuals and families residing 
                        in the State, other than residents of 
                        institutions who are ineligible for 
                        food stamps under section 3(i); and
                            ``(ii) to pay administrative costs 
                        incurred in providing the assistance.
                    ``(C) Groups served.--The State plan shall 
                describe how and to what extent the program 
                will serve specific groups of individuals and 
                families and how the treatment will differ from 
                treatment under the food stamp program under 
                the other sections of this Act of the 
                individuals and families, including--
                            ``(i) elderly individuals and 
                        families;
                            ``(ii) migrants or seasonal 
                        farmworkers;
                            ``(iii) homeless individuals and 
                        families;
                            ``(iv) individuals and families who 
                        live in institutions eligible under 
                        section 3(i);
                            ``(v) individuals and families with 
                        earnings; and
                            ``(vi) members of Indian tribes or 
                        tribal organizations.
                    ``(D) Assistance for entire state.--The 
                State plan shall provide that benefits under 
                this section shall be available throughout the 
                entire State.
                    ``(E) Notice and hearings.--The State plan 
                shall provide that an individual or family who 
                applies for, or receives, assistance under this 
                section shall be provided with notice of, and 
                an opportunity for a hearing on, any action 
                under this section that adversely affects the 
                individual or family.
                    ``(F) Assessment of needs.--The State plan 
                shall assess the food and nutrition needs of 
                needy persons residing in the State.
                    ``(G) Eligibility standards.--The State 
                plan shall describe the income, resource, and 
                other eligibility standards that are 
                established for the receipt of assistance under 
                this section.
                    ``(H) Receiving benefits in more than 1 
                jurisdiction.--The State plan shall establish a 
                system for the exchange of information with 
                other States to verify the identity and receipt 
                of benefits by recipients.
                    ``(I) Privacy.--The State plan shall 
                provide for safeguarding and restricting the 
                use and disclosure of information about any 
                individual or family receiving assistance under 
                this section.
                    ``(J) Other information.--The State plan 
                shall contain such other information as may be 
                required by the Secretary.
            ``(4) Approval of application and plan.--The 
        Secretary shall approve an application and State plan 
        that satisfies the requirements of this section.
    ``(f) No Individual or Family Entitlement to Assistance.--
Nothing in this section--
            ``(1) entitles any individual or family to 
        assistance under this section; or
            ``(2) limits the right of a State to impose 
        additional limitations or conditions on assistance 
        under this section.
    ``(g) Benefits for Aliens.--
            ``(1) Eligibility.--No individual who is an alien 
        shall be eligible to receive benefits under a State 
        plan approved under subsection (e)(4) if the individual 
        is not eligible to participate in the food stamp 
        program due to the alien status of the individual.
            ``(2) Income.--The State plan shall provide that 
        the income of an alien shall be determined in 
        accordance with section 5(i).
    ``(h) Employment and Training.--
            ``(1) Work requirements.--No individual or 
        household shall be eligible to receive benefits under a 
        State plan funded under this section if the individual 
        or household is not eligible to participate in the food 
        stamp program under subsection (d) or (o) of section 6.
            ``(2) Work programs.--Each State shall implement an 
        employment and training program in accordance with the 
        terms and conditions of section 6(d)(4) for individuals 
        under the program and shall be eligible to receive 
        funding under section 16(h).
    ``(i) Enforcement.--
            ``(1) Review of compliance with state plan.--The 
        Secretary shall review and monitor State compliance 
        with this section and the State plan approved under 
        subsection (e)(4).
            ``(2) Noncompliance.--
                    ``(A) In general.--If the Secretary, after 
                reasonable notice to a State and opportunity 
                for a hearing, finds that--
                            ``(i) there has been a failure by 
                        the State to comply substantially with 
                        any provision or requirement set forth 
                        in the State plan approved under 
                        subsection (e)(4); or
                            ``(ii) in the operation of any 
                        program or activity for which 
                        assistance is provided under this 
                        section, there is a failure by the 
                        State to comply substantially with any 
                        provision of this section;
                the Secretary shall notify the State of the 
                finding and that no further grants will be made 
                to the State under this section (or, in the 
                case of noncompliance in the operation of a 
                program or activity, that no further grants to 
                the State will be made with respect to the 
                program or activity) until the Secretary is 
                satisfied that there is no longer any failure 
                to comply or that the noncompliance will be 
                promptly corrected.
                    ``(B) Other penalties.--In the case of a 
                finding of noncompliance made pursuant to 
                subparagraph (A), the Secretary may, in 
                addition to, or in lieu of, imposing the 
                penalties described in subparagraph (A), impose 
                other appropriate penalties, including 
                recoupment of money improperly expended for 
                purposes prohibited or not authorized by this 
                section and disqualification from the receipt 
                of financial assistance under this section.
                    ``(C) Notice.--The notice required under 
                subparagraph (A) shall include a specific 
                identification of any additional penalty being 
                imposed under subparagraph (B).
            ``(3) Issuance of regulations.--The Secretary shall 
        establish by regulation procedures for--
                    ``(A) receiving, processing, and 
                determining the validity of complaints made to 
                the Secretary concerning any failure of a State 
                to comply with the State plan or any 
                requirement of this section; and
                    ``(B) imposing penalties under this 
                section.
    ``(j) Grant.--
            ``(1) In general.--For each fiscal year, the 
        Secretary shall pay to a State that has an application 
        approved by the Secretary under subsection (e)(4) an 
        amount that is equal to the grant of the State under 
        subsection (m) for the fiscal year, adjusted for any 
        reduction required under subsection (m)(2).
            ``(2) Method of grant.--The Secretary shall make a 
        grant to a State for a fiscal year under this section 
        by issuing 1 or more letters of credit for the fiscal 
        year, with necessary adjustments on account of 
        overpayments or underpayments, as determined by the 
        Secretary.
            ``(3) Spending of grants by state.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a grant to a State determined 
                under subsection (m)(1) for a fiscal year may 
                be expended by the State only in the fiscal 
                year.
                    ``(B) Carryover.--The State may reserve up 
                to 10 percent of a grant determined under 
                subsection (m)(1) for a fiscal year to provide 
                assistance under this section in subsequent 
                fiscal years, except that the reserved funds 
                may not exceed 30 percent of the total grant 
                received under this section for a fiscal year.
            ``(4) Food assistance and administrative 
        expenditures.--In each fiscal year, not more than 6 
        percent of the Federal and State funds required to be 
        expended by a State under this section shall be used 
        for administrative expenses.
            ``(5) Provision of food assistance.--A State may 
        provide food assistance under this section in any 
        manner determined appropriate by the State, such as 
        electronic benefit transfer limited to food purchases, 
        coupons limited to food purchases, or direct provision 
        of commodities.
    ``(k) Quality Control.--Each State participating in the 
program established under this section shall maintain a system 
in accordance with, and shall be subject to section 16(c), 
including sanctions and eligibility for incentive payment under 
section 16(c).
    ``(l) Nondiscrimination.--
            ``(1) In general.--The Secretary shall not provide 
        financial assistance for any program, project, or 
        activity under this section if any person with 
        responsibilities for the operation of the program, 
        project, or activity discriminates with respect to the 
        program, project, or activity because of race, 
        religion, color, national origin, sex, or disability.
            ``(2) Enforcement.--The powers, remedies, and 
        procedures set forth in title VI of the Civil Rights 
        Act of 1964 (42 U.S.C. 2000d et seq.) may be used by 
        the Secretary to enforce paragraph (1).
    ``(m) Grant Calculation.--
            ``(1) State grant.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), from the amounts made 
                available under section 18 for each fiscal 
                year, the Secretary shall provide a grant to 
                each State participating in the program 
                established under this section an amount that 
                is equal to the sum of--
                            ``(i) the greater of, as determined 
                        by the Secretary--
                                    ``(I) the total dollar 
                                value of all benefits issued 
                                under the food stamp program 
                                established under this Act by 
                                the State during fiscal year 
                                1994; or
                                    ``(II) the average per 
                                fiscal year of the total dollar 
                                value of all benefits issued 
                                under the food stamp program by 
                                the State during each of fiscal 
                                years 1992 through 1994; and
                            ``(ii) the greater of, as 
                        determined by the Secretary--
                                    ``(I) the total amount 
                                received by the State for 
                                administrative costs under 
                                section 16 for fiscal year 
                                1994; or
                                    ``(II) the average per 
                                fiscal year of the total amount 
                                received by the State for 
                                administrative costs under 
                                section 16 for each of fiscal 
                                years 1992 through 1994.
                    ``(B) Insufficient funds.--If the Secretary 
                finds that the total amount of grants to which 
                States would otherwise be entitled for a fiscal 
                year under subparagraph (A) will exceed the 
                amount of funds that will be made available to 
                provide the grants for the fiscal year, the 
                Secretary shall reduce the grants made to 
                States under this subsection, on a pro rata 
                basis, to the extent necessary.
            ``(2) Reduction.--The Secretary shall reduce the 
        grant of a State by the amount a State has agreed to 
        contribute under subsection (c)(1)(C).''.
    (b) Employment and Training Funding.--Section 16(h) of the 
Act (7 U.S.C. 2025(a)), as amended by section 13027(d)(2), is 
further amended by adding at the end the following:
            ``(6) Block grant states.--Each State electing to 
        operate a program under section 25 shall--
                    ``(A) receive the greater of--
                            ``(i) the total dollar value of the 
                        funds received under paragraph (1) by 
                        the State during fiscal year 1994; or
                            ``(ii) the average per fiscal year 
                        of the total dollar value of all funds 
                        received under paragraph (1) by the 
                        State during each of fiscal years 1992 
                        through 1994; and
                    ``(B) be eligible to receive funds under 
                paragraph (2), within the limitations in 
                section 6(d)(4)(K).''.
    (c) Research on Optional State Food Assistance Block 
Grant.--Section 17 of the Act (7 U.S.C. 2026), as amended by 
section 13055(c)(2), is further amended by adding at the end 
the following:
    ``(l) Research on Optional State Food Assistance Block 
Grant.--The Secretary may conduct research on the effects and 
costs of a State program carried out under section 25.''.

SEC. 13057. AMERICAN SAMOA.

    The Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.), as 
amended by section 13056, is further amended by adding at the 
end the following:

``SEC. 26. TERRITORY OF AMERICAN SAMOA.

    From amounts made available to carry out this Act, the 
Secretary may pay to the Territory of American Samoa not more 
than $5,300,000 for each of fiscal years 1996 through 2002 to 
finance 100 percent of the expenditures for the fiscal year for 
a nutrition assistance program extended under section 601(c) of 
Public Law 96-597 (48 U.S.C. 1469d(c)).''.

SEC. 13058. ASSISTANCE FOR COMMUNITY FOOD PROJECTS.

    The Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.), as 
amended by section 13057, is further amended by adding at the 
end the following:

``SEC. 27. ASSISTANCE FOR COMMUNITY FOOD PROJECTS.

    ``(a) Definition of Community Food Projects.--In this 
section, the term `community food project' means a community-
based project that requires a 1-time infusion of Federal 
assistance to become self-sustaining and that is designed to--
            ``(1) meet the food needs of low-income people;
            ``(2) increase the self-reliance of communities in 
        providing for their own food needs; and
            ``(3) promote comprehensive responses to local 
        food, farm, and nutrition issues.
    ``(b) Authority To Provide Assistance.--
            ``(1) In general.--From amounts made available to 
        carry out this Act, the Secretary may make grants to 
        assist eligible private nonprofit entities to establish 
        and carry out community food projects.
            ``(2) Limitation on grants.--The total amount of 
        funds provided as grants under this section for any 
        fiscal year may not exceed $2,500,000.
    ``(c) Eligible Entities.--To be eligible for a grant under 
subsection (b), a private nonprofit entity must--
            ``(1) have experience in the area of--
                    ``(A) community food work, particularly 
                concerning small and medium-sized farms, 
                including the provision of food to people in 
                low-income communities and the development of 
                new markets in low-income communities for 
                agricultural producers; or
                    ``(B) job training and business development 
                activities for food-related activities in low-
                income communities;
            ``(2) demonstrate competency to implement a 
        project, provide fiscal accountability, collect data, 
        and prepare reports and other necessary documentation; 
        and
            ``(3) demonstrate a willingness to share 
        information with researchers, practitioners, and other 
        interested parties.
    ``(d) Preference for Certain Projects.--In selecting 
community food projects to receive assistance under subsection 
(b), the Secretary shall give a preference to projects designed 
to--
            ``(1) develop linkages between 2 or more sectors of 
        the food system;
            ``(2) support the development of entrepreneurial 
        projects;
            ``(3) develop innovative linkages between the for-
        profit and nonprofit food sectors; or
            ``(4) encourage long-term planning activities and 
        multi-system, interagency approaches.
    ``(e) Matching Funds Requirements.--
            ``(1) Requirements.--The Federal share of the cost 
        of establishing or carrying out a community food 
        project that receives assistance under subsection (b) 
        may not exceed 50 percent of the cost of the project 
        during the term of the grant.
            ``(2) Calculation.--In providing for the non-
        Federal share of the cost of carrying out a community 
        food project, the entity receiving the grant shall 
        provide for the share through a payment in cash or in 
        kind, fairly evaluated, including facilities, 
        equipment, or services.
            ``(3) Sources.--An entity may provide for the non-
        Federal share through State government, local 
        government, or private sources.
    ``(f) Term of Grant.--
            ``(1) Single grant.--A community food project may 
        be supported by only a single grant under subsection 
        (b).
            ``(2) Term.--The term of a grant under subsection 
        (b) may not exceed 3 years.
    ``(g) Technical Assistance and Related Information.--
            ``(1) Technical assistance.--In carrying out this 
        section, the Secretary may provide technical assistance 
        regarding community food projects, processes, and 
        development to an entity seeking the assistance.
            ``(2) Sharing Information.--
                    ``(A) In general.--The Secretary may 
                provide for the sharing of information 
                concerning community food projects and issues 
                among and between government, private for-
                profit and nonprofit groups, and the public 
                through publications, conferences, and other 
                appropriate forums.
                    ``(B) Other interested parties.--The 
                Secretary may share information concerning 
                community food projects with researchers, 
                practitioners, and other interested parties.
    ``(h) Evaluation.--
            ``(1) In general.--The Secretary shall provide for 
        the evaluation of the success of community food 
        projects supported using funds under this section.
            ``(2) Report.--Not later than January 30, 2002, the 
        Secretary shall submit a report to Congress regarding 
        the results of the evaluation.''.

               CHAPTER 2--COMMODITY DISTRIBUTION PROGRAMS

SEC. 13071. EMERGENCY FOOD ASSISTANCE PROGRAM.

    (a) Definitions.--Section 201A of the Emergency Food 
Assistance Act of 1983 (Public Law 98-8; 7 U.S.C. 612c note) is 
amended to read as follows:

``SEC. 201A. DEFINITIONS.

    ``In this Act:
            ``(1) Additional commodities.--The term `additional 
        commodities' means commodities made available under 
        section 214 in addition to the commodities made 
        available under sections 202 and 203D.
            ``(2) average monthly number of unemployed 
        persons.--The term `average monthly number of 
        unemployed persons' means the average monthly number of 
        unemployed persons in each State in the most recent 
        fiscal year for which information concerning the number 
        of unemployed persons is available, as determined by 
        the Bureau of Labor Statistics of the Department of 
        Labor.
            ``(3) Eligible recipient agency.--The term 
        `eligible recipient agency' means a public or nonprofit 
        organization--
                    ``(A) that administers--
                            ``(i) an emergency feeding 
                        organization;
                            ``(ii) a charitable institution 
                        (including a hospital and a retirement 
                        home, but excluding a penal 
                        institution) to the extent that the 
                        institution serves needy persons;
                            ``(iii) a summer camp for children, 
                        or a child nutrition program providing 
                        food service;
                            ``(iv) a nutrition project 
                        operating under the Older Americans Act 
                        of 1965 (42 U.S.C. 3001 et seq.), 
                        including a project that operates a 
                        congregate nutrition site and a project 
                        that provides home-delivered meals; or
                            ``(v) a disaster relief program;
                    ``(B) that has been designated by the 
                appropriate State agency, or by the Secretary; 
                and
                    ``(C) that has been approved by the 
                Secretary for participation in the program 
                established under this Act.
            ``(4) Emergency feeding organization.--The term 
        `emergency feeding organization' means a public or 
        nonprofit organization that administers activities and 
        projects (including the activities and projects of a 
        charitable institution, a food bank, a food pantry, a 
        hunger relief center, a soup kitchen, or a similar 
        public or private nonprofit eligible recipient agency) 
        providing nutrition assistance to relieve situations of 
        emergency and distress through the provision of food to 
        needy persons, including low-income and unemployed 
        persons.
            ``(5) Food bank.--The term `food bank' means a 
        public or charitable institution that maintains an 
        established operation involving the provision of food 
        or edible commodities, or the products of food or 
        edible commodities, to food pantries, soup kitchens, 
        hunger relief centers, or other food or feeding centers 
        that, as an integral part of their normal activities, 
        provide meals or food to feed needy persons on a 
        regular basis.
            ``(6) Food pantry.--The term `food pantry' means a 
        public or private nonprofit organization that 
        distributes food to low-income and unemployed 
        households, including food from sources other than the 
        Department of Agriculture, to relieve situations of 
        emergency and distress.
            ``(7) Poverty line.--The term `poverty line' has 
        the same meaning given the term in section 673(2) of 
        the Community Services Block Grant Act (42 U.S.C. 
        9902(2)).
            ``(8) Soup kitchen.--The term `soup kitchen' means 
        a public or charitable institution that, as integral 
        part of the normal activities of the institution, 
        maintains an established feeding operation to provide 
        food to needy homeless persons on a regular basis.
            ``(9) Total value of additional commodities.--The 
        term `total value of additional commodities' means the 
        actual cost of all additional commodities made 
        available under section 214 that are paid by the 
        Secretary (including the distribution and processing 
        costs incurred by the Secretary).
            ``(10) Value of additional commodities allocated to 
        each state.--The term `value of additional commodities 
        allocated to each State' means the actual cost of 
        additional commodities made available under section 214 
        and allocated to each State that are paid by the 
        Secretary (including the distribution and processing 
        costs incurred by the Secretary).''.
    (b) State Plan.--Section 202A of the Act (7 U.S.C. 612c 
note) is amended to read as follows:

``SEC. 202A. STATE PLAN.

    ``(a) In General.--To receive commodities under this Act, a 
State shall submit a plan of operation and administration every 
4 years to the Secretary for approval. The plan may be amended 
at any time, with the approval of the Secretary.
    ``(b) Requirements.--Each plan shall--
            ``(1) designate the State agency responsible for 
        distributing the commodities received under this Act;
            ``(2) set forth a plan of operation and 
        administration to expeditiously distribute commodities 
        under this Act;
            ``(3) set forth the standards of eligibility for 
        recipient agencies; and
            ``(4) set forth the standards of eligibility for 
        individual or household recipients of commodities, 
        which shall require--
                    ``(A) individuals or households to be 
                comprised of needy persons; and
                    ``(B) individual or household members to be 
                residing in the geographic location served by 
                the distributing agency at the time of applying 
                for assistance.
    ``(c) State Advisory Board.--The Secretary shall encourage 
each State receiving commodities under this Act to establish a 
State advisory board consisting of representatives of all 
interested entities, both public and private, in the 
distribution of commodities received under this Act in the 
State.''.
    (c) Authorization of Appropriations for Administrative 
Funds.--Section 204(a)(1) of the Act (7 U.S.C. 612c note) is 
amended--
            (1) in the first sentence--
                    (A) by striking ``1991 through 1995' and 
                inserting ``1996 through 2002''; and
                    (B) by striking ``for State and local'' and 
                all that follows through ``under this title'' 
                and inserting ``to pay for the direct and 
                indirect administrative costs of the State 
                related to the processing, transporting, and 
                distributing to eligible recipient agencies of 
                commodities provided by the Secretary under 
                this Act and commodities secured from other 
                sources''; and
            (2) by striking the fourth sentence.
    (d) Delivery of Commodities.--Section 214 of the Act (7 
U.S.C. 612c note) is amended--
            (1) by striking subsections (a) through (e) and 
        (j);
            (2) by redesignating subsections (f) through (i) as 
        subsections (a) through (d), respectively;
            (3) in subsection (b), as redesignated by paragraph 
        (2)--
                    (A) in the first sentence, by striking 
                ``subsection (f) or subsection (j) if 
                applicable,'' and inserting ``subsection (a)''; 
                and
                    (B) in the second sentence, by striking 
                ``subsection (f)'' and inserting ``subsection 
                (a)'';
            (4) by striking subsection (c), as redesignated by 
        paragraph (2), and inserting the following:
    ``(c) Administration.--
            ``(1) In general.--Commodities made available for 
        each fiscal year under this section shall be delivered 
        at reasonable intervals to States based on the grants 
        calculated under subsection (a), or reallocated under 
        subsection (b), before December 31 of the following 
        fiscal year.
            ``(2) Entitlement.--Each State shall be entitled to 
        receive the value of additional commodities determined 
        under subsection (a).''; and
            (5) in subsection (d), as redesignated by paragraph 
        (2), by striking ``or reduce'' and all that follows 
        through ``each fiscal year''.
    (e) Technical Amendments.--The Act (7 U.S.C. 612c note) is 
amended--
            (1) in the first sentence of section 203B(a), by 
        striking ``203 and 203A of this Act'' and inserting 
        ``203A'';
            (2) in section 204(a), by striking ``title'' each 
        place it appears and inserting ``Act'';
            (3) in the first sentence of section 210(e), by 
        striking ``(except as otherwise provided for in section 
        214(j))''; and
            (4) by striking section 212.
    (f) Report on EFAP.--Section 1571 of the Food Security Act 
of 1985 (Public Law 99-198; 7 U.S.C. 612c note) is repealed.
    (g) Availability of Commodities Under the Food Stamp 
Program.--The Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.), 
as amended by section 13058, is further amended by adding at 
the end the following:

``SEC. 28. AVAILABILITY OF COMMODITIES FOR THE EMERGENCY FOOD 
                    ASSISTANCE PROGRAM.

    ``(a) Purchase of Commodities.--From amounts appropriated 
under this Act, for each of fiscal years 1997 through 2002, the 
Secretary shall purchase $300,000,000 of a variety of 
nutritious and useful commodities of the types that the 
Secretary has the authority to acquire through the Commodity 
Credit Corporation or under section 32 of the Act entitled `An 
Act to amend the Agricultural Adjustment Act, and for other 
purposes', approved August 24, 1935 (7 U.S.C. 612c), and 
distribute the commodities to States for distribution in 
accordance with section 214 of the Emergency Food Assistance 
Act of 1983 (Public Law 98-8; 7 U.S.C. 612c note).
    ``(b) Basis for Commodity Purchases.--In purchasing 
commodities under subsection (a), the Secretary shall, to the 
extent practicable and appropriate, make purchases based on--
            ``(1) agricultural market conditions;
            ``(2) preferences and needs of States and 
        distributing agencies; and
            ``(3) preferences of recipients.''.
    (h) Effective Date.--The amendments made by subsection (d) 
shall become effective on October 1, 1996.
      

                       Subtitle K--Miscellaneous

SEC. 13101. FOOD STAMP ELIGIBILITY

      Section 6(f) of the Food Stamp Act of 1977 (7 U.S.C. 
2015(f)) is amended by striking the third sentence and 
inserting the following: The State agency shall, at its option, 
consider either all income and financial resources of the 
individual rendered ineligible to participate in the food stamp 
program under this subsection, or such income, less a pro rata 
share, and the financial resources of the ineligible 
individual, to determine the eligibility and the value of the 
allotment of the household of which such individual is a 
member.'

SEC. 13102. REDUCTION IN BLOCK GRANTS FOR SOCIAL SERVICES.

      Section 2003(c) of the Social Security Act (42 U.S.C. 
1397b) is amended--
            (1) by striking `and' at the end of paragraph (4); 
        and
            (2) by striking paragraph (5) and inserting the 
        following:
            `(5) $2,800,000,000 for each of the fiscal years 
        1990 through 1996; and
            `(6) $2,240,000,000 for each fiscal year after 
        fiscal year 1996.' .

             Subtitle L--Reform of the Earned Income Credit

SEC. 13200. AMENDMENT OF 1986 CODE.

      Except as otherwise expressly provided, whenever in this 
subtitle an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the 
reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 13201. EARNED INCOME CREDIT DENIED TO INDIVIDUALS NOT AUTHORIZED 
                    TO BE EMPLOYED IN THE UNITED STATES.

      (a) In General.--Section 32(c)(1) (relating to 
individuals eligible to claim the earned income credit) is 
amended by adding at the end the following new subparagraph:
                    ``(F) Identification number requirement.--
                The term `eligible individual' does not include 
                any individual who does not include on the 
                return of tax for the taxable year--
                            ``(i) such individual's taxpayer 
                        identification number, and
                            ``(ii) if the individual is married 
                        (within the meaning of section 7703), 
                        the taxpayer identification number of 
                        such individual's spouse.''.
      (b) Special Identification Number.--Section 32 is amended 
by adding at the end the following new subsection:
      ``(l) Identification Numbers.--Solely for purposes of 
subsections (c)(1)(F) and (c)(3)(D), a taxpayer identification 
number means a social security number issued to an individual 
by the Social Security Administration (other than a social 
security number issued pursuant to clause (II) (or that portion 
of clause (III) that relates to clause (II)) of section 
205(c)(2)(B)(i) of the Social Security Act.''.
      (c) Extension of Procedures Applicable to Mathematical or 
Clerical Errors.--Section 6213(g)(2) (relating to the 
definition of mathematical or clerical errors) is amended by 
striking ``and'' at the end of subparagraph (D), by striking 
the period at the end of subparagraph (E) and inserting a 
comma, and by inserting after subparagraph (E) the following 
new subparagraphs:
                    ``(F) an omission of a correct taxpayer 
                identification number required under section 32 
                (relating to the earned income credit) to be 
                included on a return, and
                    ``(G) an entry on a return claiming the 
                credit under section 32 with respect to net 
                earnings from self-employment described in 
                section 32(c)(2)(A) to the extent the tax 
                imposed by section 1401 (relating to self-
                employment tax) on such net earnings has not 
                been paid.''.
      (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 13202. REPEAL OF EARNED INCOME CREDIT FOR INDIVIDUALS WITHOUT 
                    CHILDREN.

      (a) In General.--Subparagraph (A) of section 32(c)(1) 
(defining eligible individual) is amended to read as follows:
                    ``(A) In general.--The term `eligible 
                individual' means any individual who has a 
                qualifying child for the taxable year.''.
      (b) Conforming Amendments.--Each of the tables contained 
in paragraphs (1) and (2) of section 32(b) are amended by 
striking the items relating to no qualifying children.
      (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 13203. MODIFICATION OF EARNED INCOME CREDIT AMOUNT AND PHASEOUT.

      (a) Modification of Phaseout.--Subparagraph (B) of 
section 32(a)(2) is amended to read as follows:
                    ``(B) the sum of--
                            ``(i) the initial phaseout 
                        percentage of so much of the adjusted 
                        gross income (or, if greater, the 
                        earned income) of the taxpayer for the 
                        taxable year as exceeds the initial 
                        phaseout amount but does not exceed the 
                        final phaseout amount, plus
                            ``(ii) the final phaseout 
                        percentage of so much of the adjusted 
                        gross income (or, if greater, the 
                        earned income) of the taxpayer for the 
                        taxable year as exceeds the final 
                        phaseout amount.''
      (b) Percentages and Amounts.--
            (1) In general.--Subsection (b) of section 32, as 
        amended by section 13202(b), is amended to read as 
        follows:
      ``(b) Percentages and Amounts.--
            ``(1) Percentages.--The credit percentage, the 
        initial phaseout percentage, and the final phaseout 
        percentage shall be determined as follows:

------------------------------------------------------------------------
                                                      The               
                                      The credit    initial    The final
    ``In the case of an eligible      percentage   phaseout    phaseout 
          individual with:                is:     percentage  percentage
                                                      is:         is:   
------------------------------------------------------------------------
1 qualifying child..................         34       15.98          20 
2 or more qualifying children.......         36       21.06          25 
------------------------------------------------------------------------

            ``(2) Amounts.--The earned income amount, the 
        initial phaseout amount, and the final phaseout amount 
        shall be determined as follows:

------------------------------------------------------------------------
                                                     The                
    ``In the case of an eligible     The earned    initial    The final 
          individual with:             income     phaseout     phaseout 
                                     amount is:  amount is:   amount is:
------------------------------------------------------------------------
1 qualifying child.................     $6,340     $11,630      $14,850 
2 or more qualifying children......     $8,910     $11,630   $17,750''. 
------------------------------------------------------------------------

            (2) Increase in credit for lower-income families 
        having 2 more qualifying children.--Subsection (d) of 
        section 32 is amended to read as follows:
      ``(d) Increase in Credit for Lower-Income Families Having 
2 or More Qualifying Children.--
            ``(1) In general.--If an eligible individual has 2 
        or more qualifying children, for purposes of applying 
        paragraphs (1) and (2)(A) of subsection (a)--
                    ``(A) the amount of the taxpayer's earned 
                income shall be treated as being equal to \10/
                9\ of such income (determined without regard to 
                this paragraph), and
                    ``(B) the earned income amount shall be 
                treated as being equal to \10/9\ of such amount 
                (determined without regard to this paragraph).
            ``(2) Phaseout of benefit.--If the applicable 
        income of the taxpayer for the taxable year exceeds 
        $14,000 ($17,000 in the case of a joint return), the 
        amount of each increase under paragraph (1) shall be 
        reduced (but not below zero) by an amount which bears 
        the same ratio to such increase (determined without 
        regard to this subparagraph) as such excess bears to 
        $4,000.
            ``(3) Applicable income.--For purposes of this 
        subsection, the term `applicable income' means adjusted 
        gross income or, if greater, earned income.''
            (3) Conforming amendments.--
                    (A) Subsection (j) of section 32 is 
                amended--
                            (i) by striking ``subsection 
                        (b)(2)(A)'' and inserting ``subsection 
                        (b)(2) or (d)'',
                            (ii) by striking ``1994'' and 
                        inserting ``1996'', and
                            (iii) by striking ``1993'' and 
                        inserting ``1995''.
                    (B) Subsection (e) of section 32 is amended 
                to read as follows:
      ``(e) Other Special Rules--
            ``(1) Married individuals.--In the case of an 
        individual who is married (within the meaning of 
        section 7703), this section shall apply only if a joint 
        return is filed for the taxable year.
            ``(2) Taxable year must be full taxable year.--
        Except in the case of a taxable year closed by reason 
        of the death of an individual, no credit shall be 
        allowable under this section in the case of a taxable 
        year covering a period of less than 12 months.''
      (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 13204. RULES RELATING TO DENIAL OF EARNED INCOME CREDIT ON BASIS 
                    OF DISQUALIFIED INCOME.

      (a) Definition of Disqualified Income.--Paragraph (2) of 
section 32(i) (defining disqualified income) is amended by 
striking ``and'' at the end of subparagraph (B), by striking 
the period at the end of subparagraph (C) and inserting ``, 
and'', and by adding at the end the following new subparagraph:
                    ``(D) the excess (if any) of--
                            ``(i) the aggregate income from all 
                        passive activities for the taxable year 
                        (determined without regard to any 
                        amount described in a preceding 
                        subparagraph), over
                            ``(ii) the aggregate losses from 
                        all passive activities for the taxable 
                        year (as so determined).
                For purposes of subparagraph (D), the term 
                `passive activity' has the meaning given such 
                term by section 469.''.
      (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 13205. MODIFICATION OF ADJUSTED GROSS INCOME DEFINITION FOR EARNED 
                    INCOME CREDIT.

      (a) In General.--Subsections (a)(2), (c)(1)(C), (d), and 
(f)(2)(B) of section 32, as amended by the preceding sections 
of this subtitle, are each amended by striking ``adjusted gross 
income'' each place it appears and inserting ``modified 
adjusted gross income''.
      (b) Modified Adjusted Gross Income Defined.--Section 
32(c) (relating to definitions and special rules) is amended by 
adding at the end the following new paragraph:
            ``(5) Modified adjusted gross income.--
                    ``(A) In general.--The term `modified 
                adjusted gross income' means adjusted gross 
                income--
                            ``(i) increased by the sum of the 
                        amounts described in subparagraph (B), 
                        and
                            ``(ii) determined without regard 
                        to--
                                    ``(I) the amounts described 
                                in subparagraph (C), or
                                    ``(II) the deduction 
                                allowed under section 172.
                    ``(B) Nontaxable income taken into 
                account.--Amounts described in this 
                subparagraph are--
                            ``(i) social security benefits (as 
                        defined in section 86(d)) received by 
                        the taxpayer during the taxable year to 
                        the extent not included in gross 
                        income,
                            ``(ii) amounts which--
                                    ``(I) are received during 
                                the taxable year by (or on 
                                behalf of) a spouse pursuant to 
                                a divorce or separation 
                                instrument (as defined in 
                                section 71(b)(2)), and
                                    ``(II) under the terms of 
                                the instrument are fixed as 
                                payable for the support of the 
                                children of the payor spouse 
                                (as determined under section 
                                71(c)),
                        but only to the extent such amounts 
                        exceed $6,000,
                            ``(iii) interest received or 
                        accrued during the taxable year which 
                        is exempt from tax imposed by this 
                        chapter, and
                            ``(iv) amounts received as a 
                        pension or annuity, and any 
                        distributions or payments received from 
                        an individual retirement plan, by the 
                        taxpayer during the taxable year to the 
                        extent not included in gross income.
                Clause (iv) shall not include any amount which 
                is not includible in gross income by reason of 
                section 402(c), 403(a)(4), 403(b)(8), 408(d) 
                (3), (4), or (5), or 457(e)(10).
                    ``(C) Certain amounts disregarded.--an 
                amount is described in this subparagraph if it 
                is--
                            ``(i) the amount of losses form 
                        sales or exchanges of capital assets in 
                        excess of gains from such sales or 
                        exchanges to the extent such amount 
                        does not exceed the amount under 
                        section 1211(b)(1),
                            ``(ii) the net loss from the 
                        carrying on of trades or businesses, 
                        computed separately with respect to--
                                    ``(I) trades or businesses 
                                (other than farming) conducted 
                                as sole proprietorships,
                                    ``(II) trades or businesses 
                                of farming conducted as sole 
                                proprietorships, and
                                    ``(III) other trades or 
                                business,
                            ``(iii) the net loss from estates 
                        and trusts, and
                                    ``(iv) the excess (if any) 
                                of amounts described in 
                                subsection (i)(2)(C)(ii) over 
                                the amounts described in 
                                subsection (i)(2)(C)(i) 
                                (relating to nonbusiness rents 
                                and royalties).
                For purposes of clause (ii), there shall not be 
                taken into account items which are attributable 
                to a trade or business which consists of the 
                performance of services by the taxpayer as an 
                employee.''.
      (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

SEC. 13206. PROVISIONS TO IMPROVE TAX COMPLIANCE.

      (a) Increase in Penalties for Return Preparers.--
            (1) Understatement penalty.--Section 6694 (relating 
        to understatement of income tax liability by income tax 
        return preparer) is amended--
                    (A) by striking ``$250'' in subsection (a) 
                and inserting ``$500'', and
                    (B) by striking ``$1,000'' in subsection 
                (b) and inserting ``$2,000''.
            (2) Other assessable penalties.--Section 6695 
        (relating to other assessable penalties) is amended--
                    (A) by striking ``$50'' and ``$25,000'' in 
                subsections (a), (b), (c), (d), and (e) and 
                inserting ``$100'' and ``$50,000'', 
                respectively, and
                    (B) by striking ``$500'' in subsection (f) 
                and inserting ``$1,000''.
      (b) Aiding and Abetting Penalty.--Section 6701(b) 
(relating to amount of penalty) is amended--
            (1) by striking ``$1,000'' in paragraph (1) and 
        inserting ``$2,000'', and
            (2) by striking ``10,000'' in paragraph (2) and 
        inserting ``20,000''.
      (c) Effective Date.--The amendments made by this section 
shall apply to penalties with respect to taxable years 
beginning after December 31, 1995.

                   Subtitle M--Clinical Laboratories

SEC. 13301. EXEMPTION OF PHYSICIAN OFFICE LABORATORIES.

    Section 353(d) of the Public Health Service Act (42 U.S.C. 
263a(d)) is amended--
            (1) by redesignating paragraphs (2), (3), and (4) 
        as paragraphs (3), (4), and (5) and by adding after 
        paragraph (1) the following:
            ``(2) Exemption of physician office laboratories.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a clinical laboratory in a 
                physician's office (including an office of a 
                group of physicians) which is directed by a 
                physician and in which examinations and 
                procedures are either performed by a physician 
                or by individuals supervised by a physician 
                solely as an adjunct to other services provided 
                by the physician's office is exempt from this 
                section.
                    ``(B) Exception.--A clinical laboratory 
                described in subparagraph (A) is not exempt 
                from this section when it performs a pap smear 
                (Papanicolaou Smear) analysis.
                    ``(C) Definition.--For purposes of 
                subparagraph (A), the term `physician' has the 
                same meaning as is prescribed for such term by 
                section 1861(r) of the Social Security Act (42 
                U.S.C. 1395x(r)).'';
            (2) in paragraph (3) (as so redesignated) by 
        striking ``(3)'' and inserting ``(4)''; and
            (3) in paragraphs (4) and (5) (as so redesignated) 
        by striking ``(2)'' and inserting ``(3)''.

      And the Senate agree to the same.
                For consideration of the House bill and the 
                Senate amendment, and modifications committed 
                to conference:
                                   John R. Kasich,
                                   Robert S. Walker,
                                   Dick Armey,
                                   Tom DeLay,
                                   John Boehner,
                As additional conferees from the Committee on 
                the Budget, for consideration of title XX of 
                the House bill, and modifications committed to 
                conference:
                                   Jim Kolbe,
                                   Christopher Shays,
                                   Dave Hobson,
                As additional conferees from the Committee on 
                Agriculture, for consideration of title I of 
                the House bill, and subtitles A-C of title I of 
                the Senate amendment, and modifications 
                committed to conference:
                                   Pat Roberts,
                                   Bill Emerson,
                As additional conferees from the Committee on 
                Banking and Financial Services, for 
                consideration of title II of the House bill, 
                and title III of the Senate amendment, and 
                modifications committed to conference:
                                   James A. Leach,
                                   Bill McCollum,
                                   Marge Roukema,
                As additional conferees from the Committee on 
                Commerce, for consideration of title III of the 
                House bill, and subtitle A of title IV, 
                subtitles A and G of title V, and section 6004 
                of the Senate amendment, and modifications 
                committed to conference:
                                   Tom Bliley,
                                   Dan Schaefer,
                As additional conferees from the Committee on 
                Commerce, for consideration of title XV of the 
                House bill, and subtitle A of title VII of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Tom Bliley,
                                   Michael Bilirakis,
                                   J. Dennis Hastert,
                                   James Greenwood,
                As additional conferees from the Committee on 
                Commerce, for consideration of title XVI of the 
                House bill, and subtitle B of title VII of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Tom Bliley,
                                   Michael Bilirakis,
                                   Billy Tauzin,
                                   Joe Barton,
                                   Bill Paxon,
                                   J. Dennis Hastert,
                                   James Greenwood,
                                   Ralph M. Hall,
                As additional conferees from the Committee on 
                Economic and Educational Opportunities, for 
                consideration of title IV of the House bill, 
                and title X of the Senate amendment, and 
                modifications committed to conference:
                                   William F. Goodling,
                                   Buck McKeon,
                As additional conferees from the Committee on 
                Government Reform and Oversight, for 
                consideration of title V of the House bill, and 
                title VIII and sections 13001 and 13003 of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Bill Clinger,
                                   Steven Schiff,
                As additional conferees from the Committee on 
                International Relations, for consideration of 
                title VI of the House bill, and section 13002 
                of the Senate amendment, and modifications 
                committed to conference:
                                   Ben Gilman,
                                   Dan Burton,
                As additional conferees from the Committee on 
                the Judiciary, for consideration of title VII 
                of the House bill, and title IX and section 
                12944 of the Senate amendment, and 
                modifications committed to conference:
                                   Henry Hyde,
                                   Carlos J. Moorhead,
                As additional conferees from the Committee on 
                National Security, for consideration of title 
                VIII of the House bill, and title II of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Floyd Spence,
                                   Duncan Hunter,
                As additional conferees from the Committee on 
                Resources, for consideration of title IX of the 
                House bill, and title V (except subtitles A and 
                G) of the Senate amendment, and modifications 
                committed to conference:
                                   Don Young,
                                   Billy Tauzin,
                As additional conferees from the Committee on 
                Transportation and Infrastructure, for 
                consideration of title X of the House bill, and 
                subtitles B and C of title IV and title VI 
                (except section 6004) of the Senate amendment, 
                and modifications committed to conference:
                                   Bud Shuster,
                                   Bill Clinger,
                As additional conferees from the Committee on 
                Veterans' Affairs, for consideration of title 
                XI of the House bill, and title XI of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Robert Stump,
                                   Tim Hutchinson,
                                   G.V. Montgomery,
                As additional conferees from the Committee on 
                Ways and Means, for consideration of titles 
                XII, XIII, XIV, and XIX of the House bill, and 
                subtitles H and I of title VII and title XII 
                (except section 12944) of the Senate amendment, 
                and modifications committed to conference:
                                   Bill Archer,
                                   Phil Crane,
                                   Wm. Thomas,
                                   E. Clay Shaw, Jr.,
                                   Jim Bunning,
                As additional conferees from the Committee on 
                Ways and Means, for consideration of title XV 
                of the House bill, and subtitle A of title VII 
                of the Senate amendment, and modifications 
                committed to conference:
                                   Bill Archer,
                                   Wm. Thomas,
                                   Nancy L. Johnson,
                                   Jim McCrery,
                                 Managers on the Part of the House.

                From the Committee on the Budget for 
                consideration of all titles:
                                   Pete V. Domenici,
                                   Chuck Grassley,
                From the Committee on Agriculture, Nutrition, 
                and Forestry:
                                   Dick Lugar
                                           (for consideration of all of 
                                               title I),
                                   Bob Dole
                                           (for consideration of all of 
                                               title I),
                                   Jesse Helms
                                           (for consideration of 
                                               section 113 and subtitle 
                                               D),
                                   Thad Cochran
                                           (for consideration of title 
                                               I, except sections 1106, 
                                               1108, 1113, and subtitle 
                                               D),
                                   Larry E. Craig
                                           (for consideration of 
                                               sections 1106 and 1108),
                From the Committee on Armed Services:
                                   Strom Thurmond,
                                   John McCain,
                From the Committee on Banking, Housing, and 
                Urban Affairs:
                                   Alfonse M. D'Amato,
                                   Phil Gramm,
                From the Committee on Commerce, Science, and 
                Transportation:
                                   Larry Pressler,
                                   Ted Stevens,
                                   John McCain,
                From the Committee on Energy and Natural 
                Resources:
                                   Frank H. Murkowski,
                                   Mark O. Hatfield,
                                   Don Nickles,
                From the Committee on Environment and Public 
                Works:
                                   John H. Chafee,
                                   John Warner,
                                   Bob Smith,
                From the Committee on Finance:
                                   William V. Roth, Jr.,
                                   Bob Dole,
                From the Committee on Governmental Affairs (and 
                for consideration of the title of the House 
                bill relating solely to abolishing the 
                Department of Commerce):
                                   Ted Stevens,
                                   Fred Thompson,
                From the Committee on the Judiciary:
                                   Orrin Hatch,
                                   Chuck Grassley,
                From the Committee on Labor and Human 
                Resources:
                                   Nancy Landon Kassebaum,
                                   Dan Coats,
                                   Bill Frist,
                From the Committee on Veterans' Affairs:
                                   Alan K. Simpson,
                                   Frank H. Murkowski,
                                Managers on the Part of the Senate.
       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

      The managers on the part of the House and the Senate at 
the conference on the disagreeing votes of the two Houses on 
the amendment of the Senate to the bill (H.R. 2491) to provide 
for reconciliation pursuant to section 105 of the concurrent 
resolution on the budget for fiscal year 1996, submit the 
following joint statement to the House and the Senate in 
explanation of the effect of the action agreed upon by the 
managers and recommended in the accompanying conference report:

                          TITLE I--AGRICULTURE

(Numbers in parentheses refer to the section numbers of the provisions 
  in the House Bill (H), the Senate Amendment (S), and the Conference 
                              Report (CR))

      The Managers on the part of the House and the Senate on 
title I of the bill met to resolve a number of issues in 
disagreement between the House Bill and the Senate Amendment. A 
number of provisions agreed to by the Managers are included in 
the Conference Substitute. However, a number of provisions that 
were agreed to by the Managers were subsequently removed from 
the Conference Substitute pursuant to the Manager's agreement 
that provisions potentially violative of section 313 of the 
Congressional Budget Act of 1974, commonly referred to as the 
``Byrd Rule'', be removed from the Conference Substitute.
      The Byrd Rule provides, in pertinent part, that during 
Senate debate on a reconciliation conference report, any 
Senator may make a point of order against extraneous material 
that, if sustained, will result in the extraneous material 
being stricken and result in the Conference Report being sent 
back to the House. The Rule also provides guidance as to what 
constitutes extraneous matter in a reconciliation conference 
report.

           Subtitle A--Agricultural Market Transition Program

                   definitions (H.  , S.  , CR. 1102)

      The House Bill authorized the Secretary to enter into a 
7-year market transition contract (1996 to 2002) with eligible 
owners and operators on a farm containing eligible farmland. 
The land on the farm must have been enrolled in 1 or more of 
the annual upland cotton, rice, feed grain, or wheat programs, 
or contain considered planted acreage, for a total of at least 
1 of the 1991 through 1995 crop years to be eligible for a 
Freedom to Farm contract.
      The Senate Amendment required that the land on a farm 
must have been enrolled in 1 or more of the annual upland 
cotton, rice, feed grain, or wheat programs, or contain 
considered planted acreage, for a total of at least 3 of the 
1991 through 1995 crop years to participate in an annual 
commodity program in calendar years 1996-2002.
      The Conference Substitute amends the House provision and 
establishes the 1996 contract acreage and payment yield as the 
1996 crop acreage base and yield that would have been 
established under the Agriculture Act of 1949 (that is 
repealed, except that certain of its provisions are inserted in 
the Agricultural Adjustment Act of 1938). To be eligible for a 
production flexibility contract, the land on a farm must have 
been enrolled in 1 or more of the annual upland cotton, rice, 
feed grain, or wheat programs, or contain considered planted 
acreage, for a total of at least 1 of the 1991 through 1995 
crop years on the farm.

         production flexibility contracts (H.  , S.  , CR 1103)

      The House Bill describes the terms owner and operator as 
those eligible to enter into contracts, and instructs the 
Secretary to provide adequate safeguards to protect the 
interests of operators who are tenants and sharecroppers. The 
bill establishes a contract system of guaranteed annual 
payments to owners and operators over fiscal years 1996-2002 
that describes eligible farmland as that which contains a crop 
acreage base, at least a portion of which was enrolled in the 
acreage reduction programs for the major farm program crops 
(wheat, feed grains, cotton and rice) during one of the 1991 
through 1995 crop years, including zero certified considered 
planted acreage. Conservation reserve program (CRP) acreage 
that contains crop acreage base was made eligible for transfer 
into a Freedom to Farm contract.
      The yearly spending limits under the House bill are 
derived by scoring all the deficiency payments made to 
producers during crop years 1991-1995 based on budget baseline 
spending for the farm commodities and then adjusting them by 
subtracting payments made in fiscal years 1996 and 1997 based 
on payments due producers based on their 1994 and 1995 programs 
on which payment balances are due. Then, adding producer 
repayments of deficiency payments received by the Secretary 
during fiscal years 1996 and 1997; adding market transition 
contract payments withheld at the request of producers during 
the preceding fiscal year as an offset against repayments of 
deficiency payments otherwise due; and adding penalties 
assessed in market transition contracts which are refunded 
during the preceding fiscal year.
      Individual owner and operator contract payments are 
determined by establishing a producer's production history, 
divided by the total national percentage of programs payments 
for the program crop, divided by the producer's yield history 
for the crop. The 1996 and 1997 total contract payments include 
the 1994 and 1995 crop deficiency payments that are to be made 
or are unearned and would have been refunded due to favorable 
market price conditions. Acreage reduction authorities are 
repealed and 0/50/85/92 programs are repealed.
      The Senate Amendment amends Sec. 302, 303, 304 and 305 of 
the Agricultural Act of 1949--
            (1) by reauthorizing the rice, upland cotton, feed 
        grain and wheat programs through 2002;
            (2) by increasing unpaid flex acres to 30%;
            (3) by establishing a maximum deficiency payment 
        rate based on the February, 1995 Congressional Budget 
        Office baseline for deficiency payments;

                                CBO BASELINE DEFICIENCY PAYMENTS, FEBRUARY, 1995                                
----------------------------------------------------------------------------------------------------------------
                                                                            Crop year--                         
              Crop                                --------------------------------------------------------------
                                                     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
Corn............................  $/bu...........     0.53     0.53     0.57     0.56     0.53     0.54     0.55
Sorghum.........................  $/bu...........     0.59     0.59     0.63     0.61     0.59     0.60     0.61
Barley..........................  $/bu...........     0.45     0.43     0.44     0.42     0.39     0.39     0.40
Oats............................  $/bu...........     0.12     0.11     0.12     0.11     0.09     0.09     0.10
Wheat...........................  $/bu...........     0.89     0.94     0.95     0.89     0.79     0.78     0.71
Cotton..........................  $/lb...........    0.086    0.121    0.131    0.136    0.130    0.120    0.115
Rice............................  $/cwt..........     4.21     4.19     3.86     3.48     3.23     2.89     2.66
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office, February, 1995 Baseline.                                                   

             (4) by eliminating the authority to impose acreage 
        reduction requirements;
             (5) by retaining current law provisions regarding 
        haying and grazing;
             (6) in the 0/85 option for feed grains and rice by 
        (1) paying on 85% of the payment acres devoted to 
        conserving uses, planted to alternative crops, reduced 
        yields, and oilseeds options, and (2) terminating 0/85 
        payments for prevented planting;
             (7) in the 50/85 option for Rice by (1) changing 
        the 50% minimum planting requirement to 25%, (2) paying 
        on 75% of the payment acres devoted to conserving uses 
        or planted to alternative crops instead of 85%, (3) 
        paying on 75% of the payment acres for reduced yields, 
        and oilseeds options, and (4) terminating 0/85 payments 
        for prevented planting;
             (8) in the 50/85 option for upland cotton by (1) 
        eliminating the 50% minimum planting requirement, (2) 
        by paying on 85% of the payment acres devoted to 
        conserving uses, planted to alternative crops, reduced 
        yields, and oilseeds options, and (3) terminating 0/85 
        payments for prevented planting;
             (9) by terminating the 8 month nonrecourse loan 
        extension for upland cotton; and
             (10) by requiring producers to pay the storage 
        costs for upland cotton put under loan.
       The Conference Substitute adopts the House provision 
with an amendment to establish a 7-year production flexibility 
contract. Contract holders must comply with existing 
conservation compliance and wetlands protection regulations, 
and planting flexibility restrictions. Contracts are to be 
entered into by April 15, 1996, and will extend through the 
2002 crop. (Land may be enrolled in a contract after this date 
if it is covered by a Conservation Reserve Contract which 
expires or is voluntarily terminated by a producer after April 
15, 1996.)
       Annual payments are to be made by September 30 of each 
year, with an advance payment of 50% payable to the producer, 
at his or her option, not later than December 15 of the 
previous calendar year. (For the 1996 crops, however, the 
advance is to be paid within 60 days of the date the producer 
signs his or her contract.)
       Total payments under all contracts are established at 
levels derived from the February 1995 Congressional Budget 
Office budget baseline estimate of 1996-2002 crop deficiency 
payments. Each year, 46.22% of the payments are to be made for 
corn, 5.11% for grain sorghum, 2.16% for barley, 0.15% for 
oats, 26.26% for wheat, 11.63% for upland cotton and 8.47% for 
rice.
       The amounts available for contract payments will be 
adjusted by (1) subtracting any final deficiency payments for 
the 1994 and 1995 crops made in fiscal years 1996 or 1997; (2) 
adding repayments of unearned advance deficiency payments for 
the 1995 crops; (3) adding amounts deducted as offsets 
requested by producers in lieu of repaying unearned advance 
deficiency payments; and (4) adding any contract payments 
refunded by producers who violate or cancel their contracts.
       To calculate contract payments, USDA will establish a 
payment quantity for each contract commodity on a farm, equal 
to 85% of the farm's contract acreage multiplied by the farm's 
payment yield for that commodity. For each commodity, the 
payment quantity will then be multiplied by the payment rate to 
obtain the annual payment amount. (The payment rate is 
determined by dividing the total payment quantities for all 
contracts covering a particular commodity by the dollars 
available for that commodity.)

 PLANTING FLEXIBILITY AND LOAN ELIGIBILITY (H. 1102, H. 1103, S. 1109, 
                               CR. 1103)

       The House Bill repeals Title V of the Agricultural Act 
of 1949 that provided for the establishment and maintenance of 
program bases and yields and also provided for planting 
flexibility under the 1991-1995 acreage reduction programs.
       The House Bill provides that for the 1996 through 2002 
crop years the Freedom to Farm transition program--
             (1) allows the planting of any program crop, 
        oilseed, industrial or experimental crop, mung beans, 
        lentils and dry peas on payment acres (historical base 
        acres);
             (2) restricts the planting of fruits or vegetables 
        on payment acres;
             (3) restricts haying and grazing on payment acres 
        during a 5-month period between April 1 and October 31; 
        and
             (4) makes all program crop production of contract 
        holders eligible for loan programs. (See marketing 
        assistance loans discussed infra.)
      The Senate Amendment amends Title V of the Agricultural 
Act of 1949--
             (1) by precluding the planting of fruits or 
        vegetables (except lentils and peas), on paid acreage 
        of a crop acreage base (70% of historical base);
             (2) by allowing full planting flexibility and 
        unlimited haying and grazing on unpaid flex acres (30%) 
        of a crop acreage base;
             (3) by allowing the planting of wheat, feed 
        grains, or oilseeds on all acreage on a farm with full 
        loan eligibility;
             (4) by allowing full planting flexibility on wheat 
        or feed grain crop acreage base, without loss of base 
        history or deficiency payments;
             (5) by allowing alternate crops to be planted on 
        up to 100% of the upland cotton or rice acreage base 
        without loss of base history, but with loss of 
        deficiency payments;
             (6) by precluding a producer with a wheat or feed 
        grain crop acreage base and an upland cotton or rice 
        crop acreage base from receiving deficiency payments 
        with respect to rice or upland cotton planted in excess 
        of the upland cotton or rice crop acreage base;
             (7) by precluding deficiency payments for rice or 
        upland cotton if planted in excess of the crop acreage 
        base;
             (8) by allowing the receipt of loans for planting 
        upland cotton or rice in excess of the upland cotton or 
        rice crop acreage base on up to 25% of the historical 
        soybean acres, or on the unpaid flex acres of a crop 
        acreage base; and
             (9) by freezing the payment yield at the 1990 
        level.
      The Conference Substitute adopts an amendment with a 
Senate approach to establish contract payment acres as 85% of 
historical base acreage. There are no restrictions on planting 
or haying and grazing on non-payment acres (15% of the contract 
acres); haying and grazing is restricted on payment acres 
during the 5 principal growing months between April 1 and 
October 31; and planting of fruits or vegetables is not allowed 
on payment acres. The Conference Substitute allows the planting 
of any program crop, oilseed, industrial or experimental crop, 
mung beans, lentils and dry peas on contract acres (historical 
base acres). All loan commodity production on a farm of 
contract holders is eligible for the marketing loan program. In 
the case of a loan for extra long staple cotton and oilseeds, 
all production is eligible for a marketing loan. In addition, 
alfalfa may be planted on contract acreage in excess of the 
acreage limitation except that the payment under the owner or 
operator's contract will be reduced if the alfalfa acreage, 
taken together with acreage of fruits and vegetables and haying 
and grazing, exceeds 15%.
       It is the intent of the Managers that the Secretary 
utilize random, spot-checks for verification, and rely upon 
producer certification to enforce the flexibility provisions.

NONRECOURSE MARKETING ASSISTANCE LOANS AND LOAN DEFICIENCY PAYMENTS (H. 
                     1103, S. Subtitle A, CR. 1104)

       The House Bill amends the Agriculture Act of 1949 by 
inserting after section 102 a new section 102A that establishes 
a nonrecourse marketing assistance loan for certain crops.
       The House Bill in section 102A(a)(1), directs the 
Secretary to make nonrecourse marketing assistance loans 
available to eligible producers of wheat, feed grains, upland 
cotton, extra long staple cotton, rice, and oilseeds for each 
of the 1996 through 2002 crops of such commodities at a loan 
rate calculated at 70 percent of the simple average price 
received by producers during the immediately preceding five 
crops years (a rolling average). Loan rate adjustment authority 
contained in the Agricultural Act of 1949 was repealed. Such 
marketing assistance loans had a term of nine months, and could 
not be extended by the Secretary. Only a producer whose land 
was subject to a market transition contract was eligible for a 
marketing assistance loan.
       New section 102A(g) provided that the Secretary could 
not make payments to producers to cover storage charges 
incurred in connection with marketing assistance loans.
       Provisions were also added that converted these 
marketing assistance loans into marketing loans, but the 
Secretary was authorized to reduce the loan level below 70% if 
it was estimated that the Commodity Credit Corporation would 
assume ownership of the commodity.
       The Senate Amendment extends loan and marketing loan 
provisions of the Agriculture Act of 1949 from 1996 through 
2002, using the same formulas for calculating loan rates, 
adjusting rates, establishing minimum rates and determining 
loan repayment levels as in current law. The Senate Amendment 
repeals the 8-month loan extension for cotton and requires 
producers to prepay the storage costs for upland cotton put 
under loan.
       The Conference Substitute adopts the Senate provision 
with an amendment that would establish a maximum loan rate at 
the 1995 level:
             (1) Rice: $6.50/cwt
             (2) Upland Cotton: $0.5192/lb
             (3) Wheat: $2.58/bu
             (4) Corn: $1.89/bu
             (5) Soybeans: $4.92/bu
             (6) ELS Cotton: $0.7965/lb
       For rice and oilseeds, the Conference Substitute 
establishes loan rates at the 1995 level. For wheat and feed 
grains, the Conference Substitute extends authority to reduce 
loan rates because of the estimated stocks-to-use level, but 
does not extend authority to reduce loan rates further to 
maintain competitiveness. Upland cotton loan rates can move 
between the new cap ($0.5912) and the $0.50 per lb. floor. ELS 
cotton is eligible for a non-recourse loan only.
       The Conference Substitute also adopts the provision to 
eliminate the 8-month upland cotton loan extension, but retains 
a 10-month upland cotton loan and does not require producers to 
prepay storage costs for upland cotton placed under loan.
       To minimize loan forfeitures and provide for the 
continued effective operation of the marketing loan, the 
Managers expect the Secretary to extend the provisions of 
current regulations to provide that the upland cotton loan 
repayment rate is the lesser of the Adjusted World Price (AWP) 
or the loan principal plus accrued interest, storage and other 
changes. It is the intention of the Managers that the 
prevailing world market price for upland cotton be established 
in a manner that is consistent with procedures used for that 
purpose for 1990-1995 crops.

   COTTON USER MARKETING CERTIFICATES (H.  , S. 1103, CR. 1104(f)(2))

       The House Bill amends the Agriculture Act of 1949 by 
repeal of 103B(5)(E), which provides marketing certificates to 
domestic users and exporters when the price of cotton in the 
U.S. exceeds the Norther European price by more than 1.25 cents 
per pound.
       The Senate Amendment amends Sec. 103B(5)(E) of the 
Agricultural Act of 1949 by increasing the price trigger from 
1.25 cents to 2.50 cents per pound.
       The Conference Report adopts the Senate position with an 
amendment that retains the trigger at 1.25 cents, but prohibits 
the Secretary from expending in excess of $701 million on this 
program during fiscal years 1996-2002. Exporters participating 
in the Cotton User Marketing Certificate program will not be 
able to lock-in a certificate value until the date of export as 
determined by the Secretary.
       The Managers intend that upon enactment, the Secretary 
is directed to issue regulations such that in the event this 
limitation is reached, the special import quota provided in 
paragraph (3) will be established following a consecutive four-
week period in which the Friday through Thursday average price 
quotation for the lowest-priced United States growth, as quoted 
for Middling (M) one and three-thirty seconds inch cotton, 
delivered C.I.F. Northern Europe exceeds the Northern Europe 
price by more than 1.25 cents per pound.

    PAYMENT LIMITATIONS (H. 1104, H. 1401(a)(2), S. 1120, CR. 1105)

       The House Bill, section 1104(a), amends section 
1001(5)(C)(i), that directs that the Secretary, in the case of 
payments to corporations and other entities described in 
section 1001(B)(i)(II), to attribute payments to individuals in 
proportion to their ownership interests in the corporation or 
entity receiving the payment, or in any other corporation or 
entity that has a substantial beneficial interest in the 
corporation or entity actually receiving the payment. The 
provisions of this subparagraph shall apply to individuals who 
hold or acquire, directly or through another corporation or 
entity, a substantial beneficial interest in the corporation or 
entity actually receiving the payment.
       The House Bill amends section 1001(5)(C)(ii), that 
directs the Secretary, in the case of payments to corporations 
and other entities described in section 1001(B)(i)(II), to also 
attribute payments to any State (or political subdivision or 
agency thereof) or other corporation or entity that has a 
substantial beneficial interest in the corporation or entity 
actually receiving the payment in proportion to their ownership 
interests in the corporation or entity receiving the payment. 
The provisions of this subparagraph shall apply even if the 
payments are also attributable to individuals under clause (i).
       The House Bill amends section 1001(5)(C)(iii), and 
provides that for purposes of subparagraph (C), substantial 
beneficial interest' means not less than five percent of all 
beneficial interests in the corporation or entity actually 
receiving the payment, except that the Secretary may set a 
lower percentage in order to ensure that the provisions of this 
section and the scheme or device provisions in section 1001B 
are not circumvented.
       Subsection (b) of section 1104(b) amends section 
1001A(a)(3) to provide that each entity or individual receiving 
payments as a separate person shall notify each individual or 
other entity that acquires or holds a substantial beneficial 
interest in it of the requirements and limitations of section 
1001(A)(a). Each such entity or individual receiving payments 
shall provide to the Secretary, at such times and in such 
manner as prescribed by the Secretary, the name and social 
security number of each individual, or the name and taxpayer 
identification number of each entity, that holds or acquires a 
substantial beneficial interest. Payments are tracked by means 
of social security and taxpayer identification numbers.
      The Senate Amendment extends current payment limitation 
provisions through 2002.
       The Conference Report adopts the Senate provision with 
an amendment to reduce the maximum production flexibility 
payment per person for any fiscal year to $40,000. (Production 
flexibility payments take the place of deficiency payments in 
the Conference Substitute.)
      The Managers expect the Secretary to utilize significant 
latitude and flexibility in defining and enforcing the ``bona 
fide and substantive'' change provisions of the regulations, 
particularly in the initial years of this new farm legislation. 
The Managers intend that the Secretary shall continue to use 
existing regulations in defining the term ``person''.
      It is the intent of the Conferees that persons who are 
tenants and sharecroppers and actively engaged in farming shall 
be eligible for payments under Sec 1103. In effect, any farm 
now eligible for deficiency payments can qualify for payments 
under Sec. 1103, if it participated in one of the 1991-95 
commodity programs.
      Notwithstanding the foregoing, Sec. 1105 payment 
limitations shall apply to any person determined to be eligible 
for contract payments.

              PEANUT PROGRAM (H. 1301, S. 1113, CR. 1106)

      The House Bill amends--
            (1) section 108 B of the Agricultural Act of 1949 
        by setting the quota support rate at $610 for the 1996 
        through 2002 crops, eliminating the price support 
        escalator, reducing the support rate by 15% to any 
        producer who sells peanuts to the government rather 
        than a commercial buyer if the price is equal to 
        greater than the support price. Reform of cross 
        compliance procedures are achieved by segregating quota 
        pool losses from additional pool losses and by 
        increasing the assessment if quota pool losses remain; 
        and
            (2) section 358-1 of the Agricultural Adjustment 
        Act of 1938 by requiring reduction of quota from 
        municipalities, airport authorities, schools, colleges, 
        refuges and other public entities; non-resident quota 
        holders who are not producers; and resident quota 
        holders who are not producers; eliminating the quota 
        minimum; allowing spring and fall sale, transfer, lease 
        of quota across county lines; eliminating 
        undermarketings; limiting disaster transfer payments to 
        no more than 70% of quota support rate not to exceed 
        25% of total quota pounds; and by granting a temporary 
        quota allocation to all growers equal to seed 
        purchases.
      The Senate Amendment--
            (1) amends section 108B of the Agricultural Act of 
        1949 by reauthorizing the program through 2000 and by 
        reducing the price support rate for quota peanuts to 
        $628 per ton for the 1996 through 2000 crops (the price 
        escalator is eliminated);
            (2) amends section 358-1 of the Agricultural 
        Adjustment Act of 1938 by reauthorizing the section 
        through 2000; by eliminating the poundage quota 
        minimum; by setting the national poundage quota at a 
        level equal to the quantity of peanuts that the 
        Secretary estimates will be devoted in each marketing 
        year to domestic edible and related uses, excluding 
        peanuts used for seed on a farm, and including any 
        stocks of peanuts on hand in the inventory of the 
        Commodity Credit Corporation and peanuts or products of 
        peanuts imported into the United States; by eliminating 
        undermarketings of peanuts for the purpose of 
        calculating quota; by establishing a temporary quota 
        for peanuts used for seed; and
            (3) amends section 358b (lease and transfer) of the 
        Agriculture Adjustment Act of 1938 by reauthorizing the 
        section through 2000 and allows limited sale or lease 
        of quota across county lines.
      The Conference Substitute adopts the House position to--
            (1) amend section 108b Agricultural Act of 1949 to 
        authorize the quota price support program through 2002 
        at $610 per ton and eliminate the price support 
        escalator;
            (2) amend section 358-1 of the Agriculture 
        Adjustment Act of 1938 to eliminate the 1.35 million 
        ton quota poundage floor and undermarketings;
            (3) amend section 358-1 to segregate quota pool 
        losses from additional pools and to increase 
        assessments to cover losses if any quota pool losses 
        remain;
            (4) amend section 358-1 to establish a temporary 
        quota for seed; and
            (5) amend section 358-1(b) to limit the transfer of 
        additional peanuts as a result of natural disaster to 
        25% of quota pounds at not more than 70% of the quota 
        support rate.
      The Managers agreed to include additional reforms from 
the House bill that: (1) would prioritize quota reduction to 
farms controlled by public entities and out-of-state quota 
holders who are not producers; (2) allow full lease, sale and 
transfer of quota within a state; and (3) reduce the support 
rate by 5% to any producer who sells peanuts to the government 
rather than a commercial buyer if the price is equal to or 
greater than support price. However, these critical reforms 
were subsequently deleted from the Conference Substitute in 
order to comply with the Byrd Rule.

               SUGAR PROGRAM (H. 1302, S. 1108, CR. 1107)

      The House Bill amends--
            (1) section 206 of the Agricultural Act of 1949 by 
        maintaining sugarbeet and sugarcane loan rates at 1995 
        levels (18/22.9). Reduces the loan rates commensurate 
        to reduction of subsidies by the European Union and 
        other major sugar producing countries, establishes a 
        loan modification threshold, which triggers the non-
        recourse loan system, at 1.256 million short tons in FY 
        1996 and FY 1997. The threshold increases 3% each year. 
        Increases current marketing assessment for cane sugar 
        from 1.1% to 1.5% of the loan rate per pound and from 
        1.1794% to 1.6083% of the loan rate for beet sugar;
            (2) section 359b. of the Agricultural Adjustment 
        Act of 1938 by eliminating marketing allotments.
      The Senate Amendment amends section 206 of the 
Agricultural Act of 1949 to--
            (1) reauthorize the program through 2002;
            (2) provide for a recourse loan that becomes a 
        nonrecourse loan when the tariff rate quota for 
        imported sugar is set to equal or exceed 1.34 million 
        short tons;
            (3) increase the marketing assessment for cane 
        sugar to 1.375 percent of the support price beginning 
        in FY 1997;
            (4) increase the marketing assessment for beet 
        sugar to 1.47425 percent of the support price beginning 
        in FY 1997;
            (5) extend the marketing assessment provision 
        through FY 2002; and
            (6) impose a $0.01 per pound penalty on all sugar 
        forfeited under loan.
      Sugar Marketing allotments in section 359 of the 
Agricultural Adjustment Act of 1938 are repealed.
      The Conference Substitute adopts the House approach to 
amend section 206 of the Agriculture Act of 1949 to set the 
sugar cane loan rate at $0.18 per pound, the sugar beet loan 
rate at $0.229 per pound and reauthorize the program through 
2002. The Conference Substitute adopts the Senate approach and 
to provide non-recourse loans when the tariff rate quota for 
imports is set greater than or equal to 1.5 million short tons, 
raw value. Loans are recourse if the TRQ is set below this 
amount.
      The Conference Substitute adopts the Senate provision to 
make 9-month loans and to impose a $0.01 per pound penalty on 
all sugar forfeited under loan. The Conference Substitute 
adopts the Senate provision to increase the marketing 
assessments on sugar cane and sugar beets to 1.375 and 1.47425 
percent respectively, beginning in FY 1997.
      Sugar Marketing allotments in section 359 of the 
Agricultural Adjustment Act of 1938 are repealed.
      The Managers agreed to include additional important 
reforms in the Conference Substitute that would reduce the 
support rate for sugar if European Union domestic sugar 
subsidies are reduced. However, these critical reforms were 
subsequently deleted from the Conference Substitute in order to 
comply with the Byrd Rule.

     REPEAL OF PERMANENT PRICE SUPPORT AUTHORITY AND MISCELLANEOUS 
                AUTHORITIES (H. 1105, S. 1101, CR. 1109)

      The House Bill suspends quotas, allotments, parity-based 
price supports and other outdated permanent law from the 
Agriculture Adjustment Act of 1938 and the Agricultural Act of 
1949 from FY 1996-2002.
      The Senate Amendment would repeal these provisions of 
permanent law from the from the Agriculture Adjustment Act of 
1938 and the Agricultural Act of 1949.
      The Conference Substitute adopts the Senate provision 
with modifications. As amended, the Agricultural Act of 1949 is 
repealed entirely, while certain necessary sections are 
transferred to the Agricultural Act of 1938. As part of the 
total repeal of the Agricultural Act of 1949, the production 
flexibility contracts, loan programs, peanut, and sugar 
programs for the 1996 through 2002 crops have been established 
under a new act, the ``Agricultural Market Transition Act.''

             FARMER OWNED RESERVE (H.1404, S.1101, CR.1109)

      The House Bill repeals the Farmer Owned Reserve Program 
authorized by section 110 of the Agricultural Act of 1949.
      The Senate Amendment contains an identical provision.
      The Conference Substitute maintains this provision.

       EMERGENCY LIVESTOCK FEED PROGRAM (H.1401, S.1101, CR.1109)

      The House Bill amends section 609 of the Emergency 
Livestock Feed Assistance Act of 1988 to provide that no person 
may receive benefits attributable to lost production of a feed 
commodity if catastrophic insurance protection or noninsured 
crop disaster assistance is available to the person under the 
Federal Crop Insurance Act.
      The Senate Amendment repeals Title VI, the Emergency 
Livestock Feed Assistance Act of 1988, of the Agricultural Act 
of 1949.
      The Conference Substitute adopts the Senate provision.

                 HONEY PROGRAM (H.   , S.1101, CR.1109)

      The House Bill contains no similar provision.
      The Senate Amendment repeals Sec. 207 of the Agricultural 
Act of 1949, the Honey Program.
      The Conference Substitute adopts the Senate provision.

                        Subtitle B--Conservation

 livestock environmental assistance program (h.   , s.1201, cr.1201(a))

      The House Bill contains no similar provision.
      The Senate Amendment replaces chapter 2 of subtitle D of 
title XII of the Food Security Act of 1985 with an 
Environmental Quality Incentives Program that would combine the 
functions of the Agricultural Conservation Program, the Water 
Quality Incentives Program, the Great Plains Conservation 
Program and the Colorado River Basin Salinity Control Program 
into a single initiative to provide technical assistance and 
cost-share and incentive payments to crop and livestock 
producers who undertake certain conservation practices. The 
program would receive $100,000,000 in annual mandatory funding 
directed for practices relating to livestock production.
      The Conference Substitute adopts the Senate provision 
with an amendment that adds a new chapter 4 establishing a 
mandatory Livestock Environmental Assistance Program funded at 
$100,000,000 annually through the Commodity Credit Corporation, 
to be used for structural and land management practices to 
protect water, soil and related resources from degradation 
associated with livestock production. References to assistance 
primarily for crop production and to the four discretionary 
programs cited in the Senate amendment are eliminated and 
species thresholds in the Senate amendment for determining 
structural practice eligibility are increased for beef cattle 
and swine and lowered for dairy cattle.
      In determining the practice or combination of practices 
appropriate for a particular farm or ranch, the Managers 
emphasize that the Secretary should use the lowest-cost option 
or options available. By doing so, the Secretary will be able 
to assist the greatest number of producers possible and 
maximize the positive impacts on the environment.
      The legislation does not specifically mention all 
structural or land management practices that are eligible for 
funding under LEAP because of the broad gamut of measures that 
may be appropriate depending on the type of operation, its 
location and other factors. In addition, it is impossible to 
predict the evolution of new technologies. Accordingly, the 
Managers strongly urge the Secretary to make new practices 
eligible for funding under LEAP as soon as reasonable testing 
indicates their efficacy. The Managers also intend that the 
term ``site-specific'' refer not only to whole farms or ranches 
but to discrete locations within an operation.
      The Managers urge the Department to minimize the formal 
planning that may be necessary to develop LEAP contracts. The 
Department should, however, take into account the practices 
contained in other plans the producer may have for commodity 
program eligibility or for receipt of other conservation 
assistance. Because of the multi-year nature of the contracts, 
the Managers suggest that the Department consider the planning 
process for the Great Plains Conservation Program in developing 
a similar process for LEAP.
      The Managers believe that voluntary natural resource 
management plans developed by the producer and the Department 
(or third parties designated by the Secretary) should be 
sufficient for the LEAP planning process. Such plans should be 
confidential, address resource challenges as requested by the 
producer, and sufficiently flexible to permit innovation. 
However, the Committee emphasizes that such a voluntary natural 
resource management plan should not be a prerequisite for 
receiving assistance under LEAP, nor should it confer 
preference among producers requesting financial assistance.

         conservation reserve program (h.1402, s.1201, cr.1201)

      The House Bill amends provisions of the Conservation 
Reserve Program established under subchapter B, Chapter 1, of 
Subtitle D of the Food Security Act of 1985 by:
            (1) limiting the total number of acres authorized 
        to be enrolled in the Conservation Reserve Program to 
        36,400,000 acres;
            (2) limiting rental rates for contract extensions 
        or new contracts covering land that was previously 
        enrolled in the conservation reserve program to no more 
        than 75 percent of the annual rental payment under the 
        previous contract;
            (3) providing authority for an owner or operator of 
        land enrolled under a conservation reserve contract to 
        terminate the contract upon written notice to the 
        Secretary; and
            (4) striking the proviso relating to the enrollment 
        of new acres beginning in calendar year 1997 in section 
        727 of the Agriculture, Rural Development, Food and 
        Drug Administration, and Related Agencies 
        Appropriations Act, 1996.
      The Senate Amendment reauthorizes the CRP through 2002 
and specifies annual funding levels for the program that 
reflect a limit on the size of the CRP at the current level of 
36.4 million acres and an additional reduction in expenditures 
of approximately $20 million per year.
      The 1996-2002 direct spending for the Conservation 
Reserve (including contracts extended by the Secretary pursuant 
to section 1437 of the Food, Agriculture, Conservation, and 
Trade Act of 1990 (Public Law 101-624;) may not exceed--
            (1) $1,787,000,000 for fiscal year 1996;
            (2) $1,784,000,000 for fiscal year 1997;
            (3) $1,445,000,000 for fiscal year 1998;
            (4) $1,246,000,000 for fiscal year 1999;
            (5) $1,101,000,000 for fiscal year 2000;
            (6) $999,000,000 for fiscal year 2001; and
            (7) $974,000,000 for fiscal year 2002.
      The Conference Substitute adopts the House provision with 
an amendment removing the maximum rate for contract renewals, 
and changing the proviso with respect to new enrollments so 
that it is applicable notwithstanding any other provision of 
law.
      The Managers also adopted the House amendment to section 
1235 of the Food Security Act of 1985 to provide that an owner 
or operator of land enrolled under a conservation reserve 
contract may terminate the contract upon 60 days' written 
notice to the Secretary. Owners or operators who voluntarily 
terminate a contract within the first three years of its term 
must reimburse the Secretary for any cost-share payments 
received under the contract.

           wetlands reserve program (h.   , s.1201, cr.1201)

      The House Bill contains no similar provision.
      The Senate Amendment reauthorizes the program through 
2002 and reduces outlays by setting a maximum enrollment level 
of 975,000 acres and by eliminating authority for the Secretary 
to enter into permanent easements.
      The Conference Substitute adopts the Senate provision 
with an amendment striking the reauthorization and setting the 
maximum easement period at 15 years.

         Subtitle C--Agricultural Promotion and Export Programs

         market promotion program (mpp)(h   , s.1301, cr.1301)

      The House Bill contains no similar provision.
      The Senate Amendment reduces, effective October, 1995, 
funding for the MPP to not more than $75 million for each of FY 
1996-2002.
      The Conference Substitute adopts the Senate provision 
with an amendment to fund MPP at not more than $100 million for 
each of FY 1996-2002.

          export enhancement program (h.1405, s.1302, cr.1302)

      The House Bill amends section 301(e)(1) of the 
Agricultural Trade Act of 1978 to limit the amount of the CCC 
funds or commodities available for the Export Enhancement 
Program as follows: $400,000,000 for fiscal years 1996 and 
1997; $500,000,000 for fiscal year 1998; $550,000,000 for 
fiscal year 1999; $579,000,000 for fiscal year 2000; and 
$478,000,000 for fiscal years 2001 and 2002.
      The Senate Amendment reduces, effective October 1, 1995, 
funding for the EEP for FY 1996-2002 by 20% each year from the 
maximum allowed by the Uruguay Round Agreement of GATT. 
Spending levels under section 301(e)(1) of the Agricultural 
Trade Act of 1978 available for the Export Enhancement Program 
are as follows: $767,200,000 for fiscal year 1996; $705,600,000 
for fiscal year 1997; $624,800,000 for fiscal year 1998; 
$544,000,000 for fiscal year 1999; $463,200,000 for fiscal year 
2000; and $382,400,000 for fiscal years 2001 and 2002.
      The Conference Substitute adopts the House provision with 
an amendment to limit the amount of the CCC funds or 
commodities available for the Export Enhancement Program as 
follows: $350,000,000 for fiscal years 1996 and 1997; 
$500,000,000 for fiscal year 1998; $550,000,000 for fiscal year 
1999; $579,000,000 for fiscal year 2000; and $478,000,000 for 
fiscal years 2001 and 2002.
      The Managers recognize the Uruguay Round Agreement on 
GATT did not eliminate the use of export subsidies. As a 
result, U.S. agriculture is still faced with subsidized foreign 
competition. To help U.S. agriculture counter such subsidized 
competition, capitalize on potential new market opportunities, 
and maintain and expand existing export markets, the Managers 
expect the Secretary of Agriculture to fully utilize and 
aggressively implement the export programs authorized in this 
Act or any other Act.

sunflower oil assistance program/cottonseed oil assistance program (h.   
                           , s.1303, cr.   )

      The House Bill amends section 301 of the Disaster 
Assistance Act of 1988 and section 420 of the Agricultural Act 
of 1949 by removing obsolete authority of the Secretary to 
support the price of cottonseed and cottonseed products through 
loans, purchases, export assistance, or any other form of 
assistance.
      The Senate Amendment repeals, effective October, 1995, 
section 301 of the Disaster Assistance Act of 1988. This would 
eliminate authority for the Secretary of Agriculture to utilize 
section 32 funds to promote the export of sunflowerseed oil, 
cottonseed oil or any other export promotion activities. Both 
vegetable oils would continue to be eligible for assistance 
under the Export Enhancement Program.
      The Conference Substitute deletes both provisions.

                       Subtitle D--Miscellaneous

   CATASTROPHIC CROP INSURANCE COVERAGE (H. 1403, S. 1114, CR. 1401)

      The House Bill repeals, beginning with spring-planted 
1996 crops, the requirement that producers purchase 
catastrophic crop insurance in order to receive payments, 
conservation benefits and farm loans from the Consolidated Farm 
Services Agency. It requires producers who do not purchase the 
insurance to waive their right to receive any emergency crop 
loss assistance. The bill also establishes the Office of Risk 
Management as an agency separate from the Consolidated Farm 
Services Agency, ends the dual delivery of Federal crop 
insurance by prohibiting sales through CFSA offices, and 
creates a business interruption insurance program under which a 
producer can receive an indemnity payment if the producer 
suffers a loss of income.
      The Senate Bill contains a similar repeal of the linkage 
between catastrophic coverage and program benefits, but begins 
the repeal with 1997 crops, and contains no waiver requirement. 
The Senate Amendment contains no provision with respect to 
other items in the House bill.
      The Conference Substitute adopts the House provision with 
respect to de-linking catastrophic coverage from program 
benefits in 1996. The Conference Substitute adopts the House 
provision with respect to dual delivery, with an amendment that 
will require a more gradual phaseout of dual delivery in states 
where crop insurance is not widely offered by private 
companies. The Conference Substitute amends Sec. 519(1)(2)(B) 
of the Federal Crop Insurance Act to include seed crops.
      The Conference Substitute would eliminate the sale of 
catastrophic risk protection through local county offices of 
the Department of Agriculture effective with the Spring-planted 
1996 crops. The Secretary is required to transfer all existing 
catastrophic risk protection policies written by local offices 
of the Department to approved insurance providers.
      However, the Managers did provide for a mechanism under 
which the Secretary could continue to offer catastrophic risk 
protection covered through local offices of the Department if, 
after full consultation and cooperation with approved insurance 
providers, the Secretary determines that there are not 
sufficient numbers of approved insurance providers operating in 
a State, or part of a State, to adequately provide catastrophic 
risk protection coverage to producers. It is not the intent of 
the Managers that the Secretary exercise this discretion 
casually. He should carefully evaluate the availability of 
private providers and consult fully with the private industry 
before making a determination that it is necessary for the 
Department to continue to offer catastrophic risk protection in 
a particular State, or part of a State.

     AGRICULTURE QUARANTINE AND INSPECTION (H.   , S.   , CR. 1402)

      The House Bill contains no similar provision.
      The Senate Amendment contains no similar provision.
      The Managers agreed to amend section 2509 of the Food, 
Agriculture, Conservation and Trade Act of 1990 to authorize 
the Secretary of Agriculture to collect fees to cover the cost 
of providing quarantine and inspection services for imports. As 
amended, this section allows the Secretary to utilize fees 
collected beyond $100 million.

 COMMODITY CREDIT CORPORATION INTEREST RATES (H.   , S. 1112, CR. 1403)

      The House Bill contains no similar provision.
      The Senate Amendment increases the Commodity Credit 
Corporation interest rate applicable to agriculture commodity 
loans by 100 basis points.
      The Conference Substitute adopts the Senate provision.

    AGRICULTURE COMPETITIVENESS INITIATIVE (H.   , S. 1106e, CR.   )

      The House Bill contains no similar provision.
      The Senate Amendment amends Sec. 1502 of the Agricultural 
Act of 1949 to establish competitive agriculture research 
grants.
      The Conference Substitute deletes the Senate provision.

         EVALUATION OF RICE INDUSTRY (H. , S.   , CR. 1106(d))

      The House Bill contains no similar provision.
      The Senate Bill contains no similar provision.
      The Managers agreed to include in the Conference 
Substitute provision to direct the Secretary of Agriculture, if 
he found that the rice industry is threatened by underplantings 
resulting form the requirements of this subtitle, to take such 
actions as necessary to strengthen the export and domestic 
consumption of rice and rice producers income. It is the intent 
of the Managers that the Secretary should use all tools 
available to him in order to maintain the domestic rice 
industry, including, but not limited to EEP, PL480, MPP, FMD, 
recommendations under section 301, and other programs to 
enhance market development efforts and allow producers to 
obtain their income from the marketplace. However, the 
provision was subsequently deleted from the Conference 
Substitute in order to comply with the Byrd Rule.

       BALANCED BUDGET ACT EXEMPTION (H. 1102 (l), S.   , CR.   )

      The House Bill amends Sec. 252 of the Balanced Budget and 
Emergency Deficit Control Act of 1985 to provide an exemption 
for market transition payments in the `Freedom to Farm' 
program.
      The Senate Amendment contains no similar provision.
      The Managers agreed to include the House provision in the 
Conference Substitute, However, these provisions were 
subsequently deleted from the Conference Substitute in order to 
comply with the Byrd Rule.

     SENSE OF THE SENATE REGARDING ETHANOL (H.   , S. 1116, CR.   )

      The House Bill contains no similar provision.
      The Senate Amendment expresses the Sense of the Senate in 
support of the use of ethanol as an alternative fuel.
      The Managers agreed to include the Senate provision in 
the Conference Substitute. However, these provisions were 
subsequently deleted from the Conference Substitute in order to 
comply with the Byrd Rule.

COMMISSION ON THE 21ST CENTURY PRODUCTION AGRICULTURE (H. Subtitle E., 
                             S.   , CR.   )

      The House Bill establishes a commission known as the 
``Commission on 21st Century Agriculture''.
      Membership is composed of 11 members (3 appointed by the 
President and 4 each by the Chairmen of the House and Senate 
Agriculture Committees), with qualifications of persons 
involved in agriculture production and related industries.
      The Commission is directed to conduct a review of how the 
Freedom to Farm Act has performed during the period of 
operation (a ``Look Back'') and a review of the future of 
production agriculture in the United States and the role of 
Federal Government support of production agriculture (a ``Look 
Forward''). The Commission is to submit a mid-term report (June 
1, 1998) on a final report by January 1, 2001.
      The Subtitle authorizes the Commission to conduct 
hearings, obtain support and information from other Federal 
Government agencies, employ a staff and otherwise carry out its 
duties.
      The Committee is to terminate upon the issuance of the 
report required by January 1, 2001.
      The Senate Amendment contains no similar provision.
      The Managers agreed to include the House provision in the 
Conference Substitute. However, these provisions were 
subsequently deleted from the Conference Substitute in order to 
comply with the Byrd Rule.

                       Deleted Provisions--Dairy

          MILK PRICE SUPPORT PROGRAM (H. 1201, S. 1106 CR.   )

      The House Bill amends the Agricultural Act of 1949 by 
replacing section 204, and conforming sections 201(a) and 301, 
to authorize the Secretary to enter into market transition 
contracts with milk producers following the elimination of the 
dairy price support program.
      The dairy price support program under existing section 
204 of the Agricultural Act of 1949 continues in operation 
through December 31, 1995 at which time it is terminated. 
Producers that are entitled to a refund of their 1995 budget 
reconciliation assessment (i.e., their marketings of milk in 
calendar year 1995 did not exceed their marketings of milk in 
calendar year 1994) will receive those refunds from CCC funds 
rather than from assessments on producers in 1996.
      Sections 201(a) and 301 of the Agricultural Act of 1949 
are conformed to eliminate milk from the designated and 
undesignated nonbasic agricultural commodities for which the 
Secretary has general authority to provide price support.
      The Senate Amendment amends the Agricultural Act of 1949 
by replacing section 204 to operate a price support program for 
milk during the period beginning January 1, 1996, and ending 
December 31, 2002, and set the support price for milk used for 
cheese at $10.00 per hundredweight for calendar year 1996. The 
support price for milk used to make cheese shall decrease 10 
cents per hundredweight each calendar year from 1997 through 
2002.
      The Secretary is required to decrease the support price 
of milk used for cheese for an upcoming calendar year by an 
additional 25 cents per hundredweight if, on November 20 of the 
preceding calendar year, the Secretary estimates that CCC 
purchases of cheese and DEIP sales of dairy products will 
exceed 1.5 billion pounds (milk equivalent, total solids basis) 
during the upcoming calendar year. Any such additional decrease 
in the support price shall be applicable only for the calendar 
year for which the Secretary made the estimate.
      The Conference Substitute deletes both the House and 
Senate provisions.

recourse loans for commercial processors of dairy products (h. 1202, s. 
                                , cr.   )

      The House Bill amends the Agricultural Act of 1949 to 
authorize the Secretary to make recourse loans available to 
commercial processors of cheddar cheese, butter and nonfat dry 
milk dairy products at 90% of the reference price for a product 
and at established CCC interest rates to assist those 
processors in assuring price stability for the dairy industry.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

        dairy export incentive program (h. 1211. s.   , cr.   )

      The House Bill amends section 153(c) of the Food Security 
Act of 1985 to require the Secretary to use the DEIP program to 
export the maximum allowable quantities of U.S. dairy products 
consistent with the obligations of the United States as a 
member of the World Trade Organization, minus the quantity sold 
under section 1163 of the Food Security Act of 1985 during that 
year. The House Bill also extends the operations of the DEIP 
program through the year 2002.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

authority to assist in establishment and maintenance of export trading 
                    company (h. 1212, s.   , cr.   )

      The House Bill authorizes the Secretary of Agriculture to 
assist the United States dairy industry in establishing and 
maintaining an export trading company under the Export Trading 
Company Act of 1982 to facilitate the international market 
development for and exportation of U.S. dairy products.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

      standby authority to indicate entity best suited to provide 
 international market development and export services (h. 1213, s.   , 
                                cr.   )

      The House Bill provides standby authority for the 
Secretary of Agriculture to indicate which entity, autonomous 
of the U.S. government, is best suited to provide international 
market development and export services to the U.S. dairy 
industry and to assist that entity in identifying sources of 
funding for its activities during the period between July 1, 
1997 and September 30, 2000.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

study and report regarding potential impact of uruguay round on prices, 
         income and government purchases (h.   , s.   , cr.   )

      The House Bill directs the Secretary of Agriculture to 
perform a study of the potential impact of new access cheese 
imports under the Uruguay Round on U.S. milk prices, dairy 
producer income, and the cost of Federal dairy programs.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

  research and promotion activities under fluid milk promotion act of 
                     1990 (h. 1221, s.   , cr.   )

      The House Bill amends the Fluid Milk Promotion Act of 
1990 (subtitle H of title XIX of Public Law 101-624) to 
eliminate the automatic termination of any order issued under 
the Act on December 31, 1996, and to clarify the referendum 
requirements of the Fluid Milk Promotion Act which were 
inadvertently impacted by amendments made to the Act in 1993 
which altered the definition of ``fluid milk processor''. Any 
future order issued under the Act must now be approved by the 
affirmative votes of fluid milk processors representing 60 
percent or more of the volume of fluid milk products marketed 
by all fluid milk processors voting in the referendum before it 
can be implemented.
       The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

 expansion of dairy promotion program to cover dairy products imported 
            into the united states (h. 1222, s.   , cr.   )

      The House Bill amends the Dairy Production Stabilization 
Act of 1983 to extend the assessment for generic research and 
promotion on U.S. dairy producers to imported dairy products.
      Importers of dairy products will be entitled to the same 
credit for contributions to State or regional promotion or 
nutrition programs to which domestic producers are entitled.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

  promotion of united states dairy products in international markets 
        through dairy promotion program (h. 1223, s.   , cr.   )

      The House Bill amends section 113(e) of the Dairy 
Production Stabilization Act of 1983 to require that the budget 
of the National Dairy Promotion and Research Board during each 
of the fiscal years from 1996 and 2000 shall provide for the 
expenditure of not less than 10 percent of anticipated revenues 
available to the Board on the development of international 
markets for, and the promotion within such markets of, U.S. 
dairy products.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

issuance of amendment order under dairy production stabilization act of 
                     1983 (h. 1224, s.   , cr.   )

      The House Bill establishes an expedited procedure to 
implement the amendments required by sections 1222 and 1223 to 
the dairy products promotion and research order issued under 
the Dairy Production Stabilization Act of 1983.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

        program to verify milk receipts (h. 1231, s.   , cr.   )

      The House Bill creates a new subsection (l) in section 
204 of the Agricultural Act of 1949 to establish a program to 
verify receipts of milk and audit marketing agreements and 
other contracts for the marketing and receipt of milk between 
producers and handlers.
      Effective July 1, 1996, the verification program shall 
supersede any Federal milk marketing order issued under section 
8c of the Agricultural Adjustment Act, reenacted with 
amendments by the Agricultural Marketing Agreement Act of 1937 
with respect to milk or the products of milk.
      The Senate Amendment contains no similar provision
      The Conference Substitute deletes the House provision.

        federal milk marketing orders (h. 1232, s. 1106, cr.   )

      The House Bill provides that the verification program 
established by section 1231 will supersede existing Federal 
milk marketing orders. The House Bill also terminates existing 
Federal milk marketing orders by striking paragraphs (5) and 
(18) of section 8c and provides that the amendments made by 
section 1232 are effective on July 1, 1996.
      The Senate Amendment amends section 8c(5) of the 
Agricultural Adjustment Act, reenacted with amendments by the 
Agricultural Marketing Agreement Act of 1937 to classify butter 
and dry milk as Class IV dairy products. It also establishes a 
Class IV pool for all milk producers to share the difference, 
if any between the support price for cheese and the national 
average price for butter and dry milk, expressed in dollars per 
hundredweights of milk, each month. The cost of administering 
the Class IV pool is shared by all producers. Persons who fail 
to pay into the pool are liable for a civil penalty. The 
Secretary is to issue regulations without regard to the 
Administrative Producers Act.
      The Conference Substitute deletes both the House and 
Senate provisions.

               northeast compact (h.   , s. 1106, cr.   )

      The House Bill contains no similar provision.
      The Senate Amendment provides congressional consent for 
the Northeast Interstate Dairy Compact for a period of seven 
years. The Compact Commission is required to compensate the CCC 
for the cost of any cheese purchased from within the Compact 
region resulting from increased fluid milk production within 
Compact region to the extent that such purchases exceed the 
national average rate of purchases of cheese by the CCC.
      The Conference Substitute deletes the Senate provision.

    extension of transfer authority regarding military and veterans 
                   hospitals (h. 1241, s.   , cr.   )

      The House Bill gives the authority of the Secretary to 
transfer dairy commodities to military and veterans hospitals 
is extended through 2002.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

     extension of dairy indemnity program (h. 1242, s.   , cr.   )

      The House Bill extends the Dairy Indemnity Program until 
2002.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

extension of report regarding export sales of dairy products (h. 1243, 
                             s.   , cr.   )

      The House Bill requires that the Secretary report on 
export sales of dairy products is extended through 2002.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

          status of producer-handlers (h. 1244, s.   , cr.   )

      The House Bill states that the legal status of producer-
handlers is not altered or otherwise affected by the provisions 
of this subtitle.
      The Senate Amendment contains no similar provision.
      The Conference Substitute deletes the House provision.

     repeal of section 102 1990 farm bill (h.   , s. 1106, cr.   )

      The House Bill contains no similar provision.
      The Senate Amendment repeals section 102 of the Food, 
Agriculture, Conservation, and Trade Act of 1990 which 
prohibits states from having higher ``make allowances'' than 
that permitted under the federal price support program for 
milk.
      The Conference Substitute deletes the Senate provision.

            TITLE II--BANKING, HOUSING, AND RELATED PROGRAMS

                   Subtitle A--Financial Institutions

          SECTION 2011--SPECIAL ASSESSMENT TO CAPITALIZE SAIF

House bill

      The House bill would fully capitalize the Savings 
Association Insurance Fund (SAIF) to its designated reserve 
ratio with a one-time special assessment on all SAIF-insured 
deposits, including those held by SAIF members and those banks 
which have purchased SAIF deposits, or so-called ``Oakar'' 
banks. The Federal Deposit Insurance Corporation (FDIC) will 
determine the size of the special assessment based on the SAIF 
reserve balance and the most recently available data on insured 
deposits. The assessment, anticipated to be between seventy to 
eighty cents per every $100 of deposits, will be applied 
against the SAIF deposits held by institutions as of March 31, 
1995. The Federal Deposit Insurance Corporation (FDIC) will 
collect the special assessment on the first business day of 
January 1996, or such other date as the FDIC prescribes which 
may not be later than 60 days after the date of enactment.
      The bill would provide the FDIC Board of Directors 
authority to exempt weak institutions from paying the special 
assessment if the exemption would reduce risk to the SAIF. 
Institutions exempt from the special assessment would pay 
regular assessments under the risk-based assessment schedule in 
effect for SAIF members on June 30, 1995 for the period 1996-
1999. Institutions exempt from the special assessment have the 
option--during the period 1997-1999--of paying a pro rated 
portion of the special assessment. Such institutions would then 
pay on the same risk-based schedule as non-exempted SAIF 
members.
      FDIC would also have authority to set the special 
assessment for Oakar banks at a lower rate than for SAIF 
members so long as such rate is not less than two-thirds of the 
rate set for SAIF members and would not result in an increased 
budget outlay or decrease in offsetting receipts.

Senate amendment

      The Senate language is similar to the House bill on the 
timing and calculation of the special assessments. However, for 
purposes of determining the special assessment for Oakar banks, 
the Senate adopted language would provide those Oakar banks 
which hold a majority of BIF-insured deposits as of June 30, 
1995 with a ten percent reduction in their SAIF assessable 
deposits. The exemption for weak institutions is also extended 
to include certain newly chartered savings associations.

Conference agreement

      The conference agreement provides that the SAIF will be 
fully capitalized on January 1, 1996, as required under both 
House and Senate language. The House receded to the Senate on 
the treatment of Oakar banks with a modification that a twenty 
percent reduction be made in their SAIF-assessable deposits.
      The conferees took these actions to improve SAIF's 
undercapitalized position. At present, SAIF reserves would not 
cover the cost of the failure of one large or a few medium-
sized thrifts, or other substantial unanticipated losses. 
Should the reserves be exhausted, the taxpayer is next in line. 
The full and immediate capitalization of SAIF will decrease 
taxpayer risk significantly and ensure that thrifts make a 
significant contribution in stabilizing their insurance fund.
      The Conference Committee recognizes the importance of 
recapitalizing SAIF and maintaining public confidence in 
federal deposit insurance. The legislative imposition of a one-
time, special assessment on SAIF-insured institutions is a 
highly unusual and infrequent event intended to stabilize the 
SAIF.

SECTION 2012--FINANCING CORPORATION ASSESSMENT SHARED PROPORTIONALLY BY 
                  ALL INSURED DEPOSITORY INSTITUTIONS

House bill

      Under the House bill, effective January 1, 1996, the 
assessment base for payments on the interest on obligations 
issued by the Financing Corporation (FICO) is to be expanded to 
include all FDIC-insured institutions, i.e., banks and thrifts 
(thus spreading the FICO obligation pro rata over all FDIC-
insured institutions).

Senate amendment

      The Senate language is identical.

Conference agreement

      The conference agreement includes this language. 
Spreading the FICO burden will eliminate the potential for a 
premium differential, thereby decreasing thrifts' incentives to 
evade SAIF assessments.

                  SECTION 2013--MERGER OF BIF AND SAIF

House bill

      The House provision would merge the Bank Insurance Fund 
(BIF) and the SAIF into the Deposit Insurance Fund on January 
1, 1998. The exit moratorium, which currently prohibits 
institutions from switching insurance funds and the Oakar bank 
provisions, would be repealed on January 1, 1998.
      The provision would also establish a special reserve for 
the Deposit Insurance Fund. The special reserve would consist 
of any SAIF excess reserves, i.e., reserves not needed to meet 
the designated reserve ratio, immediately prior to the merger 
of the funds. The FDIC would have the authority to transfer 
amounts from the special reserve to the deposit insurance fund 
if the Board of Directors determines that the fund's reserve 
ratio is less than half of the designated reserve ratio and is 
likely to be, remain at or below that level for the next four 
quarters.
      Because of the merger of the funds, the House bill would 
also modify the Federal Home Loan Bank System's annual 
contribution of $300 million toward the interest payments due 
on Resolution Funding Corporation (REFCORP) bonds. The 
provision would eliminate the shortfall allocation formula by 
changing the payment to 23.7% of the system's net earnings, as 
compared to the flat $300 million payment provided for under 
current law.
      The House bill would also repeal the Home Owners' Loan 
Act, which provides for the chartering of federal savings 
associations and regulation of savings and loan holding 
companies. The Office of Thrift Supervision (OTS) would also be 
abolished. State chartered thrifts would be treated as if they 
were commercial banks for the purposes of all federal banking 
laws, including the Federal Deposit Insurance Act and the 
Federal Reserve Act. A number of technical provisions are 
included to implement the charter conversion, including a 
clarification that housing creditors may purchase and enforce 
alternative mortgage transactions in accordance with OTS 
regulations issued prior to the effective date of Section 3(f) 
of the Home Owners Loan Act (HOLA).

Senate amendment

      With regard to the merger of the funds, the Senate 
language differs in that the BIF and the SAIF would be merged 
on January 1, 1998 only if no insured depository institution is 
a savings association (as those terms are defined in the 
Federal Deposit Insurance Act) on that date. The Senate 
language does not repeal the HOLA or abolish the OTS. The 
Senate language also maintains the present REFCORP formula.

Conference agreement

      The House recedes.

             SECTION 2014--CREATION OF SAIF SPECIAL RESERVE

House bill

      No provision.

Senate amendment

      No provision.

Conference agreement

      Analogous to the treatment of the merged insurance funds 
under Section 2013, the conference agreement includes language 
establishing a special reserve for the SAIF on January 1, 1998. 
The SAIF special reserve will initially consist of the amount 
that SAIF's reserve ratio exceeds the designated reserve ratio. 
As with the Deposit Insurance Fund under Section 2013, the FDIC 
may transfer amounts from the special reserve to the Deposit 
Insurance Fund if the Board of Directors determines that the 
fund's reserve ratio is less than half of the designated 
reserve ratio and is likely to be less than half of the 
designated reserve ratio for the next four quarters.

SECTION 2015--REFUND OF AMOUNTS IN DEPOSIT INSURANCE FUND IN EXCESS OF 
                       DESIGNATED RESERVE AMOUNT

House bill

      The House bill would prohibit the FDIC from setting 
semiannual assessments in excess of the amount needed to 
maintain the reserve ratio of any fund at the designated 
reserve ratio. Further, the FDIC would be required to rebate at 
the end of any semiannual period any amount--in the BIF or in 
the merged fund after January 1, 1998--that exceeds the balance 
required to meet the designated reserve ratio on such basis as 
the Board of Directors determines to be appropriate. The Board 
will take into account the factors considered under the risk-
based assessment system. The rebate to any member could not 
exceed the total amount paid by such member for that semiannual 
period.

Senate amendment

      The Senate amendment would provide the FDIC with the 
discretion to rebate in the form of assessment credits the 
assessments paid by BIF members to the extent that the fund's 
reserve ratio exceeds the designated reserve ratio. FDIC would 
make this judgment after considering operating costs, case 
resolution cost, case resolution expenditures, and income.

Conference agreement

      The Senate recedes, with an amendment which would exempt 
from the House provision those institutions that exhibit 
financial, operational, or compliance weaknesses ranging from 
moderately severe to unsatisfactory, or are not well-
capitalized. Assessments paid by these institutions cannot be 
rebated. This preserves the FDIC's flexibility to continue and 
refine the risk-based premium system required by the Federal 
Deposit Insurance Corporation Improvement Act of 1991.

 SECTION 2016--ASSESSMENT RATES FOR SAIF MEMBERS MAY NOT BE LESS THAN 
                    ASSESSMENT RATES FOR BIF MEMBERS

House bill

      The House bill would require that SAIF assessment rates 
could not be lower than BIF assessment rates.

Senate amendment

      The Senate language is similar but would extend the 
requirement until all FICO obligations are paid.

Conference agreement

      The conference agreement provides that SAIF assessment 
rates may not be lower than BIF assessment rates beginning on 
the date of enactment of the reconciliation act and ending on 
January 1, 1998.

  SECTION 2017--ASSESSMENTS AUTHORIZED ONLY IF NEEDED TO MAINTAIN THE 
               RESERVE RATIO OF A DEPOSIT INSURANCE FUND

House bill

      The House bill would prohibit the FDIC from setting 
semiannual assessments in excess of the amount needed to 
maintain the reserve ratio of any fund at the designated 
reserve ratio, or, if the reserve ratio is less than the 
designated reserve ratio, to increase the ratio to the target 
level.

Senate amendment

      No provision.

Conference agreement

      The Senate recedes with an exception. Subsection (c) of 
Section 2017 provides an exception to the limitations placed on 
the FDIC in setting semi-annual assessments when the fund is at 
or above the designated reserve ratio. This subsection permits 
the FDIC to continue to charge premiums under its risk-based 
system on institutions that exhibit financial, operational, or 
compliance weaknesses ranging from moderately severe to 
unsatisfactory, or are not well-capitalized. These standards 
are generally the ones used by the FDIC in its current risk-
based system. This exception is intended to provide the FDIC 
with sufficient flexibility to maintain a risk-based assessment 
system and thereby provide the owners and managers of financial 
institutions with an incentive to manage their institutions so 
as to reduce or eliminate their premiums.
      So long as the designated reserve ratio has been met, the 
exception incorporated in this subsection is not intended to 
allow the FDIC to impose premiums on a percentage of the 
banking industry that would be significantly beyond the 
percentage of the banking industry which currently meets these 
standards, unless economic and banking industry conditions 
necessitate such an expansion.

SECTION 2018--LIMITATION ON AUTHORITY OF OVERSIGHT BOARD TO CONTINUE TO 
               EMPLOY MORE THAN 18 OFFICERS AND EMPLOYEES

House bill

      This provision would terminate the ability of the Thrift 
Depositor Protection Oversight Board to employ staff on 
December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The Senate recedes with modification to permit the 
Oversight Board to employ eighteen individuals during the 
period beginning on January 1, 1996 and ending May 1, 1996.

                          Subtitle B--Housing

 SECTION 2051--REDUCTION OF SECTION 8 ANNUAL ADJUSTMENT FACTORS (AAF) 
                   FOR UNITS WITHOUT TENANT TURNOVER

House bill

      This provision makes permanent an FY 1995 appropriation 
provision that reduces the annual adjustment factor (AAF) by 
one percentage point for those Section 8 units for which there 
has been no resident turnover since the preceding annual rental 
adjustment.

Senate Amendment

      The Senate provision is similar to the House, and would 
limit the amount of the annual adjustment factor (AAF) for 
section 8 assisted housing by: (1) reducing by one percentage 
point the rent increase for those Section 8 units in which 
there has been no resident turnover since the preceding annual 
rental adjustment; and (2) limiting the overall AAF to the cost 
of operation of a particular project (excluding the portion of 
the rent for debt service).

Conference Agreement

      The conference agreement generally adopts the Senate 
provision and would limit the amount of the annual adjustment 
factor (AAF) or a rent increase for section 8 assisted housing 
by: (1) reducing by one percentage point the rent increase for 
those Section 8 units in which there has been no resident 
turnover since the preceding annual rental adjustment; and (2) 
limiting the overall AAF to the cost of operation of a 
particular project (excluding the portion of the rent for debt 
service).
      These reforms are needed to maintain reasonable rental 
costs in federally assisted projects, many of which receive 
subsidized rents in excess of the fair market rent for a 
comparable project in the same market area. This provision is a 
first step to comprehensive reforms that address the escalating 
costs of the section 8 project-based contract assistance 
program.

      SECTION 2052--FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE

House bill

      The House bill replaces the current Federal Housing 
Administration (FHA) assignment program and provides the 
Department of Housing and Urban Development (HUD) with 
authority to pay partial mortgage insurance claims limited to 
the amount equivalent to or less than twelve monthly mortgage 
payments. As a condition for accepting a partial claim payment, 
the lender agrees, on a short term basis, to modify the terms 
of the loan to a level where the borrower has the ability to 
pay and retain the loan in its portfolio. In some 
circumstances, however, where the default and modification may 
be for a longer period of time, the replaced program allows HUD 
to pay the mortgage insurance claim after loan modification and 
accept the borrower into a new assignment program. HUD will act 
as the lender for at least two years or whenever the mortgage 
may be sold to the secondary markets or otherwise disposed. The 
assignment program will require HUD to use private sector 
sources for servicing and foreclosure activities.

Senate Amendment

      No provision.

Conference Agreement

      The Senate recedes with an amendment to apply the reforms 
to FHA mortgages originated in FY 1996 and thereafter.
      The FHA assignment program was created in 1959, but was 
not operational until 1976 after a court consent decree 
required HUD to implement the program. Subsequent modifications 
to the temporary mortgage assistance program and the assignment 
program required HUD to accept defaulted FHA borrowers into the 
program. As a condition for assignment, a borrower's default 
must be based on circumstances beyond his or her control, such 
as sickness or loss of employment. Further, there must be a 
reasonable expectation that the borrower will resume normal and 
regular mortgage payments and correct any loan deficiencies 
within a reasonable time. Currently, the program allows up to 
36 months in forbearance in anticipation that a mortgagor will 
be able to resume his or her mortgage payments. Since the 
majority of assigned loans are insured under the FHA Mutual 
Mortgage Insurance Fund (MMIF), the cost of the assignment 
program is borne by the Fund.
      The Conference Committee notes that the well-intentioned 
objectives of the current assignment program are not achieved, 
and could cause some $1.6 billion in future losses to the FHA 
MMIF. A recent General Accounting Office (GAO) study indicates 
that there are currently 71,500 loans in the program and that 
it ``operates at a high cost to FHA's Fund and has not been 
very successful helping borrowers avoid foreclosures in the 
long run.'' Approximately 30% of assigned borrowers eventually 
become current and graduate out of the FHA assignment program, 
thereby indicating a current failure rate at approximately 70%. 
Thus, current FHA borrowers are paying higher premiums to meet 
the capital ratio standards of the MMIF as well as cover the 
exorbitant costs of the assignment program.
      The replaced assignment program included in the 
conference report provides HUD with authority to pay partial 
mortgage insurance claims limited to the amount equivalent to 
or less than twelve monthly mortgage payments. As a condition 
for accepting a partial claim payment, the lender agrees, on a 
short term basis, to modify the terms of the loan to a level 
where the borrower has the ability to pay and retain the loan 
in its portfolio. In some circumstances, however, where the 
default and modification may be for a longer period of time, 
the replaced program allows HUD to pay the mortgage insurance 
claim and accept the borrower into a new assignment program. 
Under a new assignment program, it is expected that HUD will 
use private sector sources for servicing and foreclosure 
activities. Given HUD's history of management and capacity 
deficiencies, the Conferees urge HUD to consider carefully the 
structure of any new or replaced assignment program.

 TERMINATION OF THE RESOLUTION TRUST CORPORATION (RTC) AND THE FEDERAL 
    DEPOSIT INSURANCE CORPORATION (FDIC) AFFORDABLE HOUSING PROGRAMS

House bill

      The House provision repeals Section 40 of the Federal 
Deposit Insurance Act in anticipation of the December 31, 1995 
sunset of the Resolution Trust Corporation (RTC) and terminates 
the RTC Affordable Housing Advisory Board. Remaining functions 
and authority vested in the RTC Affordable Housing Program are 
transferred to the Secretary of Housing and Urban Development. 
This includes monitoring affordable housing resale 
restrictions, low-income occupancy requirements, and rent 
limitations and recapturing resale proceeds.

Senate Amendment

      No provision.

Conference Agreement

      House recedes.

   TERMINATION OF HUD-OWNED MULTIFAMILY PROPERTY DISPOSITION PROGRAM

House bill

      This provision authorizes HUD to sell multifamily housing 
projects that are HUD-owned or HUD-held mortgages without 
restrictions. HUD is given authority to delegate this authority 
to other parties in order to sell the property more quickly.

Senate Amendment

      No provision.

Conference Agreement

      House recedes.

    RECAPTURE OF RURAL HOUSING LOAN SUBSIDIES BY RURAL HOUSING AND 
                     COMMUNITY DEVELOPMENT SERVICE

House bill

      This provision extends statutory authority to the Rural 
Housing and Community Development Service to recapture 
government subsidy payments at the time the borrower refinances 
or repays a single family direct loan mortgage financed under 
Section 502 of the Housing Act of 1949.

Senate Amendment

      No provision.

Conference Agreement

      House recedes.

      TITLE III--COMMUNICATIONS AND SPECTRUM ALLOCATION PROVISIONS

                    Section 3001--Spectrum Auctions

                (a) EXTENSION AND EXPANSION OF AUTHORITY

House bill

      This subsection amends section 309(j) of the 
Communications Act of 1934 which grants the Federal 
Communications Commission (FCC) authority to use a system of 
competitive bidding as a means of granting licenses. The 
subsection provides that such authority will apply when there 
are mutually exclusive applications for an initial license for 
use of the electromagnetic spectrum. Competitive bidding would 
not be permitted to be used for unlicensed uses. The FCC is 
required to continue its obligation under section 309(j)(6)(E) 
to take actions necessary to avoid situations of mutual 
exclusivity. An example is the 450-470 MHz band, which is 
shared by low-powered medical telemetry devices.
      The subsection also sets forth specific exemptions from 
the use of competitive bidding. The subsection does not permit 
the use of competitive bidding for public safety radio 
services, including non-government uses that protect the safety 
of life, health and property and that are not made commercially 
available to the public.
      Under this subsection, the FCC may not use competitive 
bidding for initial licenses for broadcast digital television 
services assigned by the FCC to incumbent broadcast licenses to 
replace their current analog signal. This subsection also 
repeals the authority of the FCC to use random selection (or 
so-called ``lotteries'') as an alternative to competitive 
bidding. Finally, the expansion of competitive bidding 
authority under this subsection does not apply to any licenses 
for which the FCC has accepted mutually exclusive applications 
prior to the date of enactment.

Senate amendment

      Section 4001(a) of the Senate bill is similar to the 
House provisions, but it contains an additional provision, 
section 309(j)(2)(C) of the Communications Act of 1934. This 
provision directs the FCC to submit to Congress a proposal 
regarding the use of auction authority for the assignment of 
licenses for advanced television services within 180 days of 
enactment of this section. The FCC would be prohibited from 
awarding ATV spectrum to existing commercial broadcast 
licenses, until January 1, 1998. The prohibition does not 
extend to assignment of ATV spectrum to public broadcasters.

Conference agreement

      The Conferees adopt the Senate provisions with 
modifications. The Conference Agreement provides further 
limitations on the exemption of auction authority for public 
safety radio services by accepting the Senate language 
requiring that the ``sole or principal purpose'' of the 
spectrum exempted from auctions be for ``the safety of life, 
health, and property and which are not made commercially 
available to the public.''
      Section 3001(a) amends the Communications Act of 1934 and 
provides that the FCC will employ auctions to assign licenses 
where there are mutually exclusive applications for such 
licenses. Section 309(j)(2)(C) of such Act exempts from the new 
auction authority the grant of licenses or construction permits 
to existing broadcast television licensees or permittees for 
advanced television services. Section 309(j)(2)(C)(i) directs 
the Commission, within 180 days after enactment of this bill, 
to report to Congress on whether auctions of the license to use 
spectrum currently reserved for advanced television should be 
authorized.
      The conferees intend that the FCC's report should 
consider, among other things, the following issues:
            The extent to which television broadcast license 
        holders could provide advanced television services 
        using their existing spectrum, in particular by 
        replacing analog broadcasts with digital broadcasts on 
        the same spectrum;
            The impact of assigning such licenses by auction on 
        the availability and deployment of advanced television 
        service technology, particularly in rural areas and 
        small television markets, and on the ability of 
        consumers to receive digital television services 
        through over-the-air television broadcasts;
            The impact on television broadcasters of a 
        requirement to simultaneously broadcast analog and 
        digital signals for a set period of time, and in 
        particular the impact of such requirements on the cost 
        of broadcasting equipment and on consumer devices 
        (including televisions and converter boxes);
            The feasibility of using the spectrum reserved for 
        advanced television for other purposes, including an 
        estimate of the projected receipts that could be 
        derived from auctioning licenses for the use of such 
        spectrum;
            The assignment of licenses without auction and the 
        reassignment of current broadcast television spectrum 
        under a system of public auctions upon completion of a 
        transition from analog to digital transmission, 
        including the feasibility and desirability of 
        regrouping broadcast spectrum assignments so that 
        contiguous nationwide spectrum would be available for 
        public auction; and
            The costs and uncertainties for broadcasters, 
        including the cost of converting facilities for 
        simulcasting analog/digital signals, and the lack of 
        knowledge of whether consumers will purchase digital 
        equipment, in comparison to the costs and uncertainties 
        if a bidder is not an incumbent broadcaster and has no 
        knowledge of whether new programming services will 
        drive customers' purchases of digital sets.
      To allow time for Congress to consider this report, the 
Commission may not issue licenses or construction permits for 
advanced television services that replace existing television 
licenses until November 15, 1996. The conferees do not intend 
the suspension of licensing authority to delay or prejudice any 
ongoing Commission proceedings regarding the authorization of 
advanced television services.
      The conferees agree to the House effective date with a 
modification to clarify that amendment to Section 309 shall not 
apply with respect to any license or permit for a terrestrial 
radio or television broadcast station for which the FCC has 
accepted mutually exclusive applications on or before the date 
of enactment of this Act.

  (b) COMMISSION OBLIGATION TO MAKE ADDITIONAL SPECTRUM AVAILABLE BY 
                                AUCTION

House bill

      This subsection directs the FCC to auction 100 megahertz 
(MHz) of spectrum located below 3 gigahertz (GHz) by September 
30, 2002, which prior to the date of enactment, have not been 
designated by the FCC for assignment by auction and have not 
been identified by the National Telecommunications and 
Information Administration (NTIA) as reallocable frequencies. 
The FCC must auction the licenses for the use of bands of 
frequencies in blocks of at least 25 MHz unless the FCC 
determines that a combination of smaller bands can reasonably 
be expected to produce greater receipts for the U.S. Treasury.
      In making available such bands of frequencies for 
competitive bidding under this subsection, the FCC must 
consider, first and foremost, the promotion of the most 
efficient use of the spectrum. The FCC must also consider the 
cost to incumbent licensees of relocating existing uses to 
other bands of frequencies or other means of communication. The 
FCC is also directed to take into account the needs of public 
safety users when making allocation decisions. Finally, in 
making bands of frequencies available for auction, the FCC must 
ensure that such assignments comply with the requirements of 
international agreements concerning spectrum allocations.
      In making available bands of frequencies for competitive 
bidding pursuant to this section, if the FCC is unable to 
provide for the effective relocation of incumbent licenses, it 
shall notify the NTIA that it has identified bands of 
frequencies suitable for relocation and which could be 
reallocated for private use.

Senate amendment

      Section 4001(b) of the Senate Amendment is virtually 
identical to the House provision, except that subsection 
(b)(1)(D)(iii) and subsection (b)(2)(E) are unique in 
comparison to the House bill. Subsection (b)(1)(D)(iii) ensures 
that the frequencies chosen by the FCC must not have been 
reserved for government use under section 305 of the 
Communications Act of 1934.
      The Senate included subsection (b)(2)(E) which directs 
the FCC in exercising its authority to ``take into account 
costs to satellite service providers that would result from 
multiple auctions of like spectrum internationally for global 
satellite systems.''

Conference agreement

      The Conferees adopt the Senate provisions.

           (c) IDENTIFICATION AND REALLOCATION OF FREQUENCIES

House bill

      The House provision requires that in response to a Notice 
from the FCC, the NTIA shall prepare and submit a report to the 
President and Congress identifying and recommending for 
reallocation frequencies that are assigned to the Federal 
government stations and are not required for the present or 
identifiable future needs of the Federal government and that 
are suitable for the uses identified in the Commission's 
Notice.

Senate amendment

      The Senate provision is identical to the House provision 
but it adds new subsections (g), (h) and (i) to section 113 and 
114 of the National Telecommunications and Information 
Administration Organization Act. Together, these additions to 
section 113 and 114 provide authority for Federal agencies to 
accept reimbursement or payment from private parties for the 
costs of relocation.

Conference agreement

      The Conference Agreement adopts the Senate provisions 
with clarifications. The conferees intend that the provisions 
of this section would apply to the United Postal Service, which 
has an account in the United States Treasury and operates using 
government frequencies.

     (d) IDENTIFICATION AND REALLOCATION OF AUCTIONABLE FREQUENCIES

House bill

      This subsection requires the NTIA to submit a second 
reallocation report to Congress, identifying and recommending 
for reallocation a single frequency band of at least 20 MHz, 
located below 3 GHz, and which meets the criteria of section 
113(a) of the National Telecommunications and Information 
Administration Organization Act. Within one year after receipt 
of the second reallocation report, the FCC shall submit a plan 
to the President and Congress, and implement such plan for the 
allocation and assignment of such frequencies in accordance 
with section 309(j) of the Communications Act of 1934.

Senate amendment

      The Senate provision is identical to the House provision.

Conference agreement

      The Conference Agreement accepts the House provision.

               TITLE IV--EDUCATION AND RELATED PROVISIONS

                      Subtitle A--Higher Education

      Unless otherwise noted, all amendments proposed to be 
made by the conference report refer to the Higher Education Act 
(HEA) of 1965 and the effective date of these amendments is 
January 1, 1996.

          participation of institutions in direct loan program

House bill

      The House bill provides for the repeal of the direct loan 
program as of July 1996.

Senate amendment

      The Senate amendment would limit participation in the 
direct loan program as follows:
      1. Five percent of new student loan volume for academic 
year 1994-1995.
      2. For academic year 1995-1996, and each succeeding year, 
direct loans will be provided to those students and parents of 
students attending institutions which have applied and been 
accepted for participation in the direct loan program on or 
before September 30, 1995, not to exceed 30 percent of new 
student loan volume including direct consolidation loans.
      3. For academic year 1996-1997 (starting July 1, 1996), 
and each succeeding year, direct loans will be provided only to 
those students and parents of students attending institutions 
which have applied and been accepted for participation in the 
direct loan program on or before September 30, 1995, not to 
exceed 20 percent of new student loan volume including direct 
consolidation loans.

Conference agreement

      The Senate recedes with an amendment to limit the size of 
the direct loan program as follows:
      1. Five percent of new student loan volume for academic 
year 1994-1995.
      2. For academic year 1995-1996, and each succeeding year, 
direct loans will be provided to those students and parents of 
students attending institutions which have applied and been 
accepted for participation in the direct loan program on or 
before September 30, 1995, not to exceed 30 percent of new 
student loan volume including direct consolidation loans.
      3. For academic year 1996-1997 (starting July 1, 1996), 
and each succeeding year, direct loans will be provided only to 
those students and parents of students attending the 102 
institutions which participated in the direct loan program 
during the 1994-95 academic year, not to exceed 10 percent of 
new student loan volume including direct consolidation loans.
      In 1993, Congress accelerated the 5 percent direct loan 
demonstration enacted in the 1992 amendments to the Higher 
Education Act to a program that is scheduled to account for 60 
percent of federal student loan volume by 1998. This change was 
made through the budget reconciliation process, and the scoring 
used by the Congressional Budget Office (CBO) at that time made 
direct lending look significantly cheaper than guaranteed 
loans.
      The 1993 scoring was flawed and failed to take into 
account any administrative costs of servicing or collecting on 
direct loans past the 5-year budget bill. Earlier this year, 
Congress passed the budget resolution, which contained a 
provision that changes the scoring so that guaranteed lending 
and direct lending are now scored in the same way. An October 
26, 1995, letter from the Congressional Budget Office (CBO) to 
Senator Domenici confirmed this by stating that, ``the Credit 
Reform Act amendment allows direct comparisons between the 
costs of the guaranteed and direct loan programs.'' The CBO 
letter also stated that, ``By defining the direct 
administrative costs of direct loans and requiring these costs 
be calculated over the life of the loan portfolio, the 
resolution allowed for the costs of direct and guaranteed loans 
to be evaluated on a similar basis. Thus, all of the program 
costs for both programs are included in the resolution baseline 
and are accounted for in the same way.''
      This change in the scoring results in a more accurate 
accounting of direct lending and, thus, today significant 
savings can be realized by decreasing the size of the program. 
The conferees chose to include a decrease in the direct loan 
program as one of the savings items in the reconciliation bill 
to achieve required savings rather than a number of other 
elements that would have increased costs to students.
      In addition, on a policy basis, the conferees are very 
concerned about the prospects of the Department of Education 
becoming one of the largest lending institutions in the 
country. Whether the Department will be able to effectively 
track and collect the loans which it has made to date is a 
question which needs to be answered before significant 
expansion of the direct loan program occurs. A demonstration 
program will allow questions of this nature to be answered 
prior to further program expansion.

                              conscription

Conference agreement

      Both the House bill and Senate amendment eliminate the 
authority of the Secretary of Education to force schools into 
the direct loan program. This provision is unnecessary in an 
environment where direct loan volume is limited.

                          administrative funds

House bill

      The House bill defines direct administrative expenses for 
Part D and limits indirect administrative expenses to $110 
million for fiscal year 1996 with $40 million dollars allotted 
to cover the costs of the administrative cost allowance for the 
guaranty agencies accrued prior to January 1, 1996, and $70 
million per year for fiscal years 1997 through 2002.

Senate amendment

      The Senate amendment defines direct administrative 
expenses for Part D and limits indirect administrative expenses 
for Parts B and D to $85 million per year for fiscal years 1996 
through 2002, except that additional sums shall be available 
for fiscal year 1996 to cover the costs of the administrative 
cost allowance for the guaranty agencies accrued prior to 
January 1, 1996.

Conference agreement

      The House recedes.
      The conference agreement sets new limits on funds that 
the Department of Education will receive to administer the 
direct loan program since the size of the direct loan program 
is decreased. The Administration claims that such new levels 
will ``gut'' the Department of Education's administrative 
control and oversight of both the guaranteed and direct loan 
programs. However, the yearly funding levels are based on 
budget information received from the Department of Education. 
The information received indicates that these amounts are 
reasonable and appropriate.
      The budget reconciliation bill combined with the proposed 
fiscal year 1996 Senate appropriations bill would level fund 
the administrative funds for student aid administration at the 
1994 level of $239 million. Under the conference agreement, 
student aid administrative expenditures for fiscal year 1996 
will still double from what was spent to administer student 
loans just five years ago. However, the agreement will stop the 
massive increases in administrative costs which have occurred 
over the last four years. Level funding at the 1994 level will 
fully provide for all necessary personnel, contract, oversight, 
equipment, publications, and administrative costs that are 
necessary to effectively and efficiently manage the student aid 
programs.
      Both the House bill and the Senate amendment limit the 
use of section 458 funds by the Secretary to indirect 
administrative costs related to direct and guaranteed loans. 
Activities that were funded historically on a cash basis with 
discretionary appropriated administrative funds in the 
guaranteed loan program shall remain on a cash basis for both 
the guaranteed and direct loan programs and be considered 
indirect administrative expenses. Indirect administrative 
expenses can include the cost of Department personnel and 
required oversight activities. The direct administrative 
expense account is not intended to be used for guaranteed loan 
costs nor for the costs of personnel or other administrative 
costs of the Department of Education for the Part D program. 
Salaries and expenses for the Department of Education, as for 
all other government agencies, are funded by annual 
appropriations. The conferees intend this practice to continue.

                      limitation on indirect costs

House bill

      The House bill states that indirect costs for direct 
loans may not exceed 30 percent of the section 458 funds.

Senate amendment

      No provision.

Conference agreement

      The House recedes as inclusion of this provision violates 
the Byrd rule.

                             default rates

House bill

      No provision.

Senate amendment

      The Senate amendment clarifies the HEA to reflect 
congressional intent that the Secretary is required to 
calculate default rates for direct lending schools and to 
terminate such schools if they exceed the default rates 
established in the law, as is the current procedure for schools 
participating in the guaranteed loan program.
      The Secretary is directed to develop criteria for the 
calculation of default rates for institutions participating in 
the direct loan program within 120 days after date of enactment 
of this legislation. The methodology, criteria, and procedures 
to be used in determining such default rates must be comparable 
to those applied to schools participating in the guaranteed 
loan program under Part B of the HEA. Such standards must be 
promulgated no later than 120 days after the date of enactment 
of this legislation or the Secretary may not make any new 
direct loans.

Conference agreement

      The House recedes with an amendment to clarify the fact 
that the conferees intend the Department of Education to apply 
comparable default rate calculations for both guaranteed loans 
and direct loans repaid through income contingent repayment. 
The prohibition on the Secretary making income contingent loans 
if default rate regulations are not issued within 120 days 
after enactment is not included in the conference agreement.

                      transition to direct lending

Conference agreement

      Both the House bill and the Senate amendment eliminated 
all references to the transition to the direct loan program 
from the HEA. These references are no longer necessary or 
correct in the context of the legislation which does not 
contemplate a transition from guaranteed lending to direct 
lending.

      administrative fees for schools and alternative originators

Conference agreement

      Both the House bill and the Senate amendment repeal the 
authority to pay schools or alternative originators to 
originate direct loans.

                           state risk-sharing

House bill

      No provision.

Senate amendment

      The Senate amendment applies the state risk-sharing 
provision in current law to direct loan schools. The provision 
currently applies only to guaranteed loan schools. It mandates 
that states pay to the federal government a yearly fee based on 
the cohort default rates of the schools in their state which 
participate in the federal student loan programs. The Congress 
anticipates that the Department of Education will implement 
this provision in the same manner for both guaranteed and 
direct lending.

Conference agreement

      The House recedes.

                     grace period interest subsidy

House bill

      The House bill eliminates payment of the interest on a 
subsidized Stafford student loan by the federal government on 
behalf of the student during the six-month period after a 
student leaves school.

Senate amendment

      No provision.

Conference agreement

      The House recedes.

                     same loan terms and conditions

House bill

      No provision.

Senate amendment

      Although the Higher Education Act states that the terms 
and conditions of the direct and guaranteed student loan 
programs are supposed to be the same, the Department of 
Education has instituted more flexible repayment options for 
direct loan borrowers. The legislation clarifies and 
strengthens congressional intent that direct and guaranteed 
loans are required to have the same terms, conditions, 
eligibility requirements, interest rates, loan limits, and 
administrative requirements for origination, payment, and 
processing of applications. Additionally, the Secretary is 
required to issue corresponding regulations not later than 120 
days after the enactment of this legislation.

Conference agreement

      The House recedes.

                              common form

House bill

      The House bill amends the HEA to clarify that the Part B 
loan application may be the Free Application for Federal 
Student Assistance (FAFSA). The bill also clarifies that the 
application may be in an electronic or other format in order to 
facilitate use by borrowers and institutions. Finally, this 
section clarifies that application data shall be available to 
any guaranty agency that is authorized to receive such data by 
the appropriate institution for the purpose of processing Part 
B loan applications.

Senate amendment

      No provision.

Conference agreement

      The House recedes as inclusion of this provision violates 
the Byrd rule. However, the conferees believe that it would be 
beneficial to students and institutions to have the FAFSA serve 
as the single loan application for Part B and Part D loans. In 
1993, the Advisory Committee on Student Financial Assistance 
recommended that the FAFSA serve as the single loan 
application, and that recommendation was adopted for Part D 
loans, but not for Part B loans. The conferees hoped to correct 
this disparity, but the budget rules do not permit this change 
to be made in this legislation. Therefore, the Secretary is 
encouraged to proceed in that direction and to use his waiver 
authority, if necessary, under 487A of the Higher Education Act 
in order to permit this practice for the benefit of students 
and institutions.

                            electronic forms

House bill

      The House bill permits the development, production, 
distribution and use of an electronic version of the free 
federal common application form by guaranty agencies, lenders, 
and consortium thereof to expedite the processing of student 
loans. This authority will enable lenders and guaranty agencies 
to achieve administrative efficiencies necessary to sustain the 
subsidy reductions contained elsewhere in this bill. The form 
must be approved by the Secretary to ensure its consistency 
with the requirements of the HEA. Certification of the accuracy 
of the output of the application by the applicant is allowed in 
a subsequent document. Fees in connection with the use of this 
form are prohibited.

Senate amendment

      No provision

Conference agreement

      The House recedes as inclusion of this provision violates 
the Byrd Rule. However, in the 1992 reauthorization of the 
Higher Education Act, Congress emphasized the need to simplify 
and streamline the financial aid delivery system through 
standardization, electronic forms, and electronic communication 
linkages. Computerized financial aid applications and 
administrative processes that allow students to apply for 
federal, state, and institutional aid electronically, have been 
developed for the guaranteed loan program. This computerized 
process would eliminate the need for filling out multiple paper 
copies and simplify the process for students.
      For example, once a student fills in his or her name and 
address, these data are incorporated into all of the other 
applications incorporated into the software. The software used 
in the process also has internal checks that reduce errors, 
saving administrative time and costs on the part of the school 
and frustration on the part of the student. The software will 
not permit an application to be filed if required information, 
such as home address, is missing. Schools also benefit by being 
able to transmit data electronically to the Department's 
central processor expediting the submission of forms as well as 
the receipt by students of loan proceeds.
      In 1992, Congress restricted the production, use and 
distribution of the FAFSA. This was done to prevent questions 
other than those approved by the Secretary from being included 
in the FAFSA. However, software that involves reproducing the 
FAFSA in electronic form, and not adding questions to it, ought 
to be available to all students. Approval of such software is 
not in any way inconsistent with congressional intent. The 
conferees therefore ask the Secretary to exercise his waiver 
authority under section 487A of the Higher Education Act to 
obviate any statutory obstacles which, in the opinion of the 
Department, prevent the production, distribution and processing 
of the FAFSA in electronic form.
      However, the conferees are sympathetic to various 
concerns raised by the Department of Education regarding the 
availability of electronic data for analysis by the Department, 
two-way exchange of electronic information between the 
Department and outside party processors to coordinate 
applications and reapplications, and security measures to 
protect private information. The conferees intend that the 
Secretary use his authority to approve electronic versions of 
the FAFSA to assure that these concerns are adequately and 
reasonably addressed. It is anticipated that entities seeking 
to produce, use, distribute, and process the electronic FAFSA 
will cooperate with the Secretary to assure that changes to 
current law do not result in undermining on-going efforts to 
simplify the application and processing of Federal student 
assistance.

                     guaranteed consolidation loans

Conference agreement

      Both the House bill and the Senate amendment make 
borrowers of direct loans eligible to consolidate such loans 
into a guaranteed consolidation loan.

                       direct consolidation loans

House bill

      No provision.

Senate amendment

      The Higher Education Act is clarified to reflect 
congressional intent that a guaranteed loan borrower is only 
eligible to obtain a direct consolidation loan when he or she 
is unable to obtain a consolidation loan from a loan holder. 
The law is also modified to limit eligibility of guaranteed 
loan borrowers to those students who are unable to obtain a 
consolidation loan with an income-contingent loan repayment 
schedule from a loan holder. Since income-contingent repayment 
is allowed in the guaranteed loan program in the conference 
bill, students should not need to consolidate into the direct 
loan program to obtain this repayment method.
      This subsection requires the Secretary to establish 
appropriate certification procedures to verify eligibility of 
borrowers for consolidation loans, and it prohibits the 
Secretary from offering consolidation loans if the Department 
lacks the administrative capacity or if the projected loan 
volume of direct consolidation loans would destabilize the 
availability of guaranteed loans.

Conference agreement

      The House recedes.

                      Income contingent repayment

House bill

      No provision.

Senate amendment

      The legislation authorizes guaranteed student loan 
borrowers to repay their loans through income-contingent 
repayment, which is an option currently available only in the 
direct loan program. The repayment schedules may be comparable 
to those developed for the Part D direct loan program.

Conference agreement

      The House recedes with an amendment to require that the 
repayment schedules must be comparable to those developed for 
the Part D direct loan program. It is the conferees intent that 
in the case of a student desiring income-contingent repayment 
from a lender which lacks the capacity to offer income-
contingent repayment, such lender will sell the student's loans 
to another lender that offers such repayment option.

                            plus loan limits

House bill

      The House bill establishes annual borrowing limits for 
borrowers of PLUS loans at $15,000 per student in any academic 
year.

Senate amendment

      No provision.

Conference agreement

      The Senate recedes. The conferees agree that unlimited 
borrowing by parents without sufficient credit analysis may not 
be in the best fiscal interests of the federal government or 
the actual borrower. For this reason, the conferees agreed to a 
maximum borrowing of $15,000 on parent loans per student per 
academic year. A $15,000 maximum should not create a hardship 
for parents and students since the current average parent loan 
is less than $6,000.

               plus loan interest rate increase and rebate

House bill

      The House bill provides for an increase in the PLUS 
program loan interest rate from the 52-week Treasury bill plus 
3.1 percent capped at 9 percent to the 52-week Treasury bill 
plus 4 percent capped at 11 percent, for loans with a first 
disbursement after January 1, 1996. The House bill also 
requires holders of PLUS program loans to pay a rebate to the 
Secretary equal to .80 percent of the outstanding principal 
balance of loans held on June 30 and December 31, payable 
within 60 days after such date.

Senate amendment

      No provision.

Conference agreement

      The House recedes.

                  guaranty agency extended withholding

Conference agreement

      Both the House bill and the Senate amendment require a 
guaranty agency to use at least 50 percent of its reserve funds 
to purchase and hold defaulted loans from lenders. Except under 
certain circumstances, guarantors must wait at least 180 days 
after such purchase before submitting claims for reimbursement 
to the Secretary. During this time, guarantors will work with 
borrowers to attempt to bring the loan into repayment so that 
no claim for reimbursement from the federal government is ever 
filed. Currently, guaranty agencies must file for reimbursement 
from the Secretary after 45 days.
      If such an attempt is successful, the loan will be sold 
to an eligible lender. Defaulted loans that are held by 
guarantors for the additional 180 days will be considered 
assets for the purposes of calculating guarantors' reserve 
levels.
      In addition to saving money for the federal government, 
this provision gives students an additional 180 days after 
default to make satisfactory repayment arrangements before 
having their tax refunds attached by the IRS or facing other, 
more onerous, collection activities. Borrowers who are able to 
return their loans to good standing will be eligible for 
additional aid and other benefits of the loan program.

             guaranty agency administrative cost allowance

House bill

      The House bill would require originating lenders to pay 
to the guaranty agency which guarantees a loan, a fee equal to 
0.70 percent of the principal amount of the loan for loans 
having a first disbursement after January 1, 1996. These funds 
are used by guaranty agencies for administrative costs of 
collections, preclaim assistance, monitoring enrollment and 
other program costs. No part of these payments may be assessed 
or collected directly or indirectly from the borrower.

Senate amendment

      The Senate amendment would decrease the payment of the 
administrative cost allowance to guaranty agencies from 1 
percent to either: .85 percent of the total principal amount of 
the loans for which insurance was issued during the fiscal 
year, or .08 percent of the original principal amount of the 
loans guaranteed by the program that are outstanding at the end 
of the previous fiscal year. The amount required to be paid by 
the federal government would be limited to $180 million per 
year.

Conference agreement

      The House recedes with an amendment. The guaranty 
agencies would only receive .85% of the total principal amount 
of the loans for which insurance was issued during the fiscal 
year and the cap for fiscal years 1996, 1997, and 1998 would be 
increased to $220 million. The decrease in administrative funds 
paid to guaranty agencies will require more efficiency on the 
part of all agencies since they are expected to provide a high 
level of service with reduced operating funds.

                     guaranty agency reserve ratios

House bill

      Guaranty agencies are required to maintain a minimum 
reserve level equal to .9 percent of outstanding loans 
guaranteed.

Senate amendment

      No provision.

Conference agreement

      The Senate recedes.

                      guaranty agency reinsurance

House bill

      The House bill reduces the guaranty agency reinsurance 
rate from 98 percent, 88 percent, 78 percent (based on the 
average default rate of the guaranty agency's loans) to 96/86/
76 percent.

Senate amendment

      No provision.

Conference agreement

      The Senate recedes. The conferees agree that all parties 
should have a greater share of risk in the guaranteed loan 
program.

                 defaulted consolidation loan retention

House bill

      No provision.

Senate amendment

      The Senate amendment lowers the collection retention rate 
for defaulted loans that are consolidated from 27 cents to 25 
cents on the dollar.

Conference agreement

      The House recedes with an amendment to lower the 
collection retention rate to 18.5 cents on the outstanding 
principal, interest and collection costs.

                   supplemental preclaims assistance

Conference agreement

      Both the House bill and the Senate amendment eliminate 
payment to guaranty agencies for supplemental preclaims 
assistance to lenders for the purpose of preventing defaults. 
Currently, these payments equal 1 percent of the principal and 
interest of loans for which assistance was provided to lenders 
and the lenders did not file a default claim on or before 270 
days after the loan became delinquent. Guaranty agencies are 
still required to provide this assistance (using their general 
operating funds) even though they will no longer receive a 
special payment to do so.

                          mandatory assignment

      Both the House bill and Senate amendment include a 
provision to ensure that standards for the mandatory assignment 
of defaulted loans to the Secretary from the guaranty agencies 
revert to the standards enacted as part of the Higher Education 
Amendments of 1992. The legislation specifies that general 
criteria must be established through negotiated rulemaking.

Conference agreement

      Both the House and Senate recede.

                    termination of guaranty agencies

House bill

      The House bill deletes the Secretary's authority to 
terminate a guaranty agency for the purpose of achieving an 
orderly transition to the direct loan program. In addition, a 
provision is included requiring a hearing on the record prior 
to the termination of a guaranty agency agreement. The 
legislation mandates that funds recovered from a terminated 
guaranty agency shall be returned to the Treasury and used for 
the purpose of lowering the federal debt.

Senate amendment

      The Senate amendment includes the same provisions as the 
House bill. In addition, the Senate amendment further restores 
to its pre-1993 state the conditions under which the Secretary 
may terminate guarantors, essentially the same as those 
established by the 1992 amendments to the Higher Education Act. 
The Secretary will still possess ample, yet more closely 
circumscribed, powers to terminate a guarantor that is in 
serious trouble and in danger of collapse.
      The subsection further stipulates that, in the event a 
guarantor is terminated by the Secretary, the Secretary must 
abide by the recommendations of the affected State for all 
guarantor portfolio transfers, mergers and consolidations. In 
addition, the Secretary may take over a guaranty agency's 
portfolio only in the event that no existing guaranty agency is 
willing to act as a successor agency for the affected 
guarantor.
      The Secretary must provide opportunities for hearings on 
the record in cases where he is exercising his authority to 
terminate guarantor contracts.

Conference agreement

      The Senate recedes. The conferees believe that in order 
to maintain a viable guaranteed loan program, it is necessary 
to modify these provisions which were adopted in 1993 in order 
to provide for the easy termination of guaranty agencies as the 
transition to direct lending was implemented. With the 
transition effectively terminated in this legislation, guaranty 
agencies will continue to be critical to the loan program and 
should not be subject to unilateral termination by the 
Department. In the event funds are recalled from a guaranty 
agency, it is the intention of the conferees to require such 
funds be deposited with the Treasury for purposes of deficit 
reduction, rather than allowing the Secretary to determine the 
use of such funds.

                 usage of guaranty agency reserve funds

House bill

      No provision.

Senate amendment

      The Senate amendment clarifies that guarantor reserve 
funds can be used to pay for future as well as current program 
costs.

Conference agreement

      The Senate recedes.

                          lender risk-sharing

Conference agreement

      Both the House bill and the Senate amendment decrease the 
amount the federal government reimburses lenders and 
exceptionally well performing lenders for defaulted guaranteed 
loans in the Federal Family Education Loan Program (FFELP) from 
98 cents to 95 cents on the dollar.

                         lender origination fee

House bill

      The House bill lowers the lender origination fee paid to 
the federal government from .5 percent to .3 percent.

Senate amendment

      The Senate amendment increases the lender origination fee 
on guaranteed loans from .5 percent to 1.0 percent, including 
consolidation loans.

Conference agreement

      The House recedes with an amendment to increase the fee 
to .8%.

                          holder transfer fee

House bill

      The House bill requires a lender or holder which 
purchases or takes assignment of a loan from another lender or 
holder to pay the Secretary a transfer fee equal to 0.20 
percent of the principal of the loan.

Senate amendment

      No provision.

Conference agreement

      The House recedes.

                            holder rebate fee

House bill

       No provision.

Senate amendment

      The Senate amendment imposes a new .05 percent annual fee 
on loans in repayment by the loan holders on all new guaranteed 
student loans made after January 1, 1996.

Conference agreement

      The House recedes with an amendment to add PLUS loans to 
the loans subject to the rebate fee and to increase the fee to 
.07 percent.

                         lenders of last resort

House bill

      Lender of last resort provisions are modified to require 
applications to be processed within 15 days and borrowers are 
only required to obtain one lender rejection in order to 
establish eligibility for lender of last resort.

Senate amendment

      No provision.

Conference agreement

      Senate recedes. The conferees agree that loans made under 
the lender of last resort should be processed in a timely 
manner without significant burdens on students.

                            eligible lenders

House bill

      The House bill expands the definition of eligible lender 
to provide for an additional category of eligible lender under 
FFELP. This new category would permit certain non-bank lenders, 
currently eligible pursuant to another subsection but that are 
experiencing difficulties in lending in certain states, to 
engage in guaranteed student lending in all states. The new 
category involves an eligible lender's status as a finance 
company under state law and would be regulated both by 
appropriate state regulatory agencies and the Department of 
Education.
       In addition, the House bill clarifies that loans held in 
trust by an eligible lender for the benefit of a third party 
are not to be counted when determining a lender's primary 
consumer credit function.

Senate amendment

      No provision.

Conference agreement

       The House recedes.

                          small lender audits

Conference agreement

      Both the House bill and Senate amendment exempt lenders 
who hold or originate less than $5 million a year in student 
loans from burdensome and costly annual compliance audits. The 
cost reductions achieved by small lenders with this provision 
will enable many such lenders to continue to participate in the 
guaranteed loan program. The cost of the audits currently 
required sometimes exceeds the annual earnings of some small 
lenders from the guaranteed loan program.

                            Reauthorization

Conference agreement

       Both the House bill and Senate amendment reauthorize the 
student loan programs through the year 2002. This is necessary 
in order for the Congressional Budget Office to score savings 
for the loan programs in this bill.

                        connie lee privatization

Conference agreement

      Both the House bill and Senate amendment include an 
amendment to sever any and all of the federal government's 
links to the College Construction Loan Insurance Association 
(Connie Lee). Connie Lee was authorized in the 1986 amendments 
to the Higher Education Act to assist in financing the 
construction and renovation of certain education facilities. In 
the Corporation's authorizing language it was intended that the 
federal government's ownership interest in the Corporation 
would eventually terminate. This amendment provides for that 
termination through the sale of the stock of the Corporation 
owned by the Secretary of Education.

                          eligible institution

House bill

      The House bill amends the Higher Education Act by 
requiring that, for the purposes of determining whether an 
institution meets the requirements of clause (6) (commonly 
referred to as the 85/15 rule), the Secretary of Education 
shall count revenues from programs of education or training 
that do not meet the definition of an eligible program in 
subsection (e), but are provided on a contractual basis under 
federal, state, or local training programs, or to business or 
industry. The provision also prohibits the Secretary from 
considering the financial information of any institution for a 
fiscal year which began on or before April 30, 1994.

Senate amendment

      No provision.

Conference agreement

       The House recedes.

                      service contract act of 1965

House bill

      The House bill repeals the Service Contract Act of 1965.

Senate amendment

      No provision.

Conference agreement

      The House recedes. The provision was dropped because it 
violates the Byrd Rule, section 313 of the Congressional Budget 
Act of 1974.

   subtitle b--provisions relating to the employee retirement income 
                          security act of 1974

House bill

      The House bill would amend the Employee Retirement Income 
Security Act of 1974 (ERISA) to provide that the 30-day minimum 
waiting period between the date an explanation of the joint and 
survivor annuity is provided and the date the annuity starts 
may be waived by the participant. Title XI contains an 
identical amendment to the tax code; this is a necessary, 
conforming amendment to ERISA. This waiver would cause a slight 
acceleration in distribution of qualified plans.

Senate amendment

       No provision.

Conference agreement

      The Senate recedes.

            TITLE V--ENERGY AND NATURAL RESOURCES PROVISIONS

        Subtitle A--Nuclear Regulatory Commission Annual Charges

              Nuclear Regulatory Commission Annual Charges

Current law

      The NRC is responsible for ensuring the safety of 
civilian uses of nuclear materials. The independence and 
integrity of this agency is essential to maintaining the 
confidence of the public in the use of nuclear energy and 
radioactive materials. Thus, a reliable stream of long-term 
funding is vital to assuring the uninterrupted operation of 
this important organization.
      The NRC budget is paid for entirely through user fees on 
licenses, except for work on the high-level nuclear waste 
repository which is paid for through the Nuclear Waste Fund. 
User fees are an equitable way of paying for the cost of 
Federal regulation. Currently, user fees fund several Federal 
agencies or programs including the Federal Energy Regulatory 
Commission, the Securities and Exchange Commission, and the 
pipeline safety program under the authority of the U.S. 
Department of Transportation.
      By collecting user fees, those who use an agency's 
resources pay the costs of funding that agency. Those who use 
the greatest amount of the agency's resources are required to 
pay the greatest annual fees. In the case of the NRC, nuclear 
licensees pay for the cost of Federal regulation and then pass 
that cost on to their customers. The result is an equitable 
one: those who do not buy electricity or products generated by 
nuclear power do not bear the cost of regulating it.
      Section 6101 of the Omnibus Reconciliation Act of 1990 
(P.L. 101-508) requires the Nuclear Regulatory Commission to 
collect annual charges from its licensees to provide offsetting 
collections to pay for its programs. Specifically, section 6101 
allows the NRC to collect amounts which, when added to other 
amounts collected by the NRC (such as fees collected under the 
Independent Offices Appropriations Act of 1952, 31 U.S.C. 
9701), equals 100 percent. However, current law only provides 
authority to collect fees and annual charges equal to 100 
percent of the NRC budget through fiscal year 1998. Absent an 
extension, after fiscal year 1998, NRC's permanent authority to 
collect 33 percent of its budget authority through fees and 
annual charges would take effect.
      Currently, the NRC budget is made up of money collected 
through three different methodologies. First, the NRC receives 
appropriations from the Nuclear Waste Fund established under 
section 302(c) of the Nuclear Waste Policy Act of 1982 (42 
U.S.C. 10222(c)) for licensing the Department of Energy's 
nuclear waste management program. Charges for these activities 
are not recovered through annual charges because nuclear 
utilities are paying for the cost of these activities through 
their payments to the Nuclear Waste Fund. Thus, recovery of 
Nuclear Waste Fund appropriations through the annual charge 
would constitute double payment by the utilities.
      The NRC also recovers a portion of its budget through 
fees assessed on licensees under the Independent Offices 
Appropriations Act of 1952 (31 U.S.C. 9701). This Act provides 
that anyone receiving a service or a thing of value from the 
NRC shall pay the NRC's cost of providing individually 
identifiable services to applicants and holders of NRC 
licensees from the recipients of those services. Finally, 
generic NRC activities that benefit all licensees generally are 
recovered through annual charges.

House bill

      Section 3031 of the House bill extends NRC authority to 
collect up to 100 percent of its budget through user fees 
through fiscal year 2002. This extension will generate revenues 
in amounts sufficient to offset expenditures by the NRC. The 
NRC is charged by the Omnibus Reconciliation Act of 1990 to 
assess these charges under the principle that licensees who 
require the greatest expenditures of the NRC's resources should 
pay the greatest annual charge. This section does not alter, in 
any way, the fee structure as currently collected by the NRC.

Senate amendment

      Same provision, except that fees are extended through 
fiscal year 2005.

Conference agreement

      The conference agreement includes the House language.

                Subtitle B--Department of Energy Assets

            Chapter 1--United States Enrichment Corporation

Present law

      Title IX of the Energy Policy Act of 1992 added a new 
title II to the Atomic Energy Act of 1954. Title II of the 
Atomic Energy Act established a wholly owned government 
corporation known as the United States Enrichment Corporation 
(USEC) to operate the Federal Government's uranium enrichment 
enterprise. Chapter 25 of title II set up a process by which 
ownership of the government-owned corporation would be sold to 
the private sector.

House bill

      Title III, subtitle C of the House bill amends title II 
of the Atomic Energy Act to facilitate the sale of USEC to 
private investors and to maximize the return to the U.S. 
Treasury.

Senate amendment

      The Senate amendment contains a comparable provision. The 
Senate amendment repeals most of title II of the Atomic Energy 
Act but provides new statutory authority similar to the House 
bill.

Conference agreement

      The conference agreement follows the Senate amendment 
with minor changes.
      Section 5012(b)(8) of the Senate amendment prohibiting 
the swap, exchange, or loan of Russian uranium hexafluoride was 
deleted, although the conferees intend that any of the Russian 
uranium hexafluoride sold pursuant to paragraph (5) of section 
5212(b) of the Conference Agreement may be swapped, exchanged, 
or loaned solely for the purpose of facilitating the further 
processing and use as nuclear fuel, and that the Department of 
Commerce shall establish procedures to ensure that these 
limitations are not circumvented.
      Section 5013(a) of the Senate amendment relating to low-
level waste disposal was rewritten to eliminate matter that 
could have been deemed extraneous under section 313 of the 
Congressional Budget Act. The conferees intend the revised 
provision in section 5213(a) of the Conference Agreement to 
require the Department of Energy to offer low-level waste 
disposal services to any person licensed by the Nuclear 
Regulatory Commission to operate a uranium enrichment facility 
on the same terms as it provides those services to USEC. The 
conferees believe this policy is essential to avoid anti-
competitive effects in the domestic uranium enrichment market.
      Section 5013(c) of the Senate amendment relating to State 
and interstate compact low-level waste facilities was deleted 
to eliminate matter that could have been deemed extraneous 
under section 313 of the Congressional Budget Act. 
Notwithstanding the elimination of the provision, the conferees 
believe that nothing in the conference agreement, the Low-Level 
Radioactive Waste Policy Act, any compact consent act, or any 
other law can be read to require a State or interstate compact 
to provide treatment, storage, or disposal to any low-level 
radioactive waste (including mixed waste) attributable to the 
operation, decontamination, or decommissioning of any uranium 
enrichment facility.
      Finally, a provision in the Senate amendment to 
commercialize gaseous diffusion technology was removed.

                    Chapter 2--Department of Energy

                    Department of Energy Asset Sales

      During the Cold War, the Department of Energy stockpiled 
large inventories of industrial materials that were needed for 
weapons production activities. As those activities are reduced 
in scope and facilities closed, those materials are no longer 
needed in large quantities. In the past, DOE has had no clear 
accounting of these inventories on a Department-wide basis. 
However, an initial assessment shows that this inventory 
includes at least 10,000 pounds of precious metals (such as 
silver, platinum and gold), and large volumes of non-precious 
metals, rare gases and fuel. Maintaining these inventories 
contributes to high overhead costs associated with storage, 
security and handling of these materials. In total, the value 
of these assets is estimated to be as much as $300 million. 
This subpart would require DOE to conduct a program to identify 
and sell a minimum of $225 million in assets by October 1, 
2000. The Subpart would expedite these sales by providing an 
exemption from the Federal acquisition regulations that govern 
sales of ``excess'' materials by Federal agencies.

House bill

      The House bill had no such provision.

Senate amendment

      The Senate amendment requires the Secretary of Energy to 
conduct an asset management and disposition program that will 
result in no less than $225 million in receipts and savings by 
October 1, 2000. It also requires the Secretary to sell a 
minimum 1,139,000,000 pounds of fuel, 136,000 tons of chemicals 
and industrial gases, 557,000 tons of scrap metal, 14,000 
radiation sources, 17,000 pieces of major equipment, 11,000 
pounds of precious metals, and 91,000,000 pounds of base 
metals.
      In order to expedite the sales and maximize the value of 
the assets, this provision exempts the asset sales under this 
subsection from provisions of the Federal Property and 
Administrative Services Act of 1949 and the Surplus Property 
Act of 1944. It also requires that the Secretary consult with 
appropriate executive agencies to avoid market disruptions that 
might result from the asset sales.
      This provision requires that all proceeds from the asset 
sales be returned to the Treasury as miscellaneous receipts.

Conference agreement

      The House accedes to the Senate provision.

   Sale of Weeks Island Oil and Lease of Excess Strategic Petroleum 
                            Reserve Capacity

House bill

      The House bill authorizes the lease of excess Strategic 
Petroleum Reserve capacity.

Senate amendment

      The Senate bill authorizes the sale of 32 million barrels 
of oil contained in the Strategic Petroleum Reserve. It also 
authorizes the lease of excess Strategic Petroleum Reserve 
capacity, and it authorizes that beginning in fiscal year 2001 
one-half of the revenues generated by such lease be available 
to the Secretary of Energy for the purchase of oil for the 
Strategic Petroleum Reserve.

Conference agreement

      The Conference Report provides for the sale of 32 million 
barrels of oil contained in the Strategic Petroleum Reserve. 
The Secretary shall, to the greatest extent practicable, sell 
oil from the reserve in a manner which minimizes the impact of 
such sale upon supply levels and market forces. The Conference 
Report also authorizes the lease of excess Strategic Petroleum 
Reserve capacity, and provides that beginning in fiscal year 
2001 (except for years 2003 and 2004) one-half of the revenues 
generated by such lease be available to the Secretary of Energy 
for the purchase of oil for the Strategic Petroleum Reserve.

                                 OTHER

                      Waste Isolation Pilot Plant

House bill

      Subtitle D of Title 3 of H.R. 2491 contained the ``Waste 
Isolation Pilot Plant Land Withdrawal Amendment Act,'' the 
purpose of which was to eliminate outdated statutory 
requirements for, and expedite the commencement of, operations 
at the Waste Isolation Pilot Plant (WIPP). The WIPP is the 
nation's repository for the permanent disposal of transuranic 
materials.
      Transuranic (TRU) elements--those with a periodic table 
value greater than uranium--are generally man-made products 
synthesized in laboratory conditions. Most TRU waste in the 
United States consists of trash, such as protective clothing, 
lab instruments, and equipment which has been contaminated by 
TRU isotopes in the course of the defense nuclear weapons 
program. TRU wastes are currently stored on-site at the 
facilities where they are generated, with a vast majority of 
these wastes being located at 10 different Department of Energy 
sites.
      Until 1970, TRU waste was disposed of in a manner similar 
to that used for low-level radioactive wastes, usually by 
burial in shallow earth trenches. In 1970, the Atomic Energy 
Commission (forerunner of the Department of Energy) determined 
that TRU wastes should be handled in a more comprehensive 
fashion, and began siting studies which resulted in the 
decision to construct the WIPP facility about 26 miles east of 
Carlsbad, New Mexico. Congress authorized the construction of 
the WIPP in 1979 as part of the Department of Energy National 
Security and Military Application of Nuclear Energy 
Authorization Act (Public Law 96-164).
      In 1992, Congress passed the Waste Isolation Pilot Plant 
Land Withdrawal Act (Public Law 102-579) to transfer ownership 
of the land surrounding WIPP to the Department of Energy (DOE), 
and authorize DOE to begin underground experiments using TRU 
waste. In October of 1993, DOE announced that it would forgo 
on-site testing of waste at WIPP in favor of laboratory testing 
at the Sandia National Laboratories to determine the site's 
suitability for disposing of TRU waste. The Environmental 
Protection Agency (EPA) and the National Academy of Sciences 
supported DOE's decision to switch from on-site testing to 
laboratory testing. Because there is broad agreement that in-
situ testing will not be necessary to make a site suitability 
determination, subtitle D would have removed existing statutory 
hurdles related to in-situ testing that were imposed by the 
WIPP Land Withdrawal Act.
      Further, WIPP is currently subject to four major 
regulatory schemes: 40 CFR Part 191: Environmental Radiation 
Protection Standards for Management and Disposal of Spent 
Nuclear Fuel, High Level and Transuranic Radioactive Wastes; 40 
CFR Part 194: Criteria for the Certification and Determination 
of the Waste Isolation Pilot Plant's Compliance with 
Environmental Standards for the Management and Disposal of 
Spent Nuclear Fuel, High Level and Transuranic Radioactive 
Wastes; 40 CFR Part 264: Standards for Owners and Operators of 
Hazardous Waste Treatment, Storage and Disposal Facilities; and 
40 CFR Part 268: Land Disposal Restrictions. The overlapping 
regulatory restrictions of these requirements have contributed 
to the lack of progress in opening the repository, and pose the 
risk of substantial cost increases in operating the facility. 
According to the Department of Energy's own estimates, 
complying with the overlapping requirements of 40 CFR Part 268: 
Land Disposal Restrictions could add up to an additional $500 
million in operating costs at WIPP over the life of the 
facility. EPA has agreed with DOE that the current regulatory 
structure is superfluous. Subtitle D of the House bill would 
have removed the unnecessary regulatory burdens that are 
delaying the opening of WIPP.
      Operation of WIPP is a crucial step to the environmental 
remediation of TRU waste at facilities throughout the DOE 
weapons complex. Thus, in addition to increasing the cost of 
compliance at WIPP itself, delays in opening WIPP due to 
unnecessary regulation have caused increased expenditures for 
storage costs and have contributed to a lack of movement on 
cleanup at least at nineteen DOE sites. The Congressional 
Budget Office has estimated that legislation removing 
unnecessary regulatory hurdles to the opening of WIPP would 
save $130 million in outlays over the 1996-2000 period.

Senate amendment

      The Senate amendment had no such provision.

Conference agreement

      The Conferees agree that legislation removing unnecessary 
regulation applicable to the WIPP facility is needed and would 
result in significant savings to the American taxpayer. 
However, the Conferees agreed not to include Subtitle D of 
Title 3 of H.R. 2491 in the conference report solely because 
the $130 million in discretionary outlays saved by the 
provision could be deemed ``extraneous'' under section 313(b) 
of the Congressional Budget Act.

                     Subtitle C--Natural Resources

           Chapter 1--Department of the Interior Conveyances

              Subchapter A--California Directed Land Sale

House bill

      Title IX, subtitle C, part 4 of the House bill directs a 
land conveyance in California in consideration of $501,000 and 
a liability release.

Senate amendment

      The Senate had no similar provision.

Conference agreement

      The Conference agreement follows the House bill with 
minor modifications.

                     Subchapter B--Helium Reserves

House bill

      The House bill amends the Helium Act of 1960. It 
authorizes the Secretary of the Interior to enter into 
contracts with private parties to recover and dispose of helium 
on Federal lands. Additionally, the Secretary is authorized to 
store, transport, and sell helium only in accordance with the 
act.
      The bill authorizes the Secretary to store and transport 
crude helium and to maintain and operate crude helium storage 
at the Bureau of Mines Cliffside Field, together with related 
helium transportation and withdrawal facilities.
      Under the bill, the Secretary must cease producing, 
refining and marketing refined helium within 18 months after 
enactment of this bill.
      Further, the Secretary is directed to dispose of all 
facilities, equipment and other real and personal property held 
for the refining, producing and marketing of refined helium 
within two years after the Secretary ceases production, 
refining and marketing operations. All proceeds from the sale 
of such facilities shall be applied against the outstanding 
Helium Fund debt. All costs associated with the sale and 
disposal, including costs associated with termination of 
personnel, shall be paid from the Helium Production Fund. Any 
contract for refined helium in effect on the date of enactment 
of this bill would stay in effect until the cessation of 
facility operation. This section also provides for any costs 
associated with termination of such contracts. Funds for such 
costs shall be drawn from the Helium Production Fund.
      Under the House bill, full cost recovery for helium 
storage, withdrawal, or transportation services must be 
provided to the Secretary by users.
      Also, the bill provides for the sale of crude helium. It 
amends section 6 of the 1960 Act to require that those 
individuals who enter into contracts with Federal agencies to 
provide helium also purchase an equivalent amount from the 
Secretary. The Secretary is precluded from making sales of 
crude helium in amounts that would disrupt the market. All 
funds collected pursuant to this section shall be deposited 
against the helium debt, which shall be frozen at the amount 
outstanding on October 1, 1995. The minimum price of crude 
helium sold by the Secretary would be determined on the basis 
of the outstanding amount owed against the debt in comparison 
with the volume of crude helium in the Cliffside Reservoir. All 
funds received from the sale or disposition of helium produced 
under a Federal lease would be deposited against the debt.
      The Secretary, no later than 2005, shall commence making 
sales of the crude helium in the Cliffside Reservoir, and 
dispose of all such reserves by 2015, except for 600 million 
cubic feet. Such sales must be made in consultation with the 
helium industry to provide for minimum market disruption. This 
subsection ensures repayment of the debt.
      Under the House bill, fiscal reporting by the Inspector 
General of the Department of the Interior is required. This 
financial statement shall include: a balance sheet for the 
Helium Operations, the statement of operations, a statement of 
cash flows, and a reconciliation of budget reports.

Senate amendment

      The Senate included a similar provision.

Conference agreement

      The House recedes to Senate, with modifications.
      One of the most significant modifications agreed to by 
the conferees was the removal of the GAO audit from the bill. 
This was due to procedural objections in the Senate. Although 
the legislative language has been removed, the conferees intend 
the audit in section 9017 of the House-passed version of the 
bill, with one change, to be conducted each year.
      It has been brought to the conferees' attention that the 
audit directed in the House bill would be somewhat duplicative 
of actions currently carried out by the Inspector General. 
Therefore, the conferees expect the Department of Interior 
Inspector General to carry out the audit, rather than the GAO 
as prescribed by the House provisions. Further, the Conferees 
urge the Department IG to publish, in detail, this audit in its 
annual review of the Department's activities in its report to 
Congress. The conferees emphasize the importance of completing 
the audit and including in the financial statements the 
information requested in the House bill.
      The conference agreement requires the Secretary to 
dispose of excess property and facilities used for the purpose 
of producing, refining, and marketing helium no later than 24 
months after the cessation of helium refining and marketing.

        Chapter 2--Arctic Coastal Plain Leasing and Revenue Act

House bill and Senate amendment

      Both the House bill and the Senate amendment contain 
provisions authorizing and directing the Secretary of the 
Interior to lease competitively the Coastal Plain of the Arctic 
National Wildlife Refuge (``Coastal Plain'') for exploration 
and production of oil and gas in a manner consistent with 
protection of the environment.

Conference agreement

      The conferees agreed to adopt the Senate language with 
several major modifications.
      The conferees adopted language clarifying that, because 
of its expertise in onshore oil and gas leasing, the Bureau of 
Land Management, in consultation with the Fish and Wildlife 
Service and other federal agencies, manage the oil and gas 
leasing program on the Coastal Plain and be responsible for all 
leasing and management of the leases.
      The conferees, in an effort to expedite the leasing 
process and in recognition of the Congress' long involvement 
with this issue, added language contained in the House bill 
which determines that the oil and gas leasing program 
authorized by this subtitle is compatible with the purposes for 
which the Arctic National Wildlife Refuge was established and 
that no further findings or decisions are required to implement 
this determination.
      The conferees agreed to compromise between the House and 
Senate language to authorize the Secretary to designate up to 
45,000 acres of the Coastal Plain as Special Areas and close 
such areas to leasing if the Secretary determines the lands are 
of such unique character and interest so as to require special 
management and regulatory protection. Horizontal drilling 
beneath the Special Areas is specifically allowed. The 
conferees expect the Secretary to notify the Committee on 
Energy and Natural Resources and the Committee on Resources of 
the House of Representatives ninety days in advance of making 
such designations. Such notification shall include the reasons 
and justifications for designating the Special Area.
      The conferees agreed to add language contained in the 
House bill that provides that the sole authority for the 
Secretary to close portions of the Coastal Plain to oil and gas 
leasing is provided for in this subtitle.
      The conferees agreed to add language from the House bill 
authorizing and directing the Secretary to convey lands and 
interests therein to the Kaktovik Inupiat Corporation and the 
Arctic Slope Regional Corporation to the extent necessary to 
fulfill their entitlement under the Alaska Native Claims 
Settlement Act. This conveyance is necessary to maximize 
revenues by settling any clouds on title to lands on Coastal 
Plain prior to leasing of the area.
      The conferees agreed to modify the Senate language to 
provide that the rules and regulations necessary to carry out 
the purposes and provisions of the subtitle be promulgated 
within fourteen months after date of enactment of the subtitle.
      The conferees agreed to modify the Senate language with 
respect to the Final Legislative Environmental Impact Statement 
(FLEIS), which was completed in April of 1987, to provide that 
such statement is adequate to satisfy the legal and procedural 
requirements under the National Environmental Policy Act of 
1969 (NEPA) with respect to actions authorized to be taken by 
the Secretary to develop and promulgate the regulations for the 
establishment of a leasing program, to conduct the first lease 
sale, any subsequent lease sales, and to grant rights-of-way 
and easements to carry out the purposes of the subtitle.
      The conference agreement reflects a compromise between 
the House and Senate language to provide that the first lease 
sale shall be comprised of no less than 200,000 acres nor more 
than 300,000 acres. Subsequent lease sales can be no less than 
200,000 acres. The conferees also agreed to changes to the 
Senate language so that the initial lease sale will occur 
within 20 months after date of enactment; the second sale would 
be held no later than 24 months after the first lease sale; 
subsequent sales would be conducted not later than 12 months 
thereafter.
      The conferees agreed to adopt the House language to 
authorize the Secretary to close, on a seasonal basis, portions 
of the Coastal Plain to exploratory drilling activities as 
necessary to protect caribou calving areas and other species of 
fish and wildlife.
      The conferees agreed to delete the provision in the 
Senate bill forbidding the flaring of natural gas. The 
conferees intend for the operator of wells to minimize the 
flaring of natural gas to emergency situations and other 
necessary flaring.
      The conferees agreed to adopt the House language 
requiring the holder of a lease to use best efforts to assure 
that a fair share of employment and contracting, as determined 
by the level of obligation previously agreed to in the 1974 
agreement implementing section 29 of the Federal Agreement and 
Grant of Right-of-Way for the Operation of the Trans-Alaska 
Pipeline, be made available for Alaska Natives and Alaska 
Native Corporations.
      The conferees agreed to modify the provisions of the 
Senate bill relating to the Park and Wildlife Refuge Renewal 
Fund to capture a portion of the royalty and other revenues 
from the Coastal Plain (in addition to bonus bid revenue) and 
expanded the purposes for which the fund can be used. In 
addition, a cap of $250,000,000 over the life of the fund 
contained in the House language was imposed.
      The conferees also agreed to modify language in the House 
passed bill to provide for the establishment of a $30,000,000 
community assistance fund in the Treasury from the Federal 
share of the first lease sale. Not to exceed $5,000,000 a year 
will be made available from that fund to the Secretary to 
provide local assistance to organized boroughs, municipalities, 
and recognized Indian Reorganization Act entities which are 
directly impacted by activities authorized under this subtitle 
to provide public and social services and facilities required 
in connection with the exploration and production of oil and 
gas on the Coastal Plain.
      The conferees are aware of concerns raised over the 
possibility that the revenue sharing formula contained in the 
legislation could be subject to challenge as inconsistent with 
the provisions in the Mineral Leasing Act with respect to 
Alaska which were made as part of the Alaska Statehood Act. The 
conferees want to emphasize that those concerns are not well 
founded. The conferees have not sought to alter in any manner 
the provisions of the Alaska Statehood Act nor the Mineral 
Leasing Act. The provisions contained in this legislation are 
the sole authority for the conduct of the leasing program on 
the Coastal Plain and are self-contained. The revenue sharing 
provisions contained in this Chapter are unique to this 
particular area and program and do not alter in any manner the 
revenue sharing provisions applicable to any leasing program 
elsewhere in Alaska conducted under the Mineral Leasing Act. 
The conferees note that the solicitor of the Department of the 
Interior has concurred in this assessment and that the Governor 
of the State of Alaska, the President of the Senate and Speaker 
of the house of the Alaska Legislature also have indicated 
their acquiescence in this particular formula. The conferees 
note that in establishing the 1002 area, Congress specifically 
reserved to itself the decision as to whether to open the area 
to leasing and the terms and conditions under which such a 
program would be conducted and do not view the specifics of 
this particular leasing program, including the revenue sharing 
provisions, as a precedent for any other area in Alaska.

                       Chapter 3--Water Projects

                  Subchapter A--Irrigation Prepayment

House bill

      The House had no provision.

Senate amendments

      The Senate had a provision repealing section 213(c) of 
the Reclamation Reform Act to permit prepayment of outstanding 
construction debt.

Conference agreement

      The Conferees agreed to the Senate provision and note 
that the use of OMB Circular A-129 is solely for the purposes 
of calculating the discount rate.

                       Subchapter B--Hetch Hetchy

House bill

      The House-passed bill contained Sec. 9214, which would 
increase from $30,000 to $8 million the annual payment made by 
the city of San Francisco under the provisions of the Raker Act 
(Act of December 13, 1913) for having the Hetch Hetchy system 
within Yosemite National Park.

Senate amendments

      The Senate-passed bill contained a provision which would 
have raised the annual payment from $30,000 to a minimum of 
$597,000 pursuant to a formula used by the Federal Energy 
Regulatory Commission.

Conference agreement

      The conferees reviewed all of the relevant factors and 
concluded that $2,000,000 was an appropriate figure. The 
managers also were made aware, by the County of Tuolumne, 
California, which has responsibility for providing 
infrastructure support to the Hetch Hetchy facility, that there 
are impacts on local government from the Raker Act. The 
managers believe that the Congress should examine those 
concerns.

                     Subchapter C--Collbran Project

House bill

      The House had no provision.

Senate amendment

      The Senate measure contained a provision that would 
transfer the Collbran Project in Colorado to the local 
districts.

Conference agreement

      The conferees agreed to adopt the Senate provisions with 
modifications.
      The conferees intend that by providing a non-exclusive 
easement to the Districts and the operators and owners of the 
associated storage reservoirs, that the Districts will full 
access to undertake any activities the Districts believe are 
necessary for project purposes. While the easement is non-
exclusive, the conferees intend that in allowing any other use, 
the Forest Service not interfere with the use of the easement 
by the District for project purposes.
      The conferees agree that the provisions in this 
legislation dealing with the Collbran Project are unique to 
that project and are not a precedent for other project 
transfers.

                         Subchapter D--Sly Park

House bill

      The House-passed version contained Sec. 9213, to convey 
the Sly Park Unit of the Central Valley Project to the El 
Dorado Irrigation District.

Senate amendment

      The Senate-passed version contained no such provision.

Conference agreement

      The conferees agreed to adopt the House-passed version, 
but modified the language to address scoring problems that had 
been raised by the Congressional Budget Office. The revised 
language requires the payment for the original construction 
costs by December 31, 1997.

                   Subchapter E--Central Utah Project

House bill

      The House-passed bill contained Sec. 9211, to authorize 
the prepayment of certain repayment contracts between the 
United States and the Central Utah Water Conservancy District.

Senate amendment

      The Senate amendment did not contain a prepayment 
provision specific to the Central Utah Water Conservancy 
District.

Conference agreement

      The conferees accepted the House-passed version, with 
minor modifications intended to clarify the language.

                Chapter 4--Federal Oil and Gas Royalties

House bill

      The House bill would amend the Federal Oil and Gas 
Royalty Management Act of 1982 and the Outer Continental Shelf 
Lands Act to create a more aggressive framework for the way the 
Department of the Interior's Minerals Management Service (MMS) 
and delegated states audit and collect federal oil and gas 
royalties and other monies owed the United States. These 
changes would provide for: more efficient audit and royalty 
collection processes, resulting in collection of additional 
monies owed to the U.S. and the States within a 6-year 
limitation period; authority for the Secretary to delegate 
certain royalty management functions to States, where 
appropriate, to collect additional royalties due States and the 
U.S. Treasury, thereby resulting in a more economic royalty 
management program; records retention requirements for industry 
to determine royalties due during the 6-year limitation period; 
more efficient appeals processes at the Department of the 
Interior, resulting in additional collections from stale 
disputes between the U.S. and royalty payers; establishment of 
interest requirements analogous to those of the IRS, thereby 
encouraging accurate royalty payments; limits on the period 
within which lessees can make adjustments or request refunds, 
resulting in additional collections; and pre-payment of 
royalties on ``marginal properties'' and other relief to 
collect royalties on production that might otherwise be 
abandoned.

Senate amendment

      The Senate amendment contained provisions substantially 
similar to the House version.

Conference agreement

      The Conference agreement blends the House and Senate 
provisions, with modifications to eliminate procedural points 
of order in the Senate, to clarify that delegated States have a 
direct role in increasing net receipts due States and the U.S., 
and to make technical corrections.

                           Chapter 5--Mining

                       HARDROCK MINING LAW REFORM

Short title

      The Senate bill contains a short title in Sec. 5700. The 
House bill does not. The House recedes to the Senate position.

Definitions

      The Senate bill contains definitions in Sec. 5701. The 
House bill defines terms where pertinent. The House recedes to 
the Senate position with amendment by adding and deleting terms 
as necessary to reflect the conference report language.

Rental payments

      The Senate bill contains claim maintenance requirements 
in Sec. 5702 which extend the current fee of $100 per year per 
claim and in Sec. 5703 enlarges the ``small miner'' waiver and 
exemption from the current ten or fewer claims to twenty-five 
or fewer claims. The House bill has parallel provisions in Sec. 
9505 which include payment of an annual claim maintenance fee 
which escalates with time to deter speculative holding of 
claims. Credit for the value of labor performed to explore and 
develop one's claim(s) may offset not more than 75% of the 
following year's fee, with a three-year carry forward 
provision.
      The bill managers believe the current claim maintenance 
fee has caused a precipitous decrease in exploration of the 
public lands as evidenced by the huge decline in mining claims 
of record with the Bureau of Land Management from approximately 
1,200,000 in 1989 to a preliminary estimate of less than 
300,000 in 1995. Exploration expenditures in the U.S. have also 
been falling while worldwide exploration expenditures are 
increasing significantly. Without exploration future mines will 
not be discovered on which royalties will be paid under the 
terms of this bill.
      The Senate recedes to the House position with an 
amendment to reduce the exploration and development credit to 
not more than 50% of the claim maintenance fee which is renamed 
the ``claim rental fee.'' The labor credit does not begin until 
the year 1999. Further, the amendment changes the timing and 
amount of the payments to $100 per year per claim for years 
1996 through 1998 and $200 per year per claim in 1999 and 
thereafter, with the aforementioned exploration credit 
available. The managers believe the consequences of rental 
payments should be reviewed periodically to ensure hardrock 
mineral exploration of the public lands remains viable.

Patenting

      The Senate bill contains patenting provisions in Sec. 
5704 requiring the payment of fair market value of the land 
within the boundaries of claims for which title passes and the 
reservation of a royalty interest and a right of title 
reversion to the United States if the land is used for non-
mining purposes, except for such claims as were pending 
application for patent as of September 30, 1995. The House bill 
contains similar provisions in Sec. 9502, except that those 
persons holding valid claims as of the date of enactment have 
opportunity to seek patents under current law within a two-year 
transition period (or ten-year period for claims for which 
access has been denied) by making application for mineral 
survey or patent. The House bill lacks a ``reverter'' 
provision.
      The bill managers acknowledge persons holding ``valid 
mining claims,'' (i.e., for which a discovery of a valuable 
mineral deposit within the meaning of the mining laws can be 
demonstrated on the date of enactment of this act, as well as 
for all location and recordation and payment requirements have 
been met) have a possessory right to the locatable minerals 
within their claims, as enunciated by the U.S. Supreme Court to 
be ``property in the fullest sense of the term...'' (Wilbur v. 
U.S. ex rel. Krushnic, 280 US 306).
      Further, the managers believe a prospectively applied 
royalty may not be imposed upon claim owners who successfully 
make such showing, otherwise the royalty becomes an obligation 
in the nature of a severance tax which is levied by a 
government merely for permission to mine within the 
government's boundaries without respect to mineral estate 
ownership. The managers acknowledge many mining claims are held 
under the principle of pedis possessio, i.e., possession good 
against rival claimants but not the United States because a 
discovery of a mineral deposit is lacking. However, the 
managers believe there are claim holders with valid existing 
rights and expressly encourage persons holding such claims to 
assert their rights.
      Therefore, the House recedes to the Senate position with 
an amendment which clarifies that the bill applies to all 
claims, subject to a vested possessory property right against 
the government. All mining claims would be subject to royalty, 
fair market value payment, and the reverter provision except 
claims for which there is a ``vested possessory property 
right,'' including those mineral patent applications pending at 
the Department of the Interior, if such claims meet the 
requirements of existing law. These claimholders are exempted 
from the new requirements for the same reason: to protect valid 
property rights that have ripened because of the operation of 
the general mining laws. Those claimholders who cannot 
establish a discovery have no valid existing right and are not 
eligible to receive patents (and that would continue to be the 
case under the new law). Other existing claim holders may be 
able to establish a discovery as well, even though they have 
not applied for patents. Patenting is not and never has been a 
prerequisite to mining under the general mining laws. The 
important consideration is not whether miners have sought 
patents but whether they can show a ``discovery'' of a valuable 
mineral deposit. If they can, they have a constitutionally 
protected property right that cannot and should not be 
abrogated by Congress. The managers therefore intend with this 
subsection to apply the new royalty, reverter, and fair market 
value provisions in all cases in which they fairly can be 
applied, but not to those claimholders who have valid existing 
property rights.
      The managers note that if a mineral patent ``moratorium'' 
(i.e., a limitation on the use of appropriated funds by the 
Secretary to accept or process applications or issue mineral 
patents) is in effect when this chapter is enacted into law, 
that such limitation is not part of the ``general mining laws 
in effect on the date immediately prior to the date of 
enactment.'' This is consistent with House rules which 
constitute such funds limitation amendments to not violate the 
prohibition on legislating on appropriations measures.
      Further, the House recedes to the Senate position on the 
reservation of a reversionary interest to the United States 
with an amendment allowing a right of re-entry to the United 
States with the direction to the Secretary to renounce such 
interests in certain situations.

Royalty and abandoned mine reclamation

      The Senate bill contains royalty provisions styled as a 
``net smelter return'' in Sec. 5705 with half of receipts to be 
disbursed to the federal treasury and half to those States 
whence production occurred, for purposes of reclamation of 
abandoned locatable minerals mines, and establishes a threshold 
of $500,000 annual gross proceeds below which royalty is 
exempted. The House bill contains a ``net proceeds'' royalty in 
Sec. 9503 that chiefly differs from the Senate version in 
allowing the deduction of mining costs from gross proceeds as 
well as beneficiation, smelting and refining costs which both 
bills allow, and establishes a threshold of $50,000 annual net 
proceeds (aggregated from all production subject to the Act) 
below which royalty is exempted. The House bill exempts claims 
which have been the recipient of Urban Development Action 
Grants (UDAG) funds from payment of royalty. The House bill 
disburses royalty receipts two-thirds to the federal treasury, 
one-third to the States without regard as to how such funds may 
be spent.
      The bill managers acknowledge the need for a ``net'' 
royalty rather than a ``gross'' royalty in order to levy a fair 
royalty given the broad class of minerals and methods to which 
the general mining laws apply, e.g., a net royalty does not 
favor precious metals versus base metals extraction, open-pit 
operations versus underground mines, or low-cost labor areas 
versus remote high-cost areas. A net proceeds royalty conserves 
resources by not promoting ``high-grading'' of deposits as do 
``gross'' royalties which clearly affect behavior. 
Consequently, the Senate recedes to the House royalty terms, 
including the net proceeds calculation as the threshold for 
royalty relief.
      The bill managers acknowledge the need to offset the loss 
of State revenues, such as from severance taxes, to be expected 
from the imposition of a federal royalty. The bill managers 
also acknowledge the desirability of establishing a fund for 
the reclamation of public lands impacted by abandoned hardrock 
mines. Therefore, the Senate recedes to the House position on 
disbursement of receipts with an amendment to require 10 
percent of royalty receipts be disbursed to States without 
spending mandates, and the House recedes to the Senate position 
on establishing an AML fund with an amendment to set the 
disbursement at forty percent of royalty receipts, retaining 
the Senate provisions of Section 5706 through 5710 respect to 
the AML funds except for an amendment limiting the eligible 
areas for reclamation to be public lands only and deleting 
Section 5709 relating to the use and objectives of the AML 
funds.

General provisions

      The Senate bill contains provisions regarding the effect 
of the Subtitle on the general mining laws at Sec. 5711, and 
severability of the provisions of the Subtitle in the event of 
successful judicial challenge at Sec. 5712. The House has no 
comparable provisions. The House recedes to the Senate 
position.

Mineral materials and sodium

      The House bill contains provisions for the prospective 
elimination of the applicability of the general mining laws to 
so-called uncommon varieties of mineral materials, and the 
modification of the current system for disposition of mineral 
materials to provide for stable supply of such materials at 
Sec. 9504. The Senate bill contains no comparable provisions.
      The bill managers acknowledge the untenable situation 
which exists today for both the federal government and miners 
claiming alleged ``uncommon varieties'' of mineral materials. 
The adjudication of the validity of such claims is far more 
costly and time consuming for claimant and government alike 
than is usually warranted by the value of the commodity. 
Therefore, the Senate recedes to the House position with an 
amendment which strikes explanatory language while retaining 
language which expressly amends the 1947 Material Sales Act and 
the 1955 Surface Resources Act.
      The House bill contains provisions affecting the 
disposition of sodium compounds from federal lands in Subsec. 
9504 (i). The Senate bill contains no such provisions. The 
House recedes to the Senate position.

                 Chapter 6--Department of the Interior

                           Aircraft Services

House bill

      The House bill did not contain language regarding this 
provision.

Senate amendment

      The Senate amendment contained provisions to reduce the 
amount of aircraft owned by the Department of the Interior and 
increase the use of aircraft contract services with private 
entities.

Conference agreement

      The conferees agreed to accept the Senate provision as 
written. The conferees direct the Secretary of the Interior to 
contract with private entities for the provision of all 
aircraft services required by the Department of the Interior 
(DOI), other than those available from the 13 existing DOI 
aircraft whose primary purpose is fire suppression. The 
Secretary is also directed to sell all the aircraft and related 
facilities owned by the Department, except those specified in 
the legislation, by September 30, 1998. It is the intention of 
the Conferees that this sale of assets be made to the highest 
bidder in each case and that the Secretary seek, to the maximum 
extent possible, to obtain fair market value for the assets.
      Nothing in this section is intended to affect the use of 
dual-function pilots. The conferees expect that these personnel 
will continue to carry out their current role with the use of 
aircraft owned by private entities. The conferees direct the 
Secretary to report to the Senate Committee on Energy and 
Natural Resources and the House Resources Committee as soon as 
possible, and no later than October 1, 1996, identifying 
aircraft that should not be sold because they are either needed 
for the primary purpose of law enforcement, are specially 
equipped, or are not readily available under contract with 
private entities at a competitive cost. The conferees expect 
that those committees will review this information and consider 
the need to amend the requirements of subsection (b).

               Chapter 7--Power Marketing Administrations

             Subchapter A--Bonneville Power Administration

House bill

      The House bill provides for the refinancing of certain 
appropriated debt of the Bonneville Power Marketing 
Administration.

Senate amendment

      The Senate amendment provides for the refinancing of 
certain appropriated debt of the Bonneville Power Marketing 
Administration.

Conference agreement

      With minor exceptions, the language contained in the 
House bill is identical to the language contained in the Senate 
amendment. In the Confederated Tribe of the Colville 
Reservation Grand Coulee Dam Settlement Act provisions, the 
Conference Report uses the term ``credit'' contained in the 
House bill in lieu of the term ``appropriations'' which was 
contained in the Senate amendment. There is no substantive 
difference between these terms.
      The Conferees agreed to drop the study provisions 
contained in the House bill with the understanding that the 
Bonneville Power Administration would undertake these studies 
without a specific statutory requirement to do so. Accordingly, 
the conferees expect that the Administrator shall undertake a 
study to determine the effect that increases in the rates for 
electric power sales made by the Administrator may have on the 
customer base of the Bonneville Power Administration. Such 
study shall identify other sources of electric power that may 
be available to customers of the Bonneville Power 
Administration and shall estimate the level at which higher 
rates for power sales by the Administration may result in the 
loss of customers by the Administration. The Administrator 
shall also undertake a study to determine the total prior costs 
incurred by the Bonneville Power Administration for compliance 
with the provisions of the Endangered Species Act of 1973, and 
the total future costs anticipated to be incurred by the 
Administration for compliance with such provisions. It is the 
Conferee's expectation that the Administrator shall complete 
and submit to the Congress the results of these studies within 
180 days after the date of the enactment of this Act.

               Subchapter B--Alaska Power Administration

House bill

      The House bill provides for the sale of the Alaska Power 
Marketing Administration's (APA) assets, and the termination of 
the APA once the sale occurs.

Senate amendment

      The Senate amendment provides for the sale of the Alaska 
Power Marketing Administration's (APA) assets, and the 
termination of the APA once the sale occurs. It also provides 
for the exemption of the two hydroelectric projects from the 
licensing requirements of part I of the Federal Power Act.

Conference agreement

      The Conferees adopted the Senate language with minor 
changes. The APA's assets will be sold pursuant to the 1989 
purchase agreements between the Department of Energy and the 
purchasers. The Snettisham hydroelectric project and related 
assets will be sold to the State of Alaska. The Eklutna 
hydroelectric project and related assets will be sold jointly 
to the Municipality of Anchorage, the Chugach Electric 
Association, and the Matanuska Electric Association. For both 
projects, the sale price is determined by calculating the net 
present value of the remaining debt service payments the 
Treasury would receive if the Federal government retained 
ownership.
      This Act and the separate formal agreements provide for 
the full protection of fish and wildlife. The purchasers, the 
State of Alaska, the U.S. Department of Commerce National 
Marine Fisheries Service, and the U.S. Department of the 
Interior have entered into a formal agreement providing for 
post-sale protection, mitigation, and enhancement of fish and 
wildlife resources affected by Eklutna and Snettisham. This Act 
makes that agreement legally enforceable.
      As a result of the formal agreements, the Department of 
Energy, the Department of the Interior, and the Department of 
Commerce all agree that the two hydroelectric projects warrant 
exemption from FERC licensing under Part I of the Federal Power 
Act. The August 7, 1991 formal purchase agreement states:
      ``NMFS, USFWS and the State agree that the following 
mechanism to develop and implement measures to protect, 
mitigate damages to, and enhance fish and wildlife (including 
related spawning grounds and habitat) obviate the need for the 
Eklutna Purchasers and AEA to obtain FERC licenses. (Emphasis 
supplied.)''
      The Alaska Power Administration employs 34 people in the 
State of Alaska. The purchasers of the two projects have 
pledged to hire as many of these as possible. For those who do 
not receive offers of employment, the Department of Energy has 
pledged it will offer employment to any remaining APA 
employees, although the DOE jobs are expected to be in the 
lower-48.
      The House-passed bill did not contain any comparable 
provisions. The Conference Agreement adopts the Senate-passed 
bill with two material changes.
      First, the Conference Agreement provides an exemption for 
Eklutna and Snettisham from Part I of the Federal Power Act 
(hydroelectric licensing), not from the entire Federal Power 
Act. That was intended by the Senate. By making this change, 
the conferees do not intend to imply that the Purchasers who 
are already exempt from other aspects of the Federal Power Act 
will lose such exemptions. The conferees do not intend to imply 
that by reason of this Act the other parts of the Federal Power 
Act apply to Eklutna and Snettisham. They apply only if they 
would have applied in the absence of this Act.
      Second, the agreement provides a general rule that upon 
sale or transfer of any portion of Eklutna or Snettisham from 
the Purchasers to any other person, the exemption from Part I 
of the Federal Power Act shall cease to apply to such portion 
of Eklutna or Snettisham. However, the exemption from Part I 
will continue to apply if such sale or transfer is from one 
Purchaser to another Purchaser, as that term is defined in this 
Act. A loss of the exemption from Part I upon sale or transfer 
does not automatically trigger licensing under Part I. 
Licensing will be required only if the circumstances would 
otherwise require it under Part I. If licensing is not 
otherwise required under Part I of the Federal Power Act for 
such portion, it is not required by reason of these provisions. 
Such sale or transfer, even if it results in the licensing of 
the portion sold or transferred, does not affect the exemption 
from Part I for the portion of Eklutna or Snettisham that is 
not sold or transferred and is retained by a Purchaser.
      The first phrase is an exception to this general rule. It 
provides that a subsequent assignment of interest in Eklutna by 
the Eklutna Purchasers to the Alaska Electric Generation and 
Transmission Cooperative Inc. pursuant to section 19 of the 
Eklutna Purchase Agreement will not result in the elimination 
of the exemption from Part I of the Federal Power Act for such 
interest.
      The provisions on selection and transfer of Eklutna and 
Snettisham lands provide that notwithstanding the expiration of 
the right of the State of Alaska to make selections under 
section 6 of the Alaska Statehood Act, the State may select 
lands pursuant to the provisions of this Act and the Eklutna 
and Snettisham Purchase Agreements. Likewise, it is the intent 
of this legislation that the Secretary of the Interior shall 
convey lands selected by the State of Alaska notwithstanding 
any limitations contained in section 6(b) of the Alaska 
Statehood Act.
      The Conferees agree that the circumstances justifying 
exemption from licensing under Part I of the Federal Power Act 
for these two Federally-owned hydroelectric projects are 
unique, and that they are not a precedent for a similar 
exemption of any other Federally-owned hydroelectric project in 
the event that such project were sold. The Conferees agree that 
in the event that other Federally-owned hydroelectric projects 
whose generation is marketed by other Federal power marketing 
administrations are privatized, these circumstances would not 
justify an exemption from Part I.

      Chapter 8--Outer Continental Shelf Deep Water Royalty Relief

House bill

      The House bill contained no similar provision.

Senate amendment

      The Senate version would authorize the Secretary of the 
Interior to grant royalty relief on existing Outer Continental 
Shelf oil and gas leases in the western and central Gulf of 
Mexico to encourage production. For existing leases, the bill 
provides relief from royalty payment on a certain number of 
barrels of oil for leases in water depths of 200 meters or 
deeper, upon a finding by the Secretary that the leases are not 
otherwise economic. As water depth increases, the amount of 
relief provided under the bill would increase commensurately, 
reflecting that the economics of drilling in deep water 
increase significantly as water depth increases.
      Under the Senate bill, new leases offered for sale in the 
future would provide terms granting an initial royalty waiver 
on a specific number of barrels of oil equivalent based on 
water depth. These new lease terms would be offered for the 
next seven years. The royalty waiver will increase the dollar 
value of bonus bids paid upon sale of leases.
      The Senate bill provides relief only to OCS leases in the 
western and central areas of the Gulf of Mexico west of the 
Florida-Alabama border and does not affect leasing and 
development off the coast of Florida. The bill does not affect 
any planning areas or leases subject to pre-leasing, leasing or 
development moratoria.

Conference agreement

      The Conference agreement adopts the Senate provision.

              Chapter 9--Exports of Alaska North Slope Oil

House bill

      Section 9001 of the House bill authorized exports of 
Alaskan North Slope (ANS) crude oil; mandated the filing of 
additional information in an annual report under the Energy 
Policy and Conservation Act; and required a study by the 
General Accounting Office (GAO).

Senate amendment

      The Senate amendment did not include a similar provision.

Conference agreement

      The Senate receded to the House language with an 
amendment.
      The committee of conference recommends authorizing 
exports of ANS oil under terms substantially similar to the 
House provision.
      Section 13800 amends section 28(b) of the Mineral Leasing 
Act (30 U.S.C. 185) to authorize ANS exports. Paragraph (1) of 
section 28(b) of the Mineral Leasing Act, as amended by the 
conference report, makes inapplicable the general and specific 
restrictions on such exports in section 7(d) of the Export 
Administration Act of 1979, (50 U.S.C. App. Sec. 2406(b)), 
section 28(u) of the Mineral Leasing Act of 1920, (30 U.S.C 
Sec. 185), section 103 of the Energy Policy and Conservation 
Act, (42 U.S.C. Sec. 6212), and the Short Supply regulations 
issued thereunder, unless the President determines (within five 
months of the date of enactment) that they would not be in the 
national interest. (Other statutory restrictions on the export 
of U.S. crude oil rendered either inapplicable or superseded 
with respect to ANS exports are 10 U.S.C. Sec. 7430 and 29 
U.S.C. Sec. 1354, restricting exports of crude oil from the 
Naval Petroleum Reserve and the outer continental shelf.)
      Before making his national interest determination, the 
President must consider an appropriate environmental review (to 
be completed within four months of enactment). Consistent with 
the original 1973 legislation, the President also must consider 
whether exports would diminish the total quantity or quality of 
petroleum available to the United States. Finally, the 
President must consider whether exports are likely to cause 
sustained material oil supply shortages or sustained oil prices 
significantly above world market levels that would cause 
sustained material adverse employment effects in the United 
States or that would cause substantial harm to consumers, in 
particular in noncontiguous States and Pacific territories.
      In a comprehensive report submitted to Congress, the 
Department of Energy found ``no plausible evidence of any 
direct environmental impact from lifting the ANS crude export 
ban.'' Based on this finding and the weight of the testimony, 
the provision directs, as the ``appropriate environmental 
review,'' an abbreviated four-month study. The environmental 
review is intended to be thorough and comprehensive, but in 
light of the prior Department of Energy findings and the 
compressed time frame, neither a full Environmental Impact 
Statement nor even a more limited Environmental Assessment is 
contemplated. If any potential adverse effects on the 
environment are found, the study is to recommend ``appropriate 
measures'' to mitigate or cure them.
      In making his national interest determination, the 
President is authorized to impose appropriate terms and 
conditions, other than a volume limitation, on ANS exports. The 
provision takes cognizance of the changed condition of national 
oil demand and available oil resources. The provision permits 
ANS crude oil to compete with other crude oil in the world 
market under normal market conditions. To facilitate this 
competition and in recognition that the provision specifically 
precludes imposition of a volume limitation, the President 
should direct that exports proceed under a general license. In 
further recognition that some information (such as volume and 
price) will be needed to monitor exports, the President may 
wish to impose such after-the-fact reporting requirements as 
may be deemed appropriate by the Secretary of Commerce.
      Given the anticipated substantial benefits to the nation 
of ANS exports, the conferees urge the President to make his 
national interest determination as promptly as possible. If the 
President fails to make the required national interest 
determination within the statutorily imposed deadline, ANS oil 
exports are authorized without intervening action by the 
President or the Secretary of Commerce.
      Paragraph (2) requires, with limited exceptions, that ANS 
exports be carried in U.S.-flag vessels. The only exceptions 
are exports to Israel under the terms of a specific bilateral 
treaty that entered into force in 1979 and exports to a country 
pursuant to the International Emergency Oil Sharing Plan of the 
International Energy Agency. The conferees concur with the 
Administration's assessment that the U.S.-flag cargo 
reservation requirement is consistent with U.S. international 
obligations and is supported by ample precedent, including, in 
particular, a comparable provision in the U.S.-Canada Free 
Trade Agreement as implemented under U.S. law.
      Paragraph (3) preserves any authority the President may 
have under the Constitution and the enumerated statutes to 
prohibit ANS exports in an emergency.
      Paragraph (4) directs the Secretary of Commerce to issue 
any rules necessary to govern ANS exports within 30 days of the 
President's national interest determination. In light of the 
clear benefits to the nation of ANS exports, the conferees urge 
the Secretary of Commerce to promulgate any rules necessary to 
implement that determination, including any licensing 
requirements and conditions, contemporaneously with the 
determination.
      Paragraph (5) provides that if the Secretary of Commerce 
(after consulting with the Secretary of Energy) later finds 
that exports have caused sustained material oil shortages or 
sustained prices significantly above the world level and that 
the shortages or high prices have caused or are likely to cause 
sustained material job losses, he must recommend appropriate 
action, including modification or revocation of the authority 
to export ANS oil. The President has the discretion to adopt, 
reject, or modify any recommendation made by the Secretary. In 
recognition that prices fluctuate and supply patterns change 
under normal market conditions, the authority of the Secretary 
is limited to addressing activity that causes the specified 
sustained unanticipated price and supply effects.
      Paragraph (6) provides that administrative action is not 
subject to notice and comment rulemaking requirements or other 
requirements of the Administrative Procedures Act.
      Subsection 9001 (b) of the House bill, which would have 
required the Comptroller General (GAO) to conduct a review of 
the effects, if any, of ANS oil exports on consumers, 
independent refiners and shipbuilding and ship repair yards on 
the West Coast and Hawaii was dropped by the conferees. 
However, the conferees recommend that GAO complete a report to 
be submitted four years after the date of enactment. The report 
should contain a statement of principal findings and 
recommendations to address job loss in the shipbuilding and 
ship repair industry on the West Coast and Hawaii, if any, as 
well as adverse impacts on consumers and refiners on the West 
Coast and in Hawaii, if any, that the Comptroller General 
attributes to ANS exports. The conferees believe that the 
market should be given a reasonable period of time to operate 
before submission of the report. The conferees want to be sure 
the Comptroller General has a solid basis on which to make his 
analysis and offer any recommendations for the Congress and the 
President.

              Chapter 10--Ski Fees on Forest Service Lands

House bill

      The House included a provision that called for the 
establishment of a new formula to calculate fees paid to the 
Forest Service by ski area operators.

Senate amendment

      The Senate had no similar provision.

Conference agreement

      The Senate concurred with the House position with minor 
modifications. The Conferees agreed on provisions which closely 
reflect the text of legislation passed by the Senate in 1992.
      The Conferees amended the House provision to insert a 
payment ``floor'' in the formula. Under the ``floor'' approach, 
the Conferees expect that the fee charged each individual ski 
area for the first 3 years of the transition will be either the 
fee under the new formula, or the actual fee paid by the area 
for the year prior to the new formula's implementation, 
whichever amount is higher. Using this approach will mean that 
no individual area fee will go down, unless overall business 
dips by more than 10 percent. In the majority of cases the 
Conferees expect that areas' fees will increase.
      The Conferees expect that no later than five years after 
the date of enactment of this Act, and every ten years 
thereafter, the Secretary of Agriculture will submit to the 
appropriate Senate and House Committees a report analyzing 
whether the ski area rental charge system legislated by this 
Act is returning a fair market value rental to the United 
States together with any recommendations the Secretary may have 
for modifications in the system.

                     Chapter 11--National Park Fees

House bill

      The House bill had no similar provision.

Senate amendments

      The Senate measure contained a provision that established 
increased caps on National Park admission fees and eliminated a 
number of prohibitions on implementing fee collection programs 
at certain park units. The provision would require that 80 
percent of the new fees collected be returned to the National 
Park Service units for annual operating expenses related to 
visitor services.

Conference agreement

      The House concurred with the Senate position with some 
modifications. The conferees included provisions which would 
authorize the Forest Service and the Bureau of Land Management 
to collect recreation use fees at certain locations.
      With respect to the collection of fees at units of the 
National Park Service, the conferees fully expect that fee 
increases for admission and annual park passes for units of the 
System, including those units not currently charging such fees, 
be implemented incrementally over a reasonable period of time 
so as to minimize, to the greatest extent practicable, rapid 
escalation of entrance fees. The conferees do not anticipate 
that the Service will begin charging any of the authorized fee 
increases described in this legislation at the maximum 
allowable rate.
      In addition, the conferees expect that no later than 30 
days after the enactment of this Act, the Secretary of the 
Interior will submit to the appropriate Senate and House 
Committees a report on the admission fees proposed to be 
charged at units of the National Park System. The report shall 
include a list of units of the National Park System and the 
admission fee proposed to be charged at each unit. It is also 
expected that the report shall also identify areas where such 
fees are authorized but not collected, including an explanation 
of the reasons that such fees are not collected.
      The conferees agreed that a significant portion of the 
new fees collected be returned to the areas or units of those 
land management agencies designated by this Act to augment 
annual operating expenses related to visitor services. The 
conferees are very concerned that any increase in fees paid by 
recreational users translate into increased services to the 
public. Therefore, the conferees intend to closely monitor 
implementation of this provision to ensure congressional intent 
is realized. In order to ensure that fees paid directly benefit 
users who pay the fees, the conferees have limited the use of 
the monies to visitor services and facilities. As used in this 
part, visitor services means services directly associated with 
the management of recreation visitors to Federal lands, 
including (but not limited to) such programs as maintenance of 
facilities which serve primarily visitor recreation use (such 
as campgrounds, scenic roads, trails, visitor centers and 
picnic areas), public information and interpretation, wildlife 
habitat enhancement directly related to public use (such as 
stream improvement to improve fishing or activities to 
facilitate watchable wildlife programs), and other activities 
of personnel assigned predominantly to the management of 
visitors or public safety programs, but not including costs of 
regional and Washington headquarters offices and administrative 
services such as personnel, budget and finance, and 
procurement.
      The Conferees fully expect that the affected Secretaries 
will, by January 1 of each year, provide to the appropriate 
Committees of the Senate and the House a list of proposed 
expenditures from the fund designated by this Act for each unit 
or area for that fiscal year and a report detailing 
expenditures, by unit or area, for the previous year.

                     Chapter 12--Concession Reform

House bill

      The House provided a comprehensive reform of concession 
management policies for 6 Federal land management agencies.

Senate amendment

      The Senate had no comparable provision.

Conference agreement

      The Senate receded to the House with amendments. The 
managers expect that each Federal land management agency 
covered under this title shall implement a program to encourage 
appropriate development and operation of services and 
facilities for the accommodation of visitors. The program 
implemented by each such agency shall consist of actions 
which--
      (1) recognize the importance of the private sector in 
providing a quality visitor experience on Federal lands by 
encouraging private sector investments for facilities and 
services on Federal lands under a fair and competitive process;
      (2) establish the basis for an effective relationship 
between the land management agencies and private business 
operating on public lands in efforts to serve the public and to 
protect the resources of these areas;
      (3) measure quality and value of services provided by 
concessionaires and provide incentives for consistent 
excellence;
      (4) ensure a fair return to the Federal Government;
      (5) are consistent among the various agencies to the 
extent practicable in order to increase efficiency of the 
Federal Government and simplify requirements for 
concessionaires; and
      (6) ensure that concession activities are fully 
consistent with agency policy and plans.
      In order to ensure the consistent high quality of 
concession services and facilities, the Secretary concerned 
shall develop a program of evaluations of the concessionaires 
operating under a concession service agreement who are 
providing visitor services in areas under the jurisdiction of 
the Secretary. The evaluations shall be on an annual basis over 
the duration of the concession service agreement. In developing 
the evaluation program, the Secretary concerned shall seek 
broad public input from concessionaires, State agencies, and 
other interested persons. The evaluation program shall--
      (1) include the four program areas of: quality of visitor 
services provided; resource protection (as applicable); 
financial performance; and compliance with concession service 
agreement provisions and pertinent laws and regulations;
      (2) define three levels of performance--
            (A) good, which shall be defined as a level of 
        performance which exceeds the requirements outlined in 
        the prospectus, but which is attainable;
            (B) satisfactory, which shall be defined as meeting 
        the requirements as contained in the prospectus; and
            (C) unsatisfactory; which shall be defined as not 
        meeting the requirements contained in the prospectus;
      (3) be based on criteria which--
            (A) are objective, measurable, and attainable; and
            (B) shall include as applicable general standards 
        for all concession operations, industry-specific 
        standards, and standards developed by the Secretary 
        concerned in consultation with the concessioner for 
        each concession service agreement;
      (4) be designed in such a manner that the annual 
evaluation represents the overall performance of the 
concessioner without weight to matters of limited importance; 
and
      (5) take into account factors beyond the control of the 
concessioner, such as general market and other economic 
fluctuations, as well as weather and other natural phenomena, 
so that such factors may not be used as a justification for 
denial of performance incentives.
      The conferees expect that the Secretary concerned shall 
annually review the performance of each concessioner and shall 
assign an overall rating for each concessioner for each year. 
The procedure for any performance evaluation shall be provided 
to the concessioner prior to the beginning of any evaluation 
period. Such procedure shall provide for adequate notification 
of the concessioner prior to any on-site evaluation and permit 
a representative of the concessioner to observe the evaluation. 
The concessioner shall be entitled to a complete explanation of 
any rating given. If the Secretary's performance evaluation for 
any year results in an unsatisfactory rating of the 
concessioner, the Secretary concerned shall so notify the 
concessioner, in writing. Such notification shall identify the 
nature of conditions which require corrective action and shall 
provide the concessioner with a list of corrective actions 
necessary to meet the standards.
      The conferees intend that the Secretary concerned may 
suspend or terminate a concession authorization if the 
concessioner fails to correct the conditions identified by the 
Secretary within the limitations established by the Secretary 
at the time notice of the unsatisfactory rating is provided to 
the concessioner. The Secretary may immediately suspend or 
revoke a concession authorization where necessary to protect 
the public health or welfare, until the concessioner corrects 
the conditions which gave rise to such suspension.
      In order to ensure that provisions of this part are fully 
carried out, the Managers expect the administering Secretaries 
to establish such record-keeping procedures as are necessary, 
including but not limited to:
      (1) The concessioner shall annually submit to the 
Secretary concerned a statement reflecting total activity in 
the concession improvement account for the preceding financial 
year. The statement shall reflect monthly deposits, 
expenditures by project, interest earned, and such other 
information as the Secretary concerned requires.
      (2) Each concessioner shall keep such records as the 
Secretary concerned may prescribe to enable the Secretary to 
determine that all terms of the concession authorization have 
been and are being faithfully performed, and the Secretary and 
his duly authorized representatives shall, for all other 
purpose of audit and examination, have access at reasonable 
times and locations to such records and to other books, 
documents, and papers of the concessioner pertinent to the 
concession authorization and all the terms and conditions 
thereof.
      (3) The Secretary of the Interior and the Secretary of 
Agriculture shall develop a single set of regulations which 
specify a uniform set of record keeping requirements for all 
concessionaires with respect to implementation of this part.
      (4) The Comptroller General of the United States or any 
of his duly authorized representatives shall, until the 
expiration of five years after the close of the business year 
of each concessioner have access to and the right to examine 
any pertinent books, documents, papers, and records of the 
concessioner related to the concession authorization involved.
      The managers do not intend the following laws or 
regulations to apply to concession service agreements and 
concession licenses issued under this part:
      (1) Title III of the Federal Property and Administrative 
Services Act of 1949 (41 U.S.C. 251-266).
      (2) The Office of Federal Procurement Policy Act (41 
U.S.C. 401 et seq.)
      (3) The Federal Acquisition Streamlining Act of 1994 
(Public Law 103-355).
      (4) The Brooks Automatic Data Processing Act (40 U.S.C. 
759).
      (5) Chapters 137 and 141 of title 10, United States Code.
      (6) The Federal Acquisition Regulation and any laws not 
listed in paragraphs (1) through (5) providing authority to 
promulgate regulations in the Federal Acquisition Regulation.
      The managers are aware that successful implementation of 
this part requires the agencies to develop a fully trained 
staff of concession professionals and expects the Secretary 
concerned to specify the minimum training and qualifications 
required for agency personnel assigned predominantly to 
concession management duties, including (but not limited to) 
competency in business management, public health and safety, 
and the delivery of quality customer services.

         Other Provisions Not Included in the Conference Report

                                Grazing

House bill

      The House bill contains provisions that would: codify 
Bureau of Land Management (BLM) livestock grazing regulations 
in existence prior to the current regulations; require that the 
Forest Service issue regulations substantially similar to those 
in effect for lands administered by BLM; establish a formula 
for determining the fee for livestock grazing on public lands; 
address application of the National Environmental Policy Act to 
grazing permits and leases; and extend the term of grazing 
permits and leases from 10 to 15 years.

Senate amendment

      The Senate version does not contain such provisions.

Conference agreement

      The House recedes to the Senate position.

                                Mapping

House bill

      The House bill requires the Secretary of the Interior to 
conduct a surveying and mapping contracting program. In 
preparation for this contracting program, the bill requires the 
Secretary to conduct and publish an inventory of surveying and 
mapping activities to serve as a baseline. Additionally, the 
bill requires the Secretary to establish a plan that shall be 
based on the results of the inventory. The plan shall include, 
but not be limited to, the following actions:
      A reduction in surveying and mapping activities by 
Department personnel that duplicates private sector 
capabilities;
      Reduction in acquisition and maintenance of equipment 
that duplicates private sector;
      A prohibition on Department performance of services for 
other government entities that can be obtained by contract from 
the private sector;
      Increased use of contracts for requirements created 
through attrition in the Department;
      Enhancement of the Department's role in:
         Performing activities that are inherently governmental 
        in nature,
         Preparation of standards and specifications,
         Research and technology transfer,
         Coordination, cost sharing, and administration, and
         Establishing goals for contracting.
      Additionally, the bill requires annual reports to track 
program progress. Regarding definitions, the bill defines the 
terms ``surveying and mapping'' and ``contract'' based on 
current regulations of the U.S. Army Corps of Engineers, the 
government's largest contractor of these services.

Senate amendment

      The Senate had no similar provision.

Conference agreement

      The House recedes to the Senate, due to Senate procedural 
requirements.
      It is the conferees' intention that the Secretary of the 
Interior begin the process of implementing the major provisions 
of the House provision administratively. It is the conferees 
intent' that, over the next year, hearings will be held and 
legislation will be drafted which will incorporate--to the 
maximum extent possible--components of the legislation passed 
by the House. The conferees urge the Secretary to report to the 
House Committee on Resources and the Senate Committee on Energy 
and Natural Resources by Spring 1996 on the status of the 
Department's efforts to increase contracting out of mapping and 
charting activities.

                  Need for Contracting Out of Mapping

      In the Department of the Interior, there are 1827 
employees engaged in surveying and mapping (as of September 30, 
1994), according to data from the Office of Personnel 
Management. An Office of Management and Budget (OMB) survey 
(OMB Bulletin 93-14) estimated $761.7 million in budget 
authority in the Interior Department for geographic data 
activities (acquisition, management and dissemination) in FY 
1993, and estimated the President's FY 1994 budget request at 
$801.5 million. In FY 1994, only 212 service contracts for 
geographic data activities totaling just $18.4 million were 
awarded to the private sector.
      There is a capable and qualified private sector of more 
than 250 mapping firms and 6,000 surveying firms in the United 
States. The Interior mapping establishment duplicates the 
capabilities of the commercial, private sector. Moreover, not 
only do Federal agencies not contract a significant amount of 
their own work, but many agencies do work for other Federal 
agencies, as well as State, local and foreign governments, in 
direct competition with the private sector.
      The conference report from the Senate-House Budget 
Resolution specifically addressed surveying and mapping, 
saying, ``U.S. Geological Survey conducts research and provides 
basic scientific and information concerning natural hazards and 
environmental issues, as well as water, land, and mineral 
resources. The USGS has three main divisions: the National 
Mapping Division [NMD], the Water Resources Division [WRD] and 
the Geologic Division. This proposal assumes that the NMD will 
aggressively price its products for additional revenue to the 
Treasury. It also assumes greater contracting out to the 
private sector, appropriate data gathering, and map and digital 
data production. Finally, it calls for consolidation of 
overlapping mapping efforts. Within the WRD, savings are first 
assumed in the Federal program for such subprograms as global 
change hydrology and core program hydrology research. Savings 
could also be achieved by increasing the State and local 
matching formula for the Federal/State Cooperative Program.''
      In sum, the Conferees believe that agencies in the 
Department of the Interior should contract with the private 
sector where appropriate for surveying and mapping activities. 
While it is appropriate, proper, and necessary for the 
Department to be involved in setting standards and 
specifications, research and technology transfer, and 
coordination in the area of geographic data, the actual 
collection of data, through surveying and mapping, is a 
commercial activity and should be performed by the private 
sector.

                              Territories

House bill

      The House measure contained a provision that would 
terminate further direct annual assistance to the Commonwealth 
of the Northern Mariana Islands and would also eliminate the 
Office of Territorial and International Affairs within the 
Department of the Interior, reduce the number of Assistant 
Secretaries for the Department by one, and prohibit future 
discretionary appropriations in certain territory accounts.

Senate amendment

      The Senate amendment did not contain any language on this 
subject.

Conference agreement

      The House and Senate authorizing committees have 
reported, and the Senate has passed, legislation addressing 
these issues with markedly different approaches. The Conferees 
agreed the issue would be best resolved by the authorizing 
committees within the context of that legislation.

                             Indian Gaming

House bill

      The House included a provision that increased funding 
under section 18(a) of the Indian Gaming Regulatory Act from 
$1.5 million to $2.5 million and eliminate funding for the 
operation of the Commission.

Senate amendment

      The Senate had no similar provision.

Conference agreement

      The Conferees agreed to delete this provision.

                              Consultation

House bill

      The House measure contained a provision that amended 
section 7 of the Endangered Species Act to prohibit federal 
agencies and applicants for a permit or license from making any 
irreversible or irretrievable commitments of resources that 
would foreclose any reasonable and prudent alternative.

Senate amendment

      The Senate amendment contained no similar language.

Conference agreement

      The conferees agreed to delete this provision.

                             Ski Area Sale

House bill

      The House measure contained a provision that would direct 
the Secretary of Agriculture to offer for sale at least 40 ski 
areas on Forest Service lands.

Senate amendment

      The Senate amendment did not contain any language on this 
subject.

Conference agreement

      The Conferees agreed to delete this provision.

                                 Folsom

House bill

      The House Bill contains a provision declaring that for 
the purpose of water transfers, the city of Folsom, California, 
shall be considered a Central Valley Project contractor.

Senate amendment

      The Senate version does not contain such provisions.

Conference agreement

      The House recedes to the Senate position because of Byrd 
Rule concerns.

                 Power Marketing Administrations Study

House bill

      The House provision repealed the current prohibition on 
studying the ratemaking or privatization of the Power Marketing 
Administrations (PMA's). In addition, it provided for a study 
of the Southeastern Power Administration (SEPA), the 
Southwestern Power Administration (SWPA) and the Western Area 
Power Administration (WAPA) for purposes of their ultimate 
sale. The House bill provided for an independent and 
experienced private sector firm to serve as an advisor in 
completing such a study. Because of the ongoing deregulation of 
the electric utility industry, and the competitive issues which 
currently exist among providers of electric power, the study 
also called for a review of tax consequences of potential 
transfers.
      Since federal electric power is generally a by-product of 
facilities primarily designed and built for water management, 
the study was set-up to recognize and assume the continued 
operations and priorities of the projects as they currently 
exist. In addition, because there are a variety of uses and 
purposes for facilities that produce PMA power, the study was 
designed to inventory existing operations and uses so that 
these operations and uses could be preserved as part of any PMA 
transfer.

Senate amendment

      The Senate had no similar provisions.

Conference agreement

      The conferees recognize that there are numerous problems 
with the existing Power Marketing Administration operations and 
the underlying power generation facilities. These include: 
generating units in the SEPA service area that have been off-
line and unable to provide power for years, deferred 
maintenance in many of the underlying facilities which are 
causing loss of power production, failure to provide current 
technology which could improve power output and environmental 
protection, accounting systems which do not fully recover the 
costs to the federal government from the systems, and 
inefficient operations stemming from government operating 
constraints. The conferees believe that Congress should begin 
addressing these issues, without preconditions as to the 
ultimate resolution of the issues.
      The future solutions, for the issues which have been 
raised, must deal with the recognition of existing uses, 
priorities, and operations as well as the rapidly developing 
competitive electric industry and the impacts on ratepayers. 
Recently released information indicates that a detailed review 
and analysis of the PMA's is warranted.
      Although only 6% of the nation's electricity is generated 
and transmitted from these sources, the potential for 
production from these facilities represents an important 
component of our domestic energy supply. Accordingly, while the 
study provision in the House bill was removed because of 
procedural issues with the Senate, the conferees believe and 
expect that the Congress will investigate and review the 
information pertaining to the future of the PMA's including 
operation and maintenance. The conferees believe that a fully 
considered review by the Congress should precede development of 
any specific proposal by the Executive Branch.
      The Clinton Administration's 1996 legislative budget 
proposed to sell all the PMA's to the current customers at the 
discounted repayment. Such a ``one size fits all'' approach to 
the PMA's is simplistic and impractical. In addition to 
responsibilities to current customers, the federal government 
has important responsibilities for water management at these 
facilities as well as to Indian Tribes and to others dependent 
on the projects. Future Congressional reviews should consider 
the differing situations and problems facing each of the major 
components that comprise the PMA's.

House conferees

      The conferees are concerned that the American public has 
made a substantial investment in these facilities and that all 
citizens should benefit from the rehabilitation and 
privatization of the PMA's. The conferees believe that those 
facilities can be operated more efficiently and that any sale 
can be structured in a way to maximize proceeds while limiting 
rate increases to the ultimate customers.
      In addition to market forces which are likely to prohibit 
significant rate increases from any sale, studies of these 
issues should specifically evaluate alternatives that would 
address rate increase issues. The conferees are not persuaded 
by the rate concerns enunciated by sale opponents. As a result 
of the Energy Policy Act of 1992, customers have been afforded 
the opportunity to purchase their power from any source they 
wish. Thus, the conferees believe it impractical that a 
purchaser of a grouping of PMA assets would raise rates 
substantially because of the risk attendant with that customer 
leaving and purchasing from other sources in the competitive 
wholesale power market.

Senate conferees

      The Senate conferees share many of the concerns of the 
House with respect to the present condition of the generating 
capacity of the PMA's and what the future may hold given 
sharply reduced budgets for the managing agencies. While 
consideration of the future of the PMA's is important, the 
Senate conferees are not prepared to suggest, recommend, or 
support any particular initiative at this time.

          TITLE VI--FEDERAL RETIREMENT AND RELATED PROVISIONS

        Subtitle A--Civil Service and Postal Service Provisions

 Extension of Delay in Cost-of-Living Adjustments in Federal Employee 
                          Retirement Benefits

House bill

      Section 5001 of the House bill continues the current 
delay in payment of Federal retiree cost-of-living adjustments 
to April of each year through fiscal year 2002. Under the 
Omnibus Budget Reconciliation Act of 1993, the effective date 
for cost-of-living adjustments in Federal employee retirement 
benefits was delayed from January until April for fiscal years 
1994, 1995 and 1996. This section would extend that delay 
through fiscal year 2002.

Senate amendment

      The Senate amendment is identical

Conference Agreement

      The Conference agreement includes the language of the 
Senate and House provisions.

     INCREASED CONTRIBUTIONS TO FEDERAL CIVILIAN RETIREMENT SYSTEMS

House bill

      Section 5002 provides for increased contributions to both 
Federal civilian retirement systems. Agencies will be required 
to increase their contributions to the Civil Service Retirement 
System (CSRS) for their employees who participate in CSRS. 
Employees participating in both CSRS and the Federal Employees 
Retirement System (FERS) will be required to increase their 
contributions to the systems.
      The increase in employee contributions to CSRS will apply 
to all employees participating in that system including Members 
of Congress, congressional employees, law enforcement officers, 
firefighters, Capitol Police, bankruptcy judges, judges for the 
U.S. Court of Appeals for the Armed Forces, U.S. magistrates, 
Claims Court judges, and employees of the United States Postal 
Service. The change in the contribution rate will also apply to 
employees participating in the Foreign Service retirement 
systems.
      The amount deducted from basic pay for an individual 
participating in CSRS will be increased above the level in 
effect on the date of enactment by .25 percent in 1996, by an 
additional .15 percent in 1997, and by an additional .10 
percent in 1998. The increase will then remain constant at .5 
percent through 2002.
      The bill also requires all Federal agencies, except for 
the United States Postal Service, to contribute an additional 
1.5 percent each year above the percentage an agency is now 
contributing for each individual employee participating in 
CSRS. This 1.5 percent increase in employer contributions does 
not apply to the United States Postal Service which currently 
contributes the full actuarial cost of each employee's 
retirement under CSRS.
      This section also provides that repayment for any 
military service between January 1, 1996, and December 31, 
2002, for which an employee or Member of Congress would like to 
receive retirement credit under CSRS, would be at the 
contribution rate in effect for employees during the period for 
which such credit is provided.
      Likewise, the section provides that repayment for any 
covered volunteer service between January 1, 1996, and December 
31, 2002, for which an employee or Member of Congress would 
like to receive retirement credit under CSRS would be at the 
contribution rate in effect for employees during the period for 
which such credit is provided.
      The House bill also requires increased employee 
contributions from all employees participating in the Federal 
Employees Retirement System (FERS), including Members of 
Congress, congressional employees, law enforcement officers, 
firefighters, Capitol Police, bankruptcy judges, judges for the 
U.S. Court of Appeals for the Armed Forces, U.S. magistrates, 
Claims Court judges, and employees of the United States Postal 
Service. The change in the contribution rate will also apply to 
employees participating in the Foreign Service retirement 
systems. and congressional employees. These employees are 
required to increase their contributions to FERS by .25 percent 
in 1996, an additional .15 percent in 1997, and by an 
additional .10 percent in 1998. The increase in the 
contribution over the percentage an employee currently pays 
into the system will then remain at .5 percent through 2002.
      This subsection provides that repayment for any military 
service between January 1, 1996, and December 31, 2002, for 
which an employee or Member of Congress would like to receive 
retirement credit under FERS would reflect the increased 
employee contributions resulting in the following repayment 
percentages: calendar year 1996, 3.25 percent; calendar year 
1997, 3.4 percent; calendar years 1998-2002, 3.5 percent.
      In addition, this subsection provides that the repayment 
for any covered volunteer service between January 1, 1996 and 
December 31, 2002 for which an employee or Member of Congress 
would like to receive retirement credit under FERS would 
reflect the increased employee contributions resulting in the 
following repayment percentages: calendar year 1996, 3.25 
percent; calendar year 1997, 3.4 percent; calendar years 1998-
2002, 3.5 percent.
      This subsection also prohibits agencies from reducing 
their contributions to FERS for each individual employee by a 
percentage equal to any percentage increase in individual 
employee contributions. Under current law, agency contributions 
would automatically decrease with any increase in employee 
contributions. The section prohibits the Postal Service and all 
other Federal agencies from reducing their contributions to 
FERS.
      The effective date for the increased contributions for 
employees and agencies is the first day of the first pay period 
beginning on or after January 1, 1996.

Senate amendment

      The Senate amendment is substantially the same as the 
House bill.

Conference agreement

      The Conference agreement includes the language of the 
Senate and House bills with modifications. The percentage by 
which agencies are required to increase their current 
contribution rates for their employees who participate in the 
Civil Service Retirement System, is 1.51% rather than 1.5%. In 
addition, a distinction is made to ensure that the Washington 
Metropolitan Airport Authority (WMAA) is not required to pay 
increased employer contributions on behalf of its employees who 
participate in the Civil Service Retirement System. The 
employees of the WMAA are required to make increased 
contributions to the Civil Service Retirement System or the 
Federal Employees Retirement System. The WMAA is prohibited 
from decreasing its contributions to FERS. A drafting error 
which states the amount the United States Postal Service must 
contribute on behalf of employees and law enforcement officers 
is corrected.
      The conference agreement adjusts the contribution rates 
for United States bankruptcy judges, magistrates, Claims Court 
judges and judges of the U.S. Court of Appeals for the Armed 
Forces to ensure their parity with federal and congressional 
employees. The contribution rates for Capitol Police are 
adjusted to provide parity with other federal law enforcement 
officers.

   FEDERAL RETIREMENT PROVISIONS RELATING TO MEMBERS OF CONGRESS AND 
                        CONGRESSIONAL EMPLOYEES

House bill

      Section 5003 would reform the pensions of Members of 
Congress and congressional staff. Under current law, 
participating Members of Congress and congressional employees 
contribute a higher percentage of base pay toward retirement. 
Under CSRS, Members contribute 8 percent, while congressional 
employees contribute 7.5 percent. Members and congressional 
employees participating in FERS contribute 1.3 percent. The 
section amends the contribution rates to bring them into line 
with those applicable to most General Schedule Federal 
employees, 7 percent for CSRS and .8 percent for FERS. The 
accrual rates used to determine the annuities for Members of 
Congress and congressional employees would be reduced to ensure 
parity with those of other federal employees. The basic accrual 
rates for most General Schedule employees (1.5 percent for the 
first five years of service, 1.75 percent for the next five 
years, and 2 percent for all remaining years) would also apply 
to Members of Congress and congressional staff. All service 
prior to January 1, 1996, for which the higher amount was 
contributed would be computed using the accrual rate in effect 
during that service.
      The contribution amounts and accrual rates for Members of 
Congress and congressional employees in CSRS and FERS are 
amended to conform with those used for the majority of General 
Schedule. New accrual rates and contribution amounts apply only 
to service performed on or after January 1, 1996. The changes 
take effect upon the date of enactment. The Secretary of the 
Senate and the Clerk of the House are given the authority 
necessary to prescribe regulations to implement the changes in 
the retirement benefits of Members of Congress and 
congressional employees. The House bill also retains the higher 
congressional accrual rate after January 1, 1996 for Capitol 
Police who retire at age 55 with 30 years of service.

Senate amendment

      The Senate amendment is almost identical to the House 
bill. The Senate amendment however does not include the 
provision retaining the higher congressional accrual rate after 
January 1, 1996 for Capitol Police who retire at age 55 with 30 
years of service.

Conference agreement

      The Conference agreement includes most of the House 
language, but adds a provision to clarify that Members of 
Congress and congressional employees who have paid the higher 
contribution rate prior to January 1, 1996 would have their 
annuity computed using the higher accrual rate for that period 
once they have a total of five years of Member of Congress or 
congressional employee service. The House Capitol Police 
language is modified to provide that a member of the Capitol 
Police who retires as a congressional employee (rather than as 
a law enforcement officer) would receive the higher accrual 
rate which was in effect prior to January 1, 1996 for any 
period of service before that date during which the higher 
contribution rate was paid.
      The conference retains the January 1, 1996 effective date 
for the reform of Member and staff pensions, but includes an 
alternate effective date of January 1, 1997 for use only in the 
event the courts determine that the January 1, 1996 violates 
the Twenty-seventh Amendment to the Constitution.

Judicial retirement

      The conference agreement adds a new section proposed by 
the House which prospectively adjusts the accrual rate of Title 
V of the United States Code bankruptcy judges, judges of the 
U.S. Court of Appeals for the Armed Forces, United States 
magistrates and Claims Court judges to conform with that of 
other federal and congressional employees.

                  Repeal of Postal Transition Payments

House bill

      The House bill contained a provision (Sec. 5005) to 
repeal the permanent authorization of transitional 
appropriations for the United States Postal Service. Under the 
provision, payments to individuals due compensation from the 
Federal Employees Compensation Fund would not diminish. The 
United States Postal Service would instead be required to 
assume payment without federal reimbursement.

Senate amendment

      No provision

Conference agreement

      The Conference Agreement adopts the House provision.

                Subtitle B--Patent and Trademark Office

                              Patent Fees

House bill

      On September 19, 1995, the House Judiciary Committee 
forwarded legislation that it had approved extending the patent 
fees surcharge through Fiscal Year 2002. This extension was 
contained in Title VII of the House bill.

Senate amendment

      On September 22, 1995, the Senate Judiciary Committee 
forwarded legislation that it had approved extending the patent 
fees surcharge. This extension, title IX of the Senate 
amendment, is the same provision.

Conference agreement

      No change to the Senate or House language was necessary 
because the two versions were identical.
      The action changes Section 10101 of the Omnibus Budget 
Reconciliation Act of 1990 (35 U.S.C. 41) extending the 
application of the surcharges on all fees authorized by Title 
35 of the U.S. Code for Fiscal Years 1999 through 2002. These 
fees will be credited to a separate account established in the 
Treasury for Patent and Trademark Office (PTO) activities and 
will be available to the PTO when appropriated.
      In extending the surcharge, the language specifies the 
maximum amount which the PTO can collect in patent surcharge 
fees for deposit into the Treasury. The limit is $119,000,000 
for each of the four Fiscal Years 1999 through 2002.

                     Subtitle C--GSA Property Sales

                        Sale of Governors Island

House bill

      Section 10402 of the House bill calls for the General 
Services Administration, notwithstanding any other provision of 
law, to sell, at fair market value, Governor's Island, New 
York. This property is currently being used as a Coast Guard 
facility. The sale of this 171 acre island, in the New York 
City harbor, is not subject to laws and regulations that 
normally apply to the disposal of real property by the Federal 
Government, including requirements of the National 
Environmental Policy Act, and the National Historic 
Preservation Act. It is recognized, however, that State and 
local environmental and historic preservation laws will protect 
the property upon sale and during any development of the 
property. The sale is intended for cash. The language provides 
for the State and City be given right of first refusal to 
purchase all or part of Governor's Island. Such right may be 
exercised either by the State, the city, or both acting 
jointly. Sale can proceed while environmental remediation is 
ongoing. If the State or city elects to purchase part of the 
property, GSA can sell the remainder of the property. GSA would 
be authorized to fund its cost of disposal of this property 
from proceeds of the sale. Net proceeds from the sale, 
estimated to generate approximately $500 million, would be 
deposited in the miscellaneous account of the Treasury.

Senate amendment

      There is no comparable provision in the Senate amendment.

Conference agreement

      The Senate recedes to the House.

                        Union Station Air Rights

House bill

      Section 10403 of the House bill directs the sale of air 
rights over the train tracks at Union Station, Washington D.C. 
These air rights cover approximately 16.5 acres and are bounded 
by Union Station on the south, 2nd Street NE on the east, K 
street NE on the north and 1st Street NE on the west. The 
provision would direct the General Services Administration, 
notwithstanding any other provision of law, to sell these air 
rights, at fair market value, in a manner to be determined, 
during FY 1996. The air rights are a combination of the 
Department of Transportation and AMTRAK air rights. The 
provision calls for the transfer of AMTRAK air rights to DOT 
without compensation to AMTRAK, then GSA would sell the air 
rights. It is estimated that the air rights would support the 
development of 2.8 million square feet of office space, plus 
parking for 1,500 cars.
      In 1992 the General Services Administration contracted 
for an appraisal of these air rights, and concluded that the 
value, net of the construction of any supporting structure over 
the train tracks, was $50 million. However, the Congressional 
Budget Office, in scoring the proposed sale, assigned a value 
of $40 million. Furthermore, CBO estimated that GSA would 
require about 18 months to effectively market and sell the air 
rights, which would include updating an appraisal, and any 
buyer would require some preliminary determination on zoning 
the property for future development. Proceeds from the sale 
would be deposited in the miscellaneous account of the 
Treasury.

Senate amendment

      There is no comparable provision in the Senate amendment.

Conference agreement

      The Senate recedes to the House.

        Availability of Surplus Property for Homeless Assistance

House bill

      The House bill contained a provision that would increase 
the flexibility of the General Services Administration in 
disposing of surplus federal land and buildings. The provision 
would repeal Title V of the Stewart B. McKinney Homeless 
Assistance Act, which gives homeless assistance groups a 
priority right to such surplus property. The provision would 
give the General Services Administration authority to donate, 
where warranted by the distinct facts and circumstances of each 
property disposition, surplus federal land and buildings to 
private-sector, non-profit groups which provide housing 
assistance for homeless and low-income individuals. The 
provision is intended to increase revenues from the sales of 
such properties while also allowing the GSA to aid local 
efforts to address the housing needs of homeless and low-income 
persons.

Senate amendment

      There is no comparable provision in the Senate bill.

Conference agreement

      The Senate recedes to the House language.

           TITLE VII--TRANSFORMATION OF THE MEDICAID PROGRAM

  (Sec. 16000-16002 of House bill; Sec. 7190-7199 of Senate Amendment)

                  Background and Need for Legislation

      Established by President Lyndon Johnson in 1965, Medicaid 
is a joint Federal-State matching open-ended entitlement 
program that pays for medically necessary health care services 
provided to eligible beneficiaries by qualified providers. 
There are Medicaid programs in all States except Arizona, which 
runs a similar medical assistance program under a Federal 
waiver. (Federal funds for the Arizona program come from the 
Medicaid budget.) In addition, the Medicaid program is operated 
in the District of Columbia and U.S. territories, such as 
Puerto Rico and Guam.
      According to the Congressional Budget Office (CBO), the 
Medicaid program will cost $156.5 billion in Fiscal Year 1995. 
Of this amount, the Federal government will be responsible for 
an estimated $89.2 billion. This expenditure represents a 
11,050 percent increase over the program's initial cost to the 
Federal government of $800 million in Fiscal Year 1966. Since 
1990, Medicaid has been the fastest-growing segment of the 
Federal government's budget, with costs soaring at annual rates 
as high as 31 percent. Placed in broader context, the Medicaid 
program's average annual rate of growth since 1990 has been 
four times that of private sector health care costs, which are 
rising at roughly 4-5 percent annually. Although CBO projects 
Medicaid spending will rise at a comparatively ``stable'' rate 
of 10 percent per year, at that rate total program costs will 
double by the year 2002 absent reform. As detailed in the 
section entitled ``Program Growth versus Program Cuts'' below, 
the MediGrant plan replaces the Medicaid program's 
unsustainable cost spiral with considerable and consistent 
funding to the States.
      Medicaid's extraordinary rate of growth has made it the 
single largest item in many State budgets. According to the 
testimony of Governors and Medicaid officials appearing before 
the Committees of Congress, States have been compelled by the 
program's cost to restrict investment in other critical human 
services, including child welfare, education, mental health, 
and public safety. As described in the ``Fiscal Impact of 
Medicaid Growth on the Federal and State Budgets'' section 
below, the program's cost has been frequently underestimated 
and continues to threaten the budgetary stability of virtually 
every State.
      Medicaid was also intended to operate as a joint Federal-
State matching entitlement program providing medical assistance 
for low-income persons who are aged, blind, disabled, members 
of families with dependent children, and certain other pregnant 
women and children. Accordingly, States were permitted to 
design and administer their own programs, subject to specified 
Federal guidelines. In reality, however, the current Medicaid 
program hardly resembles that which was originally intended. 
Instead of allowing State and local officials the flexibility 
to best administer Medicaid, the Federal government created an 
extensive ``one-size-fits-all'' maze of Federal mandates and 
administrative requirements. The nature of this centralized 
approach to program administration is described in the 
``Medicaid Micromanagement'' section below.
      Finally, the operational and administrative inflexibility 
of the current Medicaid program has prevented States from 
developing innovative and cost-efficient mechanisms designed to 
meet the health care needs of their residents. Instead, they 
have been forced to shoulder the uncontrollable costs of what 
has become a rigid and ineffective health care program. The 
program's centralized micromanagement, complex bureaucratic 
requirements, and outdated service delivery is often cited by 
the States as impeding their ability to provide the quality 
health coverage, patient responsiveness, and efficient 
administration common in the private sector. As a result, 
States have long sought enhanced operational flexibility so 
that they can better meet the health care needs of their low-
income residents. The current program's complex system of 
waivers and the anticipated impact of the MediGrant plan's 
flexibility is described below in the section entitled 
``Fostering Greater State Innovation.''

The fiscal impact of medicaid growth

      During the debate on the new MediGrant Program, the 
assertion has been repeatedly made that this legislation 
``cuts'' health care spending for low-income people. This 
assertion is categorically false. Over the seven year period 
ending in Fiscal Year 2002, the average growth rate in the 
program is a guaranteed 5.2 percent annual increase. Total 
Federal spending between Fiscal Years 1996-2002 will total 
$791.1 billion. Total Federal expenditures in fiscal year 2002 
will be $127.4 billion, a 43 percent cumulative increase over 
fiscal year 1995.
      Federal expenditures on the Medicaid program during the 
past seven years have contributed significantly to the Federal 
budget deficit. However, Federal costs--while great--are only 
half the story. The States have been faced with even more 
extraordinary fiscal pressures because Medicaid mandates have 
made health care the fastest growing area of State budgets. 
Since almost all States are Constitutionally required to 
annually balance their budgets, the Medicaid financial squeeze 
has had dramatic effects.
      The table below, prepared by the National Association of 
State Budget Officers (NASBO), documents the extraordinary 
growth of Medicaid expenditures as a percentage of State 
expenditures. In 1987, Medicaid represented approximately 10.2 
percent of all State expenditures. By 1991, Medicaid's State 
spending share had risen to 14.2 percent, and by 1994 it was a 
striking 19.4 percent of all State spending, nearly double the 
percentage just seven years earlier.

                            MEDICAID SPENDING AS A PERCENTAGE OF TOTAL STATE SPENDING                           
----------------------------------------------------------------------------------------------------------------
                                                   1987    1988    1989    1990    1991    1992    1993    1994 
----------------------------------------------------------------------------------------------------------------
Medicaid Spending...............................   10.20   10.80   11.30   12.50   14.20   17.50   18.40   19.40
Non-Medicaid Spending...........................   89.90   89.20   88.70   87.50   85.80   82.50   81.60  80.60 
----------------------------------------------------------------------------------------------------------------
Source: National Association of State Budget Officers, 1994 State Expenditure Report.                           

      As State Medicaid spending has experienced uncontrollable 
rates of growth, other critical State funding initiatives have 
suffered commensurately. The table below, also prepared by 
NASBO, documents the decline in State spending for elementary 
and secondary education, higher education, welfare, and 
transportation due to the growth in Medicaid. Based on NASBO 
data, State expenditures for elementary and secondary education 
declined 11 percent between 1987 and 1994; State higher 
education spending dropped 8 percent over the same time period; 
State welfare spending experienced a 13 percent decrease; and 
State investment in public transportation declined 16 percent. 
On the other hand, during the 1987-1994 time period, Medicaid 
spending increased by more than 90 percent!

                          SECTORAL PROGRAM SPENDING, PERCENTAGE OF TOTAL STATE SPENDING                         
----------------------------------------------------------------------------------------------------------------
                                            1987     1988     1989     1990     1991     1992     1993     1994 
----------------------------------------------------------------------------------------------------------------
Elementary/Secondary Ed.................    22.80    23.00    23.40    22.80    22.00    21.10    21.20    20.30
Higher Education........................    12.30    11.80    12.00    12.20    11.50    10.90    10.60    10.50
Welfare.................................     5.20     5.30     5.10     5.00     5.30     5.00     4.90     4.50
Medicaid................................    10.20    10.80    11.30    12.50    14.20    17.50    18.40    19.40
Transportation..........................    10.60    10.30    10.10     9.90     9.40     9.10     9.00    8.90 
----------------------------------------------------------------------------------------------------------------
Source: National Association of State Budget Officers, 1994 State Expenditure Report.                           

      This data clearly reveals why many States officials have 
described Medicaid mandates as the worst of all the Federal 
unfunded mandates placed on the States. As these mandates were 
enacted into law through budget reconciliation in the late 
1980s and early 1990s, they created havoc with State budgets 
and ultimately drained State funds away from education and 
welfare programs.

Federal and state budgetary havoc within budget reconciliation

      One of the most perplexing issues concerning the 
unconstrained fiscal growth of Medicaid is the manner in which 
it was achieved. Most of the Medicaid mandates were enacted 
through reconciliation bills which were supposed to be budget-
cutting vehicles.
      How was this accomplished? In the days of the Gramm-
Rudman-Hollings Budgetary Act, it was accomplished by 
``budgetary tricks.'' For example, in the Concurrent Resolution 
of the Budget for fiscal year 1990 (H. Con. Res. 106), $200 
million of new budget entitlement authority became available 
for fiscal year 1990 for Medicaid spending. With this $200 
million, the House Energy and Commerce Committee was able to 
report out five new mandated Medicaid expansions by slipping 
effective dates on some of the pending provisions so that only 
one calendar quarter's worth of spending would occur in fiscal 
year 1990. By this ``budgetary trick'', the Medicaid provisions 
technically met the budget target in the Budget Resolution. 
However, in the out-years, these five Medicaid provisions would 
cost additional billions of dollars. In 1989, the Office of 
Management and Budget (OMB) estimated that, taken together, 
these Medicaid provisions would increase Federal spending by 
approximately $8.6 billion over a five-year period.
      Another perplexing issue in the enactment of Medicaid 
mandates has been the inability of the Congressional Budget 
Office (CBO) to provide accurate estimates of the projected 
costs of these laws. The table below documents the astounding 
inaccuracies in the CBO analysis of a number of Medicaid 
mandates enacted into law in the Omnibus Reconciliation Act of 
1989 (OBRA 1989).

      CBO OBRA 1989 MEDICAID MANDATES--ESTIMATES VS. ACTUAL FLORIDA     
                           EXPENDITURES FY1991                          
                        [In millions of dollars]                        
------------------------------------------------------------------------
                                               CBO scoring     Florida  
                                                 for all       Federal  
                                                  states    expenditures
------------------------------------------------------------------------
Mandatory Coverage of Pregnant Women.........          270            31
ESPDT........................................           25            63
Payment for federally qualified health                                  
 centers.....................................           15             8
Payment for obstetrical and pediatric                                   
 services....................................           11             4
                                              --------------------------
      Total..................................          321           106
------------------------------------------------------------------------
Florida represents 3.8% of all Federal Medicaid Expenditures--but       
  accounted for 33% of Total Estimated Expenditures.                    

      This table lists four major Medicaid mandates enacted 
into law in 1989: mandatory coverage of pregnant women up to 
133 percent; mandatory coverage of early and periodic 
screening, diagnostic, and treatment services (EPSDT); enhanced 
payment for health care centers; and enhanced payments for 
obstetrical and pediatric services.1 The first column is 
the official CBO estimate for all Federal expenditures for 
these benefits in Fiscal Year 1991. The second column is the 
actual Florida Federal expenditures provided by the Florida 
Medicaid Director at that time.
    \1\ In a 1990 official policy document of the National Governors' 
Association (NGA) entitled ``Short-Term Medicaid Policy,'' the nation's 
Governors identified several of these mandates as particularly 
troublesome. In this NGA official document, they asked for relief from 
mandates in general and specified detailed changes to the EPSDT 
benefit. Governor Florio of New Jersey chaired the NGA Health Care Task 
Force which produced this policy, and then-Governor Bill Clinton was a 
member of the Task Force.
---------------------------------------------------------------------------
      First, compare the totals for Fiscal Year 1991. The CBO 
calculated that the total Federal expenditures for these four 
mandates would be $321 million in fiscal year 1991 for all 
States. However, Florida's actual total was a whopping $106 
million. Since Florida represents only 3.8 percent of all 
Federal Medicaid expenditures, the enormity of this error is 
obvious.
      With regard to the CBO cost estimate of the EPSDT 
benefit, the picture is even more disturbing. Incredibly, the 
CBO estimated that the total Federal expenditures for all 
States would be $25 million for fiscal year 1991. The State of 
Florida alone spent $63 million in fiscal year 1991 to comply 
with this mandate, or more than double the CBO official 
estimate! 2
    \2\ In 1990, the American Public Welfare Association (APWA), 
conducted a study of the effect of the EPSDT expansions of OBRA 1989. 
Preliminary results from just 13 states showed an increase of $468 
million in State and Federal spending in fiscal year 1991. The States 
responding were: Alabama, Alaska, Arizona, Florida, Idaho, Maryland, 
Missouri, North Dakota, Oregon, South Dakota, Texas, Utah, and 
Wisconsin. The APWA study advises the reader to ``be advised that this 
total figure is likely to increase as more states complete a budget 
analysis.'' Note that the two largest Medicaid programs--California and 
New York--were not included in this study.
---------------------------------------------------------------------------
      If one projects the Florida cost experience for these 
OBRA 1989 mandates to the entire nation, the analysis leads to 
a disturbing conclusion. While CBO projected expenditures of 
$323 million in fiscal year 1991, estimated Federal 
expenditures were closer to $2.8 billion. Though forecasting is 
not an exact science, an error in the range of nearly 900 
percent is truly indefensible. This staggering forecasting 
error not only contributed to the growth of the Federal budget 
deficit but was a devastating fiscal blow to the States.

Medicaid Micromanagement

      According to many State officials, the explosion of 
Medicaid spending is due in large part to Congressional and 
Executive directives. As noted above, Federally mandated 
eligibility changes over the last decade fueled the expansion 
of the Medicaid-eligible population and the cost of the 
program. Although States have the discretion of supplementing 
Medicaid's mandated coverage standards, the Federal government 
frequently expanded the scope of these standards. As a result, 
States have been compelled to increase their spending levels in 
order to receive their share of Federally-matched Medicaid 
spending.
      One of the most frequently heard State complaints 
regarding the Medicaid program concerns micromanagement by the 
Health Care Financing Administration (HCFA). At the Federal 
level, Medicaid is administered by HCFA which, through a 
network of regional offices, is supposed to work with State 
Medicaid departments to ensure appropriate management of the 
Medicaid program. However, the reality of HCFA-State relations 
has been described by many State officials as less a matter of 
coordinated cooperation than as an example of Federal 
micromanagement in State affairs.
      When questioned during the hearings on the Medicaid 
program, State Governors and Medicaid directors pointed to 
program mandates as evidence of excessive Federal interference. 
In the House Commerce Committee's June 8, 1995 hearing, the 
Subcommittee on Health and Environment heard from Florida 
Governor Lawton Chiles, Illinois Governor Jim Edgar, Michigan 
Governor John Engler, Tennessee Governor Don Sundquist, and 
Utah Governor Mike Leavitt. Speaking for many of his 
colleagues, Governor Edgar expressed grave concern over the 
impact on other critical human service priorities of spiraling 
Medicaid spending resulting from Federal Medicaid 
micromanagement.
      ``The Federal government has micromanaged the program by 
heaping mandate after mandate upon the States. It has told us 
whom we must serve and dictated how we must provide the service 
without regard to cost. In 1966, the first year of Medicaid, 
Illinois spent $87 million on the program. This year, we will 
spend 64 times that much, or nearly $6 billion. In Illinois, 
the tab for recent Federal mandates alone tops $480 million 
this year.''
      Governor Engler cited the Boren Amendment, which requires 
States to pay ``reasonable rates'' for nursing and hospital 
care, as one of many Federal directives that have served to 
impose substantial burdens on State Medicaid programs. Intended 
to aid States in their efforts to contain program costs, the 
Boren Amendment's vague payment standard resulted in numerous 
lawsuits and the imposition of arbitrarily higher reimbursement 
levels.
      ``Creeping micromanagement has entangled us in a briar 
patch of perverse incentives that are costing taxpayers dearly. 
One example . . . is a direct result of the Boren Amendment: in 
1989, Michigan Medicaid costs in a nursing facility were $35 a 
day. In 1994, they were up to $57 a day. We are paying a lot 
more money, but our patients are not getting a lot more care.''
      Governors Edgar and Engler are neither the first nor the 
only State Executives to describe to Congress the burdens of 
HCFA and the Medicaid program it administers. On December 8, 
1990, then-Governor Bill Clinton told the House Government 
Operations Committee that 'Medicaid used to be a program with a 
lot of options and few mandates--now, it's just the opposite.'
      Not surprisingly, many States have sought to take 
advantage of one of the only forms of relief available to them: 
waivers granted by the Federal government. Faced with the 
bureaucratic complexity and escalating costs of the Medicaid 
program, States have sought to make more efficient use of 
Medicaid dollars by such means as managed care. In many 
instances, the savings realized from these measures have been 
used to help fund program expansions as part of State 
initiatives to extend coverage to uninsured individuals. Since 
significant use of managed care in Medicaid is not permitted 
under current Medicaid rules, States have sought waivers of 
statutory and regulatory requirements from the Secretary of 
Health and Human Services.
      Currently, Federal Medicaid law makes two basic types of 
waivers available to the States. Section 1915 of the Social 
Security Act provides for ``program waivers,'' which allow 
States meeting specified conditions to operate certain types of 
special programs that are listed in the statute. Section 
1115(a) provides much broader authority to grant 
``demonstration waivers,'' under which nearly any provision of 
Medicaid law may be waived to allow States to experiment with 
program improvements.
      The experience of those States with waivers permitted 
under Sections 1915 and 1115(a) has been mixed. While any 
relief from the Medicaid program's many restrictions is 
certainly appreciated by the States, the waiver process itself 
is a source of great dissatisfaction. The process by which 
States seek Section 1115 waivers is particularly complex and 
costly. In order to comply with HCFA's numerous application 
requirements, States must devote staff time and money to the 
process--resources that could be used to provide health care 
services to low-income State residents. When the application is 
complete, it typically contains enough paper to measure almost 
three feet in height.
      Unfortunately, States still face often insurmountable 
obstacles to flexibility even after completing their waiver 
applications. To date, only ten of an estimated twenty-three 
Section 1115 waiver applications have been approved by HCFA. In 
addition, the length of Federal waiver application review 
averages an estimated twelve months.
      According to Ohio's Medicaid Director, Arnold Tompkins, 
who appeared before the Health Subcommittee of the House 
Commerce Committee on June 22, 1995, HCFA's slow process for 
reviewing State waiver applications is largely due to the 
substantial flaws of the waiver process itself:
      ``Five months into the [waiver] process we learned that 
our approach to budget neutrality . . . was considered off-base 
by HCFA. We spent the summer redesigning the budget to meet 
HCFA's concerns. But this redesign was still not enough. In the 
ninth month we were told that the redrawn budget had to be 
redrawn again because Federal thinking had changed about how 
budget neutrality should be demonstrated.''

Fostering Greater State Innovation

      All across the nation, States are working to improve the 
quality, effectiveness, and efficiency of the health care 
assistance they provide to their low-income residents. However, 
they have little of the operational or administrative 
flexibility they need to make their medical assistance programs 
more responsive and efficient. As a result, Governors and other 
State officials have long complained that Medicaid has served 
as an obstacle, rather than as an opportunity, to developing 
innovative health care delivery strategies.
      This is particularly difficult for many States to 
understand, given the success achieved by the relatively few 
States that have received waivers. For example, HCFA data 
reveals that States have achieved significant program 
efficiencies by means of waiver-facilitated managed care 
initiatives. In particular, Section 1915(b) waivers have 
enabled some States to establish limited managed care programs. 
Based on State reports to HCFA, the General Accounting Office 
has calculated that the national weighted average of the 
savings realized from such Medicaid managed care initiatives is 
an estimated 9.4 percent. In other words, States were able to 
serve the populations enrolled in these programs using almost 
10 percent fewer dollars than required by the traditional 
Medicaid program.
      According to State officials, the lesson to be drawn from 
such experiences is clear: if Medicaid is to be substantially 
improved and the growth rate of its costs brought under 
control, States must be empowered to restructure their Medicaid 
programs. They argue that the millions of low-income Americans 
who need health care assistance will be more effectively and 
efficiently served only when Governors and State Legislators 
are given the flexibility to tailor Medicaid to meet the unique 
conditions in their States.
      In light of the inflexibility of the current Medicaid 
program and the ineffectiveness of its waiver process, many 
States have petitioned Congress for significant Medicaid 
reform. In fact, State Governors have forged a close working 
relationship with the 104th Congress in an effort to develop 
the MediGrant block grant reform initiative. Indeed, the 
Congress was advised by State Governors, Medicaid Directors, 
and other program experts to replace the current Medicaid 
program and its lengthy waiver process with a block grant 
reform initiative.
      Described as the most effective means for transforming 
Medicaid into a truly State-driven program, block grants would 
give States unprecedented operational and administrative 
flexibility. According to State officials, a block grant 
program would enable States to develop innovative service 
delivery strategies to meet the health care needs of their low-
income residents. In other words, Medicaid block grants would 
free States in a manner far surpassing any flexibility they may 
enjoy under a waiver. In fact, under the proposed block grant 
reform initiative, Medicaid would become the State-run program 
it was initially intended to be. In place of the current rigid, 
bureaucratic, and often inadequate service delivery system, 
States would be able to develop health service strategies 
tailored to match the differing characteristics of their 
communities. These can include capitation and managed care, 
enhanced maternal, child, and mental health care initiatives, 
and insurance premium subsidy programs.
      Medicaid block grants would also create compelling 
incentives for States to achieve unprecedented program 
efficiency. Currently, the Medicaid program effectively 
penalizes States which save Medicaid resources. On average, 57 
percent of all State savings revert to the Federal government, 
not the States that made the savings possible. Under a block 
grant approach, States would be able to utilize the full value 
of any savings they achieve because they would be free to 
reinvest those resources into better service delivery, expanded 
benefits, and new program innovations.
      The contribution that the flexibility of block grants can 
make to State medical assistance programs may be ascertained by 
examining current State initiatives. While ongoing State 
innovations have been severely restricted by the current 
Medicaid system, they are indicative of how States would 
respond to the flexibility of a Medicaid block grant. As has 
been proven by initiatives that have been undertaken 
nationwide, State and managed care provider innovations appear 
capable of substantially improving Medicaid service delivery 
and administration while finally bringing an end to the 
program's explosive rate of growth.

  Purpose; State Plans (Sec. 2100 of MediGrant; Sec. 2100 of Medicaid)

House bill

      The bill would create an entitlement to States, called 
MediGrant, under Title XXI of the Social Security Act for block 
grants to enable States to provide medical assistance to low-
income individuals and families. A State would be required to 
provide the Secretary with a plan that sets forth how the State 
intends to use the funds provided to provide medical 
assistance. An approved plan would continue in effect unless 
and until (1) the State amends the plan, (2) the State 
terminates participation in the program, or (3) the Secretary 
finds substantial noncompliance of the plan with the program's 
requirements.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

      Part A--Objectives, Goals, and Performance Under State Plans

Description of Strategic Objectives and Performance Goals (Sec. 2101 of 
                   MediGrant; Sec. 2101 of Medicaid)

House bill

      A State would be required to include in its MediGrant 
plan a description of its strategic objectives and performance 
goals for providing health care services, and the manner in 
which the plan is designed to meet the objectives and goals. 
Goals and objectives related to rates of childhood 
immunizations and reductions in infant mortality and morbidity 
would be required. With regard to other objectives and goals, 
the State could consider factors such as priorities for 
providing assistance to low-income populations, priorities for 
general public health and health status for low-income 
populations, the State's financial resources and economic 
conditions, and the adequacy of the State's health care 
infrastructure. To the extent practicable, a State would be 
required to establish one or more performance goals for each 
strategic objective and describe how performance would be 
measured and compared against goals. Strategic objectives would 
be required to cover a period of at least 5 years and would 
have to be updated and revised at least every 3 years. 
Performance goals would have to be established for dates not 
more than 3 years apart.

Senate amendment

      Similar provision.

Conference agreement

      The conference agreement follows the House provision.

     Annual Reports (Sec. 2102 of MediGrant; Sec. 2102 of Medicaid)

House bill

      By March 31 (beginning in 1998), each State with a 
MediGrant plan in effect for the preceding fiscal year would be 
required to submit a report to the Secretary and the Congress 
on program activities and performance for that Federal fiscal 
year. Each report would be required to include data on the 
following: (1) aggregate expenditures for each category of 
eligible individuals, expenditures by each category of 
eligibles for covered services provided on a fee-for-service 
basis, expenditures for payments to capitated organizations by 
each category of eligibles, and administrative expenditures; 
(2) utilization of services, including summary statistics, for 
each category of eligible individuals, of items and services 
provided on a fee-for-service basis and a summary of data 
reported by capitated health care organizations; (3) 
achievement of performance goals including actions to be taken 
in case a goal was not met; (4) program evaluations; (5) fraud 
and abuse and quality control activities; and (6) plan 
administration, including a description of the roles and 
responsibilities of State entities responsible for 
administering the program and organization charts for each, a 
description of any interstate compact entered into, and 
citations to State law and rules governing the State's 
activities under the program.
      With respect to inpatient hospital services provided on a 
fee-for-service basis, the plan must include a description of 
the average amount paid per discharge compared to either the 
average charge, or to the State's estimate of the average 
amount paid by commercial insurers. For subsequent fiscal 
years, expenditures and utilization reports would be required 
to fit the reporting format specified by the MediGrant Task 
Force established under Title XXI. Categories of eligible 
individuals would be children, blind or disabled adults under 
age 65, persons 65 or older, and other adults.

Senate amendment

      Similar provision.

Conference agreement

      The conference agreement follows the Senate amendment 
with modifications.

Periodic, Independent Evaluations (Sec. 2103 of MediGrant; Sec. 2103 of 
                               Medicaid)

House bill

      Beginning in fiscal year 1998 and at least every third 
year thereafter, each State would be required to provide for 
evaluation of the operation of its MediGrant plan, conducted by 
an entity that is responsible neither for submission of the 
State plan nor for administering any activity under the plan.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

    Description of Process for State Plan Development (Sec. 2104 of 
                   MediGrant; Sec. 2104 of Medicaid)

House bill

      State plans would be required to include a description of 
the process for development and implementation of the plan.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

 Consultation in State Plan Development (Sec. 2105 of MediGrant; Sec. 
                           2105 of Medicaid)

House bill

      Before submitting a plan or amendment to the Secretary, 
each State would be required to provide a public notice with a 
description of the plan or amendment, a means for the public to 
inspect or obtain a copy of the plan or amendment, and an 
opportunity for submittal and consideration of public comments. 
This provision would apply except when the State submitted a 
revision of a plan or amendment in response to a determination 
of disapproval by HHS.
      Each State would be required to establish and maintain an 
advisory committee for consultation in the development, 
revision, and monitoring the performance of the plan. Such 
consultation would include the development of strategic 
objectives and performance goals, the annual report, and the 
research design for evaluating the State's plan operations. 
Members of the advisory committee should represent different 
geographic regions of the State although proportional 
representation would not be required. A State would be 
permitted to establish more than one advisory committee, 
including committees that represent the interests of specific 
population groups, provider groups, or geographic areas.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision. It 
is the intent of the Conferees that the composition of the 
advisory committees be chosen in a manner that assures 
geographical diversity.

                  Task Force (Sec. 2106 of MediGrant)

House bill

      The Secretary of HHS would be required to establish a 
MediGrant Task Force consisting of 6 members appointed by the 
chair of the National Governors Association (NGA) and 6 
appointed by the vice chair of the NGA. The Task Force would be 
assisted by an advisory group composed of one representative 
from each of the following associations: National Committee for 
Quality Assurance; Joint Commission for the Accreditation of 
Healthcare Organizations; Group Health Association of America; 
American Managed Care and Review Association; Association of 
State and Territorial Health Officers; American Medical 
Association; American Hospital Association; American Dental 
Association; American College of Gerontology; American Health 
Care Association; and associations identified by the Secretary 
as representing the interests of disabled individuals, 
children, the elderly, and mentally ill individuals. The Task 
Force would be required to: (1) specify the format of 
expenditure and utilization summaries by December 31, 1996; (2) 
study and report to Congress and the States by April 1, 1997, 
with recommendations on models for strategic objectives and 
performance goals; methodologies for measuring and verifying 
each objective or goal recommended; an assessment of the 
usefulness to States of quality assurance safeguards, 
utilization data sets, and accreditation programs used in the 
private sector; and designs and methodologies for providing for 
independent evaluations. States would not be required to adopt 
any of the objectives or goals suggested by the Task Force. The 
Agency for Health Care Policy and Research, or the Secretary, 
would be required to provide administrative support for the 
Task Force.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision. However, it is the intent of the Conferees that the 
Secretary of HHS establish a MediGrant Task Force. It is the 
intent of the Conferees that the MediGrant Task Force consist 
of 6 members appointed by the chair of the National Governors 
Association (NGA) and 6 appointed by the vice chair of the NGA. 
The Task Force would be assisted by an advisory group composed 
of one representative from each of the following associations: 
National Committee for Quality Assurance; Joint Commission for 
the Accreditation of Healthcare Organizations; Group Health 
Association of America; American Managed Care and Review 
Association; Association of State and Territorial Health 
Officers; American Medical Association; American Osteopathic 
Association; American Hospital Association; Association of 
American Medical Colleges; American Dental Association; 
American College of Gerontology; American Health Care 
Association; National Healthcare Anti-Fraud Association; 
National Association of Health Data Organizations; American 
Academy of Actuaries; National Association of State Medicaid 
Directors; and associations identified by the Secretary as 
representing the interests of disabled individuals, children, 
the elderly, and mentally ill individuals.
      It is the intent of the Conferees that the Secretary, 
through the work of the Task Force: (1) specify the format of 
expenditure and utilization summaries by December 31, 1996; (2) 
study and report to Congress and the States by April 1, 1997, 
with recommendations on models for strategic objectives and 
performance goals; methodologies for measuring and verifying 
each objective or goal recommended; an assessment of the 
usefulness to States of quality assurance safeguards, 
utilization data sets, and accreditation programs used in the 
private sector; and designs and methodologies for providing for 
independent evaluations. It is the expectation of the conferees 
that the Task Force will develop recommendations by which 
States may respond to needs of the chronically mentally ill, 
particularly those individuals with psychotic symptoms, such as 
schizophrenia, schizoaffective disorder, manic depression 
disorder, and autism, as well as severe forms of other mental 
disorders, such as major depression, panic disorder, and 
obsessive compulsive disorder. It is the intent of the 
Conferees that States may, but should not be required to, adopt 
any of the specific objectives or goals suggested by the Task 
Force.

             Part B--Eligibility, Benefits, and Set-Asides

     General Description of Eligibility and Benefits (Sec. 2111 of 
                   MediGrant; Sec. 2111 of Medicaid)

House bill

      The State plan would be required to include a description 
of (a) the eligible population, including categories, duration 
of eligibility, financial standards and methodologies, and 
standards for the protection of income and resources of the 
community spouses of institutionalized beneficiaries; (b) 
duration and scope of covered services, including variations by 
population group; (c) the delivery method, such as use of 
vouchers, fee-for-service, or managed care arrangements; (d) 
required beneficiary cost-sharing, including any responsibility 
of parents and the spouses of recipients; (e) any incentives or 
requirements to encourage appropriate utilization; and (f) any 
payment provisions for community health centers, public 
hospitals, and certain hospitals serving a high share of low-
income patients, along with a description of where and how 
enrollees previously using these facilities under Medicaid 
would obtain services (if these facilities were no longer 
available to them). A State using a fee-for-service system 
would also have to describe how it determines provider 
qualifications and sets reimbursement rates. The MediGrant plan 
would have to include coverage of immunizations for eligible 
children, in accordance with a schedule developed by the State 
health department in consultation with those responsible for 
administering the MediGrant plan. Payment rates for rural 
providers would have to equal those for comparable non-rural 
providers, except that States could offer incentives for 
providers in underserved areas. No MediGrant plan could deny or 
exclude services on the basis of a preexisting condition. If a 
State contracted with a capitated organization or other entity 
and allowed the organization to impose preexisting condition 
exclusions, the State would have to provide alternate coverage 
for any covered services denied as a result. MediGrant plans 
would be prohibited from requiring an adult child of moderate 
means to contribute to the cost of nursing facility and other 
long-term care services for the child's parent.

Senate amendment

      Each Medicaid plan would have to meet the following 
requirements: (1) be designed to serve all political 
subdivisions in the State; (2) provide for making medical 
assistance available to any pregnant woman or child under age 
13 whose family income is not over 100% of poverty; (3) provide 
for making medical assistance available to any disabled 
individual receiving cash SSI benefits, or receiving Medicaid 
under the State's options for SSI beneficiaries; and (4) 
describe how the State will provide medical assistance to any 
other population group. The State plan would be required to 
include a description of (a) the eligible population, including 
categories, duration of eligibility, financial standards and 
methodologies, and standards for the protection of income and 
resources of the community spouses of institutionalized 
beneficiaries; (b) duration and scope of covered services, 
including variations by population group; (c) the delivery 
method, such as use of vouchers, fee-for-service, or managed 
care arrangements; (d) required beneficiary cost-sharing, 
including any responsibility of parents of recipients under age 
19 and the spouses of recipients; (e) any incentives or 
requirements to encourage appropriate utilization; and (f) any 
payment provisions for short-term acute general care hospitals 
or children's hospitals with a specified low-income utilization 
rate. A State using a fee-for-service system would also have to 
describe how it determines provider qualifications and sets 
reimbursement rates. The Medicaid plan would have to include 
coverage of immunizations for eligible children, in accordance 
with a schedule developed by the State health department in 
consultation with those responsible for administering the 
Medicaid plan. No Medicaid plan could deny or exclude services 
on the basis of a preexisting condition. If a State contracted 
with a capitated organization or other entity and allowed the 
organization to impose preexisting condition exclusions, the 
State would have to provide alternate coverage for any covered 
services denied as a result. The bill requires that States 
provide prepregnancy family planning services and supplies and 
prohibits the imposition of any treatment limits or financial 
requirements on mental illness services that are not imposed on 
services for other illnesses. Each State plan would have to 
provide that any State law solvency requirements that apply to 
private sector health plans and providers would apply to 
Medicaid plans and providers.

Conference agreement

      The conference agreement follows the Senate provision 
with modifications. The agreement would require States to 
provide medical assistance, subject to State flexibility of 
benefits under Section 2116 of the bill, to the ``disabled'' as 
defined by the State (and subject to Section 2111(a)). The 
agreement follows the Senate provision regarding treatment of 
children's hospitals and certain disproportionate share 
hospitals. The agreement follows the House provision regarding 
the prohibition on requiring an adult child to contribute to 
the cost of long-term services for the child's parent. This 
``family responsibility'' provision is not intended to affect 
estate recoveries. The agreement also establishes requirements 
relating to solvency standards for MediGrant capitated health 
care organizations.

Set-Asides of Funds for Population Groups (Sec. 2112 of MediGrant; Sec. 
                           2112 of Medicaid)

House bill

      States would be required to devote specified minimum 
percentages of total program spending to services for each of 
three groups: low-income families, low-income elderly, and low-
income blind and disabled. (Funds set aside for low-income 
families would have to be spent on families below 185 percent 
of poverty that included a pregnant woman or child.) For each 
group, the minimum percentage to be spent would be set equal to 
85 percent of the average percentage of the State's Medicaid 
spending during fiscal year 1992 through fiscal year 1994 
devoted to mandatory services for members of that group who 
were required to be covered under Federal Medicaid law. (The 
percentage would be set at 75 percent in the case of a State 
that covered only mandatory services during the base period.)
       For the elderly, there would be an additional set-aside 
for Medicare premium assistance, again based on the percentage 
of the State's spending that went for such assistance to 
mandatory individuals in the base period. For purposes of 
computing the base period expenditures for the low-income 
elderly, all elderly persons who were in nursing homes would be 
treated as persons whose coverage was required. Thus, the 
computation of the base for elderly includes all current long-
term spending for elderly who qualify under options that States 
may use for covering persons with higher income levels.
       One of these options is the medically needy option. 
Medically needy persons have incomes too high to qualify for 
cash welfare, but incur medical expenses that deplete their 
assets and incomes to levels that make them needy according to 
State-determined standards. The base also includes State 
spending under a special income rule referred to as the ``300% 
rule'', for extending eligibility to persons needing nursing 
home care. Under this rule, States were allowed to cover 
persons needing nursing home care so long as their income did 
not exceed 300% of the basic Supplemental Security Income (SSI) 
cash welfare payment. Nursing home payments for these two 
groups of non-poor accounted for 61% of total program payments 
for all elderly beneficiaries and approximately 90% of all 
spending on nursing home services. 3
    \3\ These calculations are based on a Congressional Research 
Service memo to the Commerce Committee entitled ``Medicaid Nursing Home 
Expenditures for the Elderly'' dated October 6, 1995.
---------------------------------------------------------------------------
      In computing the base period spending percentages, 
payments to disproportionate share hospitals (DSH) would not be 
treated as payments for mandatory services.
       The MediGrant plan prohibits any State from utilizing 
MediGrant funds for any purpose other than medical assistance 
for low-income residents and support functions essential to the 
provision of that assistance.
       A State could establish a set-aside percentage for a 
population group below the specified minimum percentages if it 
determined and certified to the Secretary that the health care 
needs of that group (and any related performance goals in the 
MediGrant plan) could be met with a lower level of expenditure. 
Such exceptions could not apply before fiscal year 1998, and 
determinations would have to be renewed at intervals of no more 
than three years.
       A State that spent less on any group than the required 
set-aside amount would not be found in substantial violation of 
the requirements if its spending for each of the three 
population groups was at least 95 percent of the required 
amounts and an independent actuary certified that the MediGrant 
plan was reasonably designed to result in expenditures of the 
required amounts.
       Funds not required to be spent under the set-asides 
could be spent for additional medical assistance, program 
administration, or medically-related services, defined as 
services not included in the definition of medical assistance 
but related to or supporting the attainment of the strategic 
objectives and performance goals established under the State's 
MediGrant plan.

 Senate amendment

       Similar provision, except the Senate set-asides would be 
calculated based on expenditures rather than percentages.

Conference agreement

      The conference agreement follows the House bill with an 
amendment establishing a funding set-aside for Federally-
qualified health centers and rural health clinics.
      It is the Conferees' expectation that actual State 
MediGrant spending on the recipient populations designated by 
the set-asides will be significantly higher than is mandated by 
the set-asides. It is also the Conferees' intention that the 
set-aside calculations on dollar expenditures serve as a floor 
for providing health assistance for the elderly, disabled, 
pregnant women, and children. The set-aside floor serve as a 
federal guarantee that MediGrant expenditures will be fairly 
and equitably distributed to different types of beneficiaries.
      In providing eligibility for the disabled under the 
MediGrant program set-aside, the Conferees urge States to 
consider the special circumstances of women and children with 
disabilities. An expedited eligibility determination process is 
especially important for people who have disabilities that are 
life-threatening and are at risk of dying before such a 
determination may be made. The Conferees also urge States to 
provide services to meet the preventive and primary care needs 
of people with disabilities, including such measures as the 
prevention of illness through prophylactic and early 
intervention drugs and the prevention of transmission of 
illness through measures such as the administration of 
antiviral drugs to HIV-positive women during pregnancy. Such 
measures may prevent needless disability and unnecessary 
medical costs.

    Premiums and Cost-Sharing (Sec. 2113 of MediGrant; Sec. 2113 of 
                               Medicaid)

 House bill

       States would be permitted to impose premiums, 
copayments, coinsurance, or deductibles pursuant to a public 
schedule. Cost-sharing could be designed to encourage primary 
and preventive care and discourage unnecessary or less 
economical care and inappropriate use of emergency services. 
Amounts could be scaled to reflect economic factors, employment 
status, family size, availability of other health insurance, or 
participation in employment training, drug abuse or alcohol 
treatment, counseling, or other programs promoting personal 
responsibility. For a family below 100 percent of poverty and 
including a pregnant woman or child, no premium could be 
imposed and cost-sharing amounts would have to be nominal 
(except for cost-sharing designed to deter inappropriate 
emergency services).

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement follows the House provision.

 Description of Process for Developing Capitation Payment Rates (Sec. 
               2114 of MediGrant; Sec. 2114 of Medicaid)

 House bill

       If a State contracted with HMOs or similar entities on a 
risk basis for a package of services including at least 
inpatient hospital and physician care, the MediGrant plan would 
have to describe: (1) the use of actuarial science in 
projecting expenditures and utilization for enrollees and 
setting capitation payment rates; (2) required qualifications 
for participating organizations; and (3) a process for 
dissemination to contractors of information on capitation rates 
and historical fee-for-service cost and utilization data. The 
State would also have to provide for public notice and an 
opportunity to comment on this information before each contract 
year; the notice would have to include the amounts of 
capitation payments made under the MediGrant plan in the 
preceding year and expected to be made in the coming year 
(unless exempt from disclosure under State law).

 Senate amendment

       Similar provision.

Conference agreement

      The conference agreement follows the House provision.

Preventing Spousal Impoverishment (Sec. 2115 of MediGrant; Sec. 2116 of 
                               Medicaid)

House bill

       The income eligibility rules would not permit income of 
community spouses to be used in determining the nursing home 
spouse's eligibility unless the income were actually made 
available to the institutionalized spouse. As in current law, 
after eligibility has been determined, States would be required 
to set a minimum monthly maintenance needs allowance for living 
expenses of the community spouse according to statutory limits. 
(Currently, this minimum is $1,254 per month and the maximum is 
$1,871 per month. These amounts may be increased depending on 
the amount of the community spouse's actual shelter costs and 
other factors.)
       From a couple's combined resources, an amount would be 
protected for the community spouse. This amount would be the 
greater of one-half of the couple's resources at the time the 
institutionalized spouse entered the nursing home, up to a 
maximum, or a standard established by the State. (Currently, 
the State resource standard may be no lower than $14,964 and no 
greater than $74,820.)

Senate amendment

       Similar provision.

Conference agreement

      The conference agreement follows the House provision with 
a Senate amendment to exclude from determinations of income 
reparations payments from the Federal Republic of Germany.

      Construction (Sec. 2116 of MediGrant; Sec. 2115 of Medicaid)

 House bill

       The bill specifies that no provision shall be construed 
as creating an individual or group entitlement to medical 
assistance under Federal law. In addition, the bill grants 
states flexibility in determining: (a) coverage of any 
particular service or type of provider or any level of payment; 
(b) geographical coverage areas; and (c) selection of 
providers. The MediGrant plan also removes existing limitations 
on States' ability to contract with managed care plans or 
individual providers on a capitated or other basis, to contract 
for case management or coordination services, or to set 
capitation rates on the basis of competition or negotiation.

 Senate amendment

       Except for provisions related to immunizations for 
children and pre-pregnancy family planning services, no 
provision of this title would be construed as requiring a State 
to (a) cover any particular items or services; (b) provide for 
any particular type of provider or any level of payment; (c) 
provide for the same medical assistance in all geographical 
areas or political subdivisions of the State; (d) provide for 
comparability of services to eligible individuals; or (e) 
provide for freedom of choice of providers; or as limiting the 
State's ability to contract with managed care plans or 
individual providers on a capitated or other basis, to contract 
for case management or coordination services, or to set 
capitation rates on the basis of competition or negotiation.

Conference agreement

       The conference agreement follows the House provision 
with an amendment. The amendment moves to Section 7002 the 
construction that no federal entitlement under federal law has 
been created in any individual, including any provider.

        Limitations on Causes of Action (Sec. 2117 of MediGrant)

 House bill

       The bill would remove the existing right for an 
applicant, beneficiary, provider or health plan to sue a State 
official under 42 U.S.C. Sec. 1983 to require prospective 
enforcement of the Medicaid statute. However, the plan would 
have no effect on any action brought under State law.

 Senate amendment

       No provision.

Conference agreement

       The conference agreement follows the House provision 
with an amendment. The amendment moves to Section 2154 the 
limitation on causes of action under federal law.

                       Part C--Payments to States

 Allotment of Funds Among States (Sec. 2121 of MediGrant; Sec. 2121 of 
                               Medicaid)

House Bill

       Beginning with fiscal year 1996, the bill would limit 
Federal obligations and outlays for each State to fixed 
allotments. (Obligations are binding agreements to make Federal 
payments, immediately or in the future. Outlays are actual 
payments to liquidate obligations.) The obligation allotments 
would include adjustments to reflect obligations incurred in 
one year that did not result in outlays until the following 
year.
       For fiscal year 1996, the MediGrant outlay allotment for 
each State and the District of Columbia would be based on 
Federal Medicaid payments to the State in fiscal year 1994, 
increased by the ratio of $95,529,490,500 (the total available 
for outlay allotments to States and the District for fiscal 
year 1996) to $83,213,431,458 (the total of fiscal year 1994 
Federal payments to the States and the District). For fiscal 
year 1997 and later years, the outlay allotment would be based 
on a formula allocation from a fixed pool of total MediGrant 
funds. A State could carry over any unused obligation allotment 
amount to a subsequent year.
       The pool for fiscal year 1996 would be $95.663 billion 
(this represents outlay allotments to the States and the 
District plus allotments to Commonwealths and territories). The 
pool would be $102.748 billion for fiscal year 1997, $107.268 
billion for fiscal year 1998, $111.827 billion for fiscal year 
1999, $116.473 billion for fiscal year 2000, $121.311 billion 
for fiscal year 2001, and $126.351 billion for fiscal year 
2002. For later years, the pool amount would be the previous 
year's amount increased by the lesser of 4.1546 percent or the 
growth in the consumer price index for all urban consumers 
(CPI-U) for the 12-month period ending in June before the start 
of the year in question. The increase in the pool amount over 
that for the preceding year would be designated the ``national 
MediGrant growth percentage'' (NMGP).
       For fiscal year 1997 and later years, each State's 
outlay allotment from the pool would equal a needs-based amount 
times a scalar factor, subject to certain floors and ceilings. 
The needs-based amount for a State would be the product of its 
aggregate need and its old Federal medical assistance 
percentage for the previous year (FMAP; see below). The scalar 
factor would be a constant multiplier for all States used to 
ensure that floor and ceiling provisions, along with the 
allotments for Commonwealths and territories, do not cause 
total allotments to exceed the pool amount.
       The State's aggregate need would be the product of four 
factors: residents in poverty, a case mix index, an input cost 
index, and national average spending per resident in poverty. 
Residents in poverty would be the average number of individuals 
in the State below the Federal poverty threshold in the most 
recent period of 3 calendar years for which data were 
available. The case mix index would equal the 3-year average 
ratio between the State's expected per recipient spending and 
national average per recipient spending, given the State's 
relative proportions of aged, disabled, and other recipients 
and assuming that the State's per recipient spending for each 
group was equal to the national average for that group. The 
case mix index could not be less than 0.9 or more than 1.15. 
The input cost index would be the sum of 0.15 and the product 
of 0.85 and a hospital wage index. This wage index would equal 
the ratio between annual average wages for hospital employees 
in the State and the national average; it would be based on the 
area wage indices computed under Medicare's prospective payment 
system for inpatient hospital services (or a comparable index 
if the Medicare index should no longer be available). National 
average spending per resident in poverty would be computed for 
fiscal year 1997 using fiscal year 1994 data; for fiscal year 
1998 and later years, the figure would be increased by the 
NMGP.
       State outlay allotments could not exceed certain floors 
and ceilings based on the State's prior allotment. In fiscal 
year 1997, a State would receive at least 103.5 percent of the 
fiscal year 1996 outlay allotment. In fiscal year 1998, the 
State minimum allotment (or floor) would equal 103 percent. In 
fiscal year 1999, the State floor would equal 102.5 percent. 
For all fiscal years after 1999, State outlay allotments would 
not be less than 102 percent. Beginning in fiscal year 1998, a 
higher floor would apply for certain States based on the one-
time increase in the State's allotment from fiscal year 1996 to 
fiscal year 1997. For a State whose fiscal year 1996-97 outlay 
allotment increase was greater than 120 percent of the fiscal 
year 1997 NMGP, the floor would be 104 percent of the previous 
year's allotment. For those States whose fiscal year 1996-97 
outlay allotment increase was greater than 75 percent of the 
fiscal year 1997 NMGP, but less than 120 percent the floor 
would equal 103 percent of the previous year's allotment. In 
fiscal year 1997, the allotment for a State could not exceed 
109 percent of the fiscal year 1996 allotment, for each 
subsequent year the State allotment could not exceed 105.33 
percent of the prior year's allotment. However, beginning in 
fiscal year 1998, the ceiling for the 10 States with the lowest 
rates of Federal Medicaid spending per resident-in-poverty is 
higher. In fiscal year 1998 and fiscal year 1999 the allotments 
for these States will not exceed 106 percent. In fiscal year 
2000 the allotment ceiling for these States equals 106.0657 of 
the prior year's allotment. In fiscal year 2001 the allotment 
ceiling for these States equals 106.1488 percent of the prior 
year's allotment. In fiscal year 2002 and all subsequent years 
the allotment ceiling is set to 106.2319 percent of the prior 
year's allotments. Allotments for Commonwealths and territories 
would equal their previous year's allotments increased by the 
NMGP (in place of the percentage increases provided under 
current law).
       To reduce variations in increases in outlay allotments 
over time, any State or the District could elect an alternative 
growth rate formula. A portion of the State's allotment for 
fiscal year 1996 could be deferred and applied to increase its 
allotment for one or more subsequent years, so long as the 
total of the increases did not exceed the amount deferred in 
fiscal year 1996. (Obligation allotments for the State would be 
adjusted accordingly.)
       In fiscal year 1996 special adjustments are made to the 
State outlay allotments for Oregon and Tennessee. Oregon's 
outlay allotment is increased by $155.7 million, Tennessee's 
outlay allotment is increased by $195.5 million.
       A supplemental allotment to be used by the twelve States 
with the highest number of undocumented aliens for emergency 
health care services would also be available between fiscal 
year 1996 and fiscal year 2002. This supplemental pool could 
not exceed $3 billion over the seven year period. Allotments to 
the States in any given year would be based on their relative 
share of undocumented aliens. Aggregate spending in any given 
year would be determined by taking into account the total $3 
billion and the NMGP.
       The Secretary would publish preliminary allotments for 
each fiscal year by April 1 of the preceding fiscal year. The 
General Accounting Office (GAO) would report to Congress by May 
15 on the extent to which the allotments comply with statutory 
requirements. The Secretary would publish final allotments by 
July 1, taking into account the GAO analysis and explaining any 
changes from the preliminary allotments; the Secretary could 
not modify allotments thereafter. By August 1, GAO would report 
to Congress on the statutory compliance of the final 
allotments.

Senate amendment

      Beginning with fiscal year 1996, the bill would limit 
Federal obligations and outlays for each State to fixed 
amounts. (Obligations are binding agreements to make Federal 
payments, immediately or in the future. Outlays are actual 
payments to liquidate obligations.) Obligation allotments would 
limit the amount the Secretary could agree to pay a State 
during a year. They would be based on outlay allotments, which 
represent the maximum actual payments to the State. The 
obligation allotments would include adjustments to reflect 
obligations incurred in 1 year that did not result in outlays 
until the following year.
      The Medicaid obligation allotment would represent an 
amount slightly larger than the outlay allotment pool. In 
fiscal year 1996, the Medicaid obligation allotment for each 
State and the District of Columbia would equal the outlay pool 
of Medicaid outlays divided by 95% (i.e., the obligation amount 
would be roughly 105% of the outlay amount). Since fiscal year 
1996 is a transition year, the fiscal year 1996 outlay 
allotment pool would be reduced to account for any obligations 
incurred under current law (the outlay pool amount would be 
reduced by $24.624 billion). For fiscal year 1997, the outlay 
would be divided by 98.6% to determine the obligation 
allotments. For fiscal year 1998, and all subsequent years the 
outlay allotment would be divided by 99.8% to determine the 
overall obligation allotment. A similar process is used for 
individual State obligation allotments.
      The outlay pool for fiscal year 1996 would be $97.245 
billion (this represents outlay allotments to the States and 
the District plus allotments to Commonwealths and territories). 
The pool would be $102.608 billion for fiscal year 1997, 
$106.712 billion for fiscal year 1998, $110.980 billion for 
fiscal year 1999, $115.420 billion for fiscal year 2000, 
$120.037 billion for fiscal year 2001, and $124.838 billion for 
fiscal year 2002. For later years, the pool amount would be the 
previous year's amount increased by the lesser of 4% or the 
growth in the gross domestic product (GDP) for the 12-month 
ending in June before the start of the year in question. The 
increase in the pool amount over that for the preceding year 
would be designated the ``national Medicaid growth percentage'' 
(NMGP).
      In fiscal year 1996, each State's outlay allotment from 
the pool would equal 109 percent of the greater of: (1) Its 
Federal Medicaid expenditures in fiscal year 1995 (excluding 
any disproportionate share payments); (2) 103.38 percent of its 
Federal Medicaid expenditures in fiscal year 1994; or (3) 95 
percent of Federal Medicaid expenditures in fiscal year 1993 
(excluding any disproportionate share payments). This initial 
allotment would be adjusted to take into account the overall 
obligation allotment total for the program. All States' 
allotments would be adjusted in order that the sum of the 
allotments equal the total. A State could carry over any unused 
outlay allotment amount to a subsequent year.
      For fiscal year 1997 and later years, each State's outlay 
allotment from the pool would equal a needs-based amount times 
a scalar factor, subject to certain floors and ceilings. The 
needs-based amount for a State would be the product of its 
aggregate need and its Federal medical assistance percentage 
for the previous year (FMAP; see below). The scalar factor 
would be a constant multiplier for all States used to ensure 
that floor and ceiling provisions, along with the allotments 
for Commonwealths and territories, do not cause total 
allotments to exceed the pool amount.
      The State's aggregate need would be the product of four 
factors: residents in poverty, a case mix index, an input cost 
index, and national average spending per resident in poverty. 
Residents in poverty would be the average number of individuals 
in the State below the Federal poverty threshold in the most 
recent period of 3 calendar years for which data were 
available. The case mix index would equal the ratio between the 
State's expected per recipient spending and national average 
per recipient spending, given the State's relative proportions 
of aged, disabled, and other recipients and assuming that the 
State's per recipient spending for each group was equal to the 
national average for that group. The calculation of these 
average expenditures would not include disproportionate share 
payments. This index would be based on data that is available 
for the most recent 3 fiscal years. The input cost index would 
be the 3-year average of the sum of 0.15 and the product of 
0.85 and a hospital wage index. This index would equal the 
ratio between annual average wages for hospital employees in 
the State and the national average; it would be based on the 
area wage data computed under Medicare's prospective payment 
system for inpatient hospital services (or a comparable index 
if the Medicare index should no longer be available). National 
average spending per resident in poverty would be computed for 
fiscal year 1997 using fiscal year 1995 expenditure data and 
State three year average numbers of residents in poverty; these 
average expenditures would then be increased by the NMGP for 
fiscal year 1997. In later years, the previous year's figure 
would be increased by the NMGP.
      The minimum State outlay allotment is based on the 
greatest of three amounts: (1) no State would receive an outlay 
allotment less than 102% of the State's allotment in the 
previous year; (2) an amount less than 0.26% of the total pool 
amount; (3) or if the State's fiscal year 1998 allotment is 
greater than 103.8% of its fiscal year 1997 allotment:
            A State's fiscal year 1999 allotment could not be 
        less than 104.25% of its prior year's allotment;
            For fiscal year 2000 and fiscal year 2001 the 
        State's allotment could not be less than 104% of its 
        prior year's allotment;
            For fiscal year 2002 the State's allotment could 
        not be less than 103.4% of its prior year's allotment.
      State obligation allotments are also subject to a maximum 
increase. This maximum increase from the prior year's outlay 
allotment is the product of the NMGP and the following 
schedule. A State's increase its outlay allotment in:
            Fiscal year 1997 can not be greater than 125.5% of 
        the NMGP;
            Fiscal year 1998 can not be greater than 132% of 
        the NMGP;
            Fiscal year 1999 can not be greater than 151% of 
        the NMGP;
            Fiscal year 2000 can not be greater than 156% of 
        the NMGP;
            Fiscal year 2001 can not be greater than 144% of 
        the NMGP;
            Fiscal year 2002 can not be greater than 146% of 
        the NMGP.
      Special outlay allotment rules apply to New Hampshire and 
Louisiana. For each of fiscal years 1996 through 2000, New 
Hampshire's outlay allotment would equal $360 million and 
Louisiana's outlay allotment would equal $2.622 billion. 
Beginning in fiscal year 1997, allotments for Commonwealths and 
territories would equal their previous year's allotments 
increased by the NMGP (in place of the percentage increases 
provided under current law).
      To reduce variations in outlay allotments over time, any 
State or the District could elect an alternative growth rate 
formula. A portion of the State's allotment for fiscal year 
1996 could be deferred and applied to increase its allotment 
for one or more subsequent years, so long as the total of the 
increases did not exceed the amount deferred in fiscal year 
1996. (Obligation allotments for the State would be adjusted 
accordingly.) A State could choose to increase its fiscal year 
1996 outlay allotment by a portion of its outlays for one or 
more of the fiscal years 1997 through 1999. This increase in 
the State's fiscal year 1996 outlay allotment could not be 
greater than 25% of the outlay allotment estimated under the 
regular allotment formula.
      The Secretary would publish preliminary allotments for 
each fiscal year by April 1 of the preceding fiscal year. The 
General Accounting Office (GAO) would report to Congress by May 
15 on the extent to which the allotments comply with statutory 
requirements. The Secretary would publish final allotments by 
July 1, taking into account the GAO analysis and explaining any 
changes from the preliminary allotments; the Secretary could 
not modify allotments thereafter. By August 1, GAO would report 
to Congress on the statutory compliance of the final 
allotments.

Conference agreement

      The conference agreement follows the House provision with 
amendments. Under the agreement, the growth rate following 2002 
is established, the small state minimum is set at 0.24%, and 
special rules for Louisiana, New Hampshire and Nebraska are 
incorporated. The conference agreement also includes the House 
provision providing for a $3.5 billion national fund for 
emergency services provided to illegal aliens for 15 states 
over a 5 year period.

   Payments to States (Sec. 2122 of MediGrant; Sec. 2122 of Medicaid)

House bill

      Subject to the allotment limits, payments to States for 
medical assistance and medically-related services would equal 
the State's spending for the services times the applicable 
FMAP. This would be the greater of the old FMAP, computed as 
under current law, or a new FMAP, (or, if less, the old FMAP 
plus 10 percentage points). The new FMAP would equal 100 
percent minus the product of (a) 0.39 and (b) the ratio of the 
total taxable resources (TTR) ratio for the State to the 
aggregate expenditure need ratio for the State. The TTR ratio 
would be the ratio of the most recent 3-year average of the 
State's TTR, as determined by the Secretary of the Treasury, to 
the sum of the average TTRs for all States (for the District of 
Columbia, a per capita income ratio would be substituted). The 
aggregate expenditure need ratio would be the ratio of the 
State's aggregate expenditure need (as determined in computing 
the State's allotment; see above) to the sum of the aggregate 
expenditure needs for all States. The new FMAP could not be 
less than 40 percent or greater than 83 percent. The FMAP for 
Commonwealths and territories would be 50 percent. The FMAP for 
services in Indian Health Service facilities (and for specified 
facilities of Indian tribes that are not Indian Health Service 
facilities) would continue to be 100 percent; in addition, no 
State matching would be required for services to unlawful 
aliens. For administrative services, the Federal matching 
percentage would generally be 50 percent, with enhanced 
matching for specified expenditures as under current law. 
Provisions of current Medicaid law relating to periodic 
payments to States and treatment of overpayments and 
disallowances would be retained.

Senate amendment

      Subject to the allotment limits, payments to States for 
medical assistance and medically-related services would equal 
the State's spending for the services times the applicable 
FMAP. The FMAP would be calculated as under current law, except 
that Alaska's FMAP would be calculated with an adjustment. 
Alaska's FMAP would equal the average per capita income divided 
by the input cost index. This adjusted per capita measure would 
be compared to the per capita income of the continental United 
States. For all States, the FMAP could not be less than 60% or 
greater than 83%. The FMAP for Commonwealths and territories 
would be 50%. The FMAP for services in Indian Health Service 
facilities (and for specified facilities of Indian tribes that 
are not Indian Health Service facilities) would continue to be 
100%; in addition, no State matching would be required for 
services to unlawful aliens. For administrative services, the 
Federal matching percentage would generally be 50%, with 
enhanced matching for specified expenditures as under current 
law. Provisions of current Medicaid law relating to periodic 
payments to States and treatment of overpayments and 
disallowances would be retained. As under current law, 
provider-related taxes and donations would be excluded from 
matching State medical assistance expenditures unless the 
donations met the definition of a bona fide provider-related 
donation, or a broad based health care tax. Furthermore, as 
under current law, donations associated with eligibility 
determination and outreach activities cannot exceed 10% of 
administrative spending in the State.
      As under current law, States would be required to provide 
at least 40% of the non-Federal share of Medicaid expenditures. 
New Hampshire's state expenditures could not be less than 120% 
of $203 million in 1996, 140% of $203 million in 1997, 160% of 
$203 million in 1998, 180% of $203 million in 1999 and 200% of 
$203 million in 2000. Louisiana's state expenditures must be at 
least 120% of $355 million in 1996, and will follow the same 
percentage increase progression as New Hampshire through 2000. 
If not, federal funding will be reduced on a proportional 
basis.
      If a State does not use its full outlay allotment, the 
difference between the payments and the obligation allotment 
can be used in the next fiscal year. This carryover amount can 
not be larger than the total carryover amount from the two 
preceding years. Any obligated allotment amounts that go unused 
will be reallocated to qualified States. In order to qualify a 
State can not have any carryover amount and must apply for the 
payments. These allotments will be obligated to qualifying 
States in the following order: (1) States with outlay 
allotments at their ceiling level; (2) States with allotments 
between the floor and the ceiling; and (3) States at their 
floor. If their are not enough funds to fulfill the request of 
any single group of the States, the funds will be 
proportionately allocated among the qualifying States in the 
group.
      Special appropriations are provided to the following 
States: $63 million to Arizona, $250 million to Florida, $34 
million to Georgia, $76.5 million to Kentucky, $181 million to 
South Carolina, $250 million to Washington, and $50 million to 
Vermont. These funds do not have to be used in any particular 
fiscal year and can be added to their outlay allotments.

Conference agreement

      The conference agreement follows the House bill with a 
Senate amendment revising the current law FMAP floor.

   Limitation on Use of Funds (Sec. 2123 of MediGrant; Sec. 2123 of 
                               Medicaid)

House bill

      States could use Federal funds only to carry out the 
purposes of Title XXI. Federal payments would not be made to a 
State for nonemergency services provided or ordered by 
providers excluded under the maternal and child health or 
social services block grant, Medicare, or Medicaid. Spending 
for medically-related services could not exceed 5 percent of 
total spending under the MediGrant plan. Spending for 
administration could not exceed the sum of $20 million plus 10 
percent of total spending under the MediGrant plan. This limit 
would not apply, during the first two years the MediGrant plan 
was in effect, to spending for quality assurance, utilization 
review, and similar activities or to spending needed to comply 
with reporting requirements. As under current law, Federal 
matching would not be available for services that would have 
been paid for by a private insurer but for a provision of the 
insurance contract making the insurer secondary to Medicaid. 
The definition of allowable emergency services for illegal 
aliens would be clarified. Payment could not be made for 
prescription drugs unless the manufacturer had entered into a 
MediGrant master rebate agreement with the Secretary (see 
below) and was in compliance with current requirements section 
8126 of Title 38, including those for a master agreement with 
the Secretary of Veterans Affairs. Payment for abortions (or 
for health benefit coverage including abortions) would be 
permitted only to save the life of the mother, or in cases of 
rape or incest. Payment could not be made for drugs or services 
furnished to cause or assist in causing the death, suicide, 
euthanasia, or mercy killing of a person.

Senate amendment

      States could use Federal funds only to carry out the 
purposes of Title XXI. Federal payments would not be made to a 
State for nonemergency services provided or ordered by 
providers excluded under the maternal and child health or 
social services block grant, Medicare, or Medicaid. Spending 
for medically-related services could not exceed 5% of total 
spending under the Medicaid plan. As under current law, Federal 
matching would not be available for services that would have 
been paid for by a private insurer or other payor but for a 
provision of the insurance contract making the insurer 
secondary to Medicaid. The definition of allowable emergency 
services for illegal aliens would be clarified. Federal funds 
could not be used for: the purchase of land, or to construct or 
remodel buildings; the payment of room and board (unless for 
respite care); certain educational services; or vocational 
rehabilitation services that are offered under other Federally 
funded programs.

Conference agreement

      The conference agreement follows the House provision with 
a Senate amendment that denies Federal financial participation 
in any MediGrant payment for expenditures for medical 
assistance if payment could have been made under any other 
federally operated or financed health care program, other than 
a program under the Indian Health Service.

  Grant Program for Community Health Centers and Rural Health Centers 
                        (Sec. 2124 of Medicaid)

House bill

      No provision.

Senate amendment

      The bill provides for 1% of the pool amount to be set 
aside and used for grants for primary and preventive health 
care services provided at rural health clinics and federally 
qualified health centers.

Conference agreement

      The conference agreement does not include the Senate 
Amendment. The agreement includes an alternate provision under 
Section 2112.

                 Part D--Program Integrity and Quality

Use of Audits to Achieve Fiscal Integrity (Sec. 2131 of MediGrant; Sec. 
                           2131 of Medicaid)

House bill

      Each MediGrant plan would be required to provide for an 
annual audit of the State's medical assistance expenditures in 
compliance with the Single Audit Act (chapter 75 of title 31, 
United States Code). If the Secretary determined that a State's 
audit was performed in substantial violation of the chapter 75 
provision, the Secretary would be permitted to conduct a 
verification audit or require that the State do so. Within 30 
days of completion of an audit or verification audit, the State 
would be required to provide a copy of the audit report to the 
Secretary along with the State's response to the auditor's 
recommendation. The State also would be required to make the 
audit report available for public inspection.
      Each State would be required to maintain fiscal controls, 
accounting procedures, and data processing safeguards that are 
reasonably necessary to assure the fiscal integrity of the 
State's activities. The State's controls and procedures would 
be required to be generally consistent with generally accepted 
accounting principles as recognized by the Governmental 
Accounting Standards Board or the Comptroller General.
      Each MediGrant plan would be required to provide that the 
records of any provider could be audited to ensure that proper 
payments were made under the plan.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

    Fraud Prevention Program (Sec. 2132 of MediGrant; Sec. 2132 of 
                               Medicaid)

House bill

      To detect fraud and abuse by beneficiaries, providers, 
and others, each MediGrant plan would be required to have a 
program that follows the following. Certain program contractors 
and providers would be required to disclose ownership and 
control information to State agencies in accordance with 
sections 1124 and 1124(a) of the Social Security Act. An entity 
(other than an individual practitioner or a group of 
practitioners) would be required to supply information on 
ownership, controlling interests, and conviction of certain 
offenses upon request by the Secretary or the State agency. A 
State could exclude a provider from participation in the 
MediGrant plan on its own initiative, and would be required to 
exclude any entity when required to do so by the Secretary 
pursuant to section 1128 or 1128A of the Act. Whenever a 
provider was terminated, suspended, sanctioned, or prohibited 
from participating under a State's plan, the State agency would 
be required to notify the Secretary and, in the case of a 
physician, the State medical licensing board. States would be 
required to provide information and access to information 
respecting sanctions taken against practitioners and providers 
by State licensing authorities.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

 Information Concerning Sanctions Taken by State Licensing Authorities 
     Against Health Care Practitioners and Providers (Sec. 2133 of 
                   MediGrant; Sec. 2133 of Medicaid)

House bill

      The provision is identical to the current law provision. 
Each State would be required to have in effect a system for 
reporting and providing access to information for use by the 
Secretary and other officials concerning licensing revocations 
and other sanctions taken against providers and practitioners 
by State licensing authorities, peer review organizations, or 
accreditation entities. A State would be required to report any 
adverse action taken, whether a provider had surrendered a 
license or left the State, any other loss of license, and any 
negative action taken by a reviewing authority. The State would 
be required to provide the Secretary with access to whatever 
documents the Secretary needed to determine the facts and 
circumstances concerning the actions taken. Such information 
would have to be provided under arrangements made by the 
Secretary in the form the Secretary determined to be 
appropriate to (1) provide for the Secretary's activities, and 
(2) provide information to other specified authorities in order 
to protect their programs and services.
      The Secretary would be required to safeguard the 
confidentiality of information furnished. However, any party 
authorized to disclose information would be permitted to do so. 
In implementing this section, the Secretary would be required 
to provide for maximum coordination of section 422 of the 
Health Care Quality Improvement Act of 1986.

Senate amendment

      Identical provision with technical amendments.

Conference agreement

      The conference agreement follows the Senate provision.

    State Fraud Control Units (Sec. 2134 of MediGrant; Sec. 2134 of 
                               Medicaid)

House bill

      Each MediGrant plan would be required to provide for a 
State MediGrant fraud control unit (FCU) unless the State 
demonstrated that such a unit would not be cost-effective 
because minimal fraud existed, and that beneficiaries would be 
protected from abuse and neglect without such a unit. The FCU 
would be required to be separate and distinct from the State 
agency responsible for the operation and administration of the 
MediGrant plan. It would have to be a part of the State 
Attorney General's office or coordinate with that office. It 
would be required to have statewide prosecutorial authority or 
the ability to refer to local prosecutors. The FCU would 
investigate and prosecute violations of State fraud laws, and 
review and prosecute cases involving neglect or abuse of 
beneficiaries in nursing homes and other facilities. It would 
be required to provide for the collection of overpayments it 
had discovered were made to health care providers. It would be 
required to employ auditors, attorneys, investigators, and 
other necessary personnel.

Senate amendment

      Identical provision with technical amendments.

Conference agreement

      The conference agreement follows the Senate provision.

recoveries from third parties and others (sec. 2135 of medigrant; sec. 
                           2135 of medicaid)

House bill

      Each MediGrant plan would be required to ascertain the 
legal liability of third parties to pay for care and services 
available under the plan and seek reimbursement to the extent 
of legal liability unless the cost of recovery was expected to 
exceed the amount of reimbursement.
      MediGrant plans would be required to prohibit a provider 
from refusing to furnish a covered service to a beneficiary 
because of a third party's potential liability for the service, 
and from trying to collect payment from a beneficiary that 
exceeded payment that would be made under the plan. For 
violation of the collection provision, a MediGrant plan could 
provide for a payment reduction up to 3 times the amount sought 
to be collected.
      States would be required to prohibit any health insurer, 
in enrolling an individual or in making payments for benefits, 
from taking into account that the individual was eligible for 
or was provided medical assistance under a MediGrant plan.
      A State would be required to have laws in effect under 
which the State is considered to have acquired the rights of an 
individual to payments by a party that is liable for the 
individual's health care items and services. Each State would 
be required to provide for mandatory assignment of rights of 
payment for medical support and care to beneficiaries.
      Each State with a MediGrant plan would be required to 
have in effect laws relating to medical child support. Each 
State would have to prohibit an insurer from denying enrollment 
of a child because the child was born out of wedlock, was not 
claimed as a dependent on the parent's Federal income tax 
return, or did not reside with the parent or in the insurer's 
area. In a case in which a parent was required by a court or 
administrative order to provide health coverage for a child, 
and the parent was eligible for family health coverage, State 
laws would have to require the employer and insurer to permit 
the parent to enroll the child upon application by either 
parent or by the State child support agency, and limit the 
circumstances under which the insurer could disenroll such a 
child. State laws would be required to prohibit an insurer from 
imposing requirements on a State agency that has been assigned 
the rights of an individual that are different from 
requirements applicable to an agent of any other covered 
individual; require an insurer, in the case of a child who has 
health coverage through the insurer of a non-custodial parent, 
to provide information to the custodial parent; permit the 
custodial parent to submit claims for covered services without 
the approval of the non-custodial parent, and make payment on 
claims to the custodial parent, the provider, or the State 
agency; permit the State agency to garnish the employment 
income of, and require withholding amounts from State tax 
refunds to, any person who is required by court or 
administrative order to cover the medical costs of a child who 
is eligible for medical assistance, has received payment from a 
third party for the costs of the child's services, and has not 
used the payment to reimburse the appropriate party.
      A State would be permitted to take appropriate action to 
adjust or recover from an individual or the individual's estate 
amounts paid as medical assistance under a MediGrant plan.

Senate amendment

      Similar provision.

Conference agreement

      The conference agreement follows the House provision.

 assignment of rights of payment (sec. 2136 of medigrant; sec. 2136 of 
                               medicaid)

House bill

      As a condition of eligibility for medical assistance 
under a State's MediGrant plan, an individual would be required 
to assign to the State any rights to medical support and 
payment for medical care from any third party of the individual 
or any other person who is eligible and on whose behalf the 
individual has the legal authority to execute an assignment of 
such rights. An individual would be required to cooperate with 
the State agency in establishing paternity of a child born out 
of wedlock and in obtaining support and payments for the 
individual and child unless the individual was a pregnant woman 
or was found to have good cause for refusing to cooperate as 
determined by the State. An individual would be required to 
cooperate with the State in identifying and providing 
information to assist the State to pursue any liable third 
party unless the individual had good cause for refusing to 
cooperate as determined by the State. The State would be 
required to provide for entering into cooperative arrangements 
(including financial arrangements) with any appropriate agency 
of any State and with appropriate courts and law enforcement 
officials, to assist the agency or agencies administering the 
State plan with respect to the enforcement and collection of 
rights to support or payment that had been assigned.
      Any amount collected by the State under an assignment 
would be retained by the State to reimburse it for payments 
made on behalf of an individual with respect to whom the 
assignment was executed (with appropriate reimbursement to the 
Federal Government of its share of the payment). The remainder 
of such amount collected would be paid to the individual.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

   quality assurance standards for nursing facilities (sec. 2137 of 
                   medigrant; sec. 2137 of medicaid)

House bill

      OBRA 87 nursing home reform provisions would be replaced 
with new requirements. State plans would be required to 
establish and maintain standards for facilities providing 
services under the State's program. Such standards would have 
to require nursing facilities to care for residents in a manner 
and environment that promote maintenance or enhancement of 
quality of life. Standards would also be required to address 
the following areas: the treatment of resident medical records; 
policies, procedures, and bylaws for operation; quality 
assurance systems; resident assessment procedures, including 
care planning and outcome evaluation; the assurance of a safe 
and adequate physical plant for the facility; qualifications 
for staff sufficient to provide adequate care, as defined by 
the State, and utilization review.
      Standards for nursing facilities would also be required 
to provide for the protection and enforcement of resident 
rights, including rights to exercise the individual's rights as 
a resident of the facility and as a citizen or resident of the 
U.S.; to receive notice of rights and services; to be protected 
against the misuse of resident funds; to be provided privacy 
and confidentiality; to voice grievances; to examine the 
results of State certification program inspections; to refuse 
to perform services for the facility; to be provided privacy in 
communications and to receive mail; to have the facility 
provide immediate access to any resident by any representative 
of the State's certification program, the resident's individual 
physician, the State long-term care ombudsman, and any person 
the resident has designated as a visitor; to retain and use 
personal property; to be free from abuse, including verbal, 
sexual, physical and mental abuse, corporal punishment, and 
involuntary seclusion; to be provided with prior written notice 
of a pending transfer or discharge; to organize and participate 
in resident groups in the facility and to have family members 
meet in the facility with the families of other residents; to 
participate in social, religious, and community activities that 
do not interfere with the rights of other residents; to choose 
a personal attending physician, to be fully informed in advance 
about care and treatment, and (except with respect to a 
resident adjudged incompetent) to participate in care planning 
and treatment or changes in care and treatment. In the case of 
a resident adjudged incompetent under the laws of a State, the 
rights of the resident would devolve upon, and, to the extent 
judged necessary by a court, be exercised by the person 
appointed under State law to act on the resident's behalf.
      States would be required to promulgate standards either 
through the State's legislature, regulatory, or other process, 
and they could take effect only after the State had provided 
the public with notice and an opportunity for comment.
      State plans would also be required to provide for the 
establishment and operation of a program for the certification 
of nursing facilities that meet specified standards as well as 
the decertification of those facilities that fail to meet the 
standards. States would be required to ensure public access (as 
defined by the State) to the certification program's 
evaluations of participating facilities, including compliance 
records and enforcement actions and other reports by the State 
regarding ownership, compliance histories, and services 
provided by certified facilities. States would be required to 
audit their expenditures under the program, not less often than 
every 4 years, through an entity designated by the State which 
is not affiliated with the program.
      States would be required to impose certain sanctions 
against nursing facilities not meeting requirements. If a State 
determined that a certified nursing facility no longer 
substantially met specified requirements and further determined 
that the facility's deficiencies immediately jeopardized the 
health and safety of residents, then the State would be 
required, at a minimum, to terminate the facility's 
certification for participation. If the facility's deficiencies 
did not immediately jeopardize the health and safety of 
residents, the State could, in lieu of termination, provide 
lesser sanctions, including denial of payment for persons 
admitted after a specified date.
      States could not impose sanctions until a facility has 
had a reasonable opportunity to correct its deficiencies, 
following the initial determination that it no longer 
substantially met the requirements for certification, and, has 
been given reasonable notice and opportunity for a hearing. A 
State's decision to deny payment for new admissions would be 
effective only after notice to the public and the facility, as 
may be provided for by the State. Denial of payment for new 
admissions would end when the State found that the facility was 
in substantial compliance (or was making good faith efforts to 
achieve substantial compliance). Facilities would, however, be 
required to be in compliance by the end of the eleventh month 
following the month when the decision to deny payments becomes 
effective. If facilities did not substantially meet the 
requirements by that time, States would be required to 
terminate their certification for participation.

Senate amendment

      Current law nursing home reform provisions contained in 
section 1919 of the Social Security Act would apply to nursing 
facilities providing services under the State's plan. States 
with State law requirements for nursing facilities that are 
equivalent to or stricter than current law requirements, and 
contain State oversight and enforcement authority over nursing 
facilities, including penalty provisions, that are equivalent 
to or stricter than oversight and enforcement authority in 
current law, could apply to the Secretary for a waiver of 
current law requirements. The Secretary would determine whether 
State law requirements were equivalent to or stricter than 
current law and would be required to approve or deny a waiver 
application within 120 days after submission. A State granted a 
waiver would be subject to: (1) a penalty of up to 2 percent of 
its allotment if the Secretary determines that a State has 
failed to comply with current law nursing home reform 
requirements or any State law requirements in effect as a 
result of a waiver; (2) suspension or termination of the 
waiver; and (3) any other authority available to the Secretary 
to enforce the requirements of current law.

Conference agreement

      The conference agreement follows the Senate provision 
with modification providing for Federal enforcement of State 
facilities, and enhanced State enforcement of standards for 
other nursing facilities. The agreement also provides for 
Federal enforcement action in the case of failure of State 
enforcement to correct deficiencies.

 other provisions promoting program integrity (sec. 2138 of medigrant; 
                         sec. 2138 of medicaid)

House bill

      State agencies responsible for surveying health care 
facilities or organizations would be required to make public, 
in readily available form and place, pertinent findings on the 
compliance of the facility or organization with the 
requirements of law. Persons or institutions providing services 
under the State's plan would be required to keep such records 
(including ledgers, books, and original evidence of costs) as 
are necessary to fully disclose the extent of the services 
provided, and to furnish information about payments claimed, as 
the State may from time to time request.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision. It 
is the expectation of the conferees that States will respond to 
the needs of the chronically mentally ill. For this purpose, 
State MediGrant plans will provide under section 2139(c) 
quality assurance programs for individuals with chronic mental 
illness. For this purpose, chronic mental illness shall be 
defined through diagnosis, disability, and duration and shall 
include disorder with psychotic symptoms, such as 
schizophrenia, schizoaffective disorder, manic depression 
disorder, and autism, as well as severe forms of other mental 
disorders, such as major depression, panic disorder, and 
obsessive compulsive disorder.

           Part E--Establishment and Amendment of State Plans

 submittal and approval of plans (sec. 2151 of medigrant; sec. 2151 of 
                               medicaid)

House bill

      States would be required to submit to the Secretary a 
MediGrant plan that meets the requirements of Title XXI. A 
State with a Title XXI fiscal year 1996 allotment of more than 
$10 billion would be required to have specific authorization of 
its State legislature to submit a plan. Unless the Secretary 
found that a plan substantially violated the requirements of 
Title XXI, the plan would be approved and would be effective 
beginning with the calendar quarter specified in the plan, but 
no earlier than the first calendar quarter that begins at least 
60 days after the plan is submitted.

Senate amendment

      Similar provision.

Conference agreement

      The conference agreement follows the Senate provision.

submittal and approval of plan amendments (sec. 2152 of medigrant; sec. 
                           2152 of medicaid)

House bill

      A State would be permitted to submit an amendment to its 
MediGrant plan at any time. However, any amendment that would 
eliminate or restrict eligibility or benefits under the plan 
could not take effect before it was transmitted to the 
Secretary, unless there was prior or contemporaneous public 
notice of the change, as provided under State law. Nor could it 
be effective for longer than a 60-day period unless the 
amendment had been transmitted to the Secretary before the end 
of the period. Any other amendment could not remain in effect 
after the end of a State fiscal year (or if later, the end of 
the 90-day period on which it becomes effective) unless the 
amendment had been transmitted to the Secretary. These 
requirements would not apply to an amendment submitted on a 
timely basis in response to an order of a court or the 
Secretary.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

   process for state withdrawal from program (sec. 2153 of medigrant)

House bill

      A State could rescind its plan and discontinue 
participation in the program at any time after providing 90 
days prior notice to the public and to the Secretary. Such 
discontinuation would not apply to Federal payments to States 
for expenditures made for items and services furnished under 
the plan before the effective date of the discontinuation.

Senate amendment

      No provision.

Conference agreement

      The conference agreement includes the House provision.

 sanctions for substantial noncompliance (sec. 2154 of medigrant; sec. 
                           2153 of medicaid)

House bill

      The Secretary would be required to review promptly 
MediGrant plans and plan amendments to determine if they 
substantially comply with requirements. If the Secretary 
determined that a plan or plan amendment substantially violated 
the requirements and, within 30 days of submittal, provided 
written notice to the State, the Secretary would be required to 
issue an order specifying that the plan or amendment would not 
be effective at the end of the 30-day period (or 120 days in 
the case of the initial submission of the MediGrant plan). 
Before making such a determination, the Secretary would be 
required to consult with the State and consider any 
clarifications and additional information submitted. The 
Secretary would be required to explain and justify any 
determination inconsistent with any previous determination. A 
plan or amendment would be considered to substantially violate 
a requirement if a provision were material and substantial in 
nature and effect, and were inconsistent with an express 
requirement. Failure to meet a strategic objective or 
performance goal would not be considered a substantial 
violation. A State could appeal the Secretary's determination 
through administrative and judicial procedures.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision 
with an amendment that provides for a process by which 
individuals may register complaints with the Secretary. It is 
the intent of the Conferees that the appropriate committees of 
Congress hold oversight hearings in cases where States fail to 
respond to notifications by the Secretary under section 
2154(g).
      The conference agreement also includes in section 2154(c) 
a provision stating that only the Secretary, in accordance with 
this Title, may compel a State under federal law to comply with 
the provisions of this Title and that no other cause of action 
may be filed under federal law against a State.

 secretarial authority (sec. 2155 of medigrant; sec. 2154 of medicaid)

House bill

      The Secretary would be permitted to negotiate a 
satisfactory resolution to any dispute concerning the approval 
of a plan or the compliance of a plan. The Secretary would be 
prohibited from delegating authority for approval of plans 
other than to the Administrator of the Health Care Financing 
Administration. The Administrator would be prohibited from 
making any further delegation of such authority. The Secretary 
would be required to administer the program only through a 
prospective formal rulemaking process, including issuing 
notices of proposed rule making, publishing proposed rules or 
modifications to rules in the Federal Register, and soliciting 
public comment.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

                       Part F--General Provisions

      definitions (sec. 2171 of medigrant; sec. 2171 of medicaid)

House bill

      ``Medical assistance'' would be defined as including an 
extensive list of services similar to those specified under 
current law, and, in addition, enabling services to increase 
accessibility to primary and preventive services. ``Eligible 
low-income individual'' would mean an individual who has been 
determined eligible by the State and whose family income does 
not exceed a percentage specified in the plan that is not 
greater than 300% of the poverty line. In determining income, 
States would be permitted to exclude costs incurred for medical 
care. ``Medicare cost sharing'' would include Medicare 
premiums, coinsurance, and deductibles. Definitions of child, 
pregnant woman, and poverty line would be the same as in 
current law.

Senate amendment

      Similar provision. ``Eligible low-income individual'' 
would be defined as an individual who had been determined 
eligible by the State and whose family income did not exceed a 
percentage that was specified in the plan and was not greater 
than 250% of the poverty line. In determining income, States 
would be permitted to exclude costs incurred for medical care. 
The term ``retirement age'' would have the same meaning as in 
section 216(l)(1) of the Social Security Act.

Conference agreement

      The conference agreement follows the House provision with 
amendments including provisions relating to home and community-
based health care and supportive services, nursing care 
services, abortion and assisted suicide, and the definitions of 
``low-income individuals'' and an ``elderly individual.''
      It is the Committee's intention that the definition of 
``medical assistance'' shall include services provided by a 
Christian Science sanatorium (nursing facility) and a Christian 
Science visiting nurse organization, listed and certified by 
The First Church of Christ, Scientist, in Boston, 
Massachusetts, or the Commission for Accreditation of Christian 
Science Nursing Organizations/Facilities, Inc., and services 
provided in a home setting by a Christian Science nurse listed 
in the Christian Science Journal.

    treatment of territories (sec. 2172 of medigrant; sec. 2172 of 
                               medicaid)

House bill

      The Secretary's waiver authorization would be extended to 
include Puerto Rico, Guam, and the Virgin Islands.

Senate amendment

      Identical provision.

Conference agreement

      The conference agreement includes the House provision.

description of treatment of indian health service facilities (sec. 2173 
                  of medigrant; sec. 2173 of medicaid)

House bill

      In a State in which there is at least one Indian Health 
Service facility, the MediGrant plan would have to describe (1) 
what provision, if any, has been made for payment of items and 
services furnished by the facilities, and (2) how medical 
assistance will be provided to eligible Indians, as determined 
by the State in consultation with appropriate Indian tribes and 
tribal organizations. For services provided to Indians, the 
Federal matching rate to state Medicaid programs would be 100%.

Senate amendment

      In a State in which there is at least one Indian Health 
Service facility, the State would have to describe (1) what 
provision, if any, has been made for payment of items and 
services furnished by the facilities, and (2) how medical 
assistance will be provided to eligible Indians, as determined 
by the State in consultation with appropriate Indian tribes and 
tribal organizations.

Conference agreement

      The conference agreement follows the House provision.

application of certain general provisions (sec. 2174 of medigrant; sec. 
                           2174 of medicaid)

House bill

      The proposal would clarify that certain sections of Title 
XI would apply to MediGrant.

Senate amendment

      Similar provision.

Conference agreement

      The conference agreement follows the House bill.

 requirements for manufacturers of outpatient prescription drugs (sec. 
               2175 of medigrant; sec. 2175 of medicaid)

House bill

      The House bill retains the current law Federal drug 
rebate program, with modifications.

Senate amendment

      Similar provision with a provision prohibiting states 
from imposing supplemental rebates. The Senate amendment also 
would require the Secretary to establish a Medicaid Drug Rebate 
Program Task Force to study whether the Medicaid drug rebate 
program should be retained or repealed. By October 1, 1998 the 
Task Force would have to report its study results to the 
Secretary who would transmit the report to the Senate 
Committees on Finance and Aging and the House Committee on 
Commerce.

Conference agreement

      The conference agreement follows the House provision, 
with the Senate amendment for supplemental rebates.

    other provisions (sec. 16002 of house bill; sec. 7191 of senate 
                               amendment)

House bill

      Effective on the date of enactment, Title XIX would cease 
to be an entitlement program for individuals and Federal 
obligations to States would be limited to statutory obligation 
allotments for fiscal year 1996. The Secretary would be 
prohibited from entering into any obligation with a State for 
expenses incurred on or after the earlier of October 1, 1996, 
or the first day the State's plan under Title XXI was 
effective. A State that submitted claims for payment under 
Title XIX after the date of enactment would be deemed to have 
accepted the obligation limitation. State's claims for 
obligations incurred before the date of enactment would have to 
be submitted for payment by June 30, 1996.
      Any cause of action that required a State to establish or 
maintain minimum payment rates under Title XIX that was not 
final as of the date of enactment would not be continued. For 
any payment made under Title XIX before October 1, 1995, for 
which disallowance was not taken or not completed by that date, 
the Secretary would be required to discontinue the disallowance 
proceeding. If the disallowance had been taken as of the date 
of enactment, the Secretary would be required to rescind any 
effected payment reductions and return payments to the State.
      Any judicial or administrative decision applied to a 
State's Medicaid program under Title XIX would not apply to the 
State's MediGrant plan under Title XXI.
      The Vaccines for Children program would be repealed 
effective on the date of enactment. Although the repeal would 
not affect the distribution of vaccines purchased and delivered 
before enactment, no further vaccine purchases could be made 
under any Title XIX contract.
      A MediGrant plan under title XXI would be added to the 
term ``State health care program.'' The role of the Inspector 
General under Title XIX would continue under Title XXI.
      The bill would extend the existing waiver for the Dayton 
Area Health Plan to the last day of the last calendar quarter 
in which Ohio has a Title XIX Medicaid plan in effect.

Senate amendment

      Similar provision, with a provision increasing medical 
assistance funding to Puerto Rico to $200 million for fiscal 
year 1996.

Conference agreement

      The conference agreement follows the House provision.
      The Conferees would like to make special note of the 
repeal of the Vaccines for Children (VFC) program. The Clinton 
Administration developed a universal government vaccine 
purchase program (modified before enactment) based on the 
premise that cost was the most significant barrier to childhood 
immunization. It also used out-of-date data showing that 
immunization rates were very low. However, numerous 
Congressional witnesses and a June, 1995 General Accounting 
Office (GAO) report have contradicted these basic premises. GAO 
stated that there is insufficient evidence to conclude that the 
cost of vaccine has been a barrier to timely immunization. GAO 
found that 95 percent of the nation's children are vaccinated 
by school age, and that immunization rates for preschool 
children even before VFC were at or near the 90 percent 
national goals for 1996. GAO found that more important barriers 
to full immunization resulted from missed opportunities at 
health clinics and private providers' offices, lack of parental 
and provider understanding, less than optimal hours and 
organization.
      GAO also has documented that the Secretary and the 
Centers for Disease Control have grossly mismanaged the program 
since its inception. In repealing Section 1928, the Conferees 
intend that all contracting authority under Section 1928 is 
terminated. Contracts currently in effect were negotiated under 
the authority granted to the Secretary under Section 1928 of 
the Social Security Act and Section 317 of the Public Health 
Service Act and will continue to their conclusion pursuant to 
authority under Section 317. With respect to subsequent 
contracts under Section 317, all procedures and requirements 
for purchase and delivery of vaccine will revert to those in 
place prior to enactment of Section 1928.
      The Conferees understand that CDC has made 
representations to the states that federal reimbursement is 
available for distribution of vaccines pursuant to Section 
1928(d). To avoid wastage of vaccine, any products already 
purchased and delivered to the states, and for which the state 
has a distribution contract in effect on the date of enactment, 
shall be eligible for reimbursement for such distribution.

                waivers (sec. 7193 of senate amendment)

House bill

      No provision.

Senate amendment

      At State option, Medicaid waivers granted under section 
1115 of the Social Security Act and implemented as of Sept. 1, 
1995, could be continued or terminated.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

children with special health care needs (sec. 7194 of senate amendment)

House bill

      No provision.

Senate amendment

      The Secretary would be required to develop a 
classification system to identify children with special health 
needs not later than 18 months after enactment. Upon completion 
of the system, the Secretary would be required to make grants 
to up to 5 States for 5-year demonstration projects to test the 
reliability and validity of the system, develop methods of 
assuring quality care, and provide for initial methods for 
identifying children with special health care needs. For each 
of fiscal years 1997-2001, $2 million would be authorized to be 
appropriated for demonstration projects.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

              cbo reports (sec. 7195 of senate amendment)

House bill

      No provision.

Senate amendment

      The Congressional Budget Office would be directed to 
prepare an annual analysis of the effects of Title XXI on the 
health insurance status of children, the elderly, and the 
disabled and report to the Senate Finance Committee and the 
House Commerce Committee by May 15 of each year.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

       adjustment of pool amounts (sec. 7196 of senate amendment)

House bill

      No provision.

Senate amendment

      The Senate amendment adjusts the pool amounts under the 
Medicaid distribution formula for fiscal years 1996, 1997, 
2000, and 2001.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

  state review of mentally ill or retarded nursing facility residents 
   upon change in physical or mental condition (sec. 7197 of senate 
                               amendment)

House bill

      No provision.

Senate amendment

      The Senate amendment makes modifications to nursing home 
reform requirements under current law.

Conference agreement

      The conference agreement does not include the Senate 
amendment. A similar provision is included under section 2137 
of the MediGrant reform plan.

 nurse aide training in nursing facilities subject to extended survey 
     under certain other conditions (sec. 7198 of senate amendment)

House bill

      No provision.

Senate amendment

      The Senate amendment makes modifications to nurse aide 
training requirements under current law.

Conference agreement

      The conference agreement does not include the Senate 
Amendment. A similar provision is included under section 2137 
of the MediGrant reform plan.

   medicare/medicaid integration demonstration project (sec. 7199 of 
                           senate amendment)

House bill

      No provision.

Senate amendment

      The Senate amendment requires the Secretary to conduct 
demonstration projects integrating Medicare and Medicaid 
financing and delivery of health care services for chronically 
ill elderly and disabled beneficiaries of both programs.

Conference agreement

      The conference agreement includes the Senate amendment.

                          TITLE VIII--MEDICARE

                Subtitle A--Medicareplus/Medicare Choice

  1. Establishment of Program (Sec. 15001 of House bill; Sec. 7001 of 
                              Senate bill)

Current law
      Persons enrolling in Medicare have two basic coverage 
options. They may elect to obtain services through the 
traditional fee-for-service system under which program payments 
are made for each service rendered. Under section 1876 of the 
Social Security Act, they may also elect to enroll with a 
managed care organization which has entered into a payment 
agreement with Medicare. Three types of managed care 
organizations are authorized to contract with Medicare: an 
entity that has a risk contract with Medicare, an entity that 
has a cost contract with Medicare, or a health care prepayment 
plan (HCPP) that has a cost contract to provide Medicare Part B 
services. Risk-contracts are frequently referred to as TEFRA 
risk contracts and cost contracts are frequently referred to as 
TEFRA cost contracts. TEFRA refers to the 1982 legislation, the 
Tax Equity and Fiscal Responsibility Act of 1982, which 
established the rules governing these types of contracts.
      A beneficiary in an area served by a health maintenance 
organization (HMO) or competitive medical plan (CMP) with a 
Medicare risk contract may voluntarily choose to enroll in the 
organization. Medicare makes a single monthly capitation 
payment for each of its enrollees. In return, the entity agrees 
to provide or arrange for the full range of Medicare services 
through an organized system of affiliated physicians, hospitals 
and other providers. The beneficiary must obtain all covered 
services through the HMO or CMP, except in emergencies. The 
beneficiary may be charged the usual cost-sharing charges or 
pay the equivalent in the form of a monthly premium to the 
organization. Beneficiaries are expected to share in the 
projected savings through the provision of benefits in addition 
to that included in Medicare's benefit package.
      Beneficiaries may also enroll in organizations with TEFRA 
cost contracts. These entities must meet essentially the same 
conditions of participation as risk contractors; however they 
may have as few as 1,500 enrollees (rather than 5,000) to 
qualify. Under a cost contract, Medicare pays the actual cost 
the entity incurs in furnishing covered services (less the 
estimated value of beneficiary cost-sharing). Enrollees obtain 
supplemental benefits by paying a monthly premium. The entity 
must offer a basic package (which covers all or a portion of 
Medicare cost-sharing charges); any additional benefits must be 
priced separately. (Conversely, a risk-contractor may offer 
just one package.) Enrollees in TEFRA cost-contract entities 
may obtain services outside the entity's network; however, the 
entity has no obligation to cover the beneficiary's cost-
sharing in this case.
      A third type of managed care arrangement is the HCPP. A 
HCPP arrangement is similar to a TEFRA cost-contract except 
that it provides only Part B services. Further, there are no 
specific statutory conditions to qualify for a HCPP contract. 
Some HCPPs are private market HMOs, while others are union or 
employer plans. HCPPs have no minimum enrollment requirements, 
no requirement that the plan have non-Medicare enrollees, or a 
requirement for an open enrollment period. Unlike TEFRA cost 
contractors (but like risk contractors), HCPPs may offer a 
single supplemental package that includes both Part B cost-
sharing and other benefits; cost-sharing benefits need not be 
priced separately.
      Any Medicare beneficiary residing in the area served by 
an HMO/CMP may enroll, with two exceptions. The first exception 
applies to beneficiaries not enrolled in Part B. The second 
exception applies to persons qualifying for Medicare on the 
basis of end-stage renal disease (ESRD); however, persons 
already enrolled who later develop ESRD may remain enrolled in 
the entity.
      The HMO/CMP must have an annual open enrollment period of 
at least 30 days duration. During this period, it must accept 
beneficiaries in the order in which they apply up to the limits 
of its capacity, unless to do so would lead to violation of the 
50 percent Medicare-Medicaid maximum or to an enrolled 
population unrepresentative of the population in the area 
served by the HMO.
      TEFRA risk contractors are required to hold an additional 
open enrollment period if any other risk-based entity serving 
part of the same geographic area does not renew its Medicare 
contract, has its contract terminated, or has reduced its 
service area to exclude any portion of the service area 
previously served by both contractors. In such cases, the 
Secretary must establish a single coordinated open enrollment 
period for the remaining contractors. These remaining HMOs/CMPs 
must then accept its enrollees during an enrollment period of 
30 days.
      An enrollee may request termination of his or her 
enrollment at any time. An individual may file disenrollment 
requests directly with the HMO or at the local social security 
office. Disenrollment takes effect on the first day of the 
month following the month during which the request is filed. 
The HMO may not disenroll or refuse to re-enroll a beneficiary 
on the basis of health status or need for health services.
      The requirement for an open enrollment period does not 
apply to HCPPs. These entities may deny enrollment or terminate 
enrollment on medical or other grounds, if in doing so they 
guse the same criteria for Medicare and non-Medicare enrollees. 
As a result, employer or union plans may restrict enrollment to 
covered retirees.
      The Secretary is authorized to prescribe procedures and 
conditions under which eligible organizations contracting with 
Medicare may inform beneficiaries about the organization. 
Brochures, applications forms, or other promotional or 
informational material may be distributed only after review and 
approval by the Secretary of HHS. HMOs may not disenroll or 
refuse to re-enroll a beneficiary because of health status or 
need for health care services. HMOs must provide enrollees, at 
the time of enrollment and annually thereafter, an explanation 
of rights to benefits, restrictions on services provided 
through nonaffiliated providers, out-of-area coverage, coverage 
of emergency and urgently needed services, and appeal rights. A 
terminating HMO must arrange for supplementary coverage for 
Medicare enrollees for the duration of any preexisting 
condition exclusion under their successor coverage for the 
lesser of 6 months or the duration of the exclusion period.
House bill
      a. In General. The Social Security Act would be amended 
by establishing a MedicarePlus program. Sec. 15001 of the bill 
establishes a new sec. 1805 of the Social Security Act, 
relating to increasing choice under Medicare. (Sec. 15001)
      b. Types of Choices. Every individual entitled to 
Medicare Part A and enrolled under Part B could elect to 
receive benefits through two options: (1) the existing fee-for-
service system (``the non-MedicarePlus option'') or (2) through 
a MedicarePlus product (``the MedicarePlus option''). A 
MedicarePlus product could be a product offered by a provider-
sponsored organization; a high deductible policy which would be 
coupled with a Medisave account; or a product operating on a 
fee-for-service, or any other basis. It also could be offered 
by an organization that is a union, Taft-Hartley, or 
association sponsor. (New sec. 1805(a))
      c. Special Rules. In general, an individual would be 
eligible to elect a MedicarePlus product offered by a 
MedicarePlus organization only if the organization served the 
geographic area in which in the individual resided. To enroll 
in a product offered by a limited-enrollment MedicarePlus 
organization, an individual would have to be affiliated with 
it. In the case of a product offered by a union or Taft-Hartley 
sponsor, the individual would have to elect the MedicarePlus 
product offered by the sponsor during the first enrollment 
period in which the individual was eligible to make such an 
election. An individual would not be eligible to elect a 
product offered by a union or Taft-Hartley sponsor if the 
individual previously had elected a MedicarePlus product 
offered by the organization and had subsequently discontinued 
to elect the product. An individual eligible for an annuity 
under the Federal Employee Health Benefit Program would not be 
eligible for a high-deductible/medisave product. (New sec. 
1805(b))
      d. Enrollment Procedures. The Secretary would be required 
to establish a process for electing non-MedicarePlus or 
MedicarePlus coverage in an expedited manner to permit election 
of MedicarePlus products in an area as soon as they became 
available. Elections would be made (or changed) only during 
specified coverage election periods. An individual who wished 
to elect a MedicarePlus product would do so by filing an 
appropriate election form with the organization. Disenrollment 
would be accomplished the same way. An individual failing to 
make an election during the initial election period would be 
deemed to have chosen the non-MedicarePlus option. An election 
would continue until the individual changed elections or the 
MedicarePlus product was discontinued. (New sec. 1805(c))
      e. Assistance. The Secretary could enter into an 
agreement with the Commissioner of Social Security under which 
the Commissioner would be responsible for the administration of 
enrollment and disenrollment in MedicarePlus products. (New 
sec. 1805(c)(5))
      f. Provision of Beneficiary Information to Promote 
Informed Choice. The Secretary would provide for activities to 
disseminate broadly information to current and prospective 
Medicare beneficiaries on the coverage options available in 
order to promote an active, informed selection among such 
options. The information would have to be provided so as to 
permit individuals to elect the MedicarePlus option during an 
initial election period. The Secretary would be required to 
contract with appropriate public and private entities to carry 
out such activities.
      The Secretary would be required to provide for at least 
the following in all areas in which MedicarePlus products were 
offered: (1) publish and disseminate an information booklet 
during coverage election periods, including information in 
standardized format and in plain English on benefits and 
premiums, quality (including consumer satisfaction); and 
beneficiary rights and responsibilities; (2) maintain a toll-
free number for inquiries regarding MedicarePlus options; and 
(3) include information in the Medicare Handbook on the 
MedicarePlus option. The information booklet would have to be 
updated regularly. (New sec. 1805(d))
      g. Coverage Election Periods. For individuals newly 
eligible for Medicare after the transition period, elections 
would occur at the first time the individual both was entitled 
to benefits under Part A and enrolled under Part B. The 
transition period would be the period beginning when a 
MedicarePlus product first became available in an individual's 
area and ending with the month preceding the beginning of the 
first annual coordinated election period occurring in October 
1997.
      During the transition period, an individual who elected 
to enroll in the non-MedicarePlus option could change election 
to a MedicarePlus option at any time. An individual in a 
MedicarePlus product could change election to another 
MedicarePlus product or the non-MedicarePlus option.
      In October, 1996, the Secretary would be required to 
conduct a MedicarePlus Health Fair which would provide for a 
nationally coordinated educational and publicity campaign to 
inform MedicarePlus eligible persons about MedicarePlus 
products and the election process, including the upcoming 
annual, coordinated election periods that would begin in 
October, 1997.
      After the transition period, there would be an annual 
coordinated election period during October of each year 
(beginning 1997) in which individuals could change elections. 
An individual who elected the MedicarePlus product option 
(other than the high-deductible/medisave option) for the first 
time could discontinue such election through the filing of an 
appropriate notice for up to 90 days from the enrollment's 
effective date. An individual who discontinued an election 
would be deemed to have elected the Non-MedicarePlus option.
      A person who had elected a high-deductible/medisave 
product could not change to a MedicarePlus option that was not 
a high-deductible/medisave product unless the individual made 
such change during an annual, coordinated election period, or 
the individual had had such election in effect for 12 months. 
The high-deductible/medisave option would become first 
available, effective January 1, 1997. Elections for 1997 would 
occur during the October 1996 election period.
      Special election periods would be provided in which an 
individual could discontinue an election of a MedicarePlus 
product and make a new election if: (1) the organization's or 
product's certification was terminated or the organization 
terminated or otherwise discontinued providing the product; (2) 
the person who elected a MedicarePlus product was no longer 
eligible because of a change in residence or certain other 
changes in circumstances; (3) the individual demonstrated that 
the organization offering the product violated its contract 
with Medicare or misrepresented the product in its marketing; 
or (4) the individual met other conditions specified by the 
Secretary. (New sec. 1805(e))
      h. Effectiveness of Elections. An election made during 
the initial election period would become effective when the 
individual became entitled to Medicare benefits, except as the 
Secretary might provide in order to prevent retroactive 
coverage. During the transition an election to discontinue a 
Medicare Plus option would take effect with the first calendar 
month after the election was made. In general, after the 
transition, elections made during an annual election period 
would take effect as of the first day of the following year. 
Elections during other periods would take effect in the manner 
specified by the Secretary to protect continuity of coverage. 
(New sec. 1805(f))
      i. Payments to Plans in Lieu of Medicare Part A and Part 
B Payments. Payments under a contract with a MedicarePlus 
organization with respect to an individual electing a 
MedicarePlus product offered by an organization would be 
instead of the amounts which would otherwise been payable under 
Medicare Parts A and B. (New sec. 1805(g) of the House bill)
      j. Administration. These provisions would be administered 
through an office in the Department of Health and Human 
Services that was separate from the Health Care Financing 
Administration, and whose primary function would be 
administration of the MedicarePlus and Medicare managed care 
programs. The director of this Division would be of equal pay 
and rank to that of the HCFA Administrator. The Secretary would 
be required to transfer personnel and other resources in HCFA 
to the newly designated division as are used to administer the 
current Medicare managed care program and as might be needed to 
administer than program and the requirements described above. 
(New sec. 1805(h))

Senate bill

      a. In General. The Social Security Act would be amended 
to add a new Part D--Medicare Choice Plans, sections 1895A-
1895S. Sec. 1895A provides for definitions; sec. 1895B provides 
for entitlement to Medicare choices. Additional sections 
provide for election and enrollment procedures. (New sec. 7001)
      b. Types of Choices. Every individual entitled to 
Medicare Part A and enrolled in Medicare Part B (except those 
with end stage renal disease) would be entitled to choose to 
receive benefits through two options: (1) through the existing 
(fee-for-service system (``traditional Medicare'') or (2) by 
receiving payments toward the individual's enrollment in a 
Medicare Choice plan. Eligible Medicare Choice plans would 
include: an indemnity or fee-for-service plan; a coordinated 
care plan; or any other private plan for the delivery of health 
care. A coordinated care plan is defined as a private managed 
or coordinated care plan which provides health care services 
through an integrated network of providers including a 
qualified HMO, preferred provider organization plan (PPO), 
point-of-service plan, provider-sponsored network plan, or 
another coordinated care plan. A Medicare Choice plan also 
could be offered by a union, Taft-Hartley, or qualified 
association sponsor. (New sec. 1895A(b); 1895B)
      c. Special Rules. In general, each Medicare choice 
eligible individual would be entitled to enroll in any Medicare 
Choice plan with a Medicare service area including the 
geographic area in which the individual resided. The Secretary 
would be required to establish special rules for enrollment of 
individuals in Medicare Choice plans that were union, Taft-
Hartley, or association-sponsored plans. Individuals medically 
determined to have end stage renal disease would not be 
eligible to elect a Medicare Choice plan. (An individual who 
developed ESRD while enrolled in a Medicare Choice plan could 
continue to be enrolled in that plan.) By Dec. 31, 1999, the 
Secretary would be required to submit to Congress 
recommendations on expanding the definition of ``Medicare 
Choice eligible individual'' to include individuals with ESRD 
and the enrollment of such individuals in Medicare Choice 
plans. (New sec. 1895A(c)(2)(B) and 1895D(6))
      d. Enrollment Procedures. Medicare Choice eligible 
individuals would enroll in any Choice plan serving the area in 
which they resided during (1) the annual open enrollment 
period; or (2) any specified other enrollment period that 
applied to the individual. Each eligible individual desiring to 
enroll or terminate enrollment would be required to provide the 
Secretary with notice during the enrollment period. To the 
extent feasible, the Secretary would be required to provide for 
the receipt of such notice by telephone, through the mail, and 
in person at local Social Security offices. The Secretary would 
be required to promptly provide each Choice plan with notice of 
an individual's enrollment or disenrollment. (New sec. 1895C(a) 
and 1895C(b))
      e. Assistance in Enrollment Process. The Secretary would 
be authorized to enter into an agreement with the Commissioner 
of Social Security under which the Commissioner would perform 
administrative responsibilities relating to enrollment and 
disenrollment. (New sec. 1895C(e))
      f. Provision of Information to Beneficiaries. By 
September 30 of each year after 1995, the Secretary would be 
required to mail a notice of eligibility to each Medicare 
Choice eligible individual and each individual entitled to 
benefits under Part A prior to the end of the annual open 
enrollment period. The Secretary would be required to mail a 
notice of eligibility to individuals who become newly eligible 
for Medicare Choice during additional enrollment periods no 
later than 2 months before their eligibility. The required 
notice and materials sent by the Secretary would have to 
include an informational brochure. Such information would have 
to be written in the most easily understandable manner possible 
and would have to include at least general information about 
coverage during the next year, including: (1) the Part B 
premium rates, (2) the deductible, copayment, and coinsurance 
amounts for coverage under traditional Medicare, (3) a 
description of the coverage under traditional Medicare and any 
changes in its coverage from the prior year, (4) a description 
of the individual's Medicare payment area, and the standardized 
per person Medicare payment amount; (4) information and 
instructions on how to enroll in a Medicare Choice plan, (5) 
the right of each Medicare Choice plan sponsor by law to 
terminate or refuse to renew its contract and the effect such 
termination could have on an enrollee, and (6) to the extent 
available, quality indicators for traditional Medicare and each 
Choice plan, including for the latter, disenrollment rates for 
the previous 2 years and information on satisfaction and health 
outcomes.
      In addition, plan specific information would be required 
including: (1) the plan's Medicare service area; (2) the 
enrollee's rights to benefits under the plan, (including 
covered items and services and enrollee cost-sharing 
responsibilities); (3) the extent to which enrollees could 
select providers of their choice from within or outside the 
plan's network (if applicable) and the restrictions (if any) on 
the plan's payment for services furnished to enrollees by other 
than the plan's participating providers; (4) out-of-area 
coverage; (5) coverage of emergency services and urgently 
needed care; (6) enrollee appeal rights; (7) whether the plan 
was out of compliance with any Medicare Choice requirements; 
(8) the plan's premium price and an indication of the 
difference between the price and the standardized Medicare 
payment amount; and (9) any optional supplemental coverage 
available and its price. The Secretary could require additional 
information if he or she determined it would assist the 
individual's enrollment decision. To the maximum extent 
feasible, the Secretary would be required to contract with 
appropriate non-Federal entities to assist in providing notice 
and informational materials to Medicare Choice eligible 
individuals. (New sec. 1895C(c); 1895C(d); 1895C(e)(2))
      g. Coverage Election Periods. Medicare Choice eligible 
individuals would enroll in any Choice plan serving the area in 
which they resided during (1) the annual open enrollment 
period; or (2) any other enrollment period that applied to the 
individual. With exceptions, an individual could not terminate 
enrollment before the next annual open enrollment period 
applicable to the individual. An individual could terminate 
enrollment if: (1) the individual moved to a new Medicare 
service area, or (2) the individual had experienced a 
qualifying event (as determined by the Secretary). An 
individual could terminate enrollment if the plan failed to 
meet quality or capacity standards or for other causes as 
determined by the Secretary.
      After initial enrollment in a plan, an individual could 
terminate enrollment within 90 days and enroll in another 
Medicare Choice plan or traditional Medicare.
      If an individual was enrolled in a Medicare Choice plan 
and failed to provide the Secretary with notice of his or her 
enrollment or disenrollment during any open enrollment period 
applicable to the individual, the individual would be deemed to 
have reenrolled in the plan.
      Each Medicare Choice plan sponsor would be required to 
offer an annual open enrollment period in November of each year 
for the enrollment and termination of enrollment of Medicare 
choice eligible individuals for the next year. Each plan 
sponsor would be required to accept the enrollment of an 
individual in the plan: (1) during an initial Medicare 
enrollment period specified in section 1837 of existing law 
(relating to Medicare enrollment periods); and (2) during the 
period specified by the Secretary following any termination of 
the enrollment of the individual in a Medicare Choice plan. 
(New sec. 1895D(b); 1895(G)(b))
      h. Effectiveness of Elections. An election during the 
annual open enrollment period would become effective for the 
calendar year following the open enrollment period. An 
individual enrolling in a special election period would be 
enrolled in the plan for the portion of the calendar year on or 
after the date on which the enrollment became effective (as 
specified by the Secretary). Except as specified above, an 
individual could not terminate enrollment before the next 
annual open enrollment period. (New sec. 1895D(b))
      i. Payments to Plans in Lieu of Medicare Part A and Part 
B Payments. Payments under a contract to a Medicare Choice plan 
and any rebates (as described below) would be instead of the 
amounts which would have otherwise been payable under 
traditional Medicare for items and services furnished to 
individuals enrolled with the plan. (New sec. 1895D(c).
      j. Administration. No provision.

Conference agreement

      The conference agreement follows the House provision with 
modifications.
      Section 8001 of the conference agreement would amend the 
Social Security Act to include a new Part C, new sections 1851 
through 1859. New section 1851 includes provisions relating to: 
(a) choice of plans; (b) special rules, (c) providing 
information to promote informed choice, (d) coverage election 
periods, (e) effectiveness of elections, (f) guaranteed issue 
and renewal, (g) approval of marketing materials, (h) effect of 
election of MedicarePlus plan option, and (i) administration. 
(This represents a reordering of provisions in the House bill.)
      With respect to types of choices, every MedicarePlus 
eligible individual could elect to receive benefits through FFS 
Medicare or through enrollment in a MedicarePlus plan which 
would include: (1) a coordinated care plan, including an HMO 
and PPO; (2) a combination of high deductible plan and 
contributions to a High-Deductible Medicare MSA; (3) plans 
offered by a PSO; (4) union, Taft-Hartley, or qualified 
association plan; (5) a fee-for-service plan that reimburses 
hospitals, physicians, and other providers on the basis of a 
privately determined fee schedule; and (6) other health care 
plans.
      With respect to special rules, individuals medically 
determined to have ESRD would not be eligible to elect 
MedicarePlus, except that an individual who developed ESRD 
while enrolled could continue in that plan.
      It is the intent of the conferees that not later than 
December 31, 1999, the Secretary would submit to Congress 
recommendations on expanding the definition of ``MedicarePlus 
eligible individual'' to include individuals with ESRD and the 
enrollment of such individuals in the MedicarePlus plans.
      In the case of an individual who was enrolled with a 
coordinated care plan that offers a point-of-service option and 
who moved to an area outside the plan's service area, the 
Secretary would have to provide for continued enrollment with 
the plan.
      An individual who was enrolled in the Federal Employees 
Health Benefit Plan would not be eligible to enroll in a high 
deductible plan until such time as the Director of the Office 
of Management and Budget certified to the Secretary that the 
Office of Personnel Management had adopted policies which would 
ensure that the enrollment of such individuals in such plans 
would not result in increased expenditures for the Federal 
Government for health benefit plans.
      With respect to the provision of beneficiary information, 
the Secretary would be required to provide information directly 
to current and prospective Medicare beneficiaries on the 
MedicarePlus plans. First, at least 15 days before the 
beginning of each annual open enrollment period, the Secretary 
would be required to mail to each MedicarePlus eligible 
individual residing in an area a notice containing:
            (1) General election information and information 
        about the Medicare fee-for-service program;
            (2) A list of plans and comparison of plan ;
            (3) The Federal contribution amount with respect to 
        the enrollment of the individual under a MedicarePlus 
        plan;
            (4) Additional information that the Secretary 
        determined would assist in the individual's selection.
The mailing of such information would be coordinated with the 
mailing of the annual notice specified elsewhere in the bill.
       Second, to the extent practicable and no later than 2 
months before the beginning of the initial enrollment in 
Medicare, the Secretary would be required to mail the above 
described information to the individual. It would have to be 
written and formatted in the most easily understandable manner 
possible. The general election and plan information would have 
to be updated on at least an annual basis to reflect changes in 
MedicarePlus plans and the benefits and premiums for such 
plans. The conference agreement specifies the required elements 
of the general election information and information about the 
Medicare fee-for-service program and the information comparing 
plan options.
      The MedicarePlus organizations would be required to 
provide to the Secretary the information on the organization 
and the plan it offered as the Secretary needed to meet these 
information requirements.
      A MedicarePlus organization would be required to 
disclose, in a clear, accurate, and standardized form to each 
enrollee with a MedicarePlus plan offered by the organization 
under this part at the time of the enrollment and at least 
annually thereafter, the following information regarding the 
plan: (1) service area, (2) benefits, (3) out-of-area coverage, 
(4) emergency coverage, (5) optional supplemental coverage, (6) 
prior authorization rules, (7) plan grievance procedures, and 
(8) the quality assurance program.
      With respect to coverage election periods, the conference 
agreement modifies the special 90-day disenrollment option in 
the House provision. In the case of the first time an 
individual elected any MedicarePlus plan (other than a high 
deductible plan) offered by a particular MedicarePlus 
organization, the individual could disenroll within the first 
90 days but the disenrollment option would apply only once for 
an individual with respect to any particular MedicarePlus 
organization and could not apply more than twice for any 
individual in a calendar year. The individual could elect a new 
option, or in the absence of such an election, would be deemed 
at the time of disenrollment to have elected the fee-for-
service Medicare option.
      With respect to payments to plans in lieu of Medicare 
Part A and Part B payments, the conference agreement clarifies 
that only the MedicarePlus organization would be entitled to 
receive Medicare payments from the Secretary for services 
furnished to the individual.

   2. Licensing and Financial Requirements for MedicarePlus/Medicare 
  Choice Plans (Sec. 15002 of the House bill; Sec 7001 of the Senate 
                                 bill)

Current law

      Under section 1876 of the Social Security Act, Medicare 
specifies requirements to be met by an organization seeking to 
become a managed care contractor with Medicare. In general, 
these include the following: (1) the entity must be organized 
under the laws of the State and be a Federally qualified HMO or 
meet specified requirements (provide physician, inpatient, 
laboratory, and other services, and provide out-of-area 
coverage); (2) the organization is paid a predetermined amount 
without regard to the frequency, extent, or kind of services 
actually delivered to a member; (3) the entity provides 
physicians' services primarily through physicians who are 
either employees or partners of the organization or through 
contracts with individual physicians or physician groups; (4) 
the entity assumes full financial risk on a prospective basis 
for the provision of covered services, except that it may 
obtain stop loss coverage and other insurance for catastrophic 
and other specified costs; and (5) the entity has made adequate 
protection against the risk of insolvency.
      There is no provision under current law for high 
deductible/medisave products.

House bill

      a. In General. The Social Security Act would be amended 
to create a new Part C--Provisions Relating to MedicarePlus 
Organizations; High Deductible/Medisave Products. (Sec. 15002 
which establishes new sec. 1851 through 1858 of the Social 
Security Act)
      b. Entity Defined. A MedicarePlus organization would be 
defined as a public or private entity certified (as described 
below) as meeting the requirements described in the following 
provisions. (New sec. 1851(a))
      c. Organized and Licensed under State Law. In general, a 
MedicarePlus organization would have to be organized and 
licensed under State law to offer health insurance or health 
benefits coverage in each State in which it offered a 
MedicarePlus product. This would not apply to a union or Taft-
Hartley sponsor, a qualified association, or a provider-
sponsored organization (PSO). (New sec. 1851(b))
      d. Prepaid Payment. A MedicarePlus organization would 
have to be compensated (except for deductibles, coinsurance, 
and copayments) by a fixed payment paid on a periodic basis and 
without regard to the frequency, extent, or kind of health care 
services actually provided to an enrollee. (New sec. 1851(c))
      e. Assumption of Full Financial Risk. The organization 
would have to assume full financial risk on a prospective basis 
for the provision of health services (other than hospice care) 
except the organization could obtain insurance or make other 
arrangements for: stop-loss coverage for aggregate costs in 
excess of $5,000; services needing to be provided other than 
through the organization; and for no more than 90 percent of 
the amount by which its costs for any of its fiscal years 
exceeded 115 percent of its income for such year. It could also 
make arrangements with providers or health institutions to 
assume all or part of the risk on a prospective basis for the 
provision of basic services. This requirement would not apply 
to a union or Taft-Hartley sponsor, or a qualified association 
with respect to MedicarePlus products offered by such 
organization and issued by an organization required to be 
organized and licensed under State law or by a provider-
sponsored organization (PSO). (New sec. 1851(d))
      f. Provision Against Risk of Insolvency. Each 
MedicarePlus organization would have to meet standards relating 
to financial solvency and capital adequacy, as specified below. 
An entity that is a union or Taft-Hartley plan would be deemed 
to meet this requirement. Additionally, a qualified association 
would also be deemed to meet this requirement with respect to 
MedicarePlus products if the product offered by the association 
and issued by an organization was one that was organized and 
licensed under State law or was a provider-sponsored 
organization (PSO). (New sec. 1851(e))
      g. High Deductible/Medical Saving Account Definition. The 
bill authorizes a Medisave option within MedicarePlus. A 
Medisave plan combines high deductible insurance with a medical 
savings account. High deductible insurance would provide 
reimbursement for Medicare benefits and others the plan may 
elect to provide only after the enrollee incurred annual 
expenses equal to a deductible of not greater than $10,000. 
These thresholds would be increased yearly (and rounded to the 
nearest $50) by the percentage increase in the national average 
per capita growth rate (described below). For purposes of the 
deductible, the insurance would have to at a minimum count all 
expenses that would have been payable by Medicare and the 
enrollee under parts A and B. After the deductible was met, the 
insurance would have to reimburse all expenses that would have 
been paid without regard to deductibles or coinsurance under 
parts A and B. (New sec. 1851(f))
      h. Organizations Treated as MedicarePlus/Medicare Choice 
Plans During Transition. Certain organizations would be 
considered qualified as MedicarePlus organizations for contract 
years beginning before January 1, 1998. These include:
            HMOs organized under State law that are qualified 
        under the Public Health Service Act; an organization 
        that is recognized under State law as an HMO; or a 
        similar organization regulated for solvency in the same 
        manner and extent as an HMO.
            Organizations that are organized under State laws 
        and are licensed by a State agency as a health insurer 
        or as a service benefit plan, but only for individuals 
        residing in an area in which the organization is 
        licensed to offer health insurance coverage; and
            Organizations with Medicare risk contracts as of 
        the date of enactment. (New sec. 1851(g))
      i. Medigrant Demonstration Projects. The Secretary would 
be required to provide, in at least 10 States, for 
demonstration projects which would permit Medigrant programs 
under title XXI of the Social Security Act (Medicaid) to be 
treated as MedicarePlus organizations for individuals who are 
qualified to elect the MedicarePlus option and who are eligible 
to receive medical assistance under Medigrant. The purpose of 
such projects would be to demonstrate the delivery of primary, 
acute, and long-term care through an integrated delivery 
network which emphasized noninstitutional care. (New sec. 
1851(h))
Senate bill
      a. In General. The Social Security Act would be amended 
to create a new Part D--Medicare Choice Plans. New sections 
1895A through 1895S would be added, including provisions 
establishing licensing and financial requirements for Medicare 
Choice plans. (New sec. 1895A and 1895I of Senate bill)
       b. Entity Defined. A Medicare Choice plan would be 
defined to mean an eligible health plan with respect to which 
there was a contract in effect with Medicare to provide health 
benefits coverage to Medicare Choice eligible individuals. A 
Medicare Choice plan sponsor would be defined as a public or 
private entity which established or maintained a Medicare 
Choice plan. (New sec. 1895A(a))
      c. Organized and Licensed Under State Law. In general, a 
Medicare Choice plan would be required to be organized and 
licensed under applicable State law as a risk-bearing entity 
eligible to offer health insurance or health benefits coverage 
in each State in which a Medicare Choice plan enrolled 
individuals under this part. This would not apply to a union, 
Taft-Hartley, or association plan if the plan were exempt from 
State law requirements under ERISA. The requirement would apply 
to coordinated care plans except to the extent that such plans 
were subject to the temporary Federal certification process 
described below. (New sec. 1895I)
      d. Prepaid Payment. A Medicare Choice plan would be 
compensated (except for deductibles, coinsurance, and 
copayments) by a fixed payment paid by the Secretary (and, 
where appropriate, the individual) on a periodic basis and 
without regard to the frequency, extent, or kind of health care 
service actually provided to the enrollee. In the event that a 
Medicare enrollee in a Medicare Choice plan received additional 
benefits as a result of a national coverage determination or 
due to overlapping periods of coverage, only the plan sponsor 
would be entitled to receive payments from the Secretary for 
services furnished to the individual. (New sec. 1895I(d))
      e. Assumption of Full Financial Risk. The Medicare Choice 
plan sponsor would have to assume full financial risk on a 
prospective basis for the provision of health services except 
the sponsor could obtain insurance or make other arrangements 
for: stop-loss coverage for aggregate costs in excess of 
$5,000; services needing to be provided other than through the 
plan sponsor; and for no more than 90 percent of the amount by 
which its costs for any of its fiscal years exceeded 115 
percent of its income for such year. It could also make 
arrangements with providers or health institutions to assume 
all or part of the risk on a prospective basis for the 
provision of basic services. (New sec. 1895I(b))
      f. Protection Against Risk of Insolvency. A Medicare 
Choice plan would be required to make adequate protection 
against the risk of insolvency (including provisions to prevent 
enrollees from being held liable to any person or entity for 
the plan sponsor's debts in the event of the plan sponsor's 
insolvency) as determined by the Secretary, or as determined by 
a State which the Secretary determined requires solvency 
standards at least as stringent as those set by the Secretary. 
In establishing solvency standards for coordinated care plans, 
the Secretary would be required to consult with interested 
parties and take into account: (1) a coordinated care plan 
sponsor's delivery system assets and its ability to provide 
services directly to enrollees through affiliated providers, 
and (2) alternative means of protecting against insolvency, 
including reinsurance, unrestricted surplus, letters of credit, 
guarantees, organizational insurance coverage, and partnerships 
with other licensed entities.
      The Secretary would not be required to include the 
alternative means described above but could consider such 
alternatives where consistent with the standards. (New sec. 
1895I(c))
      g. High Deductible/Medical Savings Account Definition. No 
provision.
      h. Organizations Treated as MedicarePlus/Medicare Choice 
Plans During Transition. No provision (but see new sec. 
1895R(e) for treatment of plans that could be considered 
Federally certified under temporary Federal certification 
process for coordinated care plans).
      i. Medigrant Demonstration. No provision.
Conference agreement
      The conference agreement follows the House provision with 
modifications:
      With respect to the requirement that an entity be 
organized and licensed under State law, the conference 
agreement provides that a MedicarePlus organization would be 
organized and licensed under State law as a risk-bearing entity 
eligible to offer health insurance or health benefits coverage 
in each State in which it offered a MedicarePlus plan. The 
exception for certain union and Taft-Hartley sponsors would 
apply if the plan was exempt from State law requirements under 
ERISA.
      An exception to the general requirement that a 
MedicarePlus plan be organized and licensed in a State would 
apply if the State required that the organization, as a 
condition of licensure, to offer any product or plan other than 
a MedicarePlus plan. In addition, an exception would apply in 
cases of unreasonable barriers to market entry. The conference 
agreement would provide for a MedicarePlus organization to 
apply to the Secretary for a waiver of the requirement, and 
specifies the standard on which the Secretary would determine 
whether to grant the waiver and the timing for doing so.
      Special rules for PSOs would apply. In general, a PSO 
that sought to offer a MedicarePlus plan in a State could apply 
for a waiver of the State organization and licensure 
requirement for an organization in that State. The Secretary 
would be required to act on the application within 60 days 
after it was filed and would grant a waiver for an organization 
with respect to a State if the Secretary determined that:
            (1) the State had failed to substantially complete 
        action on a licensing application within 90 days of the 
        receipt of a completed application, or
            (2) the State denied such a licensing application 
        and (a) the State's licensing standards or review 
        process imposed any requirements, procedures, or other 
        standards on such organizations that were not generally 
        applicable to any other entities engaged in 
        substantially similar business; (b) such standards or 
        review process applied solvency standards and the State 
        did not have approval to do so; and (c) the State used 
        solvency standards to deny or discriminate against such 
        an organization that had been provided a Federal 
        certificate of solvency (as provided for in this bill). 
        No period before the date of enactment could be 
        included in determining the 90 day period described 
        above.

In the case of a waiver granted under this paragraph for a PSO:
            (1) the waiver would be effective for a 36-month 
        period except it could be renewed based on a subsequent 
        application filed during the last 6 months of such 
        period;
            (2) the waiver would be conditioned upon the 
        pendency of the licensure application during the period 
        the waiver was in effect; and
            (3) any provision of State law related to the 
        licensing of the organization and which prohibited the 
        organization from providing coverage pursuant to a 
        MedicarePlus contract would be preempted.

In the case of a waiver granted for a PSO, any provision of 
State law which related to the licensing of the organization 
and which prohibited the organization from providing coverage 
under a MedicarePlus contract would be superseded.
      It is the intent of the conferees that nothing in this 
section restricts the ability of a State to operate a hospital 
reimbursement system recognized under section 1814(b) of the 
Social Security Act or to require payments by PSOs to be made 
on the basis of such system.
      With respect to assumption of full financial risk, the 
conference agreement clarifies that a MedicarePlus organization 
would not have to accept full financial risk for hospice care. 
However, MedicarePlus organizations would have the option of 
assuming full financial risk as under current law.
      The conference agreement includes an amendment relating 
to solvency requirements for PSOs. In the case of an entity 
that was a PSO operating in an approved State (as described 
below), the organization would have to meet solvency standards 
through licensure by the State. In the case of an entity that 
was a PSO operating in a State that had not been approved, then 
the organization would be required to meet solvency standards 
through application and certification licensure by the 
Secretary. The Secretary would be required to establish a 
process under which a State could apply to the Secretary for a 
determination that the State was applying to PSOs, through its 
process for licensing PSOs, solvency standards that were 
consistent with the solvency standards established below (see 
sec. 1856(c)). The Secretary would be required to approve such 
a State if he or she determined that the State was applying the 
standards. If the Secretary denied approval, the State could 
reapply for a determination. The Secretary would be required to 
publish a list of States that were approved.
      The conference agreement modifies the definition of the 
high deductible plan. For the contract year 1997, the 
deductible could be no more than $6,000.
      The conference agreement does not include the Medigrant 
Demonstration Projects. However, it is the intent of the 
conferees that the Secretary provide, in at least 10 States, 
for demonstration projects which would permit Medigrant 
programs under title XXI of the Social Security Act (Medicaid) 
to be treated as MedicarePlus organizations for individuals who 
are qualified to elect the MedicarePlus option and who are 
eligible to receive medical assistance under Medigrant. The 
purpose of such projects would be to demonstrate the delivery 
of primary, acute, and long-term care through an integrated 
delivery network which emphasized noninstitutional care.

     3. requirements relating to benefits, provision of services, 
enrollment, and premiums (new sec. 1852 of house bill; new sec. 1895a, 
    1895c, 1895d, 1895g, 1895h, 1895j, 1895n, 1895r of senate bill)

Current law
      Section 1876 provides for requirements relating to 
benefits, payment to the plans by Medicare, and payments to the 
plans by beneficiaries. In addition, it specifies standards for 
patient protection, quality assurance, and general contractor 
requirements.
      A Medicare beneficiary enrolled in an HMO/CMP is entitled 
to receive all services and supplies covered under Medicare 
Parts A and B (or Part B only, if only enrolled in Part B). 
These services must be provided directly by the organization or 
under arrangements with the organization. Enrollees in risk-
based organizations are required to receive all services from 
the HMO/CMP except in emergencies.
      In general, HMOs/CMPs offer benefits in addition to those 
provided under Medicare's benefit package. In certain cases, 
the beneficiary has the option of selecting the additional 
benefits, while in other cases some or all of the supplementary 
benefits are mandatory.
      Some entities may require members to accept additional 
benefits (and pay extra for them in some cases). These required 
additional services may be approved by the Secretary if it is 
determined that the provision of such additional services will 
not discourage enrollment in the organization by other Medicare 
beneficiaries.
      The amount an HMO/CMP may charge for additional benefits 
is based on a comparison of the entity's adjusted community 
rate (ACR, essentially the estimated market price) for the 
Medicare package and the average of the Medicare per capita 
payment rate. A risk-based organization is required to offer 
``additional benefits'' at no additional charge if the 
organization achieves a savings from Medicare. This ``savings'' 
occurs if the ACR for the Medicare package is less than the 
average of the per capita Medicare payment rates. The 
difference between the two is the amount available to pay 
additional benefits to enrollees. These may include types of 
services not covered, such as outpatient prescription drugs, or 
waivers of coverage limits, such as Medicare's lifetime limit 
on inpatient hospital care. The organization might also waive 
some or all of the Medicare's cost-sharing requirements.
      The entity may elect to have a portion of its ``savings'' 
placed in a benefit stabilization fund. The purpose of this 
fund is to permit the entity to continue to offer the same set 
of benefits in future years even if the revenues available to 
finance those benefits diminish. Any amounts not provided as 
additional benefits or placed in a stabilization fund would be 
offset by a reduction in Medicare's payment rate.
      If the difference between the average Medicare payment 
rate and the adjusted ACR is insufficient to cover the cost of 
additional benefits, the HMO/CMP may charge a supplemental 
premium or impose additional cost-sharing charges. If, on the 
other hand, the HMO does not offer additional benefits equal in 
value to the difference between the ACR and the average 
Medicare payment, the Medicare payments are reduced until the 
average payment is equal to the sum of the ACR and the value of 
the additional benefits.
      For the basic Medicare covered services, premiums and the 
projected average amount of any other cost-sharing may not 
exceed what would have been paid by the average enrollee under 
Medicare rules if she or he had not joined the HMO. For 
supplementary services, premiums and projected average cost-
sharing may not exceed what the HMO would have charged for the 
same set of services in the private market.
      HMOs/CMPs contracting with Medicare can pay second to 
workers' compensation, automobile liability or other specified 
sources of insurance.
      Current law also provides for Medicare managed care 
contracts with Health Care Prepayment Plans (HCPPs). An HCPP 
arrangement is similar to a TEFRA cost-contract except that it 
provides only Part B services. There are no specific statutory 
conditions to qualify for an HCPP contract.
      Collectively bargained health plans and those sponsored 
by private multiemployer health plans (most of which are Taft-
Hartley plans) are regulated under the Employee Retirement 
Income Security Act (ERISA). Under ERISA, the States are 
authorized to regulate multiple employer welfare arrangements 
(MEWAs) to the extent that such regulation does not conflict 
with ERISA. Association plans may or may not be regulated as 
MEWAs and are generally regulated by the States.
      Penalties apply for violations of limits on the use of 
``physician incentive plans,'' i.e., compensation arrangements 
between HMOs and physicians that might induce physicians to 
withhold services. An HMO may not make a specific payment to a 
physician as an inducement to reduce or limit services to a 
specific enrollee. In addition, if physicians or physician 
groups are placed at substantial financial risk for services 
other than their own, the HMO must provide adequate stop-loss 
protection to limit the physicians' potential liability and 
must periodically survey enrollee satisfaction.
      There are no provisions in current law for provider 
protections, or for the Department of Labor to play a role in 
establishing and enforcing Medicare contractor standards for 
employer-sponsored health plans. In addition, there is no 
provision in current law for high-deductible/medisave products.
House bill
      a. Basic Benefits Covered. Each MedicarePlus product 
would be required to provide benefits for at least the items 
and services for which benefits are available under parts A and 
B consistent with the standards for coverage of such items and 
services. A MedicarePlus product would meet this requirement 
if:
            (1) in the case of benefits furnished through fee-
        for-service providers, the product provided for at 
        least the dollar amount of payment for such items and 
        services as would otherwise have been provided under 
        Medicare Parts A and B; and
            (2) in the case of benefits furnished through 
        providers with a contract with the organization, the 
        individual's liability for payment for services did not 
        exceed (after taking into account any deductible which 
        did not exceed any deductible under Parts A and B) the 
        lesser of: (a) the amount of liability that the 
        individual would have had (based on the provider being 
        a participating provider) if the individual had elected 
        the non-MedicarePlus option, or (b) the applicable 
        coinsurance or copayment amounts (that would have 
        applied under the non-MedicarePlus option) provided 
        under the contract. (New sec. 1852(a))
      b. Antidiscrimination. A MedicarePlus organization could 
not deny, limit, or condition the coverage or provision of 
benefits under this part based on the health status, claims 
experience, receipt of health care, medical history, or lack of 
evidence of insurability of an individual. (New sec. 1852(b))
      c. Guaranteed Issue and Renewal/General Availability and 
Capacity Limits. Generally, a MedicarePlus organization would 
be required to provide that at any time during which elections 
were accepted, it would have to accept without restrictions 
individuals eligible to make such an election. If the Secretary 
determined that the organization had a capacity limit and the 
number of individuals who elected the product exceeded that 
limit, the organization could limit the election of 
individuals, but only if priority was given first to those 
individuals who had already elected the product, and then to 
others in a manner which did not discriminate. A MedicarePlus 
organization could not terminate or refuse to accept an 
individual's election except in the event of nonpayment of 
premiums, disruptive behavior, or the product was terminated 
with respect to all eligible Medicare individuals. (Those 
terminated would be deemed to have elected the non-MedicarePlus 
option). (New sec. 1852(c))
      d. Special Rules for Limited Enrollment Organizations. 
MedicarePlus sponsors would have to limit enrollment for 
MedicarePlus products to specific individuals. A union sponsor 
would have to limit eligibility to individuals who were members 
and affiliated with the sponsor through an employment 
relationship or were the spouses of such members. A Taft-
Hartley sponsor would have to limit eligibility to individuals 
who were entitled to obtain benefits under the terms of an 
applicable collective bargaining agreement.
      A qualified association would be defined as an 
individual-membership association, religious fraternal 
organization, or other organization (a trade, industry, or 
professional association, a chamber of commerce, or a public 
entity association) that the Secretary found (1) was formed for 
purposes other than the sale of health insurance and did not 
restrict membership based on the health status, claims 
experience, receipt of health care, medical history, or lack of 
insurability of an individual; (2) did not exist solely or 
principally for the purposes of selling insurance; and (3) had 
at least 1,000 individual members. Association sponsors would 
have to limit eligibility to individuals who were members of 
the association (or their spouses). Associations could not 
terminate coverage of an individual because the individual was 
no longer an association member except pursuant to a change of 
election during an open election period occurring on or after 
the date of termination of membership.
      These eligibility rules could not have the effect of 
denying eligibility to individuals on the basis of health 
status, claims experience, receipt of health care, medical 
history, or lack of evidence of insurability. (New sec. 
1852(c)(4))
      e. Submission and Charging of Premiums. Each MedicarePlus 
organization would be required annually to file with the 
Secretary the amount of the monthly premium for coverage under 
each of its products it would be offering in each payment area, 
and the enrollment capacity in relation to the product in each 
such area. The premium charged for a product offered in a 
payment area would equal \1/12\ of the amount (if any) by which 
the premium exceeded the MedicarePlus capitation rate (see 
below). Premiums could not vary among individuals who resided 
in the same payment area. An exception would apply to high-
deductible/Medisave products which would be experience-rated 
based on specified risk factors. (These factors would be the 
identical demographic and other adjustments used for setting 
the MedicarePlus contribution level.) Each MedicarePlus 
organization would have to permit monthly payment of premiums. 
An organization could terminate election of individuals for a 
MedicarePlus product for failure to make premium payments but 
only under specified conditions.
      In no case could the portion of a MedicarePlus 
organization's premium rate and the actuarial value of its 
deductibles, coinsurance, and copayments attributable to the 
minimum benefits (and not counting any amount attributable to 
balance billing) exceed the actuarial value of the coinsurance 
and deductible applicable in the non-MedicarePlus option. (New 
sec. 1852(d))
      f. Requirement for Additional Benefits, Part B Premium 
Discount Rebates, or Both. If the actuarial value of the 
benefits under the MedicarePlus product (as determined based 
upon the adjusted community rate (ACR)--see below) for 
individuals was less than the average of the capitation 
payments made to the organization for the product at the 
beginning of an annual contract period, the organization could 
provide additional benefits, a monetary rebate (paid on a 
monthly basis) of the Part B monthly premium, or a combination 
of both. The value of these benefits, rebates or combination 
thereof would have to be at least as much as the amount by 
which the capitation payment exceeded the ACR, and would have 
to be applied uniformly for all enrollees in a product area. 
The rebate could not exceed the amount of the Part B premium 
(not taking into account penalties for late enrollment or the 
amount incurred as a result of affluence testing). The 
organization could provide that a part of the excess be 
withheld for the organization's stabilization fund. A 
MedicarePlus organization could provide additional benefits 
(over and above those required to be added as a result of the 
excess payment), and could impose a premium for such additional 
benefits. Cash or other types of rebates to induce enrollment 
or otherwise would be prohibited.
      A MedicarePlus organization could provide that a part of 
the value of the excess actuarial amount be withheld and 
reserved in the HI and SMI trust funds (in such proportions as 
the Secretary determined to be appropriate) by the Secretary 
for subsequent annual contract periods, to the extent required 
to stabilize and prevent undue fluctuations in the additional 
benefits and rebates offered in those subsequent periods. 
Leftover amounts not provided as additional benefits would 
revert to the trust funds.
      The Adjusted Community Rate (ACR) would mean, at the 
election of the MedicarePlus organization, either the rate of 
payment services which the Secretary annually determined would 
apply to the individuals electing a MedicarePlus product if the 
payment were determined under a community rating system, or the 
portion of the weighted aggregate premium which the Secretary 
annually estimated would apply to the individual but adjusted 
for differences between the utilization of individuals under 
Medicare and the utilization of other enrollees (or through 
another specified manner). For PSOs, the ACR could be computed 
using data in the general commercial marketplace or (during the 
transition period) based on the costs incurred by the 
organization in providing such a product. (New sec. 1852(e))
      g. Rules Regarding Physician Participation. Each 
MedicarePlus organization would be required to establish 
reasonable procedures relating to the participation of 
physicians by providing: (a) notice of rules of participation, 
(b) written notice of participation decisions that are adverse 
to providers, and (c) a process within the organization for 
appealing adverse decisions, including the presentation of 
information and views of the provider regarding such decision. 
The organization would be required to consult with physicians 
who have entered into participation agreements with the 
organization regarding the organization's medical policy, 
quality and credentialing criteria, and medical management 
procedures.
      Each MedicarePlus organization would be prohibited from 
operating any physician incentive plan (i.e., any compensation 
arrangement between a MedicarePlus organization and a physician 
or physician group that directly or indirectly has the effect 
of reducing or limiting services provided to enrollees) unless 
certain requirements were met: (1) No specific payment could be 
made directly or indirectly under the plan to a physician or 
physician group as an inducement to reduce or limit medically 
necessary services provided with respect to a specific 
enrollee; (2) if a plan placed a physician or physician group 
at substantial financial risk for services not provided by the 
physician or group, the organization provided adequate and 
appropriate stop-loss protection and conducted periodic surveys 
of both individuals enrolled and previously enrolled to 
determine their degree of access to services and satisfaction 
with the quality of those services; and (3) the organization 
provided to the Secretary descriptive information sufficient to 
determine the plan's compliance.
      A MedicarePlus organization would not be able to provide 
(directly or indirectly) for a provider (or group of providers) 
to indemnify the organization against any liability resulting 
from a civil action brought by or on behalf of an enrollee for 
any damage caused to the enrollee by the organization's denial 
of medically necessary care.
      MedicarePlus fee-for-service plans (those organizations 
that do not have agreements between physicians and the 
organizations for the provision of services) would be exempt 
from these requirements. (New sec. 1852(f))
      h. Provision of Information by Plan to Secretary. Each 
MedicarePlus organization would be required to provide the 
Secretary with the information needed to prepare the 
information booklet described above. (New sec. 1852(g))
      i. Coordinated Acute and Long-Term Care Benefits under 
MedicarePlus/Medicare Choice. States would be able to 
coordinate benefits under their MediGrant programs with those 
provided under a MedicarePlus product to assure continuity of a 
full range of acute and long-term care services to eligible 
poor elderly or disabled individuals. (New sec. 1852(h))
      j. Transitional File and Use for Certain Requirements. In 
the case of MedicarePlus products proposed to be offered during 
the transition period, contractors could submit information to 
the Secretary demonstrating that the product met the 
requirements and standards relating to benefits and premiums. 
If the Secretary did not disapprove the product within 60 days, 
the product would be deemed as meeting these requirements. 
Contractors would still have to meet other MedicarePlus 
contract requirements and standards. (New sec. 1852(i))
      k. Supplemental Benefits. A MedicarePlus Organization 
would be able to provide health care benefits in addition to 
benefits otherwise required and could charge a premium for such 
additional benefits (New sec. 1852(e)(1)(F))
      l. Cost-Sharing. In no case could the portion of a 
MedicarePlus organization's premium rate and the actuarial 
value of its deductibles, coinsurance, and copayments 
attributable to the minimum benefits (and not counting any 
amount attributable to balance billing) exceed the actuarial 
value of the coinsurance and deductible applicable in the non-
MedicarePlus option. (New sec. 1851(d)(5))
      m. Organization as Secondary-Payer. The MedicarePlus 
organization could pay second in specified cases. (New sec. 
1852(a)(2))
      n. National Coverage Determination. See sec. 15721 of the 
House bill as described under Subtitle H.
      o. Point-of-Service Coverage. No provision.
      p. Prompt Payment. No provision.

Senate bill

      a. Basic Benefits Covered. Each Medicare Choice plan 
would be required to provide to Medicare enrollees, through 
providers and other persons that meet the applicable 
requirements of Medicare and Part A of title XI (relating to 
General Provisions of the Social Security Act), those items and 
services covered under Medicare Part A and Part B which are 
available to individuals residing in the Medicare service area 
of the plan and additional health services as the Secretary 
might approve. The Secretary would be required to approve any 
such additional health care services which the plan proposed to 
offer to Medicare enrollees, unless the Secretary determined 
that including such additional services would substantially 
discourage enrollment by Medicare Choice eligible individuals. 
(New sec. 1895H(a))
      b. Antidiscrimination. Each Medicare Choice plan would 
have to provide assurances to the Secretary that it would not 
deny enrollment to, expel, or refuse to reenroll any such 
individual because of the individual's health status or 
requirements for health care services, and that it would notify 
each individual of such fact at the time of their enrollment. 
(New sec. 1895J(e)(1))
      c. Guaranteed Issue and Renewal/General Availability and 
Capacity Limits. Each Medicare Choice plan sponsor would be 
required to provide that each eligible individual would be 
eligible to enroll in the plan during an applicable enrollment 
period if the plan's Medicare service area included the 
geographic area in which the individual resided. Each sponsor 
would have to provide that, at any time during which 
enrollments were accepted, the sponsor would accept eligible 
individuals in the order in which they applied up to the limits 
of the plan's capacity (as determined by the Secretary) and 
without restrictions, except as might be authorized in 
regulations. The preceding sentence would not apply if it would 
result in the enrollment of enrollees substantially 
nonrepresentative, as determined in accordance with regulations 
of the Secretary, of the Medicare population in the Medicare 
service area of the plan. Each plan sponsor would be required 
to protide the Secretary with a demonstration of the plan's 
capacity to adequately service its expected enrollment. A plan 
could not cancel or refuse to renew a beneficiary except in the 
case of fraud or nonpayment of premiums. (New sec. 1895G(a), 
1895J(d), 1895J(e)(1))
      d. Special Rules for Limited Enrollment Organizations. A 
Medicare Choice plan sponsor of a union, Taft-Hartley plan, or 
association plan would be required to limit its enrollment to 
members of the sponsoring group who were entitled to all rights 
and privileges of any other members of the group and spouses of 
such members. An association plan sponsored by a religious 
fraternal benefit society could limit membership to individuals 
who shared the same religious convictions as the society.
      A ``union or association plan'' is defined to mean an 
eligible health plan with a union sponsor, a Taft Hartley 
sponsor, or a qualified association sponsor that: (1) was 
organized for purposes other than to market a health plan; (2) 
could not condition its membership on health status, health 
claims experience, receipt of health care, medical history, or 
lack of evidence of insurability of a potential member; (3) 
could not exclude a member or spouse from health plan coverage 
based on those factors in item 2; (4) was a permanent entity 
which received a substantial majority of its financial support 
from active members; and (5) could not be owned or controlled 
by an insurance company. A ``qualified association sponsor'' is 
defined as an association, religious fraternal organization, or 
other organization (which could be a trade, industry, or 
professional association, chamber of commerce, or a public 
entity association) which established or maintained eligible 
health plans. (New sec. 1895A(b)(2); 1895G(a))
      e. Submission and Charging of Premiums. Each Medicare 
Choice plan sponsor would be required annually to file with the 
Secretary the amount of the monthly premium for coverage under 
each of the plans it would be offering in each Medicare service 
area in which the plan was being offered. The enrolled 
individual: (1) would receive a rebate (as described below) if 
the plan's premium was less than the standardized Medicare 
payment amount; and (2) would be required to pay the plan's 
premium in excess of the standardized payment amount. The 
premiums charged by a plan sponsor could not vary among 
individuals who resided in the same Medicare payment area. Each 
plan sponsor would be required to permit monthly payment of 
monthly premiums. (New sec. 1895D(a); 1895N(a))
      f. Requirement for Additional Benefits, Part B Premium 
Discount Rebates, or Both. If the standardized Medicare payment 
amount for the Medicare payment area in which an individual 
resided exceeded the amount of the monthly premium for the 
plan, the Secretary would be required to: (1) pay to the plan 
sponsor on behalf of the individual the monthly amount equal to 
the 100 percent of the excess for supplemental benefits; or (2) 
pay to the individual an amount equal to 75 percent of the 
remainder of such excess and deposit the remainder of the 
excess in the Federal Hospital Insurance Trust Fund. Rebates 
would have to be paid on a monthly basis from the Trust Funds 
on a proportional basis as specified. (New sec. 1895N(b))
      g. Rules Regarding Physician Participation. No provision.
      h. Provision of Information by Plan to Secretary. Each 
Medicare Choice plan sponsor would be required to provide such 
information as the Secretary requested with respect to its 
Medicare Choice plan in order to carry out activities relating 
to the Secretary's provision of plan information to 
beneficiaries. (New sec. 1895C(e)(3)).
      i. Coordinated Acute and Long-Term Care Benefits under 
MedicarePlus/Medicare Choice. No provision.
      j. Transitional File and Use for Certain Requirements. No 
provision (but see 1895R)
      k. Supplemental Benefits. Each Medicare Choice plan could 
offer optional supplemental benefits for an additional premium. 
If the supplemental benefits were offered only to Medicare 
enrollees, the additional premium would have to be the same for 
all enrolled individuals in the Medicare payment area. 
Supplemental benefits could be marketed and sold by the sponsor 
outside of the enrollment process. (New sec. 1895H(b))
      l. Cost-Sharing. The total deductibles, coinsurance, and 
copayments charged an individual under a Medicare Choice plan 
for basic benefits for a year could not exceed the average 
total amount of deductibles, coinsurance, and copayments 
charged an individual under the traditional Medicare program 
for a year. If the Secretary determined that adequate data were 
unavailable to determine the average cost-sharing under the 
plan, the Secretary could determine the amount with respect to 
all individuals in the Medicare payment area, the State, or in 
the U.S., eligible to enroll in the plan or on the basis of 
other appropriate data. (New sec. 1895H(c))
      m. Organization as Secondary Payer. The Medicare Choice 
plan sponsor could pay second in specified cases. (New sec. 
1895H(f))
      n. National Coverage Determinations. If a national 
coverage determination was made in the period beginning on the 
date of an announcement of Medicare payment rates and ending on 
the date of the next announcement that the Secretary projected 
would produce a significant change in costs to the Medicare 
Choice plan and that the change in costs was not reflected in 
the Medicare payment amounts for that period: (1) the 
determination would not apply to contracts until the first 
contract year beginning after the end of such period, and (2) 
if the coverage determination provided for coverage of 
additional benefits or under additional circumstances, the 
individual would not obtain such coverage until the first 
contract year beginning after the end of such period unless 
otherwise required by law. (New sec. 1895H(d))
      o. Point-of-Service Coverage. If a Medicare Choice 
sponsor offered a Choice plan that limited benefits to items 
and services furnished only by providers in a network of 
providers which contracted with the sponsor, the sponsor would 
also have to offer, at the time of enrollment, a Medicare 
Choice plan that permitted payment to be made under the plan 
for services obtained out of network by the individual (i.e., a 
point-of-service option). (New sec. 1895G(a)(3))
      p. Prompt Payment. Each Medicare Choice plan sponsor 
would be required to provide prompt payment consistent with 
existing provisions of law of claims submitted for services and 
supplies furnished to Medicare enrollees if the services or 
supplies were not furnished under a contract between the plan 
and the provider or supplier. In the case of a plan sponsor 
which the Secretary determined, after notice and opportunity 
for a hearing, had failed to make prompt payment, the Secretary 
could provide for direct payment of the amounts owed. If this 
occurred, the Secretary would provide for an appropriate 
reduction in the amount of payments otherwise made to the plan 
sponsor. (New sec. 1895J(f))

Conference agreement

      The conference agreement follows the House provision with 
modifications.
      New section 1852 of the Social Security Act would provide 
for ``Benefits and Beneficiary Protections,'' which 
incorporates largely House provisions on benefits and patient 
protection standards. The conference agreement also establishes 
a new section 1855, ``Premiums and Rebates,'' which largely 
incorporates provisions of the House bill on the submission and 
charging of premiums.
      With respect to basic benefits covered, the MedicarePlus 
plan would have to provide benefits to members through 
providers and other persons who meet the applicable 
requirements of Medicare and part A of title XI of the Social 
Security Act. The plan would have to provide such additional 
health services as the Secretary might approve. The Secretary 
would be required to approve any such additional health care 
services which the plan proposed to offer to such members, 
unless the Secretary determined that including such additional 
services would substantially discourage enrollment by 
MedicarePlus eligible individuals with the plan.
      It is the conferees' intent that Christian Science 
nursing facility services that are currently covered under Part 
A of Medicare should be made available by MedicarePlus plans to 
enrollees who choose to use such services.
      A MedicarePlus organization would be required to notify 
each MedicarePlus plan enrollee of the antidiscrimination 
protections at the time of the individual's enrollment.
      The conference agreement modifies the House provision 
relating to priority of enrollment in the case of a plan 
reaching capacity limits. The priority rules would not apply if 
they would result in the enrollment of enrollees substantially 
nonrepresentative, as determined in accordance with regulations 
of the Secretary, of the Medicare population in the service 
area of the plan.
      The conference agreement modifies the definition of a 
qualified association plan to require that it not be owned or 
controlled by an insurance company.
      The conference agreement includes the Senate provision 
relating to supplemental benefits. Each Medicare Choice plan 
could offer optional supplemental benefits for an additional 
premium. If the supplemental benefits were offered only to 
Medicare enrollees, the additional premium would have to be the 
same for all enrolled individuals in the Medicare payment area. 
Supplemental benefits could be marketed and sold by the sponsor 
outside of the enrollment process.
      The conference agreement includes the Senate provision 
relating to national coverage determinations. If a national 
coverage determination was made in the period beginning on the 
date of an announcement of Medicare payment rates and ending on 
the date of the next announcement that the Secretary projected 
would produce a significant change in costs to the MedicarePlus 
plan and that the change in costs was not reflected in the 
Medicare payment amounts for that period: (1) the determination 
would not apply to contracts until the first contract year 
beginning after the end of such period, and (2) if the coverage 
determination provided for coverage of additional benefits or 
under additional circumstances, the individual would not obtain 
such coverage until the first contract year beginning after the 
end of such period unless otherwise required by law.
      The conference agreement establishes a new section on 
``Premiums and Rebates'' modifying the House bill. The 
agreement defines the term ``monthly premium'' with respect to 
a MedicarePlus plan as the monthly premium filed with the 
Secretary for coverage for services, not taking into account 
the amount of any payment made to the plan by Medicare. It 
defines the term ``net monthly premium'' with respect to such 
plan and an individual enrolled with it as the ``monthly 
premium'' reduced by the payment made toward such premium by 
Medicare. In no case could the portion of the monthly premium 
for a MedicarePlus plan for an area and year attributable to 
required services exceed the ACR for the plan.
      The net monthly premium charged by a MedicarePlus 
organization for a Medicare plan in a payment area to an 
individual would be equal to the amount (if any) by which
            (1) the amount of the monthly premium for the plan 
        involved exceeded
            (2) \1/12\ of the annual MedicarePlus capitation 
        rate for the area and year involved.
       The requirement that there be a uniform premium within a 
payment area would apply to both the monthly premium and the 
net monthly premium (including rebates offered by a 
MedicarePlus organization).
      With respect to rebates, the conference agreement 
includes the following provision: To the extent that the 
adjusted excess amount exceeded the value of additional 
benefits provided by the organization, then the organization 
would have to provide for payment of the amount of such excess 
as follows: (1) If the individual had a Rebate MSA and elected 
a rebate, the organization would have to pay the excess into 
the MSA. (2) Otherwise, the organization would have to pay 75% 
of the excess to the individual and 25% to the Hospital 
Insurance Trust Fund. The conference agreement does not include 
the House provision limiting cash rebates to the Part B premium 
amount.

4. patient protection standards (new sec. 1853 of house bill; new sec. 
              1895c, 1895(g), and 1895(j) of senate bill)

Current law

      Medicare HMOs/CMPs must provide enrollees, at the time of 
enrollment and annually thereafter, an explanation of rights to 
benefits, restrictions on services provided through 
nonaffiliated providers, out-of-area coverage, coverage of 
emergency and urgently needed services, and appeal rights.
      Medicare HMOs/CMPs must make all Medicare covered 
services and all other services contracted for available and 
accessible within its service area, with reasonable promptness 
and in a manner that assures continuity of care. Urgent care 
must be available and accessible 24 hours a day and 7 days a 
week. HMOs must also pay for services provided by nonaffiliated 
providers when services are medically necessary and immediately 
required because of an unforeseen illness, injury, or condition 
and it is not reasonable, given the circumstances, to obtain 
the services through the HMO.
      Medicare HMOs/CMPs must enroll individuals and provide 
covered services to enrollees who live within the geographic 
area served by the organization. Regulations provide that 
geographic area means the area found by HCFA to be that within 
which the HMO furnishes, or arranges for furnishing, the full 
range of services it offers to its Medicare enrollees.
      HMOs/CMPs are required to have arrangements for an 
ongoing quality assurance program that stresses health outcomes 
and provides review by physicians and other health care 
professionals of the process followed in the provision of 
health services. External review is conducted by a peer review 
organization (PRO), one of the groups that has contracted with 
the Secretary for review of the quality and appropriateness of 
hospital services. PRO reviews of HMOs/CMPs covers both 
inpatient and outpatient care. The Secretary also has the right 
to inspect or otherwise evaluate the quality, appropriateness, 
and timeliness of services provided and the facilities of the 
organization when there is reasonable evidence of some need for 
inspection.
      In up to 25 States, the Secretary is authorized to 
designate another external agency, known as a quality review 
organization or QRO to perform reviews. QROs must meet many of 
the same standards as PROs, but have not contracted with the 
Department of HHS for the review of services other than those 
provided by an HMO/CMP.
      HMOs/CMPs must have meaningful grievance procedures for 
the resolution of individual enrollee complaints, about such 
problems as failure to receive covered services or unpaid 
bills. In addition, an enrollee who believes that the HMO has 
improperly denied a service or imposed an excessive charge has 
the right to a hearing before the Secretary if the amount 
involved is greater than $100. If the amount is greater than 
$1,000, either the enrollee or the HMO may seek judicial 
review.

House bill

      a. Disclosure of Information to Enrollees. Each 
MedicarePlus organization would be required to disclose in 
clear, accurate, and standardized forms certain information 
including: (1) benefits, including coverage exclusions and, for 
a high-deductible/medisave product, a comparison of its 
benefits with those under other MedicarePlus products; (2) 
rules relating to prior authorization or other review 
requirements that could result in nonpayment; (3) liability for 
cost-sharing for out-of-network services; (4) the number, mix, 
and distribution of providers; (5) financial obligations of the 
enrollee; (6) enrollee satisfaction data; (7) enrollee rights 
and responsibilities; (8) a statement that use of the 911 
number is appropriate in emergency situations; and (9) a 
description of the organization's quality assurance program. 
(New sec. 1853(a))
      b. Access to Services. A MedicarePlus organization 
offering a MedicarePlus product could restrict the providers 
from whom benefits were to be provided so long as: (1) the 
organization made the benefits available to each individual 
electing the product within the service area with reasonable 
promptness and in a manner which assured continuity in the 
provision of benefits, (2) when medically necessary, the 
organization made benefits available and accessible 24 hours a 
day and 7 days a week, (3) the product provided for 
reimbursement to other organizations if the services were 
medically necessary and immediately required because of an 
unforeseen illness, injury, or condition and it was not 
reasonable given the circumstances to obtain the services 
through the organization, and (4) coverage was provided for 
emergency services without regard to prior authorization or the 
emergency care provider's contractual relationship with the 
organization.
      Emergency services are defined as covered inpatient and 
outpatient services that are furnished by an appropriate source 
other than the organization, are needed immediately because of 
an injury or sudden illness, and are needed because the time 
required to reach the organization's providers or suppliers 
would have meant risk of serious damage to the patient's 
health.
      If the MedicarePlus product provided out-of-network 
coverage (i.e., under a point of service option), the payment 
level for services furnished outside the network would have to 
be at least 70 percent (or, if the cost-sharing was 50 percent, 
at least 40 percent) of the lesser of the payment basis 
(determined without regard to deductibles and cost-sharing) 
that would have applied under Medicare Parts A and B, or the 
amount charged by the entity furnishing such items and 
services.
      In the event that emergency services were furnished by a 
participating physician or provider of services to an 
individual enrolled in a MedicarePlus organization, the 
applicable participation agreement would be deemed to provide 
that the physician or provider of services would accept as 
payment in full from the organization the amount that would be 
payable if the individual were not enrolled with a MedicarePlus 
organization. In the event that emergency services were 
furnished by a nonparticipating physician, the limitations on 
actual charges otherwise applicable under Medicare Part B would 
apply in the same manner as they do to services furnished to 
individuals not enrolled in a MedicarePlus organization. (New 
sec. 1853(b))
      c. Timely Authorization for Promptly Needed Care 
Identified as a Result of Required Screening Evaluation. No 
provision.
      d. Confidentiality and Accuracy of Enrollee Records. Each 
MedicarePlus organization would have to establish procedures to 
safeguard the privacy of individually identifiable enrollee 
information, and maintain accurate and timely medical records. 
(New sec. 1853(d))
      e. Quality Assurance and Accreditation Program. Each 
MedicarePlus organization would be required to arrange (in 
accordance with regulations of the Secretary) for an ongoing 
quality assurance program meeting certain requirements such as: 
(1) stressing health outcomes; (2) providing the establishment 
of written protocols for utilization review, (3) providing 
review by physicians and other health care professionals of the 
process followed in the provision of services; (4) monitoring 
and evaluating high volume and high risk services and the care 
of acute and chronic conditions; (5) evaluating the continuity 
and coordination of care; (6) establishing mechanisms to detect 
underutilization and overutilization; (7) making information 
available on quality and outcomes to facilitate beneficiary 
comparison and choice; (8) evaluating on an ongoing basis the 
plan's effectiveness; and (9) providing for external 
accreditation or review, by a Peer Review Organization or other 
qualified independent review organization, that the quality of 
services meets professionally recognized standards of health 
care (including providing adequate access of enrollees to 
services). In addition, MedicarePlus fee-for-service plans 
would be exempt from the requirement that the organization have 
arrangements for an ongoing quality assurance program and that 
it maintain accurate and timely medical records for enrollees.
      The Secretary would be required to provide that a 
MedicarePlus organization would be deemed to have met these 
requirements if it was accredited by a private organization 
under a process that the Secretary determined assured that the 
organization met standards that were no less stringent than 
those required by the bill. (New sec. 1853(d))
      f. Coverage Determinations. Each MedicarePlus 
organization would have to make determinations regarding 
authorization requests for nonemergency care on a timely basis. 
Medical necessity decisions could only be made by a physician. 
Appeals of a determination would have to be decided within 30 
days of receiving medical information and no later than 60 days 
after the date of the decision. Appeals relating to a life-
threatening or emergency situation would have to be decided on 
an expedited basis. (New sec. 1853(e))
      g. Grievances and Appeals. Each MedicarePlus organization 
would have to provide for meaningful procedures for hearing and 
resolving grievances between the organization (and entities and 
individuals through which it provides services) and enrollees. 
An enrollee dissatisfied by reason of the enrollee's failure to 
receive health services would be entitled, if the amount in 
controversy was $100 or more, to a hearing before the 
Secretary. If the amount in controversy was $1,000 or more, the 
individual or organization, upon notifying the other party, 
would be entitled to judicial review. The Secretary would be 
required to contract with an independent, outside entity to 
review and resolve appeals of denials of coverage related to 
urgent or emergency services with respect to MedicarePlus 
products. The Secretary would be required to consult with the 
Secretary of Labor to ensure that these requirements, as they 
apply to grievances to which section 503 of ERISA applies, are 
applied in a manner consistent with the requirements of ERISA. 
(New sec. 1853(f))
      h. Information on Advance Directives. Each MedicarePlus 
organization would be required to maintain written policies and 
procedures respecting advance directives (as specified 
elsewhere in the Medicare statute). (New sec. 1853(g))
      i. Approval of Marketing Materials. Each MedicarePlus 
organization could not distribute marketing material unless (1) 
at least 45 days before distribution, the organization 
submitted the material to the Secretary for review, and the 
Secretary did not disapprove the material. Standards 
established below would include guidelines for the review of 
such materials. Under these guidelines, the Secretary would be 
required to disapprove marketing material if it was materially 
inaccurate or misleading or otherwise made a material 
misrepresentation. To facilitate ``one stop shopping,'' 
materials submitted to the Secretary by an organization for a 
MedicarePlus product in an area that were not disapproved would 
be considered as such for all other areas covered by the 
product and organization. Each MedicarePlus organization would 
be required to conform to fair marketing standards included in 
the MedicarePlus standards. Such standards would include a 
prohibition against a plan (or agent of such a plan) completing 
any portion of any election form on behalf of any individual. 
(New sec. 1853(h))
      j. Supplemental Coverage if Plan Terminates the Contract. 
No provision.

Senate bill

      a. Disclosure of Information to Enrollees. No provision 
for plan disclosure to enrollees. Secretary would disclose 
information to enrollees. Each Medicare Choice plan sponsor 
would be required to provide such information as the Secretary 
requested regarding the plan in order for the Secretary to 
provide specific information to enrollees. (New sec. 
1895C(e)(3))
      b. Access to Services. Each Medicare Choice plan sponsor 
would be required to: (1) make the basic services (and other 
services for which the sponsor contracted) available and 
accessible to each individual, within the Medicare service area 
of the plan with reasonable promptness, and in a manner which 
assured continuity; (2) provide for reimbursement with respect 
to such services provided to the enrollee other than through 
the plan's providers if: (A) the services were medically 
necessary and immediately required because of an unforeseen 
illness, injury, or condition, and (B) it was not reasonable 
given the circumstances to obtain the services through the 
plan's providers. (3) Provide access to appropriate providers, 
including credentialed specialists, for all medically necessary 
treatment and services; and (4) except as provided by the 
Secretary on a case-by-case basis, in the case of a coordinated 
care plan, provide primary care services within 30 minutes or 
30 miles from an enrollee's place of residence if the enrollee 
resides in a rural area. Each Medicare Choice plan sponsor 
would be required to provide the Secretary with a demonstration 
of the plan's capacity to adequately service the plan's 
expected Medicare enrollment. (New sec. 1895J(d))
      c. Timely Authorization for Promptly Needed Care 
Identified as a Result of Required Screening Evaluation. A 
Medicare Choice plan sponsor would be required to provide 
access 24 hours a day, 7 days a week to such persons as might 
be authorized to make any prior authorizations required by the 
plan sponsor for coverage of items and services (other than 
emergency services) that a treating physician or other 
emergency department personnel identified pursuant to a 
screening examination required under section 1867(a) of the 
Social Security Act (relating to examination and treatment in a 
medical emergency) as being needed promptly by an enrollee. A 
plan sponsor would be deemed to have approved a request for 
such services if the physician or other emergency department 
personnel involved: (1) made a reasonable effort to contact the 
person for authorization to provide an appropriate referral or 
to provide the services; or (2) requested such authorization 
from the person and the person had not denied the authorization 
within 30 minutes after the request was made. Approval of a 
request for a prior authorization determination would be 
treated as approval of a request for any items and services 
that were requested to treat the medical condition identified 
as a result of the required screening examination. ``Emergency 
services'' and ``emergency medical condition'' are specifically 
defined (New sec. 1895J(h))
      d. Confidentiality and Accuracy of Enrollee Records. No 
provision.
      e. Quality Assurance and Accreditation Program. Each 
Medicare Choice plan sponsor would be required to meet certain 
health plan standards, including those relating to quality 
assurance and accreditation.
      Each sponsor would be required to establish an ongoing 
internal quality assurance program (in accordance with 
regulations established by the Secretary for health care 
services it provides to Medicare enrollees). This program would 
be required to (1) emphasize health outcomes; (2) provide for 
establishment of written protocols for utilization review; (3) 
provide review by physicians and other health care 
professionals of the process followed in the provision of 
services; (4) monitor and evaluate high volume and high risk 
services and the care of acute and chronic conditions; (5) 
evaluate the continuity and coordination of care; (6) establish 
mechanisms to detect underutilization and overutilization; (7) 
after identifying areas for improvement, establish or alter 
practice parameters; (8) take action to improve quality and 
assess the effectiveness of such action through systematic 
follow-up; (9) make information available on quality and 
outcomes to facilitate beneficiary comparison and choice; and 
(10) evaluate on an ongoing basis the plan's effectiveness.
      Each sponsor also would be required to have an agreement 
with an independent quality review and improvement organization 
approved by the Secretary. Such an organization would be 
required to: (1) provide an alternative mechanism for 
addressing enrollee grievances; (2) review plan performance 
based on accepted quality performance criteria; (3) promote and 
make plans accountable for improved plan performance; (4) 
integrate into ongoing external quality assurance activities a 
new set of quality indicators and standards developed 
specifically for the Medicare population that would be used to 
determine whether a plan was providing quality care and 
appropriate continuity and coordination of care; and (5) report 
to the Secretary on those plans that demonstrated unwillingness 
or inability to improve their performance.
      Each sponsor would be required to meet accreditation 
standards established by the Secretary or to be accredited by 
an external independent accrediting organization, recognized by 
the Secretary as requiring standards at least as stringent as 
those set by the Secretary.
      The Secretary would be required to create incentives for 
sponsors to report aggregate encounter data, including data on 
physician visits, nursing home days, home health days, hospital 
inpatient days and rehabilitation services. (New sec. 
1895J(a);1895J(b))
      f. Coverage Determinations. The Secretary would be 
required to provide an expedited review procedure (under the 
requirements for the sponsor to provide a hearing for 
grievances) where a failure to receive any health care service 
or payment for such service would result in significant harm. 
(New sec. 1895J(e)(2)(C))
      g. Grievances and Appeals. Each Medicare Choice plan 
sponsor would have to provide for meaningful procedures for 
hearing and resolving grievances between the organization (and 
entities and individuals through which it provides services) 
and enrollees. An enrollee dissatisfied by reason of the 
enrollee's failure to receive health services would be 
entitled, if the amount in controversy was $100 or more, to a 
hearing before the Secretary. If the amount in controversy was 
$1,000 or more, the individual or organization, upon notifying 
the other party, would be entitled to judicial review. The 
Secretary would be required to contract with an independent, 
outside entity to review and resolve appeals of denials of 
coverage related to urgent or emergency services with respect 
to Medicare Choice plans (see new sec. 1895J(b)(2)(B)); 
1895J(e)).
      h. Information on Advance Directives. A contract with 
Medicare would have to provide that a Medicare Choice plan 
maintain written policies and procedures respecting advance 
directives (as specified elsewhere in the Medicare statute). 
(new sec. 1895J(g))
      i. Approval of Marketing Materials. In addition to 
informational materials required to be distributed by the 
Secretary, a Medicare Choice Plan sponsor could develop and 
distribute marketing materials and engage in marketing 
strategies in accordance with the following: Any marketing 
material developed or distributed by a Medicare Choice plan 
sponsor and any marketing strategy developed by such a sponsor: 
(1) would be required to accurately describe differences 
between health care coverage available under the plan and the 
coverage available under traditional Medicare; (2) would have 
to be pursued in a manner not intended to violate the 
nondiscrimination requirements; and (3) could not contain false 
or materially misleading information, and would have to conform 
to any other fair marketing and advertising standards and 
requirements applicable to such plans under law. A sponsor 
would not be allowed to distribute marketing material unless at 
least 45 days before distribution, the plan submitted the 
material to the Secretary for review, and the Secretary did not 
disapprove the material. The Secretary would be required to 
review all marketing materials under guidelines established by 
the Secretary. Under these guidelines, the Secretary would be 
required to disapprove marketing material if it was materially 
inaccurate or misleading or otherwise made a material 
misrepresentation. Materials submitted to the Secretary or a 
regional office of the Department of Health and Human Services 
that were not disapproved with respect to one area would be 
considered as such for all other areas covered by the plan. 
(New sec. 1895G(c))
      j. Supplemental Coverage if Plan Terminates the Contract. 
Each Medicare Choice plan sponsor that provided coverage 
pursuant to a contract with Medicare would be required to 
provide assurances to the Secretary that in the event that the 
contract was terminated, the sponsor could provide or arrange 
for supplemental coverage of benefits under this title related 
to a preexisting condition with respect to any exclusion 
period, to all individuals enrolled with the entity who 
received Medicare benefits, for the lesser of 6 months or the 
duration of such period. (Sec. 1895(J)(e)(3))
Conference agreement
      The conference agreement follows the House provision with 
modifications. (See also previous section.)
      With respect to access to services, the conference 
agreement does not include the House provision specifying 
minimum payment levels where providing out-of-network services 
pursuant to a point-of-service coverage. It does require that 
the organization provide access to appropriate providers, 
including credentialed specialists, for all medically necessary 
treatment and services, and that coverage be provided for 
emergency services without regard to prior authorization or the 
emergency care provider's contractual relationship with the 
organization.
      The conference agreement clarifies that ``certain fee-
for-service'' plans means ``unrestricted fee-for-service 
plans.'' The latter is defined as a MedicarePlus FFS plan that 
provides for coverage of benefits without restrictions relating 
to utilization and without regard to whether the provider has a 
contract or other arrangement with the organization offering 
the plan for the provision of such benefits.
      With respect to the required quality assurance and 
accreditation program, the conference agreement modifies the 
provision relating to external review for quality assurance. 
Each MedicarePlus organization, for each plan it operated, 
would have to have an agreement with an independent quality 
review and improvement organization approved by the Secretary.
      With respect to grievances and appeals, the conference 
agreement modifies the requirement that the Secretary of HHS 
coordinate with the Secretary of Labor with respect to making 
the grievance process consistent with the requirements of 
section 503 of ERISA to ensure that the requirements provide 
for at least as much protection for beneficiaries as would have 
applied in its absence.
      It is the intent of conferees that in the provision of 
information regarding advance directives that no health care 
provider or employee of a health care provider be required 
under this section to inform or counsel a patient regarding 
services which purposely cause the death of a person such as 
assisted suicide, euthansia, or mercy killing.

  5. provider-sponsored organizations (psos) (new sec. 1854 of house 
                                 bill)

Current law
      PSOs do not qualify as eligible organizations for 
Medicare managed care contracts.
House bill
      a. Provider-Sponsored Organization (PSO) Defined. A PSO 
means a public or private entity that (in accordance with 
standards established under this bill) is a provider or group 
of affiliated providers that provides a substantial portion of 
health care under the contract directly through the provider or 
affiliated group of providers. In defining substantial 
proportion, the Secretary would be required to consider the 
need for such an organization to assume responsibility for a 
substantial portion of services in order to assure financial 
stability and other factors. Affiliation is specifically 
defined. (New sec. 1854(a))
      b. Process for Establishing Standards. These requirements 
are specified in other sections of the bill. (New sec. 1854(b))
      c. Process for State Certification of PSOs. These 
requirements are specified in other sections of the bill. (New 
sec. 1854(c))
      d. Preemption of State Insurance Licensing Requirements. 
In general, State law would be preempted which required that a 
PSO meet requirements for insurers of health services or HMOs 
doing business in the State with respect to initial 
capitalization and establishment of financial reserves against 
insolvency or imposed requirements that would have the effect 
of prohibiting the PSO from complying with the applicable 
requirements of the bill. The general preemption of State law 
would not apply with respect to State laws that met the bill's 
requirements for the Secretary to approve State PSO 
certification. Nothing in this provision would affect the 
operation of the Federal preemption of State law under section 
514 of ERISA. (New sec. 1854(d))
Senate bill
      No provision. (See new sec. 1895R on Temporary Federal 
Certification Process for Coordinated Care Plans.)
Conference agreement
      The conference agreement follows the House bill with 
modifications. (See also discussion of conference agreement for 
Licensing and Financial Requirements.)
      The conference agreement defines a provider-sponsored 
organization (PSO) as a public or private entity
            (1) that is established or organized by a health 
        care provider, or group of affiliated health care 
        providers,
            (2) that provides a substantial proportion (as 
        defined by the Secretary) of health care under the 
        contract directly through the provider or affiliated 
        group of providers, and
            (3) with respect to which those affiliated 
        providers that share, directly or indirectly, 
        substantial financial risk with respect to the 
        provision of coverage have at least a majority 
        financial interest in the entity.
      The conference agreement provides a definition for 
``health care provider'' and requires that the Secretary issue 
regulations to carry out this section.
      (See also provisions relating to antitrust under Subtitle 
A. Part 3 of Conference Report.)

6. payments to medicareplus organizations (new sec. 1855 of house bill; 
       new sec. 1895h, 1895m, 1895n and sec. 7003 of senate bill)

Current law
      Under a Medicare risk contract, an HMO agrees to provide 
or arrange the full scope of covered Medicare services in 
return for a single monthly capitation payment issued by 
Medicare for each enrolled beneficiary. One of the numbers used 
to determine this payment is the adjusted average per capita 
cost, or AAPCC. The other, the adjusted community rate or ACR, 
is discussed above.
      The AAPCC is Medicare's estimate of the average per 
capita amount it would spend for a given beneficiary 
(classified by certain demographic characteristics and county 
of residence) who was not enrolled in an HMO and who obtained 
services on the usual fee-for-service basis. Separate AAPCCs 
are established for enrollees on the basis of age, sex, whether 
they are in a nursing home or other institution, and whether 
they are also eligible for Medicaid, and the county of their 
residence. These AAPCC values are calculated in four basic 
steps:
            Medicare national average calendar year per capita 
        costs are projected for the future year under 
        consideration. These numbers are known as the U.S. per 
        capita costs (USPCCs) and are estimated average 
        incurred benefit costs per Medicare enrollee and 
        adjusted to include program administration costs. 
        USPCCs are developed separately for Parts A and B of 
        Medicare, and for costs incurred by the aged, disabled, 
        and those with ESRD in those two parts of the program.
            Geographic adjustment factors that reflect the 
        historical relationships between the county's and the 
        Nation's per capita costs are used to convert the 
        national average per capita costs to the county level.
            Expected Medicare per capita costs for the county 
        are adjusted to a fee-for-service basis by removing 
        both reimbursement and enrollment attributable to 
        Medicare beneficiaries in prepaid plans.
            The recalculated county per capita cost is 
        converted into rates that vary according to the 
        demographic variables enumerated above: age, sex, 
        institutional status, Medicaid status.
      For each Medicare beneficiary enrolled under a risk 
contract, Medicare will pay the HMO 95 percent of the rate 
corresponding to the demographic class to which the beneficiary 
is assigned.
House bill
      a. In General. A MedicarePlus organization under a 
contract with the Secretary would be paid, with respect to 
coverage of an individual in a payment area for a month, an 
amount equal to the monthly adjusted MedicarePlus capitation 
rate with respect to that individual for that area. Each year, 
the Secretary would be required to determine and announce no 
later than September 7 the annual MedicarePlus capitation rate 
for each payment area for the year, and the factors to be used 
in adjusting monthly payment rates. (New sec. 1855(a))
      b. Notice of Methodological Changes. An explanation of 
the assumptions and changes in methodology would have to be 
included in sufficient detail so that organizations could 
compute monthly adjusted MedicarePlus capitation rates. The 
Secretary would be required to provide advance notice (at least 
45 days prior to the announcement)of the proposed changes in 
the methodology and assumptions used to develop the rates, and 
give organizations an opportunity to comment. (New sec. 
1855(a))
      c. Calculation of Standardized Medicare Capitation 
Payment Amounts.
      Monthly Adjusted MedicarePlus Capitation Rate. Each 
month, the MedicarePlus organization would be paid for an 
individual in a payment area, and in a class (as described 
below), \1/12\ of that year's annual MedicarePlus capitation 
rate. This amount would be adjusted to reflect the relative 
actuarial value of Medicare benefits with respect to 
individuals in a class compared to the national average for 
individuals in all classes. A payment area is a county (or 
equivalent area specified by the Secretary) except for the ESRD 
population, in which case the area is the State.
      For purposes of calculating rates, the Medicare 
population would be divided into three separate groups: the 
aged, the disabled, and those who have been determined to have 
end stage renal disease (ESRD). The Secretary would be required 
to define appropriate classes of enrollees, based on age, 
gender, welfare status, institutionalization, and such other 
factors as the Secretary determined to be appropriate so as to 
ensure actuarial equivalence. The Secretary could add, modify, 
or substitute for such classes to improve determination of 
actuarial equivalence. The Secretary would be required to 
conduct the research needed to provide for greater accuracy in 
the adjustment of capitation rates. This could include research 
into the addition or modification of classes. The Secretary 
would have to report to Congress on this research by January 1, 
1997. (New sec. 1855(b))
      Per Capita Growth Rates. In general, payment rates for 
each area would be calculated so as to improve contribution 
levels in rural and low service utilization markets. Payments 
to health plans from 1996 onward would be ``decoupled'' from 
local fee-for-service expenditures and paid instead on a 
budgeted system. Rates would be established so that over time, 
payments to areas with higher-than-average utilization of 
services would be increased more slowly than payments to areas 
with lower-than-average utilization. In addition, payments 
would be calculated so as to ensure that legitimate costs of 
doing business in different areas (based on certain input 
prices) would be recognized in the contribution levels.
      To establish the payment rates for 1996, areas would be 
classified according to their average per capita utilization of 
services (see below). Those areas experiencing the lowest 
utilization in services would be assigned a per capita growth 
rate of 9.0 percent, the next lower, 8.0 percent, the median, 
5.1 percent, the next higher, 4.7 percent, and those with the 
highest utilization, being assigned a per capita growth rate of 
4.0 percent. To assure that total capitation payments during 
1996 were the same as the amount they would have been if the 
per capita growth rate for all such areas for 1996 were equal 
to the national average per capita growth rate, the Secretary 
would adjust the per capita growth rates as follows:
      (1) The Secretary would first provide for the additional 
percent increase needed to assure that the annual MedicarePlus 
capitation rate for each payment area was at least 12 times 
$300 for 1996.
      (2) For payment areas assigned to the lowest cohort, the 
Secretary would then provide for the additional percent 
increase needed to assure that the total capitation payments 
during 1996 were the same as they would have been if the per 
capita growth rate for all such areas for 1996 were equal to 
the national average per capita growth rate. The increase could 
be applied to a payment area falling into the lowest 
utilization cohort and would be applied after the increase in 
the first step was applied.
      To establish the payment rates for years after 1996, the 
Secretary would be required to compute a per capita growth rate 
for each year for each of the five service utilization cohorts. 
This computation of payments for each cohort is pegged to the 
national average per capita growth rate which is as follows: 
1996 = 5.3%; 1997 = 3.8%; 1998 = 4.6%; 1999 = 4.3%; 2000 = 
3.8%; 2001 = 5.5%; 2002 = 5.6%; Subsequent years = 5.0%.
      The median service utilization cohort would receive the 
national average per capita growth rate for the year. Those 
areas assigned to the lowest service utilization cohort would 
get 187.5 percent of the national average growth rate, and 
those in the highest would get 75 percent. The Secretary would 
calculate intermediate growth rates for the second and fourth 
cohorts at an amount that would assure budget neutrality 
relative to the national average per capita growth rates. 
Specifically, the growth rates for each cohort are as follows:
            lowest=187.5% of the national average per capita 
        growth rate (NAGR);
            lower=150% of the NAGR or lower if needed to meet 
        budget neutrality;
            median=the average NAGR;
            higher=gets a rate calculated to achieve budget 
        neutrality, but not less than 75% of the NAGR;
            highest=75% of the NAGR.
      After computing per capita growth rates for a year, the 
Secretary would be required to make a final adjustment of the 
growth rates. The Secretary would: (1) reduce the per capita 
growth rate for areas assigned to the median service 
utilization cohort by the ratio of .1 to 5.3; (2) if the year 
is 1997, increase the per capital growth rates for payment 
areas to the extent needed to assure that the annual 
MedicarePlus capitation rate for each payment area for that 
year was at least 12 times $320; and (3) adjust the per capita 
growth rate for areas assigned to the lowest service 
utilization cohort by such proportion that would result in no 
net increase in outlays for the year. (New sec. 1855(c))
      Assignment of Payment Areas to Service Utilization 
Cohorts. Each year the Secretary would assign each payment area 
to a utilization cohort based on a service utilization index 
value: lowest--less than .80; lower--.80-.89; median--.90-1.09; 
higher--1.10-1.19; highest--1.20 or more.
      The service utilization index value would be equal to the 
annual MedicarePlus capitation rate for each payment area 
divided by the input-price adjusted national capitation rate 
for that area for the year. (The utilization index for one year 
would be used to set cohorts for the update for the next year). 
The input-price adjusted capitation rate would be calculated by 
multiplying the weighted average capitation rate by an input 
price index (separate indices would be applied for different 
types of services). For 1996, the Secretary would apply an 
input price adjustment specified in the legislation; for 1997, 
the Secretary could continue to use the special rules for 1996. 
The Secretary would develop refined input price adjustments to 
be used in later years. (New sec. 1855(d))
      d. Payment Process. The Secretary would be required to 
make monthly payments in advance to the plan for each 
individual enrolled with a MedicarePlus organization. The 
payment would be retroactively adjusted to take into account 
any differences between the actual number of individuals 
enrolled with an organization and the number of such 
individuals estimated to be so enrolled in determining the 
amount of the advance payment. (New sec. 1855(e))
      e. Special Rules for Individuals Electing High-
Deductible/Medisave Products. In the case of an individual who 
elected a high-deductible/medisave product, the payment to the 
MedicarePlus organization could not exceed the premium for the 
high-deductible product and the difference between the amount 
that would have otherwise been paid. Anything in addition to 
that amount would be paid directly into the individual's 
medisave account on a monthly basis. (New sec. 1855(f))
      f. Payments from Trust Funds. Payments to the 
MedicarePlus organizations would be made from the HI and SMI 
trust funds in such proportion as the Secretary determined 
reflected the relative weights that benefits under Parts A and 
B represented of Medicare's actuarial value of the total 
benefits. (New sec. 1855(g))
      g. Special Rule for Certain Inpatient Hospital Stays. In 
the case of an individual receiving inpatient hospital services 
from a hospital covered under Medicare's prospective payment 
system as of the effective date of the (1) individual's 
election of a MedicarePlus product: (a) payment for such 
services until the date of the individual's discharge would be 
made as if the individual did not elect coverage under the 
MedicarePlus organization; (b) the elected organization would 
not be financially responsible for payment for such services 
until the date of the individual's discharge; and (c) the 
organization would nevertheless be paid the full amount 
otherwise payable to the organization; or (2) termination of 
enrollment with a MedicarePlus organization: (a) the 
organization would be financially responsible for payment for 
such services after the date of termination and until the date 
of discharge; (b) payment for such services during the stay 
would not be made under Medicare's PPS system; and (c) the 
terminated organization would not receive any payment with 
respect to the individual during the period in which the 
individual was not enrolled. (New sec. 1855(h))
      h. Demonstration Project on Market-Based Reimbursement 
and Competitive Pricing. No provision.
      i. Special Rule for Calculation of Payment Rates for 
1996. See above under ``per capita growth rates,'' in which the 
calculation of 1996 growth rates is described. (sec. 1855(c) 
and 1885(d))
Senate bill
      a. In General. Beginning with 1996 and no later than July 
31 of each calendar year, the Secretary would be required to 
determine a standardized Medicare payment amount (according to 
the provisions of this section) for the following calendar year 
for each Medicare payment area. (A Medicare payment area is 
defined as a metropolitan statistical area (whether or not such 
an area is in a single State) or, in the case of a consolidated 
metropolitan statistical area, each primary metropolitan 
statistical area within the consolidated area; and one area 
within each State composed of all areas that do not fall within 
a metropolitan statistical area.) The secretary would be 
required to announce these amounts in a manner intended to 
provide notice to interested parties. (New sec. 1895M(a), 
1895A(c))
      b. Notice of Methodological Changes. At least 45 days 
before making the announcement of annual rates (beginning with 
the announcement for 1998), the Secretary would be required to 
provide for notice to Medicare Choice plans of proposed changes 
to be made in the methodology or benefit coverage assumptions 
from those made in the previous announcement and would have to 
provide plans an opportunity to comment on proposed changes. In 
each announcement, the Secretary would be required to include 
an explanation of the assumptions (including any benefit 
coverage assumptions) and changes in methodology used in the 
announcement in sufficient detail so that plans could compute 
Medicare payment rates for classes of individuals located in 
each Medicare payment area which were in whole or in part 
within the Medicare service area of the plan. (New sec. 
1895M(e))
      c. Calculation of Standardized Medicare Capitation 
Payment Amounts.
      Calendar Year 1997. For calendar year 1997, the 
standardized Medicare payment amount for a Medicare payment 
area would be equal to the sum of:
            50% of the modified per capita rate for calendar 
        year 1996 and
            50% of the adjusted average national per capita 
        rate for calendar year 1996, increased by the 
        percentage increase in the gross domestic product per 
        capita for the 12-month period ending on June 30, 1996.
      The modified per capita rate for calendar year 1996 for a 
Medicare payment area would be equal to the per capita rate 
which would have been determined (without regard to class) to 
derive the AAPCCs for 1995 if the applicable geographic area 
were the Medicare payment area, and 50% of any payments 
attributable to indirect medical education, direct graduate 
medical education, and disproportionate share hospital payments 
were not taken into account, increased by the percentage 
increase which the Secretary estimated would occur in Medicare 
expenditures per capita for 1996 over those for 1995.
      The adjusted average national per capita rate for a 
Medicare payment area for calendar year 1996 would be equal to 
the sum, for all types of Medicare services, of the product for 
each type of:
            the average national per capita rate for 1996;
            the proportion of such rate for the year which is 
        attributable to the type of services; and
            an index that reflects for 1996 and the type of 
        service the relative input price of such services in 
        the Medicare payment area as compared to the national 
        average input price for the service. (In applying this, 
        the Secretary would use those indices that are used in 
        applying (or updating) medical payment areas for 
        specific areas and localities.)
      The average national per capita rate for 1996 would be 
the weighted average of the modified per capita rates described 
above for all Medicare payment areas for 1996.
      For succeeding years, the standardized Medicare payment 
for any calendar year after 1997 in a Medicare payment area 
would be an amount equal to the standardized Medicare payment 
amount determined for each area for the preceding year, 
increased by the percentage increase in the per capita GDP for 
the 12-month period ending in June 30 of the preceding calendar 
year.
      However, for 1998, the standardized Medicare payment 
amount for the preceding calendar year would be the amount 
which would have been determined if 100% of the adjusted 
average national per capita rate for calendar year 1996 had 
been applied instead of 50%.
      A special rule would apply with respect to individuals 
with ESRD. In computing the standardized Medicare payment 
amount for any Medicare payment area, individuals with ESRD or 
medical expenditures on them would not be taken into account. 
(New sec. 1895M(b))
      Adjustments for Payments to Plan Sponsors. Payment rates 
to a Medicare Choice plan sponsor would be equal to the 
standardized Medicare payment amount for the Medicare payment 
area, adjusted for such risk factors as age, disability status, 
gender, institutional status, health status, and such other 
factors as the Secretary determined to be appropriate to ensure 
actuarial equivalency. The Secretary could add to, modify, or 
substitute for such classes if such changes would improve the 
determination of actuarial equivalence. The Secretary would be 
required to establish a separate rate of payment with respect 
to ESRD enrollees. This rate would have to be actuarially 
equivalent to rates paid for other enrollees in the Medicare 
payment area (or such other area as specified by the 
Secretary). (New sec 1895M(c))
      Geographical Adjustments. Unless Congress provides 
otherwise and starting with calendar years after 1999, the 
Secretary would be required to make annual differential 
adjustments to the standardized Medicare payment amounts for 
calendar years 2000 and 2001 so as to achieve appropriate and 
equitable variation across payment areas by calendar year 2002. 
This variation would be required to be reasonably related to 
measurable geographic differences in Medicare payment areas. 
The Secretary would be required to adjust the standardized 
Medicare payment amounts in a manner that assured that total 
payments for a year were not greater or less than they would 
have been in the absence of the geographical adjustment (i.e., 
budget neutrality). The geographic adjustment process would be 
informed by an analysis that the Secretary would be required to 
conduct in consultation with interested parties. Such analysis 
would focus on the measurable input cost differences across 
payment areas, including wage differentials, and other 
measurable variables identified by the Secretary. The Secretary 
would also be required to determine the degree to which 
Medicare beneficiaries, including those in rural and 
underserved areas, have access to more health choices by the 
year 2000 under this Act, and the extent to which standardized 
payment amounts limited or enhanced such choices. The Secretary 
would be required to submit a report to the appropriate 
committees of Congress that included the results of the 
analysis and the differential adjustments that the Secretary 
intended to implement for calendar years 2000 and 2001. (New 
sec. 1895M(d))
      d. Payment Process. The Secretary would be required to 
make monthly payments in advance to the Medicare Choice plan 
sponsor for each Medicare individual is enrolled consistent 
with the payment rates described below. The payment would be 
retroactively adjusted to take into account any differences 
between the actual number of individuals enrolled in the plan 
and the number of such individuals estimated to be so enrolled 
in determining the amount of the advance payment. (New sec. 
1895O(a))
      e. Special Rules for Individuals High-deductible/Medisave 
Products. No provision.
      f. Payments from Trust Funds. Payments to Medicare Choice 
plan sponsors would be made from the HI and SMI trust funds in 
such proportion as the Secretary determined reflected the 
relative weights that benefits under Parts A and B represented 
of the actuarial value of the total benefits. (New sec. 
1895O(b))
      g. Special Rule for Certain Inpatient Hospital Stays. A 
contract under the Medicare Choice program would provide that 
in the case of an individual who was receiving inpatient 
hospital services from a hospital covered under Medicare's 
prospective payment system as of the effective date of the: (1) 
individual's enrollment with a Medicare Choice plan: (a) 
payment for such services until the date of the individual's 
discharge would be made as if the individual were not enrolled 
with the plan; (b) the plan sponsor would not be financially 
responsible for payment for such services until the date of the 
individual's discharge; and (c) the plan sponsor would 
nevertheless be paid the full amount otherwise payable to the 
plan; or (2) termination of enrollment with a Medicare Choice 
plan: (a) the plan sponsor would be financially responsible for 
payment for such services after the date of termination and 
until the date of discharge; (b) payment for such services 
during the stay would not be made under Medicare's PPS system; 
and (c) the plan sponsor would not receive any payment with 
respect to the individual during the period in which the 
individual was not enrolled. (New sec. 1895H(e))
      h. Demonstration Project on Market-Based Reimbursement 
and Competitive Pricing. The Secretary would be required to 
establish one or more demonstration projects to determine the 
standardized Medicare payment amounts through competitive 
bidding by Medicare Choice plans in a Medicare payment area. By 
December 31, 2001, the Secretary would be required to submit a 
report to Congress on the success of such projects in 
determining standardized Medicare payment amounts that were 
reflective of market prices. (New sec. 1895M(f))
      i. Special Rule for Calculation of Payment Rates for 
1996.  Notwithstanding any other provision of law, the per 
capita rate under sec. 1876 of the Social Security Act for 1996 
for any class for a geographic area would be equal to the sum 
of: (1) 75% of the updated per capita rate for a class for an 
area; and (2) 25% of the weighted average of the updated per 
capita rates for a class for all geographic areas. The latter 
would be adjusted in the same manner as prescribed under the 
above provisions for calculating the adjusted average national 
per capita rate for 1996 to reflect differences in input prices 
in the geographic area as compared to the national average 
input prices. In no event would any average per capita rate in 
a geographic area determined under the preceding sentence be 
less than the rate determined under section 1876 of the Social 
Security Act for 1995. For purposes of calculating the per 
capita rate, the updated per capita rate for any class would 
equal the per capita rate of payment for 1995 determined under 
existing law for a county (or equivalent area), increased by 
the percentage increase which the Secretary estimated would 
occur in Medicare expenditures per capita for 1996 over those 
for 1995. The Secretary would be required to publish the rates 
no later than 30 days after enactment. (Sec. 7003)

Conference agreement

      The conference agreement follows the Senate provision 
with modifications.
      In general, under a MedicarePlus contract, the Secretary 
would be required to make monthly payments in advance to each 
MedicarePlus organization, with respect to coverage of an 
individual in a MedicarePlus payment area for a month, in an 
amount equal to 1/12 of the annual MedicarePlus capitation rate 
with respect to that individual for that area. The payment 
would be adjusted for such risk factors as age, disability 
status, gender, institutional status, and other such factors as 
the Secretary determined to be appropriate, so as to ensure 
actuarial equivalence. The Secretary could add to, modify, or 
substitute for such factors, if such changes would improve the 
determination of actuarial equivalence.
      Payments to plans would be calculated based on the annual 
MedicarePlus capitation rate. The Secretary would be required 
to annually determine, and announce (in a manner intended to 
provide notice to interested parties) no later than August 1 
before the calendar year concerned: (1) the annual MedicarePlus 
capitation rate for each MedicarePlus capitation area for year, 
and (2) the risk and other factors to be used in adjusting such 
rates for payments for months in that year.
      Calculation of the annual MedicarePlus capitation rate. 
The conference agreement modifies the Senate methodology for 
determining the payment to MedicarePlus plans. The annual 
MedicarePlus capitation rate, for a payment area for a contract 
for a calendar year would be equal to the greatest of the 
following:
      (A) A blended capitation rate, defined as the sum of: (1) 
the area-specific percentage (as defined below) of the annual 
area-specific MedicarePlus capitation rate for the year for the 
payment area and (2) the national percentage (as defined below) 
of the input-price adjusted annual national MedicarePlus 
capitation rate for the year. (This sum is multiplied by a 
budget neutrality adjustment to ensure no more or less is spent 
on plan payments than would have otherwise been made under this 
part.)
      (B) A minimum monthly payment amount set at $300 for 1996 
and $350 for 1997;
      (C) A monthly payment amount representing a minimum 2% 
increase over the previous year's rate.
      The area-specific and national percentages referred to in 
(A) above are as follows:
      1996--the area-specific percentage is 90% and the 
national percentage is 10%.
      1997--the area-specific percentage is 90% and the 
national percentage is 10%.
      1998--the area-specific percentage is 85% and the 
national percentage is 15%.
      1999--the area-specific percentage is 80% and the 
national percentage is 20%.
      2000--the area-specific percentage is 75% and the 
national percentage is 25%.
      After 2000--the area-specific percentage is 70% and the 
national percentage is 30%.
      The annual area-specific MedicarePlus capitation rate for 
a MedicarePlus payment area would be:
            For 1996--the annual per capita rate of payment for 
        1995 (as determined under the current law calculation 
        to derive 95% of the AAPCC), increased by the national 
        average per capita growth percentage for 1996 (as 
        defined below), or
            For a subsequent year--the annual area-specific 
        MedicarePlus capitation rate for the previous year, 
        increased by the national average per capita growth 
        percentage for such subsequent year.
      The conference agreement defines the input-price-adjusted 
annual national MedicarePlus capitation rate for a MedicarePlus 
payment area for a year to equal the weighted sum, for all 
types of Medicare services, of:
            the national standardized annual MedicarePlus 
        capitation rate for the year, defined as the weighted 
        average of all area-specific capitation rates for that 
        year multiplied by--
            an index that reflects (for the year and the type 
        of services) the relative input price of such services 
        in the area as compared to the national average input 
        price of such services. (In applying this, the 
        Secretary would use those indices that are used in 
        applying (or updating) national payment rates for 
        specific areas and localities.)
      A special rule would apply in determining the input-price 
adjusted annual national MedicarePlus capitation rate for 1996, 
and at the Secretary's discretion, for 1997.
      The national average per capita growth percentage would 
be defined as follows: 1996 = 8.0%; 1997 = 3.8%; 1998 = 4.6%; 
1999 = 4.3%; 2000 = 3.8%; 2001 = 5.5%; 2002 = 5.6%; Subsequent 
years = 5.0%.
      A MedicarePlus payment area is defined as a county or 
equivalent area specified by the Secretary. In the case of 
individuals who are determined to have ESRD, the MedicarePlus 
payment area would be each State. The conference agreement 
would modify the Senate provision for making geographic 
adjustments. Upon request of a State for a contract year 
(beginning after 1996) made at least 7 months before the 
beginning of the year, the Secretary would redefine 
MedicarePlus payment areas in the State to: (1) a single 
Statewide MedicarePlus payment area; (2) the metropolitan 
system described below; or (3) a single MedicarePlus payment 
area consolidating noncontinuous counties (or equivalent areas) 
within a State. This adjustment would be effective for payments 
for months beginning with January of the year following the 
year in which the request was received. The Secretary would be 
required to make an adjustment to payment areas in the State to 
ensure budget neutrality.
      The metropolitan system referred to above follows the 
Senate bill by providing for a payment system based on 
metropolitan statistical areas (MSAs) in which all portions of 
each MSA in the State or in the case of a consolidated MSA, all 
of the portions of each primary MSA within the consolidated 
areas within the State, are treated as a single MedicarePlus 
payment area, and all areas in the State that do not fall 
within a MSA are treated as a single MedicarePlus payment area.
      The conference agreement does not include the Senate 
provisions relating to geographical adjustments, including the 
provision that the Secretary provide analysis of input cost 
differences across payment areas and the report to Congress on 
this analysis.
      It is the intent of the conferees that the Secretary 
conduct an analysis, based on the developments in the 
MedicarePlus program up to December 31, 1998, of the variation 
in Medicare payment amounts, taking into consideration 
measurable input cost differences, and the degree to which 
MedicarePlus payment amounts have enhanced or limited 
beneficiary choice of health plans in areas. The Secretary 
would report the findings to the appropriate committees of the 
Congress, and the public, not later than December 31, 2000.
      In the case of an individual who elected a high-
deductible plan, the amount of the monthly payment to the 
MedicarePlus organization offering the high deductible plan 
could not exceed the monthly premium for the plan. Any 
additional amount would be paid directly into the individual's 
High Deductible MedicarePlus MSA. No payment would be made 
unless the individual had established a High Deductible MSA 
before the beginning of the month and if the case of multiple 
accounts, the individual had designated one for purposes of 
receiving the contribution. Deposits would be made to the 
account as a lump sum in the first month. In the case of a 
termination of election of this option, the Secretary would be 
required to provide for a procedure for recovery of deposits 
attributable to the remaining months of the year.
      The conference agreement includes an amendment providing 
that effective January 1, 1997, if a member of a Federally 
qualified HMO certified that a Rebate MedicarePlus MSA had been 
established for his or her benefit, the HMO could reduce the 
basic health services payment otherwise determined under the 
applicable law by requiring the payment of a deductible.
      Rebates would be provided as follows: In general, if the 
amount of the monthly premium for a MedicarePlus plan (other 
than a high deducible plan) for a MedicarePlus payment area was 
less than \1/12\ of the annual MedicarePlus capitation rate for 
the area and year involved, at the election of an individual 
enrolled under the plan, the Secretary would either:
      (1) In the case of an individual who had a Rebate 
MedicarePlus MSA account, deposit 100% of such difference into 
the account specified by the individual,
      (2)(a) pay to the MedicarePlus organization on behalf of 
the individual 100% of the difference (up to the premium 
amount) for supplemental benefits; or (b) pay to the individual 
an amount equal to 75% of the remainder of the difference, and 
deposit any remainder of the difference in the Federal Hospital 
Insurance Trust Fund.
      The conference agreement follows the House provision with 
respect to payments in the case of an individual receiving 
inpatient hospital services from a hospital covered under 
Medicare's prospective payment system as of the effective date 
of the (1) individual's election of a MedicarePlus product.

 7. establishment of standards for medicareplus organizations/medicare 
  choice plans (new sec. 1856 of house bill; new sec. 1895S of senate 
                                 bill)

Current law

      Under section 1876 of the Social Security Act, Medicare 
specifies requirements to be met by an organization seeking to 
become a managed care contractor with Medicare. There is no 
provision for NAIC to play a role in developing or establishing 
these requirements. There is no provision for Provider-
Sponsored Organizations.

House bill

      a. Federal Standards Applicable to State-Regulated 
Organizations and Products. The Secretary would be required to 
request the National Association of Insurance Commissioners 
(NAIC) to develop and submit within 12 months after enactment 
proposed standards consistent with the bill requirements for 
MedicarePlus organizations (other than sponsoring organizations 
and PSOs) and products. Such proposed standards could relate to 
qualified associations only with respect to MedicarePlus 
products offered by them and only if such products were issued 
by organizations which were organized and licensed under State 
law.
      If the NAIC's submission was timely, the Secretary would 
review the proposed standards within 90 days and promulgate 
them with modifications to the extent they did not meet the 
requirements. If the Association's submission was not timely, 
the Secretary would be required to promulgate proposed 
standards no later than otherwise required. Until such 
standards were established, the Secretary would provide interim 
standards as might be appropriate. Such interim standards would 
have to be issued no later than June 1, 1996. (New sec. 
1856(a))
      b. Standards Applicable to Union and Taft-Hartley 
Sponsors, and Qualified Associations. The Secretary would also 
develop and promulgate MedicarePlus standards for sponsoring 
organizations and products except for products offered by 
qualified associations organized and licensed under State law 
to offer health insurance or health benefits coverage. With 
respect to union and Taft-Hartley sponsors, the Secretary would 
be required to consult with the Secretary of Labor and the 
standards would be promulgated about the same time as the 
general MedicarePlus standards. (New sec. 1856(b))
      c. Standards Applicable to Provider-Sponsored 
Organizations. With respect to provider-sponsored 
organizations, the Secretary would establish standards on an 
expedited basis using the negotiated rule-making process under 
title 5 United States Code.
      The target publication date for the rule would be 
September 1, 1996.
      Within 45 days after enactment, the Secretary, after 
consulting with the National Association of Insurance 
Commissioners, the American Academy of Actuaries, organizations 
representing Medicare beneficiaries, and other interested 
parties, would publish the notice required by section 564(a) of 
title 5.
      The period for submitting comments would be shortened to 
15 days, and within 30 days thereafter the Secretary would be 
required to provide for the appointment of a negotiated 
rulemaking committee. The Secretary would be required to 
provide for a facilitator no later than 10 days after the 
establishment of the committee.
      The negotiated rulemaking committee would be required to 
report to the Secretary no later than June 1, 1996, regarding 
its progress towards reaching consensus and whether that was 
likely to occur before one month prior to the target 
publication date. If the committee reported it had failed to 
make significant progress towards reaching consensus, or if it 
was unlikely to reach consensus by the target date, the 
Secretary could terminate the process and provide for the 
publication of the rule through other methods. Otherwise, the 
committee would be required to submit a report containing the 
proposed rule no later than one month before the target 
publication date.
      The Secretary would publish the rule in the Federal 
Register by the target publication date. The rule would be 
effective and final immediately on an interim basis, but 
subject to revision after public notice and opportunity for 
comment of not less than 60 days. The Secretary would be 
required to provide for consideration of such comments and 
republication of the rule not later than one year after the 
target publication date.
      With the initial publication of the final rule, the 
Secretary would be required to specify a process for timely 
review and approval of entities to be certified as provider-
sponsored organizations. Completed applications would be acted 
upon within 60 days of receipt.
      After consulting with the negotiated rulemaking 
committee, the Secretary by March 1, 1996, would be required to 
circulate a proposed application form. (New sec. 1856(c))
      d. Coordination Among Final Standards to Promote 
Equitable Treatment.  In establishing MedicarePlus standards 
other than on an interim basis, the Secretary would be required 
to try to be consistent where appropriate in order to promote 
the equitable treatment of different types of MedicarePlus 
organizations and the consistent protection for individuals who 
chose their products. (New sec. 1856(d))
      e. Use of Current Standards for Interim Standards. 
Standards established on an interim basis could be based on 
currently applicable standards, such as those established for 
analogous provisions of section 1876 or the private health 
insurance market. (New sec. 1856(e))
      f. Application of New Standards to Entities with Existing 
Contracts. At the time MedicarePlus standards change, an 
organization with a contract in effect could elect not to have 
the changes apply until the end of the contract year (or, if 
there is less than 6 months remaining in the contract year, 
until one year after its end). (New sec. 1856(f))
      g. Relation to State Laws. Standards under this section 
would supersede any State law or regulation (to the extent it 
was inconsistent with the standards) with respect to 
MedicarePlus products which were offered by MedicarePlus 
organizations that were organized and licensed under State law 
to offer health insurance or health benefits coverage. (New 
sec. 1856(g))
      h. Secretary's Proposal for Conforming Amendments. No 
provision.

Senate bill

      a. Federal Standards Applicable to State-Regulated 
Organizations and Products. The Secretary would be required to 
establish such regulations as might be necessary to carry out 
the purposes of the Medicare Choice provisions, including 
regulations setting forth the requirements to meet all quality, 
access, and solvency standards specified above.(New Sec. 
1895S(a))
      b. Standards Applicable to Union and Taft-Hartley 
Sponsors, and Qualified Associations. No provision.
      c. Standards Applicable to Provider-Sponsored 
Organizations. No provision (but see new sec. 1895R on 
Temporary Federal Certification Process for Coordinated Care 
Plans).
      d. Coordination Among Final Standards to Promote 
Equitable Treatment.  No provision.
      e. Use of Interim Standards. The Secretary could, within 
120 days after enactment, promulgate regulations (as described 
in (a) above) on an interim basis, after notice and opportunity 
for comment. (New sec. 1895S(b))
      f. Application of New Standards to Entities with Existing 
Contracts.  No provision (but see sec. 1895R on Temporary 
Federal Certification Process for Coordinated Care Plans).
      g. Relation to State Laws. No provision (but see sec. 
1895R on Temporary Federal Certification Process for 
Coordinated Care Plans).
      h. Secretary's Proposal for Conforming Amendments. No 
later than 90 days after enactment, the Secretary would be 
required to submit to the appropriate committees of Congress a 
legislative proposal providing for such technical and 
conforming amendments in the law as are required by the 
Medicare Choice provisions. (New sec. 1895S(c))

Conference agreement

      The conference agreement combines provisions on 
establishment of standards for MedicarePlus organizations with 
provisions for certification of MedicarePlus organizations and 
plans. The agreement is described below.

8. process for certification of medicareplus organizations and products 
      (new sec. 1857 of house bill; new sec. 1895R of senate bill)

Current law

      Eligibility to be a Medicare managed care contractor is 
determined by the Department of Health and Human Services. 
States do not play a role in certifying organizations as 
eligible to become Medicare managed care contractors.

House bill

      a. Federal Certification of Plans. Beginning on the date 
MedicarePlus standards were established, for States for which 
certification programs were not approved and operating, the 
Secretary would be required to establish a process for 
certifying that such organizations (other than unions sponsors, 
Taft-Hartley sponsors, and PSOs) and their products met the 
standards. The Secretary would be required to publish and 
periodically update a list of approved State programs. (New 
sec. 1857(a)(5))
      1. Coordinated care plans. No provision (but see new sec. 
1857(a)(5))
      2. Other plans. The Secretary would be required to 
establish a process for certifying that sponsoring 
organizations and their respective MedicarePlus products met 
MedicarePlus standards. With respect to union and Taft-Hartley 
sponsors, the process would be established and operated in 
cooperation with the Secretary of Labor. To the maximum extent 
practicable, the Federal process would use private 
accreditation processes that the Secretary finds apply 
standards no less stringent than the requirements of this part. 
The use of private accreditation processes would be valid only 
for periods specified by the Secretary. The Secretary could 
impose user fees on organizations seeking certification to 
finance its cost. (New sec. 1857(b))
      3. Provider-Sponsored Organizations. See new sec. 1856(c) 
as described above in sec. 7(c) of the House provisions.
      b. State Certification Process. The Secretary would be 
required to approve a MedicarePlus certification and 
enforcement program established by a State for applying 
MedicarePlus standards to MedicarePlus organizations and 
products if the Secretary determined that the program 
effectively provided for the application and enforcement of the 
MedicarePlus standards. State certification would not apply to 
union or Taft-Hartley sponsors or, except as follows, provider-
sponsored organizations. State certification programs would 
have to provide for certification of compliance of MedicarePlus 
organizations and products not less often than once every three 
years. A State could impose user fees on organizations seeking 
certification to finance its cost. A MedicarePlus organization 
or product with State certification would be considered to be 
certified with respect to offerings of the product to 
individuals residing in the State. (New sec. 1857(a))
      1. Federal approval of State certification. The Secretary 
would be required to periodically review approved State 
certification programs to determine if they continued to 
provide for certification and enforcement. States found to be 
out of compliance would be allowed an opportunity to adopt a 
plan of correction. If the failure continued, the Federal 
certification process would be applied. (New sec. 1857(a))
      2. State certification of PSOs. The Secretary would be 
required to establish a process under which States could 
propose to certify provider-sponsored organizations, but State 
proposals would not be approved unless the Secretary determined 
that they were identical to the standards of this part and 
would not result in a lower level or quality of enforcement. 
(New sec. 1857(c))
      c. Continued State Regulation of Products Offered by 
Qualified Association Plans. The certification provisions of 
this section would not limit the authority of States to 
regulate products offered by MedicarePlus organizations that 
are qualified associations and meet specified conditions. (New 
sec. 1857(e))
      d. Notice to Enrollees in Case of Decertification. In the 
event that a MedicarePlus organization or product was 
decertified, the plan would have to notify each enrollee. (New 
sec. 1857(d))
      e. Sunset of Temporary Federal Certification Process. No 
provision.
      f. Transition Treatment for Existing Risk Contracts. No 
provision (but see new sec. 1856(f))
      g. Partial Capitation Demonstration. No provision.
      h. Report on Temporary Federal Certification. No 
provision.
Senate bill
      a. Federal Certification of Plans. The Secretary would 
establish a process for certification of a coordinated care 
plan and its sponsor. The process would (1) set forth standards 
for certification, (2) provide that final action would be taken 
within 120 business days of receipt of the completed 
application, (3) provide that State laws and regulations would 
apply to the extent they were not found to be unreasonable 
barriers to market entry, and (4) require any person receiving 
a certificate to provide the Secretary with all reasonable 
information to ensure compliance with certification. A 
certificate issued under these procedures could not be for more 
than 36 months and could not be renewed. A person receiving the 
certificate would be required to continue seeking State 
licensure during the period the certificate is in effect. (New 
sec. 1895R(b))
      1. Coordinated care plans. The Secretary would evaluate 
applications from coordinated care plan sponsors if a State 
failed to substantially complete action within 90 days of 
receipt of a completed application or if a State denied the 
application and the Secretary determined that the State's 
licensing standards or review process created an unreasonable 
barrier to market entry. State standards or review processes 
would not be treated as unreasonable barriers if they were 
applied consistently to all coordinated care Medicare Choice 
plan applications, [and] were not in conflict or inconsistent 
with Federal standards. (New sec. 1895(a))
      2. Other plans. No provision.
      3. Provider-Sponsored Organizations. No provision.
      b. State Certification Process. No provision (but a 
person receiving a certificate under this section would be 
required to continue to seek State licensure during the period 
the certificate was in effect. (New sec. 1895R(b)(3)(B))
      1. Federal approval of State certification. No provision 
(but see new sec. 1895R(b))
      2. State certification of PSOs. No provision.
      c. Continued State Regulation of Products Offered by 
Qualified Association Plans. No provision (but see new sec. 
1895R(b))
      d. Notice to Enrollees in Case of Decertification. No 
provision.
      e. Sunset of Temporary Federal Certification Process. No 
certificate would be issued under Federal procedures after 
December 31, 2000, and no such certificate would remain in 
effect after December 31, 2001 (New sect. 1895R(b)(3)(C))
      f. Transition Treatment for Existing Risk Contracts. A 
Medicare choice plan sponsor that was an eligible organization 
(under sec. 1876(b) of current law) and that had a risk-sharing 
contract in effect as of enactment or had an application for 
such a contract filed before enactment and the contract was 
entered into before July 1, 1996 would be treated as meeting 
the Federal standards in effect under this section for any 
contract years beginning before January 1, 2000. (New sec. 
1895R(e))
      g. Partial Capitation Demonstration. The Secretary would 
be required to conduct a demonstration on alternative partial 
risk-sharing arrangements with health care providers. The 
Secretary would be required to report to Congress no later than 
December 31, 1998, on the administrative feasibility of such 
partial capitation methods and the information necessary to 
implement the arrangements. (New sec. 1895R(f))
      h. Report on Temporary Federal Certification. The 
Secretary would be required to report to Congress no later than 
December 31, 1998, on the temporary Federal certification 
system. The report would include analysis of State efforts to 
adopt licensing standards and review processes that take into 
account the fact that coordinated care plan sponsors provide 
services directly to enrollees through affiliated providers. 
(New sec. 1895R(c))
Conference agreement
      The conference agreement combines provisions on 
establishment of standards for MedicarePlus organizations with 
provisions for certification of MedicarePlus organizations and 
plans.
      The agreement follows the House bill with modifications. 
The agreement provides that State certification programs (as 
approved by the Secretary) may apply to provider-sponsored 
organizations other than with respect to solvency standards. 
Such organizations would be among those for which the Secretary 
would ask the National Association of Insurance Commissioners 
to develop and submit proposed standards (except for solvency). 
The Secretary would establish solvency standards for provider-
sponsored organizations on an expedited basis and using a 
negotiated rulemaking process as under the House bill. In 
establishing the latter standards, the Secretary shall consult 
with interested parties and take into account (1) the delivery 
system assets of an organization and the ability of the 
organization to provides services directly to enrollees through 
affiliated providers and (2) alternative means of protecting 
against insolvency including reinsurance, unrestricted surplus, 
letters of credit, guarantees, organizational insurance 
coverage, partnerships with other licensed entities, and 
valuation attributable to the ability of such an organization 
to meet its service obligations through direct delivery of 
care.

9. contract authority (new sec. 1858 of house bill; new sec. 1895p and 
                         1895q of senate bill)

Current law
      Contracts with HMOs are for 1 year, and may be made 
automatically renewable. However, the contract may be 
terminated by the Secretary at any time (after reasonable 
notice and opportunity for a hearing) in the event that the 
organization fails substantially to carry out the contract, or 
carries out the contract in a manner inconsistent with the 
efficient and effective administration of Medicare HMO law, or 
no longer meets the requirements specified for Medicare HMOs. 
The Secretary also has authority to impose certain lesser 
sanctions, including suspension of enrollment or payment and 
imposition of civil monetary penalties. These sanctions may be 
applied for denial of medically necessary services, 
overcharging, enrollment violations, misrepresentation, failure 
to pay promptly for services, or employment of providers barred 
from Medicare participation.
      To be eligible to be a risk contractor, HMOs/CMPs must 
have at least 5,000 members; if, however, they primarily serve 
members outside urbanized areas, they may have fewer enrollees 
(defined in regulation as at least 1,500). Organizations 
eligible for Medicare cost contracts may have fewer members 
than 5,000 (specified in regulation as at least 1,500).
      No more than 50 percent of the organization's enrollees 
may be Medicare or Medicaid beneficiaries. This rule may be 
waived, however, for an organization that serves a geographic 
area where Medicare and Medicaid beneficiaries make up more 
than 50 percent of the population or (for 3 years) for an HMO 
that is owned and operated by a governmental entity.
      During its annual open enrollment period of at least 30 
days duration, HMOs must accept beneficiaries in the order in 
which they apply, up to the limits of its capacity, unless to 
do so would lead to violation of the 50 percent Medicare-
Medicaid maximum or to an enrolled population unrepresentative 
of the population in the area served by the HMO. If an HMO 
chooses to limit enrollment because of its capacity, regulation 
provides that it must notify HCFA at least 90 days before the 
beginning of its open enrollment period and, at that time, 
provide HCFA with its reasons for limiting enrollment.
      In areas where Medicare has risk contracts with more than 
one HMO and an HMO's contract is not renewed or is terminated, 
the other HMOs serving the area must have an open enrollment 
period of 30 days for persons enrolled under the terminated 
contract.
House bill
      a. In General. The Secretary would not permit the 
election of a MedicarePlus product and no payment would be made 
to an organization unless the Secretary had entered into a 
contract with the organization with respect to the product. A 
contract could cover more than one MedicarePlus product. 
Contracts would provide that organizations agree to comply with 
applicable requirements and standards. (New sec. 1858(a))
      b. Minimum Enrollment Requirements. The Secretary would 
be prohibited from entering into a contract with a MedicarePlus 
organization other than a union or Taft-Hartley sponsor unless 
the organization had at least 5,000 individuals (or 1,500 
individuals in the case of a PSO) who were receiving health 
benefits through the organization. An exception would apply if 
the MedicarePlus standards permitted the organization to have a 
lesser number of beneficiaries (but not less than 500 for a 
PSO) if the organization primarily served individuals residing 
outside of urbanized areas. The Secretary could waive this 
requirement during an organization's first 3 contract years. 
Minimum enrollment requirements would not apply to a contract 
that related only to high-deductible/medisave product. (New 
sec. 1858(b))
      c. Contract Period and Termination. The contract would be 
for at least one year, could be made automatically renewable in 
the absence of notice by either party of intention to 
terminate. The Secretary could terminate any contract at any 
time or impose intermediate sanctions described below on the 
organization if the Secretary found that the organization (a) 
had failed substantially to carry out the contract; (b) was 
carrying it out in a manner substantially inconsistent with 
efficient and effective administration; (c) was operating in a 
manner that was not in the best interests of the individuals 
covered under the contract; or (d) no longer substantially met 
MedicarePlus conditions. Contracts would specify their 
effective date, but those for coverage under a high-deductible/
medisave account could not take effect before January 1997. The 
Secretary would not have to contract with an organization that 
had voluntarily terminated its contract with Medicare in the 
previous 5 years. The authority of the Secretary with respect 
to Medicare Choice plans could be performed without regard to 
laws or regulations relating to contracts of the United States 
that the Secretary determined were inconsistent with the 
purposes of Medicare. (New sec. 1858(c))
      d. Protections Against Fraud and Beneficiary Protections. 
Each contract would provide that the Secretary or his or her 
designee would have the right to inspect or otherwise evaluate 
the quality, appropriateness and timeliness of services, as 
well as the organization's facilities if there were reasonable 
evidence of need for such inspection; in addition, they would 
have the right to audit and inspect any books and records that 
pertain to (1) the ability of the organization to bear risk of 
financial loss and (2) services performed or determinations of 
amounts payable under the contract. The contract would also 
require the organization to provide and pay for written notice 
in advance of a termination, as well as a description of 
alternatives for obtaining benefits, to each enrollee. 
MedicarePlus organizations would be required to report 
financial information to the Secretary (and to enrollees, if 
requested), including information demonstrating that the 
organization was fiscally sound, a copy of the financial report 
filed with HCFA, and a description of transactions between the 
organization and parties in interest. The contract would 
require the organization to notify the Secretary of loans and 
other special financial arrangements with subcontractors, 
affiliates, and related parties. (New sec. 1858(d))
      e. Additional Contract Terms. Contracts would contain 
other terms and conditions (including requirements for 
information) as the Secretary found necessary and appropriate. 
(New sec. 1858(e))
      f. Intermediate Sanctions. The Secretary would be 
authorized to carry out specific remedies in the event that a 
MedicarePlus organization: (1) failed substantially to provide 
medically necessary items and services required to be provided, 
if the failure adversely affected (or had the substantial 
likelihood of adversely affecting) the individual; (2) imposed 
premiums on individuals that were in excess of the premiums 
permitted; (3) expelled or refused to re-enroll an individual; 
(4) engaged in any practice that would reasonably be expected 
to have the effect of denying or discouraging enrolling by 
eligible individuals with the organization whose medical 
condition or history indicates a need for substantial future 
medical services; (5) misrepresented or falsified information; 
(6) failed to comply with other specified requirements; or (7) 
employed or contracted with any individual or entity that was 
excluded from Medicare or Medicaid participation for the 
provision of health care, utilization review, medical social 
work, or administrative services, or employed or contracted 
with any entity for the provision through such an excluded 
individual or entity.
      The remedies would include civil money penalties of not 
more than $25,000 for each determination of a failure described 
above or with respect to certain failures (such as denying 
enrollment to persons with a preexisting medical condition or 
misrepresenting information furnished to the Secretary), of not 
more than $100,000. In cases of the latter, the Secretary could 
also levy a $15,000 fine for each individual not enrolled. In 
the case of an organization determined to have charged excess 
premiums, the Secretary could also recover twice the excess 
amount and return the excess amount to the affected individual. 
In addition, the Secretary could suspend enrollment of 
individuals and payment to the organization after notifying it 
of an adverse determination, until the Secretary was satisfied 
that the failure had been corrected or would not recur. The 
provisions of section 1128A (other than subsections (a) and 
(b)) would apply to the determinations of failures and the 
remedies described above.
      Under his or her authority to terminate contracts, if the 
Secretary determined that a failure had occurred other than 
those described above, other intermediate sanctions could be 
imposed. These include: (1) civil money penalties up to $25,000 
if the deficiency directly adversely affected (or had the 
likelihood of adversely affecting) an individual under the 
organization's contract; (2) penalties of not more $10,000 for 
each week after the Secretary initiated procedures for imposing 
sanctions; and (3) suspension of enrollment until the 
deficiency had been corrected and the Secretary determined it 
was unlikely to recur. (New sec. 1858(f))
      g. Procedures for Imposing Sanctions. The Secretary could 
terminate a contract or impose the sanctions described above in 
accordance with formal investigation and compliance procedures 
under which (A) the Secretary provides the organization with an 
opportunity to develop and implement a corrective action plan, 
(B) the Secretary imposes more severe sanctions on 
organizations that have a history of deficiencies or have not 
taken steps to correct those the Secretary brought to their 
attention, (C) there are no unreasonable or unnecessary delays 
between finding a deficiency and imposing sanctions, and (D) 
the Secretary provides reasonable notice and opportunity for a 
hearing, including the right to appeal an initial decision. 
(New sec. 1858(g))
Senate bill
      a. In General. The Secretary would enter into a contract 
with any Medicare Choice plan sponsor in a Medicare payment 
area if requirements pertaining to the plan and sponsor are 
met. (New sec. 1895P)
      b. Minimum Enrollment Requirements. No provision.
      c. Contract Period and Termination. Except for 
termination for cause, each contract may be made automatically 
renewable in the absence of notice by either party of intention 
to terminate. The Secretary may terminate a contract with a 
Medicare Choice plan sponsor at any time or may impose the 
intermediate sanctions described below if the Secretary finds 
that the sponsor (1) has failed substantially to carry out the 
contract, (2) is carrying it out in a manner substantially 
inconsistent with efficient and effective administration, or 
(3) no longer substantially meets Medicare Choice conditions. 
The Secretary would not have to have a contract with a sponsor 
that had voluntarily terminated its contract with Medicare in 
the previous 5 years. The authority the Secretary with respect 
to Medicare Choice plans may be performed without regard to 
laws or regulations relating to contracts of the United States 
that the Secretary determines are inconsistent with the 
purposes of Medicare. (New sec. 1895Q(b), 1895Q(d), and 
1895Q(e))
      d. Protections Against Fraud and Beneficiary Protections. 
Each contract would provide that the Secretary or his or her 
designee would have the right to inspect or otherwise evaluate 
the quality, appropriateness and timeliness of services, as 
well as the sponsor's facilities if there were reasonable 
evidence of need for such inspection; in addition, they would 
have the right to audit and inspect any books and records that 
pertain to the ability of the sponsor to bear risk of financial 
loss. The contract would also require the sponsor to provide 
and pay for written notice in advance of a termination, as well 
as a description of alternatives for obtaining benefits, to 
each enrollee. In addition, except as provided by the 
Secretary, the contract would require the sponsor to comply 
with Public Health Service Act provisions relating to financial 
information disclosures and liability arrangements, [and to 
provide information described in sec. 1866(b)(2)(C)(ii)]. The 
contract would require the sponsor to notify the Secretary of 
loans and other special financial arrangements with 
subcontractors, affiliates, and related parties. (New sec. 
1895Q(c))
      e. Additional Contract Terms. Contracts would contain 
other terms and conditions (including requirements for 
information) as the Secretary finds necessary and appropriate. 
(New sec. 1895Q(c))
      f. Intermediate Sanctions. The Secretary would be 
authorized to carry out specific remedies in the event that a 
Medicare Choice plan sponsor: (1) failed substantially to 
provide medically necessary items and services required to be 
provided, if the failure adversely affected (or had the 
substantial likelihood of adversely affecting) the individual; 
(2) imposed cost sharing on individuals that were in excess of 
the cost sharing permitted; (3) expelled or refused to re-
enroll an individual; (4) engaged in any practice that would 
reasonably be expected to have the effect of denying or 
discouraging enrolling by eligible individuals with the 
sponsor's plan whose medical condition or history indicates a 
need for substantial future medical services; (5) 
misrepresented or falsified information; (6) failed to comply 
with other specified requirements; or (7) employed or 
contracted with any individual or entity that was excluded from 
Medicare or Medicaid participation for the provision of health 
care, utilization review, medical social work, or 
administrative services, or employed or contracted with any 
entity for the provision through such an excluded individual or 
entity.
      The remedies would include civil money penalties of not 
more than $25,000 for each determination of a failure described 
above or with respect to certain failures (such as denying 
enrollment to persons with a preexisting medical condition or 
misrepresenting information furnished to the Secretary), of not 
more than $100,000. In cases of the latter, the Secretary could 
also levy a $15,000 fine for each individual not enrolled. In 
the case of a plan sponsor determined to have charged excess 
premiums, the Secretary could also recover twice the excess 
amount and return the excess amount to the affected individual. 
In addition, the Secretary could suspend enrollment of 
individuals and payment to the plan sponsor after notifying it 
of an adverse determination, until the Secretary was satisfied 
that the failure had been corrected or would not recur. The 
provisions of section 1128A (other than subsections (a) and 
(b)) would apply to the determinations of failures and the 
remedies described above.
      Under his or her authority to terminate contracts, if the 
Secretary determined that a failure had occurred other than 
those described above, other intermediate sanctions could be 
imposed. These include: (1) civil money penalties up to $25,000 
if the deficiency directly adversely affected (or had the 
likelihood of adversely affecting) an individual under the 
organization's contract; (2) penalties of not more than $10,000 
for each week after the Secretary initiated procedures for 
imposing sanctions; and (3) suspension of enrollment until the 
deficiency had been corrected and the Secretary determined it 
was unlikely to recur. (New sec. 1895Q(f))
      g. Procedures for Imposing Sanctions. The Secretary could 
terminate a contract or impose the sanctions described above in 
accordance with formal investigation and compliance procedures 
under which (A) the Secretary first provides the sponsor with 
reasonable opportunity to develop and implement a corrective 
action plan, which the sponsor fails to do, (B) the Secretary 
considers aggravating factors such as whether the sponsor has a 
history of deficiencies or has not taken action to correct 
those the Secretary brought to its attention, (C) there are no 
unreasonable or unnecessary delays between finding a deficiency 
and imposing sanctions, and (D) the Secretary provides 
reasonable notice and opportunity for a hearing, including the 
right to appeal an initial decision. (New sec. 1895Q(b))

Conference agreement

      The conference agreement follows the House bill.
      The conference agreement does not include the provision 
for termination of contracts if the plan was operating in a 
manner that was not in the best interests of the individuals 
covered under the contract.
      Note that New Section 1858 of the Conference Agreement on 
``Standards for MedicarePlus Information Transactions and Data 
Elements,'' are discussed under Subtitle H, Part D of the 
Conference Report.

  10. duplication and coordination of medicare-related products (sec. 
                          15003 of house bill)

Current law

      Many Medicare beneficiaries purchase private health 
insurance to supplement their Medicare coverage. These 
individually purchased policies are commonly known as Medigap 
policies. OBRA 90, P.L. 101-508 provided for a standardization 
of Medigap policies. OBRA 90 also substantially modified the 
antiduplication provision contained in law. The intent of the 
OBRA 90 anti-duplication provision was to prohibit sales of 
duplicative Medigap policies. However, the statutory language 
applied, with very limited exceptions, to all ``health 
insurance policies'' sold to Medicare beneficiaries. Observers 
noted that this provision could thus apply to a broad range of 
policies including hospital indemnity plans, dread disease 
policies, and long-term care insurance policies.
      The Social Security Amendments of 1994 (P.L. 103-432) 
included a number of technical modifications to the Medigap 
statute, including modifications to the anti-duplication 
provisions. Under the revised language, it is illegal to sell 
or issue the following policies to Medicare beneficiaries: (i) 
a health insurance policy with knowledge that it duplicates 
Medicare or Medicaid benefits to which a beneficiary is 
otherwise entitled; (ii) a Medigap policy, with knowledge that 
the beneficiary already has a Medigap policy, or (iii) a health 
insurance policy (other than Medigap) with knowledge that it 
duplicates private health benefits to which the beneficiary is 
already entitled. A number of exceptions to these prohibitions 
are established. The sale of a medigap policy is not in 
violation of the provisions relating to duplication of Medicaid 
coverage if: (i) the State Medicaid program pays the premiums 
for the policy; (ii) in the case of qualified Medicare 
beneficiaries (QMBs), the policy includes prescription drug 
coverage; or (iii) the only Medicaid assistance the individual 
is entitled to is payment of Medicare Part B premiums.
      The sale of a health insurance policy (other than a 
Medigap policy) that duplicates private coverage is not 
prohibited if the policy pays benefits directly to the 
individual without regard to other coverage. Further, the sale 
of a health insurance policy (other than a Medigap policy to an 
individual entitled to Medicaid) is not in violation of the 
prohibition relating to selling of a policy duplicating 
Medicare or Medicaid, if the benefits are paid without regard 
to the duplication in coverage. This exception is conditional 
on the prominent disclosure of the extent of the duplication, 
as part of or together with, the application statement.
      P.L. 103-432 provided for the development by the National 
Association of Insurance Commissioners (NAIC) of disclosure 
statements describing the extent of duplication for each of the 
types of private health insurance policies. Statements were to 
be developed, at a minimum, for policies paying fixed cash 
benefits directly to the beneficiary and policies limiting 
benefits to specific diseases. The NAIC identified 10 types of 
health insurance policies requiring disclosure statements and 
developed statements for them. These were approved by the 
Secretary and published in the Federal Register on June 12, 
1995.

House bill

      The provision would modify the anti-duplication 
provisions. It would be unlawful to sell to a Medicare 
beneficiary (including a person under MedicarePlus) a health 
insurance policy (other than a Medigap policy) with knowledge 
that it duplicated benefits under Medicare or Medicaid. It 
would be unlawful to sell, to persons not electing 
MedicarePlus, a Medigap policy with knowledge that the person 
is entitled to benefits under another Medigap policy. It would 
be unlawful to sell to a person electing MedicarePlus a Medigap 
policy duplicating benefits to which the individual is 
otherwise eligible under Medicare or another Medigap policy. A 
policy would be considered duplicative if the policy provided 
specific reimbursement for identical items and services to the 
extent paid for under Medicare. A policy would not be 
considered duplicative if it provided for payment of benefits 
without regard to other health benefits coverage of the 
individual. The provision would change the disclosure 
requirements contained in P.L. 103-432 to require plans to 
disclose the extent to which they may coordinate benefits with 
Medicare as part of their outlined coverage.
      A health insurance policy (or a rider to an insurance 
contract which is not a health insurance policy) that 
coordinates against or excludes items and services covered 
under Medicare, and for policies sold after January 1, 1996, 
discloses such coordination or exclusion in the policy's 
outline of coverage would not be considered duplicative. For 
this purpose, health insurance policies would include policies 
providing benefits for long-term care, nursing home care, home 
health care, or community-based care.
      The provision would prohibit the imposition of criminal 
or civil penalties or the bringing or continuing of legal 
action relating to selling duplicative policies if the penalty 
or action was based on actions occurring after November 1, 1991 
and before enactment of OBRA of 1995 and if the policy was not 
duplicative under the revised language. The provision would 
also prohibit a State from imposing any requirement related to 
the sale or issuance of a policy (or rider) to a Medicare 
beneficiary based on the premise that the policy or rider was 
duplicative. The provision would require the Secretary to 
report within 3 years of enactment on the advisability of 
restricting the sale to Medicare beneficiaries of health 
insurance policies that duplicate other insurance policies the 
individual may have.
      The provision would specifically exclude MedicarePlus 
products from the definition of Medigap policies. It would also 
exempt health insurance products sold to persons electing 
MedicarePlus from requirements relating sale of standardized 
benefits packages and minimum loss ratios.
      The provision would make it unlawful to sell or issue a 
health insurance policy covering expenses which would otherwise 
be counted toward meeting the annual deductible amount under a 
high deductible/medisave product.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision 
with a modification.
      It is the intent of the conferees that this provision be 
administered as though it were included in OBRA 1990. The 
agreement specifies that it is illegal to sell suppplemental 
policies that cover the deductible for persons who have high-
deductible MedicarePlus plans.

11. transitional rules for current medicare hmo program (sec. 15004 of 
                 house bill; sec. 7002 of senate bill)

Current law

      No provision.

House bill

      a. Termination of Current Contracts. The Secretary would 
be prohibited from entering into any new risk sharing contract 
under section 1876 with an eligible organization for any 
contract year beginning on or after the date MedicarePlus 
standards are first established with respect to MedicarePlus 
organizations that are insurers or health maintenance 
organizations unless a contract with the organization had been 
in effect under section 1876 for the previous contract year. 
The Secretary could not extend or continue any risk-sharing 
contract for any contract year beginning on or after one year 
after the MedicarePlus standards are established.
      The Secretary would also be prohibited from entering into 
any cost reimbursement contract under section 1876 beginning in 
any contract year starting on or after the enactment of this 
legislation. The Secretary could not extend or continue any 
cost reimbursement contract for any contract year beginning on 
or after January 1, 1998.
      b. Conforming Payment Rates. For individuals entitled to 
benefits under both part A and part B, payments for risk-
sharing contracts for months beginning with January 1996 would 
be computed by substituting the payment rates specified in this 
bill in as timely a manner as possible. For individuals 
entitled to benefits only under part B, the substitution would 
be based upon the proportion of those rates that reflects the 
proportion of payments under title XVIII attributable to part 
B. Payments under cost reimbursement contracts under section 
1876(a) would take into account the adjustments to part A and 
part B payments made by this legislation.
      c. Elimination of 50:50 Rule. The 50:50 rule under 
section 1876(f)] would not apply to contract years beginning on 
or after January 1, 1996.
      d. HMO Limits on Deductibles. No provision.

Senate bill

      a. Termination of Current Contracts. Section 1876 would 
not apply to risk-sharing contracts effective for contract 
years beginning on or after January 1, 1997. An individual who 
is enrolled in part B only and is enrolled in an organization 
with an 1987 contract on December 31, 1996, may continue his or 
her enrollment. The Secretary would be required to issue 
regulations relating to such individuals and organizations not 
later than July 1, 1996.
      b. Conforming Payment Rates. (See sec. 7003 of the bill, 
as described under F(i) of the Senate provisions above.)
      c. Elimination of 50:50 Rule. No specific provision, but 
section 1876 of the Social Security Act would terminate in 
1997.
      d. HMO Limits on Deductibles. If a member certifies that 
a Medicare Choice account has been established for his or her 
benefit, an HMO may reduce the basic health services payment 
otherwise determined under section 1301(a) of the Public Health 
Service Act by requiring payment of a deductible by the member.

Conference agreement

      The conference agreement follows the House provision with 
a modification.
      The Secretary would be prohibited from entering into, 
renewing, or continuing any risk-sharing contract for any 
contract year beginning on or after the date standards are 
established for MedicarePlus organization or in the case of 
such an organization with a contract in effect as of the date 
standards were established, one year after such date. The 
Secretary could not enter into, renew, or continue any risk-
sharing contract for any contract year beginning on or after 
January 1, 2000.
      An individual who is enrolled in part B only and was 
enrolled in an organization with a risk-sharing contract on 
December 31, 1996, could continue his or her enrollment. The 
Secretary would be required to issue regulations relating to 
such individuals and organizations not later than July 1, 1996.

    Part 2. Special Rules for MedicarePlus Medical Savings Accounts

    1. description of taxation of medicare medical savings accounts

Present law

      Under present law, the value of Medicare coverage and 
benefits is not includible in taxable income. There are no 
specific tax provisions for Medicare medical savings accounts 
(``MMSAs'') or Rebate MSAs.

House bill

            In general
      Under the House bill, individuals who are eligible for 
Medicare may choose either the traditional Medicare program or 
a plan with a high deductible insurance policy and an MMSA. To 
the extent an individual chooses such a plan, the Secretary of 
Health and Human Services makes a specified contribution 
directly into an MMSA designated by the individual. Only 
contributions by the Secretary of Health and Human Services 
could be made to an MMSA and such contributions are not 
taxable. Income earned on amounts held in an MMSA are not 
currently includible in taxable income. Withdrawals from an 
MMSA are excludable from taxable income if used for the 
qualified medical expenses of the MMSA holder.

Taxation of distributions from an MMSA

      Distributions from an MMSA that are used to pay the 
qualified medical expenses of the account holder are excludable 
from taxable income. Qualified medical expenses generally are 
defined as under the rules relating to the itemized deduction 
for medical expenses (sec. 213). However, for this purpose, 
qualified medical expenses do not include any insurance 
premiums other than premiums for long-term care insurance. 
Distributions from an MMSA that are excludable from gross 
income cannot be taken into account for purposes of the 
itemized deduction for medical expenses.
      Distributions for purposes other than qualified medical 
expenses are includible in taxable income. An additional tax of 
50 percent of the amount includible in taxable income applies 
to the extent the total distributions for purposes other than 
qualified medical expenses in a taxable year exceed the amount 
by which the value of the MMSA as of December 31, of the 
preceding taxable year exceeds 60 percent of the deductible of 
the plan under which the individual is covered. The additional 
tax does not apply to distributions on account of the 
disability or death of the account holder.
      The provision includes rules that apply on the death of 
the MMSA owner. No estate tax applies, and the income tax 
treatment depends on who is the beneficiary.

Effective date

      The provision is effective with respect to taxable years 
beginning after December 31, 1996.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill, with 
modifications. Under the conference agreement, as under the 
House bill, individuals enrolled in a high deductible plan 
automatically have contributions made to a high deductible 
MMSA. In addition, under the conference agreement, if an 
individual chooses a MedicarePlus option other than the high 
deductible plan, the individual may direct that the difference 
between the Medicare payment amount and the cost of the plan is 
deposited in a rebate MMSA. The Rebate MSA is separate from and 
cannot be commingled with the high deductible MMSA.
      Rebate MMSAs are generally subject to the same rules as 
high deductible MMSAs, except with respect to the taxation of 
distributions for nonmedical purposes. With respect to rebate 
MMSAs, such distributions are includible in income, and subject 
to a 10-percent additional tax unless the distribution is made 
after death or disability. The 50-percent excise tax rule does 
not apply to a Rebate MSA.

                      2. tax treatment of rebates

Present law

      Present law does not provide for cash payments to 
individuals under Medicare.

House bill

      Under the House bill, certain individuals are entitled to 
cash rebates under the MedicarePlus program. These rebates are 
not includible in income.
      Effective date.--The provision applies to rebates 
received after the date of enactment.

Senate amendment

      Under the Senate amendment, certain individuals are 
entitled to cash rebates under the Medicare Choice program. 
These rebates are includible in income.
      Effective date.--Same as the House bill.

Conference agreement

      The conference agreement generally follows the House bill 
with modifications.

  Part 3. Special Antitrust Rules for Provider Sponsored Organizations

1. application of antitrust rule of reason to provider service networks 
                     (sec. 15021 of the house bill)

Current law

      Under Federal antitrust law, agreements among competitors 
that fix prices or allocate markets are per se (automatically) 
illegal. Some joint activities, however, if deemed to create an 
entity separate from and in addition to the competitors who 
create them (i.e., true joint ventures), are judged under the 
rule of reason, which finds them legal if they are considered 
reasonable. The Department of Justice and the Federal Trade 
Commission have issued Statements of Enforcement Policy 
Relating to Health Care and Antitrust, pursuant to which they 
have attempted to indicate the limited circumstances under 
which they will consider ``physician network joint ventures'' 
not violations of Federal antitrust law.

House bill

      Rule of Reason Standard. This provision states that the 
conduct of a provider service network in negotiating, making, 
or performing a contract (including the establishment and 
modification of a fee schedule and the development of a panel 
of physicians), to the extent such contract is for the purpose 
of providing health care services to individuals under the 
terms of a health benefit plan, would not be a per se violation 
of Federal or State antitrust laws. In addition, the conduct of 
any member of such a provider service network for the purpose 
of providing such health care services under a contract to 
provide health care services to individuals would not be deemed 
illegal per se under Federal or State antitrust laws. Such 
conduct shall be judged on the basis of its reasonableness, 
taking into account all relevant factors affecting competition 
in properly defined markets.
      Definitions. This section defines ``antitrust laws'' to 
include those set out in subsection (a) of the first section of 
the Clayton Act, 15 U.S.C. Sec. 12, as well as Sec. 5 of the 
Federal Trade Commission Act, 15 U.S.C. Sec. 45, to the extent 
that Sec. 5 applies to unfair methods of competition. ``Health 
benefit plan'' is defined as a hospital or medical expense 
incurred policy or certificate, a hospital or medical service 
plan contract, a health maintenance subscriber contract, or a 
multiple employer welfare arrangement or employee benefit plan 
(as defined under ERISA). ``Health care provider'' is defined 
as any individual or entity engaged in the delivery of health 
care services that must be licensed or certified by State law 
or regulation to deliver such services. ``Health care service'' 
means any service for which payment may be made under a health 
benefit plan, including services related to the delivery or 
administration of such service. ``Provider services network'' 
is defined as an organization that meets the following 
requirements: It is organized by, operated by, and composed of 
members who are health care providers and for purposes that 
include health care services. It is funded in part by capital 
contributions made by the members of such organization. With 
respect to each contract made by such organization for the 
purpose of providing a type of health care service to 
individuals under the terms of a health benefit plan, the 
organization requires all members of the organization to agree 
to provide health care services of such type under such 
contract, receives the compensation paid for the provision of 
such health care services, and provides for the distribution of 
such compensation. It has established programs based on written 
guidelines to review the quality, efficiency, and 
appropriateness of treatment methods, health care services, and 
all patients participating in the health benefit plan, as well 
as internal procedures to correct any identified deficiencies, 
to monitor and control utilization of health care services in 
order to improve efficient care and eliminate the provision of 
unnecessary health care services. It coordinates the delivery 
of health care services by all health care providers to all 
patients participating in the health care plan so as to enhance 
the quality of health care services provided. And, it has 
established a grievance and appeal process to review and 
promptly resolve patient or beneficiary grievances or 
complaints. ``State'' is defined as the States, the District of 
Columbia, the Commonwealth of Puerto Rico, and any other 
territory or possession of the United States.
      Issuance of Guidelines. This provision requires the 
Attorney General and the Federal Trade Commission, within 120 
days after enactment of this bill, to issue joint guidelines 
specifying the enforcement policies and analytical principles 
they will apply with respect to the operation of the rule of 
reason standard.

Senate bill

      No provision.

Conference agreement

      The conference agreement generally follows the House bill 
with modifications.
      The Rule of Reason standard is made applicable to members 
of a provider-sponsored organization and to members of an 
unaffiliated group of health care providers.
      Protected conduct includes the exchange of information 
among health care providers relating to costs, sales, 
profitability, marketing, prices, or fees of any health care 
product or service if the exchange of information was solely 
for the purpose of establishing a provider-sponsored 
organization and reasonably required to do so.

                          Part 4. Commissions

   1. medicare payment review commission. (sec. 15031 of house bill)

Current law
      The Prospective Payment Assessment Commission was 
established by Congress through the Social Security Act 
Amendments of 1983 (P.L. 98-21). The Commission is charged with 
reporting each year its recommendation of an update factor for 
PPS payment rates and for other changes in reimbursement 
policy. It is also required each year to submit a report to 
Congress which provides background information on trends in 
health care delivery and financing. The Physician Payment 
Review Commission was established by the Congress through the 
Consolidated Omnibus Budget Reconciliation Act of 1985 (P.L. 
99-272). It was charged with advising and making 
recommendations to the Congress on methods to reform payment to 
physicians under the Medicare program. In subsequent laws, 
Congress mandated additional responsibilities relating to the 
Medicare and Medicaid programs as well as the health care 
system more generally. Both Commissions are appointed by the 
Director of the Office of Technology Assessment and are funded 
through appropriations from the Medicare trust funds.
House bill
      The provision would establish the Medicare Payment Review 
Commission (hereafter referred to as ``the Commission'') to 
review and make recommendations to Congress concerning payment 
policies under this title. The Commission would be required to 
submit a report to Congress by June 1 of each year containing 
an examination of issues affecting the Medicare program, 
including implications of changes in health care delivery and 
in the market for health care services on the Medicare program. 
The Commission would be authorized to submit from time to time 
other reports as it deemed appropriate. By May 1, 1997, it 
would be required to submit a report to Congress on major 
issues in implementation and further development of the 
MedicarePlus program. The Secretary would be required to 
respond to recommendations of the Commission in notices of 
rulemaking proceedings.
      The Commission would be charged with the following 
specific responsibilities, including reviewing: (1) the 
appropriateness of the methodology for making payments to the 
health plans; (2) the appropriateness of the risk adjustment 
mechanisms and the need to adjust such mechanisms to take into 
account health status; (3) implications of risk selection; (4) 
the development and implementation of quality assurance 
mechanisms with respect to MedicarePlus organizations; (5) the 
impact of the MedicarePlus program on beneficiary access to 
care; (6) the feasibility and desirability of extending the 
rules for open enrollment that apply during the transition 
period to apply in each county during the first 2 years in 
which MedicarePlus products are made available; and (7) other 
issues in implementation and further development of the 
MedicarePlus program.
      The Commission would also be required to review specific 
aspects of the failsafe budget mechanism established under the 
bill, including: (1) the appropriateness of the expenditure 
projections by the Secretary and growth factors for each 
Medicare sector; (2) the appropriateness of the mechanism for 
implementing reductions in payment amounts for different 
sectors; (3) the impact of the failsafe mechanism on provider 
participation; and (4) the appropriateness of the Medicare 
benefit budget, especially for fiscal years after 2002.
      In addition, the Commission would be required to review 
payments policies under Medicare parts A and B (fee-for-
service), including: (1) factors affecting expenditures in 
different sectors; (2) payment methodologies; and (3) the 
impact of payment policies on access and quality of care. It 
would also look at the effect of Medicare payment policies on 
the delivery of Medicare services and assess the implications 
of changes in the health services market on Medicare.
      The Commission would be composed of 15 members appointed 
by the Comptroller General, with the first appointments being 
made by March 31, 1996. These members would have to meet 
specific qualifications, (such as national recognition for 
their expertise in health finance), including representatives 
of consumers and the elderly. Consideration in the initial 
appointment would be given to individuals who were already 
serving on the Physician Payment Review Commission or the 
Prospective Payment Assessment Commission. Commissioners would 
serve for 3-year terms. The bill provides for a mechanism for 
filling vacancies, compensating commissioners, appointing a 
chair and vice chair; convening meetings; and providing for 
staff, experts, and consultants. The Commission would be 
authorized to secure directly from any department or agency 
information to carry out these provisions. It would be required 
to collect and assess information (which would be available on 
an unrestricted basis to GAO). The Commission would be subject 
to periodic audit by GAO.
      The provision authorizes such sums as may be necessary to 
be appropriated from the Medicare trust funds (60 percent part 
A and 40 percent from part B). The Comptroller General would be 
required to provide for appointment of members to the 
Commission by March 31, 1996. The Prospective Payment 
Assessment Commission and Physician Payment Review Commission 
would be abolished within 30 days after a majority of the 
Medicare Payment Review Commission were appointed. To the 
extent possible, the Comptroller General would be required to 
provide for the transfer from the former to the new commission 
assets and staff without any loss of benefits or seniority by 
virtue of such transfers. The Commission would be responsible 
for the preparation and submission of reports required by law 
to be submitted (and which had not been submitted by the time 
it was established) by the former commissions.
Senate bill
      No provision.
Conference agreement
      The conference agreement includes the House provision 
with modifications.
      With respect to Commission responsibilities, the 
conference agreement deletes ``appropriateness'' in the charge 
to the Commission to review payment and risk adjustment 
methodology.
      The conference agreement does not include the provision 
requiring the Commission to review specific aspects of the 
failsafe budget mechanism established under the bill.
      It is the intent of the conferees that to the extent 
possible, in first appointing members to the Commission, the 
Comptroller General consider appointing individuals who (as of 
the date of enactment of this section) were serving on ProPAC 
and PPRC.
      In addition, it is the intent of the conferees that the 
Commission analyze and report on the reasonableness of the ACR, 
looking at any amounts being charged above the contribution 
rate and assessing the relationship between that charge and 
insuring companies' commercial rates. The Commission would also 
analyze and assess the prevalence of plans in major areas that 
provide MedicarePlus for the Government's capitated amount.

2. commission on the effect of the baby boom generation on the medicare 
                   Program (sec. 15032 of house bill)

Current law
      No provision.
House bill
      The provision would establish a commission to be known as 
the Commission on the Effect of the Baby Boom Generation on the 
Medicare Program, hereafter referred to as ``the Commission.'' 
It would be required to: (1) examine the financial impact on 
the Medicare program of the significant increase in the number 
of Medicare eligible individuals which will occur approximately 
during 2010 and lasting for approximately 25 years, and (2) 
make specific recommendations to Congress with respect to a 
comprehensive approach to preserve the Medicare program for the 
period during which such individuals are eligible for Medicare. 
In making its recommendations, the Commission would be required 
to consider: (1) the amount and sources of Federal funds to 
finance Medicare, including innovative financing methods; (2) 
the most efficient and effective manner of administering the 
program, including the appropriateness of continuing the 
failsafe mechanism after 2002; (3) methods used by other 
nations to respond to comparable demographics; (4) modifying 
age-based eligibility to correspond to that under the OASDI 
program; and (5) trends in employment-related health care for 
retirees, including the use of medical savings accounts and 
similar financing devices.
      The Commission would be composed of 15 members, 3 
appointed by the President, 6 by the Majority Leader of the 
Senate in consultation with the Minority Leader, of whom no 
more than 4 are of the same party; and 6 by the Speaker of the 
House, after consultation with the Minority Leader, of whom no 
more than 4 are in the same party. The provision spells out the 
appointment of a chair and vice chair, appointment of staff and 
consultants, compensation, the procedure for filling vacancies, 
and requirements relating to meetings and quorums. Upon request 
of the Commission, the Comptroller General would be required to 
conduct such studies or investigations as the Commission 
determined were needed to carry out its duties. The Director of 
CBO would be required to provide the commission with cost 
estimates, for which CBO would be compensated. The Commission 
would be authorized to detail to it employees of Federal 
agencies, and to obtain technical assistance and information 
from Federal agencies.
      The Commission would be required to submit to Congress a 
report, no later than May 1, 1997, containing its findings and 
recommendations regarding how to protect and preserve the 
Medicare program in a financially solvent manner until 2030 
(or, if later, throughout a period of projected solvency of the 
Federal Old-Age and Survivors Insurance Trust Fund). The report 
would be required to include detailed recommendations for 
appropriate legislative initiatives respecting how to 
accomplish this objective. The Commission would terminate 60 
days after the date of submission of the mandated report. An 
amount of $1.5 million would be authorized to be appropriated.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

3. change in appointment of administrator of hcfa (sec. 15033 of house 
                                 bill)

Current law
      The Administrator of HCFA is appointed by the President 
with the advise and consent of the Senate.
House bill
      Under the bill, the Administrator of HCFA would be 
appointed by the Secretary of Health and Human Services. The 
amendment would become effective on the date of enactment and 
would apply to Administrators appointed on or after the date of 
enactment.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

   Part 5. Tax Treatment of Hospitals Which Participate in Provider-
         Sponsored Organizations (Sec. 15041 of the House Bill)

Present law
      To qualify as a charitable tax-exempt organization 
described in Internal Revenue Code (``Code'') section 
501(c)(3), an organization must be organized and operated 
exclusively for religious, charitable, scientific, testing for 
public safety, literary, or educational purposes, or to foster 
international sports competition, or for the prevention of 
cruelty to children or animals. Although section 501(c)(3) does 
not specifically mention furnishing medical care and operating 
a nonprofit hospital, such activities have long been considered 
to further charitable purposes, provided that the organization 
benefits the community as a whole.1
    \1\ Although not-for-profit hospitals generally are recognized as 
tax-exempt by virtue of being ``charitable'' organizations, some may 
also qualify for exemption as ``educational organizations'' because 
they are organized and operated primarily for medical education 
purposes.
---------------------------------------------------------------------------
      No part of the net earnings of a 501(c)(3) organization 
may inure to the benefit of any private shareholder or 
individual. No substantial part of the activities of a 
501(c)(3) organization may consist of carrying on propaganda, 
or otherwise attempting to influ- 
ence legislation, and such organization may not participate in, 
or intervene in, any political campaign on behalf of (or in 
opposition to) any candidate for public office. In addition, 
under section 501(m), an organization described in section 
501(c)(3) or 501(c)(4) is exempt from tax only if no 
substantial part of its activities consists of providing 
commercial-type insurance.
      A tax-exempt organization may, subject to certain 
limitations, enter into a joint venture or partnership with a 
for-profit organization without affecting its tax-exempt 
status. Under current ruling practice, the IRS examines the 
facts and circumstances of each arrangement to determine (1) 
whether the venture itself and the participation of the tax-
exempt organization therein furthers a charitable purpose, and 
(2) whether the sharing of profits and losses or other aspects 
of the arrangement entail improper private inurement or more 
than incidental private benefit.2
    \2\ See IRS General Counsel Memorandum 39862; Announcement 92-83, 
1992-22 I.R.B. 59 (IRS Audit Guidelines for Hospitals). Even where no 
prohibited private inurement exists, however, more than incidental 
private benefits conferred on individuals may result in the 
organization not being operated ``exclusively'' for an exempt purpose. 
See, e.g., American Campaign Academy v. Commissioner, 92 T.C. 1053 
(1989).
---------------------------------------------------------------------------
House bill
      The House bill provides that an organization shall not 
fail to be treated as organized and operated exclusively for a 
charitable purpose for purposes of Internal Revenue Code (the 
``Code'') section 501(c)(3) solely because a hospital which is 
owned and operated by such organization participates in a 
provider-sponsored organization (``PSO'') (as defined in 
section 1845(a)(1) of the Social Security Act), whether or not 
such PSO is exempt from tax. Thus, participation by a hospital 
in a PSO (whether taxable or tax-exempt) would be deemed to 
satisfy the first part of the inquiry under current IRS ruling 
practice.3
    \3\ The qualification of a hospital as a tax-exempt charitable 
organization under section 501(c)(3) would be determined as under 
present law. See Rev. Rul. 69-545, 1969-2 C.B. 117.
---------------------------------------------------------------------------
      The House bill does not change present-law restrictions 
on private inurement and private benefit. However, the House 
bill provides that any person with a material financial 
interest in such a PSO shall be treated as a private 
shareholder or individual with respect to the hospital for 
purposes of applying the private inurement prohibition in Code 
section 501(c)(3). Accordingly, the facts and circumstances of 
each PSO arrangement will be evaluated to determine whether the 
arrangement entails impermissible private inurement or more 
than incidental private benefit (e.g., where there is a 
disproportionate allocation of profits and losses to the non-
exempt partners, the tax-exempt partner makes loans to the 
joint venture that are commercially unreasonable, the tax-
exempt partner provides property or services to the joint 
venture at less than fair market value, or a non-exempt partner 
receives more than reasonable compensation for the sale of 
property or services to the joint venture).
      The House bill does not change present-law restrictions 
on lobbying and political activities. In addition, the 
restrictions of section 501(m) on the provision of commercial-
type insurance continue to apply.
      Effective date.--The House bill is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

                      SUBTITLE B--FRAUD AND ABUSE

                       Part 1--General Provisions

 1. increasing awareness of fraud and abuse (sec. 15101 of house bill; 
                sec. 7103 and sec. 7121 of senate bill)

Current law

      No provision.

House bill

      a. Beneficiary Outreach Efforts. This provision would 
require the Secretary to make ongoing efforts to alert 
individuals entitled to Medicare benefits of the existence of 
fraud and abuse committed against the program, of the costs of 
such fraud and abuse, and of a toll-free telephone line 
operated by the Secretary to receive information about such 
fraud and abuse.
      b. Clarification of Requirement to Provide Explanation of 
Medicare Benefits. The Secretary would be required to provide 
an explanation of Medicare benefits with respect to each item 
or service for which payment may be made, without regard to 
whether a deductible or coinsurance may be imposed with respect 
to the item or service.
      c. Provider Outreach Efforts; Publication of Fraud 
Alerts. Any person may, at any time, request the Secretary to 
publish a special fraud alert, which is defined as a notice 
that informs the public of practices the Secretary considers to 
be suspect or of particular concern under the Medicare program 
or a State health care program. Upon receipt of a request for a 
special fraud alert, the Secretary would be required to 
investigate to determine whether to issue a special fraud 
alert. If he determines issuance of a special fraud alert 
appropriate, he would be required, in consultation with the 
Attorney General, to publish a special fraud alert in the 
Federal Register. In determining whether to issue a special 
fraud alert, the Secretary could consider whether and to what 
extent the practices in question may result in the consequences 
described in the criteria used to modify and establish safe 
harbors, and the extent and frequency of the conduct in 
question. Each notice issued by the Health Care Financing 
Administration that informs the public of practices the 
Secretary considers to be suspect or of particular concern 
under the Medicare program or a State health care program would 
be required to be published in the Federal Register, without 
regard to whether it was issued by a regional office of the 
Health Care Financing Administration.
      d. Establishment of the Health Care Fraud and Abuse Data 
Collection Program. No provision.

Senate bill

      a. Beneficiary Outreach Efforts. No provision.
      b. Clarification of Requirement to Provide Explanation of 
Medicare Benefits. No provision.
      c. Provider Outreach Efforts; Publication of Fraud 
Alerts. Any person may request the Inspector General to issue a 
special fraud alert informing the public of practices which the 
Inspector General considers to be suspect or of particular 
concern under section 1128B(b) of the Social Security Act 
(anti-kickback provisions). After investigation the subject 
matter of the request, and, if appropriate, the Inspector 
General shall issue a special fraud alert in response to the 
request, published in the Federal Register.
      d. Establishment of the Health Care Fraud and Abuse Data 
Collection Program
       In General. The Secretary of Health and Human Services 
is required to establish a national health care fraud and abuse 
data collection program for reporting final adverse actions 
(not including settlements in which no findings of liability 
have been made) against health care providers, suppliers, or 
practitioners.
      Each government agency and health plan would, on a 
monthly basis, report any final adverse action taken against a 
health care provider, supplier, or practitioner. Certain 
information would be included in the report, including a 
description of the acts or omissions and injuries upon which 
the final adverse action was taken. The Secretary would, 
however, protect the privacy of individuals receiving health 
care services.
      The Secretary would, by regulation, provide for 
disclosure of the information about adverse actions, upon 
request, to the health care provider, supplier, or licensed 
practitioner and provide procedures in the case of disputed 
accuracy of the information. Each government agency and health 
plan is required to report corrections of information already 
reported about any final adverse action taken against a health 
care provider, supplier, or practitioner in such form and 
manner that the Secretary prescribes by regulation.
      The information in the database would be available to 
Federal and State government agencies and health plans. The 
Secretary may approve reasonable fees for the disclosure of 
information in the database (other than with respect to 
requests by Federal agencies). The amount of such a fee shall 
be sufficient to recover the full costs of operating the data 
base.
      No person or entity would be held liable in any civil 
action with respect to any report made as required by this 
section, unless the person or entity knows the information is 
false.
       Improved Prevention in Issuance of Medicare Provider 
Numbers. The Secretary may impose appropriate fees on 
physicians to cover the costs of investigation and 
recertification activities with respect to the issuance of 
identifiers for physicians who furnish services for which 
Medicare payments are made.

Conference agreement

      a. Beneficiary Outreach Efforts. The conference agreement 
does not include the House provision.
      b. Clarification of Requirement to Provide Explanation of 
Medicare Benefits. The conference agreement includes the House 
provision.
      c. Provider Outreach Efforts; Publication of Fraud 
Alerts. The conference agreement includes the Senate provision 
with a modification that fraud alerts may be issued with regard 
to practices under the Medicare program or a State health care 
program.
      d. Establishment of the Health Care Fraud and Abuse Data 
Collection Program. The conference agreement includes the 
Senate provision with a modification eliminating the 
definitions of ``health care provider'' and ``supplier''. The 
conference agreement also clarifies that this program is an 
authorized use of funds under the fraud and abuse control 
program.

2. beneficiary incentive programs (Sec. 15102 of house bill; Sec. 7152 
                            of senate bill)

Current law

      No provision.

House bill

      a. Program to Collect Information on Fraud and Abuse. 
This provision would require the Secretary, within three months 
after enactment of this bill, to establish a program to 
encourage individuals to report to the Secretary information on 
individuals and entities who are engaging or who have engaged 
in acts or omissions that constitute grounds for sanctions 
under sections 1128, 1128A, or 1128B of the Social Security 
Act, or who have otherwise engaged in fraud and abuse against 
the Medicare program. If an individual reports information to 
the Secretary under this program that serves as a basis for the 
collection by the Secretary or the Attorney General of any 
amount of at least $100 (other than amounts paid as a penalty 
under section 1128B), the Secretary may pay a portion of the 
amount collected to the individual, under procedures similar to 
those applicable under section 7623 of the Internal Revenue 
Code of 1986.
      b. Program to Collect Information on Program Efficiency. 
The Secretary would be required, within three months after 
enactment of this bill, to establish a program to encourage 
individuals to submit to the Secretary suggestions on methods 
to improve the efficiency of the Medicare program. If the 
Secretary adopts a suggestion and savings to the program 
result, the Secretary could make a payment to the individual of 
an amount the Secretary considers appropriate.

Senate bill

      a. Program to Collect Information on Fraud and Abuse. 
This provision would require the Secretary, within three months 
after enactment of this bill, to establish a program to 
encourage individuals to report to the Secretary information on 
individuals and entities who are engaging or who have engaged 
in acts or omissions that constitute grounds for sanctions 
under sections 1128, 1128A, or 1128B of the Social Security 
Act, or who have otherwise engaged in fraud and abuse against 
the Medicare program. If an individual reports information to 
the Secretary under this program that serves as a basis for the 
collection by the Secretary or the Attorney General of any 
amount of at least $100 (other than amounts paid as a penalty 
under section 1128B), the Secretary may pay a portion of the 
amount collected to the individual, under procedures similar to 
those applicable under section 7623 of the Internal Revenue 
Code of 1986.
      b. Program to Collect Information on Program Efficiency. 
The Secretary would be required, within three months after 
enactment of this bill, to establish a program to encourage 
individuals to submit to the Secretary suggestions on methods 
to improve the efficiency of the Medicare program. If the 
Secretary adopts a suggestion and savings to the program 
result, the Secretary could make a payment to the individual of 
an amount the Secretary considers appropriate.

Conference agreement

      The conference agreement includes the Senate provision 
with a modification adding a requirement to provide 
explanations of Medicare benefits under certain circumstances.

3. intermediate sanctions for medicare health maintenance organizations 
          (sec. 15103 of house bill; sec. 7115 of senate bill)

Current Law

      A contract between the Secretary and a Medicare Health 
Maintenance Organization (HMO) is generally for a one year 
term, with an option for automatic renewal. However, the 
Secretary may terminate any such contract at any time, after 
reasonable notice and an opportunity for a hearing, if the 
Medicare HMO has failed substantially to carry out the 
contract, or is carrying out the contract in a manner 
inconsistent with the efficient and effective administration of 
the requirements of section 1876 of the Social Security Act, or 
if the Medicare HMO no longer substantially meets the statutory 
requirements contained in Section 1876(b),(c),(e) and (f).

House bill

       a. Application of Intermediate Sanctions for Any Program 
Violations. This provision would add a ground for termination 
of a Medicare HMO contract by the Secretary, specifying that 
the Secretary may terminate such a contract if the organization 
is operating in a manner that is not in the best interests of 
the individuals covered under the contract. In addition, the 
Secretary would have the discretion to either terminate the 
contract or to impose certain intermediate sanctions on the 
eligible organization.
      If the basis for the determination by the Secretary that 
an intermediate sanction should be imposed on an eligible 
organization is other than that the organization has failed 
substantially to carry out its contract with the Secretary, 
then the Secretary may apply intermediate sanctions as follows: 
civil money penalties of not more than $25,000 for each 
determination if the deficiency that is the basis of the 
determination has directly adversely affected (or has the 
substantial likelihood of adversely affecting) an individual 
covered under the organization's contract; civil money 
penalties of not more than $10,000 for each week of a 
continuing violation; and suspension of enrollment of 
individuals until the Secretary is satisfied that the 
deficiency has been corrected and is not likely to recur.
      Whenever the Secretary seeks to either terminate a 
Medicare HMO contract or impose intermediate sanctions on such 
an organization, the Secretary must do so pursuant to a formal 
investigation and under compliance procedures which provide the 
organization with an opportunity to develop and implement a 
corrective action plan to correct the deficiencies that were 
the basis of the Secretary's adverse determination. The 
Secretary would impose more severe sanctions on organizations 
that have a history of deficiencies or that have not corrected 
deficiencies brought to their attention. The Secretary's 
compliance procedures must also include reasonable notice and 
opportunity for a hearing (including the right to appeal an 
initial decision) before the Secretary imposes any sanction or 
terminates the contract of a Medicare HMO, and there must not 
be any unreasonable or unnecessary delay between the finding of 
a deficiency and the imposition of sanctions.
      b. Effective Date. The amendments made by this section 
would apply to contract years of eligible organizations 
beginning on or after January 1, 1996.

Senate bill

      a. Application of Intermediate Sanctions for Any Program 
Violations. Under this section the Secretary may terminate a 
contract with a Medicare Health Maintenance Organization (HMO) 
or may impose certain intermediate sanctions on the 
organization if the Secretary determines that the Medicare HMO 
has failed substantially to carry out the contract; is carrying 
out the contract in a manner substantially inconsistent with 
the efficient and effective administration of this section; or, 
if the Medicare HMO no longer substantially meets the statutory 
requirements contained in Section 1876(b),(c),(e) and (f) of 
the Social Security Act.
      If the basis for the determination by the Secretary that 
intermediate sanctions should be imposed on an eligible 
organization is other than that the organization has failed 
substantially to carry out its contract with the Secretary, 
then the Secretary may apply intermediate sanctions as follows: 
civil money penalties of not more than $25,000 for each 
determination if the deficiency that is the basis of the 
determination has directly adversely affected (or has the 
substantial likelihood of adversely affecting) an individual 
covered under the organizations's contract; civil money 
penalties or not more than $10,000 for each week of a 
continuing violation; and suspension of enrollment of 
individuals until the Secretary is satisfied that the 
deficiency has been corrected and is not likely to recur.
      Whenever the Secretary seeks to either terminate a 
Medicare HMO contract or impose intermediate sanctions on such 
an organization, the Secretary must do so pursuant to a formal 
investigation and under compliance procedures which provide the 
organization with a reasonable opportunity to develop and 
implement a corrective action plan to correct the deficiencies 
that were the basis of the Secretary's adverse determination. 
In making a decision whether to impose sanctions the Secretary 
is required to consider aggravating factors such as whether an 
entity has a history of deficiencies or has not taken action to 
correct deficiencies the Secretary has brought to their 
attention. The Secretary's compliance procedures must also 
include notice and opportunity for a hearing (including the 
right to appeal an initial decision) before the Secretary 
imposes any sanction or terminates the contract of a Medicare 
HMO, and there must not be any unreasonable or unnecessary 
delay between the finding of a deficiency and the imposition of 
sanctions.
      b. Agreements with Peer Review Organizations. Under this 
section each risk-sharing contract with a Medicare HMO must 
provide that the organization will maintain a written agreement 
with a utilization and quality control peer review organization 
or similar organization for quality review functions.
      Effective Date. The amendments made by this section shall 
apply to contract years beginning on or after January 1, 1996.

Conference agreement

      The conference agreement includes the Senate provision.

       4. voluntary disclosure program (sec. 15104 of house bill)

Current law

      Current law does not provide for a program permitting the 
Secretary to mitigate penalties for parties who voluntarily 
disclose acts or omissions under Section 1128, 1128A, or 1128B. 
Section 1128 directs the Secretary to impose mandatory 
exclusions from the Medicare program and State health care 
programs for convictions of criminal offenses related to the 
delivery of an item or service under Medicare or State health 
care programs, as well as for convictions relating to patient 
abuse in connection with the delivery of a health care item or 
service. The Secretary has permissive exclusion authority for a 
number of criminal offenses relating to health care-related 
fraud, theft, embezzlement, financial misconduct, kickbacks, 
misuse of controlled substances, and activities relating to 
license revocations or suspensions, claims for excessive 
charges or unnecessary services, and the like. Section 1128A 
prescribes civil money penalties for a number of illegal 
activities relating to the submission of claims for 
reimbursement under the Medicare and Medicaid programs. 
Violations which are subject to civil money penalties include 
submitting claims for items or services not provided or which 
were false or fraudulent, providing services when not a 
properly licensed physician, and providing items or services by 
an excluded practitioner. Civil money penalties may also be 
imposed on a hospital which knowingly makes a payment to a 
physician, or a physician who knowingly accepts payment from a 
hospital, as inducement to limit or reduce care to a Medicare 
or Medicaid patient. Section 1128B sets forth criminal 
penalties under Medicare and State health care programs for 
offenses such as false statements in benefit applications or in 
determining rights under such benefits, concealing information 
relating to benefits, submitting claims from non-licensed 
physicians, and soliciting and receiving kickbacks for 
referrals or soliciting or receiving remuneration for admitting 
a Medicaid patient.

House bill

      Under this section a new provision would be added to 
Title XI of the Social Security Act directing the Secretary of 
the Department of Health and Human Services to establish a 
program encouraging individuals and entities to voluntarily 
disclose to the Secretary information on acts or omissions 
which constitute grounds for the imposition of a sanction under 
Section 1128, 1128A, or 1128B of the Social Security Act.
      Under this program the Secretary would have the authority 
to mitigate any applicable sanction which the Secretary might 
otherwise have imposed under Section 1128, 1128A or 1128B. The 
Secretary would not be required to reduce or mitigate 
applicable sanctions, but may do so, following a voluntary 
disclosure. This section would specify that no qui tam lawsuit 
could be brought under the False Claims Amendments Act of 1986, 
by private parties against the individual or entity with 
respect to a voluntarily disclosed act or omission under 
sections 1128, 1128A or 1128B.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

  5. revisions to current sanctions. (sec. 15105 of house bill; secs. 
           7102, 7111, 7112, 7113, 7114, 7131 of senate bill)

Current law

      Section 1128 of the Social Security Act authorizes the 
Secretary to impose mandatory and permissive exclusions of 
individuals and entities from participation in the Medicare 
program, Medicaid program and programs receiving funds under 
the Maternal and Child Health Service Block Grant, or the 
Social Services Block Grant. Mandatory exclusions are 
authorized for convictions of criminal offenses related to the 
delivery of health care services under Medicare and State 
health care programs, as well as for convictions relating to 
patient abuse in connection with the delivery of a health care 
item or service. In the case of an exclusion under the 
mandatory exclusion authority the minimum period of exclusion 
could be no less than five years, with certain exceptions. 
Permissive exclusions are authorized for a number of offenses 
relating to fraud, kickbacks, obstruction of an investigation, 
and controlled substances, and activities relating to license 
revocations or suspensions, claims for excessive charges or 
unnecessary services, and the like.
      Under Section 1128A of the Social Security Act civil 
monetary penalties may be imposed for false and fraudulent 
claims for reimbursement under the Medicare and State health 
care programs.
      Under section 1128B, upon conviction of a program-related 
felony, an individual may be fined not more than $25,000 or 
imprisoned for not more than five years, or both.

House bill

      a. Doubling the Amount of Civil Monetary Penalties. The 
maximum amount of civil monetary penalties set forth in Sec. 
1128A of the Social Security Act would be doubled.
      b. Establishment of Minimum Period of Exclusion for 
Certain Individuals and Entities Subject to Permissive 
Exclusion. This section would establish a minimum period of 
exclusion of three years for permissive exclusions of 
individuals or entities convicted, under Federal or State law, 
of health care criminal offenses relating to fraud, theft, 
embezzlement, breach of fiduciary responsibility or other 
financial misconduct, as well as for convictions relating to 
obstruction of an investigation, or of a criminal offense 
involving misuse of controlled substances. The Secretary may 
determine that a shorter period than three years is appropriate 
in cases of mitigating circumstances, or that a longer period 
is appropriate because of aggravating circumstances.
      Permissive exclusions in cases relating to license 
revocations or suspensions for reasons bearing on an 
individual's or entity's professional competence or financial 
integrity, and permissive exclusions following the suspension, 
exclusion or sanction or an individual or entity from any 
Federal or State health care program for reasons bearing on 
professional competence or financial integrity, would be not 
less than the period during which the individual's or entity's 
license to provide health care has been revoked or suspended, 
or the individual or entity has been excluded or suspended from 
a Federal or State health care program.
      In cases where the Secretary has permissive authority to 
exclude an individual or entity from Medicare or State health 
care programs due to submission of claims for excessive charges 
or for medically unnecessary services, the period of exclusion 
would be not less than one year.
      Effective Date. The amendments made by this section would 
apply to acts or omissions occurring on or after January 1, 
1996.
      c. Application of Certain Health Anti-Fraud and Abuse 
Sanctions to Fraud and Abuse Against Federal Health Programs. 
No provision.
      d. Mandatory Exclusion From Participation in Medicare and 
State Health Care Programs. No provision.
      e. Permissive Exclusion of Individuals With Ownership or 
Control Interest in Sanctioned Entities. No provision.
      f. Sanctions Against Practitioners and Persons for 
Failure to Comply With Statutory Obligations. No provision.
      g. Social Security Act Civil Monetary Penalties. No 
provision.

Senate bill

      a. Doubling the Amount of Civil Monetary Penalties. No 
provision.
      b. Establishment of Minimum Period of Exclusion for 
Certain Individuals and Entities Subject to Permissive 
Exclusion. This section would establish a minimum period of 
exclusion for certain permissive exclusions from participation 
in Medicare and State health care programs.
      For convictions of misdemeanor criminal health care fraud 
offenses, criminal offenses relating to fraud in non-health 
care Federal or State programs, convictions relating to 
obstruction of an investigation of health care fraud offenses, 
and convictions of misdemeanor offenses relating to controlled 
substances, the minimum period of exclusion would be three 
years, unless the Secretary determines that a longer or shorter 
period is appropriate, due to aggravating or mitigating 
circumstances.
      For permissive exclusions from Medicare or State health 
care programs due to the revocation or suspension of a health 
care license of an individual or entity, the minimum period of 
exclusion would not be less than the period during which the 
individual's or entity's license was revoked or suspended.
      For permissive exclusions from Medicare or State health 
care programs due to exclusion from any Federal health care 
program or State health care program for reasons bearing on an 
individual's or entity's professional competence or financial 
integrity, the minimum period of exclusion would not be less 
than the period the individual or entity is excluded or 
suspended from a Federal or State health care program.
       For permissive exclusions from Medicare or State health 
care programs due to a determination by the Secretary that an 
individual or entity has furnished items or services to 
patients substantially in excess of the needs of such patients 
or of a quality which fails to meet professionally recognized 
standards of health care, the period of exclusion would be not 
less than one year.
      c. Application of Certain Health Anti-Fraud and Abuse 
Sanctions to Fraud and Abuse Against Federal Health Programs.
      This section would extend certain criminal penalties for 
fraud and abuse violations under the Medicare and Medicaid 
programs to similar violations in other Federal health care 
programs generally. Other Federal health care programs include 
health insurance plans or programs funded, in whole or part, by 
the Federal government, such as the Department of Defense 
CHAMPUS program and the Office of Personnel Management Federal 
Employees Health Benefit Program. Violations would include 
willful submission of false information or claims and anti-
kickback activities in Federal health care programs. Penalties 
include misdemeanor and felony fines and possible imprisonment.
      The Secretary may identify community service 
opportunities for the satisfaction of court-imposed community 
service obligations in cases resulting from convictions of 
offenses under this section.
      Effective Date. January 1, 1996.
      d. Mandatory Exclusion From Participation in Medicare and 
State Health Care Programs.
      Individual Convicted of Felony Relating to Health Care 
Fraud. This section would require the Secretary to exclude 
individuals and entities from Medicare and State health care 
programs who have been convicted of felony offenses relating to 
health care fraud for a minimum five year period. The Secretary 
would also retain the discretionary authority to exclude 
individuals from Medicare and State health care programs who 
have been convicted of misdemeanor criminal health care fraud 
offenses, or who have been convicted of a criminal offense 
relating to fraud, theft, embezzlement, breach of fiduciary 
responsibility, or other financial misconduct in programs 
(other than health care programs) funded in whole or part by 
any Federal, State or local agency.
       Individual Convicted of Felony Relating to Controlled 
Substance. This section would require the Secretary to exclude 
individuals and entities from Medicare and State health care 
programs who have been convicted of felony offenses relating to 
controlled substances for a minimum five year period. The 
Secretary would retain the discretionary authority to exclude 
individuals from Medicare and State health care programs who 
have been convicted of misdemeanor offenses relating to 
controlled substances.
      Effective Date. This section would apply to convictions 
after the date of the enactment of this statute.
      e. Permissive Exclusion of Individuals With Ownership or 
Control Interest in Sanctioned Entities.
      Entities owned, controlled, or managed by a sanctioned 
individual are already subject to permissive exclusion from 
participation in Medicare and State health programs by the 
Secretary. Under this new authority an individual who has a 
direct or indirect ownership or control interest of 5 percent 
or more in an entity, or who is an officer or managing employee 
of an entity may also be excluded from participation in 
Medicare and State health care programs by the Secretary if the 
entity has previously been convicted of an offense listed in 
Section 1128(a) or (b)(1), (2) or (3) or otherwise excluded 
form program participation. Under the new provision, the 
culpable individual would also be subject to program exclusion, 
even if not initially convicted or excluded.
      f. Sanctions Against Practitioners and Persons for 
Failure to Comply With Statutory Obligations.
      Minimum Period of Exclusion for Practitioners and Persons 
Failing to Meet Statutory Obligations. Under this section the 
Secretary may exclude a practitioner or person for such period 
as the Secretary may prescribe, except that such period shall 
be not less than one year.
      Repeal of ``Unwilling or Unable'' Conditions for 
Imposition of Sanction. The Secretary, in making his 
determination that a practitioner or person should be 
sanctioned for failure to comply with certain statutory 
obligations relating to quality of health care, will no longer 
be required to prove that the individual was either unwilling 
or unable to comply with such obligations.
      g. Social Security Act Civil Monetary Penalties.
      General Civil Monetary Penalties. The provisions under 
the Medicare and Medicaid programs which provide for civil 
money penalties for specified fraud and abuse violations would 
apply to similar violations involving other Federal health care 
programs. Federal health care programs would include any health 
insurance plans or programs funded, in whole or part, by the 
Federal government, such as CHAMPUS and FEHBP.
      Civil money penalties and assessments received by the 
Secretary would be deposited into the Health Care Fraud and 
Abuse Control Account established under this Act.
      Excluded Individual Retaining Ownership or Control 
Interest in Participating Entity. Any person who has been 
excluded from participating in Medicare or a State health care 
program and who retains a direct or indirect ownership or 
control interest of 5 percent or more in an entity, or who is 
an officer or managing employee of an entity that is 
participating in Medicare or a State health care program would 
be subject to a civil money penalty of not more than $10,000 
for each day the prohibited relationship occurs.
      Modification of Amounts of Penalties and Assessments. 
This section would amend the civil money penalty provisions of 
Section 1128A(a) by increasing the amount of a civil money 
penalty from $2,000 to $10,000 for each item or service 
involved. This section also increases the assessment which a 
person may be subject to from ``not more than twice the 
amount'' to ``not more than three times the amount'' claimed 
for each such item or service in lieu of damages sustained by 
the United States or a State agency because of such claim.
      Claim for Item or Service Based on Incorrect Coding or 
Medically Unnecessary Services. This section would add two 
practices to the list of prohibited practices for which civil 
money penalties may be assessed. The first occurs when a person 
(including an organization or agency, but excluding a 
beneficiary) engages in a pattern or practice of presenting a 
claim for an item or service based on a code that the person 
knows or has reason to know will result in greater payments 
than appropriate. The second is the practice whereby a person 
submits a claim or claims that the person knows or has reason 
to know is for a medical items or services that are not 
medically necessary.
      Permitting Secretary to Impose Civil Monetary Penalty. 
This section would permit the Secretary to impose an 
intermediate civil money penalty of not more than $10,000 per 
violation for violations of the Medicare/Medicare anti-kickback 
statute. In addition, such person (or entity, but not a 
beneficiary) shall be subject to an assessment of not more than 
twice the total amount of the remuneration offered, paid, 
solicited, or received in the prohibited activity. Calculation 
of the assessment amount shall be without regard to whether 
some portion may have been intended to serve a non-prohibited 
purpose.
      Sanctions Against Practitioners and Persons for Failure 
to Comply with Statutory Obligations. The Secretary has the 
authority to impose administrative sanctions against 
practitioners and persons who have failed to comply with 
certain statutory obligations relating to the quality of 
medical care rendered. Under this section the Secretary may 
require, in cases involving medically improper or unnecessary 
health care services, that the practitioner or person pay the 
United States an amount up to $10,000 for each instance of 
medically improper or unnecessary health care services. In such 
cases the practitioner or person would be permitted to continue 
to be eligible to receive reimbursement for health care 
services rendered to program beneficiaries.
      Procedural Provisions. The procedural provisions outlined 
in Section 1128A, such as notice, hearings, and judicial review 
rights shall apply to civil money penalties assessed against 
Medicare Health Maintenance Organizations in the same manner as 
they apply to civil money penalties assessed against health 
care providers generally.
      Prohibition Against Offering Inducements to Individuals 
Enrolled Under Programs or Plans. This section would add a new 
practice to the list of prohibited practices for which civil 
money penalties may be assessed. Any person (including an 
organization or agency, but excluding a beneficiary) who offers 
remuneration to an individual eligible for benefits under 
Medicare or a State health plan to induce that individual to 
order or receive from a particular provider, practitioner or 
supplier any item or service reimbursable under Medicare or a 
State health care program shall be subject to the various civil 
money penalties, assessments and exclusion provisions of 
section 1128A of the Social Security Act.
      The term ``remuneration'' is defined to include the 
waiver of part or all of coinsurance and deductible amounts, as 
well as transfers of items or services for free, or for other 
than fair market value. There are exceptions to this 
definition. The waiver of part or all of coinsurance and 
deductible amounts would not be considered remuneration under 
this section if the waiver is not offered as part of any 
advertisement or solicitation, the person does not routinely 
waive coinsurance or deductible amounts, and the person either 
waives the coinsurance and deductible amounts because the 
individual is in financial need, or fails to collect the 
amounts after reasonable collection efforts, or provides for a 
permissible waiver under regulations issued by the Secretary. 
In addition, the term remuneration would not include 
differentials in coinsurance and deductible amounts as part of 
a benefit plan design if the differentials have been disclosed 
in writing to all beneficiaries, third party payors, and 
providers, and if the differentials meet the standards defined 
in the Secretary's regulations. Remuneration would also not 
include incentives given to individuals to promote the delivery 
of preventive care under the Secretary's regulations.
      Effective Date. January 1, 1996.
Conference agreement
      a. Doubling the Amount of Civil Monetary Penalties. The 
conference agreement does not include the House provision.
      b. Establishment of Minimum Period of Exclusion for 
Certain Individuals and Entities Subject to Permissive 
Exclusion. The conference agreement includes the Senate 
provision.
      c. Application of Certain Health Anti-Fraud and Abuse 
Sanctions to Fraud and Abuse Against Federal Health Programs. 
The conference agreement includes the Senate provision with a 
clarification of the term ``Federal Health Care Program''.
      d. Mandatory Exclusion From Participation in Medicare and 
State Health Care Programs. The conference agreement includes 
the Senate provision.
      e. Permissive Exclusion of Individuals With Ownership of 
Control Interest in Sanctioned Entities. The conference 
agreement includes the Senate provision with a clarification 
regarding certain individuals who are liable under this 
provision.
      f. Sanctions Against Practitioners and Persons for 
Failure to Comply With Statutory Obligations. The conference 
agreement includes the Senate provision.
      g. Social Security Act Civil Monetary Penalties. The 
conference agreement includes the Senate provision with a 
clarification regarding excluded individuals who retain an 
ownership interest in certain entities participating in 
Medicare or State health care programs, and a clarification 
regarding the applicable level of intent. In addition, the 
provision permitting the Secretary to impose civil monetary 
penalties for violations of the anti-kickback statute is 
eliminated.

6. consolidated funding for anti-fraud and abuse activities (sec. 15106 
                of house bill; sec. 7101 of senate bill)

Current law
      Currently Medicare's program integrity functions are 
subsumed under Medicare's general administrative budget. These 
functions are performed, along with general claims processing 
functions, by insurance companies under contract with the 
Health Care Financing Administration.
House bill
      a. Establishment of Medicare Integrity Program. This 
provision would establish a Medicare Integrity Program under 
which the Secretary would promote the integrity of the Medicare 
program by entering into contracts with eligible private 
entities to carry out certain activities. These activities 
would include the following: (1) review of activities of 
providers of services or other individuals and entities 
furnishing items and services for which payment may be made 
under the Medicare program, including medical and utilization 
review and fraud review, (2) audit of cost reports, (3) 
determinations as to whether payment should not be, or should 
not have been, made by reason of the Medicare as secondary 
payor provisions, and recovery of payments that should not have 
been made, and (4) education of providers of services, 
beneficiaries, and other persons with respect to payment 
integrity and benefit quality assurance issues. The Secretary 
would impose certain eligibility requirements on entities 
entering into contracts under this Medicare Integrity Program.
      The Secretary would be authorized to establish, by 
regulation, procedures for entering into contracts, including 
procedures relating to the number of contracts and the timing 
of contracts, competitive procedures for new contracts, and 
waiver of competitive procedures for renewed contracts under 
certain circumstances.
      The Secretary would be required to provide, by 
regulation, for the limitation of a contractor's liability 
under the Medicare Integrity Program. The Secretary would 
employ, to the extent he finds appropriate, the same or 
comparable standards and other substantive and procedural 
provisions as are contained in section 1157 of the Social 
Security Act.
      The Secretary would be required to transfer, for each 
fiscal year, from the Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund, to the 
Medicare Anti-Fraud and Abuse Trust Fund an amount equal to the 
total amount of expenditures that the Secretary would have made 
under this title during the year to carry out the activities 
described herein if the Medicare Integrity Program had not been 
in effect. Such transfer would be in an allocation as 
reasonably reflects the proportion of such expenditures 
associated with part A and part B.
      There would be established in the Treasury of the United 
States the Anti-Fraud and Abuse Trust Fund, which would consist 
of such gifts and bequests as may be made unconditionally to 
the Trust Fund and such amounts as may be deposited in the 
Trust Fund as provided in this section. The Secretary of the 
Treasury would be required to invest such amounts of the Funds 
as he determines are not required to meet current withdrawals 
from the Fund in government account serial securities. Any 
interest derived from investments would be credited to the 
Fund.
      Certain amounts would be deposited in the Trust Fund, 
including moneys from fines, penalties and damages assessed 
under various Medicare and State health care programs. There 
would be appropriated from the Trust Fund for each fiscal year 
such amounts as are necessary to carry out the Medicare 
Integrity Program, subject to specific limitations for fiscal 
years 1996 through 2002. The Secretary would submit an annual 
report to Congress on the revenues generated and disbursed by 
the Trust Fund each fiscal year.
      Elimination of FI and Carrier Responsibility for Carrying 
Out Activities Subject to Program. This provision prohibits any 
agency, organization, or carrier, from carrying out (or 
receiving payment for carrying out) any activity pursuant to an 
agreement under this section to the extent that the activity is 
carried out pursuant to a contract under the Medicare Integrity 
Program.
      Conforming Amendment. This section specifies that certain 
penalties and assessments be deposited in the Trust Fund as 
provided herein.
      Direct Spending for Medicare-Related Activities of 
Inspector General. Under this section certain amounts, subject 
to specified limitations, are appropriated from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medicare Insurance Trust Fund to the Inspector General of HHS 
for activities relating to the Medicare program. These 
activities include prosecuting medicare-related matters through 
criminal, civil, and administrative proceedings, conducting 
investigations, audits and inspections, and conducting provider 
and consumer education activities regarding fraud and abuse 
provisions.
      b. Fraud and Abuse Control Program. No provision.

Senate bill

      a. Establishment of Medicare Integrity Program. No 
provision.
      b. Fraud and Abuse Control Program. The Secretary of the 
Department of Health and Human Services (acting through the 
Office of the Inspector General) and the Attorney General would 
be required to jointly establish a national health care fraud 
and abuse control program to coordinate Federal, State and 
local law enforcement efforts to combat fraud and abuse in the 
delivery of and payment for health care in the United States. 
To facilitate the enforcement of this fraud and abuse control 
program the Secretary and Attorney General would be authorized 
to conduct investigations, audits, evaluations and inspections 
relating to the delivery and payment for health care, and would 
be required to arrange for the sharing of data with 
representatives of public and private third party payers. This 
program, implemented by guidelines issued by the Secretary and 
the Attorney General, would also facilitate the enforcement of 
applicable Federal statutes relating to health care fraud and 
abuse, and would provide for the provision of guidance to 
health care providers through the issuance of safe harbors, 
interpretive rulings and special fraud alerts.
      The Secretary and Attorney General would consult with and 
share data with representatives of health plans. Guidelines 
issued by the Secretary and Attorney General would ensure the 
confidentiality of information furnished by health plans, 
providers and others, as well as the privacy of individuals 
receiving health care services. The Inspector General would 
retain all current authorities and would receive reimbursements 
for costs of investigations, audits and other functions under 
this section.
      For purposes of this section the term ``health plan'' 
means a plan or program that provides health benefits through 
insurance or otherwise. Such plans include health insurance 
policies, contracts of service benefit organizations, and 
membership agreements with health maintenance organizations or 
other prepaid health plans.
      Establishment of Health Care Fraud and Abuse Control 
Account in Federal Hospital Insurance Trust Fund. The Health 
Care Fraud and Abuse Control Account would be established as an 
expenditure account within the Federal Hospital Insurance Trust 
Fund. Monies derived from the coordinated health care anti-
fraud and abuse program from imposition of civil money 
penalties, fines, forfeitures and damages assessed in criminal, 
civil or administrative health care cases, along with any gifts 
or bequests would be transferred into the Medicare HI trust 
fund. There are also appropriated from the HI trust fund to the 
Account such sums as the Secretary and the Attorney General 
certify are necessary to carry out certain functions, subject 
to specified limits for each of fiscal years 1996 through 2002. 
These functions include prosecuting health care matters, 
investigations, audits of health care programs and operations, 
inspections and other evaluations, and provider and consumer 
education regarding compliance with fraud and abuse provisions. 
Amounts in the Account would also be available to the various 
State Medicaid fraud control units to reimburse such units for 
the costs of certain activities. The Secretary and the Attorney 
General are required to submit a joint annual report to 
Congress on the revenues and expenditures, and the 
justification for such disbursements of the Health Care Fraud 
and Abuse Control Account.

Conference agreement

      a. Establishment of Medicare Integrity Program. The 
conference agreement includes the House provision with 
clarifications to the conflict of interest requirements for 
eligible entities and the competitive bidding procedures.
      b. Fraud and Abuse Control Program. The conference 
agreement includes the Senate provision with modifications. The 
fraud and abuse control program coordinates Federal, State, and 
local law enforcement programs to control fraud and abuse with 
respect to health plans. The funding mechanism for the Federal 
Bureau of Investigations authorizes appropriations for the FBI 
from general revenues.

  7. permitting carriers to carry out prior authorization for certain 
  items of durable medical equipment (dme) (sec. 15107 of house bill)

Current law

      The Secretary is authorized to develop and periodically 
update a list of DME items that are subject to unnecessary 
utilization throughout a carrier's entire service area or a 
portion of such area. The Secretary may also develop and update 
a list of DME suppliers with a substantial number of denied 
claims or a pattern of overutilization resulting from the 
business practices of suppliers. Carriers are required to make 
advance coverage determinations for items on the lists 
developed by the Secretary.

House bill

      a. In General. Carriers would be authorized to develop 
the same lists of DME items and suppliers that the Secretary is 
authorized to develop. Carriers would also be authorized to 
make advance coverage determinations, regardless of whether or 
not the Secretary has promulgated a regulation for the list, 
except that carriers could not make such advance determinations 
with respect to an item or supplier on a list until the 
expiration of the 30-day period beginning on the date the 
Secretary or carrier places the item on the list.
      b. Effective Date. This amendment would take effect as if 
included in the enactment of the Social Security Act Amendments 
of 1994.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision as 
part of the Medicare Integrity Program.

  8. national health care anti-fraud task force (sec. 15108 of house 
                    bill; sec. 7101 of senate bill)

Current law

      No provision.

House bill

      Within 120 days of enactment of this bill the Attorney 
General, in consultation with the Secretary of HHS, would 
establish, within the Department of Justice, a nation-wide 
Health Care Anti-Fraud Task Force to prosecute health care 
fraud offenses. This Task Force would be composed of 
representatives of Federal agencies which prosecute health care 
fraud and abuse, including the Department of Justice, the FBI, 
the Department of Health and Human Services and its Office of 
Inspector General, the Department of Defense, the Department of 
Veterans Affairs, the U.S. Postal Service and the IRS. The Task 
Force would coordinate Federal law enforcement activities 
relating to health care fraud and abuse in order to better 
control fraud and abuse in the delivery of health care in the 
United States.

Senate bill

      See Senate bill summary, item 6(b), above.

Conference agreement

      The conference agreement does not include the House 
provision. The conference agreement (see item 6(b), above) 
includes the Senate provision.

9. study of adequacy of private quality assurance programs (sec. 15109 
                             of house bill)

Current law

      No provision.

House bill

      The Administrator of the Health Care Financing 
Administration, through the Office of Research, would be 
required to contract for a study of the adequacy of quality 
assurance programs and consumer protections used by plans 
enrolling Medicare beneficiaries under part C of title XVIII of 
the Social Security Act, including an analysis of the 
effectiveness of such programs in protecting plan enrollees 
against the risk of insufficient provision of benefits which 
may result from utilization controls. A report would be 
submitted to Congress on the study not later than 6 months 
after the conclusion of the 5-year period for the study.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

  10. penalty for false certification for home health services (sec. 
                          15110 of house bill)

Current law

      No provision.

House bill

      a. In General. This provision would add an additional 
civil monetary penalty of not more than three times the amount 
of the payments, or $5,000, whichever is greater, for a 
physician who certifies that an individual meets all of 
Medicare's requirements to receive home health care while 
knowing that the individual does not meet all such 
requirements.
      b. Effective Date. The amendment made by this section 
would apply to certifications made on or after the date of 
enactment of this Act.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision.

             11. pilot projects (sec. 15111 of house bill)

Current law

      No provision.

House bill

      The Secretary of HHS would establish and operate five 
pilot projects in various parts of the country implementing 
innovative approaches to monitor Medicare program payment 
claims to detect claims that are wasteful or fraudulent.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

  12. elimination of reasonable cost reimbursement for certain legal 
                  fees. (section 7122 of senate bill)

Current law

      The determination of reasonable costs under the Medicare 
program do not include the costs incurred by a provider of 
services representing a beneficiary in an unsuccessful appeal 
of a determination of an individual's entitlement to benefits 
under part A or part B, or the amount of such benefits, or 
certain other allowable grounds for appeal under Sec. 1869(b) 
of the Social Security Act.

House bill

      No provision.

Senate bill

      This provision would also disallow the costs incurred by 
a provider of services in representing a beneficiary in an 
unsuccessful appeal of a determination of entitlement to 
benefits under part A or part B, and in an appeal of an 
unsuccessful determination of the amount of benefits under part 
A or part B, and in any other appeal of a determination with 
respect to a claim for benefits under part A or a claim for 
benefits with respect to home health services under part B 
under Section 1869(a) of the Social Security Act.

Conference agreement

      The conference agreement does not include the Senate 
provision.

                   Part 2--Revisions to Criminal Law

1. definition of health care fraud offense. (sec. 15121 of house bill; 
                    sec. 7142(a) of the senate bill)

Current law

      No provision.

House bill

      This section sets forth a series of offenses against the 
federal government or private entities that would be considered 
as federal health care offenses when they relate to health 
care. These include (1) a violation of, or criminal conspiracy 
to violate section 226, 227, 669, 1035, 1347, or 1518 of title 
18; (2) a violation of, or criminal conspiracy to violate 
section 1128B of the Social Security Act; (3) a violation of, 
or criminal conspiracy to violate section 201, 287, 371, 664, 
666, 1001, 1027, 1341, 1343, or 1954 of this title, if the 
violation or conspiracy relates to a health care benefit 
program; (4) a violation of, or criminal conspiracy to violate 
section 501 or 511 of the Employee Retirement Income Security 
Act of 1974, if the violation or conspiracy relates to a health 
care benefit program; (5) the commission of, or attempt to 
commit, an act which constitutes grounds for the imposition of 
a penalty under section 303 of the Federal Food, Drug, and 
Cosmetic Act, if the act or attempt relates to a health care 
benefit program; or (6) a violation of, or criminal conspiracy 
to violate, section 3 of the Anti-Kickback Act of 1986, if the 
violation or conspiracy relates to a health care benefit 
program.

Senate bill

      This section sets forth those offenses that will be 
considered as ``Federal Health Care Offenses'' under this 
subtitle. These include a violation of, or a criminal 
conspiracy to violate--(i) section 1347 of title 18; (ii) 
section 1128B of the Social Security Act; and (iii) sections 
287, 371, 664, 666, 669, 1001, 1027, 1341, 1343, 1920, or 1954 
of title 18, if the violation or conspiracy relates to health 
care fraud.

Conference agreement

      The conference agreement includes the Senate provision.

  2. health care fraud (sec. 15122 of house bill; sec. 7141 of senate 
                                 bill)

Current law

      Depending on the facts of a particular case, criminal 
penalties may be imposed on persons engaged in health care 
fraud under federal mail and wire fraud statutes, the False 
Claims Act, false statement statutes, money laundering 
statutes, racketeering, and other related laws.

House bill

      Criminal penalties would be imposed for devising, 
committing, or attempting a scheme (1) to defraud any health 
care benefit program; or (2) to obtain, by means of false or 
fraudulent pretenses, money or property owned by, or under the 
custody or control of, any health care benefit program. A 
``health care benefit program'' is defined to include 1) any 
public or private plan or contract under which any medical 
benefit, item, or service is provided to any individual, and 2) 
includes any individual or entity who is providing a medical 
benefit, item, or service for which payment may be made under 
the plan or contract. Penalties include fines and up to 10 
years imprisonment. If the violation results in serious bodily 
injury, the person may be imprisoned up to 20 years. If the 
violation results in death, the person may be imprisoned for 
life.

Senate bill

      Criminal penalties would be imposed for knowingly and 
willfully executing a scheme, or artifice, or attempting to 
execute a scheme or artifice to defraud any ``health plan'' or 
any other person in connection with the payment or delivery of 
health care benefits, items or services. Penalties may also be 
imposed for obtaining money or property owned or under the 
custody or control of a health plan through false or fraudulent 
pretenses, representations or promises. Persons who violate the 
above provisions may be subjected to up to ten years in prison 
or applicable fines. If the violation results in serious bodily 
injury, the person may be imprisoned for any term of years. An 
amount equal to the criminal fines imposed by this section 
shall be deposited in the Federal Hospital Insurance Trust 
Fund.
      The term ``health plan'' means a plan or program that 
provides health benefits through insurance or otherwise. Such 
plans include health insurance policies, contracts of service 
benefit organizations, and membership agreements with health 
maintenance organizations or other prepaid health plans. Later 
provisions under this subtitle generally provide protections to 
a ``health plan'' or person against fraud, theft, embezzlement, 
bribery, graft.

Conference agreement

      The conference agreement includes the Senate provision, 
with a modification to cover only those offenses involving 
federal health care programs.

3. theft or embezzlement (sec. 15123 of house bill; sec. 7147 of senate 
                                 bill)

Current law

      No provision.

House bill

      Criminal penalties would be imposed for willfully 
embezzling, stealing, converting or intentionally misapplying 
the moneys, funds, securities, premiums, credits, property, or 
other assets of a ``health care benefits program'' to the use 
of any person other than the rightful owner. Violations of this 
section may include a fine under Title 18 and imprisonment not 
more than 10 years, or both.

Senate bill

      Criminal penalties would be imposed for willfully 
embezzling, stealing, converting, or misapplying any of the 
moneys, funds, securities, premiums, credits, property, or 
other assets of a ``health plan.'' A person convicted under 
this provision will be subject to a fine under title 18 of the 
United States Code, or imprisoned not more than 10 years, or 
both.

Conference agreement

      The conference agreement includes the Senate provision, 
with a modification to cover only those offenses involving 
federal health care programs.

  4. false statements (sec. 15124 of house bill; sec. 7145 of senate 
                                 bill)

Current law

      The Federal false statements provision at 18 U.S.C. 
Sec. 1001 generally prohibits false statements with regard to 
any matter within the jurisdiction of a Federal department or 
agency.

House bill

      Criminal penalties would be imposed for knowingly and 
willfully falsifying, concealing, or covering up by any trick, 
scheme, or device a material fact, or making false, fictitious, 
or fraudulent statements or representation, or making or using 
any false writing or document knowing the same to contain any 
false, fictitious, or fraudulent statement or entry in any 
matter involving a health care benefit program. A person 
convicted under this provision may be punished by the 
imposition of fines under title 18 of the United States Code, 
or by imprisonment of not more than 5 years, or both. ``Health 
care benefit program'' shall have the meaning as set forth in 
Sec. 15121.

Senate bill

      Criminal penalties would be imposed for knowingly and 
willfully falsifying, concealing, or covering up by any trick, 
scheme, or device a material fact, or making false, fictitious, 
or fraudulent statements or representation, or making or using 
any false writing or document knowing the same to contain any 
false, fictitious, or fraudulent statement or entry in any 
matter concerning a health plan. A person convicted under this 
provision may be punished by the imposition of fines under 
title 18 of the United States Code, or by imprisonment of not 
more than 5 years, or both.

Conference agreement

      The conference agreement includes the Senate provision 
with a clarification that false statements or writings must be 
``material'' and must be related to a federal health care 
program.

            5. bribery and graft (sec. 15125 of house Bill)

Current law

      No provision.

House bill

      Criminal penalties may be applied to a person who 
``corruptly'' gives, offers, or promises anything of value to 
any person in order to influence a health care official's 
actions relating to a health care benefit program; to influence 
such an official to commit a fraud on a health care benefit 
program; or to induce such an official to engage in any conduct 
in violation of their lawful duty. The section also penalizes a 
health care official who corruptly demands or accepts anything 
of value for the above purposes. A health care official is an 
administrator, officer, trustee, fiduciary, custodian, counsel, 
agent, or employee of any health care benefit program; an 
officer, counsel, agent, or employee, of an organization that 
provides services under contract to any health care benefit 
program; or an official, employee, or agent of an entity having 
regulatory authority over any health care benefit program. 
Penalties include fines under title 18 or imprisonment for not 
more than 15 years, or both.
      This section also provides that anyone who directly or 
indirectly gives, offers, or promises anything of value to a 
health care official (otherwise than as provided by law) ``for 
or because'' of any of the health care official's actions, 
decisions, or duties relating to a health care benefit program, 
or attempts to violate this subsection; or (2) being a health 
care official, directly or indirectly, demands, seeks, 
receives, accepts or agrees to accept anything of value the 
giving of which violates the above, would be fined under title 
18, or imprisoned not more than 2 years, or both.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

 6. illegal remuneration with respect to health care benefit programs 
          (sec. 15126 of house bill; sec. 7102 of senate bill)

Current law

      No provision.

House bill

      This section would transfer the anti-kickback provisions 
from Sec. 1128B of the Social Security Act to title 18, and 
would expand the statute to all health care benefit programs, 
rather than just Medicare and Medicaid. It specifically 
provides criminal penalties for a person who knowingly and 
willfully receives or pays any remuneration (including any 
kickback, bribe, or rebate) in return for referrals covered by 
a health care benefit program; or in return for purchasing, 
leasing, ordering, or arranging for any service or item for 
which payment may be made in whole or in part by any health 
care benefit program, or attempting to do so, shall be fined 
under this title or imprisoned for not more than 5 years, or 
both. Any person injured in his business or property by reason 
of a violation of this section may sue and recover treble 
damages.
      This would not apply to (1) a discount or other reduction 
in price obtained by a provider of services if the reduction in 
price is reflected in the costs charges made by the provider; 
(2) any amount paid by a bona-fide employee; (3) any amount 
paid by a vendor of goods or services to a purchasing agent for 
a group of individuals or entities who are furnishing services 
reimbursed under a health care benefit program if--(A) the 
person has a written contract, with each such individual or 
entity, which specifies the amount to be paid the person, which 
amount may be a fixed amount or a percentage of the value of 
the purchases made by each such individual or entity under the 
contract, and (B) in the case of an entity that is a provider 
of services (as defined in section 1861(u) of the Social 
Security Act, the person discloses to the entity and, upon 
request, to the Secretary the amount received from each such 
vendor; (4) a waiver of any coinsurance under part B of 
Medicare by a federally qualified health care center; (5) any 
payment practice specified by the Secretary of HHS pursuant to 
section 14(a) of the Medicare and Medicaid Patient and Program 
Protection Act of 1987.

Senate bill

      This section extends the existing Anti-Kickback statute 
found in Sec. 1128B of the Social Security Act to all federal 
health care programs, rather than just Medicare and Medicaid.

Conference agreement

      The conference agreement includes the Senate provision.

7. obstruction of criminal investigations of health care offenses (sec. 
             15127 of house bill; sec. 7146 of senate bill)

Current law

      Criminal penalties are imposed for obstructing, delaying 
or preventing the communication of information to law 
enforcement officials regarding the violation of criminal 
statutes by using bribery, intimidation, threats, corrupt 
persuasion or harassment.

House bill

      Criminal penalties would be imposed for willfully 
preventing, obstructing, misleading, delaying or attempting to 
prevent, obstruct, mislead or delay the communication of 
information or records relating to a health care offense to a 
criminal investigator. A person convicted under this provision 
may be punished by the imposition of fines under title 18 of 
the United States Code, or by imprisonment of not more than 5 
years, or both. Health care offenses would have the same 
meaning given such term in Sec. 15121. A criminal investigator 
would mean any individual duly authorized by a department, 
agency or armed force of the United States to conduct or engage 
investigations for prosecutions for violations of health care 
offenses.

Senate bill

      Criminal penalties would be imposed for willfully 
preventing, obstructing, misleading, delaying or attempting to 
prevent, obstruct, mislead or delay the communication of 
information or records relating to a Federal health care 
offense to a criminal investigator. A person convicted under 
this provision may be punished by the imposition of fines under 
title 18 of the United States Code, or by imprisonment of not 
more than 5 years, or both. Federal health care offenses would 
have the same meaning given such term in Sec. 7142 of the Act, 
and criminal investigator would mean any individual duly 
authorized by a department, agency, or armed force of the 
United States to conduct or engage investigations for 
prosecutions for violations of health care offenses.

Conference agreement

      The conference agreement includes the Senate provision.

8. civil penalties for violations of federal health care offenses (sec. 
                                 15128)

Current law

      No provision.

House bill

      A civil penalty may be sought by the Attorney General 
against any person who engages in conduct constituting a 
violation of Federal health care offense (as defined in 
Sec. 15121), and would be subject to a civil penalty of not 
more than $50,000 for each violation or the amount of 
compensation or proceeds which the person received or offered 
for the prohibited conduct, whichever amount is greater.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

 9. injunctive relief relating to health care offenses (sec. 15129 of 
                 house bill; sec. 7143 of senate bill)

Current law

      Depending on the facts of a particular case, injunctive 
relief may be imposed on persons who are committing or about to 
commit health care fraud under federal racketeering statutes 
and other related laws.

House bill

      If a person is violating or about to commit a Federal 
health care offense, the Attorney General of the United States 
may commence a civil action in any Federal court to enjoin such 
a violation.

Senate bill

      If a person is violating or about to commit a Federal 
health care offense, the Attorney General of the United States 
may commence a civil action in any Federal court to enjoin such 
a violation. If a person is alienating or disposing of property 
or intends to alienate or dispose of property obtained as a 
result of a Federal health care offense, the Attorney General 
may seek to enjoin such alienation or disposition, or may seek 
a restraining order to prohibit the person from withdrawing, 
transferring, removing, dissipating or disposing of any such 
property or property of equivalent value and appoint a 
temporary receiver to administer such restraining order.
Conference agreement
      The conference agreement includes the Senate provision.

  10. Authorized Investigative Demand Procedures (Sec. 15130 of House 
                    bill; Sec. 7149 of Senate bill)

Current law
      No provision.
House bill
      This section would provide procedures for the Attorney 
General to make investigative demands in cases regarding 
Federal health care offenses. The Attorney General could issue 
a summons for witnesses or records, although a witness shall 
not be required to appear at any hearing more than 500 miles 
distant from the place where he was served with a subpoena. 
Administrative summons are authorized for investigations of 
Federal health care offenses or of any investigation with 
respect to concealing escaped prisoners, flight to avoid 
prosecution or testimony, or fleeing after conviction of such 
offenses. This section would also provide for service of a 
subpoena and enforcement of a subpoena in all United States 
courts, as well as grants of immunity to persons responding to 
a subpoena from civil liability for disclosure of such 
information.
Senate bill
      This section would provide procedures for the Attorney 
General to make investigative demands in cases regarding health 
care fraud. Under this section, the Attorney General could 
issue a summons for records and/or a witness to authenticate 
the records, although a witness would not be required to appear 
at any hearing more than 500 miles distant from the place where 
he was served with a subpoena. Administrative summons are 
authorized for investigations of any scheme to defraud any 
health plan or other person in connection with the delivery of 
or payment for health care; or to fraudulently obtain money or 
property of a health plan or person in connection with the 
delivery of or health care. This section would provide for 
service of a subpoena and enforcement of a subpoena in all 
United States curtseys well as a grant of immunity to persons 
responding to a subpoena from civil liability for disclosure of 
such information.
      The section would also provide that health information 
about an individual that is disclosed under this section may 
not be used in, or disclosed to any person for use in, any 
administrative, civil, or criminal action or investigation 
directed against the individual who is the subject of the 
information unless the action or investigation arises out of 
and is directly related to receipt of health care or payment 
for health care or action involving a fraudulent claim related 
to health; or if good cause is shown.
Conference agreement
      The conference agreement includes the Senate provision, 
with a modification to limit applicability to matters involving 
federal health care programs.

   11. Grand Jury Disclosure (Sec. 15131 of House bill; Sec. 7144 of 
                              Senate bill)

Current law
      Attorneys for the United States government are generally 
forbidden from disclosing matters occurring before the grand 
jury under Rule 6(e)(2) of the Federal Rules of Criminal 
Procedure. Exceptions to this requirement include the 
following: Rule 6(e)(3)(A)(I), which allows a government 
attorney to disclose matters occurring before a grand jury 
(excluding deliberations and the vote of any grand juror) to an 
attorney for the government for use in the performance of such 
attorney's duties; Rule 6(e)(3)(A)(ii), which allows similar 
disclosure to such government personnel as are deemed necessary 
to an attorney for the government to assist in the enforcement 
of federal criminal law; and Rule 6(e)(3)(C)(I), which allows a 
court to direct disclosure of grand jury proceedings in 
connection with or preliminary to a judicial proceeding. The 
Supreme Court has interpreted these exceptions narrowly, 
however, holding that the disclosure allowed under Rule 
6(e)(3)(A)(I) and (ii) must be relevant to the criminal process 
which is the focus of the grand jury, and that disclosure under 
Rule 6(e)(3)(C)(I) will only be directed by a court under a 
strong showing of particularized need. United States v. Sells 
Engineering, Inc., 463 U.S. 418 (1983). Thus, a government 
attorney prosecuting a criminal case before a grand jury may 
not be able to divulge information occurring before the grand 
jury to a government attorney engaged in a civil investigation 
or proceeding on the same matters.
House bill
      A person who is privy to grand jury information 
concerning a Federal health care offense received in the course 
of duty as an attorney for the Government or disclosed under 
Federal Rules of Criminal Procedure Rule 6(e)(3)(A)(I) may 
disclose such information to another attorney for the 
Government to use in any investigation or civil proceeding 
relating to health care fraud.
Senate bill
      A person who is privy to grand jury information 
concerning a Federal health care offense received in the course 
of duty as an attorney for the Government or disclosed under 
Federal Rules of Criminal Procedure Rule 6(e)(3)(A)(I) may 
disclose such information to another attorney for the 
Government to use in any investigation or civil proceeding 
relating to health care fraud.
Conference agreement
      The conference agreement does not include either the 
House or Senate provisions.

12. Miscellaneous Amendment to Title 18, United States Code (Sec. 15132 
             of House bill; Sec. 7148, 7142 of Senate bill)

      a. Laundering of Monetary Instruments
Current law
      The current Federal money laundering provision is found 
at 18 U.S.C. Sec. 1956(c)(7), but does not include money 
laundering as related to health care fraud.
House bill
      An act or activity constituting a Federal health care 
offense would be considered a ``specified unlawful activity'' 
for purposes of the prohibition on money laundering, so that 
any person who engages in money laundering in connection with a 
Federal health care offense would be subject to existing 
criminal penalties.
Senate bill
      An act or activity constituting a Federal health care 
offense would be considered a ``specified unlawful activity'' 
for purposes of the prohibition on money laundering, so that 
any person who engages in money laundering in connection with a 
Federal health care offense would be subject to existing 
criminal penalties.
Conference agreement
      The conference agreement includes the Senate provision.
      b. Enhanced Penalties (Telemarketing)
Current law
      18 U.S.C. Sec. 2325 provides for enhanced penalties for 
offense occurring during a telemarketing scheme. The present 
law does not apply specifically to Federal Health Care offense.
House bill
      This section would provide that a person convicted of a 
Federal Health Care offense which occurred in the course of a 
telemarketing scheme which targeted persons over fifty-five, or 
which victimized ten or more persons over 55, may be imprisoned 
up to an additional ten years.
Senate bill
      No provision.
Conference Agreement
      The conference agreement does not include the House 
provision.
      c. Authorization for Interception of Wire, Oral, or 
Electronic Communication
Current law
      18 U.S.C. Sec. 2516 sets forth the federal statutes for 
which authorization to place a wire-tap may be sought from the 
courts. Federal Health Care offenses are not specifically 
included in this list.
House bill
      This section would establish a court's authority to 
approve an application for a wiretap to be placed in order to 
gather evidence related to a Federal Health Care Offense, as 
defined in Sec. 15121.
Senate bill
      No provision.
Conference Agreement
      The conference agreement does not include the House 
provision.
      d. Definitions (RICO)
Current law
      A RICO violation may be summarized as follows: whoever 
participates in a commercial ``enterprise'' or an 
``enterprise'' which has an impact on commerce through a 
pattern of specific criminal ``racketeering'' activity can be 
found to be in violation of RICO. Typical ``racketeering'' 
activity includes murder, kidnapping, robbery, arson, bribery, 
loan-sharking, mail fraud, wire fraud, obstruction of justice, 
witness retaliation, or extortion. Federal Health Care Offenses 
are not specifically listed as a ``racketeering activity.''
House bill
      This section would establish a Federal Health Care 
Offense as a predicate offense for purposes of establishing a 
pattern of ``racketeering activity'' under RICO.
Senate bill
      No provision.
Conference agreement
      The conference provision does not include the House 
provision.
      e. Criminal Forfeiture
Current law
      Depending on the facts of a particular case, criminal 
forfeiture may be imposed on persons convicted under federal 
money laundering statutes, racketeering statutes, and other 
related laws.
House bill
      A court imposing a sentence on a person convicted of a 
Federal health care offense would order the person to forfeit 
all real or personal property that is derived, directly or 
indirectly, from proceeds traceable to the commission of the 
offense.
Senate bill
      A court imposing a sentence on a person convicted of a 
Federal health care offense would order the person to forfeit 
all real or personal property that is derived, directly or 
indirectly, from proceeds traceable to the commission of the 
offense. After payment of the costs of asset forfeiture have 
been made, the Secretary of the Treasury would deposit into the 
Federal Hospital Insurance Trust Fund an amount equal to the 
net amount realized from the forfeiture of property by reason 
of a federal health care offense.
Conference agreement
      The conference agreement includes the Senate provision.

  13. State Health Care Fraud Control Units (Sec. 7151 of Senate bill)

Current Law
      State Medicaid Fraud Control Units are presently 
authorized under the Medicaid program and are certified 
annually by the Secretary if they meet certain requirements. 
Such units must be a unit of State government with either (a) 
statewide authority to investigate and prosecute individuals 
for criminal violations of State laws regarding fraud in the 
provision of medical assistance under the Medicaid program, or 
(b) have formal procedures providing effective coordination 
with the activities of the State Attorney General's office or 
other office with prosecutive authority. State Medicaid Control 
Units must also have procedures for reviewing complaints of 
abuse and neglect of patients of health care facilities 
receiving Medicaid payments and, where appropriate, acting on 
such complaints or referring them for action.
House bill
      No provision.
Senate bill
       a. Extension of Concurrent Authority to Investigate and 
Prosecute Fraud in Other Federal Programs. This section changes 
the State Medicaid Fraud Control Unit authorization language to 
specify that those units will have concurrent authority to 
investigate and prosecute health care fraud in other Federal 
programs at the approval of the relevant Federal agency.
      b Extension of Authority to Investigate and Prosecute 
Patient Abuse in Non-Medicaid Board and Care Facilities. States 
have the option, under this section, to establish procedures 
for reviewing complaints of abuse or neglect of patients 
residing in board and care facilities and, where appropriate, 
acting on such complaints or referring them for action. ``Board 
and care facility'' is defined as a residential setting which 
receives payment from or on behalf of two or more unrelated 
adults who reside in such facility, and for whom either nursing 
care services are provided, or personal care services are 
provided, or both.
Conference agreement
      The conference agreement includes the Senate provision 
with a clarification that concurrent authority of Medicaid 
Fraud Control Units to investigate and prosecute health care 
fraud requires approval of the chief executive officer of the 
State or such officer's designee, as well as of the relevant 
Federal agency.

                     Subtitle C--Regulatory Relief

               a. physician ownership and referral reform

  1. repeal of prohibitions based on compensation arrangements (sec. 
                          15201 of house bill)

Current law
       The law establishes a ban on certain financial 
arrangements between a referring physician and an entity. 
Specifically, if a physician (or immediate family member) has 
an ownership or investment interest in or a compensation 
arrangement with an entity, the physician is prohibited from 
making a referral to the entity for services for which Medicare 
would otherwise pay. Further, the entity may not bill for such 
services. For purposes of the ban, an ownership or investment 
interest may be through equity or debt or other means and 
includes an interest in an entity that holds an ownership or 
investment interest in any entity providing designated health 
services. A compensation arrangement is generally defined as 
any arrangement involving any remuneration between a physician 
(or immediate family member) and an entity.
      The law includes general exceptions to the ban. Some are 
general exceptions to both the ownership and compensation 
arrangement prohibitions, while others relate only to ownership 
or only to compensation arrangements.
House bill
      The provision would repeal the prohibitions based on 
compensation arrangements.
Senate bill
      No provision.
Conference agreement
      The conference agreement includes the House provision.

2. revision of designated health services subject to prohibition (sec. 
                          15202 of house bill)

Current law
      OBRA 89, which established the initial self-referral ban 
applied the ban to referrals for clinical laboratory services 
only. OBRA 93 (as modified by P.L. 103-432) extended the ban to 
additional ``designated health services'', effective January 1, 
1995. These designated health services are: (i) physical 
therapy services; (ii) occupational therapy services; (iii) 
radiology, including magnetic resonance imaging, computerized 
axial tomography scans, and ultrasound services; (iv) radiation 
therapy services and supplies; (v) durable medical equipment 
and supplies; (vi) parenteral and enteral nutrients, equipment 
and supplies; (vii) prosthetics, orthotics, and prosthetic 
devices; (viii) home health services and supplies; (ix) 
outpatient prescription drugs; and (x) inpatient and outpatient 
hospital services.
House bill
      The provision revises the list of ``designated health 
services''. Under the provision, the referral ban would apply 
only to: (i) clinical laboratory services, (ii) parenteral and 
enteral nutrients, equipment and supplies; (iii) magnetic 
resonance imaging and computerized tomography services; and 
(iv) outpatient physical or occupational therapy services.
Senate bill
      No provision.
Conference agreement
      The conference agreement includes the House provision 
with an amendment modifying the description of item (iii) to 
read ``radiology services, including magnetic resonance 
imaging, computerized tomography, and ultrasound services.''

  3. delay in implementation until promulgation of regulations (sec. 
                          15203 of house bill)

Current law
      The self-referral provisions included in OBRA 89 applied 
to Medicare referrals for clinical laboratory services made on 
or after January 1, 1992. OBRA 93 expanded the referral ban to 
a list of ``designated health services'' and extended the 
prohibition to Medicaid. OBRA 93 also included significant 
revisions to the OBRA 89 provisions. In general, the amendments 
made by OBRA 93 (as amended by P.L. 103-432) apply with respect 
to referrals made on or after January 1, 1995; however some 
provisions had a retroactive effective date of January 1, 1992.
      On August 14, 1995, DHHS issued final regulations 
implementing the OBRA 89 requirements. These regulations are 
effective September 13, 1995. DHHS noted that these regulations 
relate only to referrals for clinical laboratory services and 
address only those provisions that had an effective date, 
including a retroactive effective date, of January 1, 1992.
House bill
      The proposal specifies that the amendments made by OBRA 
93 would not apply to any referrals made before the effective 
date of the final implementing regulations promulgated by the 
Secretary of DHHS.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision.

        4. exception to prohibitions (sec. 15204 of house bill)

Current law

      a. In-Office Ancillary Services. The law includes general 
exceptions to the self-referral ban. Some are general 
exceptions to both the ownership and compensation arrangement 
prohibitions, while others relate only to ownership or only to 
compensation arrangements.
      A general exception applies to in-office ancillary 
services which are defined as furnished by the physician making 
the referral, another physician in the same group practice, or 
personally by individuals directly supervised by the physician 
or another physician in the same group practice.
      The in-office ancillary services exception contains a 
site-of-service requirement. To meet the exception, the 
services must be furnished in: (i) a building in which the 
referring physician or other member of the group practice 
provides services unrelated to the furnishing of designated 
health services; or (ii) in a building used for the centralized 
provision of the group's designated health services. OBRA 93 
specified that for clinical laboratory services only, the 
exception only applies if the services are provided in a 
centralized location.
      b. Rural Providers. The law includes an exception, 
related only to the ownership and investment prohibition, for 
rural providers. To be eligible for an exception, the entity 
must be in a rural area. Further, the exception only applies if 
substantially all of the designated health services furnished 
by the entity are furnished to individuals residing in rural 
areas.
      c. Prepaid Health Plans. The law includes a general 
exception for services provided by a prepaid health plan to 
enrollees. The definition of prepaid plans includes those 
either meeting Medicare requirements, operating as prepaid 
plans under a Medicare demonstration project, or meeting the 
requirements of a federally-qualified health maintenance 
organization.
      d. Exceptions for Other Entities. No provision.

House bill

      a. In-Office Ancillary Services. The provision would 
modify the exception for in-office ancillary services. It would 
repeal the site-of-service requirement. It would also provide 
that non-physician personnel must be under the general 
supervision (rather than the direct supervision) of a 
physician. An individual would be under the general supervision 
of a physician (or a group practice of which the physician is a 
member) if the physician is legally responsible for the 
services performed by the individual and for ensuring the 
individual meets licensure and certification requirements 
regardless of whether or not the physician is physically 
present when the services are delivered.
      b. Rural Providers. The provision would modify the 
provision relating to rural providers. To qualify for an 
exception, not less than 75 percent of the designated health 
services must be furnished to individuals residing in rural 
areas.
      c. Prepaid Plans. The provision would modify the 
definition of prepaid plans to refer to managed care plans. It 
would expand the definition to include HMOs which have a 
contract under MedicarePlus or which have a contract with the 
State to provide Medicaid services. It would add an exception 
for other entities under the following conditions. The entity 
must provide for or arrange for the provision of services 
pursuant to a written agreement between the organization and an 
individual or entity. The agreement must place the individual 
or entity at substantial financial risk for the cost or 
utilization of services which the individual or entity is 
obligated to provide. This obligation may be through withhold, 
capitation, incentive pool, per diem payment, or any other 
similar risk arrangement which places the individual or entity 
at substantial financial risk.
      d. Exceptions for Other Entities. The provision would add 
a new exception for shared facility services. The services must 
be furnished by the facility to patients of shared facility 
physicians; the physicians must have a financial relationship 
under a shared facility arrangement with the facility. A shared 
facility arrangement is one: (i) which is only between 
physicians who are providing services (unrelated to shared 
facility services) in the same building; (ii) in which the 
overhead expenses are shared among the physicians in accordance 
with previously determined methods; and (iii) which, in the 
case of a corporation, is wholly owned and controlled by shared 
facility physicians.
      The provision would add a new exception for services 
furnished in communities which the Secretary of DHHS determines 
do not have access to alternative providers.
      The provision would add an exception for services 
furnished in ambulatory surgical centers, renal dialysis 
facilities, comprehensive outpatient rehabilitation facilities, 
and hospice programs.

Senate bill

      a. In-Office Ancillary Services. No provision.
      b. Rural Providers. No provision.
      c. Prepaid Health Plans. No provision.
      d. Exceptions for Other Entities. No provision.

Conference agreement

      a. In-Office Ancillary Services. The conference agreement 
includes the House provision.
      b. Rural Providers. The conference agreement includes the 
House provision.
      c. Prepaid Health Plans. The conference agreement 
includes the House provision.
      d. Exceptions for Other Entities. The conference 
agreement includes the House provision.

     5. repeal of reporting requirements (sec. 15205 of house bill)

Current law

      The law establishes a reporting requirement for entities 
providing services under Medicare. Reports are to include 
information on the entity's ownership, investment and 
compensation arrangements.

House bill

      The provision would delete the reporting requirements.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

         6. preemption of state law (sec. 15206 of house bill)

Current law

      No provision.

House bill

      The provision would specify that the self-referral 
provisions preempt State law to the extent State law was 
inconsistent.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

              7. effective date (sec. 15207 of house bill)

Current law

      No provision.

House bill

      The provision would apply to referrals made on or after 
August 14, 1995, regardless of whether or not regulations are 
promulgated to carry out such amendments. The provision 
delaying the applicability of the effective date of OBRA 93 
changes until issuance of regulations would be effective as if 
included in OBRA 93.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision 
modified to revise the effective date to ``upon enactment.''

                  b. other medicare regulatory relief

 1. repeal of medicare and medicaid coverage data bank (sec. 15211 of 
                              house bill)

Current law

      Under the Medicare secondary payer (MSP) program, the 
individual's employer-based group health insurance, liability 
insurance, or no-fault insurance may be the primary payer in 
certain cases. The OBRA 93 provided for the establishment of a 
Medicare and Medicaid Coverage Data Bank by the Secretary of 
DHHS. OBRA 93 required employers having or contributing to a 
group health insurance plan to submit employee health insurance 
information to the Secretary, on an annual basis, for calendar 
years 1994-1997. The 1994 submission was due by February 1995. 
The information was intended to facilitate the identification 
of both Medicare secondary payer cases and those circumstances 
in which employer-based insurance, rather than Medicaid, should 
be the primary payer.
      A number of employers voiced strong opposition to the 
Data Bank requirements. One of the principal concerns was that 
employers would be required to report information which they 
did not routinely collect. In response to these concerns, the 
Conference agreement accompanying the FY 1995 Labor, DHHS, and 
Education appropriations bill (P.L.103-333) contained specific 
language relating to the Data Bank. It directed that no DHHS 
funds should be used for the implementation of or planning for 
implementation of the Bank.

House bill

      The provision would repeal the Data Bank requirement.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

2. Clarification of Level of Knowledge Required for Imposition of Civil 
            Monetary Penalties (Sec. 15212(a) of House bill)

Current law

      Civil money penalties may be imposed for seeking 
reimbursement under the Medicare and Medicaid programs for 
items or services not provided or for services provided by 
someone who was not a licensed physician, whose license was 
obtained through misrepresentation, or who misrepresented his 
or her qualification as a specialist, or where the claim is 
otherwise fraudulent. Civil penalties may also be sought for 
presenting a claim for payments which are in violation of: 1) 
contracts limiting payment due to assignment of a patient, 2) 
agreements with state agencies limiting permitted charges, 3) 
agreement with participating physicians or suppliers, and 4) 
agreements with providers of service. Civil penalties may also 
be sought against persons who provide false or misleading 
information that could reasonably be expected to influence a 
decision to discharge a person from a hospital. A person is 
subject to these provisions if they presented a claim and he or 
she ``knows or should have known'' that the claim fell into one 
of the categories listed above.

House bill

      This section adds a requirement, similar to the False 
Claims Act, that a person is subject to this provision when the 
person ``knowingly'' presents a claim that the person ``knows 
or should know'' fell into one of the prohibited categories. 
Thus, an assessment under this provision would only be made 
where a person had actual knowledge that he or she had 
submitted a claim or had provided false or misleading 
information, and where the person had actual knowledge of the 
fraudulent nature of the claim, acted in deliberate ignorance, 
or acted in reckless disregard. The requirement that a person 
``knowingly'' presents a claim or ``knowingly'' makes a false 
or misleading statement which influences discharge would 
prevent charging persons who inadvertently perform these acts.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision.

 3. Clarification of Effect and Application of Safe Harbor Exceptions 
                    (Section 15212(b) of House bill)

Current law

      The Medicare and Medicaid anti-kickback provisions 
generally prohibit anyone from providing or offering to provide 
remuneration in cash or in kind in return for a patient 
referral whose treatment is paid for in whole or in part by 
Medicare or Medicaid. The provisions in section 1128B(b) of the 
Social Security Act also prohibit the solicitation or receipt 
of such remuneration and arranging or recommending a referral 
for remuneration. Violations are felonies and are subject to a 
fine of up to $25,000 or imprisonment for up to five years, or 
both. Certain business practices are exempted from the 
application of these provisions and the DHHS Office of 
Inspector General is directed to issue safe harbor regulations 
for additional payment practices that would not be subject to 
criminal prosecution or provide a basis for exclusion from 
participation in Medicare and Medicaid. If an individual or 
entity engages in a business arrangement which is the subject 
of a safe harbor provision and complies with all of the 
applicable requirements of the provision that individual or 
entity will be assured that he or she will not be prosecuted.

House bill

      This section provides that the specification of any 
payment practice by the Secretary under this provision is to be 
solely for the purpose of adding additional exceptions to the 
types of conduct, and are not for the purpose of limiting the 
scope of such exceptions. In addition, an acceptable payment 
practice shall apply notwithstanding the intent of the party 
engaging in that practice.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

   4. limiting imposition of anti-kickback penalties to actions with 
 significant purpose to induce referrals (sec. 15212(c) of house bill)

Current law

      The anti-kickback provisions in Section 1128B(b) 
prescribe criminal penalties for individuals or entities who 
knowingly and willfully offer or pay remuneration to induce 
business reimbursed under Medicare or State health care 
programs.

House bill

      This section would amend Section 1128B(b)(2) to provide 
that person was subject to the anti-kickback provisions only if 
the remuneration which is offered is done so ``for the 
significant purpose of inducing'' business which would be 
reimbursed under Medicare or State health care programs. This 
would narrow the application of the anti-kickback provisions to 
only those situations where inducement was a significant 
purpose of remuneration.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

   5. clarification of and additions to exceptions to anti-kickback 
     penalties (sec. 15213 of house bill; sec. 7116 of senate bill)

Current law

      The anti-kickback provisions in Section 1128B(b) contain 
several exceptions. These exceptions include discounts or other 
reductions in price obtained by a provider of services or other 
entity under Medicare or a State health care program if the 
reduction in price is properly disclosed and appropriately 
reflected in the costs claimed or charges made by the provider 
or entity under Medicare or a State health care program; any 
amount paid by an employer to an employee for employment in the 
provision of covered items or services; any amount paid by a 
vendor of goods or services to a person authorized to act as a 
purchasing agent for a group of individuals or entities under 
specified conditions; a waiver of any coinsurance under Part B 
of Medicare by a Federally qualified health care center with 
respect to an individual who qualifies for subsidized services 
under a provision of the Public Health Service Act; and any 
payment practice specified by the Secretary as a Safe Harbor 
exception.

House bill

      This section would add new exception to the anti-kickback 
provisions allowing remuneration between a MedicarePlus 
organization under part C of Title XVIII and an individual or 
entity providing services pursuant to a written agreement 
between the MedicarePlus organization and the individual or 
entity. Remuneration would also be allowed between an 
organization and an individual or entity if a written agreement 
places the individual or entity at substantial financial risk 
for the cost or utilization of the items or services which the 
individual or entity is obligated to provide. The risk 
arrangement may be provided through a withhold, capitation, 
incentive pool, per diem payment or other similar risk 
arrangement. This amendment would apply to acts or omissions 
occurring after January 1, 1996.

Senate bill

      The Secretary of DHHS is directed to conduct a study 
evaluating the benefits of discounting and other reductions in 
price obtained by a provider of services or other entity under 
Medicare or State health care programs. The study would 
identify mechanisms to assure that the Medicare program 
benefits from such discounts. The Secretary would report on the 
findings of the study to Congress and develop budget neutral 
regulations based on study's findings.

Conference agreement

      The conference agreement includes the House provision 
with a clarification.

   6. solicitation and publication of modifications to existing safe 
 harbors and new safe harbors (sec. 15214 of house bill; sec. 7103 of 
                              senate bill)

Current law

      The 1987 Medicare and Medicaid Patient and Program 
Protection Act specified various payment practices which, 
although potentially capable of inducing referrals of business 
under Medicare or State health care programs, are protected 
from criminal prosecution or civil sanction under the anti-
kickback provisions of the law. The 1987 law also established 
authority for the Secretary to promulgate regulations 
specifying additional payment practices, known as ``safe 
harbors'', which will not be subject to sanctions under the 
fraud and abuse provisions.

House bill

      The Secretary would publish an annual notice in the 
Federal Register soliciting proposals for modifications to 
existing safe harbors, new safe harbors, interpretive rulings 
and special fraud alerts. After considering such proposals the 
Secretary, in consultation with the Attorney General, would, 
after notice and comment, issue final rules modifying existing 
safe harbors and establishing new safe harbors, as appropriate. 
The Secretary, in considering these proposals, may consider the 
extent to which such a proposal would affect access to health 
care service, quality of health care services, patient freedom 
of choice among health care providers, competition among health 
care providers, cost of health care programs to Government, 
over-utilization of health care services, and any other factors 
appropriate to prevent fraud and abuse in health care programs 
of the Federal Government. The Inspector General would issue an 
annual report on the proposals received by the Secretary, the 
proposals issued by the Secretary, and an explanation of the 
reason for rejection of any of the proposals received.

Senate bill

      The Secretary would publish an annual notice in the 
Federal Register soliciting proposals for modifications to 
existing safe harbors and new safe harbors. After considering 
such proposals the Secretary, in consultation with the Attorney 
General, would issue final rules modifying existing safe 
harbors and establishing new safe harbors, as appropriate. The 
Inspector General would submit an annual report to Congress 
describing the proposals received, as well as the action taken 
regarding the proposals. The Secretary, in considering 
proposals, may consider a number of factors including the 
extent to which the proposals would affect access to health 
care services, quality of health care services, patient freedom 
of choice among health care providers, competition among health 
care providers, ability of health care facilities to provide 
services in medically underserved areas or to medically 
underserved populations, and the like.
      The Secretary of Health and Human Services would publish 
the first notice in the Federal Register soliciting proposals 
for new or modified safe harbors no later than January 1, 1996.

Conference agreement

      The conference agreement includes the Senate provision.

7. issuance of advisory opinions/interpretative rulings under title xi 
          (sec. 15215 of house bill; sec. 7103 of senate bill)

Current law

      No provision.

House bill

      The Secretary would issue regulations to provide for a 
procedure by which a party may seek an advisory opinion from 
the Secretary. These opinions would be binding, and could 
include matters such as what constitutes prohibited 
remuneration, what arrangements are excluded from these 
prohibitions, whether an arrangement satisfies the criteria 
established by the Secretary for activities which do not result 
in prohibited remuneration, what constitutes an inducement to 
reduce or limit services, and whether an activity constitutes 
grounds for imposition of penalties. Such opinions would not 
address whether the fair market value was received for goods 
and whether an individual is a bona fide employee for tax 
purposes. The Secretary would respond to advisory opinion 
requests within 30 days, and a fee equal to the costs incurred 
would be charged. The effective date of this section is January 
1, 1996.

Senate bill

      Interpretive rulings may be requested, at any time, by 
any person, and would be issued by the Inspector General, in 
consultation with the Attorney General, not later than 90 days 
after receiving such a request. Interpretive rulings would be 
published in the Federal Register, but would not have the force 
of law. If the Inspector General does not issue an interpretive 
ruling, he or she would notify the requester within sixty days 
of the request and give the reasons for denial.
Conference agreement
      The conference agreement includes the Senate provision.

      8. prior notice of changes in billing and claims processing 
                 requirements for physicians' services

Current Law
      No provision.
House bill
      The provision would require the Secretary, unless 
otherwise specifically provided by Congress, to give at least 
120 days notice before making changes in billing and processing 
requirements for physicians claims.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

                  C. Promoting Physician Self-Policing

  1. exemption from antitrust laws for certain activities of medical 
          self-regulatory entities (sec. 15221 of house bill)

Current law
      No provision.
House bill
      The provision would provide an exemption from Federal and 
State antitrust laws for health care service activities which 
are considered safe harbors under the provision. A safe harbor 
is generally described as any activity of a medical self-
regulatory entity relating to standard setting or standard 
enforcement activities that are designed to promote the quality 
of health care services provided to patients. However, no 
activity of a medical self-regulatory entity could be deemed to 
be a safe harbor under this section if the activity was 
conducted for purposes of financial gain, or the activity 
interfered with the provision of health care services by any 
health care provider who was not a member of the specific 
profession which was subject to the authority of the medical 
self-regulatory entity.
      For purposes of the provision, the term ``antitrust 
laws'' would have the meaning given it in subsection (a) of the 
first section of the Clayton Act, except that the term includes 
section 5 of the Federal Trade Commission Act to the extent 
that section applies to unfair methods of competition. A 
``medical self-regulating entity'' would be defined as a 
medical society or association, a specialty board, a recognized 
accrediting agency, or a hospital medical staff, and includes 
the members, officers, employees, consultants, and volunteers 
or committees of such an entity. ``Standard setting or standard 
enforcement activities'' mean accreditation of health care 
practitioners, health care providers, medical education 
institutions, or medical education programs, as well as 
technology assessment and risk management activities, the 
development and implementation of practice guidelines or 
practice parameters, or official peer review proceedings 
undertaken by a hospital medical staff or a medical society for 
purposes of evaluating the professional conduct or quality of 
health care provided by a medical professional. This section 
also defines ``health care service'', ``health care provider'' 
and ``health benefit plan''.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

                  Subtitle D--Medical Liability Reform

                         A. General Provisions

1. federal reform of health care liability actions (sec. 15301 of house 
                                 bill)

Current law
      There are no uniform Federal standards governing health 
care liability actions.
House bill
      The provision would provide for Federal reform of health 
care liability actions. It would apply to any health care 
liability action brought in any State or Federal court. The 
provisions would not apply to any action for damages arising 
from a vaccine-related injury or death or to the extent that 
the provisions of the National Vaccine Injury Compensation 
Program apply. The provisions would also not apply to actions 
under the Employment Retirement Income Security Act. The 
provisions would preempt State law to the extent State law 
provisions were inconsistent with the new requirements. 
However, it would not preempt State law to the extent State law 
provisions were more stringent.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

               2. definitions (sec. 15302 of house bill)

Current law
      No provision.
House bill
      The provision would define the following terms for 
purposes of the Federal reforms: actual damages; alternative 
dispute resolution system; claimant; clear and convincing 
evidence; collateral source payments; drug; economic loss; 
harm; health benefit plan; health care liability action; health 
care liability claim; health care provider; health care 
service; medical device; noneconomic damages; person; product 
seller; punitive damages; and State.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

              3. effective date (sec. 15303 of house bill)

Current Law
      No provision.
House bill
      The provision would specify that Federal reforms apply to 
any health care liability action brought in any State or 
Federal court that is initiated after the date of enactment. 
The provision would also apply to any health care liability 
claim subject to an alternative dispute resolution system, Any 
health care liability claim or action arising from an injury 
occurring prior to enactment would be governed by the statute 
of limitations in effect at the time the injury occurred.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

         B. Uniform Standards for Health Care Liability Actions

          1. statute of limitations (sec. 15311 of house bill)

Current law
      To date reforms of the malpractice system have occurred 
primarily at the State level and have generally involved 
changes in the rules governing tort cases. (A tort case is a 
civil action to recover damages, other than for a breach of 
contract.)
House bill
      The provision would establish uniform standards for 
health care liability claims. It would establish a uniform 
statute of limitations. Actions could not be brought more than 
two years after the injury was discovered or reasonably should 
have been discovered. In no event could the action be brought 
more than five years after the date of the alleged injury.
Senate bill
      No provision.
Conference Agreement
      The conference agreement does not include the House 
provision.

    2. calculation and payment of damages (sec. 15312 of house bill)

Current law
      No provision.
House bill
      The provision would limit noneconomic damages to $250,000 
in a particular case. The limit would apply regardless of the 
number of persons against whom the action was brought or the 
number of actions brought.
      The provision would specify that a defendant would only 
be liable for the amount of noneconomic damages attributable to 
that defendant's proportionate share of the fault or 
responsibility for that claimant's injury.
      The provision would permit the award of punitive damages 
(to the extent allowed under State law) only if the claimant 
established by clear and convincing evidence either that the 
harm was the result of conduct that specifically intended to 
cause harm or the conduct manifested a conscious flagrant 
indifference to the rights or safety of others. The amount of 
punitive damages awarded could not exceed $250,000 or three 
times the amount of economic damages, whichever was greater. 
The determination of punitive damages would be determined by 
the court and not be disclosed to the jury The provision would 
not create a cause of action for punitive damages. Further, it 
would not preempt or supersede any State or Federal law to the 
extent that such law would further limit punitive damage 
awards.
      The provision would permit either party to request a 
separate proceeding (bifurcation) on the issue of whether 
punitive damages should be awarded and in what amount. If a 
separate proceeding was requested, evidence related only to the 
claim of punitive damages would be inadmissible in any 
proceeding to determine whether actual damages should be 
awarded.
      The provision would prohibit the award of punitive 
damages in a case where the drug or device was subject to 
premarket approval by the Food and Drug Administration, unless 
there was misrepresentation or fraud. A manufacturer or product 
seller would not be held liable for punitive damages related to 
adequacy of required tamper resistant packaging unless the 
packaging or labeling was found by clear and convincing 
evidence to be substantially out of compliance with the 
regulations.
      The provision would permit the periodic (rather than lump 
sum) payment of future losses in excess of $50,000. The 
judgment of a court awarding periodic payments could not, in 
the absence of fraud, be reopened at any time to contest, 
amend, or modify the schedule or amount of payments. The 
provision would not preclude a lump sum settlement.
      The provision would permit a defendant to introduce 
evidence of collateral source payments. Such payments are those 
which are any amounts paid or reasonably likely to be paid by 
health or accident insurance, disability coverage, workers 
compensation, or other third party sources. If such evidence 
was introduced, the claimant could introduce evidence of any 
amount paid or reasonably likely to be paid to secure the right 
to such collateral source payments. No provider of collateral 
source payments would be permitted to recover any amount 
against the claimant or against the claimant's recovery.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

      3. Alternative Dispute Resolution (Sec. 15313 of House bill)

Current law

      No provision.

House bill

      The provision would require that any alternative dispute 
resolution system used to resolve health care liability actions 
or claims must include provisions identical to those specified 
in the bill.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

       Subtitle E--Teaching Hospitals; Graduate Medical Education

A. Establishment of Fund; Payments to Teaching Hospitals (Sec. 15401 of 
                              House bill)

Current law

      Medicare recognizes the costs of graduate medical 
education in teaching hospitals and the higher costs of 
providing services in those institutions. Medicare recognizes 
the costs of graduate medical education under two mechanisms: 
direct graduate medical education (GME) payments and an 
indirect medical education (IME) adjustment. The direct costs 
of approved GME programs include the salaries of residents and 
faculty, and other education costs for residents, nurses, and 
allied health professionals trained in provider-operated 
programs and are paid on the basis of a formula that reflects 
each hospital's per resident costs. The IME is designed to 
reimburse hospitals for indirect costs due to a variety of 
factors, including the extra demands placed on the hospital 
staff as a result of the teaching activity, greater severity of 
patient illness, or additional tests and procedures that may be 
ordered by residents.

House bill

      The proposal would add a new title XXII to the Social 
Security Act (SSA) creating a trust fund in the Treasury known 
as the Teaching Hospital and Graduate Medical Education Trust 
Fund, which would make annual payment distributions to teaching 
hospitals. The Fund would consist of three accounts: the 
Indirect-Costs Medical Education Account, the Medicare Direct-
Costs Medical Education Account, and the General Direct-Costs 
Medical Education Account.
      Beginning in FY1997 and each subsequent year thereafter, 
the bill would appropriate amounts from the Treasury and 
allocations would be made from Medicare's Part A and B trust 
funds, and would be transferred into the Trust Fund for 
allocation to accounts within the Trust Fund. Appropriations 
from the Treasury would be: $1.3 billion in FY1997; $1.5 
billion in FY1998; $2.3 billion in FY1999; $3.1 billion in 
FY2000; $3.6 billion in FY2001; and $4.00 billion in FY2002. 
For FY2003 and each subsequent fiscal year, the appropriation 
amount would be the greater of the amount appropriated for the 
preceding fiscal year, or the product of the amount 
appropriated for the preceding fiscal year and an amount equal 
to 1 plus the percentage increase in the nominal gross domestic 
product for the one-year period ending upon July 1 of the 
preceding fiscal year. The appropriated amounts would be 
allocated to the accounts by the Secretary based on the total 
amount of payments made under Medicare for indirect medical 
education (IME) and direct graduate medical education (GME) 
payments for FY1994, and the percentage of the total amount of 
payments for IME and GME.
      The proposal would require that teaching hospitals submit 
a payment document for FY1997 and any subsequent fiscal year to 
the Secretary to receive a payment from the Fund equal to the 
sum of amounts related to IME and direct GME. The payment 
document would contain such information as necessary for the 
Secretary to make payments, and the Secretary would be 
permitted to require that the information be submitted by the 
teaching hospitals in periodic reports. The proposal would also 
authorize the Secretary to make payments to authorized 
consortia of providers.
      For a teaching hospital's indirect costs, the proposal 
would determine an amount for a fiscal year as the product of: 
(1) the amount in the Indirect-Costs Medical Education Account 
for the applicable date, and (2) the hospital-specific 
percentage determined for the hospital. Once determined, the 
hospital-specific percentage would remain in effect for all 
subsequent fiscal years. The hospital-specific percentage would 
be the mean average of the respective percentages for the 
applicable period, adjusted by the Secretary on a pro rata 
basis to ensure that the sum of the percentages for all 
teaching hospitals would be equal to 100 percent. Generally, 
the applicable period would be fiscal years 1992-1994. The 
percentage determined for a teaching hospital for a fiscal year 
of the applicable period would be constituted by the ratio of: 
(1) the total amount of IME payments received by the hospital 
for the fiscal year involved, to (2) the sum of the respective 
amounts of IME payments for all teaching hospitals.
      To determine the direct costs of graduate medical 
education for a teaching hospital for a fiscal year, the 
proposal would determine an amount equal to the sum of the 
amount determined under the General Direct-Cost Medical 
Education Account, and the amount determined under the Medicare 
Direct-Costs Medical Education Account. A teaching hospital's 
payment amount from the General Account would be equal to the 
product of: (1) the amount in the General Direct-Costs Medical 
Education Account, and (2) the hospital-specific percentage. A 
teaching hospital's hospital-specific percentage for each 
fiscal year of the applicable period (1992-1994), would be 
determined in the same manner as for IME payments, except using 
data on GME payments received by the hospitals.
      Payment from the Medicare Direct-Costs Medical Education 
Account for a teaching hospital for a fiscal year would be the 
product of (1) the amount in the Medicare Direct-Costs Medical 
Education Account, and (2) the hospital-specific percentage 
determined for the teaching hospital. Unlike the other 
accounts, the hospital-specific percentage for Medicare Direct-
Costs would be determined annually based on the Secretary's 
estimate of what the hospital would have received for the year 
if the Medicare rules for GME were applicable. The hospital-
specific percentage would be the ratio of: (1) the estimate 
made by the Secretary of the GME payment amount for a teaching 
hospital in a fiscal year under Medicare's GME if the payments 
had not been discontinued; to (2) the sum of the respective 
estimates of GME payments for all teaching hospitals.
      Special rules would be applied to teaching hospitals that 
consolidated or merged and to new teaching hospitals. In the 
case of two or more teaching hospitals consolidating or merging 
that had received IME and GME payments under Medicare, the 
applicable percentage would be the sum of the percentage that 
would have been determined if the consolidation or merger had 
not occurred. For new teaching hospitals that had not received 
IME and GME payments under Medicare, the Secretary would be 
required to estimate the appropriate hospital-specific 
percentage based on the amount of IME and GME payments the 
teaching hospital would have received under Medicare. Special 
rules would also be applied to teaching hospitals that first 
received IME or GME payments under Medicare in FY1995 and 
FY1996, with the hospital-specific percentages being estimated 
by the Secretary based on the most recent data available.
      The proposal would make payments to qualifying consortium 
for the costs of graduate medical education. Qualifying 
consortium would consist of a medical residency training 
program of a teaching hospital and one or more of the following 
entities: schools of medicine or osteopathic medicine; other 
teaching hospitals; community health centers; medical group 
practices; managed care entities; entities furnishing 
outpatient services; and other such entities the Secretary 
determines to be appropriate. Payments from the accounts in the 
Trust Fund for consortium would equal the sum of: (1) the 
aggregate amount determined for the teaching hospitals of the 
consortium under the proposal; and (2) an amount determined 
using the methodology provided under the Medicare Direct-Costs 
Medical Education Account for consortia payments. Aggregate 
total payments to qualifying consortia could not exceed the sum 
of the aggregate total amount that would have been paid to the 
teaching hospitals of the consortia, and an amount equal to 1 
percent of the amount in the Medicare Direct-Costs Medical 
Education Account.
      The Secretary would be required to collect data to 
determine whether the estimates of Medicare's payments for the 
costs of IME and GME in each fiscal year were substantially 
accurate, and make corrective adjustments in subsequent 
transfers to the Trust Fund and payments to teaching hospitals.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision 
with modifications. The Fund would include five accounts: the 
General MedicarePlus Incentive Account; the General Indirect-
Costs Medical Education Account; the General Direct-Costs 
Medical Education Account; the Medicare Indirect-Costs Medical 
Education Account; and the Medicare Direct-Costs Medical 
Education Account.
      Appropriations from the Treasury into the Trust Fund 
would be as follows: $1.1 billion for FY1997; $1.3 billion for 
FY1998; $2.0 billion for FY1999; $2.6 billion for FY2000; $3.1 
billion for FY2001; and $3.4 billion for FY2002. For FY2003 and 
each subsequent fiscal year, the appropriation amount would be 
the greater of the amount appropriated for the preceding fiscal 
year, or the product of the amount appropriated for the 
preceding fiscal year and an amount equal to 1 plus the 
percentage increase in the nominal gross domestic product for 
the one-year period ending upon July 1 of the preceding fiscal 
year. Of the appropriated amounts, the following percentage 
amounts would be allocated to the MedicarePlus Incentive 
Account: 20 percent for FY1997; 30 percent for FY1998; 40 
percent for FY1999; and 50 percent for FY2000 and each 
subsequent year. Each teaching hospital that serves 
MedicarePlus patients will receive an amount from the 
MedicarePlus Incentive Account corresponding to it's share of 
total MedicarePlus patients served at all U.S. teaching 
hospitals. The remaining amounts would be allocated to the 
General Indirect-Costs Medical Education Account and the 
General Direct-Costs Medical Education Account, with the 
percentages determined by the Secretary based on: (1) the total 
amount of payments that were made under Medicare for IME and 
GME in FY1992-1994; (2) the percentage of such total 
constituted by payments under IME; and (3) the percentage of 
such total constituted by payments under GME. Formula payments 
for teaching hospitals for the fiscal year would be equal to 
the sum of: (1) the amount determined relating to the 
MedicarePlus program; (2) the amount determined relating to 
indirect costs of graduate medical education; and (3) the 
amount determined relating to direct costs of graduate medical 
education.
      The Secretary would be permitted to require hospitals to 
submit periodic reports providing information relating to 
Medicare patients when teaching hospitals submit the payment 
document. The information would include: (1) the number of 
inpatient discharges attributable to individuals enrolled in 
the MedicarePlus program; (2) the Medicare patient load of the 
hospital as defined for the purposes of the Medicare direct GME 
payment formula; and (3) for each discharge with respect to 
which payment is received from the Secretary under Medicare 
Part A, the diagnosis-related group (DRG) within which the 
discharge is classified.
      Qualifying consortia can receive payments for direct 
costs. Such consortia would consist of a teaching hospital and 
one or more of the following entities: schools of allopathic or 
osteopathic medicine; other teaching hospitals; approved 
medicine residency programs; Federally qualified health 
centers; medical group practices; managed care entities; 
entities furnishing outpatient services; and, such other 
entities as the Secretary determines to be appropriate.

b. transfers to teaching hospital and graduate medical education trust 
                    fund (sec. 15411 of house bill)

Current law

      No provision.

House bill

      The proposal would amend Medicare law by adding a new 
subsection (j) at the end of section 1886 of the SSA, under 
which the Secretary would, beginning in FY1997 transfer amounts 
to the Teaching Hospital and Graduate Medical Education Trust 
Fund. Amounts transferred to the Indirect-Costs Medical 
Education Account would be from the Medicare Part A trust fund 
on the basis of an estimate of the nationwide total of the 
amount that would have been paid to hospitals under Medicare's 
IME payment. Also, the Secretary would be required to transfer 
from Medicare Part A and B Trust Funds into the Medicare 
Direct-Costs Medical Education Account the amount estimated to 
be spent for teaching hospitals and consortia under Medicare's 
direct GME payment.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision.

    c. modification in payment policies regarding graduate medical 
                  education (sec. 15412 of house bill)

Current law

      1. Indirect Medical Education. Medicare makes payments to 
teaching hospitals under PPS for the indirect costs 
attributable to approved medical education programs. These 
indirect costs may be due to a variety of factors, including 
the extra demands placed on the hospital staff as a result of 
the teaching activity or additional tests and procedures that 
may be ordered by residents. Congressional reports on the PPS 
authorizing legislation indicated that the indirect medical 
education payments are also to account for factors not 
necessarily related to medical education which may increase 
costs in teaching hospitals, such as more severely ill 
patients, increased use of diagnostic testing, and higher 
staff-to-patient ratios.
      The additional payment to a hospital is based on a 
formula that provides an increase of approximately 7.7 percent 
in the Federal portion of the DRG payment, for each 0.1 percent 
increase in the hospital's intern and resident-to-bed ratio on 
a curvilinear basis (i.e., the increase in the payment is less 
than proportional to the increase in the ratio of interns and 
residents to beds).
      2. Direct Graduate Medical Education. The direct costs of 
approved graduate medical education (GME) programs (such as the 
salaries of residents and faculty, and other costs related to 
medical education programs) are excluded from PPS and are paid 
on the basis of a formula that reflects Medicare's share of 
each hospital's per resident costs. Medicare's payment to each 
hospital equals the hospital's costs per full-time-equivalent 
(FTE) resident, times the weighted average number of FTE 
residents, times the percentage of inpatient days attributable 
to Medicare Part A beneficiaries. Each hospital's per FTE 
resident amount is calculated using data from the hospital's 
cost reporting period that began in FY1984, increased by 1 
percent for hospital cost reporting periods beginning July 1, 
1985, and updated in subsequent cost reporting periods by the 
change in the CPI. OBRA 93 provided that the per resident 
amount would not be updated by the CPI for costs reporting 
periods during FY1994 and FY1995, except for primary care 
residents in obstetrics and gynecology. The number of FTE 
residents is weighted at 100 percent for residents in their 
initial residency period (i.e., the number of years of formal 
training necessary to satisfy specialty requirements for board 
eligibility). Residents in preventive care or geriatrics are 
allowed a period of up to 2 additional years in the initial 
residency training period. For residents not in their initial 
residency period, the weighing factor is 50 percent. On or 
after July 1, 1986, residents who are foreign medical graduates 
can only be counted as FTE residents if they have passed 
designated examinations.

House bill

      1. Indirect Medical Education. The proposal would reduce 
the IME amount under Medicare by changing the current formula 
multiplier to 1.48, resulting in a 6.0 percent aggregate 
payment adjustment for FY1996-FY1998, with a further reduction 
of the multiplier to 1.38 beginning in FY1999 and for each 
subsequent fiscal year, which would result in a 5.6 percent 
aggregate payment adjustment, for every 10 percent increase in 
teaching intensity measured by the ratio of interns and 
residents per bed, and the number of discharges expected under 
PPS.
      2. Direct Graduate Medical Education. The GME formula 
would be modified to limit the number of residents that could 
be counted by a teaching hospital. The total number of full-
time-equivalent (FTE) residents in an approved residency 
program would be limited to the total number of residents at a 
hospital as of August 1, 1995, for cost reporting periods 
beginning on or after October 1, 1995, and on or before 
September 30, 2002. For hospital cost reporting periods 
beginning on or after October 1, 1997, the weighting factor for 
a resident in the initial residency period would be 1.0 FTEs, 
and the weighting factor for a resident who had completed the 
initial residency period would be 0.0 FTEs. For cost reporting 
periods beginning during FY1996, the FTE amount paid for 
medical residents who are not citizens, nationals, or permanent 
resident aliens of the United States, or Canadian citizens, 
would be reduced and ultimately eliminated by lowering the FTE 
weight that a hospital would be allowed to count for GME 
payments to: 0.75 in FY1996; 0.50 in FY1997; and 0.25 in FY1998 
and for any subsequent fiscal year.
      The effective date for these provisions, unless otherwise 
specified would, apply to hospital cost reporting periods 
beginning on or after October 1, 1995.

Senate bill

      1. Indirect Medical Education. The proposal would reduce 
the IME amount under Medicare by changing the current formula 
multiplier to 1.65 resulting in a 6.7 percent aggregate payment 
adjustment for FY1996; to 1.48 resulting in a 6.0 percent 
aggregate adjustment in FY1997; to 1.33 resulting in a 5.4 
percent aggregate adjustment in FY1998; and to 1.23 resulting 
in a 5.0 percent aggregate adjustment in FY1999 through FY2001.
      2. Direct Graduate Medical Education. No provision.

Conference agreement

      1. Indirect Medical Education. The conference agreement 
includes the Senate provision with modifications. The IME 
formula multiplier would be set at 1.654 for FY 1996, resulting 
in a 6.7 percent aggregate payment adjustment; at 1.481 in 
FY1997 and FY1998, resulting in a 6.0 percent aggregate 
adjustment; at 1.383 in FY1999, resulting in a 5.6 percent 
aggregate adjustment; at 1.309 in FY2000, resulting in a 5.3 
percent aggregate adjustment: and at 1.235 in FY2001 and 
thereafter, resulting in a 5.0 percent aggregate adjustment.
      2. Direct Graduate Medical Education. The conference 
agreement includes the House provision with modifications. For 
cost reporting periods beginning on or after October 1, 1997, 
the weighting factor for a resident who had completed the 
initial residency period would be 0.25 FTEs. For cost reporting 
periods beginning on or after October 1, 1995, and on or before 
September 30, 2002, the Secretary is required to adjust 
payments to approved medical residency training programs in the 
fields of allopathic medicine and osteopathic medicine if the 
total number of such FTE residents in the fiscal year exceeds 
the number of FTE residents with respect to all such programs 
as of August 1, 1995. The Secretary is required to adjust 
payments to such approved medical residency training programs 
so that the total amount of payments does not exceed the amount 
that would have been paid if the number of FTE residents for 
all programs in a fiscal year did not exceed the number of FTE 
residents in all such programs as of August 1, 1995. The 
Secretary is authorized to provide that approved medical 
residency training programs that reduced or did not expand the 
number of FTE residents for a cost reporting period are not 
subject to the reduction in payments. The conference agreement 
does not include the House provision related to non-citizen 
medical residents.

d. establishment of advisory panel for recommending policies regarding 
teaching hospitals and graduate medical education (sec. 15421 of house 
                                 bill)

Current law

      No provision.

House bill

      The bill would require the Chair of the Medicare Payment 
Review Commission to establish an advisory panel on reform in 
the financing of teaching hospitals and graduate medical 
education. The advisory panel would be required to study and 
make recommendations on reforming Federal policies regarding 
teaching hospitals and financing of graduate medical education. 
The recommendations of the panel would include the following: 
(1) the financing of graduate medical education, including 
consideration of alternative broad-based sources of funding; 
(2) the financing of teaching hospitals, including 
consideration of the competitive difficulties such hospitals 
face; (3) the methodology for making payments and the selection 
of entities to receive the payments; (4) Federal policies 
regarding international medical graduates; (5) the dependence 
of schools of medicine on service generate income; (6) the 
effects of the amendments made by the Omnibus Budget 
Reconciliation Act of 1995; and (7) the feasibility and 
desirability of reducing payments for graduate medical 
education for high-cost residency programs under Medicare.
      The advisory panel would be composed of 19 members with 
expertise on matters related to graduate medical education. The 
advisory panel would be required to provide Congress with a 
first interim report (not later than one year after enactment), 
a second interim report (not later than 2 years after 
enactment), and final report (not later than 3 years after 
enactment). The advisory panel would terminate 180 days after 
the date on which the final report was submitted to Congress. 
The bill would authorize appropriations of such sums as may be 
necessary for each of the fiscal years 1996 through 2000.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision. The conferees believe that further study of graduate 
medical education funding is needed. Included among the issues 
requiring further study are: (1) the financing of graduate 
medical education, including consideration of alternative 
broad-based sources of funding for such education and the 
method of financing used for the MedicarePlus program under 
Part C of Title XVIII of the Social Security Act; (2) Federal 
policies regarding international medical graduates; and (3) the 
dependence of schools of medicine on service-generated income. 
The conferees would expect that Prospective Payment Assessment 
Commission would study these issues and forward its findings to 
the relevant congressional committees.

           Subtitle F--Provisions Relating to Medicare Part A

               A. General Provisions Related to Hospitals

  1. reductions in inflation updates for pps hospitals (sec. 15501 of 
                 house bill; sec. 7011 of senate bill)

Current law

      Hospitals are paid on the basis of a prospectively fixed 
payment rate for costs associated with each discharge. Each 
hospital's basic payment rate is based on a national 
standardized payment amount, which is higher for hospitals in 
large urban areas than for other hospitals. Each standardized 
payment amount is adjusted by a wage index. Payment also 
depends on the relative costliness of the case, based on the 
diagnosis related group (DRG) to which the discharge is 
assigned. Additional payments are made for: extraordinary costs 
(outliers); indirect costs of medical education; and for 
hospitals serving a disproportionate share of low-income 
patients. Other exceptions and adjustments are made.
      PPS payment rates are annually updated using an ``update 
factor.'' The annual update factor applied to increase the 
Federal base payment amounts is determined, in part, by the 
projected increase in the hospital market basket index, which 
measures the costs of goods and services purchased by 
hospitals. Under the Omnibus Budget Reconciliation Act of 1993 
(OBRA 93), the PPS update factor for all PPS hospitals is equal 
to the percentage increase in the market basket minus 2 
percentage points.

House bill

      The proposal sets the update factor for FY1996 at MBI 
minus 2.5 percentage points for all hospitals in all areas, for 
FY1997-2002, at MBI minus 2.0 percentage points for all 
hospitals in all areas, and for FY2003 and each subsequent 
fiscal year equal to the MBI for all hospitals in all areas.

Senate bill

      The bill sets the update factor for FY1996 through FY2002 
for hospitals in all areas, the greater of: (1) the MBI minus 
2.5 percentage points, or (2) 1.1 percent (1.3 percent for 
discharges during FY1996, 1.2 percent for discharges during 
FY1997). For FY2003 and each subsequent year, equal to the MBI 
for all hospitals in all areas.

Conference agreement

      The conference agreement includes the House provision.

2. reductions in disproportionate share payment adjustments (sec. 15502 
                of house bill; sec. 7014 of senate bill)

Current law

      Under PPS, an adjustment is made to the payment to 
hospitals that serve a disproportionate share of low-income 
patients. The DSH adjustment is intended to compensate 
hospitals that treat large proportions of low-income patients. 
The factors considered in determining whether a hospital 
qualifies for a DSH payment adjustment include the number of 
beds, the number of patient days, and the hospital's location. 
A hospital's disproportionate patient percentage is the sum of 
(1) the total number of inpatient days attributable to Federal 
SSI beneficiaries divided by the total number of Medicare 
patient days, and (2) the number of Medicaid patient days 
divided by total patient days, expressed as a percentage. A 
hospital is classified as a DSH under any of the following 
circumstances:
            (1) If its disproportionate patient percentage 
        equals or exceeds:
                    (a) 15 percent for an urban hospital with 
                100 or more beds, or a rural hospital with 500 
                or more beds (the latter is set by regulation);
                    (b) 30 percent for a rural hospital with 
                more than 100 beds and fewer than 500 beds or 
                is classified as a sole community hospital;
                    (c) 40 percent for an urban hospital with 
                fewer than 100 beds; or
                    (d) 45 percent for a rural hospital with 
                100 or fewer beds, or
            (2) if it is located in an urban area, has 100 or 
        more beds, and can demonstrate that, during its cost 
        reporting period, more than 30 percent of its net 
        inpatient care revenues are derived from State and 
        local government payments for care furnished to 
        indigent payments. (This provision is intended to help 
        hospitals in States that fund care for low-income 
        patients through direct grants rather than expanded 
        Medicaid programs.)
      For a hospital qualifying on the basis of (1)(a) above, 
if its disproportionate patient percentage is greater than 20.2 
percent, the applicable PPS payment adjustment factor is 5.88 
percent plus .825 percent of the difference between 20.2 
percent and the hospital's disproportionate patient percentage. 
If the hospital's disproportionate patient percentage is less 
than 20.2 percent, the applicable payment adjustment factor is 
equal to: 2.5 percent plus 65 percent of the difference between 
15 percent and the hospital's disproportionate patient 
percentage. If the hospital qualifies as a DSH on the basis of 
(1)(b), the payment adjustment factor is determined as follows:
            (a) if the hospital is classified as a rural 
        referral center, the payment adjustment factor is 4 
        percent plus 60 percent of the difference between the 
        hospital's disproportionate patient percentage and 30 
        percent;
            (b) if the hospital is a SCH, the adjustment factor 
        is 10 percent;
            (c) if the hospital is classified as both a rural 
        referral center and a SCH, the adjustment factor is the 
        greater of 10 percent or 4 percent plus 60 percent of 
        the difference between the hospital's disproportionate 
        patient percentage and 30 percent; and
            (d) if the hospital is not classified as either a 
        SCH or a rural referral center, the payment adjustment 
        factor is 4 percent.
If the hospital qualifies on the basis of (1)(c), the 
adjustment factor is equal to 5 percent. If the hospital 
qualifies on the basis of (1)(d), the adjustment factor is 4 
percent. If the hospital qualifies on the basis of (2) above, 
the payment adjustment factor is 35 percent.
House bill
      The proposal would reduce the DSH payment by 20 percent 
for discharges occurring on or after October 1, 1995, and on or 
before September 30, 1996; 25 percent for discharges occurring 
on or after October 1, 1996, and on or before September 30, 
1997; and 30 percent for discharges occurring on or after 
October 1, 1997.
Senate bill
      The bill would reduce the DSH payment by 5 percent for 
discharges occurring during FY1996; 10 percent in FY1997; 15 
percent in FY1998; 20 percent in FY1999; and 25 percent for 
fiscal years 2000 through 2002.
Conference agreement
      The conference agreement includes the Senate provision 
with modifications. The DSH payment would be reduced from 
current law spending by 5.0 percent in FY1996; an additional 5 
percent in FY1997; an additional 7.5 percent in FY1998; an 
additional 7.5 percent in FY1999; an additional 5 percent in 
FY2000; and remain at 30 percent for FY2001 through FY2002.

 3. Payments for Capital-Related Costs for Inpatient Hospital Services 
          (Sec. 15503 of House bill; Sec. 7013 of Senate bill)

Current law
      In FY1992, Medicare began phasing in prospectively-
determined per case rates for capital-related costs. During the 
10-year transition to a single capital rate, payments will 
reflect both hospital-specific costs and a single Federal 
capital payment rate. During the transition, hospitals are paid 
according to either a fully prospective method or a ``hold 
harmless'' method of payment.
      Capital payment rates are updated annually. For the first 
5 years of the transition to prospectively determined per-case 
rates, historical cost increases were used to increase the 
Federal and hospital-specific rates. Under a budget neutrality 
requirement, per case capital rates were adjusted in the first 
5 years of the transition so that total payments equaled 90 
percent of estimated Medicare-allowed capital costs. In fiscal 
year 1996, the budget neutrality requirement will be lifted. In 
addition, the cost-based updates will be replaced by an 
``update framework'' (developed by HCFA and proposed in the 
June 2, 1995 Federal Register), which will determine payment 
rate growth. This analytical framework is to take into account 
changes in the price of capital and appropriate changes in 
capital requirements resulting from development of new 
technologies and other factors.
      Capital costs for PPS exempt hospitals are reimbursed on 
a reasonable cost basis.
      Medicare's capital-related costs include local property 
taxes and property ``fees'' paid by nonprofit hospitals. The 
hospital-specific component of capital payments is based on a 
hospital's spending in a base year (generally 1990). Hospitals 
that have changed from nonprofit or public to proprietary may 
become subject to property taxes not included in their base; 
this may also occur as a result of changes in State or local 
law.
House bill
      The provision would reduce aggregate payments for PPS and 
PPS-exempt capital payments by 15 percent of the allowable 
amount for FY1996 through FY2002. The capital payment reduction 
would not apply to payments for sole community hospitals or 
rural primary care hospitals (defined in the bill).
      The provision would provide an adjustment for the amount 
of capital-related tax costs for eligible hospitals for 
discharges occurring after September 30, 1995. Eligible 
hospitals would be facilities that may otherwise receive 
capital payments, are not public hospitals, and incur capital-
related tax costs for the fiscal year.
      The provision would also amend the provision of 
additional exception payments for PPS-exempt hospital capital 
costs as follows: (1) urban hospitals with 100 beds would be 
eligible without regard to its DSH patient percentage or 
whether it qualifies for capital additional payments amounts; 
(2) the minimum payment level for qualifying hospitals would be 
85 percent; (3) hospitals would be considered to meet the 
requirement that it completed a project involved no later than 
the end of the hospital's last cost reporting period beginning 
after October 1, 2001, if (I) the hospital obtained a 
certificate of need for the project approved by the State or a 
local planning authority, and (ii) by September 1, 1995, the 
hospital had expended on the project at least $750,000 or 10 
percent of the estimated cost of the project; and (4) the 
amount of the exception payment made would not be reduced by 
any offsetting amounts.
Senate bill
      The provision would reduce aggregate payments for PPS and 
PPS-exempt capital payments by 15 percent of the allowable 
amount for FY1996 through FY2002. The capital payment reduction 
would not apply to payments for sole community hospitals or 
rural primary care hospitals (defined in the bill).
      The provision would provide an adjustment for the amount 
of capital-related tax costs for eligible hospitals for 
discharges occurring after September 30, 1995. Eligible 
hospitals would be facilities that may otherwise receive 
capital payments, are not public hospitals, and incur capital-
related tax costs for the fiscal year.
      The provision would also amend the provision of 
additional exception payments for PPS-exempt hospital capital 
costs as follows: (1) urban hospitals with 100 beds would be 
eligible without regard to its DSH patient percentage or 
whether it qualifies for capital additional payments amounts; 
(2) the minimum payment level for qualifying hospitals would be 
80 percent; (3) hospitals would be considered to meet the 
requirement that it completed a project involved no later than 
the end of the hospital's last cost reporting period beginning 
after October 1, 2001, if (i) the hospital obtained a 
certificate of need for the project approved by the State or a 
local planning authority, and (ii) by September 1, 1995, the 
hospital had expended on the project at least $750,000 or 10 
percent of the estimated cost of the project; and (4) the 
amount of the exception payment made would not be reduced by 
any offsetting amounts.
Conference agreement
      The conference agreement includes the Senate provision 
with an amendment to reduce capital payments for PPS-exempt 
hospitals by 10 percent. Capital exceptions would have a 
minimum payment amount of 85 percent.

 4. Reduction in Adjustment for Indirect Medical Education (Sec. 15504 
                of House bill; Sec. 7015 of Senate bill)

House bill
       The proposal would reduce the IME amount under Medicare 
by changing the current formula multiplier to 1.48, resulting 
in a 6.0 percent aggregate payment adjustment for FY1996-
FY1998, with a further reduction the multiplier beginning in 
FY1999 and for each subsequent fiscal year, for a 5.6 percent 
aggregate payment adjustment, for every 10 percent increase in 
teaching intensity measured by the ratio of interns and 
residents per bed, and the number of discharges expected under 
PPS. (See Subtitle E above)
Senate bill
      The proposal would reduce the IME amount under Medicare 
by changing the current formula multiplier to 1.65 resulting in 
a 6.7 percent aggregate payment adjustment for FY1996; to 1.48 
resulting in a 6.0 percent aggregate adjustment in FY1997; to 
1.33 resulting in a 5.4 percent aggregate adjustment in FY1998; 
and to 1.23 resulting in a 5.0 percent aggregate adjustment in 
FY1999 through FY2001.
Conference agreement
      The conference agreement includes the Senate provision 
with modifications. (See Subtitle E above)

 5. Treatment of PPS-Exempt Hospitals (Sec. 15505 of House bill; Sec. 
                            7012 of Senate)

Current law
      Under Medicare, five types of specialty hospitals 
(psychiatric, rehabilitation, long-term care, children's and 
cancer) and two types of distinct-part units in general 
hospitals (psychiatric and rehabilitation) are exempt from PPS. 
They are subject to the payment limitations and incentives 
established in the Tax Equity and Fiscal Responsibility Act of 
1982 (TEFRA). Each provider is paid on the basis of reasonable 
cost subject to a rate of increase ceiling on inpatient 
operating costs. The ceiling is based on a target amount per 
discharge. The target amount for a cost reporting period is 
equal to the hospital's allowable inpatient operating costs 
(excluding capital and medical education costs) per discharge 
in a base year increased by applicable update factors for 
subsequent years. This amount is then multiplied by Medicare 
discharges, to yield the ceiling or upper limit on operating 
costs.
      OBRA 93 provided that the applicable rate of increase 
percentage, or update, would be equal to the MBI minus 1.0 
percent for FY1994-1997.
House bill
      The provision would extend the target amount updates of 
the MBI minus 1 percentage point through FY2002.
      The provision would also provide for rebasing the target 
amount for certain long-term care hospitals for discharges 
occurring on or after October 1, 1995.
      The provision would also apply to long-term care units of 
hospitals not treated as PPS hospitals for discharges occurring 
on or after September 30, 1995. Not later than 12 months after 
the majority of the members of the Medicare Payment Review 
Commission have been appointed, the Commission would be 
required to report to Congress their recommendations for 
appropriate revisions in the treatment of long-term care 
hospitals located in the same building or the same campus as 
another hospital. The Secretary would also be required to 
report to Congress by June 1, 1996, after consultation with the 
Prospective Payment Assessment Commission and other appropriate 
parties, on the advisability and feasibility of providing for 
payment based on a prospective payment system for inpatient 
services of rehabilitation hospitals and units under Medicare.
Senate bill
      The provision would set the update factor to the cost 
limits for PPS-exempt hospitals equal to the MBI minus 2.5 
percentage points for FY1996 through FY2002. The update 
adjustment would vary for hospitals above and below TEFRA 
limits.
      The Secretary would also be required to adjust, for 
hospitals receiving updates, the inflation update to be no less 
than 1.4 percent in FY1996; 1.3 percent in FY1997; and 1.1 
percent for fiscal years 1998-2002.
      The provision would adjust the TEFRA limits for new and 
existing PPS-exempt rehabilitation hospitals and units, and 
long-term care hospitals that begin receiving PPS-exempt 
payments on or after October 1, 1995.
      The Secretary would also be directed to report on a 
prospective payment system for PPS-exempt hospitals no later 
than June 1, 1996.
Conference agreement
      The conference agreement includes the Senate provision 
with several modifications. The conference agreement includes 
House language regarding rebasing of certain long term care 
hospitals with modifications. The conference agreement includes 
House language regarding classification of long term care 
hospitals within other hospitals. There are no market basket 
floors. There is no requirement for the Secretary to report on 
a prospective payments system for PPS-exempt hospitals.

 6. Reduction in Payments to Hospitals for Enrollees' Bad Debts (Sec. 
                          15506 of House bill)

Current law
      Certain hospital and other provider bad debts are 
reimbursed by Medicare on an allowable cost basis. To be 
qualified for reimbursement, the debt must be related to 
covered services and derived from deductible and coinsurance 
amounts left unpaid by Medicare beneficiaries. The provider 
must be able to establish that reasonable collection efforts 
were made and that sound business judgement established that 
there was no likelihood of recovery at any time in the future.
House bill
      The proposal would reduce bad debt payments to providers 
by 75 percent for cost reporting periods beginning during 
FY1996; 60 percent for cost reporting periods beginning during 
FY1997; and 50 percent for subsequent cost reporting periods.
Senate bill
      No provision.
Conference agreement
      The conference agreement includes the House provision.

    7. ProPAC Recommendations on Urban Medicare Dependent Hospitals 
                     (Section 7077 of Senate bill)

Current law
      No provision.
House bill
      No provision.
Senate bill
      The provision would require ProPAC to report its 
recommendations to Congress, beginning in 1996, on an 
appropriate update to be used for urban hospitals with a high 
proportion of Medicare patient days and on actions to ensure 
that Medicare beneficiaries served by such hospitals retain the 
same access and quality of care as Medicare beneficiaries 
nationwide.

Conference agreement

      The conference agreement does not include the House or 
Senate provision. The conference agreement establishes a 
separate payment update for certain hospitals with a high 
proportion of Medicare patient days. Hospitals qualifying 
include: (1) urban hospitals with no Medicare teaching or 
disproportionate share payments, 60 percent Medicare patient 
days; and (2) rural hospitals with more than 100 beds with no 
Medicare teaching or disproportionate share payments. 
Qualifying hospitals could receive an annual inflation update 
of market basket minus 2.0 percentage points in FY1996; market 
basket minus 1.7 percentage points in FY1997; and market basket 
minus 2.0 percentage points in FY1998 through FY2002.

8. Permanent Extension of Hemophilia Pass-Through (Sec. 15507 of House 
                                 bill)

Current law

      Medicare makes additional payments for the costs of 
administering blood clotting factor to Medicare beneficiaries 
with hemophilia admitted for hospital stays where the clotting 
factor was furnished between June 19, 1990 and September 30, 
1994.

House bill

      The proposal would make the payment permanent.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision.

9. Conforming Amendment to Certification of Christian Science Providers 
        (Sec. 15508 of House bill; Sec. 7057(b) of Senate bill)

Current law

      Certain services furnished by a Christian Science 
sanatorium are covered under Medicare Part A if the institution 
is operated or listed and certified by the First Church of 
Christ, Scientists, Boston, Mass. Such a sanatorium qualifies 
as both a hospital and as a skilled nursing facility.

House bill

      The provision would expand coverage of Christian Science 
sanatorium to include facilities (both hospitals and skilled 
nursing facilities) certified by the Commission for 
Accreditation of Christian Science Nursing Organizations/
Facilities, Inc.

Senate bill

      The provision would expand coverage of Christian Science 
sanatorium to include facilities (both hospitals and skilled 
nursing facilities) certified by the Commission for 
Accreditation of Christian Science Nursing Organizations/
Facilities, Inc.

Conference agreement

      The conference agreement includes the Senate provision.

        10. Sole Community Hospitals (Sec. 15511 of House bill)

Current law

      Sole Community Hospitals (SCHs) are facilities located in 
geographically isolated areas and are the sole provider of 
inpatient, acute cure hospital services in a geographic area 
based on distance, travel time, severe weather conditions, and/
or market share. SCHs are paid the greater of what would be 
payable under PPS or a target amount comparable to that for 
PPS-exempt hospitals. Target amounts for SCHs are updated by an 
``applicable percentage increase'' which is specified by 
statute and is generally pegged to the hospital market basket 
index. OBRA 93 provided separate SCH updates of MBI minus 2.2 
percent for FY1995 and MBI minus 2.0 percent for FY1996. For 
FY1997 and thereafter, the update for SCHs is the same as for 
all PPS hospitals.

House bill

      The provision would set the target amount update to the 
MBI minus 1 percentage point for fiscal years 1996-2000; and 
for FY2001 and each subsequent fiscal year, the applicable 
update would be applied.
      The provision would require the Medicare Payment Review 
Commission to conduct a study of the impact of the designation 
of hospitals as SCHs on the delivery of health care services to 
individuals in rural areas, and include an analysis of the 
characteristics of the hospitals so designated. The Commission 
would be required to submit the report to Congress within 12 
months after a majority of Commission members are first 
appointed.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the Senate provision.

 11. Clarification of Taxes Credited to Fund (Sec. 15531 of House bill)

Current law

      The Social Security Amendments of 1983 made up to half of 
Social Security benefits taxable for beneficiaries with incomes 
above a threshold level. That legislation provided that the 
Federal income tax revenue accruing from taxation of benefits 
would be credited to the Social Security trust funds. When OBRA 
of 1993 raised the maximum proportion of Social Security 
benefits subject to income taxation from 50% to 85%, effective 
Jan. 1, 1994, the additional income tax revenue was credited to 
the HI Trust Fund, effective upon enactment.

House bill

      A House-passed tax bill (H.R. 1215) would repeal the 1993 
legislation that raised the maximum taxable portion of Social 
Security benefits from 50% to 85%. That legislation was added 
to OBRA of 1995 before House passage of OBRA. Without 
corrective amendments, that legislation would result in a loss 
of revenue for the HI Trust Fund. Thus, Sec. 15531 of OBRA of 
1995 would add language to Sec. 121(e) of the Social Security 
Amendments of 1983 to direct the Secretary of the Treasury to 
credit the HI Trust Fund with receipts from the taxation of 
Social Security benefits without regard to changes in the 
taxation of Social Security benefits that take affect after 
Dec. 31, 1993. Coupled with Sec. 19001(a)(2) of OBRA of 1995, 
which amends the provisions of H.R. 1215 that repeal the higher 
taxation of Social Security benefits, this language would place 
the HI fund in the same position financially with respect to 
credits from income tax revenue as it would be if taxation of 
Social Security benefits were not changed by OBRA of 1995. 
These transfers to HI would come from the general fund.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

   12. Graduate Medical Education and Disproportionate Share Payment 
       Adjustments for Medicare Choice (Sec. 7016 of Senate bill)

Current law

      Medicare's HMO payment amount includes the costs of 
graduate medical education (direct graduate medical education 
(GME) payments and indirect medical education (IME) 
adjustments) in an area. Hospitals incurring graduate medical 
education and disproportionate share hospital (DSH) costs 
associated with Medicare HMO patients do not receive a direct 
payment from Medicare for such costs. The current formulas used 
to calculate a hospital's IME and GME payment amounts do not 
account for Medicare HMO patients.

House bill

      No provision. (See Part VII)

Senate bill

      The provision would change Medicare's current formulas 
for GME, IME, and DSH payments to count Medicare Choice 
patients in determining Medicare's hospital payments. In 
addition, the provision removes area hospitals' costs for IME, 
GME, and DSH from the calculation of Medicare Choice payments. 
Hospitals that care for Medicare Choice patients would bill 
Medicare and receive an additional Medicare payment or 
adjustment under GME, IME, and DSH.

Conference agreement

      The conference agreement includes the House provision.

      b. payments for hospice Services (Sec. 7017 of senate bill)

Current law

      Medicare covers hospice care for terminally ill 
beneficiaries with a life expectancy of 6 months or less. 
Payment for hospice care is based on one of four prospectively 
determined rates, which correspond to four different levels of 
care, for each day a beneficiary is under the care of the 
hospice. The four categories are routine home care, continuous 
home care, inpatient respite care, and general inpatient care. 
These rates are updated annually by the hospital market basket 
index (MBI). OBRA 93 decreased the update for the payment rates 
as follows: FY 1994--MBI minus 2.0 percentage points; FY 1995--
MBI minus 1.5 percentage point; FY 1996--MBI minus 1.0 
percentage point; and FY 1997--MBI minus 0.5 percentage point. 
Beginning with FY 1998, the full hospital market basket 
percentage update will again apply.

House bill

      No provision.

Senate bill

      For each of the fiscal years 1996 through 2002, hospice 
payment rates would be updated by the greater of the market 
basket minus 2.5 percentage points, or 1.1 percent (1.4 percent 
in FY 1996 and 1.2 percent in 1997).

Conference agreement

      The conference agreement includes the Senate provision 
with two amendments. Hospice payment rates would be updated by 
the market basket minus 2 percentage points for each of the 
fiscal years 1996 through 2002. There are no minimum market 
basket updates.

  c. extension of hi tax to all state and local government employees 
                       (sec. 7108 of senate bill)

Current law

      Medicare Part A coverage and payment of the HI tax apply 
to State and local government employees who are not under a 
retirement plan or who were hired after Mar. 31, 1986. State 
and local employees hired on or before that date may be covered 
at the election of the employer, however.

House bill

      No provision.

Senate bill

      Effective for services performed after Dec. 31, 1995, 
Sec. 3121(u)(2) of the Internal Revenue Code of 1986 and Sec. 
210(p) of the Social Security Act would be amended to extend 
Medicare coverage to employees of State and local governments 
on the same basis as for other employees. Thus, all State and 
local employees would pay the HI tax. Appropriations would be 
authorized to the HI Trust Fund to cover benefits and 
administrative costs resulting from this provision and to 
offset losses in trust fund interest income associated with 
these expenditures. The Secretary of Health and Human Services 
would be directed to provide information to State and local 
employees about their Medicare coverage.

Conference agreement

      The conference agreement does not include the Senate 
provision.

            d. payments to skilled nursing facilities (snfs)

1. Definition of Routine Service Costs (Sec. 15521 of House bill; Sec. 
                          7031 of Senate bill)

Current law

      SNFs are generally reimbursed on the basis of reasonable 
costs, subject to limits that are applied to per diem routine 
service costs (nursing, room and board, administrative, and 
other overhead). Non-routine, or ancillary services (such as 
therapy and certain equipment), and capital-related costs are 
excluded from the cost limits and are generally paid on the 
basis of reasonable costs.
      Separate per diem limits for routine service costs are 
established for freestanding and hospital-based SNFs by urban 
or rural area. Freestanding SNF cost limits are set at 112 
percent of the average per diem labor-related and nonlabor-
related costs. Hospital-based SNF limits are set at the limit 
for freestanding SNFs, plus 50 percent of the difference 
between the freestanding limits and 112 percent of the average 
per diem routine services costs of hospital-based SNFs. The 
limits are adjusted by the hospital wage index to reflect 
differences in wage levels. The law authorizes the Secretary to 
allow for exceptions to the limits, based on case mix or 
circumstances beyond the control of the facility. The Secretary 
is required to rebase cost limits every 2 years, i.e. to 
develop cost limits using the latest available SNF cost report 
data every 2 years. In the interim the Secretary applies a SNF 
market basket developed by the Health Care Financing 
Administration (HCFA) to reflect changes in the price of goods 
and services purchased by SNFs.
      SNFs providing less than 1,500 days of care per year to 
Medicare patients in the preceding year have the option of 
being paid a prospective payment rate set at 105 percent of the 
regional mean for all SNFs in the region. The rate covers 
routine and capital-related costs (and not ancillary services) 
and is calculated separately for urban and rural areas, 
adjusted to reflect differences in wage levels. Prospective 
rates can not exceed the routine service cost limit that would 
be applicable to the facility, adjusted to take into account 
average capital-related costs with respect to the type and 
location of the facility. For low-volume SNFs, the Secretary is 
required to establish on an annual basis, prospective payments 
that reflect current SNF costs using the most recent data 
available from SNF cost reports. For SNFs receiving 
prospectively determined payment rates, the Secretary may pay 
for ancillary services on a reasonable charge basis, rather 
than on a cost basis, if the Secretary determines that a 
reasonable charge basis provides an equitable level of payment 
and eases the SNF's reporting burden.

House bill

      For cost reporting periods beginning in FY 1997, the 
Secretary would be required to redefine routine service costs 
that would be subject to the routine cost limits. These would 
include all items used in the current definition--nursing, room 
and board, administrative, and other overhead--and, in 
addition, all ancillary services (including supplies and 
equipment), with the exception of non-routine services listed 
below.

Senate bill

      In establishing an interim payment system (that would be 
in effect before the implementation of a prospective payment 
system for SNF care), the Secretary would be required, for cost 
reporting periods beginning in FY 1996, to redefine routine 
service costs that would be subject to the routine cost limits. 
These would include all items used in the current definition--
nursing, room and board, administrative, and other overhead--
and, in addition, all ancillary services (including supplies 
and equipment), with the exception of non-routine services 
listed below.

Conference agreement

      The conference agreement includes the Senate provision.

  2. Incentives for Cost Effective Management of Covered Non-Routine 
     Services (Sec. 15522 of House bill; Sec. 7032 of Senate bill)

Current law

      Currently non-routine ancillary services are generally 
paid on the basis of reasonable costs and are not subject to 
limits.

House bill

      For cost reporting periods beginning in FY 1997, new 
payment limits would be established for non-routine services 
provided to Medicare beneficiaries receiving SNF care. For 
these purposes, non-routine services would be defined to 
include therapy services (physical and occupational therapy, 
speech language pathology, and respiratory therapy, including 
supplies and support services incident to the therapy 
services); prescription drugs; complex medical equipment; 
intravenous therapy and solutions (including enteral and 
parenteral nutrients, supplies, and equipment); radiation 
therapy; and diagnostic services, including laboratory, 
pulmonary, and radiology services (including tomography and 
imaging services).
      The non-routine limit for a stay would be the sum of the 
following two amounts: 50 percent would be the facility-
specific amount for these services; and 50 percent would 
represent the national average amount paid for these services 
for all SNF stays. The facility-specific amount would be 
calculated by summing (1) the average amount of payments made 
to a facility under Part A for non-routine services during a 
stay and (2) the Secretary's best estimate of the average 
amount of payments made under Part B for covered non-routine 
services furnished to all residents provided SNF care under 
Part A.
      In establishing base year payments for the new limits, 
the Secretary would be required to use cost reporting periods 
ending September 30, 1994. These base year payments would be 
updated to FY 1997 by the SNF market basket. In subsequent 
years, per stay limits would be updated by the SNF market 
basket minus 2 percentage points. National average payments 
used for determining a facility's per stay limit would be 
calculated separately for freestanding and hospital-based SNFs. 
Separate per stay limits would apply to residents of SNFs who 
require intensive nursing or therapy services. The Secretary, 
after consulting with the Medicare Payment Review Commission 
and SNF experts, would be required to develop and publish this 
separate limit by June 30, 1996, and would be required to 
ensure its budget neutrality. The Secretary would also be 
required to rebase facility-specific amounts for cost reporting 
periods beginning October 1, 1999, and every 2 years 
thereafter. A SNF stay would be defined by the number of 
continuous days a beneficiary spent in the facility during a 
covered spell of illness.
      An aggregate payment limit for non-routine services would 
also be determined annually for each SNF. This would be 
calculated by multiplying the number of SNF stays for which 
payments for these services were made times the blended payment 
limit. This amount would be compared to actual interim payments 
made to the SNF for these services; these payments would be 
based on the facility's reasonable costs of providing these 
services. If total payments for the year were below the SNF's 
aggregate payment limit, then the SNF would be allowed to 
retain 50 percent of the difference, up to 5 percent of total 
amount paid to the facility for covered non-routine services. 
In the event that total payments exceeded the SNF's payment 
limit, the Secretary would be required to reduce payments for 
new stays in the next fiscal year at such times and in a manner 
the Secretary considers appropriate.
      SNFs would be required to bill Medicare for all services 
provided to beneficiaries eligible for SNF care, regardless of 
whether the service was provided by the facility, by others 
under arrangements with the facility, or under any other 
contracting or consulting arrangement. For beneficiaries 
residing in SNFs not eligible for Part A SNF benefits but 
receiving covered non-routine services, the SNF would again be 
required to bill for covered Part B services (except for 
portable x-ray or portable electrocardiogram services treated 
as a physician service). SNFs would be required to maintain 
records of all covered non-routine services furnished 
beneficiaries.
      The Secretary could provide for exceptions to the per 
stay limits, so long as additional payments were budget neutral 
and did not exceed 5 percent of aggregate payments to all SNFs 
for covered non-routine services. New SNFs not receiving 
payments for non-routine services in the base year period of FY 
1994 would be subject to the national average payment limit 
described above. Low-volume SNFs receiving prospective payments 
would not be subject to the new non-routine limits. Before 
furnishing a covered x-ray service to a Medicare beneficiary, 
SNFs would be required to consider the appropriateness of 
portable x-ray services, taking into account the cost 
effectiveness of the service and the convenience to the 
resident.

Senate bill

      Under the interim payment system, new payment limits 
would be established for non-routine services provided to 
Medicare beneficiaries receiving SNF care during cost reporting 
periods beginning in FY 1996. For these purposes, non-routine 
services would be defined to include therapy services (physical 
and occupational therapy, speech language pathology, and 
respiratory therapy); prescription drugs; complex medical 
equipment; intravenous therapy and solutions (including enteral 
and parenteral nutrients, supplies, and equipment); radiation 
therapy; and diagnostic services, including laboratory, 
pulmonary, and radiology services (including tomography and 
imaging services).
      The non-routine limit for a stay would be a facility-
specific amount. The facility-specific amount would be 
calculated by summing (1) the amount of payments made to a 
facility under Part A for non-routine services during a stay 
and (2) the Secretary's best estimate of the amount of payments 
made under Part B for covered non-routine services furnished to 
all residents provided SNF care under Part A, and then dividing 
this sum by the average number of days per stay for all 
residents of the SNF.
      In establishing base year payments for the new limits, 
the Secretary would be required to use cost reporting periods 
ending September 30, 1994. These base year payments would be 
updated to FY 1996 by the SNF market basket. In subsequent 
years, per stay limits would be updated by the greater of the 
SNF market basket minus 2.5 percentage points or 1.2 percent 
(1.1 percent for fiscal years after 1997). Separate per stay 
limits would apply to residents of SNFs who require intensive 
nursing or therapy services. The Secretary, after consulting 
with the Prospective Payment Assessment Commission and SNF 
experts, would be required to develop and publish this separate 
limit and would be required to ensure its budget neutrality. A 
SNF stay would be defined by the number of continuous days a 
beneficiary spent in the facility during a covered spell of 
illness.
      An aggregate payment limit for non-routine services would 
also be determined annually for each SNF. This would be 
calculated by multiplying the number of SNF stays for which 
payments for these services were made times the per stay 
payment limit. This amount would be compared to actual interim 
payments made to the SNF for these services; these payments 
would be based on the facility's reasonable costs of providing 
these services. If total payments exceeded the SNF's aggregate 
payment limit, the Secretary would be required to reduce 
payments for new stays in the next fiscal year at such times 
and in a manner the Secretary considers appropriate.
      SNFs would be required to bill Medicare for all services 
provided to beneficiaries eligible for SNF care, regardless of 
whether the service was provided by the facility, by others 
under arrangements with the facility, or under any other 
contracting or consulting arrangement. For beneficiaries 
residing in SNFs not eligible for Part A SNF benefits but 
receiving covered non-routine services, the SNF would again be 
required to bill for covered Part B services. SNFs would be 
required to maintain records of all covered non-routine 
services furnished beneficiaries.
      The Secretary could provide for exceptions to the per 
stay limits, so long as additional payments were budget neutral 
and did not exceed 5 percent of aggregate payments to all SNFs 
for covered non-routine services. New SNFs not receiving 
payments for non-routine services in the base year period of FY 
1994 would be subject to the national average payment limit 
described above. The Secretary would be required to determine 
an appropriate manner in which to apply the non-routine limits 
to low-volume SNFs receiving prospective payments.

Conference agreement

      The conference agreement includes the Senate provision 
with amendments. In establishing base year payments for new 
non-routine limits, the Secretary would be required to use cost 
reporting periods ending December 31, 1994. Beginning in FY 
1997, per stay non-routine limits would be updated by the SNF 
market basket minus 2 percentage points. Non-routine services 
would include supplies and support services directly related to 
therapy. SNFs would be required to bill for all covered Part B 
services, except for portable x-ray or portable 
electrocardiogram services treated as a physician service, and 
physician services that are not covered routine or non-routine 
services. Before furnishing a covered x-ray service to a 
Medicare beneficiary, SNFs would be required to consider the 
appropriateness of portable x-ray services, taking into account 
the cost effectiveness of the service and the convenience to 
the resident.

3. Prospective Payment System for Skilled Nursing Facilities (Sec. 7025 
                            of Senate bill)

Current law

      No provision.

House bill

      No provision.

Senate bill

      For cost reporting periods beginning in FY 1998, the 
Secretary would be required to establish a prospective payment 
system for SNF care under which fixed payments would be made 
for episodes of care. Payments would be required to cover all 
services, including all routine and non-routine services 
(except for physician services) and capital costs. Payment 
amounts would be required to take into account case-mix, 
patient acuity, and such other factors as the Secretary 
determines appropriate. Total payments under the new 
prospective system could not exceed 90 percent of amounts that 
would have been made for routine and non-routine and capital 
expenditures if the system were not established. The Secretary 
would be required to reduce the prospective payment rates to 
take into account beneficiary coinsurance payments. The 
prospective payment system would also be required to reflect 
savings from the new payment limits established for non-routine 
services, savings from the OBRA 93 freeze on routine costs 
limits, and the 15 percent reduction in capital payments.

Conference agreement

      The conference agreement includes the Senate provision.

    4. Revised Salary Equivalence Limits (Sec. 7037 of Senate bill)

Current law

      Medicare statute authorizes the Secretary to set limits 
on allowable costs incurred by a provider of services for which 
payment may be made under Medicare.

House bill

      No provision.

Senate bill

      The Secretary would be required to determine the non-
routine facility-specific per stay payment amounts as if salary 
equivalency guidelines were in effect for occupational, 
physical, respiratory, and speech pathology therapy services 
for the last 12-month cost reporting period of the facility on 
or before September 30, 1994.

Conference agreement

      The conference agreement does not include the Senate 
provision.

 5. Payments for Routine Service Costs (Sec. 15523 of House bill; Sec. 
                          7033 of Senate bill)

Current law

      OBRA 93 required that there be no changes in SNF cost 
limits (including no adjustments for changes in the wage index 
or updates of data) for cost reporting periods beginning in FY 
1994 and FY 1995, or in prospective payment amounts for low-
volume SNFs during these cost reporting periods. The Secretary 
was also required, when granting or extending exceptions to 
cost limits, to limit any exception to the amount that would 
have been granted if there were no restriction on changes in 
cost limits. OBRA 93 also repealed the requirement that 
additional payments be made to hospital-based SNFs for costs 
attributable to excess overhead allocations, effective for cost 
reporting periods beginning on or after October 1, 1993. 
Payments to proprietary SNFs for return on equity were also 
eliminated, effective for cost reporting periods beginning on 
or after October 1, 1993.

House bill

      Beginning in FY 1996, the proposal would permanently 
extend the savings stream, but not the OBRA 93 freeze on SNF 
cost limits, by not allowing for the inflation that occurred 
during the freeze years. Low-volume SNFs receiving prospective 
payments would be subject to the permanent extension of the 
savings stream of the freeze.
      Reimbursements for exceptions to routine cost limits in 
FY 1997 would be limited to aggregate payments made in FY 1996, 
adjusted for increases in the SNF market basket. In future 
fiscal years, increases in aggregate payments for exceptions to 
the limits would be limited by percentage increases in the SNF 
market basket. The Secretary would be required to provide 
exceptions only to those facilities that make annual 
applications for adjustments.

Senate bill

      Beginning in FY 1996, the proposal would permanently 
extend the savings stream, but not the OBRA 93 freeze on SNF 
cost limits, by not allowing for the inflation that occurred 
during the freeze years. Low-volume SNFs receiving prospective 
payments would be subject to the permanent extension of the 
savings stream of the freeze. Beginning in FY 1996, the 
Secretary would be required to take into account the new 
definition of routine service costs in determining routine cost 
limits.
      Reimbursements for exceptions to routine cost limits in 
FY 1996 would be limited to aggregate payments made in FY 1994, 
updated to FY 1996 by the SNF market basket. In future fiscal 
years, increases in aggregate payments for exceptions to the 
limits would be limited by percentage increases in the SNF 
market basket. The Secretary would be required to provide 
exceptions only to those facilities that make annual 
applications for adjustments.

Conference agreement

      The conference agreement includes the Senate provision.

6. Reductions in Payment for Capital-Related Costs (Sec. 15524 of House 
                    bill; Sec. 7034 of Senate bill)

Current law
      Capital-related costs of SNFs are paid on the basis of 
reasonable costs and are excluded from cost limits.
House bill
      SNF capital cost payments would be reduced by 15 percent 
for cost reporting periods occurring during FY 1996-2002.
Senate bill
      SNF capital cost payments would be reduced by 15 percent 
for cost reporting periods occurring during FY 1996-2002.
Conference agreement
      The conference agreement includes the Senate provision 
with an amendment to reduce capital payments by 10 percent.

7. Treatment of Items and Services Paid for under Part B (Sec. 15525 of 
                 House bill; Sec. 7035 of Senate bill)

Current law
      Certain covered Part B services provided in SNFs are paid 
the lesser of reasonable costs or charges.
House bill
      For services billed at the lesser of costs or charges, 
reasonable costs would be reduced by 5.8 percent from amounts 
currently recognized as reasonable for cost reporting periods 
occurring during fiscal years 1996 through 2002. For Medicare 
covered Part B services (except for portable x-ray or portable 
electrocardiogram services treated as a physician service), 
payments would have to be made to the SNF, regardless of 
whether the service was provided by the facility, by others 
under arrangements with the facility, or under any other 
arrangement. These services would be excluded from coverage if 
not billed by the SNF.
Senate bill
      For services billed at the lesser of costs or charges, 
reasonable costs would be reduced by 5.8 percent from amounts 
currently recognized as reasonable for cost reporting periods 
occurring during fiscal years 1996 through 2002. For Medicare 
covered Part B services (except for physicians providing 
evaluation and management services to patients under their 
care), payments would have to be made to the SNF, regardless of 
whether the service was provided by the facility, by others 
under arrangements with the facility, or under any other 
contracting or consulting arrangement. These services would be 
excluded from coverage if not billed by the SNF.
Conference agreement
      The conference agreement includes the Senate provision 
with an amendment. Payments would have to be made to SNFs for 
covered Part B services, except for portable x-ray and portable 
electrocardiogram services treated as a physician service, and 
physician services that are not covered routine or non-routine 
services.

  8. Certification of Facilities Meeting Revised Nursing Home Reform 
                  Standards (Sec. 15526 of House bill)

Current law
      OBRA 87 comprehensively revised Medicare and Medicaid 
requirements for nursing homes participating in the programs. 
These provisions, collectively referred to as nursing home 
reform law, are virtually identical in Medicare and Medicaid 
statutes. They have three major parts: (1) requirements that 
nursing homes must meet in order to be certified to participate 
in Medicare and/or Medicaid, including requirements about 
assessments of residents, available services, nurse staffing, 
nurse aide training, and resident rights; (2) provisions 
revising the survey and certification process that State survey 
agencies must use for determining whether nursing homes comply 
with the requirements for participation; and (3) provisions 
that expand the range of sanctions and penalties that States 
and the Secretary of HHS may impose against nursing homes found 
to be out of compliance with the requirements for 
participation.
      The Commerce Committee has reported legislation 
transforming the Medicaid program into a new MediGrant program 
authorized under Title XXI of the Social Security program. The 
new program would replace the OBRA 87 nursing home reform 
provisions with more general requirements for assuring quality 
care in nursing homes.
House bill
      Effective for cost reporting periods beginning in FY 
1996, the proposal would repeal OBRA 87 nursing home reform 
requirements and require that SNFs participating in Medicare 
either be certified by the Secretary as meeting new 
requirements that would replace OBRA 87 reforms or be State-
certified. State-certified facilities would include facilities 
licensed or certified as a SNF by the State in which it is 
located, or a facility which otherwise meets the requirements 
for nursing facilities specified under the Medicaid or new 
MediGrant authorities.
      The Secretary would be required to establish and maintain 
standards in the following areas for SNFs providing Medicare 
covered services: the treatment of resident medical records; 
policies, procedures, and bylaws for operation; quality 
assurance systems; resident assessment procedures, including 
care planning and outcome evaluation; the assurance of a safe 
and adequate physical plant for the facility; qualifications 
for staff sufficient to provide adequate care; and utilization 
review.
      Standards for SNFs would also be required to provide for 
the protection and enforcement of resident rights, including 
rights to exercise the individual's rights as a resident of the 
facility and as a citizen or resident of the U.S.; to receive 
notice of rights and services; to be protected against the 
misuse of resident funds; to be provided privacy and 
confidentiality; to voice grievances; to examine the results of 
certification program inspections; to refuse to perform 
services for the facility; to be provided privacy in 
communications and to receive mail; to have the facility 
provide immediate access to any resident by any representative 
of the certification program, the resident's individual 
physician, the State long-term care ombudsman, and any person 
the resident has designated as a visitor; to retain and use 
personal property; to be free from abuse, including verbal, 
sexual, physical and mental abuse, corporal punishment, and 
involuntary seclusion; and to be provided with prior written 
notice of a pending transfer or discharge.
      Standards established by the Secretary for SNFs could 
take effect only after public notice and an opportunity for 
comment.
      The Secretary would also be required to provide for the 
establishment and operation of a program for the certification 
of SNFs that meet specified standards as well as the 
decertification of those facilities that fail to meet the 
standards. The Secretary would be required to ensure public 
access (as defined by the Secretary) to the certification 
program's evaluations of participating facilities, including 
compliance records and enforcement actions and other reports 
regarding ownership, compliance histories, and services 
provided by certified facilities. The Secretary would be 
required to audit expenditures under the program, not less 
often than every 4 years, through an entity designated by the 
Secretary and not affiliated with the program.
      The Secretary would be required to impose certain 
sanctions against SNFs not meeting requirements. If the 
Secretary determines that a facility certified either by the 
Secretary or State no longer substantially meets the 
requirements for participation and further determines that the 
facility's deficiencies immediately jeopardize the health and 
safety of residents, then the Secretary would be required, at a 
minimum, to terminate the facility's certification for 
participation. If the facility's deficiencies do not 
immediately jeopardize the health and safety of residents, the 
Secretary could, in lieu of termination, provide lesser 
sanctions, including denial of payment for persons admitted 
after a specified date.
      The Secretary could not impose sanctions until a facility 
has had a reasonable opportunity to correct its deficiencies, 
following the initial determination that it no longer 
substantially meets the requirements for certification, and, 
has been given reasonable notice and opportunity for a hearing. 
The Secretary's decision to deny payment for new admissions 
would be effective only after notice to the public and the 
facility, as may be provided for by the Secretary. Denial of 
payment for new admissions would end when the Secretary finds 
that the facility is in substantial compliance (or is making 
good faith efforts to achieve substantial compliance). 
Facilities would, however, be required to be in compliance by 
the end of the eleventh month following the month when the 
decision to deny payments becomes effective. If facilities did 
not substantially meet the requirements by that time, the 
Secretary would be required to terminate their certification 
for participation.
Senate bill
      No provision; current law nursing home reform provisions 
would be retained.
Conference agreement
      The conference agreement does not include the House 
provision.

   9. Medical Review Process (Sec. 15527 of House bill; Sec. 7036 of 
                              Senate bill)

Current law
      No Provision.
House bill
      The Secretary would be required to implement a medical 
review process to examine the effects of the amendments of this 
part on the quality of care received by Medicare beneficiaries, 
placing a particular emphasis on the quality of non-routine 
covered services.
Senate bill
      The Secretary would be required to implement a medical 
review process to examine the effects of the amendments of this 
part on the quality of care received by Medicare beneficiaries, 
placing a particular emphasis on the quality of non-routine 
covered services.
Conference agreement
      The conference agreement includes the Senate provision.

    10. Report (Sec. 15528 of House bill; Sec. 7038 of Senate bill)

Current law
      The Prospective Payment Assessment Commission has been 
authorized to review and make recommendations on prospective 
payment for SNF care.
House bill
      The newly established Medicare Payment Review Commission 
would be required to report on Medicare's method for paying for 
SNF care and would be required to include in the report: (1) an 
analysis of the effect of the new payment limits for non-
routine services on payments for and the quality of SNF 
services (2) an analysis of the advisability of determining the 
amount of payment for covered non-routine services on the basis 
of amounts paid for such services under Part B of the program; 
(3) an analysis of the desirability of maintaining separate 
limits for hospital-based and freestanding SNFs; (4) an 
analysis of the quality of services furnished by SNFs; and (5) 
an analysis of the adequacy of the process and standards used 
for exceptions to routine cost limits.
Senate bill
      The Prospective Payment Assessment Commission would be 
required to report on Medicare's method for paying for SNF care 
and would be required to include in the report: (1) an analysis 
of the effect of the new payment limits for non-routine 
services on payments for and the quality of SNF services (2) an 
analysis of the advisability of determining the amount of 
payment for covered non-routine services on the basis of 
amounts paid for such services under Part B of the program; (3) 
an analysis of the desirability of maintaining separate routine 
cost limits for hospital-based and freestanding SNFs; (4) an 
analysis of the quality of services furnished by SNFs; (5) an 
analysis of the adequacy of the process and standards used for 
exceptions to routine cost limits; and (6) an analysis of the 
effect of the new SNF prospective payment methodology on the 
payments for and quality of SNF services, including an 
evaluation of the baseline used in establishing a system for 
payment of SNF services.
Conference agreement
      The conference agreement includes the Senate provision.

11. Effective Date (Sec. 15529 of House bill; Sec. 7039 of Senate bill)

Current law
      No provision.
House bill
      Except as otherwise noted, the provisions would be 
effective for services furnished during cost reporting periods 
beginning on or after October 1, 1996.
Senate bill
      Except as otherwise noted, the provisions would be 
effective for services furnished during cost reporting periods 
beginning on or after October 1, 1996.
Conference agreement
      The conference agreement includes the Senate provision.

   12. Nurse Aide Training in Skilled Nursing Facilities Subject to 
               Extended Survey (Sec. 7019 of Senate bill)

Current law
      Skilled nursing facilities (SNFs) are prohibited from 
offering a nurse aide training program by or in the facility if 
within the previous 2 years it has had a waiver of the 
registered nurse staffing requirement, or has been subject to 
an extended survey as a result of a finding that it has 
provided substandard care, or has been subject to sanctions for 
noncompliance with requirements.
House bill
      No provision.
Senate bill
      The provision would allow SNFs otherwise prohibited from 
offering a nurse aide training program to do so, if the State 
determines that there would be no other program offered within 
a reasonable distance, provided notice of the approval to the 
State long-term care ombudsman, and assured through an 
oversight effort that an adequate environment exists for the 
program.
Conference agreement
      The conference agreement includes the Senate provision.

                  Provisions Relating to Rural Issues

 1. medicare-dependent, small rural hospitals (section 7071 of senate 
                                 bill)

Current law

      Medicare dependent hospitals are hospitals located in a 
rural area, with 100 beds or less, that are not classified as a 
sole community provider, and for which not less than 60 percent 
of inpatient days or discharges in the hospital cost reporting 
period are attributable to Medicare. These hospitals are 
reimbursed on the same basis as sole community hospitals. The 
designation for Medicare-dependent, small rural hospitals 
expired on July 30, 1994.

House bill

      No provision.

Senate bill

      The provision would re-institute the Medicare-dependent 
hospital program effective for cost reporting periods on or 
after September 1, 1995 and before October 1, 2000.

Conference agreement

      The conference agreement includes the Senate provision.

         2. critical access hospital (sec. 7072 of senate bill)

Current law

      No provision.

House bill

      No provision.

Senate bill

      The provision would amend section 1820 to provide the 
Medicare Rural Hospital Flexibility Program, a limited service 
hospital program available to all States. Certain grants would 
be available to States to establish rural hospital networks 
consisting of at least one critical access hospital and limited 
service hospitals. Hospitals seeking to become limited service 
hospitals would be required to have an average length of stay 
of 72 hours and 6 beds; hospitals participating in the swing 
bed program could use 12 beds. Medicare would pay these 
facilities on a reasonable cost basis. The provision would 
authorize appropriations of $25 million for the program from 
the Federal Hospital Insurance Trust Fund for grants to States.

Conference agreement

      The conference agreement includes the Senate provision.

3. rural emergency access care hospitals (reachs) (Sec. 15513 of house 
                    bill; Sec. 7073 of senate bill)

Current law

      No provision.

House bill

      The bill would provide for the establishment of a new 
category of hospitals under Medicare to provide for medical 
screening examinations and treatment for emergency medical 
conditions and active labor for rural facilities that are in 
danger of closing due to low inpatient utilization rates and 
operating losses and whose closing would reduce access to 
emergency services. Such facilities would have to meet specific 
requirements including those relating to appropriate medical 
staffing, referral arrangements; and diagnostic and laboratory 
services. Facilities would be reimbursed on a reasonable cost 
basis.

Senate bill

      The bill would provide for the establishment of a new 
category of hospitals under Medicare to provide for medical 
screening examinations and treatment for emergency medical 
conditions and active labor for rural facilities that are in 
danger of closing due to low inpatient utilization rates and 
operating losses and whose closing would reduce access to 
emergency services. Such facilities would have to meet specific 
requirements including those relating to appropriate medical 
staffing, referral arrangements; and diagnostic and laboratory 
services. Facilities would be reimbursed on a reasonable cost 
basis.

Conference agreement

      The conference agreement includes the Senate provision.

 4. classification of rural referral centers (sec. 15514 of house bill)

Current law

      Referral centers are paid prospective payments based on 
the applicable urban payment amount rather than the rural 
payment amount, as adjusted by the hospital's area wage index. 
The applicable amount is the ``other urban'' rate (i.e., the 
rate for urban areas with 1 million or fewer people) for all 
referral centers except those (if any) located in MSAs greater 
than 1 million. These centers are defined as:
            (1) rural hospitals having 275 or more beds;
            (2) hospitals having at least 50 percent of their 
        Medicare patients referred from other hospitals or from 
        physicians not on the hospital's staff, at least 60 
        percent of their Medicare patients residing more than 
        25 miles from the hospital, and at least 60 percent of 
        the services furnished to Medicare beneficiaries are 
        furnished to those who live 25 miles or more from the 
        hospital; or
            (3) rural hospitals meeting the following criteria 
        for hospital cost reporting periods beginning on or 
        after October 1, 1985:
                  (a) a case mix index equal to or greater than 
                the median case mix for all urban hospital (the 
                national standard), or the median case mix for 
                urban hospitals located in the same census 
                region, excluding hospitals with approved 
                teaching programs;
                  (b) a minimum of 5,000 discharges, the 
                national discharge criterion (3,000 in the case 
                of osteopathic hospitals), or the median number 
                of discharges in urban hospitals for the region 
                in which the hospital is located; and
                  (c) at least one of the following three 
                criteria: more than 50 percent of the 
                hospital's medical staff are specialists, at 
                least 60 percent of discharges are for 
                inpatients who reside more than 25 miles from 
                the hospital, or at least 40 percent of 
                inpatients treated at the hospital have been 
                referred either from physicians not on the 
                hospital's staff or from other hospitals.
      OBRA 93 extended the classification through FY1994 for 
those referral centers classified as of September 30, 1992.

House bill

      The bill would prohibit the Medicare Geographic 
Classification Review Board from denying a referral centers 
request for reclassification on the basis of any comparison 
between the average hourly wage of the hospital and the average 
hourly wage of hospitals in the area in which it is located. 
Hospitals would be allowed to submit applications to the Board 
during the 30-day period beginning on the date of enactment 
requesting a change in classification for purposes of 
determining the area wage index applicable to the hospital for 
FY1997, if the hospital would be eligible for such change 
except for its failure to meet the deadline for applications.
      The bill would, beginning in FY1996, extend the referral 
center classification of any hospital classified as a referral 
center for FY1994, and such hospitals would continue to be 
classified as a referral center for each subsequent fiscal 
year.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision.

         5. floor on area wage index (sec. 15515 of house bill)

Current law

      As part of the methodology for determining prospective 
payments to hospitals under PPS, the Secretary is required to 
adjust a portion of the standardized amounts for area 
differences in hospital wage levels by a factor reflecting the 
relative hospital wage level in the geographic area of the 
hospital compared to the national average hospital wage level.

House bill

      For discharges occurring on or after October 1, 1995, the 
area wage index applicable for any hospital which was not 
located in a rural area could not be less than the average of 
the area wage indices applicable to hospitals located in rural 
areas in the State in which the hospital was located. The 
Secretary would be required to make any adjustments in the wage 
index in a budget neutral manner.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision.

 6. clarification of treatment of essential access community hospital/
rural primary care hospital (each/rpch) (sec. 15512 of house bill; sec. 
                          7072 of senate bill)

Current law

      Under the EACH demonstration program up to 7 States may 
be designated by the Secretary to receive grants to develop 
rural health networks consisting of essential access community 
hospitals (EACHs) and rural primary care hospitals (RPCHs). 
Individual hospitals may be designated as EACHs and RPCHs. In 
order to receive designation by a State as a RPCH, a facility 
must meet certain criteria, including a requirement that 
inpatient stays not exceed 72 hours.
      Montana also has a limited hospital program called the 
Medical Assistance Facility (MAF).

House bill

      The provision would allow the EACHs to continue to 
receive special payments under Medicare determined in the same 
manner as for sole community hospitals (SCHs), and RPCHs to 
continue to receive Medicare payments for their services, even 
in fiscal years in which the program did not receive 
appropriations.

Senate bill

      The provision would allow EACHs to continue to receive 
payments under Medicare determined in the same manner as for 
SCHs, and RPCHs to continue to receive Medicare payments for 
their services. The MAF program would also be continued for all 
qualifying facilities in Montana.

Conference agreement

      The conference agreement includes the Senate provision.

 7. additional payments for services furnished in shortage areas (sec. 
                          7074 of senate bill)

Current law

      The law authorizes a bonus payment of an additional 10 
percent for physicians services furnished in a health 
professional shortage area.

House bill

      No provision.

Senate bill

      The provision would increase the bonus payment in health 
professional shortage areas from 10 percent to 20 percent and 
limit the bonus to primary care services. Such payments would 
be continued for the three year period following the withdrawal 
of the health professional shortage area designation for an 
area, provided such withdrawal occurs on or after January 1, 
1996. Carriers would be required to provide information 
periodically to the Secretary on the types of providers to whom 
the carrier makes bonus payments.
      The Physician Payment Review Commission would be required 
to conduct a study of the effectiveness of bonus payments in 
recruiting physicians to provide services in health 
professional shortage areas. Within one year of enactment, the 
Secretary would be required to submit a report to Congress, 
together with recommendations, on such study.

Conference agreement

      The conference agreement includes the Senate provision.

8. payments to physician assistants and nurse practitioners (sec. 7075 
                            of senate bill)

Current law

      Physician assistants are paid directly for their 
services, when provided under the supervision of a physician: 
(i) in a hospital, skilled nursing facility, or nursing 
facility, (ii) as an assistant at surgery; or (iii) in a rural 
area designated as a health manpower shortage area. Payments 
equal a percentage of what would be paid if the services were 
performed by a physician, namely 65% of the fee schedule amount 
for services performed as an assistant at surgery, 75% for 
other hospital services, and 85% for other services.
      Nurse practitioners are paid directly for services 
provided in collaboration with a physician which are furnished 
in a nursing facility. Payments equal 85% of the physician fee 
schedule amount. Nurse practitioners are also paid directly for 
services provided in collaboration with a physician in a rural 
area. Payments equal 75% of the physician fee schedule amount 
for services furnished in a hospital and 85% of the fee 
schedule amount for other services.

House bill

      No provision.

Senate bill

      The provision would permit direct payment for services in 
outpatient or home settings provided by physician assistants 
and nurse practitioners in collaboration with a physician. 
Payment would equal 80% of the lesser of either the actual 
charge or 85% of the physician fee schedule amount.

Conference agreement

      The conference agreement includes the Senate provision.

        9. telemedicine demonstration (sec. 7076 of senate bill)

Current law

      Certain grants have been available through the Office of 
Rural Health Policy's Rural Telemedicine Grant Program to 
demonstrate and collect information on the feasibility, cost, 
appropriateness, and acceptability of telemedicine 
consultations for improving access to health services for rural 
residents and reducing the isolation of rural practitioners.

House bill

      No provision.

Senate bill

      The provision would establish a new grant program through 
the Office of Rural Health to award grants to eligible entities 
to establish demonstration projects under which are eligible 
entity would establish a rural-based consortium that would 
enable members of the consortium to utilize the 
telecommunications network in the delivery of health care 
services in rural areas through the use of telemedicine. The 
provision would authorize appropriations of $10 million for 
each of the fiscal years 1996 through 1998.

Conference agreement

      The conference agreement includes the Senate provision.

           Subtitle G--Provisions Relating to Medicare Part B

                   A. Provider/Practitioner Payments

  1. Payments for Physicians Services (Sec. 15601 of House bill; Sec. 
                          7041 of Senate bill)

Current law
      Payments for physicians services are made on the basis of 
a fee schedule. The fee schedule assigns relative values to 
services based on the time, skill, and intensity it takes 
physicians to provide them. The relative values are adjusted 
for geographic variations in the costs of practicing medicine. 
The adjusted relative values are converted into a dollar 
payment amount by a conversion factor. There are three 
conversion factors: one for surgical services, one for primary 
care services, and one for all other services. The 1995 
conversion factors are $39.45 for surgical services, $36.38 for 
primary care services, and $34.62 for other services.
      Conversion factors are updated each year by a default 
formula. The update equals inflation as measured by the 
Medicare Economic Index (MEI), plus or minus the difference 
between actual physician spending for the category of services 
in a base period compared to the Medicare Volume Performance 
Standard (MVPS) for that category for the period. (If spending 
was below the MVPS, the update is larger than the MEI; if 
spending exceeded the MVPS, the update is less than the MEI).
      The MVPS is a goal for the rate of expenditure growth 
from one fiscal year to the next. The calculation of the MVPS 
for a year is based on estimates of several factors (changes in 
fees, enrollment, volume and intensity, and laws and 
regulations). The MVPS derived from the calculation is subject 
to a reduction which is known as the performance standard 
factor. The performance standard factor is four percentage 
points for FY 1995 and subsequent years.
House bill
      a. Replacement of Medicare Volume Performance Standard. 
The provision would replace the MVPS with a sustainable growth 
rate beginning for FY 1996. The provision would establish the 
sustainable growth rate for FY 1996 based on: (I) changes in 
the MEI, (ii) changes in Medicare enrollment (excluding 
Medicare Plus and HMO enrollees), (iii) growth in the real 
gross domestic product from FY 95 to FY 96 plus 2 percentage 
points; and (iv) changes resulting from changes in law 
(determined without taking into account changes in volume or 
intensity or changes resulting from changes in the calculation 
of the conversion factor update). For each subsequent fiscal 
year beginning in 1997, the sustainable growth rate would equal 
the previous year's rate, updated by the same factors used to 
set the FY 96 rate.
      b. Conversion Factor Update. The provision would modify 
the calculation of the update beginning in 1997. The provision 
would specify that the update for a year would equal the MEI, 
subject to an adjustment to match the cumulative sustainable 
growth rate. Specifically, the update for a year would equal 
the MEI, plus or minus the difference between the percentage 
increase in actual physician spending for the 12-month period 
ending the previous June compared to the allowable growth rate 
for the year. The allowable growth rate would be based on the 
cumulative sustainable growth rate from the base year 1995. If 
spending was below the cumulative sustainable growth rate, the 
update would be larger than the MEI; if spending exceeded the 
cumulative sustainable growth rate, the update would be less 
than the MEI. However, limits would be established on allowable 
variation from the MEI. The update could not be more than 103 
percent of the MEI. It could not be less than 93 percent of the 
MEI in 1996, 92.25 percent of the MEI in 1998, or 92 percent of 
the MEI in 1999 and subsequent years.
      The provision would require the Secretary to submit to 
Congress by November 1 of each year, beginning in 1996, a 
report describing the update in the conversion factor for the 
following year. The Medicare Review Commission would review the 
report and submit to Congress by December 1 a report containing 
an analysis of the conversion factor.
      c. Single Conversion Factor. The provision would provide 
for the establishment of a single conversion factor, rather 
than three conversion factors, effective January 1, 1996. It 
would set the factor for 1996 at $35.42.
Senate bill
      a. Replacement of Medicare Volume Performance Standard. 
The provision would require the Secretary to transmit to the 
Congress by April 15 of each year (beginning with 1996) a 
recommendation on the sustainable growth rate for the upcoming 
fiscal year. In making the recommendation, the Secretary would 
be required to confer with organizations representing 
physicians. The Secretary is to consider inflation; changes in 
numbers of enrollees (other than Medicare Choice and HMO 
enrollees); changes in the age composition of enrollees; (other 
than Medicare Choice and HMO enrollees); changes in technology; 
evidence of inappropriate utilization of services; evidence of 
lack of access to necessary physicians services; and other 
factors the Secretary considers appropriate. The Physician 
Payment Review Commission would review the recommendation and 
make its recommendation to Congress by May 15. The Secretary 
would be required to publish the sustainable growth rate 
published in the last 15 days of October of that year. For 
1997, the Secretary would be required to publish the 
sustainable growth rate as specified in the law by January 1, 
1997.
      The provision would replace the MVPS with a sustainable 
growth rate beginning for FY 1996. The provision would 
establish the sustainable growth rate for FY 1996 based on: (I) 
changes in the MEI, (ii) changes in Medicare enrollment 
(excluding Medicare Choice and HMO enrollees), (iii) growth in 
the real gross domestic product from FY 95 to FY 96 plus 2 
percentage points; and (iv) changes resulting from changes in 
law (determined without taking into account changes in volume 
or intensity or changes resulting from changes in the 
calculation of the conversion factor update). For each 
subsequent fiscal year beginning in 1997, the sustainable 
growth rate would equal the previous year's rate, updated by 
the same factors used to set the FY 96 rate.
      b. Conversion Factor Update. The provision would require 
the Secretary by April 15 of each year (beginning in 1996) to 
transmit a report to Congress that includes a recommendation on 
the appropriate update in the conversion factor taking into 
account the change in the MEI; factors that enter into the 
calculation of the update adjustment factor and access to 
services. The Secretary may also consider unexpected changes 
made by physicians in response to implementation of the fee 
schedule, unexpected changes in outlay projections, changes in 
the quality or appropriateness of care, any other relevant 
factors not measured in the resource based payment methodology; 
and changes in the volume or intensity of services. The 
Physician Payment Review Commission would be required to review 
the report and submit its recommendations to Congress by May 
15.
      Unless The Congress otherwise provided, the update for a 
year (beginning in 1997) would be determined under a modified 
update calculation. The provision would specify that the update 
for a year would equal the MEI, subject to an adjustment to 
match the cumulative sustainable growth rate. Specifically, the 
update for a year would equal the MEI, plus or minus the 
difference between the percentage increase in actual physician 
spending for the 12-month period ending the previous June 
compared to the allowable growth rate for the year. The 
allowable growth rate would be based on the cumulative 
sustainable growth rate from the base year 1995. If spending 
was below the cumulative sustainable growth rate, the update 
would be larger than the MEI; if spending exceeded the 
cumulative sustainable growth rate, the update would be less 
than the MEI. However, limits would be established on allowable 
variation from the MEI. The update could not be more than 103 
percent of the MEI or less than 93 percent of the MEI.
      c. Single Conversion Factor. The provision would provide 
for the establishment of a single conversion factor, rather 
than three conversion factors, effective January 1, 1996. It 
would set the factor for 1996 at $35.42.
Conference agreement
      The conference agreement includes the Senate provision 
with a clarification of one of the factors used to the 
calculate the sustainable growth rate for FY 1997 and 
subsequent years. The factor for changes resulting from changes 
in law must include changes made by the Secretary in response 
to the failsafe provision. The provision further clarifies that 
the recommendations are to be made by the Medicare Payment 
Review Commission rather than the Physician Payment Review 
Commission.
      It is the conferees understanding that HCFA has 
commissioned a study of practice expenses. The conferees intend 
that the Secretary consider analyzing the codes for portable x-
ray/EKGs and transportation separately in this cost study to 
ensure fair and accurate evaluation of such resource-based 
practice expenses.

 2. Elimination of Formula-Driven Overpayments for Certain Outpatient 
 Hospital Services (Sec. 15602 of House bill; Sec. 7042 of Senate bill)

Current law
      Medicare payments for hospital outpatient ambulatory 
surgery, radiology, and other diagnostic services equals the 
lesser of: (1) the lower of a hospital's reasonable costs or 
its customary charges, net of deductible and coinsurance 
amounts, or (2) a blended amount comprised of a cost portion 
and a charge portion, net of beneficiary cost-sharing. The cost 
portion of the blend is based on the lower of the hospital's 
costs or charges, net of beneficiary cost sharing, and the 
charge portion is based, in part, on ambulatory surgery center 
payment rates, net of beneficiary coinsurance.
      A hospital may bill a beneficiary for the coinsurance 
amount owed for the outpatient service provided. The 
beneficiary coinsurance is based on 20 percent of the 
hospital's submitted charges for the outpatient service, 
whereas Medicare usually pays based on the blend of the 
hospital's costs and the amount paid to ambulatory surgery 
centers for the same service. This results in an anomaly 
whereby the amount a beneficiary pays in coinsurance does not 
equal 20 percent of the program's payment and does not result 
in a dollar-for-dollar decrease in Medicare program payments.
House bill
      The provision would require that beneficiary coinsurance 
amounts be deducted later in the reimbursement calculation for 
hospital outpatient services, so that Medicare payments for 
covered services would be lower. Medicare's payment for 
hospital outpatient services would equal the blended amount 
less any amount the hospital may charge the beneficiary as 
coinsurance for services furnished during portions of cost 
reporting periods occurring on or after October 1, 1995.
Senate bill
      The provision would require that beneficiary coinsurance 
amounts be deducted later in the reimbursement calculation for 
hospital outpatient services, so that Medicare payments for 
covered services would be lower. Medicare's payment for 
hospital outpatient services would equal the blended amount 
less any amount the hospital may charge the beneficiary as 
coinsurance for services furnished during portions of cost 
reporting periods occurring on or after October 1, 1995.
Conference agreement
      The conference agreement includes the Senate provision.

3. Durable Medical Equipment (DME) (Sec. 15603 of House bill; Sec. 7044 
                        and 7045 of Senate bill)

Current law
      a. Freeze in DME Updates. DME is reimbursed on the basis 
of a fee schedule. Items are classified into five groups for 
purposes of determining the fee schedules and making payments: 
(1) inexpensive or other routinely purchased equipment (defined 
as items costing less than $150 or which is purchased at least 
75 percent of the time); (2) items requiring frequent and 
substantial servicing; (3) customized items; (4) oxygen and 
oxygen equipment; and (5) other items referred to as capped 
rental items. In general, the fee schedules establish national 
payment limits for DME. The national limits have floors and 
ceilings. The floor is equal to 85 percent of the weighted 
median of local payment amounts and the ceiling is equal to 100 
percent of the weighted median of local payment amounts. Fee 
schedule amounts are updated annually by the consumer price 
index for all urban consumers, CPI-U. OBRA 93 changed the basis 
for the floors and ceiling for the DME fee schedules from the 
weighted average to the weighted median, effective January 1, 
1994.
      b. Freeze in Orthotics and Prosthetics Update. 
Prosthetics and orthotics are reimbursed on the basis of a fee 
schedule. Items covered by this fee schedule include leg, arm, 
and neck braces, artificial limbs and eyes, and items that 
replace all or part of an internal body organ. The fee schedule 
establishes regional payment limits for covered items. The 
regional limits have floors and ceilings. The floor is equal to 
90 percent of the weighted average of local payment amounts and 
the ceiling is equal to 120 percent of the weighted average of 
local payment amounts. Fee schedule amounts are updated 
annually by CPI-U. OBRA 93 eliminated updates for prosthetics 
and orthotics for 1994 and 1995.
      c. Oxygen and Oxygen Equipment. Oxygen and oxygen 
equipment is paid according to a DME fee schedule.
      d. Upgraded DME. If a beneficiary wishes to purchase a 
more expensive or upgraded DME item or supply, the beneficiary 
must make full payment to the supplier and submit a claim to 
Medicare for reimbursement of the amount of the approved 
standard item. For approved items, on the other hand, the 
beneficiary pays suppliers only the 20 percent coinsurance 
required for the covered item, and the supplier bills Medicare 
for the remaining 80 percent of the approved fee schedule 
amount.
      e. Freeze for Parenteral and Enteral Nutrients (PEN), 
Supplies, and Equipment. Parenteral and enteral nutrients, 
supplies, and equipment are paid on the basis of the lowest 
reasonable charge levels at which items are widely and 
consistently available in the community. OBRA 93 froze 1994 and 
1995 reasonable charge payments for PEN at 1993 levels.
House bill
      a. Freeze in DME Updates. The 1 provision would eliminate 
updates to the DME fee schedules for the period 1996 through 
2002.
      b. Freeze in Orthotics and Prosthetics Update. The update 
for prosthetics and orthotics would be limited to 1 percent for 
each of years 1996 through 2002.
      c. Oxygen and Oxygen Equipment. The provision would 
reduce in 1996 the national payment limit for oxygen and oxygen 
equipment by 20 percent.
      d. Upgraded DME. The provision would authorize payment 
for upgraded DME to be made in the same manner as payment for a 
standard item, with the supplier receiving payment for the item 
as if it were a standard item and the beneficiary paying the 
difference between the supplier's charge and the amount paid by 
Medicare. The supplier's charge for an upgraded item could not 
exceed the applicable fee schedule amount (if any) for the 
item. The Secretary would be required to issue regulations 
providing for consumer protection standards for upgraded DME. 
These regulations would be required to provide for full 
disclosure by the supplier of the availability and price of 
standard items and proof of disclosure to the beneficiary; 
conditions of participation for suppliers of upgraded items, 
including conditions relating to billing procedures; sanctions 
(including exclusion) of suppliers who are determined to have 
engaged in coercive or abusive practices; and such other 
safeguards as the Secretary determines necessary.
      e. Freeze for Parenteral and Enteral Nutrients (PEN), 
Supplies, and Equipment. Payments for PEN would be frozen at 
1993 levels for the period 1996 through 2002.
Senate bill
      a. Freeze in DME Updates. The provision would eliminate 
updates to the DME fee schedules for the period 1996 through 
2002.
      b. Freeze in Orthotics and Prosthetics Update. The update 
for prosthetics and orthotics would be eliminated for the 
period 1996 through 2002.
      c. Oxygen and Oxygen Equipment. The provision would 
reduce in 1996 the national payment limit for oxygen and oxygen 
equipment by 40 percent.
      d. Upgraded DME. The provision would authorize payment 
for upgraded DME to be made in the same manner as payment for a 
standard item, with the supplier receiving payment for the item 
as if it were a standard item and the beneficiary paying the 
difference between the supplier's charge and the amount paid by 
Medicare. The supplier's charge for an upgraded item could not 
exceed the applicable fee schedule amount (if any) for the 
item. The Secretary would be required to issue regulations 
providing for consumer protection standards for upgraded DME. 
These regulations would be required to provide for full 
disclosure by the supplier of the availability and price of 
standard items and proof of disclosure to the beneficiary; 
conditions of participation for suppliers of upgraded items, 
including conditions relating to billing procedures; sanctions 
(including exclusion) of suppliers who are determined to have 
engaged in coercive or abusive practices; and such other 
safeguards as the Secretary determines necessary.
      e. Freeze for Parenteral and Enteral Nutrients (PEN), 
Supplies, and Equipment. Payments for PEN would be frozen at 
1993 levels for the period 1996 through 2002.
Conference agreement
      a. Freeze in DME Updates. The conference agreement 
includes the Senate provision.
      b. Freeze in Orthotics and Prosthetics Update. The 
conference agreement includes the House provision.
      c. Oxygen and Oxygen Equipment. The conference agreement 
includes the House provision with an amendment to reduce the 
national payment limit for oxygen and oxygen equipment by 20 
percent in 1996, 21\2/3\ percent in 1997, 23\1/3\ percent in 
1998, 25 percent in 1999, 26\2/3\ percent in 2000, 28\1/3\ 
percent in 2001, and 30 percent in 2002.
      d. Upgraded DME. The conference agreement does not 
include either provision.
      e. Freeze for Parenteral and Enteral Nutrients (PEN), 
Supplies, and Equipment. The conference agreement includes the 
Senate provision.
      The conferees are concerned that there are no specific 
on-going quality or service standards required of a durable 
medical equipment provider. The conferees strongly encourage 
the Secretary to implement a process to establish quality 
standards for DME.

 4. Payments for Clinical Laboratory Tests (Sec. 15604 of House bill; 
                       Sec. 7043 of Senate bill)

Current law

      Medicare pays for clinical laboratory services on the 
basis of areawide fee schedules which are periodically updated. 
There is no update for 1994 and 1995. In addition, the law 
establishes a ceiling on payment amounts. In 1995, this ceiling 
is set at 80 percent of the median of all fee schedules for the 
test; in 1996 and subsequent years the ceiling is set at 76 
percent of the national median. No beneficiary cost-sharing is 
required.

House bill

      a. Update. The provision would provide for no update in 
the fee schedules through 2002.
      b. Cap. The provision would lower the ceiling on payment 
amounts to 65 percent of the median, effective January 1, 1997.
      c. Study. No provision.

Senate bill

      a. Update. The provision would provide for no update in 
the fee schedules through 2002.
      b. Cap. The provision would lower the ceiling on payment 
amounts to 65 percent of the median, effective January 1, 1997.
      c. Study. The provision would require the Secretary to 
conduct a study of the laboratory fee schedule and the options 
for rebasing or otherwise revising the payment amounts, taking 
into account the amounts paid for services by other large 
payers. A report on the study is to be submitted to Congress 
within one year of enactment.

Conference agreement

      a. Update. The conference agreement includes the Senate 
provision.
      b. Cap. The conference agreement includes the Senate 
provision.
      c. Study. The conference agreement does not include the 
Senate provision.

5. Extension of Reductions in Payments for Costs of Hospital Outpatient 
 Services (Sec. 15605 of House bill; Sec. 7046 and 7047 of Senate bill)

Current law

      a. Capital-Related Costs. Hospitals receive payments for 
Medicare's share of capital costs associated with outpatient 
departments. OBRA 93 extended a 10 percent reduction in 
payments for the capital costs of outpatient departments 
through FY 1998.
      b. Non-Capital-Related Costs. Certain hospital outpatient 
services are paid on the basis of reasonable costs. OBRA 93 
extended a 5.8 percent reduction for those services paid on a 
cost-related basis through FY 1998.

House bill

      a. Capital-Related Costs. The provision would extend the 
10 percent reduction in payments for outpatient capital through 
FY 2002.
      b. Non-Capital-Related Costs. The 5.8 percent reduction 
for outpatient services paid on a cost basis would be extended 
through FY 2002.

Senate bill

      a. Capital-Related Costs. The provision would reduce 
payments for outpatient capital by an additional 5 percent for 
FY 1996-1998 (above OBRA 93's 10 percent reduction) and reduce 
capital payments by 15 percent for FY 1999-2002.
      b. Non-Capital-Related Costs. The 5.8 percent reduction 
for outpatient services paid on a cost basis would be extended 
through FY 2002.

Conference agreement

      a. Capital-Related Costs. The conference agreement 
includes the House provision.
      b. Non-Capital-Related Costs. The conference agreement 
includes the House provision.

  6. Freeze in Payments for Ambulatory Surgical Center Services (Sec. 
             15606 of House bill; Sec. 7048 of Senate bill)

Current law

      Medicare pays for ambulatory surgical center (ASC) 
services on the basis of prospectively determined rates. These 
rates are updated annually by CPI-U. OBRA 93 eliminated updates 
for ASCs for FY 1994 and FY 1995.

House bill

      The provision would eliminate the inflation update for 
ASCs for each of the fiscal years 1996 through 2002.

Senate bill

      The provision would eliminate the inflation update for 
ASCs for each of the fiscal years 1996 through 2002.

Conference agreement

      The conference agreement includes the Senate provision.

7. Rural Emergency Access Care Hospitals (Sec. 15607 of the House bill; 
                    Sec. 7073(c)(1) of Senate bill)

Current law

      See II. Medicare Part A, item 2 above.

House bill

      The provision would make conforming amendments to Part B.

Senate bill

      The provision would make conforming amendments to Part B.

Conference agreement

      The conference agreement includes the House provision.

  8. Payments for Anesthesia Services (Sec. 15608 of House bill, Sec. 
                          7050 of Senate bill)

Current law

      a. Payment for Jointly Furnished Services. The law 
specifies how payment amounts are to be determined when 
anesthesia services are furnished by an anesthesiologist 
practicing alone and when an anesthesiologist is medically 
directing or medically supervising two to four certified 
registered nurse anesthetists (CRNAs). When an anesthesiologist 
and a CRNA are involved in a single case and no exceptional 
medical requirement exists, only the anesthesiologist is 
reimbursed.
      b. Physician Supervision of CRNAs. Reimbursement for CRNA 
services is conditioned on physician supervision.

House bill

      a. Payment for Jointly Furnished Services. The provision 
would specify how payments are to be calculated when services 
for a single case are furnished jointly by a physician and a 
CRNA and the carrier determines that the use of both the 
physician and the CRNA are not medically necessary. In 1996 and 
1997, the fee schedule amount for the physician's services are 
to equal 55% of the amount that would be paid if the physician 
were practicing alone. In 1998 and subsequent years, the amount 
paid would equal 50% of the amount that would be paid if the 
physician were practicing alone. The amount paid to the CRNA 
would equal 40% of the amount that would otherwise be paid to a 
physician practicing alone in 1996 and 1997 and 50% in 
subsequent years.
      b. Physician Supervision of CRNAs. No provision.

Senate bill

      a. Payment for Jointly Furnished Services. No provision.
      b. Physician Supervision of CRNAs. The provision would 
require the Secretary to revise any regulations describing 
conditions under which payment may be made for anesthesia 
services in a hospital or ambulatory surgical center. The 
revision would defer to State law in determining whether 
physician supervision of CRNAs is required as a condition of 
payment.

Conference agreement

      a. Payment for Jointly Furnished Services. The conference 
agreement includes the House provision.
      b. Physician Supervision of CRNAs. The conference 
agreement does not include the Senate provision.

  9. Statewide Fee Schedule Area for Physicians Services in Wisconsin 
                       (Sec. 15609 of House bill)

Current law

      No provision

House bill

      The provision would require the Secretary to treat the 
State of Wisconsin as a single fee schedule area for physicians 
services beginning in 1997. The provision would be implemented 
in a budget neutral fashion. Nothing in the section is to be 
construed as limiting the availability to the Secretary, the 
contractor or the physicians in the State of otherwise 
applicable administrative procedures for subsequently modifying 
the fee schedule areas.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

 10. Payments for Ambulance Services (Sec. 15609A of House bill; Sec. 
                          7049 of Senate bill)

Current law

      Payments for ambulance services are based on reasonable 
charge screens developed by individual carriers based on local 
billings (which may take a variety of forms). Based on these 
local billing methods, carriers develop screens for one or more 
of the following main billing methods: (i) a single all-
inclusive charge reflecting all services and supplies, and 
mileage; (ii) one charge reflecting all services and supplies, 
with separate charge for mileage; (iii) one charge for all 
services and mileage, with separate charges for supplies; and 
(iv) separate charges for services, mileage, and supplies. 
Within each broad payment method, additional distinctions are 
made based on whether the service is basic life support or 
advanced life support service, whether emergency or 
nonemergency transport was used, and if specialized advanced 
life support services were rendered.

House bill

      a. Payment Amount. The provision would specify that 
beginning January 1,1998, payment for ambulance services would 
equal 80% of the lesser of the actual charge for the service or 
the fee schedule amount.
      b. Fee Schedule. The provision would require the 
Secretary to establish a fee schedule through a negotiated 
rulemaking process. In establishing a fee schedule, the 
Secretary would be required to: (i) establish mechanisms to 
control increases in expenditures which fairly reflect the 
changing nature of the ambulance service industry; (ii) 
establish definitions for ambulance services which promote 
efficiency and link payments (including fees for assessment and 
treatment services) to the type of services provided; (iii) 
take into account regional differences which affect cost and 
productivity, including differences in the costs of resources 
and the costs of uncompensated care; (iv) apply dynamic 
adjustments to payment rates to account for inflation, 
demographic changes in the population of Medicare 
beneficiaries, and changes in the number of participating 
providers; (v) phase-in the application of the payment rates in 
an efficient and fair manner.
      The provision would require the Secretary to implement 
the provision in 1998 in a budget neutral fashion. Beginning in 
1999, the payment amounts under the fee schedule would equal 
the previous year's payment amount updated by the increase in 
the consumer price index for the 12-month period ending the 
previous June.
      The provision would require the Secretary to regularly 
consult with the following groups when establishing the fee 
schedule: American Ambulance Association, the National 
Association of State Medical Directors, and other national 
organizations representing individuals and entities who furnish 
or regulate ambulance services. The Secretary in establishing 
the fee schedule would be required to share with the 
associations and organizations the data and data analysis used 
in establishing the fee schedule, including data on variations 
in payments for years prior to 1998 among geographic areas and 
types of providers.

Senate bill

      a. Payment Amount. The provision would provide that when 
determining the reasonable cost or charge of ambulance services 
for fiscal years 1996 through 2002, the Secretary could not 
recognize any costs in excess of those recognized as reasonable 
in fiscal year 1995.
      b. Fee Schedule. No provision.

Conference agreement

      a. Payment Amount. The conference agreement includes the 
Senate provision.
      b. Fee Schedule. The conference agreement does not 
include the House provision.

  11. Standards for Physical Therapy Services Furnished by Physicians 
                      (Sec. 15609B of House Bill)

Current law

      No provision.

House bill

      The provision would prohibit payment under Medicare for 
physicians services consisting of outpatient physical therapy 
services or outpatient occupational therapy services if such 
services are furnished by a physician who does not meet the 
requirements specified in the law for such services when 
furnished by a clinic or rehabilitation agency.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

                        B. Beneficiary Payments

1. Extension of Part B Premium (Sec. 15611 of House bill; Sec. 7052 of 
                              Senate bill)

Current law

      When Medicare was established in 1965, the Part B monthly 
premium was set at a level to finance one-half of Part B 
program costs. Beginning in 1974, however, Congress limited the 
percentage increase in the premium to the same percentage by 
which Social Security cash benefits were adjusted for changes 
in cost of living (i.e. cost-of-living adjustments or COLAs). 
Under this formula, revenues from premiums soon dropped from 50 
percent to below 25 percent of program costs. This was because 
Part B program costs increased much faster than inflation as 
measured by the Consumer Price Index on which the Social 
Security COLA is based.
      Since the early 1980s, Congress has regularly voted to 
set Part B premiums at a level to cover 25 percent of program 
costs, in effect overriding the COLA limitation. The 25 percent 
provision first became effective January 1, 1984. General 
revenues cover the remaining 75 percent of Part B program 
costs. Congress took this general approach again in the Omnibus 
Budget Reconciliation Act of 1990 (OBRA 90), but instead of 
leaving the calculations to the Secretary, the law set specific 
premium amounts for each year, 1991-1995, based on estimates of 
the program's costs. For 1995, the Part B premium is set at 
$46.10 per month. Part B program cost estimates have since 
proven to be too large, and the 1995 premium is now projected 
to cover approximately 31.5 percent of program costs. Most 
recently, OBRA 93 extended the policy of setting the Part B 
premium at a level to cover 25 percent of program costs through 
1998, leaving the calculations to the Secretary. This would 
mean that the 1996 premium would be lower than the 1995 
premium. Under current law, the provision limiting the annual 
percentage increase to the percentage increase in the social 
security COLA would again apply, beginning in 1999.

House bill

      The provision would permanently set the Part B premium at 
31.5 percent of program costs, beginning in 1996.

Senate bill

      The provision would set the Part B premium at the 
following levels for the years 1996-2002: $53 in 1996, $57 in 
1997, $61 in 1998, $66 in 1999, $74 in 2000, $80 in 2001, and 
$89 in 2002.

Conference agreement

      The conference agreement includes the House provision.

 2. Income-Related Part B Premium (Sec. 15612 of House bill; Sec. 7053 
                            of Senate bill)

Current law

      Under current law, all beneficiaries, regardless of 
income pay the same Part B premium. The remaining costs of the 
Part B program are paid from Federal General revenues.

House bill

      a. Amount. Under the provision, individuals with incomes 
over $75,000 and couples with incomes over $125,000 would be 
responsible for increases in the Part B premium. The Federal 
subsidy would be gradually phased out. Individuals with incomes 
at $100,000, couples (with one spouse enrolled in Part B) with 
incomes at $150,000, and couples (with both spouses enrolled in 
Part B) with incomes at $175,000 would be required to pay a 
premium equal to 100 percent of Part B program costs. The 
provision would apply to monthly Part B premiums beginning in 
1997.
      b. Administration. The Secretary of DHHS would be 
required to make an initial determination of the amount of an 
individual's actual adjusted gross income (AGI) for a year. The 
determination would be based on information supplied by the 
Secretary of the Treasury. Not later than October 1 of the 
preceding year, the Secretary would be required to notify each 
individual subject to an increased premium. The notice would 
include the Secretary's estimate of the individual's AGI for 
the year. The individual would have a 30-day period (beginning 
with the date on which the notice is provided) to provide 
information on the individual's anticipated AGI for the 
forthcoming year.
      The Secretary would be required to make a premium 
adjustment if he or she determined (based on information 
provided by the Secretary of the Treasury) that actual AGI was 
different from the amount initially determined. The adjustment 
would be made to the subsequent year's premium to adjust for 
any overpayments or underpayments in the previous year. The 
Secretary would be authorized to make appropriate recovery 
efforts in the case of an individual who owed an additional 
amount, but was not enrolled in Part B in such subsequent year. 
The Secretary would also be authorized, in the case of a 
deceased individual, to make a payment to the surviving spouse, 
or an individual's estate, in the case of overpayments to the 
program.
      The provision would generally define AGI as such term is 
used in the tax code. The determination of AGI would be made 
without regard to the provisions in the code relating to: 
income from U.S. savings bonds used to pay higher education 
costs; income for persons living abroad; and income from 
sources within the U.S. possessions and Puerto Rico. The 
definition of AGI would include interest income which is exempt 
from Federal taxes.
      The provision would authorize the Secretary of the 
Treasury, upon written request from the Secretary of DHHS, to 
disclose to officers and employees of the Health Care Financing 
Administration (HCFA) return information for taxpayers required 
to pay a monthly Part B premium. The information would be 
limited to: taxpayer identity information, filing status, AGI, 
amounts excluded from gross income (under provisions relating 
to savings bonds used to pay higher education costs and 
citizens or residents living abroad); tax-exempt interest 
income to the extent such information is available; and amounts 
excluded from gross income (under provisions relating to income 
from sources within the U.S. possessions and Puerto Rico) to 
the extent such information is available. The information 
disclosed to HCFA could only be used for purposes of 
establishing the monthly Part B premium.
Senate bill
      a. Amount. Under the provision, individuals with incomes 
over $50,000 and couples with incomes over $75,000 would be 
responsible for increases in the Part B premium. The Federal 
subsidy would be gradually phased out. Individuals with incomes 
at $100,000, couples with incomes at $150,000 would be required 
to pay a premium equal to 100 percent of Part B program costs. 
The provision would apply to monthly Part B premiums beginning 
in 1997.
      b. Administration. Medicare enrollees would declare 
during the annual open enrollment period or during an 
enrollment period applicable to a specific individual, an 
estimate of their AGI for the forthcoming year. If an 
individual does not file an enrollment form for an enrollment 
period (and the individual's coverage therefore continues 
without modification), the AGI would be determined on the basis 
of the most recent available information. If the Secretary 
determines that an individual has filed incorrect information, 
based on information from the Secretary of the Treasury, the 
Secretary shall use the information obtained from the Secretary 
of the Treasury.
      The Secretary would be required to notify the Social 
Security Administration of the amount of premium to be deducted 
from each enrollees check. The premium would be effective in 
the month in which the enrollment was effective or the month in 
which the notice was received, whichever was later.
      The difference, if any, between the amount of the premium 
owed and the amount paid in a year would be reconciled in 
conjunction with the annual income tax filing process. If an 
additional amount was owed, a separate payment would be made to 
the Secretary, together with any interest owed. In the case of 
overpayments, the Secretary would credit the excess against any 
supplemental premium required or make a payment to the 
individual. The Secretary would also be authorized to make 
further adjustments, if required, based on information received 
from the Secretary of the Treasury.
      The provision would generally define AGI as such term is 
used in the tax code. The determination of AGI would be made 
without regard to the provisions in the code relating to: 
income from U.S. savings bonds used to pay higher education 
costs; income for persons living abroad; and income from 
sources within the U.S. possessions and Puerto Rico. The 
definition of AGI would include interest income which is exempt 
from Federal taxes.
      The provision would authorize the Secretary to enter into 
agreements with the Commissioner of Social Security or the head 
of any other appropriate Federal agency which performs 
administrative responsibilities under this section.
      The provision would require the Secretary of the 
Treasury, upon written request from the Secretary of DHHS, to 
disclose whether or not and the amount by which an individual's 
AGI exceeds the minimum level subject to supplemental premiums. 
Return information could only be used by officers and employees 
of DHHS (or any other Federal agency with which an agreement 
was in effect) for the purpose of establishing an individual's 
correct supplemental premium amount.
Conference agreement
      a. Amount. The conference agreement includes the House 
provision.
      b. Administration. The conference agreement includes the 
House provision with a technical amendment. Individuals would 
be permitted to pay the Secretary if the amount of the 
estimated AGI is too low and results in a portion of the 
required premium not being deducted from the beneficiary's 
social security check.
      It is the conferees intent that the Secretary of HHS not 
obtain any income-related information that is not necessary for 
the determination of the increase in the monthly premium.

            3. part b deductible (sec. 7051 of senate bill)

Current law
      Beneficiaries enrolled in Part B must pay the first $100 
each year of the programs recognized costs or charges for 
covered services.
House bill
      No provision.
Senate bill
      The provision would increase the deductible to $150 in 
1996 and increase it by $10 each year thereafter.
Conference agreement
      The conference agreement does not include the Senate 
agreement.

                  c. other provider-related provisions

  1. administration of laboratory services (sec. 15621 of house bill)

Current law
      No provision.
House bill
      The provision would require the Secretary to adopt 
uniform coverage, administration and payment policies for 
clinical diagnostic laboratory tests within one year of 
enactment. The Secretary would be required to select 15 carrier 
medical directors to develop recommendations to the Secretary 
for such policies. The directors would be representative of 
geographic areas and have a varied range of interest in 
relevant fields including pathology and clinical laboratory 
practice. The directors would be required to consult with 
independent experts in each major discipline of clinical 
laboratory medicine (including clinical laboratory personnel, 
bioanalysts, pathologists, and practicing physicians). The 
medical directors would also solicit comments from other 
individuals and groups wishing to participate. The provision 
would provide that the process would be conducted as negotiated 
rule-making as provided under the Administrative Procedures 
Act.
      The provision would provide that the negotiated rule-
making would result in recommendations for uniform policies in 
the following areas: (I) beneficiary information required to be 
submitted with each claim; (ii) physicians' obligations 
regarding documentation and record keeping; (iii) procedures 
for filing claims and for providing remittances electronically; 
(iv) performance of post-payment review; (v) prohibition of 
documentation of medical necessity except where determined to 
be appropriate after identification of aberrant medical 
patterns through focused medical review; and beneficiary 
responsibility for payment.
      The provision would prohibit carriers and intermediaries 
from implementing any new requirements for submission of claims 
retroactive to January 1, 1995 during the period when the 
Secretary is adopting new policies. Further, carriers would be 
prohibited from issuing new coverage, administration or payment 
policies unless they promote the goal of administrative 
simplification.
      The provision would require the medical directors to 
forward their recommendations to the Secretary within six 
months of enactment. The Secretary would provide for 
publication of recommendations for public comment using 
negotiated rule-making. The Secretary would publish final 
uniform policies which would become effective 180 days 
following publication. Following publication, the Secretary 
would implement uniform documentation and processing policies.
      The provision would permit any independent laboratory to 
select one carrier for processing all of its claims for payment 
regardless of where the laboratory, patient, or provider 
resides or conducts business. The election would be made by the 
laboratory and an agreement between the carrier and the 
laboratory would be forwarded to the Secretary. No laboratory 
would be required to select a single carrier.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

  2. direct billing for laboratory services (sec. 15622 of house bill)

Current law
      In general, payment may only be made under Medicare to 
persons or entities who perform or personally supervise the 
performance of a laboratory test. This is known as direct 
billing. Payment may be made to a physician with whom the 
physician performing the test shares a practice.
      A limited exception to the direct billing requirement is 
provided for referring labs. A referring lab may bill for tests 
performed by another lab only if one of the following three 
conditions are met: (1) the referring laboratory is located in 
or is part of a rural hospital; (2) the referring laboratory is 
wholly-owned by the entity performing the test, the referring 
lab wholly-owns the entity performing the test; or both 
entities are wholly-owned by a third entity; or (3) not more 
than 30 percent of the clinical diagnostic tests for which the 
referring laboratory (not described in paragraph (2)) receives 
requests for testing during the year are performed by another 
laboratory.
House bill
      The provision would establish a direct billing 
requirement for labs. Any person collecting amounts in 
violation of the requirement would be liable for the amounts. 
Any person that furnished clinical lab services for which 
payment is made under Medicare's clinical laboratory fee 
schedules would be subject to a penalty of $10,000 for each 
violation. The Secretary would be authorized to exclude from 
participation in any Federal health care program any individual 
the Secretary determined had repeatedly violated the direct 
billing requirement. A Federal health program would be defined 
as any plan or program that provides health benefits, whether 
directly, through insurance or otherwise, which is funded in 
whole or in part by the U.S. Government. Also included are 
State Medicaid programs, maternal and child health block grant 
and social services block grant programs.
      The Secretary would also be authorized to suspend, 
revoke, or limit a laboratory's certification under the 
Clinical Laboratory Improvement Act if it violated the direct 
billing requirement on a repeated basis. The lab would be given 
reasonable notice and opportunity for hearing before such 
action was taken.
      The provision would require the Secretary, on July 31, 
1999, to prepare an actuarial estimate to determine whether the 
cost of clinical lab services under Medicare for the FY 1997-FY 
2002 period were expected to be at least three percent less 
than projected on enactment. If not, the Secretary would be 
required to adjust the payment ceiling (set under the bill at 
65% of the national median) in fiscal years 2000, 2001 and 2002 
to achieve the requisite savings by September 30, 2002. The 
Congressional Budget Office would be required to make its own 
1999 estimate.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

3. recommendations for quality standards for durable medical equipment 
                    (dme) (sec. 15631 of house bill)

Current law
      No provision.
House bill
      The Secretary of DHHS would be required to establish a 
broadly based task force to develop recommendations for quality 
standards for DME covered under Part B. The Secretary would be 
required to include on the task force representatives of DME 
suppliers, consumers, and other users of equipment, and would 
also be required to assure representation from various 
geographic regions. The task force would be required to submit 
its recommendations for quality standards not later than 1 year 
after enactment.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

       Subtitle H--Provisions Relating to Medicare Parts A and B

                        a. home health services

 1. prospective payment for home health services (sec. 15701 of house 
                    bill; sec. 7061 of senate bill)

Current law

      In provisions contained in the Orphan Drug Act of 1993, 
OBRA 87 and OBRA 90, Congress required the Secretary to develop 
alternative methods for paying for home health care on a 
prospective basis. In 1994, the Office of Research and 
Demonstration in the Health Care Financing Administration 
(HCFA) completed a demonstration project that tested 
prospective payment on a per visit basis. Preliminary analysis 
indicates that the per visit prospective payment methodology 
had no effect on cost per visit or volume of visits. HCFA has 
begun a second project, referred to as Phase II, to test 
prospective payment on a per episode basis.

House bill

      The proposal would establish a prospective payment system 
for home health services. This system would be based on 
prospectively determined per visit rates that are subject to 
per episode limits applied in the aggregate. The proposal would 
have the following specific components.
      Beginning in FY 1997, the Secretary would be required to 
establish national average per visit rates for each of the home 
health service disciplines covered under Medicare--skilled 
nursing care, physical therapy, speech pathology, occupational 
therapy, medical social services, and home health aide 
services. The per visit rates would be based on amounts paid 
during cost reporting periods ending June 30, 1994, updated by 
the home health market basket for fiscal years 1995 through 
1997. The home health market basket is currently used to update 
cost limits. To reflect regional differences in the costs of 
providing services, the labor-related portion of the per visit 
rates would be adjusted by the hospital wage index. These 
adjusted per visit rates would be the amounts that home health 
care agencies would receive throughout the year for each of the 
particular mix of visits provided to a given home health care 
beneficiary.
      Per visit rates would be subject to a per episode limit. 
The Secretary would calculate separate per episode limits for 
each of 18 different case categories of home health care. These 
18 categories would be the same as those being used in HCFA's 
Phase II demonstration (or an alternative methodology developed 
by the Secretary), and would serve as a substitute for a true 
case-mix adjustment not yet available. The per episode limit 
for a category would cover all care provided to a beneficiary 
during a period of 120 days. No new episode of care would be 
recognized for reimbursement purposes until after a beneficiary 
has been discharged for a period of 60 days.
      The per episode limit would be calculated as follows. For 
each of the 18 case categories, the Secretary would determine 
the mean number of visits of each type of home health services 
furnished during a period of 120 days following the initial 
admission of the beneficiary to the case during the base year 
FY 1994. The Secretary would then multiply the results by the 
per visit payment rates for services. This would become the 
target per episode limit for a case. Calculation of per episode 
limits would be done on an areawide basis; for these purposes 
the area in which an agency is located would be that area the 
Secretary finds most appropriate.
      Each agency would be paid per visit payments throughout 
the year. At the end of the year, an agency's aggregate limit 
would be calculated by first multiplying the Secretary's 
regional target per episode limit for each of the 18 case 
categories times the number of episodes admitted by an agency 
to each of the 18 categories. The sum of these products becomes 
the agency aggregate payment limit.
      Total per visit payments to an agency would be compared 
with the aggregate payment limit, i.e. the mix of an agency's 
episodes times the per episode limits. For these purposes, all 
visits provided during the first 165 days of care per episode 
would be counted against an agency's aggregate limit. If total 
payments for the year are below the agency's aggregate payment 
limit, then agencies would be allowed to retain 50 percent of 
the difference, up to 5 percent of an agency's aggregate 
Medicare payments in a year. For agencies with aggregate 
payments over the limit, the Secretary would be required to 
reduce payments to agencies in the following fiscal year in a 
manner the Secretary considers appropriate (including on an 
installment basis).
      If a beneficiary continues to need home health visits 
after a period of 165 days, then an agency may request that 
additional payments be made on a per visit basis. These 
payments would not be subject to the aggregate limit. In order 
for fiscal intermediaries to approve such requests, agencies 
would be required to submit a physician's certification of the 
continuing need for care, as well as the reason for the need 
for additional visits, and a description of services to be 
furnished during the visits.
      Beginning in FY 1998, per visit payment rates would be 
updated annually by the home health market basket minus 2 
percentage points. The Secretary would be required to rebase 
the update at least once every 5 years with the most recent 
available data. Beginning in FY 1999, the Secretary would also 
be required to revise the mean number of visits in each case 
category to reflect the most recently available data on number 
of visits per episode. To deal with case-mix ``creep,'' the 
Secretary would also be required to adjust per episode limits 
to assure that aggregate payments in a year do not exceed the 
previous year's payments because of changes in the number and 
type of home health visits within each episode.
      The Secretary would be required to implement a medical 
review process for the new payment system, giving particular 
attention to fiscal years 1997 and 1998. The purpose of the 
medical review process would be to assess patterns of care to 
assure that beneficiaries receive appropriate services under 
the new prospective payment system. Medical reviews would be 
required to focus on short stay cases and cases over 165 days. 
Recertification of the need for care would have to be done at 
30, 60, 90, 120, and 165 days of home health care.
      The Secretary would be required make adjustments in 
payments to home health care agencies that circumvent the new 
payment system by discharging patients to another home health 
agency or similar provider; by altering corporate structure or 
name to avoid being subject to payment limits or for purposes 
of increasing Medicare payments; and by undertaking any other 
actions that are unnecessary for effective patient care and 
that are intended to maximize Medicare payments.
      The Secretary would be required to develop a system to 
track home health patients who receive care from more than one 
agency during an episode. For such situations, the Secretary 
would be required to adjust payments to assure that total 
amounts paid to these agencies do not exceed the payment that 
would otherwise have been made if the patient had completed the 
episode in a single agency.
      The Secretary would also be required to develop a system 
to adjust payments to agencies to eliminate any increase in 
growth in the percentage of low-cost episodes over the 
percentage of such cases occurring at the agency for the 12-
month cost reporting period ending June 30, 1994. The Secretary 
would be required to define low-cost episode in a manner to 
assure that a home health agency has an incentive to be cost 
efficient in delivering services and that the volume of 
services does not increase as a result of factors other than 
patient needs.
      Reimbursements for exceptions to the per episode limits 
would be limited to aggregate payments made in FY 1994 adjusted 
for increases in the home health market basket.
      Separate Part B billings would be prohibited for any 
services covered under the per episode limit while the 
beneficiary is receiving home health services, and payment 
would have to be made to the home health agency, regardless of 
whether a service was provided by the agency, by others under 
arrangements with the agency, or under any other arrangement. 
Services would be excluded from coverage if not billed by the 
agency. Agencies would be required to bill prosthetics and 
orthotics furnished as part of a home health visit under Part 
B's prosthetics and orthotics fee schedule, just as durable 
medical equipment (DME) furnished by an agency as part of home 
health must now be billed under the fee schedules for DME.
      Home health coverage under Medicare Part A would be 
limited to 165 days per spell of illness. Visits beyond this 
limit would be reimbursed under Part B and the Secretary would 
be prohibited from including these costs in the calculation of 
the Part B premium.
      The Medicare Review Commission would be required to 
report on the effectiveness of the new payment system for each 
of the first three years of its operation. The Commission would 
also be required to make recommendations to Congress on (1) 
case-mix and volume increases, (2) quality monitoring of home 
health agency practices, (3) whether a capitated payment system 
for home health care patients using over 165 days of service is 
warranted; (4) whether public providers of service are 
adequately reimbursed; (5) the adequacy of the exemptions and 
exceptions to the limits; (6) the appropriateness of methods 
used to adjust the per episode limits and annual payment 
updates to reflect changes in the mix of services, number of 
visits, and assignment to case categories to reflect changing 
patterns of home health care; and (7) the geographic areas used 
to determine per episode limits.

Senate bill

      The proposal would establish a prospective payment system 
for home health services. This system would be based on 
prospectively determined per visit rates that are subject to 
per episode limits applied in the aggregate. The proposal would 
have the following specific components.
      Beginning in FY 1997, the Secretary would be required to 
establish national average per visit rates for each of the home 
health service disciplines covered under Medicare-- skilled 
nursing care, physical therapy, speech pathology, occupational 
therapy, medical social services, and home health aide 
services. For FY 1997, the per visit rates would be based on 
amounts paid during cost reporting periods ending June 30, 
1994. To reflect regional differences in the costs of providing 
services, the labor-related portion of the per visit rates 
would be adjusted by the hospital wage index. These adjusted 
per visit rates would be the amounts that home health care 
agencies would receive throughout the year for each of the 
particular mix of visits provided to a given home health care 
beneficiary.
      Per visit rates would be subject to a per episode limit. 
The Secretary would calculate separate per episode limits for 
each of 18 different case categories of home health care. These 
18 categories would be the same as those being used in HCFA's 
Phase II demonstration (or an alternative methodology developed 
by the Secretary), and would serve as a substitute for a true 
case-mix adjustment not yet available. The per episode limit 
for a category would cover all care provided to a beneficiary 
during a period of 120 days. No new episode of care would be 
recognized for reimbursement purposes until after a beneficiary 
has been discharged for a period of 60 days.
      The per episode limit would be calculated as follows. For 
each of the 18 case categories, the Secretary would determine 
the mean number of visits of each type of home health services 
furnished during a period of 120 days following the initial 
admission of the beneficiary to the case during the base year 
FY 1994. The Secretary would then multiply the results by the 
per visit payment rates for services. This would become the 
target per episode limit for a case. Calculation of per episode 
limits would be done on an areawide basis; for these purposes 
the area in which an agency is located would be determined 
according to the same metropolitan statistical area/rural 
classification system used for the hospital wage index.
      Each agency would be paid per visit payments throughout 
the year. At the end of the year, an agency's aggregate limit 
would be calculated by first multiplying the Secretary's 
regional target per episode limit for each of the 18 case 
categories times the number of episodes admitted by an agency 
to each of the 18 categories. The sum of these products becomes 
the agency aggregate payment limit.
      Total per visit payments to an agency would be compared 
with the aggregate payment limit, i.e. the mix of an agency's 
episodes times the per episode limits. For these purposes, all 
visits provided during the first 165 days of care per episode 
would be counted against an agency's aggregate limit. If total 
payments for the year are below the agency's aggregate payment 
limit, then agencies would be allowed to retain 50 percent of 
the difference, up to 5 percent of an agency's aggregate 
Medicare payments in a year. For agencies with aggregate 
payments over the limit, the Secretary would be required to 
reduce payments to agencies in the following fiscal year in a 
manner the Secretary considers appropriate (including on an 
installment basis).
      If a beneficiary continues to need home health visits 
after a period of 165 days, then an agency may request that 
additional payments be made on a per visit basis. These 
payments would not be subject to the aggregate limit. In order 
for fiscal intermediaries to approve such requests, agencies 
would be required to submit a physician's certification of the 
continuing need for care, as well as the reason for the need 
for additional visits, and a description of services to be 
furnished during the visits.
      Beginning in FY 1998, per visit payment rates would be 
updated annually by the greater of the home health market 
basket minus 2.5 percentage points, or 1.1 percent (1.2 percent 
in FY 1997). The Secretary would be required to rebase the per 
visit rates with the most recent available data at least once 
every 2 years beginning with FY 2000. Beginning in FY 1999, the 
Secretary would also be required to revise the mean number of 
visits in each case category to reflect the most recently 
available data on number of visits per episode. To deal with 
case-mix ``creep,'' the Secretary would also be required to 
adjust per episode limits for each of the fiscal years 1997-
2000 to assure that aggregate payments in a year do not exceed 
the previous year's payments because of changes in the number 
and type of home health visits within each episode. In 
subsequent years, the Secretary would be required to adjust the 
limits to remove the effects of case-mix increases due to 
reporting improvements instead of real changes in patients' 
resource usage.
      The Secretary would be required to implement a medical 
review process for the new payment system, giving particular 
attention to fiscal years 1997 and 1998. The purpose of the 
medical review process would be to assess patterns of care to 
assure that beneficiaries receive appropriate services under 
the new prospective payment system. Medical reviews would be 
required to focus on short stay cases and cases over 165 days. 
Recertification of the need for care would have to be done at 
30, 60, 90, 120, and 165 days of home health care. The 
Secretary could use public or private organizations to conduct 
medical reviews.
      The Secretary would be required make adjustments in 
payments to home health care agencies that circumvent the new 
payment system by discharging patients to another home health 
agency or similar provider; by altering corporate structure or 
name to avoid being subject to payment limits or for purposes 
of increasing Medicare payments; and by undertaking any other 
actions that are unnecessary for effective patient care and 
that are intended to maximize Medicare payments.
      The Secretary would be required to develop a system to 
track home health patients who receive care from more than one 
agency during an episode. For such situations, the Secretary 
would be required to adjust payments to assure that total 
amounts paid to these agencies do not exceed the payment that 
would otherwise have been made if the patient had completed the 
episode in a single agency.
      The Secretary would also be required to develop a system 
to adjust payments to agencies to eliminate any increase in 
growth in the percentage of low-cost episodes over the 
percentage of such cases occurring at the agency for the 12-
month cost reporting period beginning during FY 1994. For these 
purposes, the Secretary would be required to profile each 
agency to determine the distribution of all episodes by length 
of stay and define low-cost episodes as those at the 25th 
percentile. The Secretary would be required to define low-cost 
episode in a manner to assure that a home health agency has an 
incentive to be cost efficient in delivering services and that 
the volume of services does not increase as a result of factors 
other than patient needs.
      Reimbursements for exceptions to the per episode limits 
would be limited to aggregate payments made in FY 1994 adjusted 
for increases in the home health market basket.
      Separate Part B billings would be prohibited for any 
services covered under the per episode limit while the 
beneficiary is receiving home health services, and payment 
would have to be made to the home health agency, regardless of 
whether a service was provided by the agency, by others under 
arrangements with the agency, or under any other arrangement. 
Services would be excluded from coverage if not billed by the 
agency. Agencies would be required to bill prosthetics and 
orthotics furnished as part of a home health visit under Part 
B's prosthetics and orthotics fee schedule, just as durable 
medical equipment (DME) furnished by an agency as part of home 
health must now be billed under the fee schedules for DME.
      The Prospective Payment Assessment Commission would be 
required to report on the effectiveness of the new payment 
system for each of the first three years of its operation. The 
Commission would also be required to make recommendations to 
Congress on (1) case-mix and volume increases, (2) quality 
monitoring of home health agency practices, (3) whether a 
capitated payment system for home health care patients using 
over 165 days of service is warranted; (4) whether public 
providers of service are adequately reimbursed; (5) the 
adequacy of the exemptions and exceptions to the limits; (6) 
the appropriateness of methods used to adjust the per episode 
limits and annual payment updates to reflect changes in the mix 
of services, number of visits, and assignment to case 
categories to reflect changing patterns of home health care; 
and (7) the geographic areas used to determine per episode 
limits.

Conference agreement

      The conference agreement includes the Senate provision 
with amendments. Beginning in FY 1998, per visit payment rates 
would be updated annually by the home health market basket 
minus 2 percentage points. The Secretary would be required to 
rebase the per visit rates with the most recently available 
data at least once every 5 years for cost reporting periods 
beginning in FY 2000. Beginning in FY 1999, the Secretary would 
also be required to rebase at least once every 5 years the mean 
number of visits furnished during an episode for each case 
category to reflect the most recently available data. 
Recertification of the need for care would be have to done at 
60 and 165 days of care.

   2. maintaining savings resulting from temporary freeze on payment 
increase for home health services (sec. 15702 of house bill; sec. 7062 
                            of senate bill)

Current law

      Home health care agencies are currently reimbursed on the 
basis of reasonable costs, up to specified limits. Cost limits 
are determined separately for each type of covered home health 
service (skilled nursing care, physical therapy, speech 
pathology, occupational therapy, medical social services, and 
home health aide), and according to whether an agency is 
located in an urban or rural area. Costs limits, however, are 
applied to aggregate agency expenditures; that is, an aggregate 
cost limit is set for each agency that equals the limit for 
each type of service multiplied by the number of visits of each 
type provided by the agency. Limits for the individual services 
are set at 112 percent of the mean labor-related and nonlabor 
per visit costs for freestanding agencies. Cost limits are 
updated annually by applying a market basket index to base year 
data derived from home health agency cost reports. The labor-
related portion of a service limit is adjusted by the current 
hospital wage index.
      The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) 
required that there be no changes in home health cost limits 
(including no adjustments for changes in the wage index or 
other updates of data) for cost reporting periods beginning on 
or after July 1, 1994, and before July 1, 1996. The Secretary 
was also required, when granting or extending exceptions to 
cost limits, to limit any exception to the amount that would 
have been granted if there were no restriction on changes in 
the cost limits. OBRA 93 also repealed the requirement that 
additional payments be made to hospital-based home health 
agencies for costs attributable to excess overhead allocations, 
effective for cost reporting periods beginning on or after 
October 1, 1993.

House bill

      The provision would permanently extend the savings 
stream, but not the freeze, in setting future home health 
limits, by not allowing for the inflation that occurred during 
the freeze years.

Senate bill

      The provision would permanently extend the savings 
stream, but not the freeze, in setting future home health 
limits, by not allowing for the inflation that occurred during 
the freeze years.

Conference agreement

      The conference agreement includes the Senate provision.

3. extension of waiver of presumption of lack of knowledge of exclusion 
from coverage for home health agencies (sec. 15703 of house bill; sec. 
                          7063 of senate bill)

Current law

      When a provider furnishes services that are not covered 
under Medicare, the provider is not normally entitled to 
Medicare payment for those services. The program, however, has 
recognized that circumstances may exist where providers of 
services or beneficiaries could not have reasonably known that 
services would not be covered. Medicare has paid for a limited 
number of services which are not covered services, so long as 
it is determined that the provider or beneficiary did not know 
and could not reasonably have been expected to know that 
services would be uncovered. The provider is presumed not to 
know that coverage for certain services would be denied--it 
qualifies for a ``favorable presumption''--when its denial rate 
is below a certain level. With this favorable presumption, its 
liability for denied claims below the threshold is waived and 
it is paid for these claims. The provider receives waiver of 
liability protection for denied claims below the threshold.
      For home health agencies, waiver of liability protection 
is available for two separate categories of denials. One waiver 
applies to medical denials, i.e., to claims that are denied 
because the care was not medically necessary or was determined 
to be custodial in nature. Another waiver applies to services 
determined to be non-covered because the beneficiary was not 
homebound or did not require intermittent skilled nursing care. 
These are referred to as technical denials.
      For both categories, the principal criterion for meeting 
the favorable presumption test is a denial rate of 2.5 percent 
or less. Waiver of liability protection for both medical and 
technical denials expires December 31, 1995.

House bill

      Waiver of liability for home health agencies would be 
extended through September 30, 1996.

Senate bill

      Waiver of liability for home health agencies would be 
extended through September 30, 1996.

Conference agreement

      The conference agreement includes the Senate provision.

 4. report on recommendations for payments and certification for home 
  health services of christian science providers (sec. 15704 of House 
                                 bill)

Current law
      No provision.
House bill
      The Secretary would be required to submit recommendations 
to Congress, not later than July 1, 1996, on an appropriate 
methodology for making payments under the Medicare program for 
home health services furnished by Christian Science providers 
who meet applicable requirements of the First Church of Christ, 
Scientist, Boston, and appropriate criteria for certifying 
these providers.
Senate bill
      No provision.
Conference agreement
      The conference agreement includes the House provision 
with a modification to require that payments be made for home 
health services furnished by Christian Science providers. 
Providers must meet applicable requirements of the First Church 
of Christ, Scientist, and be certified under criteria 
established by the Secretary. Payments are to be made according 
to a methodology established by the Secretary. The provision is 
effective for services furnished during cost reporting periods 
which begin after the earlier of the date on which the 
Secretary establishes the payment methodology and certification 
criteria, or July 1, 1996.

5. extension of period of home health agency certification (sec. 15705 
                             of house bill)

Current law
      In order to determine compliance with requirements for 
participation, home health agencies must be subject to an 
unannounced standard survey that must be conducted not later 
than 15 months after the date of the previous standard survey. 
The average interval between standard surveys in a state must 
not exceed 12 months.
House bill
      The provision would require that standard surveys for 
home health agencies be conducted not later 36 months after the 
date of the previous standard survey. The Secretary would be 
required to establish a frequency within this 36-month interval 
commensurate with the need to assure the delivery of quality 
home health services.
Senate bill
      No provision.
Conference agreement
      The conference agreement includes the House provision.

                      B. medicare secondary payer

  1. extension and expansion of existing requirements (sec. 15711 of 
              house bill; sec. 7055(a)-(c) of senate bill)

Current law
      Generally Medicare is the ``primary payer,'' that is, it 
pays health claims first, with an individual's private or other 
public insurance filling in some or all of Medicare's coverage 
gaps. However, in certain instances, the individual's other 
coverage pays first, while Medicare is the secondary payer. 
This phenomenon is referred to as the MSP program. A group 
health plan offered by an employer (with 20 or more employees 
is required to offer workers age 65 or over (and workers 
spouses age 65 or over) the same group health insurance 
coverage as is offered to younger workers. If the worker 
accepts the coverage, the employer is the primary payer, with 
Medicare becoming the secondary payer
      Similarly, a group health plan offered by a large 
employer (100 or more employees) is the primary payer for 
employees or their dependents who are on the Medicare 
disability program. The provision applies only to persons 
covered under the group plan because the employee is in 
``current employment status'' (i.e. is an employee or is 
treated as an employee by the employer). The MSP provision for 
the disabled population expires October 1, 1998.
      The MSP provisions apply to apply to end-stage renal 
disease (ESRD) beneficiaries with employer group health plans, 
regardless of employer size. The group health plan is the 
primary payer for 18 months for persons who become eligible for 
Medicare ESRD benefits. The employer's role as primary payer is 
limited to a maximum of 21 months (18 months plus the usual 3-
month waiting period for Medicare ESRD coverage). The MSP 
provisions for the ESRD population expire October 1, 1998.
      The law authorizes a data match program which is intended 
to identify potential secondary payer situations. Medicare 
beneficiaries are matched against data contained in Social 
Security Administration (SSA) and Internal Revenue Service 
(IRS) files to identify cases in which a working beneficiary 
(or working spouse) may have employer-based health insurance 
coverage. Cases of previous incorrect Medicare payments are 
identified and recoveries are attempted. The authority for the 
program extends through Sept. 30, 1998.
House bill
      The provision would make permanent the MSP provisions for 
the disabled and the ESRD population. It would extend the 
period during which the employer group health plan is primary 
payer for an ESRD beneficiary from 18 to 24 months. The 
provision would also make permanent the data match requirement.
Senate bill
      The provision would make permanent the MSP provisions for 
the disabled and the ESRD population. It would extend the 
period during which the employer group health plan is primary 
payer for an ESRD beneficiary to 30 months. The provision would 
also make permanent the data match requirement.
Conference agreement
      The conference agreement includes the Senate provision.

            2. payment recoveries (sec. 15712 of house bill)

Current law
      Recent court action may lessen the effectiveness of the 
data match program. In many cases where recoveries are sought, 
claims have never been filed with the primary payer. 
Identification of potential recoveries under the data match 
process usually takes in excess of the time period most health 
plans allow for claims filing. Two May 1994 decisions by the 
U.S. Court of Appeals for the District of Columbia held certain 
portions of the MSP overpayment recovery procedures invalid. In 
particular, it held invalid provisions authorizing payment 
recoveries without regard to a health plan's timeliness 
requirements. The U.S. Supreme Court denied a HCFA petition to 
review the 1994 decisions.
House bill
      The provision would specifically permit MSP recoveries 
from third party administrators of health plans, except in 
cases of insolvency or bankruptcy of the employer or plan. It 
would also permit recovery actions up to three years from the 
date the item or service was furnished to the beneficiary.
Senate bill
      No provision.
Conference agreement
      The conference agreement includes the House provision.

  3. prohibition of retroactive application of policy regarding esrd 
 beneficiaries (sec. 15713 of house bill; sec. 7055(d) of senate bill)

Current law
      Medicare remains the primary payer if a group health plan 
was already secondary for an individual entitled on the basis 
of age or disability when the individual becomes entitled on 
the basis of ESRD. Following enactment of OBRA 93, HCFA stated 
that the private plan would become primary in such cases. On 
April 24, 1995, HCFA corrected its construction of the statute; 
it issued guidelines stating that Medicare remains the primary 
payer in these cases.
House bill
      The provision would specify that the policy change 
specified in the April 24, 1995 HCFA guidelines would only 
apply with respect to items and services furnished on or after 
such date.
Senate bill
      The provision would prohibit a retroactive application of 
the policy. In the event age-based or disability-based Medicare 
entitlement preceded ESRD-based eligibility, Medicare would be 
the secondary payer for the period August 10, 1993 to April 24, 
1995.
Conference agreement
      The conference agreement does not include either 
provision.

                 c. failsafe (sec. 15721 of house bill)

Current law
      Although the Federal Government is required by law to pay 
Medicare claims on behalf of eligible participants, total 
Medicare spending is limited in two ways: (1) by availability 
of reserves in the Medicare trust funds; and (2) by provisions 
of OBRA of 1990, P.L. 101-508. These limitations are intended 
to set ongoing aggregate limits on spending, not to regulate 
the annual rate of growth in Medicare.
      Limitation created by trust fund reserves. Part A claims 
for hospitalization are paid from the Hospital Insurance (HI) 
Trust Fund. Part B claims for physicians' services are paid 
from the Supplementary Medical Insurance (SMI) Trust Fund. 
These two trust funds are accounting devices by which the 
Government determines the extent to which spending on Medicare 
claims is authorized without new legislation or appropriations. 
Trust fund balances represent spending authority. An insolvency 
in either fund would force a stoppage in Government 
reimbursement for Medicare claims until the fund had accrued 
new credits.
      The sources of trust fund credits are: (1) payroll tax 
revenue; (2) enrollee premiums; (3) Government general fund 
contributions; and (4) interest on Government debt held by the 
funds. The earmarked revenue for the HI fund comes from a 
payroll tax of 1.45 percent applicable to both employees and 
employers. The SMI fund is credited with monthly premium 
payments made by Part B enrollees (currently $46.10 a month) 
and transfers of general Government funds. The HI fund is 
projected to be depleted in FY 2002. The SMI fund will not be 
depleted, however, since general fund transfers are credited 
each year in amounts sufficient to maintain the fund's 
solvency.
      Limitation created by OBRA of 1990. A provision in OBRA 
of 1990 requires that legislated increases in entitlement 
spending and decreases in revenue be offset by entitlement 
decreases and/or revenue increases on a pay-as-you-go (PAYGO) 
basis. A violation of PAYGO rules can trigger sequestration, a 
process by which all budget accounts subject to sequestration 
are reduced by the percentage necessary to make up any spending 
overrun or revenue shortfall. However, the law limits the 
sequestration percentage that can be applied to Medicare 
benefits to 4.0 percent or less. These budget rules apply 
through FY 1998.
      Sequestration has not occurred because of a PAYGO 
violation, but OBRA of 1990 restricted increases in certain 
Medicare payment rates beginning in FY 1991 as part of the 
budget agreement set forth by that law. Sequestration did occur 
in FY 1988 under an earlier law, the Balanced Budget and 
Emergency Deficit Control Reaffirmation Act of 1987 (P.L. 100-
119). The sequestration percentage applied to Medicare spending 
was 2.0 percent, the maximum allowed for Medicare under that 
law. It was achieved by reducing payment rates for covered 
services.
House bill

                 1. recommendation of spending controls

      A new section 1895 would be added to Title XVIII of the 
Social Security Act to provide a ``failsafe budget mechanism'' 
by which certain Medicare spending would be reduced 
automatically if it were anticipated that spending would exceed 
budget targets during the next fiscal year.

                           2. effective date

      The failsafe budget mechanism would be effective for FY 
1998 and all subsequent fiscal years.

               3. expenditure measure subject to control

      The failsafe budget mechanism would apply to both Parts A 
and B of Medicare, but only to fee-for-service expenditures. 
Distinct limits would be specified for the following fee-for-
service sectors: inpatient hospital services; home health 
services; extended care services; hospice care; physicians' 
services; outpatient hospital services and ambulatory facility 
services; durable medical equipment and supplies; diagnostic 
tests; and other items and services. The Secretary of Health 
and Human Services would classify each item and service paid 
for separately by Medicare into one of these sectors by Oct. 1, 
1996.

                       4. maximum spending levels

a. Overall spending level
      The total Medicare budget allotment for a fiscal year 
would equal the Medicare benefit budget less the payments the 
Secretary estimates would be made under MedicarePlus (the new 
Part C). The Medicare benefit budget would be set forth in law 
as follows:

                        [In billions of dollars]

  Fiscal year:                                            Benefit budget
    1997.......................................................... 208.0
    1998.......................................................... 217.1
    1999.......................................................... 228.4
    2000.......................................................... 246.4
    2001.......................................................... 265.5
    2002.......................................................... 288.0

      The benefit budget for a subsequent fiscal year would 
equal the benefit budget for the preceding fiscal year 
increased by the product of: (1) 1.05; and (2) 1.0 plus the 
annual percentage increase in the average number of Medicare 
beneficiaries in a subsequent fiscal year compared to the 
preceding fiscal year.
b. Limit by Sector
      The budget allotment for a sector for a fiscal year would 
be determined by multiplying the total fee-for-service 
allotment for that year by an allotment proportion for each 
sector. This proportion would equal the ratio of (1) the 
baseline projection of expenditures for the sector for the year 
to the sum of all such baseline expenditures for all sectors 
for that year. Baseline projections would be determined by 
applying annual growth rates for each sector, as specified in 
the new law, to the prior year's baseline expenditure for the 
sector. Baseline projections for FY 1996 would equal actual FY 
1995 expenditures increased by the appropriate growth rate. In 
subsequent years, baseline projections would be determined by 
applying annual growth rates for each sector, as specified in 
the new law, to the prior year's baseline expenditure for each 
sector. These fiscal year growth rates (expressed in percents) 
are specified as follows:

----------------------------------------------------------------------------------------------------------------
                         Sector                            1996    1997    1998    1999    2000    2001    2002 
----------------------------------------------------------------------------------------------------------------
Inpatient care..........................................     5.7     5.6     6.0     6.1     5.7     5.5     5.2
Home health care........................................    17.2    15.1    11.7     9.1     8.4     8.1     7.9
Extended care...........................................    19.7    12.3     9.3     8.7     8.6     8.4     8.0
Hospice care............................................    32.0    24.0    18.0    15.0    12.0    10.0     9.0
Physician services......................................    12.4     9.7     8.7     9.0     9.3     9.6    10.1
Outpatient services.....................................    14.7    13.9    14.5    15.0    14.1    13.9    14.0
Durable equipment and supplies..........................    16.1    15.5    13.7    12.4    13.2    13.9    14.5
Diagnostic tests........................................    13.1    11.3    11.0    11.4    11.4    11.5    11.9
Other items and services................................    11.2    10.2    10.9    12.0    11.6    11.6    11.8
----------------------------------------------------------------------------------------------------------------

      The growth rates shown above for FY 2002 would also apply 
to subsequent years.
      In providing for adjustments to Medicare payments for a 
particular sector, the Secretary would be required to take into 
account the impact of the adjustment on the volume or type of 
services provided in that sector and any delays in payments 
from one year to the next that might be expected in that 
sector.

                    5. Lookback Spending Adjustment

      If the actual fee-for-service expenditures for a sector 
were to exceed the total allotments for the second preceding 
year, then the sector's allotment would be reduced for the next 
fiscal year by 133\1/3\ percent of the excess amount. Should 
spending in the second preceding year fall below a sector's 
allotment for that year, the excess allotment could be added to 
the allotment for the next fiscal year. These adjustments would 
be made after adjusting the prior-year allotments to reflect 
actual Part C expenditures for the second preceding year.

                   6. Method for Spending Reductions

      If the Secretary determines that expenditures for a 
sector for a fiscal year would exceed the sector's budget 
allotment for that year, then Medicare payment rates applicable 
to that sector would be adjusted so that expenditures would be 
reduced by 133\1/3\ percent of the amount of the excess. The 
Secretary would be required to publish the size of any 
necessary adjustments and the methodology to be used by May 15 
preceding the fiscal year in question. A final determination on 
adjustments would have to be published by September 1 prior to 
that year.

                     7. Congressional Modification

      If the President submits a legislative proposal to revise 
the baseline annual growth rates specified for fee-for-service 
sectors, Congress would be required to consider the proposal 
under an expedited procedure. Passage of a joint resolution of 
approval would be required within 60 days of submittal for the 
changes to become law. Procedure for consideration of a joint 
resolution would be the same as that used under the Defense 
Base Closure and Realignment Act of 1990.

                          8. Required Reports

      Beginning with the budget documents for FY 1999, the 
President's Budget would be required to include information on 
actual Medicare fee-for-service expenditures by sector for the 
second preceding year, with a comparison to the corresponding 
Medicare benefit budget and sector allotments. Data on actual 
annual growth rates for each fee-for-service sector would also 
be required.
      Annual reports of the Trustees on Part A of Medicare 
would be required to include information on the annual rate of 
program expenditures that would maintain the solvency of the 
trust fund and the extent to which the failsafe budget 
mechanism restrained the expenditure growth rate.
      Beginning in 1997, the Medicare Payment Review Commission 
would be required to submit by March 1 of each year a report 
analyzing the past operation of the failsafe mechanism and 
making recommendations with respect to its application to the 
following fiscal year.

Senate bill

      No provision.

Conference agreement

                 1. Recommendation of Spending Controls

      The conference agreement includes the House provision.

                           2. Effective Date

      The conference agreement includes the House provision.

               3. Expenditure Measure Subject to Control

      The conference agreement includes the House provision.

                       4. Maximum Spending Levels

a. Overall spending level

      The conference agreement includes the House provision 
with a modification to set the levels as follows:

                                                          Benefit budget
        Fiscal year                                         ($ billions)
1998.............................................................. 217.8
1999.............................................................. 229.2
2000.............................................................. 247.2
2001.............................................................. 266.4
2002.............................................................. 289.0
b. Limit by sector
      The conference agreement includes the House provision 
with an amendment. The limit would be applied in the aggregate, 
with cuts applied proportionately to excess spending sectors. 
modification to apply the limit in the aggregate.

                    5. Lookback Spending Adjustment

      The conference agreement replaces the House provision 
with the new provision described below.
      Beginning in FY 1998, if the fee-for-service expenditures 
for all sectors for the second preceding fiscal year are 
estimated to exceed the total adjusted allotments for that 
year, then the current year's allotment for each sector with 
excess spending would be reduced by the ``sector reduction 
amount.'' This sector reduction amount is defined as the 
product of: (1) the amount of excess spending for a sector and 
year; and (2) the ratio of (a) the net excess spending for all 
fee-for-service sectors to (b) the gross sum of excess spending 
in only those sectors with excess spending.
       These lookback adjustments would be made after adjusting 
the original allotments to reflect actual Part C expenditures 
in the second preceding fiscal year.

                   6. Method for Spending Reductions

      The conference agreement includes the House provision 
with the following modification. Instead of reducing an excess 
spending sector's payment rates to reduce spending by 133\1/3\ 
percent of the estimated excess spending amount, the sector's 
payment rates would be modified to achieve a 133\1/3\ percent 
reduction of that sector's ``reduction target.'' A sector's 
``reduction target'' is defined as the product of: (1) the 
amount of excess spending for the sector in the fiscal year; 
and (2) the ratio of (a) net excess spending for all fee-for-
service sectors, to (b) the gross sum of excess spending 
amounts for only those sectors with excess spending in the 
fiscal year.

                          7. Required Reports

      The conference agreement includes the House provision.

      D. Administrative Simplification (Sec. 15731 of House bill)

Current law
      No provision.
House bill
      The provision would provide for the adoption of standards 
for Medicare information transactions and data elements. The 
Secretary would be required to adopt standards which were 
consistent with reducing administrative costs and which were 
developed or modified by a standard setting organization 
accredited by the American National Standards Institute. The 
Secretary could adopt or modify a standard relating to data 
elements that was different from such standard if, compared to 
the alternative, it would substantially reduce administrative 
costs to providers and health plans and it was promulgated in 
accordance with Federal rule making procedures.
      The provision would require each person who maintains or 
transmits Medicare information or data elements to maintain 
reasonable and appropriate administrative, technical, and 
physical safeguards to: (i) ensure integrity and 
confidentiality of information; and (ii) protect against any 
reasonably anticipated threats or hazards to security or 
unauthorized uses or disclosures.
      The Secretary would be required to establish security 
standards and modifications to those standards that take into 
account technical capability of record systems, costs of 
security measures, need for training personnel who have access 
to information, and the value of audit trails. The standards 
would assure that a Medicare information network service that 
was part of a larger organization had policies which isolated 
its activities. Security standards would be based on those 
developed by standard setting organizations or, if such 
standards do not exist, by the Medicare Information Advisory 
Committee. The Secretary would be required to establish 
specifications for implementing each of the standards and 
modifications. The Secretary would rely on the recommendations 
of the Medicare Information Advisory Committee and consult with 
appropriate Federal and State agencies and private 
organizations. The Secretary would publish the recommendations 
of the Advisory Committee in the Federal Register.
      The Secretary would be required to adopt standards for 
transactions and data elements to make Medicare information 
uniformly available to be exchanged electronically. The 
standards would provide for unique health identifiers for each 
individual, plan, employer, and provider. Penalties would be 
imposed for improper disclosure of this number. In addition, 
the Secretary would: (i) provide for the establishment of code 
sets in consultation with the Medicare Information Advisory 
Committee and other experts; (ii) promulgate regulations 
specifying procedures for the electronic transmission and 
authentication of signatures; (iii) develop rules for transfer 
of information between health plans needed for coordination of 
benefits; and (iv) develop further transaction standards if, 
after 5 years, they were deemed necessary for coordination of 
benefits. The provision would provide for protection of trade 
secrets.
      The provision would require the development of the 
standards within 18 months of enactment. Additional or modified 
standards could be adopted not more than once every 12 months. 
Additions or modifications would be completed in a manner that 
minimized disruption and cost of compliance. Health plans would 
be required to conduct standard transactions in a timely manner 
and comply with transaction and data element standards within 
24 months of adoption. Compliance with any modified standards 
would be required within an appropriate period but not less 
than 180 days after adoption of the modified standard. 
Penalties would be established for failure to comply with 
requirements and standards.
      The provision would supersede any contrary provision of 
state law unless the Secretary determined that the provision of 
State law should be continued for any reason including for 
reasons relating to prevention of fraud and abuse or regulation 
of controlled substances.
      The provision would establish a Medicare Information 
Advisory Committee to advise the Secretary in development of 
standards and to advise the Secretary and the Congress on the 
status and future of the Medicare information network. The 
Committee would be composed of 9 members--three appointed by 
the President, three appointed by the Speaker of the House, and 
three by the President pro tempore of the Senate. The Committee 
would be required to submit an annual report to the Congress 
which would include information on the extent to which entities 
using the Medicare information network were meeting the 
standards, forming an integrated network, and meeting security 
standards.
Senate bill
      No provision.
Conference agreement
      The conference agreement includes the House provision 
with an amendment. The provision is incorporated in the new 
title C, MedicarePlus. The requirements apply to Medicare Plus 
and Medicare information and the advisory committee is the 
Medicare Plus and Medicare Advisory Committee. The National 
Council for Prescription Drug Program is an approved Standard 
Setting Organization.

              E. Other Provision Relating to Parts A and B

1. Clarification of Medicare Coverage of Items and Services Associated 
  with Certain Medical Devices Approved for Investigational Use (Sec. 
                          15741 of House bill)

Current law
      Medicare law does not provide an all-inclusive list of 
specific items, services, treatments, procedures, or 
technologies covered by the program. The law, however, provides 
that no payment may be made for any expenses which are not 
reasonable and necessary for the diagnosis or treatment of 
illness. While HCFA has not explicitly defined ``reasonable'' 
and ``necessary'' for purposes of making decisions about the 
appropriateness of Medicare's coverage for specific services 
and items, it has applied a general policy that services be 
safe and effective and not experimental or investigational. In 
1994, HCFA clarified its coverage policy to prohibit coverage 
and payment of services associated with the use of 
investigational devices.
House bill
      The provision specifies that nothing in Medicare law 
could be construed as prohibiting coverage of items and 
services associated with the use of a medical device in the 
furnishing of inpatient hospital services (including outpatient 
diagnostic imaging services) on the grounds that the device is 
not an approved device if (1) the device is an investigational 
device; and (2) the device is used instead of an approved 
device or a covered procedure. The amount of payment for items 
and services associated with the use of investigational devices 
in inpatient hospital services could not exceed the amount that 
Medicare would have paid if the item or service were associated 
with an approved device. The provision would define approved 
device as a medical device which has been approved for 
marketing under pre-market approval or cleared for marketing 
under the Federal Food, Drug, and Cosmetic Act. An 
investigational device would be defined as a medical device 
approved for investigational use under the Food, Drug, and 
Cosmetic Act.
Senate bill
      No provision.
Conference agreement
      The conference agreement does not include the House 
provision.

 2. Additional Exclusion from Coverage (Sec. 15742 of House bill; Sec. 
                          7056 of Senate bill)

Current law
      Medicare excludes coverage for certain defined items and 
services.
House bill
      The provision would exclude Medicare coverage for 
expenses associated with items or services or the purchase of 
health benefit coverage used for the purpose of causing, or 
assisting in causing, the death, suicide, euthanasia, or mercy 
killing of a person.

Senate bill

      The provision would exclude Medicare coverage for 
expenses associated with items or services or the purchase of 
health benefit coverage used for the purpose of causing, or 
assisting in causing, the death, suicide, euthanasia, or mercy 
killing of a person. Medicare's requirements for providers to 
maintain policies and procedures for advance directives would 
be amended to specify that no health care provider or employee 
of a health care provider could be required to inform or 
counsel a patient regarding assisted suicide, euthanasia, mercy 
killing, or other service which purposefully causes the death 
of a person.

Conference agreement

      The conference agreement does not include either 
provision. It is the conferees' intent that, notwithstanding 
any other provision of Medicare, no payment may be made under 
Part A or Part B for any expenses incurred for items or 
services where such expenses are for items or services, or to 
assist in the purchase, in whole or in part, of health benefit 
coverage that includes items or services, for the purpose of 
causing, or assisting in causing, the death, suicide, 
euthanasia, or mercy killing of a person.

           3. Competitive Bidding (Sec. 15743 of House bill)

Current law

      No provision.

House bill

      The Secretary would be required to operate over a 2-year 
period a demonstration project in two geographic regions under 
which payments for a selected item or service (other than 
clinical diagnostic laboratory tests) would be made according 
to a competitive bidding process. The competitive bidding 
process used in the demonstration would be required to meet 
requirements imposed by the Secretary to ensure the cost-
effective delivery of items and services of high quality. The 
Secretary would be required to select items and services for 
the demonstration that would be appropriate and cost-effective, 
and in determining which items and services to select, the 
Secretary would be required to consult an advisory taskforce 
which includes representatives of providers and suppliers of 
items and services in each geographic region in which the 
project would be effective.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

  4. Disclosure of Criminal Convictions Relating to Provision of Home 
               Health Services (Sec. 15744 of House bill)

Current law

      No provision.

House bill

      The Secretary and each State or local survey agency or 
other State agency responsible for monitoring compliance of 
home health agencies with requirements for participation would 
be required to make available, upon request of any person, 
information the Secretary or agency has on individuals who have 
been convicted of felonies relating to the provision of home 
health services.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

5. Requiring Renal Dialysis Facilities to Make Services Available on a 
                24-Hour Basis (Sec. 15745 of House bill)

Current law

      Medicare covers persons who suffer from end-stage renal 
disease. Facilities providing dialysis services must meet 
certain requirements.

House bill

      Renal dialysis facilities would be required to make 
institutional dialysis services and supplies available on a 24-
hour basis (either directly or through arrangements with 
providers of services or other renal dialysis facilities) and 
would be required to inform patients about arrangements with 
other providers.

Senate bill

      No provision.

Conference agreement

      The conference agreement does not include the House 
provision.

   6. Indian Health Service Facilities (Sec. 7057(a) of Senate bill)

Current law

      Indian Health Service (IHS) facilities are eligible for 
Medicare payments for services provided to Medicare 
beneficiaries.

House bill

      No provision.

Senate bill

      The provision clarifies that nothing in the bill can be 
interpreted as meaning any change in Medicare payment to 
eligible IHS facilities.

Conference agreement

      The conference agreement includes the Senate provision.

 7. Sense of the Senate Regarding Coverage for Treatment of Breast and 
       Prostate Cancer under Medicare (Sec. 7058 of Senate bill)

Current law

      No provision.

House bill

      No provision.

Senate bill

      The provision sets forth the sense of the Senate that 
Medicare should not discriminate among breast and prostate 
cancer victims by providing drug treatment coverage for some 
but not all such cancers, and that the budget reconciliation 
conferees should amend Medicare to provide coverage for these 
important cancer drug treatments.

Conference agreement

      The conference agreement includes the Senate provision 
with a modification. Under the modification, Medicare coverage 
is authorized for a self-administered oral drug prescribed for 
use as an anticancer nonsteroidal antiestrogen for treatment of 
breast cancer. Coverage is only authorized if the manufacturer 
of the drug has a rebate agreement with the Secretary under 
substantially similar terms and conditions as apply to Medicaid 
rebate agreements on the date of enactment.

         Subtitle I--Clinical Laboratory Improvement Amendments

 1. Exemption of Physicians' Office Laboratories (Sec. 15801 of House 
                                 bill)

Current law

      The Clinical Laboratory Improvement Amendments of 1988 
(CLIA 88) significantly strengthened Federal regulation of 
laboratories and expanded Federal oversight to virtually all 
labs in the country, including physicians' office laboratories. 
All labs are required to register with DHHS. Labs performing 
only simple tests receive a certificate of waiver. Other labs 
(performing moderate complexity and/or high complexity testing) 
must meet performance standards issued by the Secretary.
      A special category of tests, physician performed 
microscopy procedures, was established in 1993. This category 
was expanded and renamed provider-performed microscopy 
procedures earlier this year. These are specified procedures 
which are personally performed by physicians, dentists, and 
certain mid-level personnel; the procedures must be performed 
on specimens derived from their patients as part of a physical 
examination and evaluation. The tests are labelled moderate 
complexity; however, physicians (or other personnel) performing 
only these tests and waivered tests are not subject to routine 
inspections, though most other moderate complexity requirements 
continue to apply.

House bill

      The provision would exempt a clinical laboratory in a 
physician's office from the CLIA requirements. Exempted labs 
would be those in the office of a physician (including an 
office of a group of physicians) which is directed by a 
physician. The examinations and procedures must be performed by 
a physician or by individuals supervised by a physician solely 
as an adjunct to other services provided by the physician's 
office.
      A clinical office laboratory would not be exempt from 
CLIA when it performed Papanicolaou (PAP) Smears.

Senate bill

      No provision.

Conference agreement

      The conference agreement includes the House provision.

Subtitle J--Lock Box Provisions for Medicare Part B Savings From Growth 
                               Reductions

1. Treatment of Part B Savings (Sec. 15901 of House bill; Sec. 7172 of 
                              Senate bill)

Current law

      No provision.

House bill

      a. Authorize New Trust Fund. A new Sec. 1841 would be 
added to Title XVIII, Part B of the Social Security Act. It 
would establish a Federal Medicare Growth Reduction Trust Fund 
under the Department of the Treasury. The new fund would be 
authorized to receive gifts, bequests, and appropriations.
      b. Appropriations of Part B Savings. The Secretary of the 
Treasury would transfer from the general fund to the Federal 
Medicare Growth Reduction Trust Fund amounts equal to all 
Medicare savings estimated to result from the provisions of 
OBRA of 1995.
      c. Authorization of Spending From Fund. Effective in FY 
2003, funds could be spent from the new trust fund to pay 
obligations of the Medicare program, but these trust fund 
outlays would be limited to amounts authorized in advance by 
Congress through legislative action.

Senate bill

      a. Authorize New Trust Fund. No provision.
      b. Appropriations of Part B Savings. The Secretary of the 
Treasury would transfer from the general fund to the HI Trust 
Fund amounts equal to certain Medicare savings under OBRA of 
1995. The savings eligible for this transfer would be those 
resulting from changes to: the Part B deductible, the part B 
premium, and the part B premium for high-income individuals.
      c. Authorization of Spending From Fund. No provision.

Conference agreement

      a. Authorize New Trust Fund.
      The conference agreement does not include the House 
provision.
      b. Appropriations of Part B Savings.
      The conference agreement includes the Senate provision 
with a modification. The amount of the difference between the 
premium set at 31.5% of program costs and an amount equal to 
25% of program costs would be transferred to the HI Trust Fund. 
Monies derived from additional income-related premium amounts 
would also be transferred to the HI Trust Fund. In addition, 
the reference to the Part B deductible is struck.
      c. Authorization of Spending From Fund.
      The conference agreement does not include the House 
provision.

 2. Nondischargeability of Certain Medicare Debts (Sec. 7171 of Senate 
                                 bill)

Current law

      No provision.

House bill

      No provision.

Senate bill

      Section 523(a) of Title 11, U.S. Code, which concerns the 
discharging of individual debt during a bankruptcy proceeding, 
would be amended. The amendment would not allow a discharging 
of debt owed by a health care provider or supplier because of 
an overpayment to that provider or supplier from the HI Trust 
Fund or the SMI Trust Fund.

Conference agreement

      The conference agreement does not include the Senate 
provision.

            TITLE IX--TRANSPORTATION AND RELATED PROVISIONS

                Minimum Allocation for Highway Programs

Current law

      The minimum allocation program guarantees that a State 
will receive at least 90 percent of the percent of its 
contribution to the Federal aid highway program in the Highway 
Account of the Highway Trust Fund. Less minimum allocation 
program funds will be needed in fiscal year 1996 than were 
necessary in fiscal year 1995 because of changes enacted under 
the 1991 Intermodal Surface Transportation Efficiency Act 
(ISTEA). As provided by ISTEA, the Interstate Construction and 
Interstate Transfer program end in fiscal year 1995 and a new 
category, Reimbursement, begins in fiscal year 1996. This will 
reduce the amount of money required in the minimum allocation 
category. This change occurs because fewer states need money 
and some states need less money in the minimum allocation 
program to receive a 90 percent return from the program 
compared to the revenues they contribute to the Highway Trust 
Fund.

House bill

      House bill had no provision on the minimum allocation 
program.

Senate amendment

      The Senate amendment reduces minimum allocation funds 
that are not needed in fiscal year 1996. Sufficient funds are 
provided to meet minimum allocation requirements under ISTEA. 
The balance that is not needed is applied to reconciliation 
savings. The minimum allocation reduction produces an estimated 
$512 million in savings over the period fiscal year 1996 
through fiscal year 2002.
      Savings in the minimum allocation program occur in fiscal 
year 1996 on a one-time basis only. The savings are not a 
result of any reduction in minimum allocation funds to which 
states are entitled.
      The ISTEA and previous surface transportation acts have 
exempted the minimum allocation program from other controls on 
highway spending because the program is designed to bring some 
equity to the apportionment formulas. This section does not 
implement any limitation on the minimum allocation program in 
fiscal year 1996 or in any future year. Any State that is 
eligible to receive funding under the minimum allocation 
category is assured that sufficient funds are available to 
provide the full amount due each State.

Conference agreement

      The Conference agreement includes the Senate amendment.

               Extension of Higher Vessel Tonnage Duties

Current law

      The United States imposes a tonnage duty on a vessel that 
enters the United States from any port or place. The duty is 
also imposed on a vessel that departs from and returns to a 
U.S. port or place on a ``voyage to nowhere''.
      The tonnage duty is imposed on the cargo-carrying 
capacity of the vessel and is assessed regardless of whether 
the vessel is empty or is carrying cargo.
      A vessel arriving from a foreign port in the northern 
Western Hemisphere--Canada, Mexico, Central America--and a 
vessel returning from a ``voyage to nowhere'' must pay a 
tonnage duty of 9 cents per ton. However, the maximum payment 
for any vessel in a single year is 45 cents per ton.
      A vessel arriving from a foreign port anywhere else in 
the world must pay a tonnage duty of 27 cents per ton, not to 
exceed $1.35 per ton in a single year.
      Under current law, after fiscal year 1998, the tonnage 
duties will revert to earlier, lesser amounts--2 cents per ton, 
not to exceed 10 cents per ton in a single year for vessels 
entering from the northern Western Hemisphere and from 
``voyages to nowhere''--6 cents per ton, not to exceed 30 cents 
per ton for other vessels subject to the duty.

House bill

      The House bill maintains the current level of vessel 
tonnage duties through fiscal year 2002.

Senate amendment

      The Senate amendment did not contain a similar provision.

Conference agreement

      The conference agreement includes the House language.

             FEMA Radiological Emergency Preparedness Fees

Current law

      Under Public Law 96-295, the Congress established 
emergency planning and preparedness as new legal basis for 
licensing of commercial nuclear power plants. The Federal 
Emergency Management Agency (FEMA) Radiological Emergency 
Preparedness (REP) Program was created to ensure that 
communities in close proximity to commercial nuclear power 
plants are prepared in the event of radiological emergencies at 
the facilities. The REP Program consists of research 
development and training exercises which are designed to 
prevent emergency occurrences and to improve community and 
facility response plans. In March of 1995, in response to a 
directive in the fiscal year 1993 VA-HUD Independent Agencies 
Appropriations Act, FEMA developed final regulations for the 
assessment and collection of fees to cover the costs associated 
with the development of community radiological emergency 
response plans and other related features of the REP Program. 
The collection of fees has been directed on a year-by-year 
basis.

House bill

      The House bill places in statute authority for FEMA to 
collect fees from licensees of commercial nuclear power plants 
to recover costs associated with the REP Program. The authority 
is extended through fiscal year 2002.

Senate amendment

      The Senate amendment contained a similar provision, 
except that the authorization to collect fees was extended 
through fiscal year 2005.

Conference agreement

      The conference agreement accepted the House language. The 
fees established shall be fair and equitable and shall reflect 
the full amount of FEMA's costs of providing radiological 
emergency services.

                TITLE X--VETERANS AND RELATED PROVISIONS

             Subtitle A--Extension of Temporary Authorities

AUTHORITY TO REQUIRE THAT CERTAIN VETERANS MAKE CO-PAYMENTS IN EXCHANGE 
                   FOR RECEIVING HEALTH-CARE BENEFITS

Current law

      Section 1710 of title 38, United States Code, as amended 
by section 8013 of the Omnibus Budget Reconciliation Act of 
1990, Public Law 101-508 (OBRA 90), provides that, in addition 
to already existing copayment obligations (enacted in Public 
Law 99-272), certain veterans would be required to make per 
diem payments of $10 for hospital care provided by the 
Department of Veterans Affairs (VA) and $5 for nursing home 
care. That per diem copayment provision, which would have 
expired under OBRA 90 on September 30, 1997, was extended 
through September 30, 1998, by section 12002 of the Omnibus 
Budget Reconciliation Act of 1993, Public Law 103-66 (OBRA 93).
      Section 1722A of title 38 (a) requires a veteran (other 
than a veteran who has a service-connected disability rated 50 
percent or more or whose income is at or below the maximum 
annual rate of VA pension) to pay $2 for each 30-day supply of 
a medication furnished on an outpatient basis; (b) prohibits a 
reduction in the amount of the co-payment if the initial amount 
of medication is less than a 30-day supply; (c) states that VA 
may not require a veteran to pay a copayment which exceeds the 
cost to VA of the prescription medication in question; and (d) 
requires that amounts collected under this authority be 
credited to VA's Medical Care Cost Recovery Fund. This 
provision, which would have expired under OBRA 90 on September 
30, 1997, was extended through September 30, 1998, by section 
12002 of OBRA 93.

House bill

      Section 11011 would extend for four years, through 
September 30, 2002, the OBRA 90 per diem copayment 
requirements, and VA's authority to collect medication 
copayments from certain veterans.

Senate amendment

      Section 11011 would extend for four years, through 
September 30, 2002, the OBRA 90 authority for VA to collect 
medication copayments from certain veterans.

Compromise agreement

      Section 10011 follows section 11011 the House bill.
      According to CBO, the enactment of section 10011 would 
result in savings of $120 million in outlays over fiscal years 
1996-2000, and in savings of $255 million in outlays over 
fiscal years 1996-2002.

                  MEDICAL CARE COST RECOVERY AUTHORITY

Current law

      Section 1729(a) of title 38 authorizes VA to collect from 
a health care payment plan the reasonable cost of medical care 
furnished for a non-service-connected disability of a veteran 
who has a service-connected disability and who is entitled to 
non-VA care (or payment of the costs associated with receiving 
non-VA care) under the health care payment plan. This provision 
was initially enacted as section 8011 of OBRA 90 and would have 
expired, under OBRA 90, on October 1, 1993. Section 12003 of 
OBRA 93 extended the expiration date of this provision to 
October 1, 1998. That date is codified at section 1729(a)(2)(E) 
of title 38.

House bill

      Section 11012 would extend for four years, through 
September 30, 2002, VA's authority to collect from a health 
care payment plan the reasonable cost of medical care furnished 
to a veteran who has a service-connected disability for 
treatment of a non-service-connected disability.

Senate amendment

      Section 11012 contains a substantially identical 
provision.

Compromise agreement

      Section 10012 contains this provision.
      According to CBO, the enactment of section 10012 would 
result in savings of $405 million in outlays over fiscal years 
1996-2000, and in savings of $855 million in outlays over 
fiscal years 1996-2002.

                     INCOME VERIFICATION AUTHORITY

Current law

      Section 5317 of title 38, and section 6103 of the 
Internal Revenue Code, 26 U.S.C. Sec. 6103, authorize VA to 
verify the eligibility of recipients of, or applicants for VA 
need-based benefits and VA ``means-tested'' medical care by 
gaining access to income-relevant records of the Department of 
Health and Human Services/Social Security Administration (SSA) 
and Internal Revenue Service (IRS). These provisions were 
initially enacted as section 8051 of OBRA 90 and would have 
expired, under OBRA 90, on September 30, 1997. Section 12004 of 
OBRA 93 extended these provisions to September 30, 1998.

House bill

      Section 11013 would extend for four years, through 
September 30, 2002, VA's authority under section 5317 of title 
38 to verify income data furnished to VA by gaining access to 
income relevant records of the IRS and SSA.

Senate amendment

      Section 11014 contains a substantially identical 
provision, except that it also extends section 6103 of the 
Internal Revenue Code.

Compromise agreement

      Section 10013 follows section 11013 of the House bill. 
The Committees note that the title of this Reconciliation 
compromise pertaining to the Internal Revenue Code contains a 
provision extending section 6103 of the Internal Revenue Code.
      According to CBO, the enactment of section 10013 would 
result in savings of $42 million in outlays over fiscal years 
1996-2000, and in savings of $140 million in outlays over 
fiscal years 1996-2002.

   LIMITATION ON PENSION FOR CERTAIN RECIPIENTS OF MEDICAID-COVERED 
                           NURSING HOME CARE

Current law

      Section 5503(f) of title 38 limits to $90 a month the 
maximum amount of VA needs-based pension that may be paid to 
Medicaid-eligible veterans and surviving spouses who have no 
dependents and who are in nursing homes that participate in 
Medicaid. This section treats such individuals as if the care 
were being furnished at VA expense. This provision was 
initially enacted as section 8003 of OBRA 90 and would have 
expired, under OBRA 90, on September 30, 1997. Section 12005 of 
OBRA 93 extended these provisions to September 30, 1998.

House bill

      Section 11014 would extend for four years, through 
September 30, 2002, the $90 limitation on the maximum amount of 
VA pension which can be received by Medicaid-eligible veterans 
and surviving spouses who have no dependents and who are in 
nursing homes that participate in Medicaid.

Senate amendment

      Section 11015 contains a substantially identical 
provision.

Compromise agreement

      Section 10014 contains this provision.
      According to CBO, the enactment of section 10014 would 
result in savings of $437 million in outlays over fiscal years 
1996-2000, and in savings of $827 million in outlays over 
fiscal years 1996-2002.

                             HOME LOAN FEES

Current law

      Section 3729 of title 38 specifies fees that will be paid 
by borrowers who obtain home purchase loans guaranteed, 
insured, or made by VA.
      For borrowers obtaining the first such loan, fees 
generally range from 0.50% to 2.0% of the loan amount, 
depending on the amount of the down payment to be made by the 
borrower and the type of military or naval service (active duty 
vs. selected reserve) upon which eligibility for home loan 
benefits is based. Pursuant to subsection (a)(4) of section 
3729, an additional fee of 0.75% is added to the fees set forth 
in section 3729, except as otherwise specified, for ``first 
use'' loans closed between September 30, 1993 and October 1, 
1998. The ``additional fee'' provision was enacted as section 
12007(a) of OBRA 93.
      With respect to borrowers obtaining subsequent housing 
assistance loans, section 3729 specifies that the fee to be 
charged shall be 3.0% of the total loan amount. This provision 
applies to loans which close between September 30, 1993 and 
October 1, 1998. This provision was enacted as section 12007(b) 
of OBRA 93.

House bill

      Section 11015 would extend for four years, through 
September 30, 2002, the loan fees currently specified in 
section 3729 of title 38.

Senate amendment

      Section 11013 contains a substantially identical 
provision.

Compromise agreement

      Section 10015 contains this provision.
      According to CBO, the enactment of section 10015 would 
result in savings of $289 million in outlays over fiscal years 
1996-2000, and in savings of $581 million in outlays over 
fiscal years 1996-2002.

  PROCEDURES APPLICABLE TO LIQUIDATION SALES ON DEFAULTED HOME LOANS 
            GUARANTEED BY THE DEPARTMENT OF VETERANS AFFAIRS

Current law

      Section 3732 of title 38 specifies that VA has two 
options when a property, the financing of which is guaranteed 
under the VA Home Loan Guaranty Program, goes into foreclosure. 
VA may simply pay off the guaranty, or the VA may elect to 
purchase the property securing the loan in default and resell 
it. The decision on the course of action to take will depend, 
generally, on VA calculations as to which action would be less 
costly and, therefore, more advantageous to the Government.
      The provisions governing the above calculations, and the 
circumstances under which VA shall exercise the latter option 
are set forth in subsection (c) of section 3732. Subsection (c) 
applies only with respect to properties financed with VA-
guaranteed home loans which close before October 1, 1998. That 
period of applicability was extended to that date by section 
13004 of OBRA 93.

House bill

      Section 11016 would extend for four years, through 
September 30, 2002, the provisions of subsection (c) of section 
3732.

Senate amendment

      The Senate amendment contains no comparable provision.

Compromise agreement

      Section 10016 follows section 11016 of the House bill.
      According to CBO, the enactment of section 10016 would 
result in savings of $8 million over fiscal years 1996-2000, 
and in savings of $16 million in outlays over fiscal years 
1996-2002.

                   ENHANCED LOAN ASSET SALE AUTHORITY

Current law

      Section 3720(h) authorizes VA to guarantee the timely 
payment of principal and interest to purchasers of real estate 
mortgage investment conduits (REMICs). REMICs are used to 
``bundle'' and market a number vendee loan notes--that is, 
notes on direct loans made by VA to purchasers of VA-acquired 
real estate--so that they may be sold for cash under favorable 
terms. Under this authority, VA guarantees to REMIC purchasers 
that principal and interest will be paid timely. That assurance 
facilitates the marketing of such securities and enhances their 
value in the marketplace. It thus increases the return to the 
Treasury when such securities are sold.
      VA's authority to guarantee REMICs expires on December 
31, 1995.

House bill

      Section 11024 would extend, through September 30, 1996, 
VA's authority to guarantee the timely payment of principal and 
interest to purchasers of REMICs.

Senate amendment

      The Senate amendment contains no comparable provision.

Compromise agreement

      Section 10017 follows section 11024 of the House bill, 
except that it extends VA's authority to guarantee the timely 
payment of principal and interest to the purchasers of REMICs 
through September 30, 2002.
      According to CBO, the enactment of section 10017 would 
result in savings of $5 million in fiscal year 1996, in savings 
of $25 million in outlays over fiscal years 1996-2000, and in 
savings of $35 in outlays over fiscal years 1996-2002.

                       Subtitle B--Other Matters

                REVISION TO PRESCRIPTION DRUG COPAYMENT

Current law

      Section 1722A of title 38: (a) requires that certain 
veterans pay $2 for each 30-day supply of a medication 
furnished on an outpatient basis; (b) prohibits a reduction in 
the amount of the co-payment if the initial amount of 
medication is less than a 30-day supply; (c) states that VA may 
not require a veteran to pay a copayment which exceeds the cost 
to VA of the prescription medication in question; and (d) 
requires that amounts collected under this authority be 
credited to VA's Medical Care Cost Recovery Fund. Section 
1722A, however, exempts the following categories of veteran 
from the copayment requirement: veterans with a service-
connected disability rated 50% or more; and veterans with an 
annual income at or below the maximum annual rate of VA 
pension. This provision is currently scheduled to expire on 
September 30, 1998.
      Section 5302 of title 38 authorizes the Secretary of 
Veterans Affairs to waive, on equitable grounds, the recovery 
of any payment owed to VA.

House bill

      Section 11021 would: (a) increase the copayment amount to 
$3; (b) repeal the requirement that the copayment not exceed 
the cost of the medication in question; and (c) specify that 
the VA's ``waiver of indebtedness'' authority under section 
5302 not apply to veterans' obligations to make medication 
copayments under section 1722A.

Senate amendment

      The Senate amendment contains no comparable provision.

Compromise agreement

      Section 10021 follows section 11021 of the House bill, 
except that it increases the copayment amount to $4, and adds 
former prisoners of war to the listing of veterans who are 
exempt from the medication copayment requirement.
      According to CBO, the enactment of section 10021 would 
result in savings of $74 million in fiscal year 1996, in 
savings of $480 million in outlays over fiscal years 1996-2000, 
and in savings of $718 million in outlays over fiscal years 
1996-2002.

  ROUNDING DOWN OF COST-OF-LIVING ADJUSTMENTS IN COMPENSATION AND DIC 
                                 RATES

Current law

      Under chapter 11 of title 38, VA pays a monthly cash 
benefit, compensation, to veterans who have service-connected 
disabilities. The amount of the payment varies with the degree 
of service-connected disability suffered by the veteran.
      Under chapter 13 of title 38, VA pays monthly cash 
benefits, Dependency and Indemnity Compensation (DIC), to 
survivors of service members or veterans who died, on or after 
January 1, 1957, from a disease or injury incurred or 
aggravated during active service. Until 1992, the basic monthly 
benefit received by the DIC recipient varied with the pay grade 
at which the deceased service member or veteran was compensated 
during service. In 1992, chapter 13 was amended to put into 
place a new system of DIC that pays a ``flat rate''--that is, a 
rate which pays all beneficiaries of DIC the same basic monthly 
benefit irrespective of the deceased's former military or naval 
pay grade. ``Old-law'' DIC recipients, however, are 
``grandmothered''--that is, if the basic DIC benefit the 
beneficiary would receive under the ``old-law'' grade-based 
program exceeds the ``new-law'' flat rate amount, the 
beneficiary continues to receive the ``old-law'' benefit.
      Compensation and DIC payments are not indexed. The 
Congress has, however, enacted legislation which, for a given 
year, has adjusted compensation and DIC benefits to reflect the 
percentage of change in the consumer price index (CPI) relative 
to the prior year. When such a cost-of-living adjustment (COLA) 
is legislated and new compensation and DIC rates are thereby 
computed, the prior year's benefit--which is paid in ``round 
dollar'' amounts--is multiplied by a fraction which expresses 
the change in the CPI, and the product is then converted to a 
whole-dollar amount using ``normal'' rounding techniques. That 
is, if the product of the whole dollar amount multiplied by the 
CPI is a fractional dollar amount of $0.50 or more, the 
compensation or DIC payment is rounded up; if it is a 
fractional amount of $0.49 or less, it is rounded down.

House bill

      Section 11022 requires VA to ``round down'' any cost-of-
living (COLA) adjustments that might be made during fiscal 
years 1996 through 2002.
      Section 11022 also specifies a method for calculating 
COLAs for ``old-law'' DIC recipients during fiscal years 1996 
through 2002. It states that (a) all DIC recipients shall 
receive the same dollar-amount COLA; and (b) that ``flat rate'' 
COLA shall be equal to the whole dollar amount that is yielded 
when the ``new-law'' DIC rate is calculated by reference to the 
percentage change in the CPI, rounded down.

Senate amendment

      Section 11021 contains a ``round down'' provision that is 
substantially identical to the House bill. It contains no 
provision which is comparable to the House bill's ``flat rate'' 
COLA for ``old-law'' DIC beneficiaries.

Compromise agreement

      Section 10022 follows the House bill.
      According to CBO, the enactment of section 10022 would 
result in savings of $17 million in outlays in fiscal year 
1996, in savings of $333 million in outlays over fiscal years 
1996-2000, and in savings of $634 million in outlays over 
fiscal years 1996-2002.

 REVISED STANDARD FOR LIABILITY FOR INJURIES RESULTING FROM DEPARTMENT 
                     OF VETERANS AFFAIRS TREATMENT

Current law

      Section 1151 of title 38 states that if a veteran/patient 
suffers an injury as a result of VA medical care (and not as a 
result of the veteran/patient's own willful misconduct), and 
that injury results in additional disability or death, then the 
veteran/patient and his or her survivors shall be entitled to 
compensation and DIC benefits as if the additional disability 
or death were service-connected. VA regulations also set forth 
standards for the awarding of compensation or DIC for injuries 
or death resulting from VA medical care. Until recently, those 
regulations had specified that compensation or DIC would be 
paid only if the requirements set forth in the text of section 
1151 were met and the injury in question had been a result of 
either VA fault or an ``accident,'' defined by VA regulations 
as an ``unforeseen, untoward'' event.
      Recent litigation, culminating in the U.S. Supreme 
Court's decision in Brown v. Gardner,----U.S. ----, 115 S.Ct. 
552, 130 L.Ed.2d 462 (1994), challenged the imposition, by VA 
regulation, of a ``fault-or-accident'' requirement not set 
forth in the text of section 1151. The courts ruled, inter 
alia, that no such requirement was set forth in statute; that 
the statute did not authorize VA to impose such a requirement 
by regulation; and that, therefore, VA could not deny 
compensation for failure to satisfy the ``fault-or-accident'' 
requirement. The courts also indicated that their decisions 
were premised on the text of section 1151 as enacted by 
Congress, which text Congress--but not VA--may modify.
      VA has amended its regulations to conform to the 
standards specified in the above-referenced court rulings.

House bill

      Section 11023 would amend section 1151 to establish a new 
standard similar to VA's invalidated ``fault-or-accident'' 
requirement with respect to all medical injuries for which a 
claim for section 1151 benefits was received by VA on or after 
October 1, 1995. It would also provide for VA liability for 
medical injuries caused by an event which was not reasonably 
foreseeable.

Senate amendment

      Section 11041 contains a substantially identical 
provision.

Compromise agreement

      Section 10023 contains this provision.
      According to CBO, the enactment of section 10023 would 
result in savings of $89 million in fiscal year 1996, in 
savings of $1.601 billion in outlays over fiscal years 1996-
2000, and in savings of $2.498 billion in outlays over fiscal 
years 1996-2002.

                  WITHHOLDING OF PAYMENTS AND BENEFITS

Current law

      Section 3726 of title 38 states that, except as noted, no 
Federal agency may offset any payment owed to a veteran (or a 
deceased veteran's surviving spouse) in order to collect on a 
debt owed to VA by the veteran (or surviving spouse) under VA's 
home loan guaranty program unless one of two requirements are 
met: the debtor consents to the offset; or a judgement against 
the debtor from a court of competent jurisdiction is secured. 
The only exception to the rule is that veterans' benefits may 
be so offset.

House bill

      Section 11025 would amend section 3726 to authorize VA to 
refer a veteran's (or surviving spouse's) home loan guaranty 
debt to another Federal agency for offset under certain 
circumstances. Referrals would be allowed if (a) the debtor is 
given notice, in writing, of VA's authority to waive debts 
under section 5302 of title 38; (b) VA makes an affirmative 
determination that the debtor should not be released from 
liability under section 3713(b) of title 38; and (c) the debtor 
has been notified of procedures available to appeal a 
determination that a release of liability is not warranted. In 
effect, this provision allows VA to refer such debts to the 
Internal Revenue Service for offset against income tax refunds 
or, in the case of debtors who are Federal employees, to the 
debtor's employing agency for offset against salary or wages.

Senate amendment

      The Senate amendment contains no comparable provision.

Compromise agreement

      Section 10024 follows section 11025 of the House bill.
      According to CBO, the enactment of section 10024 would 
result in savings of $90 million in outlays in fiscal year 
1996, in savings of $90 million in outlays over fiscal years 
1996-2000, and in savings of $90 in outlays over fiscal years 
1996-2002.

   HEALTH CARE ELIGIBILITY REFORM (HOUSE BILL)/EDUCATIONAL BENEFITS 
                     AMENDMENTS (SENATE AMENDMENT)

Current law

      Eligibility for VA Health Care Services: Section 
1710(a)(1) of title 38 states that VA shall provide needed 
hospital care, and may provide needed nursing home care, to 
specified classes of veterans for treatment of specified 
conditions. Those classes include: veterans who have service-
connected disabilities for treatment of those service-connected 
disabilities; veterans who were discharged from service due to 
disabilities for treatment of any disability; veterans who 
would receive disability compensation but for the operation of 
laws which preclude ``dual compensation'' for treatment of any 
disability; veterans who have a service-connected disability 
rated at 50% or more for treatment of any disability; veterans 
who have a service-connected disability rated less than 50% for 
treatment of any disability; veterans who are former prisoners 
of war for treatment of any disability; veterans of the Persian 
Gulf War who VA finds might have been exposed to toxic 
substances or environmental hazards for treatment of conditions 
other than those determined by VA not to have been caused by 
that exposure; veterans of the Mexican border period or World 
War I for treatment of any disabilities; and veterans with non-
service-connected disabilities if the veteran is of limited 
means as determined in accordance with section 1722(a) of title 
38. Other veterans are eligible for VA hospital care, but only 
to the extent that resources and space are available to provide 
such care, and only if the veteran makes copayments.
      Section 1712 of title 38 establishes various rules 
governing VA provision of outpatient medical services. VA shall 
furnish needed outpatient medical services to veterans who have 
a service connected disability (including veterans who were 
discharged from service due to disabilities and veterans 
eligible for compensation under section 1151) for treatment of 
that disability, and to veterans who have a service-connected 
disability rated at 50% or more for treatment of any 
disability. Section 1712 also states that VA shall provide 
needed ``pre-, post-, and obviate'' outpatient treatment to 
veterans who have a service-connected disability rated at 30% 
or 40%, and to veterans whose income does not exceed the 
maximum amount of VA pension. VA may furnish all needed medical 
services to classes of veterans including former prisoners of 
war, World War I veterans, and those receiving increased 
benefits based on need of aid and attendance or permanent 
housebound status. VA may furnish ``pre-, post-, and obviate'' 
services to other veterans who are eligible for care under the 
``means test'' in section 1722(a).
      Educational Benefits: Chapter 30 of title 38 states rules 
applicable to the All-Volunteer Force Educational Assistance 
Program, or the ``Montgomery GI Bill'' (MGIB). Recipients of 
MGIB benefits who are pursuing full time programs of study 
receive monthly benefits checks (which vary from $328.97 to 
$404.88 per month for 36 months depending on the period of the 
beneficiary's initial obligated period of active duty) if they 
had not ``opted out'' of participation while in service. The 
military or naval pay of service members who do not ``opt out'' 
of MGIB participation is reduced $100 per month during the 
first 12 months of service.

House bill

      Eligibility for VA Health Care Services: Sections 11031 
through 11037 affect a broad revision of the statutes governing 
eligibility for VA hospital care and outpatient treatment 
(including the provision of prosthetics). That revision 
substitutes a single uniform eligibility standard--``medical 
need''--for eligibility for hospital and outpatient care which 
would be applied to all veterans for whom VA, under current 
law, shall provide all needed hospital care (other than 
veterans whose only eligibility for hospital care is based on a 
service-connected disability rated at 0%). Thus, those veterans 
to whom VA, under current law, shall provide all needed 
hospital care would also be eligible for all needed outpatient 
medical treatment.
      The measure would also require VA to establish an annual 
enrollment system for VA hospital and outpatient care and to 
manage that system in accordance with specified priorities. It 
would also grant to VA greater flexibility to contract for 
hospital care and medical services from ``outside'' sources, 
and to ``share'' VA resources with outside providers, while 
directing that VA maintain its ``in-house'' capacity to provide 
specialized treatment and rehabilitation services to disabled 
veterans, including those with spinal cord dysfunction, 
blindness, amputations and mental illness. Finally, the measure 
would extend expiring provisions of law (section 204 of Public 
Law 102-585) authorizing VA to enter into agreements to provide 
services to certain beneficiaries of the Department of Defense, 
and authorize VA to recover payments from health plans for care 
for which the patient (or the provider) would be eligible for 
payment under the plan furnished certain beneficiaries of the 
Department of Defense.
      Educational Benefits: The House bill contains no 
provision pertaining to educational benefits.

Senate amendment

      Eligibility for VA Health Care Services: The Senate bill 
contains no provision pertaining to eligibility for VA health 
care services.
      Educational Benefits: Section 11031 limits, through 
September 30, 2002, the annual adjustment in MGIB benefits to 
one-half of the Consumer Price Index.
      Section 11032 raises, for fiscal year 1996, the monthly 
pay reduction of service members who do not ``opt out'' of MGIB 
from $100 per month for twelve months to $134.96 per month for 
twelve months. It also ``pegs'' the monthly pay reduction, for 
fiscal years 1997 through 2002, to the same index to which MGIB 
benefits are tied.

Compromise agreement

      Eligibility for VA Health Care Services: The bill follows 
the Senate bill provision. That is, it contains no provision 
pertaining to eligibility for VA health care services. The 
conferees note, however, that the Senate Committee on Veterans 
Affairs intends to hold legislative hearings during the 104th 
Congress to consider the issue of eligibility reform.
      Educational Benefits: The bill follows the House bill 
provision. That is, it contains no provision pertaining to 
educational benefits.

                  TITLE XI. REVENUE PROVISIONS 1

    \1\ Rule XXI5(c) of the Rules of the House of Representatives 
provides that ``No bill or joint resolution, amendment, or conference 
report carrying a Federal income tax rate increase shall be considered 
as passed or agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting.'' The House conferees have 
carefully reviewed the provisions of title XI of the conference 
agreement, and all other provisions of the conference agreement, to 
determine whether any of these provisions constitutes a Federal income 
tax rate increase within the meaning of the House Rules. It is the 
opinion of the House conferees that there is no provision of the 
conference agreement that constitutes a Federal income tax rate 
increase within the meaning of House Rule XXI5(c) or (d).
---------------------------------------------------------------------------

                          I. FAMILY TAX RELIEF

 A. Child Tax Credit for Children Under Age 18 (sec. 6101 of H.R. 1215 
                and sec. 12001 of the Senate amendment)

Present law

      Present law does not provide tax credits based solely on 
the taxpayer's number of dependent children. Taxpayers with 
dependent children, however, generally are able to claim a 
personal exemption for each of these dependents.

House bill

      The House bill allows taxpayers a nonrefundable tax 
credit of $500 for each qualifying child under the age of 18. 
The credit amount is indexed for inflation after 1996.
      The credit is phased out ratably for taxpayers with 
modified AGI over $200,000, and is fully phased out at modified 
AGI of $250,000. For purposes of the AGI phaseout, the 
taxpayer's AGI is increased by the amount otherwise excluded 
from gross income under Code sections 911, 931, or 933 
(relating to the exclusion of income of U.S. citizens or 
residents living abroad; residents of Guam, the Northern 
Mariana Islands, and American Samoa; and residents of Puerto 
Rico, respectively). After 1996, the beginning point of the 
phaseout range ($200,000) is indexed for inflation. The size of 
the phaseout range will change as needed so as to remain 100 
times the maximum amount of the credit per child.
      Married taxpayers filing separate returns generally may 
not claim the credit.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995.

Senate Amendment

      The Senate amendment allows taxpayers a nonrefundable tax 
credit of $500 for each qualifying child under the age of 18. 
The credit amount is not indexed for inflation.
      For taxpayers with AGI in excess of certain thresholds, 
the allowable child credit is reduced by $25 for each $1,000 of 
AGI (or fraction thereof) in excess of the threshold. For 
married taxpayers filing joint returns, the threshold is 
$110,000. For taxpayers filing single or head of household 
returns, the threshold is $75,000. For married taxpayers filing 
separate returns, the threshold is $55,000. These thresholds 
are not indexed for inflation.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995.

Conference agreement

      The conference agreement follows the Senate amendment, 
except that the credit is effective October 1, 1995. The 
portion of the child credit that is effective for the period 
from October 1, 1995, through December 31, 1995, will be 
provided to taxpayers through a special procedure. The Internal 
Revenue Service has raised significant concerns about making 
the credit available through the normal return filing process 
for the 1995 income tax return. In light of these concerns, the 
conferees have directed the IRS to use a special procedure to 
help taxpayers obtain their 1995 child tax credit. Under this 
procedure, the IRS is directed to issue a form on which 
taxpayers can file for their 1995 child tax credit following 
the completion of the normal tax return filing season (i.e., 
after April 15, 1996). The IRS is directed to mail a notice to 
taxpayers on or before February 1, 1996.
      The text of the notice will read as follows: ``The 
Balanced Budget Act of 1995 was recently passed by the 
Congress. The Act's child tax credit allows taxpayers to reduce 
their taxes by $500 per child. The credit is effective October 
1, 1995. You may wish to check with your employer about 
changing your tax withholding to take immediate advantage of 
the credit to which you are entitled for the current tax year. 
In addition, the Internal Revenue Service will be sending you a 
form in June of this year which you may use to claim the credit 
to which you are entitled for the period from October 1 through 
December 31, 1995 ($125 per child for 1995). In order to obtain 
your 1995 credit, you should file this form by August 15, 1996. 
Your refund will be sent to you sometime after October 1, 
1996.''
      The IRS will mail to taxpayers on or before June 1, 1996, 
the form on which taxpayers may request their 1995 child tax 
credit. If taxpayers file their requests for their 1995 child 
tax credit on or before August 15, 1996, the IRS will mail 
their checks to them between October 1, 1996, and October 15, 
1996.
      In the case where a taxpayer's 1995 income tax liability 
had been reduced by a refundable credit, the amount of the 1995 
child credit that is allowable would be calculated as if the 
taxpayer had been able to claim the 1995 child credit at the 
time that the taxpayer filed his or her 1995 income tax return. 
For example, suppose a taxpayer had a 1995 income tax liability 
of $110 prior to the application of a $1,000 refundable tax 
credit. The refundable credit would reduce the income tax 
liability to zero and a refund of $890 would be paid to the 
taxpayer. If the taxpayer has one qualifying child for the 1995 
portion of the child tax credit, the taxpayer may receive an 
additional $110 refund, since he would have been able to use 
$110 of the $125 of 1995 child tax credit to offset his or her 
1995 income tax liability, had the child tax credit been 
available on the 1995 income tax return.
      The amount of the 1995 child credit generally will be 
treated as an overpayment of taxes for purposes of the 
appropriation of funds to pay the credit amounts.

B. Marriage Penalty Relief: Tax Credit; Increase in Standard Deduction 
for Joint Returns (sec. 6102 of H.R. 1215 and sec. 12002 of the Senate 
                               amendment)

Present law

                            Marriage penalty

      A married couple generally is treated as one tax unit 
that must pay tax on the unit's total taxable income. Although 
married couples may elect to file separate returns, the rate 
schedules and provisions are structured so that filing separate 
returns usually results in a higher tax than filing joint 
returns. Other rate schedules apply to single persons and to 
single heads of household.
      A ``marriage penalty'' exists when the sum of the tax 
liabilities of two unmarried individuals filing their own tax 
returns (either single or head of household returns) is less 
than their tax liability under a joint return (if the two 
individuals were to marry). A ``marriage bonus'' exists when 
the sum of the tax liabilities of the individuals is greater 
than their combined tax liability under a joint return.
      While the size of any marriage penalty or bonus under 
present law depends upon the individuals' incomes, number of 
dependents, and itemized deductions, as a general rule married 
couples whose earnings are split more evenly than 70-30 suffer 
a marriage penalty. Married couples whose earnings are largely 
attributable to one spouse generally receive a marriage bonus.
      Under present law, the size of the standard deduction and 
the tax bracket breakpoints follow certain customary ratios 
across filing statuses. The standard deduction and tax bracket 
breakpoints for single filers are roughly 60 percent of those 
for joint filers. With these ratios, unmarried individuals have 
standard deductions whose sum exceeds the standard deduction 
they would receive as a married couple filing a joint return. 
Thus, their taxable income as joint filers may exceed the sum 
of their taxable incomes as unmarried individuals.
            Standard deduction
      Taxpayers who do not itemize deductions may choose the 
standard deduction, which is subtracted (along with certain 
other items) from adjusted gross income (AGI) in arriving at 
taxable income. The size of the standard deduction varies 
according to filing status and is indexed for inflation. For 
1996, the size of the standard deduction is projected to be as 
follows:

        Filing status                                 Standard deduction
Married, joint return.............................................$6,700
Head of household return.......................................... 5,900
Single return..................................................... 4,000
Married, separate return.......................................... 3,350

      For 1996, the standard deduction for joint returns is 
projected to be 1.675 times the standard deduction for single 
returns.
House bill
      Under the House bill, married couples who file a joint 
return may be eligible for a nonrefundable credit of up to $145 
against their income tax liability. The Secretary of the 
Treasury is directed to issue tables calculating the marriage 
penalty credit applicable for married taxpayers based on the 
qualified earned income of each of the spouses.
      The amount of the credit is based on the hypothetical tax 
liabilities that would result if the individual income tax 
rates applicable to single filers were applied to each spouse's 
qualified earned income, allowing for one personal exemption 
and the standard deduction allowed for single filers. The sum 
of those hypothetical tax liabilities is compared to the 
hypothetical tax liability that would result if the individual 
income tax rates applicable to married couples filing joint 
returns were applied to the aggregate qualified earned income 
of the spouses, allowing for two personal exemptions and the 
standard deduction allowed for joint filers.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995.
Senate amendment
      The Senate amendment increases the standard deduction for 
married taxpayers filing a joint return according to the 
following schedule:

                                                            The standard
        For taxable years beginning in calendar yeardeduction would be--
1996..............................................................$6,800
1997.............................................................. 7,150
1998.............................................................. 7,500
1999.............................................................. 7,950
2000.............................................................. 8,200
2001.............................................................. 8,600
2002.............................................................. 9,100
2003.............................................................. 9,500
2004.............................................................. 9,950
2005..............................................................10,800

For calendar years after 2005, the $10,800 amount is indexed 
for inflation.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995.
Conference agreement
      The conference agreement follows the Senate amendment, 
except that the conference agreement modifies the schedule for 
increasing the standard deduction for joint returns. In 
addition, the amount of the standard deduction for joint 
returns is expressed relative to the standard deduction for 
single returns as follows:

                                                        The ratio of the
                                                      standard deduction
                                                       for joint returns
                                                      relative to single
        For taxable years beginning in calendar year--returns would be--
1996..............................................................  1.68
1997..............................................................  1.71
1998..............................................................  1.72
1999..............................................................  1.73
2000..............................................................  1.75
2001..............................................................  1.77
2002..............................................................  1.78
2003..............................................................  1.88
2004..............................................................  1.91
2005 and after....................................................  2.00

The dollar values of the standard deduction for joint filers 
will be published each year in the instructions for the income 
tax returns; taxpayers will not be required to perform the 
multiplications described above.

  C. Tax Credit for Adoption Expenses; Exclusion for Certain Adoption 
     Expenses (sec. 6401 of H.R. 1215 and sec. 12003 of the Senate 
                               amendment)

Present law

      Present law does not provide a tax credit for adoption 
expenses. Present law also does not provide an exclusion from 
gross income for employer-provided adoption assistance.

House bill

      The House bill provides a nonrefundable tax credit of up 
to $5,000 per child for qualified adoption expenses paid or 
incurred by the taxpayer. The credit is denied for any expense 
to the extent that such expenses are also funded by any 
Federal, State or local grant program. An exception from this 
rule is provided solely in the case of certain special-needs 
adoptions.
      The credit is phased out ratably between $60,000 and 
$100,000 of modified adjusted gross income (AGI). The House 
bill does not include an exclusion for employer-provided 
adoption assistance.
      Effective date.--Taxable years beginning after December 
31, 1995.

Senate amendment

      The Senate amendment differs from the House bill in five 
respects. Unlike the House bill, the Senate amendment:
            (1) Allows the credit to be carried forward for up 
        to five taxable years;
            (2) Phases out the credit based on taxable income, 
        not modified AGI;
            (3) Does not allow a credit in the case of special-
        needs adoptions to the extent funded by Federal, State 
        or local grant programs;
            (4) Requires a finalized adoption for credit 
        eligibility; and
            (5) Provides an exclusion from income (up to $5,000 
        per child) for employer-provided adoption assistance.
      Effective date.--Same as the House bill.

Conference agreement

      The conference agreement follows the Senate amendment 
with three modifications. First, the phaseout ranges for the 
credit and exclusion start at $75,000 of modified AGI and end 
at $115,000 of modified AGI. Second, the requirement of a 
finalized adoption is applied only in the case of international 
adoptions. Third, the exception relating to special-needs 
adoptions in the House bill is included in the conference 
agreement
      Effective date.--Taxable years beginning after December 
31, 1995.

   D. Interest on Student Loans (sec. 12004 of the Senate amendment)

Present law

      The Tax Reform Act of 1986 repealed the deduction for 
personal interest. Student loan interest generally is treated 
as personal interest and thus is not allowable as an itemized 
deduction from income. There is no tax credit allowed for 
student loan interest paid by a taxpayer.

House bill

      No provision.

Senate amendment

            In general
      The Senate amendment allows individuals who have paid 
interest on qualified education loans a nonrefundable credit 
against income tax liability equal to 20 percent of such 
interest. The maximum credit allowed is $500 ($1,000 in the 
case of a taxpayer paying interest on loans for two or more 
students). Unused amounts of credit cannot be carried forward 
or backward to other taxable years.
      A qualified education loan generally is any indebtedness 
incurred to pay for the qualified higher education expenses of 
the taxpayer or the taxpayer's spouse or dependents in 
attending (1) higher education institutions and certain area 
vocational education schools (i.e., eligible educational 
institutions defined in Code section 135(c)(3)) or (2) 
institutions conducting internship or residency programs 
leading to a degree or certificate from an institution of 
higher education, a hospital, or a health care facility 
conducting postgraduate training.
      Qualified higher education expenses are the student's 
cost of attendance as defined in section 472 of the Higher 
Education Act of 1965 (generally, tuition, fees, room and 
board, and related expenses). At the time the expenses are 
incurred, the student has to be the taxpayer or the taxpayer's 
spouse or dependent.
            Income phaseout range for credit
      The credit is phased out ratably over the following 
modified adjusted gross income (modified AGI) ranges: joint 
filers ($60,000-$75,000) and unmarried individuals ($40,000-
$55,000). The beginning of the phaseout ranges (but not the 
size of the phaseout range) is indexed for inflation for 
taxable years beginning after 1996. Modified AGI is defined as 
the taxpayer's AGI (1) increased by the amount otherwise 
excluded from gross income under Code sections 135, 911, 931, 
or 933 (relating to educational savings bonds and to the 
exclusion of income of U.S. citizens or residents living 
abroad; residents of Guam, the Northern Mariana Islands, and 
American Samoa; and residents of Puerto Rico, respectively) and 
(2) calculated after the inclusion of Social Security benefits 
in income, the deduction for contributions to individual 
retirement arrangements, and the limitation on passive losses.
            Credit claimed for interest on borrowing for expenses of 
                    taxpayer or spouse
      In the case of qualified education loans used to pay the 
qualified higher education expenses of the taxpayer or the 
taxpayer's spouse, the credit is allowed only with respect to 
interest paid on a qualified education loan during the first 60 
months in which interest payments are required. For purposes of 
counting the 60 months, any qualified education loan and all 
refinancing (that is treated as a qualified education loan) of 
such loan is treated as a single loan.
            Credit claimed for interest on borrowing for expenses of 
                    taxpayer's dependent
      In the case of qualified education loans used to pay the 
qualified higher education expenses of an individual other than 
the taxpayer or the taxpayer's spouse, no credit is allowed 
unless the individual is claimed as a dependent of the taxpayer 
for that taxable year and the individual is at least a half-
time student during that taxable year.
            Limitations on claiming credit
      No credit is allowed to an individual if that individual 
is claimed as a dependent on another taxpayer's return for the 
taxable year beginning in the calendar year in which such 
individual's taxable year begins. No credit is allowed for 
interest on any amount of education loan indebtedness for which 
a deduction is claimed under any other provision.
      Couples who are married at the end of the taxable year 
have to file a joint return to claim the credit unless they 
lived apart for the last six months of the taxable year and the 
individual claiming the credit (1) maintained as his or her 
home a household for a dependent child for more than one-half 
of the taxable year and (2) furnished over one-half of the cost 
of maintaining that household in that taxable year. An 
individual legally separated from his spouse under a decree of 
divorce or separate maintenance is not considered married for 
purposes of this provision.
            Information reporting on student loan interest
      Any person in a trade or business or any governmental 
agency who receives $600 or more in qualified education loan 
interest from an individual during a calendar year is required 
to file an information report on such interest to the IRS and 
to the payor. In the case of interest received by any person on 
behalf of another person, generally only the first person 
receiving the interest is required to file the information 
reports.
            Effective date
      The provision is effective for payments of interest due 
after December 31, 1995, on any qualified education loan. Thus, 
in the case of already existing qualified education loans used 
to pay the qualified higher education expenses of the taxpayer 
or the taxpayer's spouse, interest payments will qualify for 
the credit to the extent that the 60-month period has not 
expired.
            Conference agreement
            In general
      The conference agreement provides that certain 
individuals who have paid interest on qualified education loans 
may claim an above-the-line deduction for such interest 
expenses, up to a maximum deduction of $2,500 per year. The 
definitions of qualified education loans and qualified 
education expenses follow the Senate amendment, except that in 
order for the interest to be deductible under this provision, 
the indebtedness must be incurred to pay for the qualified 
higher education expenses of the taxpayer or the taxpayer's 
spouse.
            Income phaseout range for deduction
      The conference agreement follows the Senate amendment, 
except that the deduction is phased out ratably over the 
following modified AGI ranges: joint filers ($65,000-$85,000) 
and unmarried individuals ($45,000-$65,000).
            Deduction claimed for interest on borrowing for expenses of 
                    taxpayer or spouse
      The conference agreement follows the Senate amendment, 
with the clarification that months during which the qualified 
education loan is in deferral or forbearance do not count 
against the 60-month period.
            Limitations on claiming deduction
      The conference agreement follows the Senate amendment.
            Information reporting on student loan interest
      The conference agreement follows the Senate amendment. 
The conferees expect that the Secretary of the Treasury will 
clarify in regulations the information reporting requirements 
on qualified educational loans.
            Effective date
      The conference agreement follows the Senate amendment.

E. Custodial Care of Certain Elderly Family Members in Taxpayer's Home 
                        (sec. 6402 of H.R. 1215)

Present law

      Generally, present law does not provide for tax credits 
based on custodial care of parents and grandparents.

House bill

      The House bill provides a nonrefundable income tax credit 
of $500 for each qualified family member. Generally, a 
qualified family member is a parent or grandparent who lives 
with the taxpayer and is physically or mentally incapable of 
caring for himself or herself.
      Effective Date.--Taxable years beginning after December 
31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement provides for an above-the-line 
deduction of up to $1,000 of certain expenses incurred in the 
care of each qualified family member. The conference agreement 
generally follows the definition of qualified persons contained 
in the House bill with the addition of a support test.
      Effective Date.--Taxable years beginning after December 
31, 1995.

 F. Inclusion in Income of Social Security Benefits (sec. 6201 of H.R. 
                                 1215)

Present law

            In general
      Under present law, taxpayers receiving Social Security 
and Railroad Retirement Tier 1 benefits are not required to 
include any such benefits in gross income if their 
``provisional income'' does not exceed $25,000 in the case of 
unmarried taxpayers or $32,000 in the case of married taxpayers 
filing joint returns. For purposes of these computations, a 
taxpayer's provisional income is defined as adjusted gross 
income plus tax-exempt interest plus certain foreign source 
income plus one-half of the taxpayer's Social Security or 
Railroad Retirement Tier 1 benefit.
      Certain taxpayers with provisional income in excess of 
those thresholds are required to include in gross income up to 
50 percent of their Social Security or Railroad Retirement Tier 
1 benefit. Under a provision added by the Revenue 
Reconciliation Act of 1993 (``1993 Act''), taxpayers with 
provisional income in excess of a second-tier threshold 
($34,000 in the case of unmarried taxpayers or $44,000 in the 
case of married taxpayers filing joint returns) are required to 
include in gross income up to 85 percent of their Social 
Security or Railroad Retirement Tier 1 benefit.
      If the taxpayer's provisional income exceeds the lower 
threshold but does not exceed the second-tier threshold, then 
the amount of the inclusion is the lesser of (1) 50 percent of 
the taxpayer's Social Security or Railroad Retirement Tier 1 
benefit, or (2) 50 percent of the excess of the taxpayer's 
provisional income over the lower threshold.
      If the amount of provisional income exceeds the second-
tier threshold, then the amount of the inclusion is the lesser 
of: (1) 85 percent of the taxpayer's Social Security or 
Railroad Retirement Tier 1 benefit or (2) the sum of: (a) 85 
percent of the excess of the taxpayer's provisional income over 
the second-tier threshold, plus, (b) the smaller of (I) the 
amount of benefits that would have been included if the 50-
percent inclusion rule (the rule in the previous paragraph) 
were applied, or (ii) one-half of the difference between the 
taxpayer's second-tier threshold and lower threshold.
            Treatment of nonresident alien individuals
      If a nonresident alien individual is engaged in a trade 
or business within the United States during the taxable year, 
the individual is subject to U.S. tax at the normal graduated 
rates on net taxable income that is effectively connected with 
the conduct of the U.S. trade or business. For purposes of 
taxing the income of nonresident alien individuals, the income 
thresholds for including Social Security and Railroad 
Retirement Tier 1 benefits do not apply. Instead, a fixed 
percentage of any such benefit is included in gross income. 
Until January 1, 1995, that percentage was 50 percent.
      The implementing legislation for the General Agreement on 
Tariffs and Trade (P.L. 103-465) increased from 50 percent to 
85 percent the amount of Social Security or Railroad Retirement 
Tier 1 benefits included in the gross income of a nonresident 
alien individual, effective for benefits paid after December 
31, 1994, in taxable years ending after such date.
            Trust funds
      Revenues from the income taxation of Social Security and 
Railroad Retirement Tier 1 benefits attributable to the 1993 
Act increase in the portion of benefits included in gross 
income are credited quarterly to the Medicare Hospital 
Insurance (HI) Trust Fund. The remainder of the proceeds from 
the income taxation of Social Security and Railroad Retirement 
Tier 1 benefits are credited quarterly to the Old-Age and 
Survivors Insurance Trust Fund, the Disability Insurance Trust 
Fund, or the Social Security Equivalent Benefit Account (of the 
Railroad Retirement system), as appropriate.

House bill

            In general
      The House bill phases in a repeal of the higher rate of 
income inclusion for taxpayers with provisional incomes in 
excess of the second-tier threshold.
      For taxable years beginning in calendar years 1996 
through 1999, if the amount of provisional income exceeds the 
second-tier threshold, then the amount of the inclusion is 
calculated as under present law, except that the following 
rates are substituted for ``85 percent'':

        For taxable years beginning in calendar year-The percentage is--
1996..........................................................75 percent
1997..........................................................65 percent
1998..........................................................60 percent
1999.........................................................55 percent.

      For taxable years beginning after December 31, 1999, 
Social Security and Railroad Retirement Tier 1 benefits will be 
treated as under the law prior to 1994: if the amount of 
provisional income exceeds $25,000 in the case of unmarried 
taxpayers or $32,000 in the case of married taxpayers filing 
joint returns, then the amount of the inclusion is the lesser 
of (1) 50 percent of the taxpayer's Social Security or Railroad 
Retirement Tier 1 benefit, or (2) 50 percent of the excess of 
the taxpayer's provisional income over the threshold.
            Treatment of nonresident alien individuals
      The House bill phases in a reduction in the amount of 
Social Security or Railroad Retirement Tier 1 benefits included 
in the gross income of a nonresident alien individual. The 
inclusion percentage for any taxable year beginning in calendar 
years 1996 through 1999 is as given in the table above. For 
taxable years beginning after December 31, 1999, the amount of 
Social Security or Railroad Retirement Tier 1 benefits included 
in the gross income of a nonresident alien individual will be 
50 percent.
            Trust funds
      Revenues from the income taxation of Social Security and 
Railroad Retirement Tier 1 benefits attributable to the 
increased portion of benefits included in gross income under 
the 1993 Act (as phased out under the provision) will be 
credited to the Old-Age and Survivors and Disability Insurance 
Trust Funds.
            Effective date
      In general, the provision is effective for taxable years 
beginning after December 31, 1995. The provision crediting 
revenues to the Old-Age and Survivors and Disability Insurance 
Trust Funds applies to tax liabilities for taxable years 
beginning after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                 II. Savings and Investment Incentives

  A. Provisions Relating to Individual Retirement Arrangements (secs. 
 6103-6104 of H.R. 1215, secs. 19002(d) and (e) of the House bill and 
      secs. 12101-12103, 12111, and 12121 of the Senate amendment)

Present law
            Deductible IRA contributions
                In general
      An individual may make deductible contributions to an 
individual retirement arrangement (``IRA'') up to the lesser of 
$2,000 or the amount of the individual's compensation if the 
individual is not an active participant in an employer-
sponsored qualified retirement plan (and, if married, the 
individual's spouse also is not an active participant). An 
individual who makes excess contributions to an IRA, i.e., 
contributions in excess of $2,000, is subject to an excise tax 
on such excess contributions unless they are distributed from 
the IRA before the due date for filing the individual's tax 
return for the year (including extensions).
                Income phase-out range
      If the individual (or his or her spouse, if married) is 
an active participant, the $2,000 limit is phased out between 
$40,000 and $50,000 of adjusted gross income (``AGI'') for 
married couples and between $25,000 and $35,000 of AGI for 
single individuals.
            Inflation adjustment for IRA contribution limit
      The $2,000 limit on IRA contributions is not indexed for 
inflation.
            Spousal IRAs
      In the case of a married individual whose spouse has no 
compensation (or elects to be treated as having no 
compensation) the $2,000 limit on IRA contributions is 
increased to the lesser of $2,250 or the individual's 
compensation.
            Nondeductible tax-free IRAs
      No provision. (However, present law does permit 
individuals to make nondeductible contributions to an IRA to 
the extent an individual is not permitted to (or does not) make 
deductible contributions. Earnings on such contributions are 
includible in gross income when withdrawn.)
            Taxation of distributions
      Amounts withdrawn from an IRA are includible in gross 
income (except to the extent of nondeductible contributions).
      In addition, a 10-percent additional tax applies to 
distributions from IRAs made before age 59\1/2\, unless the 
distribution is on account of death or disability or is made in 
the form of annuity payments.
            House bill
            In general
      The House bill permits a deductible IRA contribution of 
up to $2,000 to be made to an IRA for each spouse in a married 
couple. The House bill does not otherwise modify the rules 
relating to deductible IRAs.
      The House bill replaces present-law nondeductible IRAs 
with new American Dream Savings Accounts (``ADSAs'') to which 
individuals can make nondeductible contributions. Contributions 
to an ADSA are in addition to any contributions that can be 
made to a deductible IRA under the present-law rules. In 
general, an ADSA is an IRA which is designated at the time of 
establishment as an ADSA. An ADSA is generally subject to the 
same rules applicable to IRAs, but certain special rules apply. 
Qualified distributions from an ADSA are not includible in 
income.
            Deductible IRA contributions
      No provision.
            Spousal IRAs
      The House bill permits annual contributions of up to 
$2,000 for each spouse in a married couple. The aggregate 
contributions for both spouses cannot exceed the combined 
compensation of both spouses.
            Nondeductible tax-free IRAs
                In general
      The House bill replaces the present-law rules relating to 
nondeductible contributions with new provisions that permit 
individuals to make nondeductible contributions to an ADSA. 
Generally, ADSAs are subject to the same rules applicable to 
deductible IRAs. However, a number of special rules apply.
                Contribution limit
      The maximum annual contribution that can be made to an 
ADSA is the lesser of $2,000 or the individual's compensation. 
This amount is in addition to any contributions that may be 
made to present-law IRAs. The $2,000 limit is indexed annually 
for inflation beginning in 1996. Inflation adjustments are 
rounded to the nearest $50.
                Contributions for nonworking spouse
      The compensation of both spouses is taken into account in 
determining the contribution limit for each spouse.
                Miscellaneous
      The House bill permits contributions to be made to an 
ADSA after age 70\1/2\. In addition, ADSAs are not subject to 
the pre-death minimum distribution rules applicable to IRAs and 
tax-qualified plans and are not subject to the excess 
distribution tax applicable to distributions from IRAs and 
qualified plans.
                Taxation of distributions
      Distributions are not includible in income if the 
distribution (1) is made after the 5-taxable year period 
beginning with the first taxable year for which the individual 
first made a contribution to any ADSA and (2) is (a) made on or 
after the date on which the individual attains age 59\1/2\, (b) 
made to a beneficiary after the death of the individual, (c) 
attributable to the individual's being disabled, or (d) is for 
a special purpose (i.e., the purchase of a first home, higher 
education expenses, medical expenses, or long-term care 
insurance premiums). Other distributions are includible in 
income (to the extent of earnings on contributions) and subject 
to the 10-percent tax on early withdrawals unless an exception 
applies (see below).
                Rollover contributions
      Under the House bill, amounts withdrawn from IRAs can be 
rolled over into an ADSA after December 31, 1995, and before 
January 1, 1998. The amount rolled over is includible in gross 
income ratably over a 4-year period. The 10-percent early 
withdrawal tax does not apply to amounts rolled over from an 
IRA to an ADSA. Amounts rolled over from an IRA to an ADSA are 
then subject to the rules applicable to ADSAs.
      Tax-free rollovers from one ADSA to another ADSA are 
permitted as under the present-law rules relating to IRAs.
            Special purpose withdrawals
                In general
      Under the House bill, special purpose withdrawals from an 
ADSA are not subject to the 10-percent early withdrawal tax. In 
addition, as described above, special purpose withdrawals are 
not includible in income if the individual has had an ADSA 
account for at least 5 years. In general, special purpose 
withdrawals include first-time homebuyer expenses, higher 
education expenses, and medical expenses.
                First-time homebuyer expenses
      First-time homebuyer expenses of the individual are 
expenses used within 60 days to pay the costs of acquiring, 
contracting, or reconstructing the principal residence of the 
individual. An individual is considered a first-time homebuyer 
if the individual (and, if married, his or her spouse) did not 
own an interest in a principal residence during the prior 3 
years.
                Higher education expenses
      Higher education expenses are tuition, fees, books, 
supplies, and equipment required for the enrollment or 
attendance of the individual, the individual's spouse, or a 
child or grandchild of the individual at an eligible 
educational institution. The amount of higher education 
expenses is reduced by any amount excludable from income under 
the rules relating to education savings bonds.
                Medical expenses
      Medical expenses are defined as under the itemized 
deduction for medical expenses (without regard to the 7.5 
percent of adjusted gross income floor), and include the 
expenses of the individual and his or her spouse or dependents.
                Distributions to unemployed persons
      No provision.
            Effective date
      The provision is effective for taxable years beginning 
after December 31, 1995.

Senate amendment

            In general
      The Senate amendment phases up the income limits on the 
deductibility of IRA contributions and modifies the definition 
of active participant so that an individual is not considered 
an active participant merely because his or her spouse is an 
active participant in an employer-sponsored retirement plan. 
The Senate amendment indexes the $2,000 IRA contribution limit 
for inflation.
      In addition, the Senate amendment replaces present-law 
nondeductible IRAs with a new IRA Plus to which nondeductible 
contributions can be made. The limits on contributions to 
deductible IRAs and an IRA Plus are coordinated, so that no 
more than $2,000 per year can be contributed to an individual's 
IRAs. In general, an IRA Plus is an IRA that is designated at 
the time of establishment as an IRA Plus. An IRA Plus is 
generally subject to the same rules as IRAs, but certain 
special rules apply. If certain requirements are satisfied, 
distributions from an IRA Plus are excludable from income.
            Deductible IRA contributions
                In general
      The Senate amendment provides that an individual is not 
considered an active participant for purpose of the IRA 
deduction rules merely because his or her spouse is an active 
participant in an employer-sponsored retirement plan.
                Income phase-out range
      Beginning in 1996, for single individuals, the Senate 
amendment phases up the income limits on deductible IRA 
contributions in $5,000 increments until the phaseout range is 
$85,000 to $95,000 of AGI (in 2007). Also beginning in 1996, 
for married couples, the deduction is phased out over a $20,000 
income range (rather than $10,000) and the phase-out range is 
increased in $5,000 increments until the phase-out range is 
$100,000 to $120,000 of AGI (in 2007). After these new ranges 
are reached, the income limits are indexed for inflation in 
$5,000 increments.
            Inflation adjustment for IRA contribution limit
      The Senate amendment indexes the $2,000 limit on IRA 
contributions in $500 increments.
            Spousal IRAs
      The Senate amendment is the same as the House bill.
            Nondeductible tax-free IRAs
                In general
      The Senate amendment replaces the present-law rules 
relating to nondeductible contributions with new provisions 
that permit individuals to make nondeductible contributions to 
an IRA Plus. In general, an IRA Plus is subject to the same 
rules applicable to deductible IRAs. However, a number of 
special rules would apply.
                Contribution limit
      An individual can make contributions to an IRA Plus to 
the extent he or she does not make deductible contributions to 
an IRA. For this purpose, the active participant rule is 
disregarded in determining the maximum deductible IRA 
contribution the individual is permitted to make. That is, the 
income limits applicable to deductible IRAs do not apply to an 
IRA Plus.
                Contributions for nonworking spouse
      The Senate amendment is the same as the House bill.
                Miscellaneous
      Under the Senate amendment, contributions cannot be made 
to an IRA Plus after age 70\1/2\, IRA Plus accounts are subject 
to the minimum distribution rules, and the excess distribution 
tax applies to distributions from an IRA Plus.
                Taxation of distributions
      The Senate amendment is the same as the House bill, 
except that the 5-year holding period is calculated 
differently, and the definition of special purpose withdrawals 
differs. (See item 6, below.) Under the Senate amendment, the 
5-year holding period is satisfied if the contribution to which 
the distribution relates has been in the IRA Plus for at least 
5 years. All contributions for a year are treated as made on 
January 1 of the year.
                Rollover contributions
      The Senate amendment permits amounts withdrawn from IRAs 
to be rolled over into an IRA Plus. The amount rolled over is 
includible in gross income in the year the withdrawal was made, 
except that amounts rolled over to an IRA Plus before January 
1, 1998, are includible in income ratably over a 4-year period. 
The 10-percent early withdrawal tax does not apply to amounts 
rolled over from an IRA to an IRA Plus.
      Tax-free rollovers from one IRA Plus to another are 
permitted as under the rules relating to present-law IRAs.
            Special purpose withdrawals
                In general
      Under the Senate amendment, special purpose withdrawals 
from a deductible IRA are not subject to the 10-percent early 
withdrawal tax. In addition, as described above, special 
purpose withdrawals from an IRA Plus are not includible in 
income (or subject to the 10-percent early withdrawal tax) if 
made after the 5-year holding requirement is satisfied. In 
general, special purpose withdrawals include withdrawals for 
first-time homebuyer expenses (up to $10,000), higher education 
expenses, medical expenses in excess of 7.5 percent of AGI, and 
distributions to unemployed individuals.
                First-time homebuyer expenses
      The definition of first-time homebuyer expenses is the 
same under the Senate amendment as under the House bill, with 
the following modifications. The maximum amount that can be 
treated as first-time homebuyer expenses is limited to $10,000. 
First-time homebuyer expenses include not only the expenses of 
the individual account holder, but also of the individual's 
spouse, or a child, grandchild, or ancestor of the individual 
or his or her spouse (as long as that person is a first-time 
homebuyer). A person is considered a first-time homebuyer if 
the individual (and, if married, his or her spouse) did not own 
an interest in a principal residence during the prior 2 years 
and the period for tax-free rollover of the gain on a personal 
residence has not been extended.
                Higher education expenses
      The definition of higher education expenses is the same 
under the Senate amendment as under the House bill, except that 
higher education expenses include expenses of the individual's 
ancestors and any child, grandchild, or ancestor of the 
individual's spouse.
                Medical expenses
      The Senate amendment is the same as the House bill, 
except that only medical expenses in excess of 7.5 percent of 
AGI are treated as special purpose withdrawals. In addition, 
medical expenses include the expenses of a child, grandchild, 
or ancestor of the individual and his or her spouse, whether or 
not a dependent for tax purposes.
                Distributions to unemployed individuals
      Under the Senate amendment, distributions are treated as 
a special purpose distribution if the individual has received 
unemployment compensation for 12 weeks under Federal or State 
law and the distribution is made during any taxable year during 
which such unemployment compensation is paid or the next 
taxable year. A self-employed individual is treated as meeting 
the requirements for unemployment compensation if the 
individual would have received such compensation if he or she 
had not been self employed.
            Effective date
      The provision is effective for taxable years beginning 
after December 31, 1995.

Conference agreement

            In general
      In general, the conference agreement follows the Senate 
amendment with respect to deductible IRA contributions (with 
modifications), and follows the House bill with respect to 
nondeductible tax-free IRAs (with modifications). Under the 
conference agreement, nondeductible tax-free IRAs are called 
American Dream IRAs (AD IRA's). The conference agreement adopts 
the Senate amendment definition of special purpose withdrawals.
      Under the conference agreement, as under the Senate 
amendment, an individual is not considered an active 
participant in an employer-sponsored retirement plan merely 
because his or her spouse is an active participant. As under 
the House bill and the Senate amendment, under the conference 
agreement, annual contributions of up to $2,000 can be made to 
an IRA for each spouse in a married couple. The conference 
agreement phases up the income limits on deductible IRA 
contributions as under the Senate amendment, except that the 
phase-out range for married couples is increased to $20,000 in 
$2,500 increments.
      Under the conference agreement, the $2,000 IRA 
contribution limit is indexed for inflation in $500 increments.
      The conference agreement replaces present-law 
nondeductible IRAs with new provisions that permit individuals 
to make contributions to an AD IRA. Amounts withdrawn from an 
AD IRA are not includible in gross income if the withdrawal is 
made after the individual has had an AD IRA for at least 5 
years and the withdrawal is for a special purpose or made after 
the individual is age 59\1/2\.
      Penalty-free withdrawals can be made for special purposes 
from a deductible IRA or an AD IRA. Special purposes are first-
time homebuyer expenses, higher education expenses, 
catastrophic medical expenses, and distributions to unemployed 
individuals.
            Deductible IRA contributions
      The conference agreement follows the Senate amendment 
regarding deductible IRAs, with the following modifications. 
Beginning in 1996, the conference agreement increases the 
income phase-out range for married couples to $20,000 in $2,500 
increments. In addition, under the conference agreement, 
indexing of the income thresholds (after they reach $85,000 for 
singles and $100,000 for couples) is in $1,000 increments.
            Inflation adjustment for IRA contribution limit
      The conference agreement follows the Senate amendment.
            Spousal IRAs
      The conference agreement follows the House bill and the 
Senate amendment.
            Nondeductible tax-free IRAs
                In general
      The conference agreement generally follows the House bill 
with respect to nondeductible IRAs.2 However, as under the 
Senate amendment, the conference agreement coordinates the 
limits on deductible IRAs and nondeductible IRAs. In addition, 
under the conference agreement, special purpose withdrawals are 
defined as under the Senate amendment.
    \2\ As under the House bill and the Senate amendment, an AD IRA is 
treated as an IRA, except as specifically provided. Thus, for example, 
the exception from the rules requiring capitalization of certain policy 
acquisition expenses applies to an AD IRA just as it applies to a 
deductible IRA.
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                Contribution limit
      An individual can make contributions to all IRAs to the 
extent he or she does not make deductible contributions to an 
IRA. Thus, the maximum annual total contributions that can be 
made by an individual to all IRAs (including deductible IRAs 
and ADS IRAs) is $2,000. The income limits applicable to 
deductible IRAs do not apply to ADS IRAs.
                Miscellaneous
      The conference agreement follows the House bill. Thus, 
contributions can be made to an ADS IRA after age 70\1/2\, and 
the pre-death minimum distribution rules do not apply to an ADS 
IRA. Distributions from an ADS IRA are not subject to the 
excise tax on excess distributions (sec. 4980A).
      The conference agreement clarifies the application of the 
excise tax on excess contributions to an IRA. Under the 
conference agreement, the excise tax applies separately to 
deductible IRAs and to total contributions to deductible IRAs 
and ADS IRAs. Thus, the excise tax applies to contributions in 
excess of the amount allowable as a deduction, unless the 
excess contributions are distributed before the due date for 
the individual's tax return for the year (including 
extensions). It is intended that the excise tax on excess 
contributions to a deductible IRA does not apply to the extent 
the individual transfers excess contributions to an ADS IRA by 
such date. In such a case, the contribution is treated as made 
to the ADS IRA for the taxable year for which the contribution 
was made to the deductible IRA. In addition, the excise tax 
applies to total contributions to deductible IRAs and the 
individual's contributions to an ADS IRA (including any amounts 
transferred as described above). Thus, the excise tax applies 
if such total contributions for a year exceed $2,000 (unless 
the excess contributions are distributed).
                Taxation of distributions
      The conference agreement generally follows the House 
bill. Thus, amounts withdrawn from an ADS IRA are excludable 
from income if the withdrawal is made after the 5-taxable year 
period beginning with the taxable year for which the individual 
first makes a contribution to an ADS IRA,3 and either (a) 
the individual has attained age 59\1/2\ or (b) the withdrawal 
is a special purpose withdrawal. Special purpose withdrawals 
made within the 5-taxable year period are includible in income 
(to the extent attributable to earnings), but are not subject 
to the 10-percent tax on early withdrawals. Other withdrawals 
are includible in income to the extent attributable to earnings 
on contributions. Distributions from an AD IRA that are not 
includible in income are referred to as ``qualified 
distributions.''
    \3\ As is the case with IRAs in general, a contribution to an AD 
IRA for a taxable year can be made by the due date for filing the 
individual's tax return for the year (without regard to extensions). In 
such a case, the 5-year holding period begins to run with the taxable 
year to which the contribution relates, not the year in which the 
contribution is actually made.
---------------------------------------------------------------------------
      The conference agreement includes an ordering rule for 
purposes of determining what portion of a distribution that is 
not a qualified distribution is includible in income. Under the 
conference agreement, distributions are treated as made from 
contributions first. Thus, no portion of a distribution is 
treated as attributable to earnings until the total of all 
distributions from the AD IRA exceeds the amount of 
contributions.
                Rollover contributions
      The conference agreement follows the House bill, but 
clarifies that the conversion of an IRA to an AD IRA can be 
made without taking a distribution. For example, an individual 
could make the conversion by notifying the IRA trustee. Or, the 
individual could make the conversion in connection with a 
change in IRA trustees through a rollover or a trustee-to-
trustee transfer. An individual can convert all or any part of 
the amount in an IRA into an AD IRA. If only part of the IRA 
account balance is converted into an AD IRA, the AD IRA amounts 
must be held separately.
      As under the House bill, a conversion of an IRA into an 
AD IRA can only be made after December 31, 1996, and before 
January 1, 1998. The amount that would have been includible in 
income if the individual had withdrawn the converted amounts 
from the IRA is includible in income ratably over a 4-year 
period beginning with the year of the conversion. The trustee 
is required to make reports regarding the conversion and the 
amount involved as specified by the Treasury.4
    \4\ In the case of amounts attributable to a conversion of an IRA 
into an AD IRA, the 5-year holding period starts with the taxable year 
in which the conversion is made.
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            Special purpose withdrawals
      Under the conference agreement, special purpose 
withdrawals from an AD IRA or a deductible IRA are not subject 
to the 10-percent early withdrawal tax. Special purpose 
withdrawals are defined as under the Senate amendment.
            Effective date
      The provisions are effective for taxable years beginning 
after December 31, 1995.

 B. Establish SIMPLE Retirement Plans (secs. 12131-12132 of the Senate 
                               amendment)

Present law

      Present law does not contain rules relating to SIMPLE 
retirement plans. However, present law does provide a number of 
ways in which individuals can save for retirement on a tax-
favored basis. These include employer-sponsored retirement 
plans that meet the requirements of the Internal Revenue Code 
(a ``qualified plan'') and individual retirement arrangements 
(``IRAs''). Employees can earn significant retirement benefits 
under employer-sponsored retirement plans. However, in order to 
receive tax-favored treatment, such plans must comply with a 
variety of rules, including complex nondiscrimination and 
administrative rules (including top-heavy rules). Such plans 
are also subject to certain requirements under the labor law 
provisions of the Employee Retirement Income Security Act of 
1974 (``ERISA'').
      IRAs are not subject to the same rules as qualified 
plans, but the amount that can be contributed in any year is 
significantly less. The maximum deductible IRA contribution for 
a year is limited to $2,000. Distributions from IRAs and 
employer-sponsored retirement plans are generally taxable when 
made. In addition, distributions prior to age 59\1/2\ generally 
are subject to an additional 10-percent early withdrawal tax.
      Contributions to an IRA can also be made by an employer 
on behalf of employees under a simplified employee pension 
(``SEP''). Under SEPs, which are not qualified plans, employees 
can elect to have contributions made to the SEP or to receive 
the contributions in cash. The amount the employee elects to 
have contributed to the SEP is not currently includible in 
income. The annual amount an employee can elect to contribute 
to a SEP is limited to $9,240 for 1995. This dollar limit is 
indexed for inflation in $500 increments. The election to have 
amounts contributed to a SEP or received in cash is available 
only if at least 50 percent of the eligible employees of the 
employer elect to have amounts contributed to the SEP. In 
addition, such election is available for a taxable year only if 
the employer maintaining the SEP had 25 or fewer eligible 
employees at all times during the prior taxable year. Elective 
deferrals under SEP's are subject to a special 
nondiscrimination test.
      Under one type of qualified plan that can be maintained 
by an employer, employees can elect to reduce their taxable 
compensation and have nontaxable contributions made to the 
plan. Such contributions are called elective deferrals, and the 
plans which allow such contributions are called qualified cash 
or deferred arrangements (or ``401(k) plans''). Like SEPs, the 
maximum annual amount of elective deferrals that can be made by 
an individual is $9,240 for 1995. A special nondiscrimination 
test applies to elective deferrals. An employer may make 
contributions based on an employee's elective contributions. 
Such contributions are called matching contributions, and are 
subject to a special nondiscrimination test similar to the 
special nondiscrimination test applicable to elective 
deferrals.

House bill

      No provision.

Senate amendment

            In general
      The Senate amendment creates a simplified retirement plan 
for small business called the savings incentive match plan for 
employees (``SIMPLE'') retirement plan. SIMPLE plans can be 
adopted by employers who normally employ 100 or fewer employees 
on any day during the year and who do not maintain another 
employer-sponsored retirement plan. A SIMPLE plan can be either 
an IRA for each employee or part of a qualified cash or 
deferred arrangement (``401(k) plan''). If established in IRA 
form, a SIMPLE plan is not subject to the nondiscrimination 
rules generally applicable to qualified plans (including the 
top-heavy rules) and simplified reporting requirements apply. 
Within limits, contributions to a SIMPLE plan are not taxable 
until withdrawn. A SIMPLE plan is subject to certain provisions 
contained in Parts 1 and 4, Subtitle B, Title I of ERISA.
      A SIMPLE plan can also be adopted as part of a 401(k) 
plan. In that case, the plan does not have to satisfy the 
special nondiscrimination tests applicable to 401(k) plans and 
is not subject to the top-heavy rules. The other qualified plan 
rules continue to apply. A simple plan adopted as part of a 
401(k) plan is subject to the provisions contained in Subtitle 
B, Title I of ERISA applicable to qualified plans.
            SIMPLE retirement plans in IRA form
                In general
      A SIMPLE retirement plan allows employees to make 
elective contributions to an IRA. Employee contributions have 
to be expressed as a percentage of the employee's compensation, 
and cannot exceed $6,000 per year. The $6,000 dollar limit is 
indexed for inflation in $500 increments.
      The employer generally is required to match employee 
elective contributions on a dollar- for-dollar basis up to 3 
percent of the employee's compensation. Under a special rule, 
the employer can elect a lower percentage matching contribution 
for all employees (but not less than 1 percent of each 
employee's compensation). In order for the employer to lower 
the matching percentage, the employer must notify employees of 
the applicable match within a reasonable time before the 60-day 
election period for the year (described below). In addition, a 
lower percentage cannot be elected for more than 2 out of any 5 
years. No contributions other than employee elective 
contributions and employer matching contributions can be made 
to a SIMPLE account.
      Only employers who normally employ 100 or fewer employees 
on any day during the year and who do not currently maintain a 
qualified plan can establish SIMPLE retirement accounts for 
their employees.
      Each employee of the employer who received at least 
$5,000 in compensation from the employer during each of the 2 
preceding years and who is reasonably expected to receive at 
least $5,000 in compensation during the year must be eligible 
to participate in the SIMPLE plan. Nonresident aliens and 
employees covered under a collective bargaining agreement do 
not have to be eligible to participate in the SIMPLE plan. 
Self-employed individuals can participate in a SIMPLE plan.
      All contributions to an employee's SIMPLE account must be 
fully vested.
      Distributions from a SIMPLE plan generally are taxed as 
under the rules relating to IRAs, except that an increased 
early withdrawal tax (25 percent) applies to distributions 
within the first 2 years the SIMPLE is established.
                Tax treatment of SIMPLE accounts, contributions, and 
                    distributions
      Contributions to a SIMPLE account generally are 
deductible by the employer. In the case of matching 
contributions, the employer is allowed a deduction for a year 
only if the contributions are made by the due date (including 
extensions) for the employer's tax return. Contributions to a 
SIMPLE account are excludable from the employee's income. 
SIMPLE accounts, like IRAs, are not subject to tax. 
Distributions from a SIMPLE retirement account generally are 
taxed under the rules applicable to IRAs. Thus, they are 
includible in income when withdrawn. Tax-free rollovers can be 
made from one SIMPLE account to another. To the extent an 
employee is no longer participating in a SIMPLE plan (e.g., the 
employee has terminated employment), the employee's SIMPLE 
account shall be treated as an IRA.
      Early withdrawals from a SIMPLE account generally are 
subject to the 10-percent early withdrawal tax applicable to 
IRAs. However, withdrawals of contributions during the 2-year 
period beginning on the date the employee first participated in 
the SIMPLE plan are subject to a 25-percent early withdrawal 
tax (rather than 10 percent).
                Administrative requirements
      Each eligible employee can elect, within the 60-day 
period before the beginning of the year, to participate in the 
SIMPLE plan (i.e., to make elective deferrals), and to modify 
any previous elections regarding the amount of contributions. 
An employer is required to contribute employees' elective 
deferrals to the employee's SIMPLE account within 30 days after 
the end of the month to which the contributions relate. 
Employees must be allowed to terminate participation in the 
SIMPLE plan at any time during the year (i.e., to stop making 
contributions). The plan could provide that an employee who 
terminates participation could not resume participation until 
the following year. A plan can permit (but is not required to 
permit) an individual to make other changes to his or her 
salary reduction contribution election during the year (e.g., 
reduce contributions).
      No fee can be imposed on the employee with respect to the 
employee's initial investment decision with respect to any 
contributions. This rule is not intended to preclude the 
imposition of a reasonable fee based on the rate of return on 
assets held in a SIMPLE account.
                Reporting requirements
      Trustee requirements.--The trustee of a SIMPLE account is 
required each year to prepare, and provide to the employer 
maintaining the SIMPLE plan, a summary description containing 
the following basic information about the plan: the name and 
address of the employer and the trustee; the requirements for 
eligibility; the benefits provided under the plan; the time and 
method of making salary reduction elections; and the procedures 
for and effects of, withdrawals from the SIMPLE account. At 
least once a year, the trustee also is required to furnish an 
account statement to each individual maintaining a SIMPLE 
account. In addition, the trustee is required to file an annual 
report with the Secretary. A trustee who fails to provide any 
of such reports or descriptions is subject to a penalty of $50 
per day until such failure is corrected, unless the failure is 
due to reasonable cause.
      Employer reports.--The employer maintaining a SIMPLE plan 
is required to notify each employee of the employee's 
opportunity to make salary reduction contributions under the 
plan immediately before the employee becomes eligible to make 
such election. This notice must include a copy of the summary 
description prepared by the trustee. An employer who fails to 
provide such notice is subject to a penalty of $50 per day on 
which such failure continues, unless the failure is due to 
reasonable cause.
                Definitions
      For purposes of the rules relating to SIMPLE plans, 
compensation is compensation required to be reported by the 
employer on Form W-2, plus any elective deferrals of the 
employee. In the case of a self-employed individual, 
compensation is net earnings from self-employment. ``Employer'' 
includes the employer and related employers. Related employers 
include trades or businesses under common control (whether 
incorporated or not), controlled groups of corporations, and 
affiliated service groups. In addition, the leased employee 
rules apply.
      For purposes of the rule prohibiting an employer from 
establishing a SIMPLE plan, if the employer has another 
qualified plan, an employer is treated as maintaining a 
qualified plan if the employer (or a predecessor employer) 
maintained a qualified plan with respect to which contributions 
were made, or benefits were accrued, with respect to service 
for any year in the period beginning with the year the SIMPLE 
plan became effective and ending with the year for which the 
determination is being made. A qualified plan includes a 
qualified retirement plan, a qualified annuity plan, a 
governmental plan, a tax-sheltered annuity, and a simplified 
employee pension.
            SIMPLE 401(k) plans
      In general, under the Senate amendment, a cash or 
deferred arrangement (i.e., 401(k) plan), is deemed to satisfy 
the special nondiscrimination tests applicable to employee 
elective deferrals and employer matching contributions if the 
plan satisfies the contribution requirements applicable to 
SIMPLE plans. In addition, the plan is not subject to the top-
heavy rules for any year for which this safe harbor is 
satisfied. The plan is subject to the other qualified plan 
rules.
      The safe harbor is satisfied if, for the year, the 
employer does not maintain another qualified plan and (1) 
employee's elective deferrals are limited to no more than 
$6,000, (2) the employer matches employees' elective deferrals 
up to 3 percent of compensation, and (3) no other contributions 
are made to the arrangement. Contributions under the safe 
harbor must be 100 percent vested. The employer cannot reduce 
the matching percentage below 3 percent of compensation.
            Effective date
      The provisions relating to SIMPLE plans are effective for 
years beginning after December 31, 1995.

Conference agreement

            SIMPLE retirement plans in IRA form
      The conference agreement follows the Senate amendment 
with the following modifications. An employer is eligible to 
maintain a SIMPLE plan if the employer employs 100 or fewer 
employees on any day during the year. An employee must be 
eligible to participate in the SIMPLE plan in a year if the 
employee received at least $5,000 in compensation from the 
employer during any two prior years and the employee is 
reasonably expected to receive at least $5,000 in compensation 
in the current year. The prohibition on fees with respect to an 
employee's initial investment decision with respect to any 
contributions is eliminated. A SIMPLE account may be rolled 
over to an individual retirement arrangement (``IRA'') on a 
tax-free basis after a two-year period has expired since the 
individual first participated in the SIMPLE plan. The 
conference agreement also clarifies that the summary 
description required to be prepared by the trustee of a SIMPLE 
account must provide information on rolling over amounts from a 
SIMPLE account.
      The conference agreement also amends parts 1 and 4, 
Subtitle B, Title I of ERISA so that only simplified reporting 
requirements apply to SIMPLE plans and so that the employer 
will not be subject to fiduciary liability resulting from the 
employee (or beneficiary) exercising control over the assets in 
the SIMPLE account. For this purpose, an employee (or 
beneficiary) is treated as exercising control over the assets 
in his or her account upon the earlier of (1) an affirmative 
election with respect to the initial investment of any 
contributions, (2) a rollover contribution (including a 
trustee-to-trustee transfer) to another SIMPLE account or IRA, 
or (3) one year after the SIMPLE account is established.
      It is intended that an employee's elective contributions, 
but not an employer's matching contributions, to a SIMPLE 
account are to be treated as wages for employment tax purposes.
            SIMPLE 401(k) plans
      The conference agreement follows the Senate amendment.
            Repeal of SEPs
      Under the conference agreement, the present-law rules 
governing SEPs will no longer apply after December 31, 1995, 
unless the SEP was established before January 1, 1996. 
Consequently, an employer will not be permitted to establish a 
SEP after December 31, 1995. SEPs established before January 1, 
1996, may continue to receive contributions under present-law 
rules, and new employees of the employer hired after December 
31, 1995, may participate in the SEP in accordance with such 
rules.
            Effective date
      The conference agreement follows the Senate amendment.

                      C. Capital Gains Provisions

 1. Individual capital gains (sec. 6301 of H.R. 1215 and sec. 12141 of 
                         the Senate amendment)

Present law

      In general, gain or loss reflected in the value of an 
asset is not recognized for income tax purposes until a 
taxpayer disposes of the asset. On the sale or exchange of 
capital assets, the net capital gain is taxed at the same rate 
as ordinary income, except that individuals are subject to a 
maximum marginal rate of 28 percent of the net capital gain. 
Net capital gain is the excess of the net long-term capital 
gain for the taxable year over the net short-term capital loss 
for the year. Gain or loss is treated as long-term if the asset 
is held for more than one year.
      Prior to the enactment of the Tax Reform Act of 1986, 
individuals were allowed a deduction equal to 60 percent of net 
capital gain. The deduction resulted in a maximum effective tax 
rate of 20 percent on such gains.
      Capital losses are generally deductible in full against 
capital gains. In addition, individuals may deduct capital 
losses against up to $3,000 of ordinary income in each year. 
Capital losses in excess of the amount deductible are carried 
forward indefinitely. Prior to the Tax Reform Act of 1986, 
individuals were required to use two dollars of long-term 
capital loss to offset each dollar of ordinary income.
      An alternative minimum tax is imposed at rates up to 28 
percent on alternative minimum taxable income (AMTI), which is 
taxable income plus tax adjustments and preferences. Capital 
gains are included in AMTI.

House bill

      The House bill allows individuals a deduction equal to 50 
percent of net capital gain for the taxable year. The House 
bill makes the present-law maximum 28-percent rate 
inapplicable. Thus, under the House bill, the effective rate 
under the regular tax on the net capital gain of an individual 
in the highest (i.e., 39.6 percent) marginal rate bracket is 
19.8 percent.
      Collectibles are excluded from net capital gain. A 
maximum rate of 28 percent applies to the net gain from the 
sale or exchange of collectibles held for more than one year 
(unless the individual indexes the basis of the collectible, as 
described below).
      The House bill reinstates the rule in effect prior to the 
Tax Reform Act of 1986 that required two dollars of the long-
term capital loss of an individual to offset one dollar of 
ordinary income. The $3,000 limitation on the deduction of 
capital losses against ordinary income would continue to apply.
      Effective date.--The provision generally applies to sales 
and exchanges (and installment payments received) after 
December 31, 1994. The capital loss rule does not apply to 
losses arising in taxable years beginning before January 1, 
1996.

Senate amendment

      The Senate amendment is the same as the House bill, 
except that one-half of the capital gains deduction is a 
preference for purposes of the alternative minimum tax. Also, 
the 28-percent rate for collectibles does not require an 
election to forgo indexing (as the Senate amendment contains no 
indexing provision).
      Effective date.--The provision generally applies to sales 
and exchanges (and installment payments received) after October 
13, 1995. The capital loss rule is effective the same as in the 
House bill.

Conference agreement

      The conference agreement follows the House bill.

 2. Small business stock (sec. 6301 of H.R. 1215 and secs. 12142-12143 
                        of the Senate amendment)

Present law

      The Revenue Reconciliation Act of 1993 provided 
individuals a 50-percent exclusion for the sale of certain 
small business stock acquired at original issue and held for at 
least five years. One-half of the excluded gain is a minimum 
tax preference.
      The amount of gain eligible for the 50-percent exclusion 
by an individual with respect to any corporation is the greater 
of (1) ten times the taxpayer's basis in the stock or (2) $10 
million.
      In order to qualify as a small business, when the stock 
is issued, the gross assets of the corporation may not exceed 
$50 million. The corporation also must meet an active trade or 
business requirement.

House bill

      The House bill repeals the exclusion for small business 
stock.
      Effective date.--A taxpayer holding small business stock 
on the date of enactment may elect, within one year from the 
date of enactment, to have the provisions of present law 
(rather than the provisions of the House bill) apply to any 
gain from the sale of the stock.

Senate amendment

      The taxable portion of the gain from the sale of small 
business stock is eligible for the individual capital gains 
deduction added by the Senate amendment. Thus, only 25 percent 
of the gain from a qualified sale of small business stock is 
subject to tax. The effective rate under the regular tax on the 
gain of an individual in the highest (i.e., 39.6 percent) 
marginal rate bracket is 9.9 percent.
      The Senate amendment increases the size of an eligible 
corporation from gross assets of $50 million to gross assets of 
$100 million. The Senate amendment also repeals the limitation 
on the amount of gain an individual can exclude with respect to 
the stock of any corporation.
      The Senate amendment provides that certain working 
capital must be expended within five years (rather than two 
years) in order to be treated as used in the active conduct of 
a trade or business. No limit on the percent of the 
corporation's assets that are working capital is imposed.
      The Senate amendment provides that if the corporation 
establishes a business purpose for a redemption of its stock, 
that redemption is disregarded in determining whether other 
newly issued stock can qualify as eligible stock.
      The Senate amendment allows an individual to roll over 
gain from the sale or exchange of small business stock 
otherwise qualifying for the exclusion where the individual 
uses the proceeds to purchase other qualifying small business 
stock within 60 days of the sale of the original stock. If the 
individual sells the replacement stock, the gain attributable 
to the original stock is eligible for the small business stock 
exclusion and the capital gain deduction, and any remaining 
gain is eligible for the capital gain deduction if held more 
than one year and the small business exclusion if held for at 
least five years. In addition, any gain that otherwise would be 
recognized from the sale of the replacement stock can be rolled 
over to other small business stock purchased within 60 days.
      Effective date.--The increase in the size of corporations 
whose stock is eligible for the exclusion applies to stock 
issued after the date of the enactment of the proposal. The 
remaining provisions apply to stock issued after August 10, 
1993 (the original effective date of the small business stock 
provision).

Conference agreement

      The conference agreement generally follows the Senate 
amendment.
      Under the conference agreement, the maximum rate of tax 
on qualifying gain from the sale of small business stock by a 
taxpayer other than a corporation is 14 percent. The conference 
agreement repeals the present-law 50-percent exclusion for gain 
from qualifying small business stock, since that gain will be 
eligible for the 50-percent capital gains deduction that is 
generally applicable to gain recognized by individual taxpayers 
as provided for by the conference agreement. In addition, the 
conference agreement repeals the minimum tax preference for 
gain from the sale of small business stock.
      The conference agreement does not contain the rollover 
provision in the Senate amendment.

         3. Indexing of capital gains (sec. 6302 of H.R. 1215)

Present law

      Under present law, a taxpayer's gain or loss from the 
disposition of an asset is determined without regard to any 
adjustment for inflation.

House bill

      The House bill allows a taxpayer other than a C 
corporation to index the basis of certain assets for purposes 
of determining gain (but not loss) upon the sale or other 
disposition of the assets.
      Assets eligible for indexing generally include common 
stock of C corporations and tangible property that are capital 
assets or property used in a trade or business and which are 
held more than three years.
      The inflation adjustment is computed by multiplying the 
taxpayer's adjusted basis in the indexed asset by an index 
based on changes in the GDP deflator.
      Special rules are provided for RICS, REITS, partnerships, 
S corporations and common trust funds.
      Effective date.--The provision applies to property the 
holding period of which begins after December 31, 1994, and to 
principal residences held on January 1, 1995 (for inflation 
after that date). A taxpayer holding an indexed asset (other 
than a principal residence) on January 1, 1995, may elect to 
treat the asset as having been sold (and reacquired) on that 
date for its fair market value, i.e., ``marked to market.'' If 
the election is made, any gain is recognized (and any loss is 
disallowed).

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill except 
that the effective date is for assets acquired on or after, and 
principal residences held on, January 1, 2001 (rather than 
January 1, 1995), for inflation after that date. The date of 
the ``mark to market'' election under the House bill is also 
moved forward from January 1, 1995, to January 1, 2001. The 
election will apply to eligible assets held on January 1, 2001.

 4. Corporate capital gains (sec. 6311 of H.R. 1215 and sec. 12151 of 
                         the Senate amendment)

Present law

      Under present law, the net capital gain of a corporation 
is taxed at the same rate as ordinary income, and subject to 
tax at graduated rates up to 35 percent. Prior to the Tax 
Reform Act of 1986, the net capital gain of a corporation was 
subject to an alternative tax rate of 28 percent.

House bill

      The House bill provides an alternative tax of 25 percent 
on the net capital gain of a corporation if that rate is less 
than the corporation's regular tax rate.
      Effective date.--The provision generally applies to sales 
and exchanges (and installment payments received) after 
December 31, 1994.

Senate amendment

      The Senate amendment provides an alternative rate of 28 
percent on the net capital gain of a corporation if that rate 
is less than the corporation's regular tax rate.
      The Senate amendment also provides an alternative rate of 
21 percent on the gain from the sale or exchange of qualified 
small business stock (other than stock of a subsidiary 
corporation) held more than five years.
      Effective date.--The provision generally applies to sales 
and exchanges (and installment payments received) after October 
13, 1995. The small business stock provision applies to stock 
issued after date of enactment.

Conference agreement

      The conference agreement follows the Senate amendment, 
except that the 28-percent rate is effective the same as in the 
House bill.

   5. Capital loss deduction on the sale or exchange of a principal 
                   residence (sec. 6316 of H.R. 1215)

Present law

      Under present law, the sale or exchange of a principal 
residence is treated as a nondeductible personal loss.

House bill

      The House bill provides that a loss from the sale or 
exchange of a principal residence is treated as a deductible 
capital loss.
      Effective date.--The provision applies to sales and 
exchanges after December 31, 1994.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

d. alternative minimum tax (amt) provisions (sec. 19002(f) of the house 
        bill and secs. 12161 and 12162 of the senate amendment)

Present law
      Present law imposes an alternative minimum tax (``AMT'') 
on an individual or a corporation to the extent the taxpayer's 
tentative minimum tax exceeds its regular tax liability. The 
individual minimum tax is imposed at graduated rates of 26 and 
28 percent on alternative minimum taxable income in excess of a 
phased-out exemption amount; the corporate minimum tax is 
imposed at a rate of 20 percent on alternative minimum taxable 
income in excess of a phased-out $40,000 exemption amount. 
Alternative minimum taxable income (''AMTI'') is the taxpayer's 
taxable income increased by certain preference items and 
adjusted by determining the tax treatment of certain items in a 
manner that negates the deferral of income resulting from the 
regular tax treatment of those items.
      Individuals and corporations must adjust their regular 
tax depreciation deductions in computing their AMTI. Under the 
AMT, depreciation on property placed in service after 1986 must 
be computed by using the class lives prescribed by the 
alternative depreciation system of section 168(g) and either 
(1) the straight-line method in the case of property subject to 
the straight-line method under the regular tax or (2) the 150-
percent declining balance method in the case of other property. 
Under the regular tax, depreciation on such property generally 
is determined using shorter recovery periods and more 
accelerated recovery methods.
      If a taxpayer is subject to the AMT in one year, such 
amount of tax is allowed as a credit (''AMT credit'') in a 
subsequent taxable year to the extent the taxpayer's regular 
tax liability exceeds its tentative minimum tax in such 
subsequent year. If the taxpayer is an individual, the AMT 
credit is allowed to the extent the taxpayer's AMT liability is 
a result of adjustments that are timing in nature (e.g., the 
adjustment for depreciation). The AMT credit has an unlimited 
carryforward but cannot be carried back.
House bill
      The House bill eliminates the depreciation adjustment of 
the individual AMT and reduces the corporate AMT rate to zero.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1994. The effects of the two 
modifications are suspended for taxable years beginning in 1995 
and 1996. These suspended amounts are refunded ratably as 
credits for the first three taxable years beginning after 1996.
Senate amendment
      For purposes of the individual and corporate AMTs, the 
Senate amendment conforms the AMT depreciation method to the 
regular tax method. Thus, property that is recovered using the 
200-percent declining balance method for regular tax purposes 
(generally, shorter-lived tangible personal property) will use 
that method under the AMT. The Senate amendment does not change 
the class lives applicable to any property for AMT purposes.
      In addition, the Senate amendment allows a corporation 
with certain AMT credits to offset a portion of its tentative 
minimum tax in excess of its regular tax. The portion so 
allowed would be the least of: (1) the amount of the taxpayer's 
long-term minimum tax credit (i.e., those credits that arose at 
least five years ago); (2) 50 percent of the taxpayer's 
tentative minimum tax; or (3) the amount by which the 
taxpayer's tentative minimum tax exceeds it regular tax for the 
year.
      Effective date.--The depreciation provision is effective 
for property placed in service after December 31, 1995. The AMT 
credit provision is effective for taxable years beginning after 
December 31, 1995.
Conference agreement
      The conference agreement repeals the depreciation 
adjustment for purposes of both the individual and corporate 
AMT for property placed in service after December 31, 1995. 
Thus, the conference agreement conforms the AMT depreciation 
methods and lives to the depreciation methods and lives used 
for regular tax purposes for property placed in service after 
1995.
      In addition, the conference agreement follows the Senate 
amendment with respect to the AMT credit, except that under the 
agreement, the amount of the taxpayer's long-term minimum tax 
credit will be those credits that arose at least seven (rather 
than five) years ago.

                      e. cost recovery provisions

    1. treatment of leasehold improvements (sec. 6322 of h.r. 1215)

Present law
            Depreciation of leasehold improvements
      Improvements made on leased property are depreciated 
under the modified Accelerated Cost Recovery System 
(''MACRS''), even if the MACRS recovery period assigned to the 
property is longer than the term of the lease (sec. 168(i)(8)). 
This rule applies regardless whether the lessor or lessee 
places the leasehold improvements in service. If a leasehold 
improvement constitutes an addition or improvement to 
nonresidential real property already placed in service, the 
improvement is depreciated using the straight-line method over 
a 39-year recovery period, beginning in the month the addition 
or improvement was placed in service (secs. 168(b)(3), (c)(1), 
(d)(2), and (i)(6)).
            Treatment of dispositions of leasehold improvements
      A taxpayer generally recovers the adjusted basis of 
property for purposes of determining gain or loss upon the 
disposition of the property. Upon the termination of a lease, 
the adjusted basis of leasehold improvements that were made, 
but are not retained, by a lessee are taken into account to 
compute gain or loss by the lessee. The proper treatment of the 
adjusted basis of improvements made by a lessor upon 
termination of a lease is less clear. Proposed Treasury 
regulation section 1.168-2(e)(1) provides that the unadjusted 
basis of a building's structural components must be recovered 
as whole. In addition, proposed Treasury regulation sections 
1.168-2(l)(1) and 1.168-6(b) provide that ``disposition'' does 
not include the retirement of a structural component of real 
property if there is no disposition of the underlying building. 
Thus, it appears that it is the position of the Internal 
Revenue Service that leasehold improvements made by a lessor 
that constitute structural components of a building must be 
continued to be depreciated in the same manner as the 
underlying real property, even if such improvements are retired 
at the end of the lease term. Some lessors, on the other hand, 
may be taking the position that a leasehold improvement is a 
property separate and distinct from the underlying building and 
that an abandonment loss under section 165 is allowable at the 
end of the lease term for the adjusted basis of the property. 
In addition, lessors may argue that even if a leasehold 
improvement constitutes a structural component of a building, 
proposed Treasury regulation section 1.168-2(l)(1) (that 
seemingly denies the deduction at the end of the lease term) 
applies only to retirements, but not abandonments or 
demolitions, of such property. Thus, it appears that some 
lessors take the position that, at least in certain 
circumstances, the adjusted basis of leasehold improvements may 
be recovered at the end of the term of the lease to which the 
improvements relate even if there is no disposition of the 
underlying building.
House bill
      Under the House bill, a lessor of leased property that 
disposes of a leasehold improvement which was made by the 
lessor for the lessee of the property may take the adjusted 
basis of the improvement into account for purposes of 
determining gain or loss if the improvement is irrevocably 
disposed of or abandoned by the lessee at the termination of 
the lease. The provision thus conforms the treatment of lessors 
and lessees with respect to leasehold improvements disposed of 
at the end of a term of lease.
      For purposes of applying the provision, it is expected 
that a lessor must be able to separately account for the 
adjusted basis of the leasehold improvement that is irrevocably 
disposed of or abandoned.
      Effective date.--The provision is effective for leasehold 
improvements disposed of after March 13, 1995. No inference is 
intended as to the proper treatment of such dispositions before 
March 14, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill 
provision.

 2. increase in expensing for small businesses (sec. 6352 of h.r. 1215)

Present law
      In lieu of depreciation, a taxpayer with a sufficiently 
small amount of annual investment may elect to deduct up to 
$17,500 of the cost of qualifying property placed in service 
for the taxable year (sec. 179).5 In general, qualifying 
property is defined as depreciable tangible personal property 
that is purchased for use in the active conduct of a trade or 
business. The $17,500 amount is reduced (but not below zero) by 
the amount by which the cost of qualifying property placed in 
service during the taxable year exceeds $200,000. In addition, 
the amount eligible to be expensed for a taxable year may not 
exceed the taxable income of the taxpayer for the year that is 
derived from the active conduct of a trade or business 
(determined without regard to this provision). Any amount that 
is not allowed as a deduction because of the taxable income 
limitation may be carried forward to succeeding taxable years 
(subject to similar limitations).
    \5\ The amount permitted to be expensed under Code section 179 is 
increased by up to an additional $20,000 for certain property placed in 
service by a business located in an empowerment zone (sec. 1397A).
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House bill
      The House bill increases the $17,500 amount allowed to be 
expensed under Code section 179 to $35,000. The increase is 
phased in as follows:

        Taxable year beginning in--                    Maximum expensing
    1996......................................................   $22,500
    1997......................................................    27,500
    1998......................................................    32,500
    1999 and thereafter.......................................    35,000

      Effective date.--The provision is effective for property 
placed in service in taxable years beginning after December 31, 
1995, subject to the phase-in schedule set forth above.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill, except 
that the maximum expensing limits and phase-in schedule are 
modified as follows:

        Taxable year beginning in--                    Maximum expensing
    1996......................................................   $19,000
    1997......................................................    20,000
    1998......................................................    21,000
    1999......................................................    22,000
    2000......................................................    23,000
    2001......................................................    24,000
    2002 and thereafter.......................................    25,000

      Effective date.--The provision is effective for property 
placed in service in taxable years beginning after December 31, 
1995, subject to the phase-in schedule set forth above.

  f. home office deduction: clarification of definition of principal 
place of business; treatment of storage of product samples (secs. 6353 
                         and 6354 of h.r. 1215)

Present law
      A taxpayer's business use of his or her home may give 
rise to a deduction for the business portion of expenses 
related to operating the home (e.g., a portion of rent or 
depreciation and repairs). Code section 280A(c)(1) provides, 
however, that business deductions generally are allowed only 
with respect to a portion of a home that is used exclusively 
and regularly in one of the following ways: (1) as the 
principal place of business for a trade or business; (2) as a 
place of business used to meet with patients, clients, or 
customers in the normal course of the taxpayer's trade or 
business; or (3) in connection with the taxpayer's trade or 
business, if the portion so used constitutes a separate 
structure not attached to the dwelling unit. In the case of an 
employee, the Code further requires that the business use of 
the home must be for the convenience of the employer (sec. 
280A(c)(1)).6 These rules apply to houses, apartments, 
condominiums, mobile homes, boats, and other similar property 
used as the taxpayer's home (sec. 280A(f)(1)). Under Internal 
Revenue Service (IRS) rulings, the deductibility of expenses 
incurred for local transportation between a taxpayer's home and 
a work location sometimes depends on whether the taxpayer's 
home office qualifies under section 280A(c)(1) as a principal 
place of business (see Rev. Rul. 94-47, 1994-29 I.R.B. 6).
    \6\ If an employer provides access to suitable space on the 
employer's premises for the conduct by an employee of particular 
duties, then, if the employee opts to conduct such duties at home as a 
matter of personal preference, the employee's use of the home office is 
not ``for the convenience of the employer.'' See, e.g., W. Michael 
Mathes, (1990) T.C. Memo 1990-483.
---------------------------------------------------------------------------
      Prior to 1976, expenses attributable to the business use 
of a residence were deductible whenever they were ``appropriate 
and helpful'' to the taxpayer's business. In 1976, Congress 
adopted section 280A, in order to provide a narrower scope for 
the home office deduction, but did not define the term 
``principal place of business.'' In Commissioner v. Soliman, 
113 S.Ct. 701 (1993), the Supreme Court reversed lower court 
rulings and upheld an IRS interpretation of section 280A that 
disallowed a home office deduction for a self-employed 
anesthesiologist who practiced at several hospitals but was not 
provided office space at the hospitals. Although the 
anesthesiologist used a room in his home exclusively to perform 
administrative and management activities for his profession 
(i.e., he spent two or three hours a day in his home office on 
bookkeeping, correspondence, reading medical journals, and 
communicating with surgeons, patients, and insurance 
companies), the Supreme Court upheld the IRS position that the 
``principal place of business'' for the taxpayer was not the 
home office, because the taxpayer performed the ``essence of 
the professional service'' at the hospitals.7 Because the 
taxpayer did not meet with patients at his home office and the 
room was not a separate structure, a deduction was not 
available under the second or third exception under section 
280A(c)(1) (described above).
    \7\ In response to the Supreme Court's decision in Soliman, the IRS 
revised its Publication 587, Business Use of Your Home, to more closely 
follow the comparative analysis used in Soliman by focusing on the 
following two primary factors in determining whether a home office is a 
taxpayer's principal place of business: (1) the relative importance of 
the activities performed at each business location; and (2) the amount 
of time spent at each location.
---------------------------------------------------------------------------
      Section 280A(c)(2) contains a special rule that allows a 
home office deduction for business expenses related to a space 
within a home that is used on a regular (even if not exclusive) 
basis as a storage unit for the inventory of the taxpayer's 
trade or business of selling products at retail or wholesale, 
but only if the home is the sole fixed location of such trade 
or business.
      Home office deductions may not be claimed if they create 
(or increase) a net loss from a business activity, although 
such deductions may be carried over to subsequent taxable years 
(sec. 280A(c)(5)).
House bill
            Definition of principal place of business
      The House bill amends present-law section 280A to 
specifically provide that a home office qualifies as the 
``principal place of business'' if (1) the office is used by 
the taxpayer to conduct administrative or management activities 
of a trade or business and (2) there is no other fixed location 
of the trade or business where the taxpayer conducts 
substantial administrative or management activities of the 
trade or business. As under present law, deductions will be 
allowed for a home office meeting the above two-part test only 
if the office is exclusively used on a regular basis as a place 
of business by the taxpayer, and in the case of an employee, 
only if such exclusive use is for the convenience of the 
employer.
      Thus, under the House bill, a home office deduction will 
be allowed (subject to the present-law ``convenience of the 
employer'' rule governing employees) if a portion of a 
taxpayer's home is exclusively and regularly used to conduct 
administrative or management activities for a trade or business 
of the taxpayer, who does not conduct substantial 
administrative or management activities at any other fixed 
location of the trade or business, regardless of whether 
administrative or management activities connected with his 
trade or business (e.g., billing activities) are performed by 
others at other locations. The fact that a taxpayer also 
carries out administrative or management activities at sites 
that are not fixed locations of the business, such as a car or 
hotel room, will not affect the taxpayer's ability to claim a 
home office deduction under the provision. Moreover, if a 
taxpayer conducts some administrative or management activities 
at a fixed location of the business outside the home, the 
taxpayer still will be eligible to claim a deduction so long as 
the administrative or management activities conducted at any 
fixed location of the business outside the home are not 
substantial (e.g., the taxpayer occasionally does minimal 
paperwork at another fixed location of the business). In 
addition, a taxpayer's eligibility to claim a home office 
deduction under the provision will not be affected by the fact 
that the taxpayer conducts substantial non-administrative or 
non-management business activities at a fixed location of the 
business outside the home (e.g., meeting with, or providing 
services to, customers, clients, or patients at a fixed 
location of the business away from home).
      If a taxpayer in fact does not perform substantial 
administrative or management activities at any fixed location 
of the business away from home, then the second prong of the 
provision is satisfied, regardless of whether or not the 
taxpayer opted not to use an office away from home that was 
available for the conduct of such activities. However, in the 
case of an employee, the question whether an employee opted not 
to use suitable space made available by the employer for 
administrative activities is relevant to determining whether 
the present-law ``convenience of the employer'' test is 
satisfied. In cases where a taxpayer's use of a home office 
does not satisfy the provision's two-part test, the taxpayer 
nonetheless may be able to claim a home office deduction under 
the present-law ``principal place of business'' exception or 
any other provision of section 280A.
            Treatment of storage of product samples
      In addition, the House bill clarifies that the special 
rule contained in present-law section 280A(c)(2) permits 
deductions for expenses related to a storage unit in a 
taxpayer's home regularly used for inventory or product samples 
(or both) of the taxpayer's trade or business of selling 
products at retail or wholesale, provided that the home is the 
sole fixed location of such trade or business.
            Effective date
      The House bill provisions governing home office expense 
deductions apply to taxable years beginning after December 31, 
1995.
Senate amendment
      No provision.
Conference agreement
            Definition of principal place of business
      The conference agreement does not include the House bill 
provision that amends the definition of ``principal place of 
business.''
            Treatment of storage of product samples
      The conference agreement includes the House bill 
provision that clarifies that present-law section 280A(c)(2) 
applies to storage of inventory or product samples (or both) in 
a taxpayer's home.
            Effective date
      The provision applies to taxable years beginning after 
December 31, 1995.

                  III. HEALTH CARE-RELATED PROVISIONS

A. Treatment of Long-Term Care Insurance (secs. 6211-6214 and 6231-6232 
   of H.R. 1215 and secs. 12201-12204 and 12211-12214 of the Senate 
                               amendment)

Present law

            In general
      Present law generally does not provide explicit rules 
relating to the tax treatment of long-term care insurance 
contracts or long-term care services. Thus, the treatment of 
long-term care contracts and services is unclear. Present law 
does provide rules relating to medical expenses and accident or 
health insurance.
            Itemized deduction for medical expenses
      In determining taxable income for Federal income tax 
purposes, a taxpayer is allowed an itemized deduction for 
unreimbursed expenses that are paid by the taxpayer during the 
taxable year for medical care of the taxpayer, the taxpayer's 
spouse, or a dependent of the taxpayer, to the extent that such 
expenses exceed 7.5 percent of the adjusted gross income of the 
taxpayer for such year (sec. 213). For this purpose, expenses 
paid for medical care generally are defined as amounts paid: 
(1) for the diagnosis, cure, mitigation, treatment, or 
prevention of disease (including prescription medicines or 
drugs and insulin), or for the purpose of affecting any 
structure or function of the body (other than cosmetic surgery 
not related to disease, deformity, or accident); (2) for 
transportation primarily for, and essential to, medical care 
referred to in (1); or (3) for insurance (including Part B 
Medicare premiums) covering medical care referred to in (1) and 
(2).
            Exclusion for amounts received under accident or health 
                    insurance
      Amounts received by a taxpayer under accident or health 
insurance for personal injuries or sickness generally are 
excluded from gross income to the extent that the amounts 
received are not attributable to medical expenses that were 
allowed as a deduction for a prior taxable year (sec. 104).
            Treatment of accident or health plans maintained by 
                    employers
      Contributions of an employer to an accident or health 
plan that provides compensation (through insurance or 
otherwise) to an employee for personal injuries or sickness of 
the employee, the employee's spouse, or a dependent of the 
employee, are excluded from the gross income of the employee 
(sec. 106). In addition, amounts received by an employee under 
such a plan generally are excluded from gross income to the 
extent that the amounts received are paid, directly or 
indirectly, to reimburse the employee for expenses for the 
medical care of the employee, the employee's spouse, or a 
dependent of the employee (sec. 105). For this purpose, 
expenses incurred for medical care are defined in the same 
manner as under the rules regarding the deduction for medical 
expenses.
      A cafeteria plan is an employer-sponsored arrangement 
under which employees can elect among cash and certain 
employer-provided qualified benefits. No amount is included in 
the gross income of a participant in a cafeteria plan merely 
because the participant has the opportunity to make such an 
election (sec. 125). Employer-provided accident or health 
coverage is one of the benefits that may be offered under a 
cafeteria plan.
      A flexible spending arrangement (FSA) is an arrangement 
under which an employee is reimbursed for medical expenses or 
other nontaxable employer-provided benefits, such as dependent 
care, and under which the maximum amount of reimbursement that 
is reasonably available to a participant for a period of 
coverage is not substantially in excess of the total premium 
(including both employee-paid and employer-paid portions of the 
premium) for such participant's coverage. Under proposed 
Treasury regulations, a maximum amount of reimbursement is not 
substantially in excess of the total premium if such maximum 
amount is less than 500 percent of the premium. An FSA may be 
part of a cafeteria plan or provided by an employer outside a 
cafeteria plan. FSAs are commonly used to reimburse employees 
for medical expenses not covered by insurance. If certain 
requirements are satisfied,8 amounts reimbursed for 
nontaxable benefits from an FSA are excludable from income.
    \8\ These requirements include a requirement that a health FSA can 
only provide reimbursement for medical expenses (as defined in sec. 
213) and cannot provide reimbursement for premium payments for other 
health coverage and that the maximum amount of reimbursement under a 
health FSA must be available at all times during the period of 
coverage.
---------------------------------------------------------------------------
            Health care continuation rules
      The health care continuation rules require that an 
employer must provide qualified beneficiaries the opportunity 
to continue to participate for a specified period in the 
employer's health plan after the occurrence of certain events 
(such as termination of employment) that would have terminated 
such participation (sec. 4980B). Individuals electing 
continuation coverage can be required to pay for such coverage.
            Life insurance company reserve rules
      In general, life insurance companies are allowed a 
deduction for a net increase in reserves and must take into 
income any net decreases in reserves (sec. 807(a) and (b)). 
Present law prescribes a tax reserve method based on the nature 
of the contract. For noncancellable accident and health 
insurance contracts, the prescribed method is a two-year full 
preliminary term method (sec. 807(d)(3)(A)(iii)). Long-term 
care insurance reserves are treated like noncancellable 
accident and health insurance for this purpose and, therefore, 
are determined under the two-year full preliminary term method. 
In no event is the tax reserve for any contract as of any time 
permitted to exceed the amount which would be taken into 
account in determining statutory reserves as set forth on the 
annual statement (sec 807(d)(1)).
      The amount of any adjustment, whether an increase or a 
reduction in income, that is attributable to a change in the 
basis for determining reserves (or for determining any other 
item referred to in sec. 807(c)) is generally spread over a 10-
year period (sec. 807(f)).

House bill

            Tax treatment and definition of long-term care insurance 
                    contracts and qualified long-term care services
                In general
      Under the House bill, a long-term care insurance contract 
is accorded the following tax treatment. A long-term care 
insurance contract generally is treated as an accident and 
health insurance contract. Amounts (other than policyholder 
dividends or premium refunds) received under a long-term care 
insurance contract generally are excludable as amounts received 
for personal injuries and sickness (subject to a cap of $200 
per day, or $73,000 annually). This cap is indexed by the 
medical care cost component of the consumer price index.
      A plan of an employer providing coverage under a long-
term care insurance contract generally is treated as an 
accident and health plan; however, coverage under a long-term 
care insurance contract is not excludable by an employee if 
provided through a cafeteria plan; similarly, expenses for 
long-term care services cannot be reimbursed under an 
FSA.9
    \9\ The House bill does not otherwise modify the requirements 
relating to FSAs. An FSA is defined (as under proposed regulations) as 
a benefit program providing employees with coverage under which 
specified incurred expenses may be reimbursed (subject to maximums and 
other reasonable conditions), and the maximum amount of reimbursement 
that is reasonably available to a participant is less than 500 percent 
of the value of the coverage.
---------------------------------------------------------------------------
      The deduction for a percentage of health insurance 
expenses of self-employed individuals was permanently extended 
(at 30 percent) by P.L. 104-7 (April 11, 1995). Because the 
bill treats long-term care insurance as health insurance, the 
deduction for 30 percent of health insurance expenses of self-
employed individuals applies to long-term care insurance 
premiums under the bill.
      Within certain limits, premiums for long-term care 
insurance are treated as medical expenses for purposes of the 
itemized deduction for medical expenses.10 In addition, 
expenses for qualified long-term care services are treated as 
medical expenses for purposes of the itemized deduction.
    \10\ Similarly, within certain limits, in the case of a rider to a 
life insurance contract, charges against the life insurance contract's 
cash surrender value that are includible in income are treated as 
medical expenses (provided the rider constitutes a long-term care 
insurance contract).
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                Definition of long-term care insurance contract
      A long-term care insurance contract is defined as any 
insurance contract that provides only coverage of qualified 
long-term care services and that meets other requirements. The 
other requirements are that (1) the contract is guaranteed 
renewable, (2) the contract does not provide for a cash 
surrender value or other money that can be paid, assigned, 
pledged or borrowed, (3) refunds (other than refunds on the 
death of the insured or complete surrender or cancellation of 
the contract) and dividends under the contract may be used only 
to reduce future premiums or increase future benefits, and (4) 
the contract generally does not pay or reimburse expenses 
reimbursable under Medicare (except where Medicare is a 
secondary payor, or the contract makes per diem or other 
periodic payments without regard to expenses).
      A contract does not fail to be treated as a long-term 
care insurance contract solely because it provides for payments 
on a per diem or other periodic basis without regard to 
expenses during the period.
                Medicare duplication rules
      The House bill provides that no provision of law shall be 
construed or applied so as to prohibit the offering of a long-
term care insurance contract on the basis that the contract 
coordinates its benefits with those provided under Medicare. 
Thus, long-term care insurance contracts are not subject to the 
rules requiring duplication of Medicare benefits.
                Definition of qualified long-term care services
      Qualified long-term care services means necessary 
diagnostic, preventive, therapeutic, curing, treating, 
mitigating and rehabilitative services, and maintenance or 
personal care services that are required by a chronically ill 
individual and that are provided pursuant to a plan of care 
prescribed by a licensed health care practitioner.
      A chronically ill individual is one who has been 
certified within the previous 12 months by a licensed health 
care practitioner as being unable to perform (without 
substantial assistance) at least 2 activities of daily living 
for at least 90 days 11 due to a loss of functional 
capacity or cognitive impairment, or having a similar level of 
disability as determined by the Secretary of the Treasury in 
consultation with the Secretary of Health and Human Services. 
Activities of daily living are eating, toileting, transferring, 
bathing, dressing and continence.12
    \11\ The 90-day period is not a waiting period. Thus, an individual 
can be certified as chronically ill if the licensed health care 
practitioner certifies that the individual will be unable to perform at 
least 2 activities of daily living for at least 90 days.
    \12\ Nothing in the House bill requires the contract to take into 
account all of the activities of daily living. For example, a contract 
could require that an individual be unable to perform (without 
substantial assistance) 2 out of any 5 such activities, or for another 
example, 3 out of the 6 activities.
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      A licensed health care practitioner is a physician (as 
defined in sec. 1861(r)(l) of the Social Security Act) and any 
registered professional nurse, licensed social worker, or other 
individual who meets such requirements as may be prescribed by 
the Secretary of the Treasury.
                Itemized deduction for medical expenses
      Unreimbursed expenses for qualified long-term care 
services provided to the taxpayer or the taxpayer's spouse or 
dependent are treated as medical expenses for purposes of the 
itemized deduction for medical expenses (subject to the 
present-law floor of 7.5 percent of adjusted gross income). For 
this purpose, amounts received under a long-term care insurance 
contract (regardless of whether the contract reimburses 
expenses or pays benefits on a per diem or other basis) are 
treated as reimbursement for expenses actually incurred for 
medical care.
      For purposes of the deduction for medical expenses, 
qualified long-term care services do not include services 
provided to an individual by a relative (directly, or through a 
partnership, corporation, or other entity), unless the relative 
is a licensed professional with respect to such services, or by 
a related corporation (within the meaning of Code section 
267(b) or 707(b)).13
    \13\ The rule limiting such services provided by a relative or a 
related corporation does not apply for purposes of the exclusion for 
amounts received under a long-term care insurance contract, whether the 
contract is employer-provided or purchased by an individual. The 
limitation is unnecessary in such cases because it is anticipated that 
the insurer will monitor reimbursements to limit opportunities for 
fraud in connection with the performance of services by the taxpayer's 
relative or a related corporation.
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      Long-term care insurance premiums that do not exceed 
specified dollar limits are treated as medical expenses for 
purposes of the itemized deduction for medical expenses. The 
limits are as follows:
        In the case of an individual                      The limitation
          with an attained age before               on premiums paid for
          the close of the taxable year of:       such taxable years is:
Not more than 40..................................................  $200
More than 40 but not more than 50.................................   375
More than 50 but not more than 60.................................   750
More than 60 but not more than 70................................. 2,000
More than 70...................................................... 2,500

      For taxable years beginning after 1996, these dollar 
limits are indexed for increases in the medical care component 
of the consumer price index. The Secretary of the Treasury, in 
consultation with the Secretary of Health and Human Services, 
is directed to develop a more appropriate index to be applied 
in lieu of the foregoing. Such an alternative might 
appropriately be based on increases in skilled nursing facility 
and home health care costs. It is intended that the Treasury 
Secretary annually publish the indexed amount of the limits as 
early in the year as they can be calculated.
                Long-term care riders on life insurance contracts
      In the case of long-term care insurance coverage provided 
by a rider on a life insurance contract, the requirements 
applicable to long-term care insurance contracts apply as if 
the portion of the contract providing such coverage were a 
separate contract. The term ``portion'' means only the terms 
and benefits that are in addition to the terms and benefits 
under the life insurance contract without regard to long-term 
care coverage. The guideline premium limitation applicable 
under section 7702(c)(2) is increased by the sum of charges 
(but not premium payments) against the life insurance 
contract's cash surrender value, less any such charges, the 
imposition of which reduces premiums paid for the contract 
(within the meaning of sec. 7702(f)(1)). In addition, it is 
anticipated that Treasury regulations will provide for 
appropriate reduction in premiums paid (within the meaning of 
sec. 7702(f)(1)) to reflect the payment of benefits under the 
rider that reduce the cash surrender value of the life 
insurance contract. A similar rule should apply in the case of 
a contract governed by section 101(f) and in the case of the 
payments under a rider that are excludable under section 101(g) 
of the Code (as added by the House bill).
                Life insurance company reserves
      In determining reserves for insurance company tax 
purposes, the House bill provides that the Federal income tax 
reserve method applicable for a long-term care insurance 
contract issued after December 31, 1995, is the method 
prescribed by the National Association of Insurance 
Commissioners (or, if no reserve method has been so prescribed, 
a method consistent with the tax reserve method for life 
insurance, annuity or noncancellable accident and health 
insurance contracts, whichever is most appropriate). The method 
currently prescribed by the NAIC for long-term care insurance 
contracts is the one-year full preliminary term method. As 
under present law, however, in no event may the tax reserve for 
a contract as of any time exceed the amount which would be 
taken into account with respect to the contract as of such time 
in determining statutory reserves.
                Health care continuation rules
      The health care continuation rules do not apply to 
coverage under a long-term care insurance contract.
            Exchanges of life insurance and other contracts for long-
                    term care insurance contracts
      The exchange of a life insurance contract or an endowment 
or annuity contract for a qualified long-term care insurance 
contract is not taxable under the House bill.
            Certain distributions from IRAs and retirement plans for 
                    long-term care insurance excludable from income
      The House bill excludes from gross income distributions 
from individual retirement arrangements (IRAs) and 
distributions attributable to elective deferrals to qualified 
cash or deferred arrangements (sec. 401(k) plans), tax-
sheltered annuities (sec. 403(b) plans), nonqualified deferred 
compensation plans of governmental or tax-exempt employers 
(sec. 457 plans), and section 501(c)(18) plans used to pay 
premiums for long-term care insurance for the individual or the 
individual's spouse. Such distributions are also not subject to 
the 10-percent tax on early withdrawals. A plan will not fail 
to meet the Internal Revenue Code requirements applicable to 
such plan merely because it permits such distributions.
            Inclusion of excess long-term care benefits
      In general, the House bill provides that the maximum 
annual amount of long-term care benefits excludable from income 
with respect to an insured who is chronically ill (not 
including amounts received by reason of the individual being 
terminally ill) 14 cannot exceed the equivalent of $200 
per day for each day the individual is chronically ill. Thus, 
the maximum annual exclusion for long-term care benefits with 
respect to any chronically ill individual (not including 
amounts received by reason of the individual being terminally 
ill) is $73,000 (for 1996). Long-term care benefits for this 
purpose include payments and other benefits received under a 
long-term care insurance contract (to the extent otherwise 
excludable under section 7702B(b) as added by the House bill) 
and payments that are otherwise excludable under the provision 
of the bill related to accelerated death benefits and viatical 
settlements with respect to persons who are chronically ill 
(sec. 101(g) (as added by the House bill)). If the insured is 
not the same as the holder of the contract, the insured may 
assign some or all of this limit to the contract holder at the 
time and manner prescribed by the Secretary.
    \14\ Terminally ill is defined as under the provision of the bill 
relating to accelerated death benefits. In general, under that 
provision, an individual is considered to be terminally ill if he or 
she is certified as having an illness or physical condition that 
reasonably can be expected to result in death within 24 months of the 
date of the certification.
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      This $200 per day limit is indexed for inflation after 
1996 for increases in the medical care component of the 
consumer price index. The Treasury Secretary, in consultation 
with the Secretary of Health and Human Services, is directed to 
develop a more appropriate index, to be applied in lieu of the 
foregoing. Such an alternative might appropriately be based on 
increases in skilled nursing facility and home health care 
costs. It is intended that the Treasury Secretary annually 
publish the indexed amount of the limit as early in the year as 
it can be calculated.
      A payor of long-term care benefits (as defined above) is 
required to report to the IRS the aggregate amount of such 
benefits paid to any individual during any calendar year, and 
the name, address and taxpayer identification number of such 
individual. A copy of the report must be provided to the payee 
by January 31 following the year of payment, showing the name 
of the payor and the aggregate amount of benefits paid to the 
individual during the calendar year. Failure to file the report 
or provide the copy to the payee is subject to the generally 
applicable penalties for failure to file similar information 
reports.
            Effective date
      The provisions defining long-term care insurance 
contracts and qualified long-term care services apply to 
contracts issued after December 31, 1995. Any contract issued 
before January 1, 1996, that met the long-term care insurance 
requirements in the State in which the policy was issued at the 
time it was issued is treated as a long-term care insurance 
contract, and services provided under or reimbursed by the 
contract are treated as qualified long-term care services.
      A contract providing for long-term care insurance may be 
exchanged for a long-term care insurance contract (or the 
former cancelled and the proceeds reinvested in the latter 
within 60 days) tax free between the date of enactment and 
January 1, 1996. Taxable gain would be recognized to the extent 
money or other property is received in the exchange.
      The issuance or conformance of a rider to a life 
insurance contract providing long-term care insurance coverage 
is not treated as a modification or a material change for 
purposes of applying sections 101(f), 7702 and 7702A of the 
Code.
      The provisions relating to (1) treatment as a medical 
expense of qualified long-term care insurance services and 
eligible long-term care premiums and (2) tax-free exchanges of 
life insurance, endowment and annuity contracts for long-term 
care insurance contracts, are effective for taxable years 
beginning after December 31, 1995.
      The change in treatment of reserves for long-term care 
insurance contracts is effective for contracts issued after 
December 31, 1995. If, after that date, a company changes its 
tax reserve method for long-term care insurance contracts 
issued after that date, the amount of any adjustment arising 
from the change with respect to those contracts is spread over 
a 10-year period as provided in section 807(f).
      The provision relating to certain distributions from IRAs 
and elective deferrals used to pay long-term care insurance 
premiums is effective for payments and distributions after 
December 31, 1995.
      The provisions relating to the maximum exclusion for 
long-term care benefits and reporting are effective for taxable 
years beginning after December 31, 1995. Thus, the initial year 
in which reports will be filed with the IRS and copies provided 
to the payee will be 1997, with respect to long-term care 
benefits paid in 1996.
Senate amendment
            Tax treatment and definition of long-term care insurance 
                    contracts and qualified long-term care services
                In general
      The Senate amendment is generally the same as the House 
bill, except as follows. The cap on excludable amounts applies 
only to per diem type contracts. If the aggregate payments 
under all per diem contracts with respect to any one insured 
exceed $150 per day, then the excess is not excludable. The 
$150 limit is indexed by the lesser of (1) 5 percent, or (2) 
increases in the consumer price index. After 1998, a cost index 
based on cost increases in nursing homes and similar facilities 
is to be substituted for the consumer price index.
      As under the House bill, the deduction for a percentage 
of health insurance expenses of self-employed individuals 
applies to long-term care insurance premiums, except that the 
Senate amendment increases the deduction for health insurance 
expenses of self-employed individuals to 55 percent.
                Definition of long-term care insurance contract
      The Senate amendment is generally the same as the House 
bill, except that the other requirements that a long-term care 
insurance contract must meet are as follows: (1) premiums are 
level annual payments over the life of the contract (or 20 
years, if shorter); (2) refunds (other than refunds on death of 
the insured or complete surrender or cancellation of the 
contract) and dividends under the contract may be used only to 
reduce future premiums or increase future benefits; (3) the 
contract prohibits borrowing, assignment, or pledging; and (4) 
the contract generally does not pay or reimburse expenses 
reimbursable under Medicare (except where Medicare is a 
secondary payor). In addition, the Senate amendment imposes 
consumer protection requirements set forth in the January 1993 
National Association of Insurance Commissioners Long-Term Care 
Insurance Model Act and Regulations, including a requirement 
that the contract cannot be cancelled on the grounds of age or 
deterioration of mental or physical health of the insured.
                Medicare duplication rules
      The Senate amendment is the same as the House bill.
                Definition of qualified long-term care services
      Qualified long-term care services mean necessary 
diagnostic, preventive, therapeutic, curing, treating, 
mitigating, rehabilitative and maintenance (including personal 
care) services, that are required by a functionally impaired 
individual. Such services are required to be provided pursuant 
to a plan of care prescribed by a licensed health care 
practitioner, and to have as their primary purpose the 
provision of needed assistance with one or more activities of 
daily living, or substantial supervision to protect from 
threats to health and safety due to substantial cognitive 
impairment.
      A functionally impaired individual means one who has been 
certified within the previous 12 months by a licensed health 
care practitioner as (1) being unable to perform (without 
substantial assistance) at least two activities of daily 
living, or (2) requiring substantial supervision to protect 
such individual from threats to health and safety due to 
substantial cognitive impairment. Activities of daily living 
are eating, toileting, transferring, bathing, dressing and 
continence.
      A licensed health care practitioner is defined as a 
physician (as defined in sec. 1861(r)(1) of the Social Security 
Act), registered professional nurse, qualified community care 
case manager, or other qualified individual who meets such 
requirements as may be prescribed by the Secretary of the 
Treasury, provided such person is not a relative of the 
individual receiving care. A qualified community care case 
manager means an individual or entity with experience in 
assessing individuals to determine functional and cognitive 
impairment, and with experience in providing case management 
services and preparing individual care plans, and that meets 
requirements prescribed by the Secretary of the Treasury in 
consultation with the Secretary of Health and Human Services.
                Itemized deduction for medical expenses
      Without regard to dollar limits and without a limitation 
on services provided by relatives or related corporations, the 
Senate amendment provides that unreimbursed expenses for 
qualified long-term care services provided to the taxpayer or 
the taxpayer's spouse or dependent are treated as medical 
expenses for purposes of the itemized deduction for medical 
expenses (subject to the present-law floor of 7.5 percent of 
adjusted gross income). Amounts received under a long-term care 
insurance contract (regardless of whether the contract 
reimburses expenses or pays benefits on a per diem or other 
basis) are treated as reimbursement for expenses for this 
purpose. A deduction is also provided for premiums for 
insurance covering otherwise deductible expenses for medical 
care that is provided under a long-term care insurance 
contract.
                Long-term care riders on life insurance contracts
      The Senate amendment is generally the same as the House 
bill, except that the Senate amendment adds to the definition 
of the term ``portion'' a proviso that the payment of benefits 
does not result in the benefits failing to be treated as long-
term care insurance by reason of a reduction in the contract's 
death benefit or cash surrender value resulting from any such 
payment.
                Life insurance company reserves
      The Senate amendment is the same as the House bill.
                Health care continuation rules
      The Senate amendment is the same as the House bill.
            Consumer protection provisions
      Under the Senate amendment, long-term care insurance 
contracts, and issuers of contracts, are required to satisfy 
certain provisions of the long-term care insurance model Act 
and model regulations promulgated by the National Association 
of Insurance Commissioners (as adopted as of January 1993). The 
policy requirements relate to disclosure, nonforfeitability, 
guaranteed renewal or noncancelability, prohibitions on 
limitations and exclusions, extension of benefits, continuation 
or conversion of coverage, discontinuance and replacement of 
policies, unintentional lapse, post-claims underwriting, 
minimum standards, inflation protection, preexisting 
conditions, and prior hospitalization. The Senate amendment 
also provides disclosure and nonforfeiture requirements. The 
nonforfeiture provision gives consumers the option of selecting 
reduced paid-up insurance, extended term insurance, or a 
shortened benefit period in the event a policyholder who elects 
a nonforfeiture provision is unable to continue to pay 
premiums. The requirements for issuers of long-term care 
insurance contracts relate to application forms, reporting 
requirements, marketing, appropriateness of purchase, format, 
delivering a shopper's guide, right to return, outline of 
coverage, group plans, policy summary, monthly reports on 
accelerated death benefits, and incontestability period. A tax 
is imposed equal to $100 per policy per day for failure to 
satisfy these requirements.
      Nothing in the proposal prevents a State from 
establishing, implementing or continuing standards related to 
the protection of policyholders of long-term care insurance 
policies, if such standards are not inconsistent with standards 
established under the proposal.
            Effective date
      The provisions relating to treatment of long-term care 
insurance or plans apply to contracts issued after December 31, 
1995. The provisions relating to treatment of qualified long-
term care services as medical care apply to taxable years 
beginning after December 31, 1995. The Senate amendment 
provides that no inference is intended as to the tax treatment 
of long-term care insurance and services prior to the effective 
date.
      A contract providing for payment or reimbursement of 
services similar to qualified long-term care services, that is 
issued on or before December 31, 1995, may be exchanged for a 
long-term care insurance contract tax-free until June 30, 1997. 
Taxable gain is recognized to the extent money or other 
property is received in the exchange.
      The issuance or conformance of a rider to a life 
insurance contract providing long-term care insurance coverage 
is not treated as a modification or a material change for 
purposes of applying present-law rules relating to flexible 
premium contracts and the definition of life insurance 
contracts and modified endowment contracts.
      The change in treatment of reserves for long-term care 
insurance contracts is effective for contracts issued after 
December 31, 1995.
      The provision relating to the reporting of long-term care 
benefits is effective for benefits paid after December 31, 
1995. Thus, the initial year in which reports will be filed 
with the IRS and copies provided to the payee will be 1997, 
with respect to long-term care benefits paid in 1996.
      The provision relating to consumer protections applies to 
contracts issued after December 31, 1995 with respect to policy 
requirements, and to actions taken after December 31, 1995 with 
respect to actions by insurers.
Conference agreement
      The conference agreement follows the House bill, with 
modifications.
      Under the conference agreement, the dollar cap on 
excludable amounts is $175 per day. In addition, the dollar cap 
on excludable amounts applies only to per diem type contracts. 
If the aggregate payments under all per diem contracts with 
respect to any one insured exceed $175 per day, then the excess 
is not excludable.
      The conference agreement includes the consumer protection 
provisions of the Senate amendment. Thus, as under the Senate 
amendment, long-term care insurance contracts, and issuers of 
contracts, are required to satisfy certain provisions of the 
long-term care insurance model Act and model regulations 
promulgated by the National Association of Insurance 
Commissioners (as adopted as of January 1993).
      Under the conference agreement, the 10-percent tax on 
early withdrawals does not apply to distributions from 
individual retirement arrangements (IRAs) and distributions 
attributable to elective deferrals to qualified cash or 
deferred arrangements (sec. 401(k) plans), tax-sheltered 
annuities (sec. 403(b) plans), nonqualified deferred 
compensation plans of governmental or tax-exempt employers 
(sec. 457 plans), and section 501(c)(18) plans used to pay 
premiums for long-term care insurance for the individual or the 
individual's spouse. Unlike the House bill, however, the 
conference agreement provides that such distributions are 
includable in income (as under present law). A plan will not 
fail to meet the Internal Revenue Code requirements applicable 
to such plan merely because it permits such distributions.
      Under the conference agreement, a contract providing for 
long-term care insurance may be exchanged for a long-term care 
insurance contract (or the former may be cancelled and the 
proceeds reinvested in the latter within 60 days) tax free 
between the date of enactment and January 1, 1997.

    B. Treatment of Accelerated Death Benefits Under Life Insurance 
 Contracts (secs. 6221-6222 of H.R. 1215 and secs. 12221-12222 of the 
                           Senate amendment)

Present law
            Treatment of amounts received under a life insurance 
                    contract
      If a contract meets the definition of a life insurance 
contract, gross income does not include insurance proceeds that 
are paid pursuant to the contract by reason of the death of the 
insured (sec. 101(a)). In addition, the undistributed 
investment income (``inside buildup'') earned on premiums 
credited under the contract is not subject to current taxation 
to the owner of the contract. The exclusion under section 101 
applies regardless of whether the death benefits are paid as a 
lump sum or otherwise.
      Amounts received under a life insurance contract (other 
than a modified endowment contract) prior to the death of the 
insured are includible in the gross income of the recipient to 
the extent that the amount received constitutes cash value in 
excess of the taxpayer's investment in the contract (generally, 
the investment in the contract is the aggregate amount of 
premiums paid less amounts previously received that were 
excluded from gross income).
       If a contract fails to be treated as a life insurance 
contract under section 7702(a), inside buildup on the contract 
is generally subject to tax (sec. 7702(g)).
            Requirements for a life insurance contract
      To qualify as a life insurance contract for Federal 
income tax purposes, a contract must be a life insurance 
contract under the applicable State or foreign law and must 
satisfy either of two alternative tests: (1) a cash value 
accumulation test or (2) a test consisting of a guideline 
premium requirement and a cash value corridor requirement (sec. 
7702(a)). A contract satisfies the cash value accumulation test 
if the cash surrender value of the contract may not at any time 
exceed the net single premium that would have to be paid at 
such time to fund future benefits under the contract. A 
contract satisfies the guideline premium and cash value 
corridor tests if the premiums paid under the contract do not 
at any time exceed the greater of the guideline single premium 
or the sum of the guideline level premiums, and if the death 
benefit under the contract is not less than a varying statutory 
percentage of the cash surrender value of the contract.
            Proposed regulations on accelerated death benefits
      The Treasury Department has issued proposed regulations 
15 under which certain ``qualified accelerated death 
benefits'' paid by reason of the terminal illness of an insured 
would be treated as paid by reason of the death of the insured, 
and therefore would qualify for exclusion under section 101. 
For purposes of the proposed regulations, an insured would be 
treated as terminally ill if he or she has an illness that, 
despite appropriate medical care, the insurer reasonably 
expects to result in death within 12 months from the payment of 
the accelerated death benefit. The proposed regulations would 
not apply to viatical settlements.
    \15\ Prop. Treas. Reg. Secs. 1.101-8, 1.7702-0, 1.7702-2, and 
1.7702A-1 (December 15, 1992).
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House bill
      The House bill provides an exclusion from gross income as 
an amount paid by reason of the death of an insured for (1) 
amounts received under a life insurance contract and (2) 
amounts received for the sale or assignment of a life insurance 
contract to a qualified viatical settlement provider, provided 
that the insured under the life insurance contract is either 
terminally ill or chronically ill.16
    \16\ The exclusion for amounts received under a life insurance 
contract on the life of an insured who is chronically ill applies if 
the amount is received under a rider or other provision of the contract 
that is treated as a long-term care insurance contract under section 
7702B (as added by the House bill).
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      The provision does not apply in the case of an amount 
paid to any taxpayer other than the insured, if such taxpayer 
has an insurable interest by reason of the insured being a 
director, officer or employee of the taxpayer, or by reason of 
the insured being financially interested in any trade or 
business carried on by the taxpayer.
      A terminally ill individual is defined as one who has 
been certified by a physician as having an illness or physical 
condition that reasonably can be expected to result in death 
within 24 months of the date of certification.
      A chronically ill individual is defined as under the 
long-term care provisions of the House bill.17 In the case 
of amounts received with respect to a chronically ill 
individual (but not amounts received by reason of the 
individual being terminally ill), the $200 per day ($73,000 
annual) limitation on excludable benefits (also applicable to 
long-term care insurance benefits) applies. A reporting 
requirement applies to payments to a chronically ill 
individual.
    \17\ Thus, a chronically ill individual is one who has been 
certified within the previous 12 months by a licensed health care 
practitioner as being unable to perform (without substantial 
assistance) at least 2 activities of daily living for at least 90 days 
due to a loss of functional capacity or cognitive impairment, or having 
a similar level of disability as determined by the Secretary of the 
Treasury in consultation with the Secretary of Health and Human 
Services. Activities of daily living are eating, toileting, 
transferring, bathing, dressing and continence. Nothing in the bill 
requires the contract to take into account all of the activities of 
daily living.
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      A qualified viatical settlement provider is any person 
that regularly purchases or takes assignments of life insurance 
contracts on the lives of terminally ill or chronically ill 
individuals and either (1) is licensed for such purposes in the 
State in which the insured resides, or (2) if the person is not 
required to be licensed by that State, meets the requirements 
of sections 8 and 9 of the Viatical Settlements Model Act 
issued by the National Association of Insurance Commissioners 
(relating to disclosure requirements and general rules for a 
viatical settlement contract).
      For life insurance company tax purposes, the House bill 
provides that a life insurance contract is treated as including 
a reference to a qualified accelerated death benefit rider to a 
life insurance contract (except in the case of any rider that 
is treated as a long-term care insurance contract under section 
7702B, as added by the bill). A qualified accelerated death 
benefit rider is any rider on a life insurance contract that 
provides only for payments of a type that are excludable under 
this provision.
      Effective date.--The provision applies to amounts 
received after December 31, 1995. The provision treating a 
qualified accelerated death benefit rider as life insurance for 
life insurance company tax purposes takes effect on January 1, 
1996. The issuance of a qualified accelerated death benefit 
rider to a life insurance contract, or the addition of any 
provision required to conform an accelerated death benefit 
rider to these provisions, is not treated as a modification or 
material change of the contract (and is not intended to affect 
the issue date of any contract under section 101(f)).
Senate amendment
            In general
      The Senate amendment is the same as the House bill, 
except as follows.
      A terminally ill individual is defined as one who has 
been certified by a physician as having an illness or physical 
condition that reasonably is expected to result in death within 
12 months of the date of certification. The Senate amendment 
does not apply in the case of a chronically ill individual.
            Amounts received under a life insurance contract
      The exclusion for amounts received under a life insurance 
contract is available only if two requirements are met. First, 
under a present value test, the amount received must equal or 
exceed the present value of the reduction in the death benefit 
otherwise payable under the life insurance contract. Second, 
under a ratio test, the payment of the amount must not reduce 
the cash surrender value of the contract proportionately more 
than the death benefit payable under the contract. In other 
words, the percentage derived by dividing the cash surrender 
value of the contract immediately after the distribution by the 
cash surrender value of the contract immediately before the 
distribution must equal or exceed the percentage derived by 
dividing the death benefit payable immediately after the 
distribution by the death benefit payable immediately before 
the distribution. The amount received includes a series of 
payments.
      For purposes of the present value test, the present value 
of the reduction in the death benefit is determined by 
reference to a maximum permissible discount rate, and by 
assuming that the death benefit would have been paid on the 
date that is 12 months from the date of the physician's 
certification. The maximum permissible discount rate is the 
highest of the following three interest rates: (1) the 90-day 
Treasury bill yield (as most recently published); (2) Moody's 
Corporate Bond Yield Average-Monthly Average Corporates (or any 
successor rate) for the month ending two months before the date 
the rate is determined; or (3) the rate used to determine cash 
surrender values under the contract during the applicable 
period plus 1 percent per annum. It is intended that the rate 
be determined as of the date (or dates) that the payment is 
made.
      If the accelerated death benefit under the contract is 
paid in connection with a lien against the death benefit rather 
than an actual reduction in the death benefit on a discounted 
basis, then the amount of the lien, and interest charges with 
respect to any amount in connection with the lien, are taken 
into account so as to achieve parity between use of the lien 
method and use of a discounted payment.
            Viatical settlements
      The Senate amendment defines a viatical settlement 
provider the same as under the House bill, except that if the 
viatical settlement provider is not required to be licensed by 
the State in which the insured resides, then the requirements 
of the section of the Viatical Settlements Model Regulation 
issued by the NAIC relating to standards for evaluation of 
reasonable payments, including discount rates, must be met in 
determining amounts paid by the viatical settlement provider.
            Effective date
      The Senate amendment applies to amounts received after 
December 31, 1995. The discount rules applicable to payments 
under life insurance contracts do not apply to any amount 
received before July 1, 1996. The provision treating a 
qualified accelerated death benefit rider as life insurance for 
life insurance company tax purposes takes effect on January 1, 
1996. The issuance of a qualified accelerated death benefit 
rider to a life insurance contract, or the addition of any 
provision required to conform an accelerated death benefit 
rider to these provisions, would not be treated as a 
modification or material change of the contract for purposes of 
the definition of a life insurance contract and a modified 
endowment contract (and would not affect the issue date of any 
contract under section 101(f)).

Conference agreement

      The conference agreement follows the House bill, with 
modifications.
      As under the House bill, in the case of amounts received 
with respect to a chronically ill individual (but not amounts 
received by reason of the individual being terminally ill), the 
dollar cap of $175 per day 18 on excludable benefits 
(applicable to long-term care insurance benefits) applies. The 
reporting requirement under the House bill also applies.
    \18\ The conference agreement follows the House bill, with 
modifications, with respect to long-term care insurance and services. 
The conference agreement provides that the dollar cap on excludable 
benefits under a long-term care insurance contract is modified to $175 
per day, and applies only to per diem policies, not to indemnity 
policies. The dollar cap of $175 per day also applies to amounts 
excludable under this provision that are paid with respect to a 
chronically ill individual.
---------------------------------------------------------------------------
      Under the conference agreement, the Treasury Department 
is required to provide a definition of a chronically ill 
individual for purposes of the accelerated death benefit 
provision. It is intended that this definition include 
individuals with Parkinson's disease, Alzheimer's disease or 
symptomatic AIDS as chronically ill individuals.
      The conference agreement, like the Senate amendment, 
defines a viatical settlement provider the same as under the 
House bill, except that if the viatical settlement provider is 
not required to be licensed by the State in which the insured 
resides, then the requirements of the section of the Viatical 
Settlements Model Regulation issued by the NAIC relating to 
standards for evaluation of reasonable payments, including 
discount rates, must be met in determining amounts paid by the 
viatical settlement provider.

  C. Medical Savings Accounts (sec. 13201 of the House bill and secs. 
                  12231-12233 of the Senate amendment)

Present law

      The tax treatment of health expenses depends on whether 
the individual is an employee or self employed, and whether the 
individual is covered under an employer-sponsored health plan. 
Employer contributions to a health plan for coverage for the 
employee and the employee's spouse and dependents is excludable 
from the employee's income and wages for social security tax 
purposes. Self-employed individuals are entitled to deduct 30 
percent of the amount paid for health insurance for the self-
employed individual and his or her spouse or dependents. The 
30-percent deduction is available with respect to self 
insurance, as well as commercial insurance. Of course, the 
self-insured plan must in fact be insurance (e.g., there must 
be appropriate risk shifting) and not merely a reimbursement 
arrangement. Individuals who itemize their tax deductions may 
deduct unreimbursed medical expenses (including expenses for 
medical insurance) paid during the year to the extent that the 
total of such expenses exceeds 7.5 percent of the individual's 
adjusted gross income (``AGI''). Present law does not contain 
any special rules for medical savings accounts.

House bill

            In general
      Within limits, contributions to a medical savings account 
(``MSA'') are deductible if made by an eligible individual and 
are excludable from income (and wages for social security 
purposes) if made by the employer of an eligible individual. 
Earnings on amounts in an MSA are currently taxable. 
Distributions from an MSA for medical expenses are not taxable.
            Eligible individuals
      An individual (including a self-employed individual) is 
eligible to make a deductible contribution to an MSA (or to 
have employer contributions made on his or her behalf) if the 
individual is covered under a catastrophic health plan and is 
not covered under another health plan (other than a plan that 
provides certain permitted coverage). An individual with other 
coverage in addition to a catastrophic plan is still eligible 
for an MSA if such other coverage is certain permitted 
insurance or is coverage (whether provided through insurance or 
otherwise) for accidents, dental care, vision care, or long-
term care. Permitted insurance is (1) Medicare supplemental 
insurance; (2) insurance if substantially all of the coverage 
provided under such insurance relates to (a) liabilities 
incurred under worker's compensation law, (b) tort liabilities, 
(c) liabilities relating to ownership or use of property (e.g., 
auto insurance), (d) credit insurance, or (e) such other 
similar liabilities as the Secretary may prescribe by 
regulations, and (3) insurance for a specified disease or 
illness, and (4) insurance that provides a fixed payment for 
hospitalization. An individual is not eligible to make 
deductible contributions to an MSA for a year if any employer 
contributions are made to an MSA on behalf of the individual 
for the year.
            Tax treatment of and limits on contributions
      Individual contributions to an MSA are deductible (within 
limits) in determining AGI. Subject to the same limits, 
employer contributions to an MSA are excludable from gross 
income and wages for employment tax purposes, except that this 
exclusion does not apply to contributions made through a 
cafeteria plan. The maximum amount of contributions that can be 
deducted or excluded for a year is equal to the lesser of (1) 
the deductible under the catastrophic health plan or (2) $2,500 
in the case of single coverage and $5,000 if the catastrophic 
plan covers the individual and a spouse or dependent. The 
annual limit is the sum of the limits determined separately for 
each month, based on the individual's status as of the first 
day of the month. The maximum contribution limit to an MSA is 
determined separately for each spouse in a married couple. In 
no event can the maximum contribution limit exceed $5,000 for a 
family. The dollar limits are indexed for medical inflation and 
rounded to the nearest multiple of $50.
            Definition of catastrophic health plan
      A catastrophic health plan is a health plan with a 
deductible of at least $1,500 in the case of single coverage 
and $3,000 in the case of coverage of more than one individual. 
These dollar limits are indexed for medical inflation, rounded 
to the nearest multiple of $50.
            Tax treatment of MSAs
      Earnings on amounts in an MSA are currently includible in 
income under the rules relating to grantor trusts. Any net 
capital losses cannot offset other income.
            Taxation of distributions
      Distributions from an MSA for the medical expenses of the 
individual and his or her spouse or dependents are excludable 
from income. For this purpose, medical expenses do not include 
expenses for insurance other than long-term care insurance. 
Distributions that are not for medical expenses are includible 
in income (to the extent attributable to tax-favored 
contributions) and are subject to an additional 10-percent tax 
unless made after age 59\1/2\, death or disability.
      Upon death, if the beneficiary is the individual's 
spouse, the spouse may keep the MSA as his or her own. 
Otherwise, amounts in the MSA must be distributed within 5 
years, and are includible in income (to the extent attributable 
to tax-favored contributions).
            Definition of MSAs
      In general, an MSA is a trust or custodial account 
created exclusively for the benefit of the account holder and 
is subject to rules similar to those applicable to individual 
retirement arrangements. An MSA trustee (or custodian) can be a 
bank, insurance company, or other person who demonstrates to 
the satisfaction of the Secretary that the manner in which such 
person will administer the trust will be consistent with 
applicable requirements. The MSA trustee (or custodian) is 
required to make such reports as may be required by the 
Secretary.
            Effective date
      Taxable years beginning after December 31, 1995.

Senate amendment

            In general
      Generally the same as the House bill, except that 
earnings on amounts in an MSA are not currently taxable (i.e., 
``inside buildup'' is tax free) and the amount of contributions 
that receive favorable tax treatment differs.
            Eligible individuals
      An individual is eligible to make deductible 
contributions to an MSA if the individual is covered under a 
high deductible health plan and is not eligible to participate 
in an employer-subsidized health plan maintained by the 
employer of the individual or his or her spouse or to receive 
any employer contribution to an MSA. An employer contribution 
to an MSA is excludable from gross income (and wages for 
employment tax purposes) if made on behalf of an individual in 
a high deductible health plan. An individual is eligible to 
receive employer contributions to an MSA if the individual is 
covered under a high deductible health plan.
            Tax treatment of and limits on contributions
      The tax treatment of MSA contributions follows the 
present-law tax treatment of health insurance expenses (as 
modified by the Senate amendment). Thus, a self-employed 
individual may deduct 55 percent of MSA contributions. Other 
individuals may deduct MSA contributions to the extent the 
contributions and other medical expenses exceed 7.5 percent of 
AGI. Employer contributions to an MSA are excludable from 
income and wages for employment tax purposes, except that this 
exclusion does not apply to employer contributions made through 
a cafeteria plan. Only one MSA per family is permitted. The 
maximum amount of contributions that can be made to an MSA is 
the lesser of (1) the deductible under the high deductible plan 
or (2) $2,000 in the case of single coverage and $4,000 if the 
high deductible plan covers the individual and a spouse or 
dependent. The annual limit is the sum of the limits determined 
separately for each month, based on the individual's status as 
of the first day of the month. The dollar limits are indexed 
for medical inflation and rounded to the next lowest multiple 
of $50.
            Definition of high deductible health plan
      Same as the House bill definition of catastrophic health 
plan, except that indexed amounts are rounded to the next 
lowest multiple of $50.
            Tax treatment of MSAs
      MSAs are exempt from tax. An MSA ceases to be an MSA if, 
within 2 years after the MSA is established the individual is 
no longer covered under a high deductible health plan other 
than by reason of separation from employment.
            Taxation of distributions
      Same as the House bill, except that medical expenses also 
include premiums for health care continuation coverage and 
premiums for health care coverage while an individual is 
receiving unemployment compensation under Federal or State law. 
Distributions that are not for medical expenses are includible 
in income (to the extent not attributable to nondeductible 
contributions) and are subject to an additional 10-percent tax 
unless made after age 59\1/2\, death, or disability. Upon 
death, if the beneficiary is the individual's surviving spouse, 
the spouse may continue the MSA as his or her own. Otherwise, 
the beneficiary must include the MSA balance (to the extent not 
attributable to nondeductible contributions) in income in the 
year of death. If there is no beneficiary, the MSA balance (to 
the extent not attributable to nondeductible contributions) is 
includible on the final return of the decedent. In any case, no 
estate tax applies.
            Definition of MSAs
      Same as the House bill, except that the Senate amendment 
provides that the acquisition expenses of an insurance company 
relating to the establishment of an MSA are not subject to the 
rules relating to the capitalization of policy acquisition 
costs.
            Effective date
      Same as the House bill.

Conference agreement

            In general
      The conference agreement generally follows the House 
bill, except that the conference agreement follows the Senate 
amendment with respect to the limits on maximum contributions 
($2,000 per year for an individual and $4,000 per year if the 
high deductible plan also covers a spouse or dependent of the 
individual), tax treatment of earnings, definition of medical 
expenses that can be paid tax-free with MSA funds, post-death 
distributions, and clarification relating to capitalization of 
policy acquisition costs. In addition, the conference agreement 
adopts the term ``high deductible plan'' rather than 
``catastrophic plan.''
      Thus, under the conference agreement, within limits, 
contributions to an MSA are deductible if made by an eligible 
individual (including a self-employed individual) and are 
excludable from income (and wages for employment tax purposes) 
if made by the employer of an eligible individual. Earnings on 
amounts in an MSA are not currently taxable. Distributions from 
an MSA for medical expenses (as defined under the Senate 
amendment) are not taxable. Distributions from an MSA that are 
not for medical expenses are includible in income and subject 
to a 10-percent excise tax unless the distribution is made 
after age 59\1/2\, death, or disability.
            Eligible individuals
      The conference agreement follows the House bill. As under 
the House bill, an individual must be covered by a high 
deductible plan and no other health plan in order to be 
eligible for an MSA. However, an individual may have certain 
types of permitted coverage and insurance in addition to the 
high deductible plan (e.g., dental coverage) and still qualify 
for an MSA. The conference agreement modifies the House bill 
definition of permitted coverage to provide that disability 
coverage (whether provided through insurance or otherwise) is 
permitted coverage and that credit insurance is not permitted 
coverage.
            Tax treatment of and limits on contributions
      The conference agreement follows the House bill, except 
that the maximum contribution is determined as under the Senate 
amendment. Under the conference agreement, individual 
contributions to an MSA are deductible (within limits) in 
determining AGI. Subject to the same limits, employer 
contributions to an MSA are excludable from gross income, 
except that this exclusion does not apply to contributions made 
through a cafeteria plan. It is expected that the present-law 
exclusion for social security purposes for accident and 
sickness benefits applies to employer contributions to an MSA 
that are excludable from income. If the high deductible plan 
covers only the individual, the maximum amount of contributions 
that can be deducted or excluded for a year is equal to the 
lesser of (1) the deductible under the high deductible plan or 
(2) $2,000. If the high deductible plan covers the individual 
and a spouse or a dependent, the maximum that can be excluded 
or deducted for a year is the lesser of (1) the annual limit 
under the plan on the aggregate amount of deductibles required 
to be paid with respect to all individuals, and (2) $4,000. The 
annual limit is the sum of the limits determined separately for 
each month, based on the individual's status as of the first 
day of the month. The maximum contribution limit to an MSA is 
determined separately for each spouse in a married couple. In 
no event can the maximum contribution limit exceed $4,000 for a 
family. The dollar limits are indexed for medical inflation and 
rounded to the nearest multiple of $50.
            Definition of high deductible plan
      The conference agreement follows the House bill and the 
Senate amendments. The conference agreement also clarifies that 
permitted coverage or insurance does not qualify as a high 
deductible plan. The conferees intend that a plan will not fail 
to be considered a high deductible plan merely because, under 
State law, the plan is required to provide that there is no 
deductible for preventive care.
            Tax treatment of MSAs
      The conference agreement follows the Senate amendment 
with respect to taxation of MSA earnings. Thus, under the 
conference agreement, MSAs are tax exempt. The conference 
agreement does not contain the provision in the Senate 
amendment providing that an MSA ceases to be an MSA if, within 
2 years after the MSA is established, the individual is no 
longer covered under a high deductible plan.
            Taxation of distributions
      Under the conference agreement, distributions from an MSA 
for the unreimbursed medical expenses of the individual 
(including a self-employed individual) and his or her spouse or 
dependents are excludable from income. The exclusion applies 
regardless of whether the payment is made directly from the MSA 
to the service provider, the MSA distribution reimburses the 
individual for expenses already incurred, or the individual 
uses the MSA distribution to pay the service provider. In 
addition, trustee-to-trustee transfers from one MSA to another 
are permitted.
      Medical expenses are defined as under the Senate 
amendment. Thus, medical expenses are defined as under the 
rules relating to the itemized deduction for medical expenses, 
except that medical expenses do not include insurance premiums 
other than (1) premiums for long-term care insurance as defined 
under the conference agreement; (2) premiums for health care 
continuation coverage under any Federal law; and (3) premiums 
while the individual is receiving unemployment compensation.
      Distributions that are not for medical expenses are 
includible in income and are subject to an additional 10-
percent tax unless made after age 59\1/2\, death, or 
disability.
      The conference agreement follows the Senate amendment 
with respect to distributions after the death of the 
individual.
            Definition of MSAs
      The conference agreement follows the Senate amendment.
            Effective date
      The provision is effective for taxable years beginning 
after December 31, 1995.

D. Deduction for Health Insurance Expenses of Self-Employed Individuals 
                  (sec. 12241 of the Senate amendment)

Present law

      Under present law, self-employed individuals are entitled 
to deduct 30 percent of the amount paid for health insurance 
for a self-employed individual and the individual's spouse and 
dependents. The deduction is not available for any month if the 
taxpayer was eligible to participate in a subsidized health 
plan maintained by the employer of the taxpayer or the 
taxpayer's spouse. The 30-percent deduction is available in the 
case of self insurance as well as commercial insurance. Of 
course, the self-insured plan must in fact be insurance (e.g., 
there must be appropriate risk shifting) and not merely a 
reimbursement arrangement.

House bill

      No provision.

Senate amendment

      Under the Senate amendment, the deduction for health 
insurance expenses of self-employed individuals and their 
spouses and dependents is increased to 55 percent.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995.

Conference agreement

      The conference agreement follows the Senate amendment, 
with modifications. Under the conference agreement, the 
deduction for health insurance for self-employed individuals is 
phased up to 50 percent as follows: for taxable years beginning 
in 1998 and 1999, the amount of the deduction is 35 percent of 
health insurance expenses; for taxable years beginning in 2000 
and 2001, 40 percent; and for taxable years beginning in 2002 
and thereafter, 50 percent.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1997.

   E. Increase Dollar Limits for Burial Insurance (sec. 12242 of the 
                           Senate amendment)

Present law

      To qualify as a life insurance contract for Federal 
income tax purposes, a contract must be a life insurance 
contract under the applicable State or foreign law and must 
satisfy either of two alternative tests: (1) a cash value 
accumulation test or (2) a test consisting of a guideline 
premium requirement and a cash value corridor requirement (sec. 
7702). A contract satisfies the cash value accumulation test if 
the cash surrender value of the contract may not at any time 
exceed the net single premium that would have to be paid at 
such time to fund future benefits under the contract. A 
contract satisfies the guideline premium and cash value 
corridor tests if the premiums paid under the contract do not 
at any time exceed the greater of the guideline single premium 
or the sum of the guideline level premiums, and if the death 
benefit under the contract is not less than a varying statutory 
percentage of the cash surrender value of the contract. Under 
these rules, the death benefit is generally deemed not to 
increase (sec. 7702(e)(1)(A)).
      Special rules apply with respect to a contract that is 
purchased to cover payment of burial expenses or in connection 
with prearranged funeral expenses. For such a contract, death 
benefit increases may be taken into account in applying the 
cash value accumulation test if the contract (1) has an initial 
death benefit of $5,000 or less and a maximum death benefit of 
$25,000 or less, and (2) provides for a fixed predetermined 
annual increase not to exceed 10 percent of the initial death 
benefit or 8 percent of the death benefit at the end of the 
preceding year (sec. 7702(e)(2)(C)).

House bill

      No provision.

Senate amendment

      The Senate amendment increases the dollar limits 
applicable in the case of an insurance contract to cover 
payment of burial expenses or in connection with prearranged 
funeral expenses. For such a contract, death benefit increases 
may be taken into account in applying the cash value 
accumulation test if the contract has an initial death benefit 
of $7,000 or less and a maximum death benefit of $30,000 or 
less (and other requirements of present law are met). In 
addition, these dollar limits are to be adjusted annually, 
after 1995, for inflation in accordance with the consumer price 
index.
      Effective date.--The provision is effective for contracts 
entered into after December 31, 1995.

Conference agreement

      The conference agreement follows the Senate amendment.

F. Health Insurance Organizations Eligible for Benefits of Section 833 
                  (sec. 12243 of the Senate amendment)

Present law

      An organization described in section 501(c)(3) or (4) of 
the Code is exempt from tax only if no substantial part of its 
activities consists of providing commercial-type insurance 
(sec. 501(m)). Special rules apply to certain eligible health 
insurance organizations. Eligible health insurance 
organizations are (1) Blue Cross or Blue Shield organizations 
existing on August 16, 1986, which have not experienced a 
material change in structure or operations since that date, and 
(2) other organizations that meet certain community-service-
related requirements and substantially all of whose activities 
involve the providing of health insurance (sec. 833). Section 
833 provides that eligible organizations are generally treated 
as stock property and casualty insurance companies.
      Section 833 provides a special deduction for eligible 
organizations, equal to 25 percent of the claims and expenses 
incurred during the year, less the adjusted surplus at the 
beginning of the year. This deduction is calculated by 
computing surplus, taxable income, claims incurred, expenses 
incurred, tax-exempt income, net operating loss carryovers, and 
other items attributable to health business. The deduction may 
not exceed taxable income attributable to health business for 
the year (calculated without regard to this deduction).
      In addition, section 833 eliminates, for eligible 
organizations, the 20-percent reduction in unearned premium 
reserves that applies generally to all property and casualty 
insurance companies.

House bill

      No provision.

Senate amendment

      The Senate amendment applies the special rules under 
section 833 to the same extent they are provided to certain 
existing Blue Cross or Blue Shield organizations, in the case 
of any organization that (1) is not a Blue Cross or Blue Shield 
organization existing on August 16, 1986, and (2) otherwise 
meets the requirements of section 833(c)(2) (including the 
requirement of no material change in operations or structure 
since August 16, 1986). Under the Senate amendment, an 
organization qualifies for this treatment only if (1) it is not 
a health maintenance organization, and (2) it is organized 
under and governed by State laws which are specifically and 
exclusively applicable to not-for-profit health insurance or 
health service type organizations.
      Effective date.--The provision is effective for taxable 
years ending after October 13, 1995.

Conference agreement

      The conference agreement follows the Senate amendment.

                   IV. ESTATE AND GIFT TAX PROVISIONS

A. increase in unified estate and gift tax credit; indexing of certain 
                               provisions

1. increase in unified credit (sec. 6351(a) of H.R. 1215 and sec. 12302 
                        of the senate amendment)

Present law

      A unified credit of $192,800 is allowed in computing a 
taxpayer's estate and gift tax, which effectively exempts a 
total of $600,000 in cumulative taxable transfers from the 
estate and gift tax (sec. 2010).

House bill

      The House bill increases the unified credit over a three-
year period beginning in 1996, from an effective exemption of 
$600,000 to an effective exemption of $750,000. For decedents 
dying and gifts made in 1996, an effective exemption of 
$700,000 is provided; for decedents dying and gifts made in 
1997, the effective exemption is $725,000; and for decedents 
dying and gifts made in 1998, the effective exemption is 
$750,000. After 1998, the effective exemption amount of 
$750,000 is indexed annually for inflation occurring after 
1997. The indexed exemption amount is rounded to the nearest 
$10,000.
       To reflect the increase in the unified credit, the House 
bill also makes conforming amendments to (1) the 5-percent 
surtax in order to permit the proper phase out of the increased 
unified credit, (2) the general filing requirements for estate 
and gift tax returns under Code section 6018(a), and (3) the 
amount of the unified credit allowed under Code section 
2102(c)(3) with respect to nonresident aliens with U.S. situs 
property who are residents of certain treaty countries.
      Effective date.--Effective for decedents dying and gifts 
made after December 31, 1995.

Senate amendment

      The Senate amendment increases the present-law unified 
credit over a six-year period beginning in 1996, from an 
effective exemption of $600,000 to an effective exemption of 
$750,000. The increase is phased in as follows:

         Decedents dying and gifts made in           Effective exemption
1996..........................................................  $625,000
1997..........................................................   650,000
1998..........................................................   675,000
1999..........................................................   700,000
2000..........................................................   725,000
2001 and thereafter...........................................   750,000

      The Senate amendment makes the same conforming amendments 
as are made in the House bill.
      Effective date.--Same as the House bill.
Conference agreement
      The conference agreement follows the Senate amendment, 
with the modification that after 2001, the effective exemption 
amount of $750,000 is increased by inflation occurring after 
2000. The indexed exemption amount is rounded to the nearest 
$10,000.

    2. indexing of other provisions (sec. 6351(b)-(e) of H.R. 1215)

Present law
      Annual exclusion for gifts.--A taxpayer may exclude 
$10,000 of gifts of present interests in property made to each 
donee during a calendar year (sec. 2503).
      Special use valuation.--An executor may elect for estate 
tax purposes to value certain qualified real property used in 
farming or a closely-held trade or business at its current use 
value, rather than its highest and best use value (sec. 2032A). 
The maximum reduction in value under such an election is 
$750,000.
      Generation-skipping transfer tax.--An individual is 
allowed an exemption from the GST tax of up to $1,000,000 for 
generation-skipping transfers made during life or at death 
(sec. 2631).
      Installment payment of estate tax.--An executor may elect 
to pay the Federal estate tax attributable to an interest in a 
closely held business in installments over, at most, a 14-year 
period (sec. 6166). The first $1,000,000 in value of a closely-
held business is eligible for a special 4-percent interest rate 
(sec. 6601(j)).
House bill
      The House bill provides that, after 1998, the $10,000 
annual exclusion for gifts, the $750,000 ceiling on special use 
valuation, the $1,000,000 generation-skipping transfer tax 
exemption, and the $1,000,000 ceiling on the value of a 
closely-held business eligible for the special 4-percent 
interest rate, are all indexed annually for inflation occurring 
after 1987. Indexing of the annual exclusion is rounded to the 
nearest $1,000 and indexing of the other amounts is rounded to 
the nearest $10,000.
      Effective date.--Effective for decedents dying, and gifts 
made, after December 31, 1998.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill, except 
that indexing does not begin until after December 31, 2000 (for 
inflation occurring after 1999).
      Effective date.--Effective for decedents dying and gifts 
made after December 31, 2000.

B. reduction in estate tax for qualified family-owned businesses (sec. 
                     12301 of the senate amendment)

Present law

      There are no special estate tax rules for qualified 
family-owned businesses. However, under section 2032A, an 
executor may elect for estate tax purposes to value certain 
qualified real property used in farming or another qualifying 
closely-held trade or business at its current use value, rather 
than its highest and best use value (up to a maximum reduction 
of $750,000). In addition, an executor may elect to pay the 
Federal estate tax attributable to a qualified closely-held 
business in installments over, at most, a 14-year period (sec. 
6166). The first $1,000,000 in value of a closely-held business 
is eligible for a special 4-percent interest rate (sec. 
6601(j)).

House bill

      No provision.

Senate amendment

      The Senate amendment provides special estate tax 
treatment for qualified ``family-owned business interests'' if 
such interests comprise more than 50 percent of a decedent's 
estate. Subject to certain requirements, the bill excludes the 
first $1.5 million of value in qualified family-owned business 
interests from the decedent's estate, and also excludes from 
the estate 50 percent of the value of qualified family-owned 
business interests between $1.5 million and $5 million. Thus, 
the total amount of exclusion available per decedent for 
qualified family-owned business interests is equal to $3.25 
million (i.e., $1.5 million plus 50 percent of $3.5 million).
      A qualified family-owned business interest is defined as 
any interest in a trade or business (regardless of the form in 
which it is held) with a principal place of business in the 
United States if ownership of the trade or business is held at 
least 50 percent by one family, 70 percent by two families, or 
90 percent by three families, as long as the decedent's family 
owns at least 30 percent of the trade or business.
      An interest in a trade or business does not qualify if 
the business' (or a related entity's) stock or securities were 
publicly-traded at any time within three years of the 
decedent's death. An interest in a trade or business also does 
not qualify if more than 35 percent of the adjusted ordinary 
gross income of the business for the year of the decedent's 
death was personal holding company income (as defined in 
section 543). In the case of a trade or business that owns an 
interest in another trade or business (i.e., ``tiered 
entities''), special look-through rules apply.
      The value of a trade or business qualifying as a family-
owned business interest is reduced to the extent the business 
holds passive assets or excess cash or marketable securities.
      To qualify for the beneficial treatment provided under 
the bill, the decedent (or a member of the decedent's family) 
must have owned and materially participated in the trade or 
business for at least five of the eight years preceding the 
decedent's date of death. In addition, each qualified heir (or 
a member of the qualified heir's family) is required to 
materially participate in the trade or business for at least 
five years of each 8-year period ending within ten years 
following the decedent's death.
      The benefit of the exclusions for qualified family-owned 
business interests are subject to recapture if, within 10 years 
of the decedent's death and before the qualified heir's death, 
one of the following ``recapture events'' occurs: (1) the 
qualified heir ceases to meet the material participation 
requirements; (2) the qualified heir disposes of any portion of 
his or her interest in the family-owned business, other than by 
a disposition to a member of the qualified heir's family or 
through a qualified conservation contribution; (3) the 
principal place of business of the trade or business ceases to 
be located in the United States; or (4) the qualified heir 
loses U.S. citizenship.
      The portion of the reduction in estate taxes that is 
recaptured is dependent upon the number of years that the 
qualified heir (or members of the qualified heir's family) 
materially participated in the trade or business after the 
decedent's death. If the qualified heir (or his or her family 
members) materially participated in the trade or business after 
the decedent's death for less than six years, 100 percent of 
the reduction in estate taxes attributable to that heir's 
interest is recaptured; if the participation was for at least 
six years but less than seven years, 80 percent of the 
reduction in estate taxes is recaptured; if the participation 
was for at least seven years but less than eight years, 60 
percent is recaptured; if the participation was for at least 
eight years but less than nine years, 40 percent is recaptured; 
and if the participation was for at least nine years but less 
than ten years, 20 percent of the reduction in estates taxes is 
recaptured. In general, there is no requirement that the 
qualified heir (or members of his or her family) continue to 
hold or participate in the trade or business more than 10 years 
after the decedent's death. As under present-law section 2032A, 
however, the 10-year recapture period may be extended for a 
period of up to two years if the qualified heir does not begin 
to use the property for a period of up to two years after the 
decedent's death.
      Effective date.--Effective with respect to the estates of 
decedents dying after December 31, 1995.

Conference agreement

      The conference agreement follows the Senate amendment, 
with the following modifications. The conference agreement 
excludes the first $1.0 million of value in qualified family-
owned business interests from the decedent's estate, and also 
excludes from the estate 50 percent of the value of qualified 
family-owned business interests between $1.0 million and $2.5 
million. Thus, the total amount of exclusion available per 
decedent for qualified family-owned business interests is equal 
to $1.75 million (i.e., $1.0 million plus 50 percent of $1.5 
million).
      In addition, the conference agreement coordinates the 
benefit for qualified family-owned business interests with the 
present-law benefits relating to special-use valuation (sec. 
2032A) and the special 4-percent interest rate available for 
closely-held businesses (sec. 6601(j)). The conference 
agreement provides that any amount excluded from a decedent's 
estate under the qualified family-owned business provision 
reduces the ceilings with respect to both section 2032A and 
section 6601(j). Thus, for example, if a decedent had $350,000 
of qualified family-owned business interests, the entire value 
of his qualified family-owned business property would be 
excluded from the estate; if the decedent's estate also 
qualifies for treatment under 2032A or 6601(j), the executor 
could take a maximum reduction under section 2032A of $400,000 
(i.e., $750,000 less $350,000), and/or could use the special 4-
percent rate provided in section 6601(j) with respect to the 
first $650,000 in value of a qualifying business (i.e., 
$1,000,000 less $350,000).

   c. reduction in estate tax for certain land subject to permanent 
       conservation easement (sec. 12303 of the senate amendment)

Present law

      A deduction is allowed for estate and gift tax purposes 
for a contribution of a qualified real property interest to a 
charity (or other qualified organization) exclusively for 
conservation purposes (secs. 2055(f), 2522(d)). For this 
purpose, a qualified real property interest means the entire 
interest of the transferor in real property (other than certain 
mineral interests), a remainder interest in real property, or a 
perpetual restriction on the use of real property (sec. 
170(h)). A ``conservation purpose'' is (1) preservation of land 
for outdoor recreation by, or the education of, the general 
public, (2) preservation of natural habitat, (3) preservation 
of open space for scenic enjoyment of the general public or 
pursuant to a governmental conservation policy, and (4) 
preservation of historically important land or certified 
historic structures. A contribution is treated as ``exclusively 
for conservation purposes'' only if the conservation purpose is 
protected in perpetuity.

House bill

      No provision.

Senate amendment

      The Senate amendment provides that an executor may elect 
to exclude from the taxable estate 50 percent of the value of 
any land subject to a qualified conservation easement that 
meets the following requirements: (1) the land must be located 
within 25 miles of a metropolitan area or a national park or 
wilderness area; (2) the land must have been owned by the 
decedent or a member of the decedent's family at all times 
during the three-year period ending on the date of the 
decedent's death; and (3) a qualified conservation contribution 
of a qualified real property interest had been granted by the 
transferor or a member of his or her family. For this purpose, 
preservation of a historically important land area or a 
certified historic structure does not qualify as a conservation 
purpose. To the extent that the value of such land is excluded 
from the taxable estate, the basis of such land acquired at 
death is a carryover basis (i.e., the basis is not stepped-up 
to its fair market value at death). Debt-financed property is 
not eligible for the exclusion.
      The exclusion amount is calculated based on the value of 
the property after the conservation easement has been placed on 
the property. The exclusion from the taxable estate does not 
extend to the value of any development rights retained by the 
decedent or donor, although payment for estate taxes on 
retained development rights may be deferred for up to two 
years, or until the disposition of the property, whichever is 
earlier.
      The 50-percent exclusion from the taxable estate for land 
subject to a qualified conservation easement may only be taken 
to the extent that the value of such land, plus the value of 
qualified family-owned business interests that qualify for the 
reduction in estate taxes, does not exceed $5 million.
      If the value of the conservation easement is less than 30 
percent of (1) the value of the land without the easement, 
reduced by (2) the value of any retained development rights, 
then the exclusion percentage is reduced. The reduction in the 
exclusion percentage is equal to two percentage points for each 
point that the above ratio falls below 30 percent.
      The Senate amendment also provides that the granting of a 
qualified conservation easement (as defined above) is not 
treated as a disposition triggering the recapture provisions of 
section 2032A.
      Effective date.--Effective for decedents dying after 
December 31, 1995.

Conference agreement

      The conference agreement follows the Senate amendment, 
with the following modifications.
      The conference agreement provides an exclusion from the 
taxable estate of 40 percent of the value of any land subject 
to a qualified conservation easement. As in the Senate 
amendment, if the value of the conservation easement is less 
than 30 percent of (1) the value of the land without the 
easement, reduced by (2) the value of any retained development 
rights, then the exclusion percentage is reduced. The reduction 
in the exclusion percentage is equal to two percentage points 
for each point that the above ratio falls below 30 percent. In 
making this calculation, the value of the land without the 
easement is to be determined by taking into account any local, 
State, or Federal law that restricts the development of the 
land, and the extent to which any prior easements restrict the 
use of the land.
      The conference agreement expands the category of land 
eligible for the exclusion to include land located within 10 
miles of an Urban National Forest (as designated by the Forest 
Service of the United States Department of Agriculture) as well 
as land located within 25 miles of a metropolitan area or a 
national park or wilderness area.

 d. modification of generation-skipping transfer tax for transfers to 
  individuals with deceased parents (sec. 14634 of the house bill and 
                  sec. 12304 of the senate amendment)

Present law

      A generation-skipping transfer tax (``GST'' tax) 
generally is imposed on transfers to an individual who is in 
more than one generation below that of the transferor. 
Transfers subject to the GST tax include direct skips, taxable 
terminations and taxable distributions. For this purpose, a 
direct skip is any transfer subject to estate or gift tax of an 
interest in property to a skip person (sec. 2612(c)(1)). A 
taxable termination is a termination (by death, lapse of time, 
release of power, or otherwise) of an interest in property held 
in trust unless, immediately after such termination, a non-skip 
person has an interest in the property, or unless at no time 
after the termination may a distribution (including a 
distribution upon termination) be made from the trust to a skip 
person (sec. 2612(a)). A taxable distribution is a distribution 
from a trust to a skip person (other than a taxable termination 
or a direct skip)(sec. 2612(b)).
      Under the ``predeceased parent exception,'' a direct skip 
transfer to a transferor's grandchild is not subject to the 
generation skipping transfer (``GST'') tax if the child of the 
transferor who was the grandchild's parent is deceased at the 
time of the transfer (sec. 2612(c)(2)). This ``predeceased 
parent exception'' to the GST tax is not applicable to (1) 
transfers to collateral heirs, e.g., grandnieces or 
grandnephews, or (2) taxable terminations or taxable 
distributions.

House bill

      The House bill extends the predeceased parent exception 
to transfers to collateral heirs, provided that the decedent 
has no living lineal descendants at the time of the transfer.
      In addition, the House bill extends the predeceased 
parent exception to taxable terminations and taxable 
distributions, provided that the parent of the relevant 
beneficiary was dead at the earliest time that the transfer 
(from which the beneficiary's interest in the property was 
established) was subject to estate or gift tax.
      Effective date.--Effective for generation-skipping 
transfers occurring after the date of enactment.

Senate amendment

      The Senate amendment is the same as the House bill, 
except for the effective date.
      Effective date.--Effective for generation-skipping 
transfers occurring after December 31, 1994.

Conference agreement

      The conference agreement follows the Senate amendment.

 e. estate tax recapture from cash leases of specially-valued property 
                  (sec. 12305 of the senate amendment)

Present law

      An executor may elect to value certain ``qualified real 
property'' used in farming or other qualifying trade or 
business at its current use value rather than its highest and 
best use. If, after the special-use valuation election is made, 
the heir who acquired the real property ceases to use it in its 
qualified use within 10 years (15 years for individuals dying 
before 1982) of the decedent's death, an additional estate tax 
is imposed in order to ``recapture'' the benefit of the 
special-use valuation (sec. 2032A(c)).
      Some courts have held that the cash rental of specially-
valued property after the death of the decedent is not a 
qualified use and, therefore, results in the imposition of the 
recapture tax. A decedent's surviving spouse, however, is not 
treated as failing to use the property in a qualified use 
solely because the spouse rents the property to a member of the 
spouse's family on a net cash basis (sec. 2032A(b)(5)).

House bill

      No provision.

Senate amendment

      The Senate amendment provides that the cash lease of 
specially-valued real property by a lineal descendant of the 
decedent to a member of the lineal descendant's family, who 
continues to operate the farm or closely held business, does 
not cause the qualified use of such property to cease for 
purposes of imposing the additional estate tax under section 
2032A(c). No inference is intended as to whether the cash lease 
of specially-valued real property is a qualified use of such 
property under present law.
      Effective date.--Effective for cash rentals after 
December 31, 1995.

Conference agreement

      The conference agreement follows the Senate amendment.

                       V. EXPIRING TAX PROVISIONS

              A. Temporary Extension of Certain Provisions

     1. Work opportunity tax credit (sec. 13101 of the House bill)

Present law
      General rules.--Prior to January 1, 1995, the targeted 
jobs tax credit was available on an elective basis for 
employers hiring individuals from one or more of nine targeted 
groups. The credit generally was equal to 40 percent of 
qualified first-year wages.
      Certification of members of targeted groups.--In general, 
an individual was not treated as a member of a targeted group 
unless certification that the individual was a member of such a 
group was received or requested in writing by the employer from 
the designated local agency on or before the day on which the 
individual began work for the employer.
      Targeted groups eligible for the credit.--The nine groups 
eligible for the credit were either recipients of payments 
under means-tested transfer programs, economically 
disadvantaged (as measured by family income), or disabled 
individuals:
            (1) Vocational rehabilitation referrals;
            (2) Economically disadvantaged youths;
            (3) Economically disadvantaged former convicts;
            (4) Economically disadvantaged summer youth 
        employees;
            (5) AFDC recipients;
            (6) Economically disadvantaged Vietnam-era 
        veterans;
            (7) Economically disadvantaged cooperative 
        education students;
            (8) SSI recipients; and
            (9) General assistance recipients.
      Other rules.--No credit was available for wages paid to 
replacement employees during strikes or lockouts.
      Minimum employment period.--No credit was allowed for 
wages paid unless the eligible individual was either (1) 
employed by the employer for at least 90 days (14 days in the 
case of economically disadvantaged summer youth employees) or 
(2) had completed at least 120 hours (20 hours for summer 
youth) of services performed for the employer.
      Length of extension.--Expired January 1, 1995.
House bill
      General rules.--The House bill replaces the targeted jobs 
tax credit with the ``work opportunity tax credit.'' The work 
opportunity tax credit is available on an elective basis for 
employers hiring individuals from one or more of five targeted 
groups. The credit generally is equal to 35 percent of 
qualified wages.
      Certification of members of targeted groups.--In general, 
an individual is not treated as a member of a targeted group 
unless: (1) on or before the day the individual begins work for 
the employer, the employer received in writing a certification 
from the designated local agency that the individual is a 
member of a specific targeted group, or (2) on or before the 
day the individual is offered work with the employer, a pre-
screening notice is completed with respect to that individual 
and within 14 days after the individual begins work for the 
employer, the employer submits such notice to the designated 
local agency as part of a written request for certification. 
The pre-screening notice will contain the information provided 
to the employer by the individual that forms the basis of the 
employer's belief that the individual is a member of a targeted 
group.
      Targeted groups eligible for the credit.--There are five 
groups eligible for the credit:
            (1) Vocational rehabilitation referral;
            (2) High-risk youth;
            (3) Qualified ex-felon;
            (4) Qualified summer youth employee; and
            (5) Aid to Families with Dependent Children 
        (``AFDC'') or successor program (with special rules for 
        qualified veterans)
      Other rules.--The House bill does not include the prior-
law rule denying the credit in the case of strikes or lockouts.
      Minimum employment period.--No credit is allowed for 
wages paid unless the eligible individual is employed by the 
employer for at least 180 days (20 days in the case of a 
qualified summer youth employee) or 500 hours (120 hours in the 
case of a qualified summer youth employee).
      Length of extension.--January 1, 1996 through December 
31, 1997 (two years).
Senate amendment \19\
      General rules.--Same as the House bill, with the addition 
of a sixth targeted group: ``qualified veterans.'' Unlike the 
House bill, the Senate amendment expands eligibility to certain 
veterans certified as receiving assistance under a food stamp 
program.
    \19\ The Senate amendment was inadvertently stricken in the 
enrolling of the Senate amendment. This explanation is of the Senate 
amendment as intended to be included.
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      Certification of members of targeted groups.--Same as the 
House bill.
      Targeted groups eligible for the credit.--Same as the 
House bill, with the addition of a sixth targeted group 
``qualified veterans.'' Unlike the House bill, the Senate 
amendment extends eligibility to certain veterans certified as 
receiving assistance under a food stamp program.
      Other rules.--Retains the prior-law rule denying the 
credit in the case of strikes or lockouts.
      Minimum employment period.--Same as the House bill, 
except 500 hours reduced to 400 hours.
      Length of extension.--January 1, 1996, through February 
28, 1997 (14 months).

Conference agreement

      The conference agreement provides for the following:
          General rules.--The conference agreement follows the 
        Senate amendment.
          Certification of members of targeted groups.--The 
        conference agreement follows the House bill and the 
        Senate amendment.
          Targeted groups eligible for the credit.--The 
        conference agreement follows the Senate amendment.
          Other rules.--The conference agreement follows the 
        Senate amendment.
          Minimum employment period.--The conference agreement 
        follows the House bill.
          Length of extension.--The conference agreement 
        provides for a one-year extension, January 1, 1996 
        through December 31, 1996.
          Effective date.--The credit is effective for wages 
        paid or incurred to a qualified individual who begins 
        work for an employer on or after January 1, 1996, and 
        before January 1, 1997.

 2. Employer-provided educational assistance (sec. 13102 of the House 
              bill and sec. 12402 of the Senate amendment)

Present law

      For taxable years beginning before January 1, 1995, an 
employees's gross income and wages did not include amounts paid 
or incurred by the employer for educational assistance provided 
to the employee if such amounts were paid or incurred pursuant 
to an educational assistance program that met certain 
requirements. This exclusion, which expired for taxable years 
beginning after December 31, 1994, was limited to $5,250 of 
educational assistance with respect to an individual during a 
calendar year. The exclusion applied whether or not the 
education was job related. In the absence of the exclusion, 
educational assistance is excludable from income only if it is 
related to the employee's current job.

House bill

      The House bill extends the exclusion for employer-
provided educational assistance to taxable years beginning 
after December 31, 1994, and before January 1, 1998. In years 
beginning after December 31, 1995, the exclusion does not apply 
with respect to graduate-level courses.
      Effective date.--The provision is effective with respect 
to taxable years beginning after December 31, 1994, and before 
January 1, 1998, and the restriction of the exclusion to 
undergraduate education is effective for taxable years 
beginning after December 31, 1995.

Senate amendment

      The Senate amendment extends the exclusion for 
educational assistance for taxable years beginning after 
December 31, 1994, and before March 1, 1997. In the case of a 
taxable year beginning in 1997, the maximum amount that can be 
excluded is one-sixth of $5,250, or $875, and only amounts pad 
by the employer before March 1, 1997, are taken into account.
      Effective date.--The provision is effective with respect 
to taxable years beginning after December 31, 1994, and before 
March 1, 1997.

Conference agreement

      The conference agreement follows the House bill, except 
that the exclusion for educational assistance is extended for 
taxable years beginning after December 31, 1994, and before 
January 1, 1997. As under the House bill, the exclusion does 
not apply to graduate-level education after December 31, 1995.
      Effective date.--The provision is effective with respect 
to taxable years beginning after December 31, 1994, and before 
January 1, 1997, and the restriction of the exclusion to 
undergraduate education is effective for taxable years 
beginning after December 31, 1995.

  3. Research and experimentation tax credit (sec. 13103 of the House 
              bill and sec. 12402 of the Senate amendment)

Present and prior law

            General rule
      Prior to July 1, 1995, section 41 of the Internal Revenue 
Code provided for a research tax credit equal to 20 percent of 
the amount by which a taxpayer's qualified research 
expenditures for a taxable year exceeded its base amount for 
that year. The research tax credit expired and does not apply 
to amounts paid or incurred after June 30, 1995.
      A 20-percent research tax credit also applied to the 
excess of (1) 100 percent of corporate cash expenditures 
(including grants or contributions) paid for basic research 
conducted by universities (and certain nonprofit scientific 
research organizations) over (2) the sum of (a) the greater of 
two minimum basic research floors plus (b) an amount reflecting 
any decrease in nonresearch giving to universities by the 
corporation as compared to such giving during a fixed-base 
period, as adjusted for inflation. This separate credit 
computation is commonly referred to as the ``university basic 
research credit'' (see sec. 41(e)).
            Computation of allowable credit
      Except for certain university basic research payments 
made by corporations, the research tax credit applies only to 
the extent that the taxpayer's qualified research expenditures 
for the current taxable year exceed its base amount. The base 
amount for the current year generally is computed by 
multiplying the taxpayer's ``fixed-base percentage'' by the 
average amount of the taxpayer's gross receipts for the four 
preceding years. If a taxpayer both incurred qualified research 
expenditures and had gross receipts during each of at least 
three years from 1984 through 1988, then its ``fixed-base 
percentage'' is the ratio that its total qualified research 
expenditures for the 1984-1988 period bears to its total gross 
receipts for that period (subject to a maximum ratio of .16). 
All other taxpayers (so-called ``start-up firms'') are assigned 
a fixed-base percentage of 3 percent.20
    \20\ The Omnibus Budget Reconciliation Act of 1993 included a 
special rule designed to gradually recompute a start-up firm's fixed-
base percentage based on its actual research experience. Under this 
special rule, a start-up firm (i.e., any taxpayer that did not have 
gross receipts in at least three years during the 1984-1988 period) 
will be assigned a fixed-base percentage of 3 percent for each of its 
first five taxable years after 1993 in which it incurs qualified 
research expenditures. In the event that the research credit is 
extended beyond the scheduled June 30, 1995 expiration date, a start-up 
firm's fixed-base percentage for its sixth through tenth taxable years 
after 1993 in which it incurs qualified research expenditures will be a 
phased-in ratio based on its actual research experience. For all 
subsequent taxable years, the taxpayer's fixed-base percentage will be 
its actual ratio of qualified research expenditures to gross receipts 
for any five years selected by the taxpayer from its fifth through 
tenth taxable years after 1993 (sec. 41(c)(3)(B)).
---------------------------------------------------------------------------
      In computing the credit, a taxpayer's base amount may not 
be less than 50 percent of its current-year qualified research 
expenditures.
      To prevent artificial increases in research expenditures 
by shifting expenditures among commonly controlled or otherwise 
related entities, research expenditures and gross receipts of 
the taxpayer are aggregated with research expenditures and 
gross receipts of certain related persons for purposes of 
computing any allowable credit (sec. 41(f)(1)). Special rules 
apply for computing the credit when a major portion of a 
business changes hands, under which qualified research 
expenditures and gross receipts for periods prior to the change 
or ownership of a trade or business are treated as transferred 
with the trade or business that gave rise to those expenditures 
and receipts for purposes of recomputing a taxpayer's fixed-
base percentage (sec. 41(f)(3)).
            Eligible expenditures
      Qualified research expenditures eligible for the research 
tax credit consist of: (1) ``in-house'' expenses of the 
taxpayer for wages and supplies attributable to qualified 
research; (2) certain time-sharing costs for computer use in 
qualified research; and (3) 65 percent of amounts paid by the 
taxpayer for qualified research conducted on the taxpayer's 
behalf (so-called ``contract research expenses'').
      To be eligible for the credit, the research must not only 
satisfy the requirements of present-law section 174 but must be 
undertaken for the purpose of discovering information that is 
technological in nature, the application of which is intended 
to be useful in the development of a new or improved business 
component of the taxpayer, and must pertain to functional 
aspects, performance, reliability, or quality of a business 
component. Research does not qualify for the credit if 
substantially all of the activities relate to style, taste, 
cosmetic, or seasonal design factors (sec. 41(d)(3)). In 
addition, research does not qualify for the credit if conducted 
after the beginning of commercial production of the business 
component, if related to the adaptation of an existing business 
component to a particular customer's requirements, if related 
to the duplication of an existing business component from a 
physical examination of the component itself or certain other 
information, or if related to certain efficiency surveys, 
market research or development, or routine quality control 
(sec. 41(d)(4)).
      Expenditures attributable to research that is conducted 
outside the United States do not enter into the credit 
computation. In addition, the credit is not available for 
research in the social sciences, arts, or humanities, nor is it 
available for research to the extent funded by any grant, 
contract, or otherwise by another person (or governmental 
entity).

House bill

      The House bill extends the research tax credit (including 
the university basic research credit) for the period July 1, 
1995, through December 31, 1997.
      The House bill also expands the definition of ``start-up 
firms'' under section 41(c)(3)(B)(I) to include any firm if the 
first taxable year in which such firm had both gross receipts 
and qualified research expenses began after 1983.21
    \21\ In applying the start-up firm rules, the test is whether a 
taxpayer, in fact, both incurred research expenses (which under the 
present-law rules would be qualified research expenses) and had gross 
receipts in a particular year, not whether the taxpayer claimed a 
research tax credit for that year.
---------------------------------------------------------------------------
      In addition, the House bill allows taxpayers to elect an 
alternative incremental research credit regime. If a taxpayer 
elects to be subject to this alternative regime, the taxpayer 
is assigned a three-tiered fixed-base percentage (that is lower 
than the fixed-base percentage otherwise applicable under 
present law) and the credit rate likewise is reduced. Under the 
alternative credit regime, a credit rate of 1.65 percent 
applies to the extent that a taxpayer's current-year research 
expenses exceed a base amount computed by using a fixed-base 
percentage of 1 percent (i.e., the base amount equals 1 percent 
of the taxpayer's average gross receipts for the four preceding 
years) but do not exceed a base amount computed by using a 
fixed-base percentage of 1.5 percent. A credit rate of 2.2 
percent applies to the extent that a taxpayer's current-year 
research expenses exceed a base amount computed by using a 
fixed-base percentage of 1.5 percent but do not exceed a base 
amount computed by using a fixed-base percentage of 2 percent. 
A credit rate of 2.75 percent applies to the extent that a 
taxpayer's current-year research expenses exceed a base amount 
computed by using a fixed-base percentage of 2 percent. An 
election to be subject to this alternative incremental credit 
regime may be made only for a taxpayer's first taxable year 
beginning after June 30, 1995, and such an election applies to 
that taxable year and all subsequent years unless revoked with 
the consent of the Secretary of the Treasury.
      The House bill also provides for a special rule for 
payments made to a qualified research consortium. Under this 
special rule, 75 percent of amounts paid to a qualified 
research consortium for qualified research are treated as 
qualified research expenses eligible for the research credit 
(rather than 65 percent under the present-law section 41(b)(3) 
rule governing contract research expenses). For this purpose, a 
qualified research consortium is defined as a nonprofit 
scientific research organization that is described in section 
501(c)(3) (but not a college or university) if (1) at least 15 
unrelated persons paid amounts to the organization for 
qualified research during the calendar year in which the 
taxable year of the taxpayer begins, (2) no three persons paid 
more than 50 percent of such amounts, and (3) no one person 
paid more than 20 percent of such amounts.
      Effective date.--Extension of the research tax credit is 
effective for expenditures paid or incurred during the period 
July 1, 1995, through December 31, 1997. The modification to 
the definition of ``start-up firms'' is effective for taxable 
years ending after June 30, 1995. Taxpayers may elect the 
alternative research credit regime (with lower fixed-base 
percentages and lower credit rates) for taxable years beginning 
after June 30, 1995. The special rule that treats 75 percent of 
qualified research consortium payments as qualified research 
expenses is effective for taxable years beginning after June 
30, 1995.

Senate amendment

      The Senate amendment extends the research tax credit 
(including the university basic research credit) for the period 
July 1, 1995, through February 28, 1997.
      In addition, the Senate amendment includes the same 
provision contained in the House bill expanding the definition 
of ``start-up firms'' under section 41(c)(3)(B)(I) to include 
any firm if the first taxable year in which such firm had both 
gross receipts and qualified research expenses began after 
1983.
      Effective date.--Extension of the research tax credit is 
effective for expenditures paid or incurred during the period 
July 1, 1995, through February 28, 1997. The modification to 
the definition of ``start-up firms'' is effective for taxable 
years ending after June 30, 1995.

Conference agreement

      The conference agreement extends the research tax credit 
(including the university basic research credit) for the period 
July 1, 1995, through December 31, 1996.
      In addition, the conference agreement includes (1) the 
expanded definition of ``start-up firms'' from both the House 
bill and Senate amendment, (2) the provision from the House 
bill that allows taxpayers to elect an alternative incremental 
credit regime, and (3) the provision from the House bill that 
treats 75 percent of qualified research consortium payments as 
qualified research expenses.
      Effective date.--Extension of the research tax credit is 
effective for expenditures paid or incurred during the period 
July 1, 1995, through December 31, 1996. The modification to 
the definition of ``start-up firms'' is effective for taxable 
years ending after June 30, 1995. Taxpayers may elect the 
alternative research credit regime (with lower fixed-base 
percentages and lower credit rates) for taxable years beginning 
after June 30, 1995. The special rule that treats 75 percent of 
qualified research consortium payments as qualified research 
expenses is effective for taxable years beginning after June 
30, 1995.

4. Exclusion for employer-provided group legal services; tax exemption 
  for qualified group legal services organizations (sec. 12404 of the 
                           Senate amendment)

Present law

      Under present law, there is no exclusion for employer-
provided group legal services, or tax exemption for qualified 
group legal services organizations. Under prior law, employees 
were not subject to income or employment tax on amounts 
contributed by an employer to a qualified group legal services 
plan (or benefits provided under such a plan). The exclusion 
did not apply to the extent that the value of insurance against 
legal costs incurred by the individual (or spouse or 
dependents) provided under the plan for a year exceeded $70. 
The exclusion for group legal services benefits expired after 
June 30, 1992.
      In addition, prior law provided tax-exempt status for an 
organization the exclusive function of which was to provide 
legal services or indemnification against the cost of legal 
services provided through a qualified group services plan. The 
tax exemption for such an organization expired for taxable 
years beginning after June 30, 1992.

House bill

      No provision.

Senate amendment

      The Senate amendment reinstates the exclusion from income 
for contributions to (and benefits under) employer-provided 
group legal services plans and the exemption from tax for 
certain group legal services organizations from January 1, 
1996, through February 28, 1997. The exclusion is available 
with respect to contributions to employer-provided group legal 
services plans through February 28, 1997, but the limit on the 
value of insurance provided under the plan for taxable years 
beginning in 1997 is one-sixth of $70 or $12.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995, and before February 
28, 1997.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

5. Orphan drug tax credit (sec. 13105 of the House bill and sec. 12404 
                        of the Senate amendment)

Present and prior law

      Prior to January 1, 1995, a 50-percent nonrefundable tax 
credit was allowed for qualified clinical testing expenses 
incurred in testing of certain drugs for rare diseases or 
conditions, generally referred to as ``orphan drugs.'' 
Qualified testing expenses are costs incurred to test an orphan 
drug after the drug has been approved for human testing by the 
Food and Drug Administration (FDA) but before the drug has been 
approved for sale by the FDA. A rare disease or condition is 
defined as one that (1) affects less than 200,000 persons in 
the United States or (2) affects more than 200,000 persons, but 
for which there is no reasonable expectation that businesses 
could recoup the costs of developing a drug for it from U.S. 
sales of the drug. These rare diseases and conditions include 
Huntington's disease, myoclonus, ALS (Lou Gehrig's disease), 
Tourette's syndrome, and Duchenne's dystrophy (a form of 
muscular dystrophy).
      Under prior law, the orphan drug tax credit could be 
claimed by a taxpayer only to the extent that its regular tax 
liability for the year the credit was earned exceeded its 
tentative minimum tax for that year, after regular tax was 
reduced by nonrefundable personal credits and the foreign tax 
credit.22 Unused credits could not be carried back or 
carried forward to reduce taxes in other years.
    \22\ To the extent that the orphan drug tax credit could not be 
used by reason of the minimum tax limitation, the taxpayer's minimum 
tax credit was increased (sec. 53(d)(1)(B)(iii)).
---------------------------------------------------------------------------
      The orphan drug tax credit expired after December 31, 
1994.

House bill

      The House bill extends the orphan drug tax credit for the 
period January 1, 1995, through December 31, 1997.
      Effective date.--Qualified clinical testing expenses paid 
or incurred during the period January 1, 1995, through December 
31, 1997.

Senate amendment

      The Senate amendment extends the orphan drug tax credit 
for the period January 1, 1995, through February 28, 1997.
      In addition, the Senate amendment allows taxpayers to 
carry back unused credits to three years preceding the year the 
credit is earned and to carry forward unused credits to 15 
years following the year the credit is earned.
      Effective date.--Qualified clinical testing expenses 
incurred during the period January 1, 1995, through February 
28, 1997. The provision allowing for the carry back and carry 
forward of unused credits is effective for taxable years ending 
after December 31, 1994, except that credits may not be carried 
back to a taxable year beginning before January 1, 1995.

Conference agreement

      The conference agreement extends the orphan drug tax 
credit for the period January 1, 1995, through December 31, 
1996.
      The conference agreement includes the provision from the 
Senate amendment that allows taxpayers to carry back unused 
credits to three years preceding the year the credit is earned 
and to carry forward unused credits to 15 years following the 
year the credit is earned.
      Effective date.--Qualified clinical testing expenses 
incurred during the period January 1, 1995, through December 
31, 1996. The provision allowing for the carry back and carry 
forward of unused credits is effective for taxable years ending 
after December 31, 1994, except that credits may not be carried 
back to a taxable year beginning before January 1, 1995.

  6. Contributions of appreciated stock to private foundations (sec. 
    13104 of the House bill and sec. 12405 of the Senate amendment)

Present and prior law

      In computing taxable income, a taxpayer who itemizes 
deductions generally is allowed to deduct the fair market value 
of property contributed to a charitable organization.23 
However, in the case of a charitable contribution of short-term 
gain, inventory, or other ordinary income property, the amount 
of the deduction generally is limited to the taxpayer's basis 
in the property. In the case of a charitable contribution of 
tangible personal property, the deduction is limited to the 
taxpayer's basis in such property if the use by the recipient 
charitable organization is unrelated to the organization's tax-
exempt purpose.24
    \23\ The amount of the deduction allowable for a taxable year with 
respect to a charitable contribution may be reduced depending on the 
type of property contributed, the type of charitable organization to 
which the property is contributed, and the income of the taxpayer 
(secs. 170(b) and 170(e)).
    \24\ As part of the Omnibus Budget Reconciliation Act of 1993, 
Congress eliminated the treatment of contributions of appreciated 
property (real, personal, and intangible) as a tax preference for 
alternative minimum tax (AMT) purposes. Thus, if a taxpayer makes a 
gift to charity of property (other than short-term gain, inventory, or 
other ordinary income property, or gifts to private foundations) that 
is real property, intangible property, or tangible personal property 
the use of which is related to the donee's tax-exempt purpose, the 
taxpayer is allowed to claim the same fair-market-value deduction for 
both regular tax and AMT purposes (subject to present-law percentage 
limitations).
---------------------------------------------------------------------------
      In cases involving contributions to a private foundation 
(other than certain private operating foundations), the amount 
of the deduction is limited to the taxpayer's basis in the 
property. However, under a special rule contained in section 
170(e)(5), taxpayers were allowed a deduction equal to the fair 
market value of ``qualified appreciated stock'' contributed to 
a private foundation prior to January 1, 1995. Qualified 
appreciated stock was defined as publicly traded stock which is 
capital gain property. The fair-market-value deduction for 
qualified appreciated stock donations applied only to the 
extent that total donations made by the donor to private 
foundations of stock in a particular corporation did not exceed 
10 percent of the outstanding stock of that corporation. For 
this purpose, an individual was treated as making all 
contributions that were made by any member of the individual's 
family. This special rule contained in section 170(e)(5) 
expired after December 31, 1994.

House bill

      The House bill extends for the period January 1, 1995, 
through December 31, 1997, the special rule contained in 
section 170(e)(5) for contributions of qualified appreciated 
stock made to private foundations.25
    \25\ If, during this period, a taxpayer contributes qualified 
appreciated stock as defined in section 170(e)(5) and the amount of 
such contribution exceeds the percentage limitation under section 
170(b)(1)(D), the excess may be carried over to succeeding taxable 
years. See, e.g., LTR 9444029, LTR 9424020.
---------------------------------------------------------------------------
      Effective date.--The provision is effective for 
contributions of qualified appreciated stock to private 
foundations made during the period January 1, 1995, through 
December 31, 1997.

Senate amendment

      The Senate amendment extends for the period January 1, 
1995, through February 28, 1997, the special rule contained in 
section 170(e)(5) for contributions of qualified appreciated 
stock made to private foundations.
      Effective date.--The provision is effective for 
contributions of qualified appreciated stock to private 
foundations made during the period January 1, 1995, through 
February 28, 1997.

Conference agreement

      The conference agreement extends for the period January 
1, 1995, through December 31, 1996, the special rule contained 
in section 170(e)(5) for contributions of qualified appreciated 
stock made to private foundations.
      Effective date.--The provision is effective for 
contributions of qualified appreciated stock to private 
foundations made during the period January 1, 1995, through 
December 31, 1996.

   7. Transportation fuels tax exemption for fuel used in commercial 
  aviation (sec. 13111 of the House bill and sec. 12407 of the Senate 
                               amendment)

Present law

      A 4.3-cents-per-gallon excise tax is imposed on fuel used 
in most transportation modes. This tax was enacted by the 
Omnibus Budget Reconciliation Act of 1993. Fuel used in 
commercial aviation was exempt before October 1, 1995.

House bill

      The House bill extends the commercial aviation fuel tax 
exemption for two years, through September 30, 1997, and 
provides for refunds of excise taxes paid between October 1, 
1995 and the date of the bill's enactment.
      The Treasury Department is required to study and report 
on relative excise tax burdens, and Federal benefits financed 
with those taxes, for different transportation sectors.
      Effective date.--October 1, 1995.

Senate amendment

      The Senate amendment is the same as the House bill, 
except the commercial aviation fuels tax exemption is extended 
through February 28, 1997, and the Treasury Department study is 
only requested in legislative history.
      Effective date.--Same as the House bill.

Conference agreement

      The conference agreement follows the House bill with 
regard to the period when the exemption is extended (i.e., 
through September 30, 1997), and the Senate amendment with 
regard to the Treasury Department study. Extension of this 
exemption is contingent upon extension through September 30, 
1996, of the present-law Airport and Airway Trust Fund excise 
taxes as part of the conference agreement.

8. Airport and Airway Trust Fund excise taxes (sec. 13116 of the House 
                                 bill)

Present law

      Excise taxes are imposed on the following to fund the 
Airport and Airway Trust Fund program:
            (1) domestic passenger tickets;
            (2) domestic freight waybills;
            (3) international departures; and
            (4) noncommercial aviation fuel.
      These taxes are scheduled to expire after December 31, 
1995.

House bill

      The House bill extends the Airport and Airway Trust Fund 
excise taxes through September 30, 1996.
      Effective date.--January 1, 1996.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill. The 
extension of the exemption from the 4.3-cents-per-gallon 
transportation fuels excise tax included in the conference 
agreement is contingent upon extension of the Airport and 
Airway Trust Fund excise taxes through September 30, 1996, as 
part of this legislation.

 9. Extension of Internal Revenue Service user fees (sec. 12943 of the 
                           Senate amendment)

Present law

      The Internal Revenue Service (``IRS'') provides written 
responses to questions of individuals, corporations, and 
organizations relating to their tax status or the effects of 
particular transactions for tax purposes. The IRS generally 
charges a fee for requests for a letter ruling, determination 
letter, opinion letter, or other similar ruling or 
determination. The Uruguay Round Agreements Act extended the 
IRS user fee program for five years (until October 1, 2000).

House bill

      No provision.

Senate amendment

      The IRS user fees are extended for two additional years 
(until October 1, 2002).
      Effective date.--The provision is effective on the date 
of enactment.

Conference agreement

      The conference agreement follows the Senate amendment.

                 B. Termination of Certain Tax Credits

 1. Tax credit for electricity produced from certain renewable sources 
                     (sec. 13621 of the House bill)

Present law

      A tax credit is allowed for electricity produced from 
wind and closed-loop biomass facilities. The credit applies to 
production from property placed in service before July 1, 1999.

House bill

      The House bill limits the credit to production from 
property placed in service (1) before September 14, 1995, or 
(2) before September 14, 1996, pursuant to a binding contract 
in existence on September 13, 1995.
      Effective date.--Date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

    2. Low-income housing tax credit (sec. 13636 of the House bill)

Present law

      A tax credit, claimed over a 10-year period is allowed 
for rental housing occupied by tenants having incomes below 
specified levels. The credit generally has a present value of 
70 percent (new construction) or 30 percent (existing housing 
and most housing also receiving other Federal subsidies).
      The tax credit is subject to annual per-State limitations 
of $1.25 per resident. Credits that remain unallocated by 
States after prescribed periods are reallocated to other States 
through a ``national pool.''

House bill

      The House bill sunsets the credit generally for housing 
placed in service after December 31, 1997. The House bill also 
repeals the ``national pool'' after December 31, 1995.
      Effective date.--Date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

               C. Superfund and Oil Spill Liability Taxes

1. Extend Superfund excise taxes and corporate environmental income tax 
                  (sec. 12411 of the Senate amendment)

Present law

      Four taxes are imposed to fund the Hazardous Substance 
Superfund Trust Fund program:
            (1) an excise tax on petroleum and imported refined 
        products;
            (2) an excise tax on certain hazardous chemicals;
            (3) an excise tax on imported substances made with 
        the chemicals subject to the tax in (2), above; and
            (4) an income tax on corporations calculated using 
        the alternative minimum tax rules.
      These taxes are scheduled to expire after December 31, 
1995. Revenues from these taxes are deposited in the Hazardous 
Substance Superfund Trust Fund.

House bill

      No provision.

Senate amendment

      The Senate amendment extends the three Superfund excise 
taxes through September 30, 2002, and the corporate 
environmental income tax through taxable years beginning before 
January 1, 1998. Revenues from these taxes would continue to be 
deposited in the Hazardous Substance Superfund Trust Fund 
throughout the extension period.
      Effective date.--Date of enactment.

Conference agreement

      The conference agreement follows the Senate amendment 
with modifications. The three superfund excise taxes (taxes on 
petroleum and refined products, on certain hazardous chemicals, 
and on certain imported substances) are extended through 
September 30, 1996. Revenues from these taxes will continue to 
be deposited in the Hazardous Substance Superfund Trust Fund 
during the period January 1, 1996 through July 31, 1996; 
revenues attributable to taxes imposed during the period August 
1, 1996 through September 30, 1996, will be retained in the 
General Fund.
      The corporate environmental income tax is extended for 
one year, through taxable years beginning before January 1, 
1997. Revenues attributable to this tax will continue to be 
deposited in the Hazardous Substance Superfund Trust Fund 
throughout the extension period.

 2. Reinstate Oil Spill Liability Trust Fund excise tax (sec. 12412 of 
                         the Senate amendment)

Present law

      A five-cents-per-barrel excise tax was imposed before 
January 1, 1995, to fund the Oil Spill Liability Trust Fund 
program.

House bill

      No provision.

Senate amendment

      The Senate amendment reinstates the Oil Spill Liability 
Trust Fund tax through September 30, 2002.
      Effective date.--January 1, 1996.

Conference agreement

      The conference agreement follows the Senate amendment.

                     D. Other Fuels Tax Provisions

 1. Extend expired ethanol blender refund provision (sec. 12421 of the 
                           Senate amendment)

Present law

      Before October 1, 1995, persons who blended tax-paid 
gasoline and ethanol for use as a highway fuel could claim an 
expedited refund equal to the 54-cents-per-gallon subsidy for 
ethanol.

House bill

      No provision.

Senate amendment

      The Senate amendment reinstates the expedited refund 
provision during the period through September 30, 1999, and 
provides a special interest accrual rule for the period October 
1, 1995, to the date of enactment.
      Effective date.--Date of enactment.

Conference agreement

      The conference agreement follows the Senate amendment.

 2. Extend tax credit for producing fuel from a nonconventional source 
                  (sec. 12422 of the Senate amendment)

Present law

      A tax credit is allowed for fuel produced from certain 
``nonconventional sources'' (the ``section 29 credit''). In the 
case of synthetic fuel produced from coal and gas produced from 
biomass, the credit is available only for fuel from facilities 
placed in service before January 1, 1997, pursuant to a binding 
contract entered into before January 1, 1996.

House bill

      No provision.

Senate amendment

      The Senate amendment extends the binding contract and 
placed in service dates for coal and biomass facilities for one 
year.
      Effective date.--Date of enactment.

Conference agreement

      The conference agreement follows the Senate amendment 
with a modification limiting the extension of the binding 
contract date to six months.

 3. Exempt States exempt from Clean Air Act diesel dyeing requirement 
  from similar excise tax dyeing requirement (sec. 14733 of the House 
                                 bill)

Present law

      An excise tax totaling 24.4 cents per gallon is imposed 
on diesel fuel. The diesel fuel tax is imposed on removal of 
the fuel from a terminal facility. Present law provides that 
tax is imposed on all diesel fuel removed from terminal 
facilities unless the fuel is destined for a nontaxable use and 
is indelibly dyed pursuant to Treasury Department regulations.
      A similar dyeing regime exists for diesel fuel under the 
Clean Air Act. Urban areas in the State of Alaska were exempted 
from the Clean Air Act, but not the excise tax, dyeing regime 
for three years (until October 1, 1996); the exemption for more 
remote areas is permanent.

House bill

      The House bill exempts diesel fuel sold in the State of 
Alaska from the excise tax diesel dyeing requirement during the 
period when that State is exempt from the Clean Air Act dyeing 
requirement.
      Effective date.--First calendar quarter beginning after 
enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill, except 
the exemption is expanded to include diesel fuel removed from 
terminal facilities in any other State that is exempt from the 
Clean Air Act dyeing regime (as that Act is in effect on the 
date the conference agreement is enacted).

  4. Suspend imposition of diesel fuel tax on recreational motorboats 
                  (sec. 12431 of the Senate amendment)

Present law

      Diesel fuel used in recreational motorboats is taxed at 
24.4 cents per gallon. Diesel fuel used in commercial vessels 
is not taxed.
      All diesel fuel is either taxed or dyed when it is 
removed from pipeline terminals. Dyed diesel fuel may not be 
used in a taxable use (i.e., recreational boats). Nontaxable 
users of undyed diesel fuel may claim refunds of tax paid on 
the fuel they use.

House bill

      No provision.

Senate amendment

      The Senate amendment suspends imposition of tax on diesel 
fuel used in recreational boats for the period January 1, 1996, 
through February 28, 1997.
      The Senate amendment further requests (in the 
accompanying legislative history) the Treasury Department to 
study alternative tax regimes that would achieve comparable tax 
compliance to present law for the marine sector.
      Effective date.--January 1, 1996.

Conference agreement

      The conference agreement follows the Senate amendment, 
except the expiration date of the provision is June 30, 1997.

                   E. Extensions of Other Provisions

1. Permanent extension of FUTA exemption for alien agricultural workers 
                     (sec. 13106 of the House bill)

Present law

      Generally, the Federal Unemployment Tax (``FUTA'') is 
imposed on farm operators who (1) employ 10 or more 
agricultural workers for some portion of each of 20 different 
days, each day being in a different calendar week or (2) have a 
quarterly payroll for agricultural services of at least 
$20,000. An exclusion from FUTA was provided, however, for 
labor performed by an alien admitted to the United States to 
perform agricultural labor under section 214(c) and 
101(a)(15)(H) of the Immigration and Nationality Act. This 
exclusion was effective for labor performed before January 1, 
1995.

House bill

      The House bill permanently extends the exemption.
      Effective date.--Effective for labor performed on or 
after January 1, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.
      Effective date.--Effective for labor performed on or 
after January 1, 1995.

 2. Tax information sharing: Extend access to tax information for the 
     Department of Veterans Affairs (sec. 13501 of the House bill)

Present law

      The Internal Revenue Code prohibits disclosure of tax 
returns and return information, except to the extent 
specifically authorized by the Internal Revenue Code (sec. 
6103). Unauthorized disclosure is a felony punishable by a fine 
not exceeding $5,000 or imprisonment of not more than five 
years, or both (sec. 7213). An action for civil damages also 
may be brought for unauthorized disclosure (sec. 7431). No tax 
information may be furnished by the Internal Revenue Service 
(IRS) to another agency unless the other agency establishes 
procedures satisfactory to the IRS for safeguarding the tax 
information it receives (sec. 6103(p)).
      Among the disclosures permitted under the Code is 
disclosure to the Department of Veterans Affairs (DVA) of self-
employment tax information and certain tax information supplied 
to the Internal Revenue Service and Social Security 
Administration by third parties. Disclosure is permitted to 
assist DVA in determining eligibility for, and establishing 
correct benefit amounts under, certain of its needs-based 
pension, health care, and other programs (sec. 
6103(l)(7)(D)(viii)). The income tax returns filed by the 
veterans themselves are not disclosed to DVA.
      The DVA is required to comply with the safeguards 
currently contained in the Code and in section 1137(c) of the 
Social Security Act (governing the use of disclosed tax 
information). These safeguards include independent verification 
of tax data, notification to the individual concerned, and the 
opportunity to contest agency findings based on such 
information.
      The DVA disclosure provision is scheduled to expire after 
September 30, 1998.

House bill

      The House bill permanently extends the authority to 
disclose tax information to the DVA.
      Effective date.--The provision is effective on the date 
of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill, except 
that the provision is extended through September 30, 2002.

                VI. Taxpayer Bill of Rights 2 Provisions

                          1. Taxpayer advocate

   a. Establishment of position of Taxpayer Advocate within Internal 
             Revenue Service (sec. 13301 of the House bill)

Present law
      The Office of the Taxpayer Ombudsman was created by the 
Internal Revenue Service (IRS) in 1979. The Taxpayer 
Ombudsman's duties are to serve as the primary advocate, within 
the IRS, for taxpayers. As the taxpayers' advocate, the 
Taxpayer Ombudsman participates in an ongoing review of IRS 
policies and procedures to determine their impact on taxpayers, 
receives ideas from the public concerning tax administration, 
identifies areas of the tax law that confuse or create an 
inequity for taxpayers, and supervises cases handled under the 
Problem Resolution Program. Under current procedures, the 
Taxpayer Ombudsman is selected by the Commissioner of the IRS 
and serves at the Commissioner's discretion.
House bill
      The House bill establishes a new position, Taxpayer 
Advocate, within the IRS. This replaces the position of 
Taxpayer Ombudsman. The Taxpayer Advocate is appointed by and 
reports directly to the Commissioner. Compensation of the 
Taxpayer Advocate is at a level equal to that of the highest 
level official reporting directly to the Deputy Commissioner of 
the IRS.
      The House bill also establishes the Office of Taxpayer 
Advocate within the IRS. The functions of the office are (1) to 
assist taxpayers in resolving problems with the IRS, (2) to 
identify areas in which taxpayers have problems in dealings 
with the IRS, (3) to propose changes (to the extent possible) 
in the administrative practices of the IRS that will mitigate 
those problems, and (4) to identify potential legislative 
changes that may mitigate those problems.
      The Taxpayer Advocate is required to make two annual 
reports to the tax-writing Committees.
      Effective date.--The provision is effective on the date 
of enactment. The first annual reports of the Taxpayer Advocate 
are due in June and December, 1996.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  b. Expansion of authority to issue Taxpayer Assistance Orders (sec. 
                        13302 of the House bill)

Present law
      Section 7811(a) authorizes the Taxpayer Ombudsman to 
issue a Taxpayer Assistance Order (TAO). TAOs may order the 
release of taxpayer property levied upon by the IRS and may 
require the IRS to cease any action, or refrain from taking any 
action if, in the determination of the Taxpayer Ombudsman, the 
taxpayer is suffering or about to suffer a significant hardship 
as a result of the manner in which the internal revenue laws 
are being administered.
House bill
      The House bill provides the Taxpayer Advocate with 
broader authority to affirmatively take any action as permitted 
by law with respect to taxpayers who would otherwise suffer a 
significant hardship as a result of the manner in which the IRS 
is administering the tax laws. In addition, the House bill 
provides that a TAO may specify a time period within which the 
TAO must be followed. Further, the House bill provides that 
only the Taxpayer Advocate, the Commissioner of the IRS, the 
Deputy Commissioner, or a regional problem resolution officer, 
may modify or rescind a TAO. Any official who modifies or 
rescinds a TAO must provide the Taxpayer Advocate a written 
explanation of the reasons for the modification or rescission.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

          2. Modifications to installment agreement provisions

 a. Notification of reasons for termination of installment agreements 
                     (sec. 13306 of the House bill)

Present law
      Section 6159 authorizes the IRS to enter into written 
installment agreements with taxpayers to facilitate the 
collection of tax liabilities. In general, the IRS has the 
right to terminate (or in some instances, alter or modify) such 
agreements if the taxpayer provided inaccurate or incomplete 
information before the agreement was entered into, if the 
taxpayer fails to make a timely payment of an installment or 
another tax liability, if the taxpayer fails to provide the IRS 
with a requested update of financial condition, if the IRS 
determines that the financial condition of the taxpayer has 
changed significantly, or if the IRS believes collection of the 
tax liability is in jeopardy. If the IRS determines that the 
financial condition of a taxpayer that has entered into an 
installment agreement has changed significantly, the IRS must 
provide the taxpayer with a written notice that explains the 
IRS determination at least 30 days before altering, modifying, 
or terminating the installment agreement. No notice is 
statutorily required if the installment agreement is altered, 
modified, or terminated for other reasons.
House bill
      The House bill requires the IRS to notify taxpayers 30 
days before altering, modifying, or terminating any installment 
agreement for any reason other than that the collection of tax 
is determined to be in jeopardy. The IRS must include in the 
notification an explanation of why the IRS intends to take this 
action.
      Effective date.--The provision is effective six months 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

b. Administrative review of termination of installment agreements (sec. 
                        13307 of the House bill)

Present law
      The IRS is currently testing an appeal process for 
various collection actions, including installment agreements, 
that will permit taxpayers to appeal these collection actions 
to Appeals Division personnel.
House bill
      The House bill requires the IRS to establish additional 
procedures for an independent administrative review of 
terminations of installment agreements for taxpayers who 
request a review.
      Effective date.--The provision is effective on January 1, 
1996.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                 3. Abatement of interest and penalties

 a. Expansion of authority to abate interest (sec. 13311 of the House 
              bill and sec. 12501 of the Senate amendment)

Present law
      Any assessment of interest on any deficiency attributable 
in whole or in part to any error or delay by an officer or 
employee of the IRS (acting in his official capacity) in 
performing a ministerial act may be abated.
House bill
      The House bill permits the IRS to abate interest with 
respect to any unreasonable error or delay resulting from 
managerial acts as well as ministerial acts. This would include 
extensive delays resulting from managerial acts such as: the 
loss of records by the IRS, IRS personnel transfers, extended 
illnesses, extended personnel training, or extended leave. On 
the other hand, interest would not be abated for delays 
resulting from general administrative decisions. For example, 
the taxpayer could not claim that the IRS's decision on how to 
organize the processing of tax returns or its delay in 
implementing an improved computer system resulted in an 
unreasonable delay in the Service's action on the taxpayer's 
tax return, and so the interest on any subsequent deficiency 
should be waived.
      Effective date.--The provision applies to interest 
accruing with respect to deficiencies or payments for taxable 
years beginning after the date of enactment.
Senate amendment
      Same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

  b. Review of IRS failure to abate interest (sec. 13312 of the House 
              bill and sec. 12502 of the Senate amendment)

Present law

      Federal courts generally do not have the jurisdiction to 
review the IRS's failure to abate interest.

House bill

      The House bill grants the Tax Court jurisdiction to 
determine whether the IRS's failure to abate interest for an 
eligible taxpayer was an abuse of discretion. The action must 
be brought within six months after the date of the Secretary's 
final determination not to abate interest. An eligible taxpayer 
must meet the net worth and size requirements imposed with 
respect to awards of attorney's fees. No inference is intended 
as to whether under present law any court has jurisdiction to 
review IRS's failure to abate interest.
      Effective date.--The provision applies to requests for 
abatement after the date of enactment.

Senate amendment

      Same as the House bill.

Conference agreement

      The conference agreement does not include the House bill 
provision and the Senate amendment.

 c. Extension of interest-free period for payment of tax after notice 
               and demand (sec. 13313 of the House bill)

Present law

      In general, a taxpayer must pay interest on late payments 
of tax. An interest-free period of 10 calendar days is provided 
to taxpayers who pay the tax due within 10 calendar days of 
notice and demand.

House bill

      The House bill extends the interest-free period provided 
to taxpayers for the payment of the tax liability reflected in 
the notice from 10 calendar days to 10 business days (21 
calendar days, provided that the total tax liability shown on 
the notice of deficiency is less than $100,000).
      Effective date.--The provision applies in the case of any 
notice and demand given after June 30, 1996.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

                            4. Joint returns

 a. Studies of joint and several liability for married persons filing 
joint tax returns and other joint return-related issues (sec. 13316 of 
                            the House bill)

Present law

      Spouses who file a joint tax return are each fully 
responsible for the accuracy of the return and for the full tax 
liability. This is true even though only one spouse may have 
earned the wages or income which is shown on the return. This 
is ``joint and several'' liability. Spouses who wish to avoid 
joint liability may file as a ``married person filing 
separately.''
      Spouses often file a joint tax return but then later are 
separated or divorced. If the IRS later disputes the accuracy 
of the joint tax returns, one spouse may be held liable for the 
entire tax deficiency stemming from erroneous deductions or 
omitted income attributable to the other spouse. Therefore, the 
``innocent'' spouse may be held liable for the full deficiency 
in a subsequent audit occurring after the separation or 
divorce. This has resulted in a serious hardship being imposed 
on an ``innocent spouse'' in a number of cases.
      In some cases, a couple addresses the responsibility for 
tax liability as part of their divorce decree. However, these 
agreements are not binding on the IRS because the IRS was not a 
party to the divorce proceeding. Thus, if a former spouse 
violates the tax responsibilities assigned to him or her in a 
divorce decree, the other spouse may not rely on the decree in 
dealing with the IRS.

House bill

      The House bill directs the Treasury Department and the 
General Accounting Office (GAO) to conduct separate studies 
analyzing several joint return-related issues.
      Effective date.--The studies are due six months after the 
date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

b. Joint return may be made after separate returns without full payment 
   of tax (sec. 13317 of the House bill and sec. 12503 of the Senate 
                               amendment)

Present law

      Taxpayers who file separate returns and subsequently 
determine that their tax liability would have been less if they 
had filed a joint return are precluded by statute from reducing 
their tax liability by filing jointly if they are unable to pay 
the entire amount of the joint return liability before the 
expiration of the three-year period for making the election to 
file jointly.

House bill

      The House bill repeals the requirement of full payment of 
tax liability as a precondition to switching from married 
filing separately status to married filing jointly status.
      Effective date.--The provision applies to taxable years 
beginning after the date of the enactment.

Senate amendment

      Same as the House bill.

Conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 c. Disclosure of collection activities with respect to joint returns 
                     (sec. 13318 of the House bill)

Present law

      The IRS does not routinely disclose collection 
information to a former spouse that relates to tax liabilities 
attributable to a joint return that was filed when married.

House bill

      If a tax deficiency with respect to a joint return is 
assessed, and the individuals filing the return are no longer 
married or no longer reside in the same household, the House 
bill requires the IRS to disclose in writing (in response to a 
written request by one of the individuals) to that individual 
whether the IRS has attempted to collect the deficiency from 
the other individual, the general nature of the collection 
activities, and the amount (if any) collected.
      Effective date.--The provision is effective on the date 
of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

                        5. Collection activities

              a. Modifications to lien and levy provisions

  I. Withdrawal of public notice of lien (sec. 13321(a) of the House 
                                 bill)

Present law

      The IRS must file a notice of lien in the public record, 
in order to protect the priority of a tax lien. A notice of tax 
lien provides public notice that a taxpayer owes the Government 
money. The IRS has discretion in filing such a notice, but may 
withdraw a filed notice only if the notice (and the underlying 
lien) was erroneously filed or if the underlying lien has been 
paid, bonded, or become unenforceable.

House bill

      The House bill allows the IRS to withdraw a public notice 
of tax lien prior to payment in full by the indebted taxpayer 
without prejudice, if the Secretary determines that (1) the 
filing of the notice was premature or otherwise not in 
accordance with the administrative procedures of the IRS, (2) 
the taxpayer has entered into an installment agreement to 
satisfy the tax liability with respect to which the lien was 
filed, (3) the withdrawal of the lien will facilitate 
collection of the tax liability, or (4) the withdrawal of the 
lien would be in the best interests of the taxpayer (as 
determined by the Taxpayer Advocate) and of the Government. The 
IRS must also provide a copy of the notice of withdrawal to the 
taxpayer. The House bill also requires that, at the written 
request of the taxpayer, the IRS make reasonable efforts to 
give notice of the withdrawal of a lien to creditors, credit 
reporting agencies, and financial institutions specified by the 
taxpayer.
      Effective date.--The provision is effective on the date 
of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

    ii. Return of levied property (sec. 13321(b) of the House bill)

Present law

      The IRS is authorized to levy on the property of a 
taxpayer as a means of collecting unpaid taxes. The IRS is able 
to return levied property to a taxpayer only when the taxpayer 
has overpaid its liability with respect to tax, interest, and 
penalty for which the property was levied.

House bill

      The House bill allows the IRS to return property 
(including money deposited in the Treasury) that has been 
levied upon if the Secretary determines that (1) the levy was 
premature or otherwise not in accordance with the 
administrative procedures of the IRS, (2) the taxpayer has 
entered into an installment agreement to satisfy the tax 
liability, (3) the return of the property will facilitate 
collection of the tax liability, or (4) the return of the 
property would be in the best interests of the taxpayer (as 
determined by the Taxpayer Advocate) and the Government.
      Effective date.--The provision is effective on the date 
of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

iii. Modifications in certain levy exemption amounts (sec. 13321(c) of 
         the House bill and sec. 12504 of the Senate amendment)

Present law

      Property exempt from levy includes personal property with 
a value of up to $1,650 and books and tools of a trade with a 
value of up to $1,100.

House bill

      The House bill increases the exemption amount to $2,500 
for personal property. This amount is indexed for inflation 
commencing January 1, 1996.
      Effective date.--The provision is effective with respect 
to levies issued after December 31, 1995.

Senate amendment

      Same as the House bill, except that the Senate amendment 
also increases the exemption amount to $1,250 for books and 
tools of a trade.

Conference agreement

      The conference agreement follows the Senate amendment.

b. Offers-in-compromise (sec. 13322 of the House bill and sec. 12505 of 
                         the Senate amendment)

Present law

      The IRS has the authority to settle a tax debt pursuant 
to an offer-in-compromise. IRS regulations provide that such 
offers can be accepted if: the taxpayer is unable to pay the 
full amount of the tax liability and it is doubtful that the 
tax, interest, and penalties can be collected or there is doubt 
as to the validity of the actual tax liability. Amounts over 
$500 can only be accepted if the reasons for the acceptance are 
documented in detail and supported by an opinion of the IRS 
Chief Counsel.

House bill

      The House bill increases from $500 to $100,000 the amount 
requiring a written opinion from the Office of Chief Counsel. 
Compromises below the $100,000 threshold must be subject to 
continuing quality review by the IRS.
      Effective date.--The provision is effective on the date 
of enactment.

Senate amendment

      Same as the House bill, except the threshold is $50,000.

Conference agreement

      The conference agreement follows the Senate amendment.

                         6. Information returns

  a. Civil damages for fraudulent filing of information returns (sec. 
                        13326 of the House bill)

Present law

      Federal law provides no private cause of action to a 
taxpayer who is injured because a fraudulent information return 
has been filed with the IRS asserting that payments have been 
made to the taxpayer.

House bill

      The House bill provides that, if any person willfully 
files a fraudulent information return with respect to payments 
purported to have been made to another person, the other person 
may bring a civil action for damages against the person filing 
that return. A copy of the complaint initiating the action must 
be provided to the IRS. Recoverable damages are the greater of 
(1) $5,000 or (2) the amount of actual damages (including the 
costs of the action) and, in the court's discretion, reasonable 
attorney's fees. The court must specify in any decision 
awarding damages the correct amount (if any) that should have 
been reported on the information return. An action seeking 
damages under this provision must be brought within six years 
after the filing of the fraudulent information return, or one 
year after the fraudulent information return would have been 
discovered through the exercise of reasonable care, whichever 
is later.
      Effective date.--The provision applies to fraudulent 
information returns filed after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

  b. Requirement to conduct reasonable investigations of information 
                 returns (sec. 13327 of the House bill)

Present law

      Deficiencies determined by the IRS are generally afforded 
a presumption of correctness.

House bill

      The House bill provides that, in any court proceeding, if 
a taxpayer asserts a reasonable dispute with respect to any 
item of income reported on an information return (Form 1099 or 
Form W-2) filed by a third party and the taxpayer has fully 
cooperated with the IRS, the Government has the burden of 
producing reasonable and probative information concerning the 
deficiency (in addition to the information return itself). 
Fully cooperating with the IRS includes (but is not limited to) 
the following: bringing the reasonable dispute over the item of 
income to the attention of the IRS within a reasonable period 
of time, and providing (within a reasonable period of time) 
access to and inspection of all witnesses, information, and 
documents within the control of the taxpayer (as reasonably 
requested by the Secretary).
      Effective date.--The provision is effective on the date 
of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

                 7. Awarding of costs and certain fees

 a. United States must establish that its position in a proceeding was 
         substantially justified (sec. 13331 of the House bill)

Present law

      Under section 7430, a taxpayer who successfully 
challenges a determination of deficiency by the IRS may recover 
attorney's fees and other administrative and litigation costs 
if the taxpayer qualifies as a ``prevailing party.'' A taxpayer 
qualifies as a prevailing party if it: (1) establishes that the 
position of the United States was not substantially justified; 
(2) substantially prevails with respect to the amount in 
controversy or with respect to the most significant issue or 
set of issues presented; and (3) meets certain net worth and 
(if the taxpayer is a business) size requirements. A taxpayer 
must exhaust administrative remedies to be eligible to receive 
an award of attorney's fees.

House bill

      The House bill provides that, once a taxpayer 
substantially prevails over the IRS in a tax dispute, the IRS 
has the burden of proof to establish that it was substantially 
justified in maintaining its position against the taxpayer. 
This will switch the current procedure which places the burden 
of proof on the taxpayer to establish that the IRS was not 
substantially justified in maintaining its position. Therefore, 
the successful taxpayer will receive an award of attorney's 
fees unless the IRS satisfies its burden of proof. The House 
bill also establishes a rebuttable presumption that the 
position of the United States was not substantially justified 
if the IRS did not follow in the administrative proceeding (1) 
its published regulations, revenue rulings, revenue procedures, 
information releases, notices, or announcements, or (2) a 
private letter ruling, determination letter, or technical 
advice memorandum issued to the taxpayer. This provision only 
applies to the version of IRS guidance that is most current on 
the date the IRS's position was taken.
      Effective date.--The provision is effective for 
proceedings commenced after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

  b. Increased limit on attorney's fees (sec. 13332 of the House bill)

Present law

      Attorney's fees recoverable by prevailing parties as 
litigation or administrative costs was originally set at $75 
per hour.

House bill

      The House bill raises the statutory rate to $110 per 
hour, indexed for inflation beginning after 1996.
      Effective date.--The provision applies to proceedings 
commenced after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

c. Failure to agree to extension not taken into account (sec. 13333 of 
                            the House bill)

Present law

      To qualify for an award of attorney's fees, the taxpayer 
must have exhausted the administrative remedies available 
within the IRS.

House bill

      The House bill provides that any failure to agree to an 
extension of the statute of limitations cannot be taken into 
account for purposes of determining whether a taxpayer has 
exhausted the administrative remedies for purposes of 
determining eligibility for an award of attorney's fees.
      Effective date.--The provision applies to proceedings 
commenced after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

    d. Award of litigation costs permitted in declaratory judgment 
proceedings (sec. 13334 of the House bill and sec. 12506 of the Senate 
                               amendment)

Present law

      Section 7430(b)(3) denies any reimbursement for 
attorney's fees in all declaratory judgment actions, except 
those actions related to the revocation of an organization's 
qualification under section 501(c)(3) (relating to tax-exempt 
status).

House bill

      The House bill eliminates the present-law restrictions on 
awarding attorney's fees in all declaratory judgment 
proceedings.
      Effective date.--The provision applies to proceedings 
commenced after the date of enactment.

Senate amendment

      Same as the House bill.

Conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

     8. Modification to recovery of civil damages for unauthorized 
                           collection actions

  a. Increase in limit on recovery of civil damages for unauthorized 
           collection actions (sec. 13336 of the House bill)

Present law
      A taxpayer may sue the United States for up to $100,000 
of damages caused by an officer or employee of the IRS who 
recklessly or intentionally disregards provisions of the 
Internal Revenue Code or the Treasury regulations promulgated 
thereunder in connection with the collection of Federal tax 
with respect to the taxpayer.
House bill
      The House bill increases the cap from $100,000 to $1 
million.
      Effective date.--The provision applies to unauthorized 
collection actions by IRS employees that occur after the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

b. Court discretion to reduce award for litigation costs for failure to 
exhaust administrative remedies (sec. 13337 of the House bill and sec. 
                     12507 of the Senate amendment)

Present law
      A taxpayer suing the United States for civil damages for 
unauthorized collection activities must exhaust administrative 
remedies to be eligible for an award.
House bill
      The House bill permits (but does not require) a court to 
reduce an award if the taxpayer has not exhausted 
administrative remedies.
      Effective date.--The provision is effective for 
proceedings commenced after the date of enactment.
Senate amendment
      Same as the House bill.
Conference agreement
      The conference agreement does not include the House bill 
provision and the Senate amendment.

   9. modification to penalty for failure to collect and pay over tax

    a. preliminary notice requirement (sec. 13341 of the house bill)

Present law
      Under section 6672, a ``responsible person'' is subject 
to a penalty equal to the amount of trust fund taxes that are 
not collected or paid to the government on a timely basis. An 
individual the IRS has identified as a responsible person is 
permitted an administrative appeal on the question of 
responsibility.
House bill
      The House bill requires the IRS to issue a notice to an 
individual the IRS had determined to be a responsible person 
with respect to unpaid trust fund taxes at least 60 days prior 
to issuing a notice and demand for the penalty. The statute of 
limitations shall not expire before the date 90 days after the 
date on which the notice was mailed. The provision does not 
apply if the Secretary finds that the collection of the penalty 
is in jeopardy.
      Effective date.--The provision applies to assessments 
made after June 30, 1996.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

b. disclosure of certain information where more than one person subject 
               to penalty (sec. 13342 of the house bill)

Present law
      The IRS may not disclose to a responsible person the 
IRS's efforts to collect unpaid trust fund taxes from other 
responsible persons, who may also be liable for the same tax 
liability.
House bill
      The House bill requires the IRS, if requested in writing 
by a person considered by the IRS to be a responsible person, 
to disclose in writing to that person the name of any other 
person the IRS has determined to be a responsible person with 
respect to the tax liability. The IRS is required to disclose 
in writing whether it has attempted to collect this penalty 
from other responsible persons, the general nature of those 
collection activities, and the amount (if any) collected. 
Failure by the IRS to follow this provision does not absolve 
any individual for any liability for this penalty.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

c. right of contribution from multiple responsible parties (sec. 13343 
                           of the house bill)

Present law
      A responsible person may seek to recover part of the 
amount which he has paid to the IRS from other individuals who 
also may have the obligations of a responsible person but who 
have not yet contributed their proportionate share of their 
liability under section 6672. Taxpayers must pursue such claims 
for contribution under state law (to the extent state law 
permits such claims). The variations in state law sometimes 
make it difficult or impossible to press successful suits in 
state courts to force a contribution from other responsible 
persons.
House bill
      If more than one person is liable for this penalty, each 
person who paid the penalty is entitled to recover from other 
persons who are liable for the penalty an amount equal to the 
excess of the amount paid by such person over such person's 
proportionate share of the penalty. This proceeding is a 
Federal cause of action and must be entirely separate from any 
proceeding involving IRS's collection of the penalty from any 
responsible party (including a proceeding in which the United 
States files a counterclaim or third-party complaint for 
collection of the penalty).
      Effective date.--The provision applies to penalties 
assessed after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

 d. board members of tax-exempt organizations (sec. 13344 of the house 
                                 bill)

Present law
      Under section 6672, ``responsible persons'' of tax-exempt 
organizations are subject to a penalty equal to the amount of 
trust fund taxes that are not collected and paid to the 
Government on a timely basis.
House bill
      The House bill clarifies that the section 6672 
responsible person penalty is not to be imposed on volunteer, 
unpaid members of any board of trustees or directors of a tax-
exempt organization to the extent such members are solely 
serving in an honorary capacity, do not participate in the day-
to-day or financial activities of the organization, and do not 
have actual knowledge of the failure. The provision cannot 
operate in such a way as to eliminate all responsible persons 
from responsibility.
      The House bill requires the IRS to develop materials to 
better inform board members of tax-exempt organizations 
(including voluntary or honorary members) that they may be 
treated as responsible persons. The IRS is required to make 
such materials routinely available to tax-exempt organizations. 
The House bill also requires the IRS to clarify its 
instructions to IRS employees on application of the responsible 
person penalty with regard to honorary or volunteer members of 
boards of trustees or directors of tax-exempt organizations.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

            10. modifications of rules relating to summonses

a. enrolled agents included as third-party recordkeepers (sec. 13346 of 
         the house bill and sec. 12508 of the senate amendment)

Present law
      Section 7609 contains special procedures that the IRS 
must follow before it issues a third-party summons. A third-
party summons is a summons issued to a third-party recordkeeper 
compelling him to provide information with respect to the 
taxpayer. An example of this would be a summons served on a 
stock brokerage house to provide data on the securities trading 
of the taxpayer-client.
      If a third-party summons is served on a third-party 
recordkeeper listed in section 7609(a)(3), then the taxpayer 
must receive notice of the summons and have an opportunity to 
challenge the summons in court. Otherwise the taxpayer has no 
statutory right to receive notice of the summons and 
accordingly he will not have the opportunity to challenge it in 
court.
      Section 7609(a)(3) lists attorneys and accountants as 
third-party recordkeepers, but it does not list ``enrolled 
agents'', who are authorized to practice before the IRS.
House bill
      The House bill includes enrolled agents as third-party 
recordkeepers.
      Effective date.--The provision applies to summonses 
issued after the date of enactment.
Senate amendment
      Same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

   b. safeguards relating to designated summonses; annual report to 
congress on designated summonses (secs. 13347--13348 of the house bill 
                and sec. 12509 of the senate amendment)

Present law
      The period for assessment of additional tax with respect 
to most tax returns, corporate or otherwise, is three years. 
The IRS and the taxpayer can together agree to extend the 
period, either for a specified period of time or indefinitely. 
The taxpayer may terminate an indefinite agreement to extend 
the period by providing notice to the IRS.
      During an audit, the IRS may informally request that the 
taxpayer provide additional information necessary to arrive at 
a fair and accurate audit adjustment, if any adjustment is 
warranted. Not all taxpayers cooperate by providing the 
requested information on a timely basis. In some cases the IRS 
seeks information by issuing an administrative summons. Such a 
summons will not be judicially enforced unless the Government 
(as a practical matter, the Department of Justice) seeks and 
obtains an order for enforcement in Federal court. In addition, 
a taxpayer may petition the court to quash an administrative 
summons where this is permitted by statute.26
    \26\ Petitions to quash are permitted, for example, in connection 
with the examination of certain related party transactions under 
section 6038A(e)(4), and in the case of certain third-party summonses 
under section 7609(b)(2).
---------------------------------------------------------------------------
      In certain cases, the running of the assessment period is 
suspended during the period when the parties are in court to 
obtain or avoid judicial enforcement of an administrative 
summons. Such a suspension is provided in the case of 
litigation over a third-party summons (sec. 7609(e)) or 
litigation over a summons regarding the examination of a 
related party transaction. Such a suspension can also occur 
with respect to a corporate tax return if a summons is issued 
at least 60 days before the day on which the assessment period 
(as extended) is scheduled to expire. In this case, suspension 
is only permitted if the summons clearly states that it is a 
``designated summons'' for this purpose. Only one summons may 
be treated as a designated summons for purposes of any one tax 
return. The limitations period is suspended during the judicial 
enforcement period of the designated summons and of any other 
summons relating to the same tax return that is issued within 
30 days after the designated summons is issued.
      Under current internal procedures of the IRS, no 
designated summons is issued unless first reviewed by the 
Office of Chief Counsel to the IRS, including review by an IRS 
Deputy Regional Counsel for the Region in which the examination 
of the corporation's return is being conducted.
House bill
      The House bill requires that issuance of any designated 
summons with respect to a corporation's tax return must be 
preceded by review of such issuance by the Regional Counsel, 
Office of Chief Counsel to the IRS, for the Region in which the 
examination of the corporation's return is being conducted.
      The House bill also limits the use of a designated 
summons to corporations (or to any other person to whom the 
corporation has transferred records) that are being examined as 
part of the Coordinated Examination Program (CEP) or its 
successor. CEP audits cover about 1,600 of the largest 
corporate taxpayers. If a corporation moves between CEP and 
non-CEP audit categories, only the tax years covered by the CEP 
may be the subject of a designated summons. The House bill does 
not affect Code section 6038A(e)(1), which relates to a U.S. 
reporting corporation that acts merely as the agent of the 
foreign related party by receiving summonses on behalf of the 
foreign party.
      The House bill also requires that the Treasury report 
annually to the Congress on the number of designated summonses 
issued in the preceding 12 months.
      Effective date.--The provision applies to summonses 
issued after date of enactment.
Senate amendment
      The Senate amendment is the same as the House bill with 
respect to limiting the use of a designated summons to certain 
corporations. The Senate amendment does not contain the 
provisions requiring the review of the Regional Counsel or the 
report.
Conference agreement
      The conference agreement does not include the House bill 
provision and the Senate amendment.

    11. Relief from retroactive application of Treasury Department 
               regulations (sec. 13351 of the House bill)

Present law
      Under section 7805(b), Treasury may prescribe the extent 
(if any) to which regulations shall be applied without 
retroactive effect.
House bill
      The House bill provides that temporary and proposed 
regulations must have an effective date no earlier than the 
date of publication in the Federal Register or the date on 
which any notice substantially describing the expected contents 
of such regulation is issued to the public. Any regulations 
filed or issued within 12 months of the enactment of the 
statutory provision to which the regulation relates may be 
issued with retroactive effect. This general prohibition on 
retroactive regulations may be superseded by a legislative 
grant authorizing the Treasury to prescribe the effective date 
with respect to a statutory provision. The Treasury may issue 
retroactive temporary or proposed regulations to prevent abuse. 
The Treasury also may issue retroactive temporary, proposed, or 
final regulations to correct a procedural defect in the 
issuance of a regulation. Taxpayers may elect to apply a 
temporary or proposed regulation retroactively from the date of 
publication of the regulation. Final regulations may take 
effect from the date of publication of the temporary or 
proposed regulation to which they relate. The provision does 
not apply to any regulation relating to internal Treasury 
Department policies, practices, or procedures. Present law with 
respect to rulings is unchanged.
      Effective date.--The provision applies with respect to 
regulations that relate to statutory provisions enacted on or 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                      12. Miscellaneous provisions

  a. Report on pilot program for appeal of enforcement actions (sec. 
                        13356 of the House bill)

Present law
      A taxpayer who disagrees with an IRS collection action 
generally can only appeal to successively higher levels of 
management in the Collection Division. However, certain cases 
involving the 6672 penalty, offers-in-compromise, and 
employment tax issues may be appealed to the Appeals Division.
House bill
      The House bill requires the Secretary to report to the 
tax-writing committees on the effectiveness of the pilot 
program, together with any recommendations he may deem 
advisable.
      Effective date.--The report is due by March 1, 1996.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  b. Phone numbers of person providing payee statement required to be 
         shown on such statement (sec. 13357 of the House bill)

Present law
      Information returns must contain the name and address of 
the payor.
House bill
      The House bill requires that information returns contain 
the name, address, and phone number of the information contact 
of the person required to make the information return. A payor 
may, for example, provide the phone number of the department 
with the relevant information. It is intended that the 
telephone number provide direct access to individuals with 
immediate resources to resolve a taxpayer's questions in an 
expeditious manner.
      Effective date.--The provision applies to statements 
required to be furnished after December 31, 1996 (determined 
without regard to any extension).
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

c. Required notice to taxpayers of certain payments (sec. 13358 of the 
                              House bill)

Present law
      If the IRS receives a payment without sufficient 
information to properly credit it to a taxpayer's account, the 
IRS may attempt to contact the taxpayer. If contact cannot be 
made, the IRS places the payment in an unidentified remittance 
file.
House bill
      The House bill requires the IRS to make reasonable 
efforts to notify, within 60 days, those taxpayers who have 
made payments which the IRS cannot associate with the taxpayer.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

d. Unauthorized enticement of information disclosure (sec. 13359 of the 
                              House bill)

Present law
      No statutory disincentive applies to IRS employees who 
entice a tax professional to disclose information about clients 
in exchange for the favorable treatment of the taxes of the 
professional.
House bill
      If any officer or employee of the United States 
intentionally compromises the determination or collection of 
any tax due from an attorney, certified public accountant, or 
enrolled agent representing a taxpayer in exchange for 
information conveyed by the taxpayer to the attorney, certified 
public accountant, or enrolled agent for purposes of obtaining 
advice concerning the taxpayer's tax liability, the taxpayer 
may bring a civil action for damages against the United States 
in a district court of the United States. Upon a finding of 
liability, damages shall equal the lesser of $500,000 or the 
sum of (1) actual economic damages sustained by the taxpayer as 
a proximate result of the information disclosure and (2) the 
costs of the action. These remedies shall not apply to 
information conveyed to an attorney, certified public 
accountant, or enrolled agent for the purpose of perpetrating a 
fraud or crime.
      Effective date.--The provision applies to actions taken 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

 e. Annual reminders to taxpayers with outstanding delinquent accounts 
 (sec. 13360 of the House bill and sec. 12510 of the Senate amendment)

Present law
      There is no statutory requirement in the Code that the 
IRS send annual reminders to persons who have outstanding tax 
liabilities.
House bill
      The House bill requires the IRS to send taxpayers an 
annual reminder of their outstanding tax liabilities. The fact 
that a taxpayer did not receive a timely, annual reminder 
notice does not affect the tax liability.
      Effective date.--The provision requires the IRS to send 
annual reminder notices beginning in 1996.
Senate amendment
      Same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

  f. Five-year extension of authority for undercover operations (sec. 
                        13361 of the House bill)

Present law
      The Anti-Drug Abuse Act of 1988 exempted IRS undercover 
operations from the otherwise applicable statutory restrictions 
controlling the use of Government funds (which generally 
provide that all receipts be deposited in the general fund of 
the Treasury and all expenses be paid out of appropriated 
funds). In general, the exemption permits the IRS to ``churn'' 
the income earned by an undercover operation to pay additional 
expenses incurred in the undercover operation. The IRS is 
required to conduct a detailed financial audit of large 
undercover operations in which the IRS is churning funds and to 
provide an annual audit report to the Congress on all such 
large undercover operations. The exemption originally expired 
on December 31, 1989, and was extended by the Comprehensive 
Crime Control Act of 1990 to December 31, 1991. The IRS has not 
had the authority to churn funds from its undercover operations 
since 1991.
House bill
      The House bill reinstates the IRS's offset authority 
under section 7608(c) from the date of enactment until January 
1, 2001. The House bill amends the IRS annual reporting 
requirement under section 7608(c)(4)(B) to require the 
provision of the following data: (1) the date the operation was 
initiated; (2) the date offsetting was approved; (3) the total 
current expenditures and the amount and use of proceeds of the 
operation; (4) a detailed description of the undercover 
operation projected to generate proceeds, including the 
potential violation being investigated, and whether the 
operation is being conducted under grand jury auspices; and (5) 
the results of the operation to date, including the results of 
criminal proceedings.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

g. Disclosure of returns on cash transactions (sec. 13362 of the House 
                                 bill)

Present law
      The Internal Revenue Code prohibits disclosure of tax 
returns and return information, except to the extent 
specifically authorized by the Internal Revenue Code (sec. 
6103). Unauthorized disclosure is a felony punishable by a fine 
not exceeding $5,000 or imprisonment of not more than five 
years, or both (sec. 7213). An action for civil damages also 
may be brought for unauthorized disclosure (sec. 7431). No tax 
information may be furnished by the IRS to another agency 
unless the other agency establishes procedures satisfactory to 
the IRS for safeguarding the tax information it receives (sec. 
6103(p)).
      Under section 6050I, any person who receives more than 
$10,000 in cash in one transaction (or two or more related 
transactions) in the course of a trade or business generally 
must file an information return (Form 8300) with the IRS 
specifying the name, address, and taxpayer identification 
number of the person from whom the cash was received and the 
amount of cash received.
      The Anti-Drug Abuse Act of 1988 provided a special rule 
permitting the IRS to disclose these information returns to 
other Federal agencies for the purpose of administering Federal 
criminal statutes. The special rule originally was to expire 
after November 18, 1990, and was extended by the Comprehensive 
Crime Control Act of 1990 to November 18, 1992.
House bill
      The House bill permanently extends the special rule for 
disclosing Form 8300 information. Moreover, the House bill 
permits disclosures not only to Federal agencies but also to 
State, local and foreign agencies and for civil, criminal and 
regulatory purposes (i.e., generally in the same manner as 
Currency Transaction Reports filed by financial institutions 
under the Bank Secrecy Act.) Disclosure, however, is not 
permitted to any such agency for purposes of tax 
administration. The House bill also (1) extends the 
dissemination policies and guidelines under section 6103 to 
people having access to Form 8300 information, and (2) applies 
section 6103 sanctions to persons having access to Form 8300 
information that disclose this information without proper 
authorization.
    Effective date.--The provision is effective on the date of 
enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

h. disclosure of returns and return information to designee of taxpayer 
                     (sec. 13363 of the house bill)

Present law
      Under present law, the IRS is authorized to disclose the 
return of any taxpayer, or return information pertaining to a 
taxpayer, to such person(s) as the taxpayer has designated in a 
written request.
House bill
      The House bill deletes the word ``written'' from the 
requirement that ``written consent'' from the taxpayer is 
necessary for the disclosure of taxpayer information to a 
designated third party. Allowing the IRS to adopt alternatives 
to the written request requirement will expedite such changes 
and facilitate the development and implementation of Tax System 
Modernization projects. It is anticipated that the IRS will 
continue to utilize its regulatory authority to impose 
reasonable restrictions on the form in which a request is made, 
and that the IRS will in no event accept an unconfirmed verbal 
request.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

I. Report on netting of interest on overpayments and liabilities (sec. 
                        13364 of the House bill)

Present law
      If any portion of a tax is satisfied through the 
crediting of an overpayment of tax, no interest is imposed on 
that portion of the tax for any period during which, if the 
credit had not been made, interest would have been allowable.
House bill
      The House bill requires the Secretary of the Treasury to 
conduct a study of the manner in which the IRS has implemented 
the netting of interest on overpayments and underpayments and 
the policy and administrative implications of global netting. 
The Treasury is required to hold a public hearing to receive 
comments from any interested party prior to submitting the 
report of its study to the tax writing committees.
      Effective date.--The report is due six months after the 
date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  j. Tax credit for certain expenses incurred in connection with TCMP 
                 audits (sec. 13365 of the House bill)

Present law
      The IRS recently announced that it will not conduct 
taxpayer compliance measurement program (TCMP) audits of 
returns filed for taxable year 1994. (The IRS had previously 
announced it would soon begin these audits.) The IRS planned to 
audit a stratified random sample consisting of approximately 
150,000 returns. The data collected in TCMP audits would have 
been used by the IRS for several purposes: measuring the level 
of compliance with federal tax laws; estimating the tax gap; 
developing criteria for objectively selecting returns for 
audit; allocating the IRS's audit resources; analyzing specific 
compliance issues; and developing legislative proposals 
designed to improve taxpayer compliance.
      Under present law, any expenses a taxpayer incurs in 
connection with the determination, collection or refund of any 
tax are deductible under either section 162 or sections 212(3). 
However, there is no tax credit for expenses incurred in 
connection with TCMP audits.
House bill
      The House bill provides a refundable tax credit to 
individuals (not including estates, trusts, partnerships, or S 
corporations) for up to $3,000 of expenses otherwise deductible 
under either section 162 or section 212(3) incurred in 
connection with a TCMP audit of the taxpayer for taxable year 
1994. In some circumstances, such as where a taxpayer has a net 
operating loss carryback, adjustments may also be made to an 
earlier tax return of the taxpayer as a consequence of the TCMP 
audit of the taxpayer for taxable year 1994. Expenses incurred 
with respect to this type of adjustment on an earlier return 
would also be eligible for the credit, because they are 
incurred in connection with the TCMP audit of the taxpayer for 
taxable year 1994. The $3,000 credit is the total available 
with respect to an audit, regardless of whether the expenses 
are incurred in two (or more) years. The credit is in lieu of a 
deduction with respect to these expenses.
      Effective date.--The provision is effective with respect 
to amounts paid or incurred after December 31, 1994, in taxable 
years ending after that date. The credit is allowable with 
respect to the taxable year in which the expenses are incurred.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

k. Expenses of detection of underpayments and fraud (sec. 13366 of the 
                              House bill)

Present law
      The Secretary may, pursuant to regulations, pay rewards 
for information leading to the detection and punishment of 
violations of the Internal Revenue laws.
House bill
      The House bill clarifies that rewards may be paid for 
information relating to civil violations, as well as criminal 
violations. The House bill also provides that the rewards are 
to be paid out of the proceeds of amounts (other than interest) 
collected by reason of the information provided. The House bill 
also requires an annual report on the rewards program.
      Effective date.--The provision is effective six months 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  VII. Casualty, Nonrecognition, and Involuntary Conversion Provisions

a. modify basis adjustment rules under section 1033 (sec. 13626 of the 
           house bill and sec. 12601 of the senate amendment)

Present law
      Under section 1033, gain realized by a taxpayer from 
certain involuntary conversions of property is deferred to the 
extent the taxpayer purchases property similar or related in 
service or use to the converted property within a specified 
replacement period of time. The replacement property may be 
acquired directly or by acquiring control of a corporation 
(generally, 80 percent of the stock of the corporation) that 
owns replacement property. The taxpayer's basis in the 
replacement property generally is the same as the taxpayer's 
basis in the converted property, decreased by the amount of any 
money or loss recognized on the conversion, and increased by 
the amount of any gain recognized on the conversion. In cases 
in which a taxpayer purchases stock as replacement property, 
the taxpayer generally reduces the basis of the stock, but does 
not reduce the basis of the underlying assets. Thus, the 
reduction in the basis of the stock generally does not result 
in reduced depreciation deductions where the corporation holds 
depreciable property, and may result in the taxpayer having 
more aggregate depreciable basis after the acquisition of 
replacement property than before the involuntary conversion.
House bill
      The House bill provides that where the taxpayer satisfies 
the replacement property requirement of section 1033 by 
acquiring stock in a corporation, the corporation generally 
will reduce its adjusted bases in its assets by the amount by 
which the taxpayer reduces its basis in the stock. The 
corporation's adjusted bases in its assets will not be reduced, 
in the aggregate, below the taxpayer's basis in its stock 
(determined after the appropriate basis adjustment for the 
stock). In addition, the basis of any individual asset will not 
be reduced below zero. The basis reduction first is applied to: 
(1) property that is similar or related in service or use to 
the converted property, then (2) to other depreciable property, 
then (3) to other property.
      Effective date.--The provision applies to involuntary 
conversions occurring after September 13, 1995.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

 b. modify the exception to the related party rule of section 1033 for 
 individuals to only provide an exception for de minimis amounts (sec. 
    13627 of the house bill and sec. 12602 of the senate amendment)

Present law
      Under section 1033, gain realized by a taxpayer from 
certain involuntary conversions of property is deferred to the 
extent the taxpayer purchases property similar or related in 
service or use to the converted property within a specified 
replacement period of time. Pursuant to a provision of H.R. 
831, as passed by the Congress and signed by the President on 
April 11, 1995 (P.L. 104-7), subchapter C corporations (and 
certain partnerships with corporate partners) are not entitled 
to defer gain under section 1033 if the replacement property or 
stock is purchased from a related person.
House bill
      The House bill expands the present-law denial of the 
application of section 1033 to any other taxpayer (including an 
individual) that acquires replacement property from a related 
party (as defined by secs. 267(b) and 707(b)(1)) unless the 
taxpayer has aggregate realized gain of $100,000 or less for 
the taxable year with respect to converted property with 
aggregate realized gains. In the case of a partnership (or S 
corporation), the annual $100,000 limitation applies to both 
the partnership (or S corporation) and each partner (or 
shareholder).
      Effective date.--The provision applies to involuntary 
conversions occurring after September 13, 1995.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

c. treatment of certain crop insurance proceeds and disaster assistance 
  payments (sec. 14555 of the house bill and sec. 12603 of the senate 
                               amendment)

Present law
      A taxpayer engaged in a farming business generally may 
use the cash receipts and disbursements method of accounting 
(``cash method'') to report taxable income. A cash method 
taxpayer generally recognizes income in the taxable year in 
which cash is received, regardless of when the economic events 
that give rise to such income occur. Under a special rule (sec. 
451(d)), in the case of insurance proceeds received as a result 
of destruction or damage to crops, a cash method taxpayer may 
elect to defer the income recognition of the proceeds until the 
taxable year following the year of the destruction or damage, 
if the taxpayer establishes that under his practice, income 
from such crops would have been reported in a following taxable 
year.
House bill
      The House bill amends the special rule of section 451(d) 
to allow a cash method taxpayer to elect to accelerate (or 
defer) the recognition of certain disaster-related payments if 
the taxpayer establishes that, under the taxpayer's practice, 
income from the crops lost in the disaster would have been 
reported in a prior (or the subsequent) taxable year. These 
elections are available with respect to payments of: (1) 
insurance proceeds received on account of destruction or damage 
to crops, or (2) disaster assistance received under any Federal 
law as a result of destruction or damage to crops caused by 
drought, flood, or other natural disaster, or the inability to 
plant crops because of such a disaster. A taxpayer is not 
allowed to accelerate the recognition of a disaster-related 
payment if the taxable year to which the taxpayer could 
properly accelerate such income under the bill is closed by the 
statute of limitations.
      Effective date.--The provision is effective for payments 
received after December 31, 1995, as a result of destruction or 
damage occurring after such date.
Senate amendment
      The Senate amendment is the same as the House bill, but 
with a different effective date.
      Effective date.--The provision is effective for payments 
received after December 31, 1992, as a result of destruction or 
damage occurring after such date.
Conference agreement
      The conference agreement follows the Senate amendment.

d. application of involuntary conversion rules to property damaged as a 
 result of presidentially declared disasters (sec. 12604 of the senate 
                               amendment)

Present law
      A taxpayer may elect not to recognize gain with respect 
to property that is involuntarily converted if the taxpayer 
acquires within an applicable period property similar or 
related in service or use. If the taxpayer does not replace the 
converted property with property similar or related in service 
or use, then gain generally is recognized.
House bill
      No provision.
Senate amendment
      The Senate amendment provides that any tangible property 
acquired and held for productive use in a business is treated 
as similar or related in service or use to property that (1) 
was held for investment or for productive use in a business and 
(2) was involuntarily converted as a result of a Presidentially 
declared disaster.
      Effective date.--The provision is effective for disasters 
for which a Presidential declaration is made after December 31, 
1994, in taxable years ending after that date.
Conference agreement
      The conference agreement follows the Senate amendment.

e. disallow rollover under section 1034 to extent of previously claimed 
  depreciation for home office or other depreciable use of residence 
 (sec. 13628 of the house bill and sec. 12821 of the senate amendment)

Present law
            Rollover
      Generally, no gain is recognized on the sale or exchange 
of a principal residence to the extent that the amount of the 
sales price of the old residence is reinvested in a new 
residence within a specified period. The specified period 
generally is a period beginning two years before the sale of 
the old residence and ending two years after the sale of the 
old residence.
            One-time exclusion
      In general, a taxpayer may exclude from gross income up 
to $125,000 of gain from the sale or exchange of a principal 
residence if the taxpayer (1) has attained age 55 before the 
sale, and (2) has used the residence as a principal residence 
for three or more years of the five years preceding the sale. 
This election is allowed only once in a lifetime unless all 
previous elections are revoked. For these purposes, sales on or 
before July 26, 1978, are not counted against the once-in-a-
lifetime limit.
      In the case of a mixed use of a residence, the exclusion 
is limited to that portion of the residence that is owned and 
used by the individual as his principal residence for at least 
three of the previous five years before the date of sale. Gain 
on the portion not qualifying as a principal residence is not 
eligible for this exclusion.
House bill
            Rollover
      The House bill provides that gain is recognized on the 
sale of a principal residence to the extent of any depreciation 
allowable with respect to such principal residence for periods 
after December 31, 1995.
            One-time exclusion
      The House bill imposes an additional restriction on the 
availability of the one-time exclusion. Specifically, the bill 
provides that the amount of the otherwise allowable one-time 
exclusion is reduced to the extent of depreciation allowable 
with respect to such principal residence for periods after 
December 31, 1995. To illustrate the bill, assume the following 
facts: a 60-year old never-married taxpayer purchased a 
building on January 1, 1995, for $100,000 which will be used as 
the taxpayer's principal residence until its sale on January 1, 
2002. Further, assume that the taxpayer will use one-tenth of 
the building as a qualified home office for three years between 
January 1, 1996, and December 31, 1998, with allowable annual 
depreciation of $256. Finally, assume that the taxpayer sells 
the building for $150,000 on January 1, 2002, and does not 
acquire a replacement residence. The taxpayer's realized gain 
is $50,768 ($150,000-($100,000-$768)). Under the bill $50,000 
($50,768-$768) is eligible for the one-time exclusion. The 
taxpayer is subject to tax on $768.
      Effective date.--Taxable years ending after December 31, 
1995.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

   f. provide that rollover of gain on sale of a principal residence 
 cannot be elected by a resident alien unless the replacement property 
purchased is located within the united states (sec. 13629 of the house 
              bill and sec. 12822 of the senate amendment)

Present law
      Generally, no gain is recognized on the sale or exchange 
of a principal residence to the extent that the amount of the 
sales price of the old residence is reinvested in a new 
residence within a specified period. The specified period 
generally is a period beginning two years before the sale of 
the old residence and ending two years after the sale of the 
old residence. There is no requirement that either the old 
residence or new residence be located within the United States 
or its possessions.
House bill
      Generally, the House bill requires recognition of gain on 
the sale or exchange of a principal residence by a resident 
alien unless the resident alien (1) retains resident alien 
status for at least two years after the date of sale, (2) 
becomes a U.S. citizen within two years of the date of sale, or 
(3) acquires a replacement residence located in the U.S. or its 
possessions within the specified time period.
      The House bill does not apply where (1) the old residence 
is held jointly by the resident alien and the resident alien's 
spouse, (2) they file a joint tax return, and (3) the spouse is 
a U.S. citizen on the date of sale of the old residence.
      Effective date.--Applies to the sale of old residences 
after December 31, 1995, unless a replacement residence was 
purchased before September 13, 1995, or purchased on or after 
such date pursuant to a binding contract in effect on such date 
(and at all times thereafter before such purchase).
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

          VIII. Exempt Organizations and Charitable Provisions

 a. intermediate sanctions for certain tax-exempt organizations (secs. 
                     13646-13651 of the house bill)

Present law
            Private inurement
      Charities.--Section 501(c)(3) specifically conditions 
tax-exempt status for all organizations described in that 
section on the requirement that no part of the net earnings of 
the organization inures to the benefit of any private 
shareholder or individual (the so-called ``private inurement 
test'').
      Social welfare organizations.--A tax-exempt social 
welfare organization described in section 501(c)(4) must be 
organized on a non-profit basis and must be operated 
exclusively for the promotion of social welfare. In contrast to 
section 501(c)(3), however, there is no specific statutory rule 
in section 501(c)(4) prohibiting the net earnings of a social 
welfare organization described in section 501(c)(4) from 
inuring to the benefit of a private shareholder or 
individual.27
    \27\ Even where no prohibited private inurement exists, however, 
more than incidental private benefits conferred on individuals may 
result in the organization not being operated ``exclusively'' for an 
exempt purpose. See, e.g., American Campaign Academy v. Commissioner, 
92 T.C. 1053 (1989).
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      Other organizations.--Other tax-exempt organizations, 
such as labor and agricultural organizations described in 
section 501(c)(5) and business leagues described in section 
501(c)(6) are subject to the private inurement test, as a 
result of explicit statutory language or Treasury Department 
regulations.
            Sanctions for private inurement and other violations of 
                    exemption standards
      Organizations described in section 501(c)(3) are 
classified as either public charities or private foundations. 
Penalty excise taxes may be imposed under the Code when a 
public charity makes political expenditures (sec. 4955) or 
excessive lobbying expenditures (secs. 4911 and 4912). However, 
the Code generally does not provide for the imposition of 
penalty excise taxes in cases where a 501(c)(3) public charity 
or a section 501(c)(4) social welfare organization engages in a 
transaction that results in private inurement. In such cases, 
the only sanction that specifically is authorized under the 
Code is revocation of the organization's tax-exempt status. A 
transaction engaged in by a private foundation (but not a 
public charity) is subject to special penalty excise taxes 
under the Code if the transaction is a prohibited ``self-
dealing'' transaction (sec. 4941) or does not accomplish a 
charitable purpose (sec. 4945).
            Filing and public disclosure rules
      Tax-exempt organizations (other than churches and certain 
small organizations) are required to file an annual information 
return (Form 990) with the IRS, setting forth the 
organization's items of gross income and expenses attributable 
to such income, disbursements for tax-exempt purposes, plus 
certain other information for the taxable year. Private 
foundations are required to allow public inspection at the 
foundation's principal office of their current annual 
information return. Other tax-exempt organizations, including 
public charities, are required to allow public inspection at 
the organization's principal office (and certain regional or 
district offices) of their annual information returns for the 
three most recent taxable years (sec. 6104(e)). The Code also 
requires that tax-exempt organizations allow public inspection 
of the organization's application to the IRS for recognition of 
tax-exempt status, the IRS determination letter, and certain 
related documents. In addition, upon written request to the 
IRS, members of the general public are permitted to inspect 
annual information returns of tax-exempt organizations and 
applications for recognition of tax-exempt status (and related 
documents) at the National Office of the IRS in Washington, 
D.C. A person making such a written request is notified by the 
IRS when the material is available for inspection at the 
National Office, where notes may be taken of the material open 
for inspection, photographs taken with the person's own 
equipment, or copies of such material obtained from the IRS for 
a fee (Treas. Reg. secs. 301.6104(a)-6 and 301.6104(b)-1).
      Section 6652(c)(1)(A) provides that a tax-exempt 
organization that fails to file a complete and accurate Form 
990 is subject to a penalty of $10 for each day during which 
such failure continues (with a maximum penalty with respect to 
any one return of the lesser of $5,000 or five percent of the 
organization's gross receipts for the year). Section 
6652(c)(1)(C) provides that tax-exempt organizations that fail 
to make certain annual returns and applications for exemption 
available for public inspection are subject to a penalty of $10 
for each day the failure continues (with a maximum penalty with 
respect to any one return not to exceed $5,000, and without 
limitation with respect to applications). In addition, section 
6685 provides a penalty for willfully failing to make an annual 
return or application available for public inspection of $1,000 
per return or application.
      Organizations that have tax-exempt status but that are 
not eligible to receive tax-deductible charitable contributions 
are required expressly to state in certain fundraising 
solicitations that contributions or gifts to the organization 
are not deductible as charitable contributions for Federal 
income tax purposes (sec. 6113). Penalties may be imposed on 
such organizations for failure to comply with this requirement 
(sec. 6710).
House bill
            Extend private inurement prohibition to social welfare 
                    organizations
      The House bill amends section 501(c)(4) explicitly to 
provide that a social welfare organization or other 
organization described in that section would be eligible for 
tax-exempt status only if no part of its net earnings inures to 
the benefit of any private shareholder or individual.
      Effective date.--This provision generally would be 
effective on September 14, 1995. However, under a special 
transition rule, the provision does not apply to inurement 
occurring prior to January 1, 1997, if such inurement results 
from a written contract that was binding on September 13, 1995, 
and at all times thereafter before such inurement occurred, and 
the terms of which have not materially changed.
            Intermediate sanctions for excess benefit transactions
      The House bill imposes penalty excise taxes as an 
intermediate sanction in cases where organizations exempt from 
tax under section 501(c)(3) or 501(c)(4) (other than private 
foundations, which are subject to a separate penalty regime 
under current law) engage in an ``excess benefit transaction.'' 
In such cases, intermediate sanctions can be imposed on certain 
disqualified persons (i.e., insiders) who improperly benefit 
from an excess benefit transaction and on organization managers 
who participate in such a transaction knowing that it is 
improper.
      An ``excess benefit transaction'' is defined as: (1) any 
transaction in which an economic benefit is provided to, or for 
the use of, any disqualified person if the value of the 
economic benefit provided directly by the organization (or 
indirectly through a controlled entity 28) to such person 
exceeds the value of consideration (including performance of 
services) received by the organization for providing such 
benefit; and (2) to the extent provided in Treasury Department 
regulations, any transaction in which the amount of any 
economic benefit provided to, or for the use of, any 
disqualified person is determined in whole or in part by the 
revenues of the organization, provided that the transaction 
constitutes prohibited inurement under present-law section 
501(c)(3) or under section 501(c)(4), as amended. Thus, 
``excess benefit transactions'' subject to excise taxes include 
transactions in which a disqualified person engages in a non-
fair-market-value transaction with an organization or receives 
unreasonable compensation, as well as financial arrangements 
(to the extent provided in Treasury regulations) under which a 
disqualified person receives payment based on the 
organization's income in a transaction that violates the 
present-law private inurement prohibition. The Committee 
intends that the Treasury Department will issue prompt guidance 
providing examples of revenue-sharing arrangements that violate 
the private inurement prohibition.
    \28\ A tax-exempt organization cannot avoid the private inurement 
proscription by causing a controlled entity to engage in an excess 
benefit transaction. Thus, for example, if a tax-exempt organization 
causes its taxable subsidiary to pay excessive compensation to an 
individual who is a disqualified person with respect to the parent 
organization, such transaction would be an excess benefit transaction.
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      Existing tax-law standards apply in determining 
reasonableness of compensation and fair market value. 
Consistent with such standards, the parties to a transaction 
would be entitled to rely on a rebuttable presumption of 
reasonableness with respect to a compensation arrangement with 
a disqualified person if such arrangement was approved by an 
independent board (or an independent committee authorized by 
the board) that: (1) was composed entirely of individuals 
unrelated to and not subject to the control of the disqualified 
person(s) involved in the arrangement; (2) obtained and relied 
upon appropriate data as to comparability (e.g., compensation 
levels paid by similarly situated organizations, both taxable 
and tax-exempt, for functionally comparable positions; the 
location of the organization, including the availability of 
similar specialties in the geographic area; independent 
compensation surveys by nationally recognized independent 
firms; or actual written offers from similar institutions 
competing for the services of the disqualified person); and (3) 
adequately documented the basis for its determination (e.g., 
the record includes an evaluation of the individual whose 
compensation was being established and the basis for 
determining that the individual's compensation was reasonable 
in light of that evaluation and data).29 If these three 
criteria are satisfied, penalty excise taxes could be imposed 
under the bill only if the IRS develops sufficient contrary 
evidence to rebut the probative value of the evidence put forth 
by the parties to the transaction (e.g., the IRS could 
establish that the compensation data relied upon by the parties 
was not for functionally comparable positions or that the 
disqualified person, in fact, did not substantially perform the 
responsibilities of such position). A similar rebuttable 
presumption would arise with respect to the reasonableness of 
the valuation of property sold or otherwise transferred (or 
purchased) by an organization to (or from) a disqualified 
person if the sale or transfer (or purchase) is approved by an 
independent board that uses appropriate comparability data and 
adequately documents its determination.
    \29\ The fact that a State or local legislative or agency body may 
have authorized or approved of a particular compensation package paid 
to a disqualified person is not determinative of the reasonableness of 
compensation paid for purposes of the excise tax penalties provided for 
by the proposal. Similarly, such authorization or approval is not 
determinative of whether a revenue sharing arrangement violates the 
private inurement proscription.
---------------------------------------------------------------------------
      The House bill specifically provides that the payment of 
personal expenses and benefits to or for the benefit of 
disqualified persons, and non-fair-market-value transactions 
benefiting such persons, would be treated as compensation only 
if it is clear that the organization intended and made the 
payments as compensation for services. In determining whether 
such payments or transactions are, in fact, compensation, the 
relevant factors would include whether the appropriate 
decision-making body approved the transfer as compensation in 
accordance with established procedures and whether the 
organization and the recipient reported the transfer (except in 
the case of non-taxable fringe benefits) as compensation on the 
relevant forms (i.e., the organization's Form 990, the Form W-2 
provided by the organization to the recipient, the recipient's 
Form 1040, and other required returns).30
    \30\ With the exception of nontaxable fringe benefits described in 
present-law section 132 and other types of nontaxable transfers such as 
employer-provided health benefits and contributions to qualified 
pension plans, an organization cannot demonstrate at the time of an IRS 
audit that it clearly indicated its intent to treat economic benefits 
provided to a disqualified person as compensation for services merely 
by claiming that such benefits may be viewed as part of the 
disqualified person's total compensation package. Rather, the 
organization must provide substantiation that is contemporaneous with 
the transfer of economic benefits at issue.
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      ``Disqualified person'' means any person who is (1) an 
``organization manager'' (meaning any officer, director, or 
trustee of an organization or any individual having powers or 
responsibilities similar to those of officers, directors, or 
trustees) or (2) any individual (other than an organization 
manager) who is in a position to exercise substantial influence 
over the affairs of the organization.31 In addition, 
``disqualified persons'' include certain family members and 35-
percent owned entities 32 of any person described in (1) 
or (2) above, as well as any person who was a disqualified 
person at any time during the five-year period prior to the 
transaction at issue.
    \31\ The Committee intends that a person could be in a position to 
exercise substantial influence over a tax-exempt organization despite 
the fact that such person is not an employee of (and receives no 
compensation directly from) a tax-exempt organization but is formally 
an employee of (and is directly compensated by) a subsidiary--even a 
taxable subsidiary--controlled by the parent tax-exempt organization.
    \32\ Family members are determined under present-law section 
4946(d), except that such members also would include siblings (whether 
by whole or half blood) of the individual, and spouses of such 
siblings. ``35-percent owned entities'' mean corporations, 
partnerships, and trusts or estates in which a disqualified person owns 
more than 35 percent of the combined voting power, profits interest, or 
beneficial interest.
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      A disqualified person who benefits from an excess benefit 
transaction would be subject to a first-tier penalty tax equal 
to 25 percent of the amount of the excess benefit (i.e., the 
amount by which a transaction differs from fair market value, 
the amount of compensation exceeding reasonable compensation, 
or the amount of a prohibited transaction based on the 
organization's gross or net income). Organization managers who 
participate in an excess benefit transaction knowing that it is 
an improper transaction would be subject to a first-tier 
penalty tax of ten percent of the amount of the excess benefit 
(subject to a maximum penalty of $10,000).
      Additional, second-tier taxes could be imposed on a 
disqualified person if there is no correction of the excess 
benefit transaction within a specified time period.33 In 
such cases, the disqualified person would be subject to a 
penalty tax equal to 200 percent of the amount of excess 
benefit. For this purpose, the term ``correction'' means 
undoing the excess benefit to the extent possible and, where 
fully undoing the excess benefit is not possible, taking such 
additional corrective action as is prescribed by Treasury 
regulations.
    \33\ Correction must be made on or prior to the earlier of (1) the 
date of mailing of a notice of deficiency under section 6212 with 
respect to the first-tier penalty excise tax imposed on the 
disqualified person, or (2) the date on which such tax is assessed.
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      The intermediate sanctions for ``excess benefit 
transactions'' could be imposed by the IRS in lieu of (or in 
addition to) revocation of an organization's tax-exempt status. 
If more than one disqualified person or manager is liable for a 
penalty excise tax, then all such persons would be jointly and 
severally liable for such tax. As under current law, a three-
year statute of limitations applies, except in the case of 
fraud (sec. 6501). Under the House bill, the IRS has authority 
to abate the excise tax penalty (under present-law section 
4962) if it is established that the violation was due to 
reasonable cause and not due to willful neglect and the 
transaction at issue was corrected within the specified period.
      To prevent an organization from avoiding the penalty 
excise taxes through termination of its tax-exempt status, the 
House bill also imposes a tax on tax-exempt organizations that 
terminate their tax-exempt status. The amount of the tax equals 
the lesser of (1) the aggregate tax benefits that an 
organization can substantiate that it has received from its 
exemption from tax under Code section 501(a), or (2) the value 
of the net assets of such organization. 34 The Secretary 
of the Treasury is permitted to abate all or a portion of the 
tax if a tax-exempt organization distributes all of its net 
assets to one or more charitable organizations described in 
Code section 501(c)(3) that have been in existence for a 
continuous five-year period. Tax-exempt organizations that are 
described in Code section 501(c)(4) are permitted to distribute 
their net assets to one or more organizations described in Code 
section 501(c)(3) or 501(c)(4) that have been in existence for 
a continuous five-year period. An organization is permitted to 
terminate its exempt status only if it has paid the tax (or any 
portion thereof that is not abated) and the organization has 
notified the Secretary of its intent to terminate its exempt 
status (or the Secretary has made a final determination that 
such status has terminated).
    \34\ In calculating these amounts, rules similar to the rules 
applicable to private foundations set forth in Code section 507(d),(e), 
and (f) apply.
---------------------------------------------------------------------------
      Effective date.--The provision generally applies to 
excess benefit transactions occurring on or after September 14, 
1995. The provision does not apply, however, to any transaction 
pursuant to a written contract for the performance of personal 
services which was binding on September 13, 1995, and at all 
times thereafter before such transaction occurred, and the 
terms of which have not materially changed.
            Additional filing and public disclosure rules
      Reporting of identity of certain disqualified persons, 
excise tax penalties and excess benefit transactions.--Tax-
exempt organizations are required to disclose on their Form 990 
the names of each disqualified person who received an economic 
benefit during the taxable year and such other information as 
may be required by the Secretary of the Treasury. In addition, 
exempt organizations are required to disclose on their Form 990 
such information as the Secretary of the Treasury may require 
with respect to ``excess benefit transactions'' (described 
above) and any other excise tax penalties paid during the year 
under present-law sections 4911 (excess lobbying expenditures), 
4912 (disqualifying lobbying expenditures), or 4955 (political 
expenditures), including the amount of the excise tax penalties 
paid with respect to such transactions, the nature of the 
activity, and the parties involved. 35
    \35\ The penalties applicable to failure to file a timely, 
complete, and accurate return apply for failure to comply with these 
requirements. In addition, it is intended that the IRS implement its 
plan to require additional Form 990 reporting regarding (1) changes to 
the governing board or the certified accounting firm, (2) such 
information as the Secretary may require relating to professional 
fundraising fees paid by the organization, and (3) aggregate payments 
(by related entities) in excess of $100,000 to the highest-paid 
employees.
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      Furnishing copies of documents.--The House bill also 
provides that a tax-exempt organization that is subject to the 
public inspection rules of present-law section 6104(e)(1) 
(i.e., any tax-exempt organization, other than a private 
foundation, that files a Form 990) is required to comply with 
requests from individuals who seek a copy of the organization's 
Form 990 or the organization's application for recognition of 
tax-exempt status and certain related documents. Upon such a 
request, the organization is required to supply copies without 
charge other than a reasonable fee for reproduction and mailing 
costs. If so requested, copies must be supplied of the Forms 
990 for any of the organization's three most recent taxable 
years. If the request for copies is made in person, then the 
organization must immediately provide such copies. If the 
request for copies is made other than in person (e.g., by mail 
or telephone), then copies must be provided within 30 days. 
However, an organization could be relieved, for a limited 
period of time, of its obligation to provide copies if the 
Secretary of the Treasury determined, upon application by the 
organization, that the organization was subject to a harassment 
campaign such that waiver of the obligation to provide copies 
would be in the public interest.
      Advertisements and solicitations.--The House bill further 
requires that written advertisements or solicitations made by 
(or on behalf of) a tax-exempt organization that is subject to 
the public inspection rules of present-law section 6104(e)(1) 
must contain an express statement, in a conspicuous and easily 
recognizable format, that the organization's Forms 990 are 
available to individuals upon request. 36 Failure to make 
the required disclosure in an advertisement or solicitation 
would subject the organization to a penalty of $100 for each 
day on which the failure occurred. However, no penalty may be 
imposed with respect to a failure if it is shown that such 
failure was due to reasonable cause. The House bill generally 
limits the maximum penalty to $10,000 for all such failures by 
an organization during any calendar year. 37
    \36\ It is intended that the Department of Treasury will provide 
prompt guidance on this requirement.
    \37\ However, if a failure to comply with the disclosure 
requirement for solicitations is due to intentional disregard, then the 
$10,000 limitation does not apply, and the penalty for each day on 
which such an intentional failure occurred is the greater of (1) $1,000 
or (2) 50 percent of the aggregate cost of the solicitations which 
occurred on such day and with respect to which there was intentional 
disregard of the disclosure requirement.
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      In addition, the House bill requires entities that do not 
have Federal tax-exempt status but that describe themselves in 
advertisements or solicitations as ``nonprofit'' to disclose in 
an express statement that contributions to the entity are not 
deductible as charitable contributions for Federal income tax 
purposes. Failure to make the disclosure would subject the 
entity to penalties under section 6716.
      Electronic dissemination of information.--The House bill 
requires the Treasury Department to provide copies of annual 
returns and applications for recognition of tax-exempt status 
filed by exempt organizations to any organization that agrees 
to accept broad categories of such returns and applications and 
to provide electronic access to all such documents on an 
electronic network to the general public. Such returns and 
applications must be provided free of charge to organizations 
that do not charge a fee for public access; if an organization 
charges a fee for public electronic access, the Treasury 
Department is allowed to charge a reasonable fee for 
reproduction and mailing costs.
      Penalties for failure to file timely or complete 
return.--The section 6652(c)(1)(A) penalty imposed on a tax-
exempt organization that either fails to file a Form 990 in a 
timely manner or fails to include all required information on a 
Form 990 is increased from the present-law level of $10 for 
each day the failure continues (with a maximum penalty with 
respect to any one return of the lesser of $5,000 or five 
percent of the organization's gross receipts) to $20 for each 
day the failure continues (with a maximum penalty with respect 
to any one return of the lesser of $10,000 or five percent of 
the organization's gross receipts). Under the House bill, 
organizations with annual gross receipts exceeding $1 million 
are subject to a penalty under section 6652(c)(1)(A) of $100 
for each day the failure continues (with a maximum penalty with 
respect to any one return of $50,000). As under present law, no 
penalty may be imposed under section 6652(c)(1)(A) if it were 
shown that the failure to file a complete return was due to 
reasonable cause (sec. 6652(c)(3)).
      Penalties for failure to allow public inspection.--The 
section 6652(c)(1)(C) penalty imposed on tax-exempt 
organizations that fail to allow public inspection of certain 
annual returns or applications for exemption is increased from 
the present-law level of $10 per day (with a maximum of $5,000) 
to $20 per day (with a maximum of $10,000). In addition, the 
section 6685 penalty for willful failure to allow public 
inspections is increased from the present-law level of $1,000 
to $5,000.
      Treasury Department studies.--The House bill directs the 
Treasury Department to: (1) study and make recommendations 
regarding application of an explicit statutory private 
inurement prohibition, and intermediate sanctions, to other 
tax-exempt organizations; (2) study and make recommendations to 
the Congress on whether certain State officers, such as the 
attorney general and other officials charged with overseeing 
public charities, should be provided with additional access to 
Federal tax information beyond that authorized under section 
6103; and (3) review the Form 990 reporting requirements to 
ensure the Form's utility to IRS and the public and to reduce 
unnecessary reporting burdens.
      Effective dates.--The filing and disclosure provisions 
governing tax-exempt organizations generally take effect on 
January 1, 1996 (or, if later, 90 days after enactment). 
However, the provisions regarding the reporting on annual 
returns of excise tax penalties and excess benefit transactions 
is effective for returns with respect to taxable years 
beginning on or after January 1, 1995. The requirement that the 
Treasury Department provide copies of annual returns and 
applications for recognition of tax-exempt status for 
electronic dissemination applies to returns and applications 
filed on or after January 1, 1996; it applies to returns and 
applications filed prior to January 1, 1996, only to the extent 
provided by the Secretary of the Treasury. The Treasury 
Department studies are required to be transmitted to Congress 
by January 1, 1997.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill, modified 
as set forth below.
            Extend private inurement prohibition to social welfare 
                    organizations
      The conference agreement codifies the provision in the 
committee report to the House bill providing that the private 
inurement rule will not be violated solely because of an 
allocation or return of net margins or capital to the members 
of a nonprofit association or organization that operates on a 
cooperative basis in accordance with its incorporating statute 
and bylaws (substantially as in existence on the date of 
enactment) and was determined to be exempt from Federal income 
tax under section 501(c)(4) prior to the date of enactment. The 
conferees intend that such cooperative organizations will be 
subject to the general private inurement proscription with 
respect to any other type of transaction.
            Intermediate sanctions for excess benefit transactions
      As under the House bill, an ``excess benefit 
transaction'' includes, to the extent provided in Treasury 
Department regulations, any transaction in which the amount of 
any economic benefit provided to, or for the use of, any 
disqualified person is determined in whole or in part by the 
revenues of the organization, provided that the transaction 
constitutes prohibited inurement under present-law section 
501(c)(3) or under section 501(c)(4), as amended. The conferees 
are aware that, under present law, certain revenue sharing 
arrangements have been determined not to constitute private 
inurement 38 and the conferees expect that it would 
continue to be the case that not all revenue sharing 
arrangements would be improper private inurement. However, the 
conferees intend no inference that Treasury or the Internal 
Revenue Service are bound by any particular prior rulings in 
this area. The conferees intend that the Treasury Department 
will issue prompt guidance providing examples of revenue-
sharing arrangements that violate the private inurement 
prohibition and that such guidance will be applicable on a 
prospective basis.
    \38\  See e.g., GCM 38283; GCM 38905; and GCM 39674.
---------------------------------------------------------------------------
      The conference agreement clarifies that in applying 
existing tax-law standards (see sec. 162) in determining 
reasonableness of compensation and fair market value, the 
conferees intend that the parties to a transaction are entitled 
to rely on a rebuttable presumption of reasonableness that is 
described in the committee report accompanying the House bill. 
Because the intermediate sanctions generally will be effective 
for transactions entered into after September 13, 1995 (other 
than transactions pursuant to written contracts binding on that 
date), the conferees intend that parties to transactions 
entered into after September 13, 1995, and before January 1, 
1997, will be entitled to rely on the rebuttable presumption of 
reasonableness if, within a reasonable period (e.g., 90 days) 
after entering into the compensation package, the parties 
satisfy the three criteria that give rise to the presumption. 
After December 31, 1996, the rebuttable presumption should 
arise only if the three criteria are satisfied prior to payment 
of the compensation (or, to the extent provided by the 
Secretary, within a reasonable period thereafter).
      The conferees further clarify the treatment of 
reimbursements of excise tax liability and purchase of 
insurance covering such liabilities. Consistent with the rule 
that payment of personal expenses and benefits to or for the 
benefit of disqualified persons and nonfair-market value 
transactions benefiting such persons are treated as 
compensation only if it is clear that the organization intended 
and made the payments as compensation for services, any 
reimbursements by the organization of excise tax liability are 
treated as an excess benefit unless they are included in the 
disqualified person's compensation during the year the 
reimbursement is made. The total compensation package, 
including the amount of any reimbursement would be subject to 
the reasonableness requirement. Similarly, the payment by an 
applicable tax-exempt organization of premiums for an insurance 
policy providing liability insurance to a disqualified person 
for excess benefit taxes is an excess benefit transaction 
unless such premiums are treated as part of the compensation 
paid to such disqualified person. 39
    \39\ In addition, because individuals may be both members of and 
disqualified persons with respect to a non-exclusive applicable tax-
exempt organization (e.g., a museum or neighborhood civic organization) 
and receive certain benefits (e.g., free admission, discounted gift 
shop purchases) in their capacity as members (rather than in their 
capacity as disqualified persons), the conferees intend that the 
Treasury Department provide guidance clarifying that such membership 
benefits may be excluded from consideration under the private inurement 
proscription and intermediate sanction rules.
---------------------------------------------------------------------------
      The conference agreement amends the definition of 
``disqualified person'' to mean any individual who is in a 
position to exercise substantial authority over the affairs of 
the organization, whether by virtue of being an organization 
manager or otherwise, as well as certain family members and 35-
percent owned entities of any such individual at any time 
during the 5- year period prior to the transaction at issue. A 
person having the title of ``officer, director, or trustee'' 
does not automatically have the status of a disqualified 
person. 40 In addition, the conferees grant the Secretary 
of Treasury authority to promulgate rules exempting broad 
categories of individuals from the category of ``disqualified 
persons'' (e.g., full-time bona fide employees who receive 
economic benefits of less than a threshold amount or persons 
who have taken a vow of poverty).
    \40\ The conferees are aware that the IRS has issued guidance 
indicating that all physicians are considered ``insiders'' for purposes 
of applying the private inurement proscription. The conferees intend 
that physicians will be disqualified persons only if they are in a 
position to exercise substantial authority over the affairs of an 
organization.
---------------------------------------------------------------------------
      The conferees generally expect that the intermediate 
sanctions will be the sole sanction imposed in those cases in 
which the excess benefit does not rise to a level where it 
calls into question whether, on the whole, the organization 
functions as a charitable or other tax-exempt organization. In 
practice, revocation of tax-exempt status, with or without the 
imposition of excise taxes, will occur only when the 
organization no longer operates as a charitable organization.
      The conference agreement eliminates the provision of the 
House bill that imposes a tax on tax-exempt organizations that 
terminate their tax-exempt status. To prevent avoidance of the 
penalty excise taxes in cases of private inurement of assets of 
a previously tax-exempt organization, the conference agreement 
provides that an organization will be treated as an applicable 
tax-exempt organization subject to the excise taxes on excess 
benefit transactions if, at any time during the two-year period 
preceding the transaction, it was a tax-exempt organization 
described in section 501(c)(3) or 501(c)(4) or a successor to 
such an organization.
      Effective date.--As under the House bill, the provision 
generally applies to excess benefit transactions occurring on 
or after September 14, 1995. However, under the conference 
agreement, the provision does not apply to any benefits arising 
out of a transaction pursuant to a written contract which was 
binding on September 13, 1995, and at all times thereafter 
before such benefits arose, and the terms of which have not 
materially changed.
            Additional filing and public disclosure rules
      Reporting of identity of certain disqualified persons, 
excise tax penalties and excess benefit transactions.--The 
conference agreement modifies the reporting requirements with 
respect to identifying certain disqualified persons. Under the 
conference agreement, tax-exempt organizations are required to 
disclose on their form 990 the name of each individual who was 
in a position to exercise substantial influence over the 
affairs of the organization (but not their family members and 
35-percent owned entities) and such other information as the 
Secretary of Treasury may prescribe.
      Furnishing copies of documents.--The conference agreement 
does not include the House bill provision.
      Advertisement and solicitations.--The conference 
agreement does not include the House bill provision.
      Electronic dissemination of information.-- The conference 
agreement does not include the House bill provision.
      Penalties for failure to allow public inspection.--The 
conference agreement does not include the House bill provision.
      Treasury Department studies.--The conference agreement 
does not include the House bill provision.

 b. common investment fund for private foundations (sec. 12701 of the 
                           senate amendment)

Present law
      Code section 501(c)(3) requires that an organization be 
organized and operated exclusively for a charitable or other 
exempt purpose in order to qualify for tax-exempt status under 
that section.
      Section 501(f) provides that an organization is treated 
as organized and operated exclusively for charitable purposes 
if it is comprised solely of members that are educational 
institutions and is organized and operated solely to hold, 
commingle, and collectively invest (including arranging for 
investment services by independent contractors) funds 
contributed by the members in stocks and securities, and to 
collect income from such investments and turn over such income, 
less expenses, to the members.
House bill
      No provision.
Senate amendment
      Under the Senate amendment, a cooperative service 
organization comprised solely of members that are tax-exempt 
private foundations and community foundations 41 is 
treated as organized and operated exclusively for charitable 
purposes if: (1) it has at least 20 members; (2) no one member 
holds (after the organization's second taxable year) more than 
10 percent (by value) of the interests in the organization; (3) 
it is organized and controlled by its members, but no one 
member by itself controls the organization or any other member; 
(4) the members are permitted to dismiss any of the 
organization's investment advisors, if (following reasonable 
notice) members holding a majority of interest in the account 
managed by such advisor vote to remove such advisor; and (5) 
the organization is organized and operated solely to hold, 
commingle, and collectively invest and reinvest (including 
arranging for investment services by independent contractors) 
funds contributed by the members in stocks and securities, and 
to collect income from such investments and turn over such 
income, less expenses, to the members. To qualify for tax-
exempt status under present-law section 501(c)(3), a 
cooperative service organization described in the provision 
also must satisfy the other applicable requirements of that 
section (e.g., prohibition of private inurement, political 
activities, and substantial lobbying).
    \41\ For purposes of the provision, ``community foundations'' are a 
form of charitable trust or fund (which generally are established to 
attract large contributions of a capital or endowment nature for the 
benefit of a particular community or area) as to which section 
170(b)(1)(A)(vi). See Treas. Reg. sec. 1.170A-9(e)(10).
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      A cooperative service organization meeting the criteria 
of the proposal will be subject to the present-law excise tax 
provisions applicable to private foundations (e.g., sec. 4941 
rules governing self-dealing arrangements), other than sections 
4940 and 4942. In addition, each member's allocable share 
(whether or not distributed) of the capital gain net income and 
gross investment income of the organization for any taxable 
year of the organization will be treated, for purposes of the 
excise tax imposed under present-law section 4940, as capital 
gain net income and gross investment income of the member for 
the taxable year of such member in which the taxable year of 
the organization ends.
      Effective date.--Taxable years ending after December 31, 
1995.
Conference agreement
      The conference agreement follows the Senate amendment.

c. exclusion from ubit for certain corporate sponsorship payments (sec. 
                     12702 of the senate amendment)

Present law
      Although generally exempt from Federal income tax, tax-
exempt organizations are subject to the unrelated business 
income tax (``UBIT'') on income derived from a trade or 
business regularly carried on that is not substantially related 
to the performance of the organization's tax-exempt functions 
(secs. 511-514). Contributions or gifts received by tax-exempt 
organizations generally are not subject to the UBIT. However, 
present-law section 513(c) provides that an activity (such as 
advertising) does not lose its identity as a separate trade or 
business merely because it is carried on within a larger 
complex of other endeavors. 42 If a tax-exempt 
organization receives sponsorship payments in connection with 
an event or other activity, the solicitation and receipt of 
such sponsorship payments may be treated as a separate 
activity. The Internal Revenue Service (IRS) has taken the 
position that, under some circumstances, such sponsorship 
payments are subject to the UBIT. 43
    \42\ See United States v. American College of Physicians, 475 U.S. 
834 (1986) (holding that activity of selling advertising in medical 
journal was not substantially related to the organization's exempt 
purposes and, as a separate business under section 513(c), was subject 
to tax).
    \43\ See Prop. Treas. Reg. sec. 1.513-4 (issued January 19, 1993, 
EE-74-92, IRB 1993-7, 71). These proposed regulations generally exclude 
from the UBIT financial arrangements under which the tax-exempt 
organization provides so-called ``institutional'' or ``good will'' 
advertising to a sponsor (i.e., arrangements under which a sponsor's 
name, logo, or product line is acknowledged by the tax-exempt 
organization). However, specific product advertising (e.g., 
``comparative or qualitative descriptions of the sponsor's products'') 
provided by a tax-exempt organization on behalf of a sponsor is not 
shielded from the UBIT under the proposed regulations.
---------------------------------------------------------------------------
House bill
    No provision.
Senate amendment
      The Senate amendment provides that qualified sponsorship 
payments received by a tax-exempt organization (or State 
college or university described in section 511(a)(2)(B)) are 
exempt from the UBIT.
      The Senate amendment defines ``qualified sponsorship 
payments'' as any payment made by a person engaged in a trade 
or business with respect to which the person will receive no 
substantial return benefit other than the use or acknowledgment 
of the name or logo (or product lines) of the person's trade or 
business in connection with the organization's activities. 
44 Such a use or acknowledgment does not include 
advertising of such person's products or services--meaning 
qualitative or comparative language, price information or other 
indications of savings or value, or an endorsement or other 
inducement to purchase, sell, or use such products or services. 
Thus, for example, if, in return for receiving a sponsorship 
payment, an organization promises to use the sponsor's name or 
logo in acknowledging the sponsor's support for an educational 
or fundraising event conducted by the organization, such 
payment would not be subject to the UBIT. In contrast, if the 
organization provides advertising of a sponsor's products, the 
payment made to the organization by the sponsor in order to 
receive such advertising would be subject to the UBIT (provided 
that the other, present-law requirements for UBIT liability are 
satisfied).
    \44\ In determining whether a payment is a qualified sponsorship 
payment, it is irrelevant whether the sponsored activity is related or 
unrelated to the organization's exempt purpose.
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      The Senate amendment specifically provides that a 
qualified sponsorship payment does not include any payment 
where the amount of such payment is contingent, by contract or 
otherwise, upon the level of attendance at an event, broadcast 
ratings, or other factors indicating the degree of public 
exposure to an activity. However, the fact that a sponsorship 
payment is contingent upon an event actually taking place or 
being broadcast, in and of itself, does not cause the payment 
to fail to be a qualified sponsorship payment. Moreover, mere 
distribution or display of a sponsor's products by the sponsor 
or the tax-exempt organization to the general public at a 
sponsored event, whether for free or for remuneration, is 
considered to be ``use or acknowledgment'' of the sponsor's 
product lines (as opposed to advertising), and thus will not 
affect the determination of whether a payment made by the 
sponsor is a qualified sponsorship payment.
      The Senate amendment does not apply to the sale of 
advertising or acknowledgments in tax-exempt organization 
periodicals. For this purpose, the term ``periodical'' means 
regularly scheduled and printed material that is not related to 
and primarily distributed in connection with a specific 
sponsored event. For example, the provision does not apply to 
payments that lead to acknowledgments in a monthly journal, but 
does apply if a sponsor receives an acknowledgment in a program 
or brochure distributed at a sponsored event.
      The Senate amendment specifically provides that, to the 
extent that a portion of a payment would (if made as a separate 
payment) be a qualified sponsorship payment, such portion of 
the payment will be treated as a separate payment. Thus, if a 
sponsorship payment made to a tax-exempt organization entitles 
the sponsor to both product advertising and use or 
acknowledgment of the sponsor's name or logo by the 
organization, then the UBIT would not apply to the amount of 
such payment that exceeds the fair market value of the product 
advertising provided to the sponsor. Moreover, the provision of 
facilities, services or other privileges by an exempt 
organization to a sponsor or the sponsor's designees (e.g., 
complimentary tickets, pro-am playing spots in golf 
tournaments, or receptions for major donors) in connection with 
a sponsorship payment will not affect the determination of 
whether the payment is a qualified sponsorship payment. Rather, 
the provision of such goods or services will be evaluated as a 
separate transaction in determining whether the organization 
has unrelated business taxable income from the event. In 
general, if such services or facilities do not constitute a 
substantial return benefit or if the provision of such services 
or facilities is a related business activity, then the payments 
attributable to such services or facilities will not be subject 
to the UBIT.
      The exemption provided by the Senate amendment is in 
addition to other present-law exceptions from the UBIT (e.g., 
the exceptions for activities substantially all the work for 
which is performed by volunteers and for activities not 
regularly carried on). No inference is intended as to whether 
any sponsorship payment received prior to 1996 was subject to 
the UBIT.
      Effective date.--The provision applies to qualified 
sponsorship payments solicited or received after December 31, 
1995.
Conference agreement
      The conference agreement follows the Senate amendment, 
except that the conference agreement clarifies that (1) the 
UBIT exception provided by the provision does not apply to any 
payment which entitles the payor to an acknowledgment or 
advertising in regularly scheduled and printed material, but 
only if such printed material is published by (or on behalf of) 
the payee organization and is not related to and primarily 
distributed in connection with a specific event conducted by 
the payee organization, and (2) just as the provision of 
facilities, services or other privileges by a tax-exempt 
organization to a sponsor or the sponsor's designees 
(complimentary tickets, pro-am playing spots in golf 
tournaments, or receptions for major donors) will be treated as 
a separate transaction that does not affect the determination 
of whether a sponsorship payment is a qualified sponsorship 
payment, a sponsor's receipt of a license to use an intangible 
asset (e.g., trademark, logo, or designation) of the tax-exempt 
organization likewise will be treated as separate from the 
qualified sponsorship transaction in determining whether the 
organization has unrelated business taxable income. 45
    \45\ The conferees expect that, under present-law UBIT rules (see 
Rev. Rul. 81-178, 1981-2 C.B. 135), royalty income derived from 
licensing trademarks, emblems, and designations of a qualified amateur 
sports organization described in section 501(j)(2) (e.g., the U.S. 
Olympic Committee), as well as income received by such organizations 
from broadcasting, filming, and videotaping sports competitions and 
related events, will be treated as exempt from the UBIT. This exemption 
from the UBIT should not be affected by the fact that an amateur sports 
organization undertakes legal or other actions to protect the 
exclusivity of a licensing arrangement, or to prevent third parties 
from improperly using the organization's trademarks or representing or 
implying that such parties are an official sponsor of (or otherwise 
affiliated with) the organization or its competitive events.
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      d. treatment of dues paid to agricultural or horticultural 
   organizations (sec. 14584 of the house bill and sec. 12703 of the 
                           senate amendment)

Present law
      Tax-exempt organizations generally are subject to the 
unrelated business income tax (``UBIT'') on income derived from 
a trade or business regularly carried on that is not 
substantially related to the performance of the organization's 
tax-exempt functions (secs. 511-514). Dues payments made to a 
membership organization generally are not subject to the UBIT. 
However, several courts have held that, with respect to postal 
labor organizations, dues payments were subject to the UBIT 
when received from individuals who were not postal workers but 
who became ``associate'' members for the purpose of obtaining 
health insurance available to members of the organization. See 
National League of Postmasters of the United States v. 
Commissioner, No. 8032-93, T.C. Memo (May 11, 1995); American 
Postal Workers Union, AFL-CIO v. United States, 925 F.2d 480 
(D.C. Cir. 1991); National Association of Postal Supervisors v. 
United States, 944 F.2d 859 (Fed. Cir. 1991).
      In Rev. Proc. 95-21 (issued March 23, 1995), the IRS set 
forth its position regarding when associate member dues 
payments received by an organization described in section 
501(c)(5) will be treated as subject to the UBIT. The IRS 
stated that dues payments from associate members will not be 
treated as subject to UBIT unless, for the relevant period, 
``the associate member category has been formed or availed of 
for the principal purpose of producing unrelated business 
income.'' Thus, under Rev. Proc. 95-21, the focus of the 
inquiry is upon the organization's purposes in forming the 
associate member category (and whether the purposes of that 
category of membership are substantially related to the 
organization's exempt purposes other than through the 
production of income), rather than upon the motive of the 
individuals who join as associate members.
House bill
      Under the House bill, if an agricultural or horticultural 
organization described in section 501(c)(5) requires annual 
dues not exceeding $100 to be paid in order to be a member of 
such organization, then in no event will any portion of such 
dues be subject to the UBIT by reason of any benefits or 
privileges to which members of such organization are entitled. 
For taxable years beginning after 1995, the $100 amount will be 
indexed for inflation. The term ``dues'' is defined as ``any 
payment required to be made in order to be recognized by the 
organization as a member of the organization.'' Thus, if a 
person is recognized as a member of an organization by virtue 
of having paid annual dues for his or her membership, then any 
subsequent payments made by that person during the year to 
purchase another membership in the same organization would not 
be within the scope of the provision.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1994.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment. 46
    \46\ The conferees intend that, with respect to dues payments 
received prior to the effective date of the provision, general UBIT 
rules under prior law would be applied in a manner consistent with the 
provision.
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e. repeal tax credit for contributions to special community development 
corporations (sec. 13637 of the house bill and sec. 12704 of the senate 
                               amendment)

Present law
      Taxpayers are entitled to claim a tax credit for 
qualified contributions made to one of 20 non-profit community 
development corporations (CDCs) selected by the Secretary of 
Housing and Urban Development (HUD) to provide assistance in 
economically distressed areas. A qualified contribution means a 
transfer of cash to a selected CDC (made in the form of an 
equity investment or loan) which is made available for use by 
the CDC for at least 10 years to provide employment and 
business opportunities to low-income residents who live in an 
area where (1) the unemployment rate is not less than the 
national unemployment rate and (2) the median family income 
does not exceed 80 percent of the median gross income of 
residents of the jurisdiction of the local government which 
includes such area. 47
    \47\ The contribution to the CDC must be available for use by the 
CDC for at least ten years, but need not meet the requirements of a 
``contribution or gift'' for purposes of section 170. In other words, a 
contribution eligible for the credit may be made in the form of a 10-
year loan (or other long-term investment), the principal of which is to 
be returned to the taxpayer after the 10-year period. However, in the 
case of a donation of cash made by a taxpayer to an eligible CDC, the 
taxpayer is allowed to claim a charitable contribution deduction 
(subject to present-law rules under section 170), in addition to the 
special credit for qualified contributions to a selected CDC.
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      If a taxpayer makes a qualified contribution, the credit 
may be claimed by the taxpayer for each taxable year during the 
10-year period beginning with the taxable year during which the 
contribution was made. The credit that may be claimed for each 
year is equal to 5 percent of the amount of the contribution to 
the CDC. Thus, during the 10-year credit period, the taxpayer 
may claim aggregate credit amounts totaling 50 percent of his 
or her contribution. The aggregate amount of contributions that 
may be designated by any one CDC as eligible for the credit may 
not exceed $2 million. (Consequently, a total amount of $40 
million in contributions will be eligible for the credit with 
respect to all 20 selected CDCs--and the maximum credit amounts 
will total $20 million over the 10-year credit period.)
      On June 30, 1994, the Secretary of HUD announced the 20 
CDCs selected to receive contributions that qualify for the 
credit. The eligible CDCs are located in the following areas: 
(1) Atlanta, (2) Baltimore, (3) Boston, (4) Chicago, (5) 
Cleveland, (6) Dallas, (7) Washington D.C., (8) Los Angeles, 
(9) Memphis, (10) Miami, (11) Brooklyn, (12) Newark, (13) 
Watsonville, Ca., (14) London, Ky., (15) Wiscasset, Maine, (16) 
Greenville, Miss., (17) Mayville, N.Y., (18) Barnesboro, Pa., 
(19) San Antonio, Texas, and (20) Christiansburg, Va.
House bill
      The House bill repeals the special tax credit for 
qualified contributions to selected community development 
corporations.
      Effective date.--The provision is effective for 
contributions made after the date of enactment (other than a 
contribution made pursuant to a legally enforceable agreement 
to make such contribution, if such agreement is in effect on 
the date of enactment).
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.
f. tax gambling income of indian tribes; repeal targeted exemption from 
  ubit for gambling in certain states (secs. 13631-13632 of the house 
                                 bill)
Present law
            Tax treatment of Indian tribes
      There is no specific statutory provision governing the 
Federal income tax liability of Indian tribes. 48 However, 
the IRS has long taken the position that Indian tribes, as well 
as wholly owned tribal corporations chartered under Federal 
law, are not taxable entities and, thus, are immune from 
Federal income taxes. (See Rev. Rul. 67-284, 1967-2 C.B. 55; 
Rev. Rul. 81-295, 1981-2 C.B. 15.) More recently, the IRS has 
ruled that any income earned by an unincorporated Indian tribe 
or Federally chartered tribal corporation is not subject to 
Federal income tax, regardless of whether the activities that 
produced the income are conducted on or off the tribe's 
reservation. (See Rev. Rul. 94-16, 1994-12 I.R.B. 1; Rev. Rul. 
94-65, 1994-42 I.R.B. 10. 49) In ordinary matters not 
governed by specific treaties or remedial legislation, 
individual members of Indian tribes are subject to the payment 
of Federal income tax (even if the income is distributed to 
individual tribal members out of income otherwise immune from 
tax when first received by the tribe). 50
    \48\ Section 7871 provides that Indian tribes are treated as States 
for certain limited tax purposes, such as for purposes of the issuance 
of certain tax-exempt bonds, certain excise tax exemptions, and for 
eligibility to receive deductible charitable contributions.
    \49\ These rulings further hold, however, that a corporation 
organized by an Indian tribe under State law is subject to Federal 
income tax on the income earned from commercial activities conducted on 
or off the tribe's reservation.
    Legal commentators generally have concluded that ``[u]nder this so-
called Indian Commerce Clause [article I, section 8 of the 
Constitution] and Supreme Court cases, there is little constitutional 
limitation on the ability of the Federal government to tax Indian 
tribes or tribal members.'' Aprill, Ellen P., ``Tribal Bonds: Indian 
Sovereignty and the Tax Legislative Process,'' 46 Admin. L. Rev. 333, 
334 (1994).
    \50\ See Squire v. Capoeman, 351 U.S. 1, 6 (1956). One exception to 
this general rule is the exclusion from income provided for income 
received by Indians from the exercise of certain fishing rights 
guaranteed by treaties, Federal Statute or Executive order (sec. 7873). 
See also 25 U.S.C. sections 1401-1407 (funds appropriated in 
satisfaction of a judgment of the United States Court of Federal Claims 
in favor of an Indian tribe which are then distributed per capita to 
tribal members pursuant to a plan approved by the Secretary of Interior 
are exempt from Federal income taxes); 25 U.S.C. section 117b(a) (per 
capita distributions made to tribal members from Indian trust fund 
revenues are exempt from tax if the Secretary of the Interior approves 
of such distributions).
---------------------------------------------------------------------------
      Tribal governments and corporations, as well as 
individual Indians and their property, generally are exempt 
from State taxation within their reservations, unless Congress 
clearly manifests its consent to such taxation. 51 In 
contrast, property and income earned by Indians outside the 
reservation generally have been held to be subject to State 
taxation. 52 In addition, the Supreme Court has upheld a 
State's right to impose taxes on commercial activities 
conducted on reservation lands, provided that the legal 
incidence of the tax falls on non-Indians and the balance of 
Federal, State, and tribal interests favors the State. 53
    \51\ See, e.g., Oklahoma Tax Comm'n v. Chickasaw Nation, 115 S. Ct. 
2214 (1995); Montana v. Blackfeet Tribe of Indians, 471, U.S. 759 
(1985); McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164 (1973).
    \52\ See, e.g., Mescalero Apache Tribe v. Jones, 411 U.S. 145 
(1973) (tribe held to be subject to State gross receipts tax on income 
earned from a ski resort operated by the tribe off-reservation). The 
Supreme Court also has ruled that a State may impose income tax on 
members of an Indian tribe who are employed by the tribe on tribal 
lands but who reside in the State outside of Indian country. Oklahoma 
Tax Comm'n v. Chickasaw Nation, supra.
    \53\ See Oklahoma Tax Comm'n v. Chickasaw Nation, Supra; Cotton 
Petroleum v. New Mexico, 490 U.S. 163 (1989) (upholding imposition of 
State severance tax on private producers of oil and gas on reservation 
lands).
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      In 1993, Congress enacted two Federal tax incentives for 
commercial activities conducted (by Indians or non-Indians) on 
any Indian reservation. These tax incentives are: (1) enhanced 
accelerated depreciation (generally, 60 percent of the normal 
recovery period) for certain property used in the conduct of a 
trade or business on a reservation (and certain connecting 
infrastructure property); and (2) a 20-percent incremental wage 
credit for certain wages and health insurance costs (up to 
$20,000 per employee) paid to tribal members and spouses who 
work on, and live on or near, a reservation. Neither of these 
tax incentives is available with respect to gambling activities 
(secs. 45A and 168(j)).
            Taxation of gambling activities of nonprofit organizations
      Although generally exempt from Federal income tax, tax-
exempt organizations are subject to the unrelated business 
income tax (UBIT) on income derived from a trade or business 
regularly carried on that is not substantially related to the 
performance of the organization's tax- exempt functions (secs. 
511-514). 54 Certain income, however, is exempted from the 
UBIT (such as interest, dividends, royalties, and certain 
rents), unless derived from debt-financed property (sec. 
512(b)). Other exemptions from the UBIT are provided for 
activities in which substantially all the work is performed by 
volunteers and for income from the sale of donated goods (sec. 
513(a)). In addition, a specific exemption from the UBIT is 
provided for bingo games conducted by tax-exempt organizations, 
provided that the conducting of the bingo games is not an 
activity ordinarily carried out on a commercial basis and the 
conducting of which does not violate any State or local law 
(sec. 513(f)). A specific exemption from the UBIT also is 
provided for qualified public entertainment activities (meaning 
entertainment or recreation activities of a kind traditionally 
conducted at fairs or expositions promoting agricultural and 
educational purposes) conducted by an organi- 
zation described in section 501(c)(3), (c)(4), or (c)(5) which 
regularly conducts an agricultural and educational fair or 
exposition as one of its substantial exempt purposes (sec. 
513(d)). 55
    \54\ The UBIT applies not only to private, tax-exempt entities but 
also to colleges and universities that are agencies or 
instrumentalities of (or are owned or operated by) a State or local 
government or Indian tribal government (secs. 511(a)(2)(B) and 
7871(a)(5)).
    \55\ In addition, section 311 of the Deficit Reduction Act of 1984 
(as modified by the Tax Reform Act of 1986) provides a special, off-
Code exemption from the UBIT for games of chance conducted by nonprofit 
organizations in the State of North Dakota.
---------------------------------------------------------------------------
      In South End Italian Independent Club, Inc. v. 
Commissioner, 87 T.C. 168 (1986), acq. 1987-2 C.B. 1, the court 
held that gambling profits of a social club described in 
section 501(c)(7) that were required by State law to be used 
for charitable purposes were fully deductible under section 162 
in computing the UBIT liability of the social club. The effect 
of this decision was to exempt gambling income of that social 
club from UBIT. The IRS has indicated that, until further 
guidance is available with respect to this issue, the issue of 
the deductibility of amounts required under State law to be 
used for charitable or other so-called ``lawful'' purposes 
should be resolved consistent with the South End case, 
regardless of whether the gaming proceeds are donated to other 
charitable organizations or spent internally on the 
organization's own charitable activities. 56
    \56\ See IRS, Exempt Organizations: Technical Instruction Program 
for FY 1996 (Training 4277-048 (7-95)) at page 96.
---------------------------------------------------------------------------
House bill
            Tax treatment of Indian tribal gaming income
      The House bill subjects to Federal income tax as 
unrelated business income (''UBI'') income earned by an Indian 
tribe, or any corporate entity that is a tax-immune or tax-
exempt entity by reason of being owned or controlled by an 
Indian tribe, from the conduct of class II or class III gaming 
activities (as defined under the Indian Gaming Regulatory Act, 
25 U.S.C. secs. 2701-2721). Thus, Indian tribes will be subject 
to Federal income tax on income derived from class II gaming 
operations (e.g., bingo, pull-tabs, lotto) or class III gaming 
operations (e.g., a casino operated pursuant to a compact 
between the State government and Indian tribe). As under 
present-law UBIT rules, a gaming activity will be subject to 
tax under the provision only if the activity is regularly 
carried on.
      Under the House bill, if an Indian tribe is required (by 
Federal, State, or local law) to use any portion of the net 
proceeds of gaming activities for charitable or other specified 
purposes, any portion so used may be deductible only as a 
charitable contribution, and (under present-law sec. 
512(b)(10)) such deduction may not exceed 10 percent of the 
taxable income from the gaming activities. This 10-percent 
limitation, however, does not apply to any proceeds from gaming 
activities that are required to be paid as general revenues to 
the United States or any State or subdivision of a State (which 
generally will be fully deductible in computing the tribe's 
taxable income from gaming).
            Repeal of UBIT exemption for gambling in certain States
      In addition, the House bill repeals the special, off-Code 
provision that exempts from the UBIT gaming income earned by 
nonprofit organizations in North Dakota. With respect to other 
gaming activities conducted by tax-exempt organizations, the 
Treasury Department is directed to conduct a study on the 
nature and extent of gaming activities conducted by 
organizations exempt from tax under section 501(a), including 
an examination of: (1) the types of gaming activities (e.g., 
bingo, pull tabs, casino nights) engaged in by charities and 
other nonprofit organizations and the frequency of such 
activities; (2) the dollar volume of such gaming activities; 
(3) the nature and extent of the involvement of for-profit 
entities and private parties in the management or operation of 
gaming activities of nonprofits; (4) competition between 
taxable gaming activities and gaming activities that are exempt 
from Federal income tax; and (5) an analysis of the present-law 
tax treatment of gaming activities of tax-exempt organizations 
and any recommendations for change, including examination of 
the South End decision and special UBIT exception for bingo 
games. The Treasury Department is required to report the 
results of this study to Congress no later than July 1, 1996.
            Effective date
      The provision is effective on and after January 1, 1996.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

      IX. Corporate and Other Reforms and Miscellaneous Provisions

1. reform the tax treatment of certain corporate stock redemptions and 
 other extraordinary dividends (sec. 13601 of the house bill and sec. 
                     12801 of the senate amendment)

Present law
      A corporate shareholder generally can deduct at least 70 
percent of a dividend received from another corporation. This 
dividends received deduction is 80 percent if the corporate 
shareholder owns at least 20 percent of the distributing 
corporation and generally 100 percent if the shareholder owns 
at least 80 percent of the distributing corporation.
      Section 1059 of the Code requires a corporate shareholder 
that receives an ``extraordinary dividend'' to reduce the basis 
of the stock with respect to which the dividend was received by 
the nontaxed portion of the dividend. Whether a dividend is 
``extraordinary'' is determined, among other things, by 
reference to the size of the dividend in relation to the 
adjusted basis of the shareholder's stock. Also, a dividend 
resulting from a non pro rata redemption or a partial 
liquidation is an extraordinary dividend. If the reduction in 
basis of stock exceeds the basis in the stock with respect to 
which an extraordinary dividend is received, the excess is 
taxed as gain on the sale or disposition of such stock, but not 
until that time (sec. 1059(a)(2)). The Treasury Department has 
general regulatory authority to carry out the purposes of the 
section.
      Except as provided in regulations, the extraordinary 
dividend provisions do not apply to result in a double 
reduction in basis in the case of distributions between members 
of an affiliated group filing consolidated returns, where the 
dividend is eliminated or excluded under the consolidated 
return regulations. Double inclusion of earnings and profits 
(i.e., from both the dividend and from gain on the disposition 
of stock with a reduced basis) also should generally be 
prevented. 57 Treasury regulations provide for application 
of the provision when a corporation is a partner in a 
partnership that receives a distribution. 58
    \57\ See, H.R. Rep. 99-841, II-166, 99th Cong. 2d Sess. (Sept. 18, 
1986).
    \58\ See, Treas. Reg. sec. 1.701-2(f), Example (2).
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      In general, a distribution in redemption of stock is 
treated as a dividend, rather than as a sale of the stock, if 
it is essentially equivalent to a dividend (sec. 302). A 
redemption of the stock of a shareholder generally is 
essentially equivalent to a dividend if it does not result in a 
meaningful reduction in the shareholder's proportionate 
interest in the distributing corporation. Section 302(b) also 
contains several specific tests (e.g., a substantial reduction 
computation and a termination test) to identify redemptions 
that are not essentially equivalent to dividends. The 
determination whether a redemption is essentially equivalent to 
a dividend includes reference to the constructive ownership 
rules of section 318, including the option attribution rules of 
section 318(a)(4). The rules relating to treatment of cash or 
other property received in a reorganization contain a similar 
reference (sec. 356(a)(2)).
House bill
      The House bill provides that, except as provided in 
regulations, a corporate shareholder will recognize gain 
immediately with respect to any redemption treated as a 
dividend (in whole or in part) when the nontaxed portion of the 
dividend exceeds the basis of the shares surrendered, if the 
redemption is treated as a dividend due to options being 
counted as stock ownership. 59
    \59\ Thus, for example, where a portion of such a distribution 
would not have been treated as a dividend due to insufficient earnings 
and profits, the rule applies to the portion treated as a dividend.
---------------------------------------------------------------------------
      In addition, the House bill requires immediate gain 
recognition whenever the basis of stock with respect to which 
any extraordinary dividend was received is reduced below zero.
      Reorganizations or other exchanges involving amounts that 
are treated as dividends under section 356(a)(2) of the Code 
are treated as redemptions for purposes of applying the rules 
relating to redemptions under section 1059(e). For example, if 
a recapitalization or other transaction that involves a 
dividend under section 356 has the effect of a non pro rata 
redemption or is treated as a dividend due to options being 
counted as stock, the rules of section 1059 apply. Redemptions 
of shares, (or other extraordinary dividends on shares) held by 
a partnership will be subject to section 1059 to the extent 
there are corporate partners (e.g., appropriate adjustments to 
the basis of the shares held by the partnership and to the 
basis of the corporate partner's partnership interest will be 
required).
      Under continuing section 1059(g) of present law, the 
Treasury Department is authorized to issue regulations where 
necessary to carry out the purposes and prevent the avoidance 
of the bill.
      Effective date.--The provision is generally effective for 
distributions after May 3, 1995, unless made pursuant to the 
terms of a written binding contract in effect on that date, or 
a tender offer outstanding on that date. However, in applying 
the new gain recognition rules to any distribution that is not 
a partial liquidation, a non pro rata redemption, or a 
redemption that is treated as a dividend by reason of options, 
September 13, 1995 is substituted for May 3, 1995 in applying 
the transition rules.
      No inference is intended regarding the tax treatment 
under present law of any transaction within the scope of the 
provision, including transactions utilizing options.
Senate amendment
      The Senate amendment is the same as the House bill, 
except for the effective date.
      Effective date.--The effective date is generally the same 
as the House bill, except that there is no transition for 
distributions pursuant to tender offers outstanding on the 
relevant date.
Conference agreement
      The conference agreement follows the House bill.
      In addition, the conferees wish to clarify that no 
inference is intended regarding the rules under present law (or 
in any case where the treatment is not specified in the 
provision) for determining the shares of stock with respect to 
which a dividend is received or that experience a basis 
reduction.

  2. require corporate tax shelter reporting (sec. 13602 of the house 
              bill and sec. 12802 of the senate amendment)

Present law
      An organizer of a tax shelter is required to register the 
shelter with the IRS (sec. 6111). If the principal organizer 
does not do so, the duty may fall upon any other participant in 
the organization of the shelter or any person participating in 
its sale or management. The shelter's identification number 
must be furnished to each investor who purchases or acquires an 
interest in the shelter. Failure to furnish this number to the 
tax shelter investors will subject the organizer to a $100 
penalty for each such failure (sec. 6707(b)).
      A penalty may be imposed against an organizer who fails 
without reasonable cause to timely register the shelter or who 
provides false or incomplete information with respect to it. 
The penalty is the greater of one percent of the aggregate 
amount invested in the shelter or $500. Any person claiming any 
tax benefit with respect to a shelter must report its 
registration number on her return. Failure to do so without 
reasonable cause will subject that person to a $250 penalty 
(sec. 6707(b)(2)).
      A person who organizes or sells an interest in a tax 
shelter subject to the registration rule or in any other 
potentially abusive plan or arrangement must maintain a list of 
the investors (sec. 6112). A $50 penalty may be assessed for 
each name omitted from the list. The maximum penalty per year 
is $100,000 (sec. 6708).
      For this purpose, a tax shelter is defined as any 
investment that meets two requirements. First, the investment 
must be (1) required to be registered under a Federal or state 
law regulating securities, (2) sold pursuant to an exemption 
from registration requiring the filing of a notice with a 
Federal or state agency regulating the offering or sale of 
securities, or (3) a substantial investment. Second, it must be 
reasonable to infer that the ratio of deductions and 350 
percent of credits to investment for any investor (i.e., the 
tax shelter ratio) may be greater than two to one as of the 
close of any of the first five years ending after the date on 
which the investment is offered for sale. An investment that 
meets these requirements will be considered a tax shelter 
regardless of whether it is marketed or customarily designated 
as a tax shelter (sec. 6111(c)(1)).
House bill
      The House bill requires an organizer of a corporate tax 
shelter to register the shelter with the Secretary. 
Registration is required not later than the next business day 
after the day when the tax shelter is first offered to 
potential users. If an organizer is not a U.S. person, or if a 
required registration is not otherwise made, then any U.S. 
participant is required to register the shelter.
      A corporate tax shelter is any investment, plan, 
arrangement or transaction: first, that has a significant 
purpose of tax avoidance or evasion by a corporate participant; 
second, that is offered to any potential participant under 
conditions of confidentiality; and third, for which the tax 
shelter organizers may receive total fees in excess of 
$100,000.
       A transaction is offered under conditions of 
confidentiality if: (1) an offeree (or any person acting on its 
behalf) has an understanding or agreement with or for the 
benefit of any promoter to restrict or limit its disclosure of 
the transaction or any significant tax features of the 
transaction; or (2) the promoter claims, knows or has reason to 
know (or the promoter causes another person to claim or 
otherwise knows or has reason to know that a party other than 
the potential offeree claims) that the transaction (or one or 
more aspects of its structure) is proprietary to the promoter 
or any party other than the offeree, or is otherwise protected 
from disclosure or use. The promoter includes specified related 
parties.
      Registration will require the submission of information 
identifying and describing the tax shelter and the tax benefits 
of the tax shelter, as well as such other information as the 
Treasury Department may require.
      Tax shelter promoters are required to maintain lists of 
those who have signed confidentiality agreements, or otherwise 
have been subjected to nondisclosure requirements, with respect 
to particular tax shelters. In addition, promoters must retain 
lists of those paying fees with respect to plans or 
arrangements that have previously been registered (even though 
the particular party may not have been subject to 
confidentiality restrictions).
      All registrations will be treated as taxpayer information 
under the provisions of section 6103 and will therefore not be 
subject to any public disclosure.
      The penalty for failing to timely register a corporate 
tax shelter is the greater of $10,000 or 50 percent of the fees 
payable to any promoter with respect to offerings prior to the 
date of late registration (i.e., this part of the penalty does 
not apply to fee payments with respect to offerings after late 
registration). A similar penalty is applicable to actual 
participants in any corporate tax shelter who were required to 
register the tax shelter but did not. With respect to 
participants, however, the 50-percent penalty is based only on 
fees paid by that participant. Intentional disregard of the 
requirement to register by either a promoter or a participant 
increases the 50-percent penalty to 75 percent of the 
applicable fees.
      Effective date.--The provision applies to any tax shelter 
offered to potential participants after the date of enactment. 
No filings are due, however, until the Treasury Department 
issues guidance with respect to the filing requirements.
Senate amendment
      The Senate amendment is the same as the House bill, 
except that the Senate amendment provides that registration is 
not required if the U.S. participant notifies the promoter in 
writing not later than the seventh day after discussions began 
that the U.S. participant will not (and in fact does not) 
participate in the shelter. The Senate amendment also clarifies 
that a significant purpose of the structure of the transaction 
must be tax avoidance or evasion. The Senate amendment also 
adds a definition of related parties.
      Effective date.--Same as the House bill.
Conference agreement
      The conference agreement follows the Senate amendment, 
except that the seven-day period is modified to be a 90-day 
period.
      A transaction is subject to this provision only if ``a 
significant purpose'' of the structure of the transaction is 
the avoidance or evasion of tax for a corporation (including a 
corporation that participates indirectly, for example, through 
a partnership, trust, or other non-corporate entity). It is not 
intended that registration will apply merely because tax 
consequences have been considered in structuring a transaction. 
The provision would not apply to a transaction where tax 
considerations are merely incidental and unimportant to the 
structure of the transaction. A ``significant'' purpose, 
however, need not be the only, or a ``principal,'' purpose of 
the structure of a transaction in order for the provision to 
apply.
      The existence of conditions of confidentiality, including 
proprietary claims or an agreement or understanding that limits 
disclosure by the participant or other person (such as the 
participant's advisors), shall be determined in light of all 
the facts and circumstances. Such a claim, understanding, or 
agreement need not be in writing, nor must it be legally 
enforceable under applicable state or federal law. Moreover, a 
claim, understanding, or agreement need not be explicit if, for 
example, a past pattern of dealings suggests that the 
participant or its advisors will be limited from, or be 
penalized by the promoter for, disclosure. The term 
``promoter'' includes agents and professional advisors whether 
or not a formal principal-agent relationship exists.
      Conditions of confidentiality include arrangements that 
limit the participant, or its agents, advisors, or other 
persons acting on its behalf, from disclosing the transaction 
or any significant tax features of the transaction. If a 
taxpayer contemplating a transaction consults a tax attorney 
for advice on structuring the anticipated transaction, the fact 
that such advice may be protected from disclosure by the 
attorney under the attorney-client privilege generally would 
not by itself bring the transaction within the ambit of this 
provision, because the privilege does not restrict the client's 
disclosure of the details of the structure of a transaction.
      By contrast, this provision would apply where a tax 
avoidance transaction is promoted by an attorney to potential 
participants under conditions that limit potential participants 
from disclosing the structure of the transaction or any 
significant tax features of the transaction. Similarly, 
registration could be required, for example, in cases where a 
tax shelter is promoted through attorneys in an effort to avoid 
disclosure by the participant or its agents or advisors. A 
transaction will not be treated as proprietary merely because a 
financial advisor hopes to be rewarded for the time spent 
structuring the transaction.
      The conferees encourage Treasury to consider exercising 
its existing authority under section 6111(e)(3) to consider the 
effects of the securities laws and to exempt specific kinds of 
transactions from the application of the new registration 
requirement in appropriate cases, provided that there is not 
potential for abuse. In addition, Treasury should consider 
issuing guidance that would allow the Internal Revenue Service 
to exercise discretion in (1) excluding from the penalty 
calculation fees received by the promoter which are not, 
directly or indirectly, attributable to the tax shelter, and 
(2) abating penalties in appropriate cases for reasonable 
cause. Treasury may issue such guidance in a form other than 
regulations (such as by rulings or revenue procedures).
      Effective date.--The provision applies to any tax shelter 
offered to potential participants after the date the Treasury 
prescribes guidance with respect to the filing requirements. 
After the issuance of such guidance, the conferees anticipate 
that the Treasury will issue proposed regulations on this 
provision, which will give interested parties an opportunity to 
comment formally on Treasury's guidance.

   3. disallow interest deduction for corporate-owned life insurance 
policy loans (sec. 13603 of the house bill and sec. 12803 of the senate 
                               amendment)

Present law
      No Federal income tax generally is imposed on a 
policyholder with respect to the earnings under a life 
insurance contract (``inside buildup'').60 Further, an 
exclusion from Federal income tax is provided for amounts 
received under a life insurance contract paid by reason of the 
death of the insured (sec. 101(a)). The policyholder may borrow 
with respect to the life insurance contract without affecting 
these exclusions, subject to certain limitations.
    \60\ This favorable tax treatment is available only if a life 
insurance contract meets certain requirements designed to limit the 
investment character of the contract (sec. 7702). Distributions from a 
life insurance contract (other than a modified endowment contract) that 
are made prior to the death of the insured generally are includable in 
income, to the extent that the amounts distributed exceed the 
taxpayer's basis in the contract; such distributions generally are 
treated first as a tax-free recovery of basis, and then as income (sec. 
72(e)). In the case of a modified endowment contract, however, in 
general, distributions are treated as income first, loans are treated 
as distributions (i.e., income rather than basis recovery first), and 
an additional ten percent tax is imposed on the income portion of 
distributions made before age 59\1/2\ and in certain other 
circumstances (secs. 72(e) and (v)). A modified endowment contract is a 
life insurance contract that does not meet a statutory ``7-pay'' test, 
i.e., generally is funded more rapidly than seven annual level premiums 
(sec. 7702A).
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      The limitations on borrowing with respect to a life 
insurance contract under present law provide that no deduction 
is allowed for any interest paid or accrued on any indebtedness 
with respect to one or more life insurance policies owned by 
the taxpayer covering the life of any individual who (1) is an 
officer or employee of, or (2) is financially interested in, 
any trade or business carried on by the taxpayer to the extent 
that the aggregate amount of such debt with respect to policies 
covering the individual exceeds $50,000 (sec. 264(a)(4)).
      Further, no deduction is allowed for any amount paid or 
accrued on debt incurred or continued to purchase or carry a 
life insurance, endowment or annuity contract pursuant to a 
plan of purchase that contemplates the systematic direct or 
indirect borrowing of part or all of the increases in the cash 
value of the contract.61 An exception to the latter rule 
is provided, permitting deductibility of interest on bona fide 
debt that is part of such a plan, if no part of 4 of the annual 
premiums due during the first 7 years is paid by means of debt 
(the ``4-out-of-7 rule'') (sec. 264(c)(1)). Provided the 
transaction gives rise to debt for Federal income tax purposes, 
and provided the 4-out-of-7 rule is met,62 a company may 
under present law borrow up to $50,000 per employee, officer, 
or financially interested person to purchase or carry a life 
insurance contract covering such a person, and is not precluded 
under section 264 from deducting the interest on the debt, even 
though the earnings inside the life insurance contract (inside 
buildup) are tax-free, and in fact the taxpayer has full use of 
the borrowed funds.
    \61\ The statute provides that the $50,000 limitation applies only 
with respect to contracts purchased after June 20, 1986. However, 
additional limitations are imposed on the deductibility of interest 
with respect to single premium contracts (sec. 264(a)(2)), and on the 
deductibility of premiums paid on a life insurance contract covering 
the life of any officer or employee or person financially interested in 
a trade or business of the taxpayer when the taxpayer is directly or 
indirectly a beneficiary under the contract (sec. 264(a)(1)).
    \62\ Interest deductions are disallowed if any of the disallowance 
rules of section 264(a)(2)-(4) apply. The disallowance rule of section 
264(a)(3) is not applicable if one of the exceptions of section 264(c), 
such as the 4-out-of-7 rule (sec. 264(c)(1)) is satisfied. In addition 
to the specific disallowance rules of section 264, generally applicable 
principles of tax law apply.
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House bill
      Under the House bill, no deduction is allowed for 
interest paid or accrued on any indebtedness with respect to 
one or more life insurance policies or annuity or endowment 
contracts owned by the taxpayer covering any individual who is 
(1) an officer or employee of, or (2) financially interested in 
any trade or business carried on by the taxpayer, regardless of 
the aggregate amount of debt with respect to policies or 
contracts covering the individual.63
    \63\ The provisions disallows the deduction for interest even if 
the deduction would not be disallowed under any other rule. Thus, for 
example, if a deduction would not be disallowed under section 264(a)(3) 
because the 4-out-of-7 rule is met, this provision neverthesless 
disallows the deduction.
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      Effective date.--The provision is effective with respect 
to interest paid or accrued after December 31, 1995 (subject to 
the phase-in).
      The provision is phased in over a 4-year period. Under 
the phase-in, a percentage of the interest deduction that would 
otherwise be disallowed is nevertheless allowed. The interest 
deduction allowed under the phase-in is for interest on debt 
incurred before September 18, 1995, with respect to a life 
insurance policy that was in effect on that date and that 
covers only the individual who was insured under that policy on 
that date. Only interest that would have been allowed as a 
deduction but for the amendment made by the bill is allowed 
under the phase-in.
      During the 4-year phase-in period, the percentage of the 
deduction for interest that is disallowed for periods in 1996 
is 20 percent; in 1997, 40 percent; in 1998, 60 percent; and in 
1999, 80 percent. No deduction for interest is allowed under 
the phase-in after 1999. For taxpayers whose taxable year is 
not the calendar year, interest accrued in the portion of the 
taxable year that falls during any calendar year in the 4-
calendar-year phase-in period is allowed in accordance with the 
percentage for that calendar year.
      The House bill provides a special 4-year income-spreading 
rule for certain amounts received under a contract, interest on 
debt under which was allowed as a deduction prior to December 
31, 1995, but is disallowed under the provision. The 4-year 
income-spreading rule applies for any amount that is received 
under such a contract on the complete surrender, redemption or 
maturity of the contract in 1996, or in full discharge of the 
obligation under the contract that is in the nature of a refund 
of the consideration paid for the contract in 1996, to the 
extent the amount received is included in the taxpayer's income 
for the taxable year in which such event occurs. Under the 
special 4-year income-spreading rule, the amount included in 
income upon any such event in 1996 is includable ratably over 
the first four taxable years beginning with the taxable year 
the amount would otherwise have been includable. Utilization of 
this 4-year income-spreading rule does not cause interest paid 
or accrued prior to January 1, 1996, to be nondeductible solely 
by reason of failure to meet the 4-out-of-7 rule.
      The provision does not apply to interest on debt with 
respect to contracts purchased on or before June 20, 1986 (thus 
continuing the effective date provision of the $50,000 
limitation enacted in the 1986 Act).64
    \64\ This rule has the same meaning under the House bill as its 
meaning under the 1986 Act.
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      No inference is intended as to the treatment of interest 
paid or accrued under present law.
Senate amendment
      The Senate amendment is the same as the House bill, 
except that the Senate amendment provides (1) an exception for 
key person insurance, (2) different effective date rules, and 
(3) a different phase-in rule.
      An exception is provided retaining present law for 
interest on indebtedness with respect to life insurance 
policies covering up to 25 key persons. A key person is an 
individual who is either an officer or a 20-percent owner of 
the taxpayer. The number of individuals that can be treated as 
key persons may not exceed the greater of (1) five individuals, 
or (2) the lesser of 5 percent of the total number of officers 
and employees of the taxpayer, or 25 individuals. Interest paid 
or accrued on debt with respect to a life insurance contract 
covering a key person is deductible only to the extent the rate 
of interest does not exceed Moody's Corporate Bond Yield 
Average--Monthly Average Corporates for each month interest is 
paid or accrued.
      Effective date.--With respect to debt incurred after 
December 31, 1995, no deduction is allowed for interest paid or 
accrued after December 31, 1995, except with respect to 
policies that satisfy the key person exception.
      A phase-in rule is provided under the Senate amendment. 
With respect to debt incurred on or before December 31, 1995, 
any otherwise deductible interest paid or accrued after October 
13, 1995, and before January 1, 2001, is allowed to the extent 
the rate of interest does not exceed the lesser of (1) the 
borrowing rate specified in the contract as of October 13, 
1995, or (2) a percentage of Moody's Corporate Bond Yield 
Average--Monthly Average Corporates for each month the interest 
is paid or accrued. For interest paid or accrued after October 
13, 1995, and before January 1, 1997, the percentage of the 
Moody's rate is 100 percent; for interest paid or accrued in 
1997, the percentage is 95 percent; for 1998, the percentage is 
90 percent; for 1999, the percentage is 85 percent; for 2000, 
the percentage is 80 percent; and for 2001 and thereafter, the 
percentage is 0 percent. Only interest that would have been 
allowed as a deduction but for the amendment made by the bill 
is allowed under the phase-in.
      Any amount included in income during 1996, 1997, 1998, 
1999, 2000 or 2001, that is received under a contract described 
in the proposal on the complete surrender, redemption or 
maturity of the contract or in full discharge of the obligation 
under the contract that is in the nature of a refund of the 
consideration paid for the contract, is includable ratably over 
the first four taxable years beginning with the taxable year 
the amount would otherwise have been includable. Utilization of 
this 4-year income-spreading rule does not cause interest paid 
or accrued prior to January 1, 2001, to be nondeductible solely 
by reason of failure to meet the 4-out-of-7 rule. Similarly, 
utilization of this 4-year income-spreading rule does not cause 
interest paid or accrued prior to January 1, 2001, to be 
nondeductible solely by reason of causing the contract to be 
treated as a single premium contract within the meaning of 
section 264(b)(1) (i.e., a contract in which substantially all 
of the premiums are paid within 4 years after the date of 
purchase). In addition, the lapse of a contract after October 
13, 1995, due to nonpayment of premiums, does not cause 
interest paid or accrued prior to January 1, 2001, to be 
nondeductible solely by reason of causing the contract to be 
treated as a single premium contract within the meaning of 
section 264(b)(1) or by reason of failure to meet the 4-out-of-
7 rule.
      In the case of an insurance company, the unamortized 
balance of policy expenses attributable to a contract with 
respect to which the 4-year income-spreading treatment is 
allowed to the policyholder is deductible in the year in which 
the transaction giving rise to income-spreading occurs.
      The provision generally does not apply to interest on 
debt with respect to contracts purchased on or before June 20, 
1986 (thus continuing the effective date provision of the 
$50,000 limitation enacted in the 1986 Act), except that 
interest on such contracts paid or accrued after October 13, 
1995, is allowable only to the extent the rate of interest does 
not exceed Moody's Corporate Bond Yield Average--Monthly 
Average Corporates for the month the interest is paid or 
accrued.
      Under the Senate amendment, there is no inference as to 
the tax treatment of interest paid or accrued under present 
law.
Conference agreement
      The conference agreement follows the Senate amendment, 
with modifications.
      The conference agreement provides that, under the key 
person exception, the number of individuals that can be treated 
as key persons may not exceed the greater of (1) five 
individuals, or (2) the lesser of 5 percent of the total number 
of officers and employees of the taxpayer, or 10 individuals.
      The phase-in rule is modified under the conference 
agreement. The conference agreement provides that with respect 
to debt incurred on or before December 31, 1995,65 any 
otherwise deductible interest paid or accrued after October 13, 
1995, and before January 1, 1999, is allowed to the extent the 
rate of interest does not exceed the lesser of (1) the 
borrowing rate specified in the contract as of October 13, 
1995, or (2) a percentage of Moody's Corporate Bond Yield 
Average--Monthly Average Corporates for each month the interest 
is paid or accrued. Under the conference agreement, for 
interest paid or accrued after October 13, 1995, and before 
January 1, 1996, the percentage of the Moody's rate is 100 
percent; for interest paid or accrued in 1996, the percentage 
is 90 percent; for interest paid or accrued in 1997, the 
percentage is 80 percent; for 1998, the percentage is 70 
percent; for 1999 and thereafter, the percentage is 0 percent. 
As under the Senate amendment, only interest that would have 
been allowed as a deduction but for the provision is allowed 
under the phase-in.
    \65\ The conference agreement provides an exception under the 
effective date with respect to any life insurance contract entered into 
in 1994 or 1995, as described below.
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      The conference agreement further provides that during the 
phase-in period, interest that is deductible does not include 
interest on borrowings by the taxpayer with respect to 
contracts on the lives of more than 20,000 insured individuals, 
effective for interest paid or accrued after December 31, 1995. 
For this purpose, all persons treated as a single employer are 
treated as one taxpayer.
      The conference agreement provides an exception under the 
effective date with respect to any life insurance contract 
entered into during 1994 or 1995. In the case of such 
contracts, with respect to debt incurred before January 1, 
1997, no deduction is allowed for interest paid or accrued 
after December 31, 1996, except with respect to policies that 
satisfy the key person exception, and except as provided under 
the phase-in rule. Thus, with respect to interest on amounts 
borrowed during 1996 with respect to such a contract, the 
phase-in rule applies, capping the rate for determining the 
amount of deductible interest at the lesser of (1) the 
borrowing rate specified in the contract as of October 13, 
1995, or (2) the applicable percentage of Moody's Corporate 
Bond Yield Average--Monthly Average Corporates for each month 
the interest is paid or accrued. For example, for interest paid 
or accrued in 1996 on amounts borrowed in 1996 with respect to 
such a contract, the applicable percentage is 90 percent.
      Under the conference agreement, the provision generally 
does not apply to interest on debt with respect to contracts 
purchased on or before June 20, 1986 (thus continuing the 
effective date provision of the $50,000 limitation enacted in 
the 1986 Act). If such a contract provides for a fixed rate of 
interest, then interest on such a contract paid or accrued 
after October 13, 1995, is allowable only to the extent the 
fixed rate of interest does not exceed Moody's Corporate Bond 
Yield Average--Monthly Average Corporates for the month in 
which the contract was purchased. If such a contract does not 
provide for a fixed rate of interest, then interest on such a 
contract paid or accrued after October 13, 1995, is allowable 
only to the extent the rate of interest for each fixed period 
selected by the taxpayer does not exceed Moody's Corporate Bond 
Yield Average--Monthly Average Corporates, for the month 
immediately preceding the beginning of the fixed period.66 
The fixed period must be 12 months or less.
    \66\ It is intended that conforming a contract to satisfy this 
interest rate limitation not be treated as a material modification for 
purposes of this grandfather rule or sections 101(f), 7702 or 7702A. No 
inference is intended as to whether such a change is a material 
modification.
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     4. Phase-out preferential tax deferral for certain large farm 
  corporations required to use accrual accounting (sec. 13604 of the 
           House bill and sec. 12804 of the Senate amendment)

Present law
      A corporation (or a partnership with a corporate partner) 
engaged in the trade or business of farming must use an accrual 
method of accounting for such activities unless such 
corporation (or partnership), for each prior taxable year 
beginning after December 31, 1975, did not have gross receipts 
exceeding $1 million. If a farm corporation is required to 
change its method of accounting, the section 481 adjustment 
resulting from such change is included in gross income ratably 
over a 10-year period, beginning with the year of change. This 
rule does not apply to a family farm corporation.
      A family corporation (or a partnership with a family 
corporation as a partner) is required to use an accrual method 
of accounting for its farming business unless, for each prior 
taxable year beginning after December 31, 1985, such 
corporation (and any predecessor corporation) did not have 
gross receipts exceeding $25 million. A family corporation is 
one where 50 percent or more of the stock of the corporation is 
held by one (or in some limited cases, two or three) families.
      A family farm corporation that must change to an accrual 
method of accounting as a result of the 1987 Act provision is 
to establish a suspense account in lieu of including the entire 
amount of the section 481 adjustment in gross income. The 
amount of the suspense account is required to be included in 
gross income if the corporation ceases to be a family 
corporation or to the extent the gross receipts of the 
corporation declines.
House bill
      The House bill repeals the ability of a family farm 
corporation to establish a suspense account when it is required 
to change to an accrual method of accounting. Thus, under the 
House bill, any family farm corporation required to change to 
an accrual method of accounting would include in gross income 
the section 481 adjustment applicable to the change ratably 
over a 10-year period beginning with the year of change. In 
addition, any taxpayer with an existing suspense account is 
required to include the account in gross income ratably over a 
20-year period beginning in the first taxable year beginning 
after September 13, 1995, subject to the present-law 
requirements to include all or a portion of the account in 
income more rapidly in certain circumstances.
      Effective date.--The provision is effective for taxable 
years ending after September 13, 1995.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference Agreement
      The conference agreement follows the House bill and the 
Senate amendment.

5. phased-in repeal of section 936 credit (sec. 13605 of the house bill 
                and sec. 12805 of the senate amendment)

Present law
      Certain domestic corporations with business operations in 
the U.S. possessions (including, for this purpose, Puerto Rico 
and the U.S. Virgin Islands) may elect the section 936 credit 
which generally eliminates the U.S. tax on certain income 
related to their operations in the possessions. In contrast to 
the foreign tax credit, the possessions tax credit is a ``tax 
sparing'' credit. That is, the credit is granted whether or not 
the electing corporation pays income tax to the possession. 
Income exempt from U.S. tax under this provision falls into two 
broad categories: (1) possession business income, which is 
derived from the active conduct of a trade or business within a 
U.S. possession or from the sale or exchange of substantially 
all of the assets that were used in such a trade or business; 
and (2) qualified possession source investment income 
(``QPSII''), which is attributable to the investment in the 
possession or in certain Caribbean Basin countries of funds 
derived from the active conduct of a possession business.
      In order to qualify for the section 936 credit for a 
taxable year, a domestic corporation must satisfy two 
conditions. First, the corporation must derive at least 80 
percent of its gross income for the three-year period 
immediately preceding the close of the taxable year from 
sources within a possession. Second, the corporation must 
derive at least 75 percent of its gross income for that same 
period from the active conduct of a possession business.
      A domestic corporation that has elected the section 936 
credit and that satisfies these two conditions for a taxable 
year generally is entitled to a credit equal to the U.S. tax 
attributable to the sum of the taxpayer's possession business 
income and its QPSII. However, the amount of the credit 
attributable to possession business income is subject to the 
limitations enacted by the Omnibus Budget Reconciliation Act of 
1993 (``1993 Act''). Under the economic activity limit, the 
amount of the credit with respect to such income cannot exceed 
the sum of a portion of the taxpayer's wage and fringe benefit 
expenses and depreciation allowances (plus, in certain cases, 
possession income taxes). In the alternative, the taxpayer may 
elect to apply a limit equal to the applicable percentage of 
the credit that would otherwise be allowable with respect to 
possession business income; the applicable percentage is phased 
down, beginning at 60 percent for 1994 and reaching 40 percent 
for 1998 and thereafter. The amount of the section 936 credit 
attributable to QPSII is not subject to these limitations.
House bill
      The House bill generally repeals the section 936 credit 
for taxable years beginning after December 31, 1995. However, a 
corporation that is an existing credit claimant is eligible to 
claim section 936 credits for an additional 10 years under a 
grandfather rule.
      A corporation is an existing credit claimant if it 
claimed the section 936 credit for any of its base period years 
(as defined below). A corporation that adds a substantial new 
line of business after September 13, 1995, ceases to be an 
existing credit claimant as of the beginning of the taxable 
year in which it adds such new line of business. A corporation 
that is an existing credit claimant is eligible to claim 
credits during the grandfather period with respect to 
operations in any possession.
      The corporation's possession income eligible for the 
section 936 credit for each year in the grandfather period is 
subject to a cap computed based on the corporation's possession 
income for the base period years (``average adjusted base 
period possession income''). A corporation's possession income 
equals the sum of its possession business income and QPSII. 
Average adjusted base period possession income is the average 
of the adjusted possession income for each of the corporation's 
base period years. For purposes of this computation, the 
possession income for each of the base period years is adjusted 
by an inflation factor reflecting inflation from such year to 
the year to which the cap is being applied. In addition, as a 
proxy for real growth in income throughout the base period, the 
inflation factor is increased by 5 percentage points compounded 
for each year from such year to the corporation's first taxable 
year beginning on or after September 13, 1995.
      The corporation's base period years generally are 3 of 
the corporation's 5 most recent taxable years ending before 
September 13, 1995, determined by disregarding the years in 
which such adjusted possession incomes were highest and lowest. 
For this purpose, only years in which the corporation had 
significant possession income are taken into account. A 
corporation is considered to have significant possession income 
for a taxable year if such income exceeds 2% of the 
corporation's possession income for each of the 6 taxable years 
ending with the first taxable year ending on or after September 
13, 1995. If the corporation has significant possession income 
for only 4 of the 5 most recent taxable years ending before 
September 13, 1995, then the base period years are determined 
by disregarding the year in which the corporation's possession 
income was lowest. If the corporation has significant 
possession income for only 3 years or fewer of such 5 years, 
then the base period years are all such years. If there is no 
year of such 5 years in which the corporation has significant 
possession income, then the corporation may use as its base 
period its first taxable year ending on or after September 13, 
1995; for this purpose, the amount of possession income taken 
into account is the annualized amount of such income for the 
portion of the year ended August 31, 1995, adjusted for 
inflation. As an alternative, a corporation may elect to use as 
its base period its taxable year ending in 1992.
      If a corporation's possession income for a year during 
the grandfather period exceeds its income cap, then the 
corporation's possession income for purposes of computing its 
section 936 credit is an amount equal to the cap. The reduction 
in the corporation's income to the amount of the cap is 
allocated between its possession business income and its QPSII 
for the year to which the cap is being applied based on the 
relative amounts of the corporation's possession business 
income and QPSII for such year. In determining the 
corporation's section 936 credit, the economic activity limit 
or applicable percentage limit is applied to the corporation's 
possession business income as reduced to reflect the 
application of the cap.
      Effective date.--The provision in the House bill is 
effective for taxable years beginning after December 31, 1995.
Senate amendment
      The Senate amendment also generally repeals the section 
936 credit for taxable years beginning after December 31, 1995. 
However, a corporation that is an existing credit claimant with 
respect to a possession is eligible to claim section 936 
credits for a transition period under a grandfather rule.
      A corporation is an existing credit claimant with respect 
to a particular possession if it is engaged in the active 
conduct of business in such possession on October 13, 1995, and 
it has elected the benefits of section 936 for its taxable year 
that includes such date. A corporation is treated as engaged in 
the active conduct of a business on such date if it is engaged 
in such active conduct before January 1, 1996, and it has a 
binding contract with respect to such business on October 13, 
1995. A corporation that adds a substantial new line of 
business after October 13, 1995, ceases to be an existing 
credit claimant with respect to such possession as of the 
beginning of the taxable year in which it adds such new line of 
business. A corporation that is an existing credit claimant 
with respect to a possession (or possessions) is eligible to 
claim credits during the grandfather period only with respect 
to operations in such possession (or possessions).
      The length of the grandfather period depends upon the 
type of income with respect to which the section 936 credit is 
being claimed. The grandfather period for the section 936 
credit attributable to business income is six years, with the 
section 936 credit attributable to business income eliminated 
for taxable years beginning after December 31, 2001. The 
computation of the section 936 credit attributable to 
possession business income during the grandfather period 
depends upon whether the corporation has in effect an election 
to use the applicable percentage limit. For corporations using 
the economic activity limit, present law continues to apply in 
computing the section 936 credit attributable to possession 
business income throughout the grandfather period. For 
corporations using the applicable percentage limit, present law 
continues to apply in computing the section 936 credit 
attributable to possession business income through the taxable 
year beginning in 1998. For taxable years beginning in 1999 
through 2001, the section 936 credit attributable to possession 
business income (determined under the applicable percentage 
limit) is limited to the following percentage of the amount 
otherwise determined: for 1999, 75 percent; for 2000, 50 
percent; and for 2001, 25 percent. A corporation that elected 
to use the applicable percentage limit is permitted to revoke 
such election, provided that the revocation is made not later 
than with respect to the corporation's first taxable year 
beginning after December 31, 1996.
      The grandfather period for the section 936 credit 
attributable to QPSII is five years, with the section 936 
credit attributable to QPSII eliminated for taxable years 
beginning after December 31, 2000. For taxable years during the 
grandfather period, the section 936 credit attributable to 
QPSII is available only for income derived from a qualifying 
asset (provided that such income would otherwise qualify as 
QPSII under present law). A qualifying asset is an asset held 
by the corporation on October 13, 1995, or an asset that was 
purchased through the rollover of the proceeds of such an asset 
or its successor assets. For taxable years beginning in 1996 
through 2000, income that would otherwise qualify as QPSII and 
that is derived from a qualifying asset is eligible for the 
section 936 credit attributable to QPSII only through the date 
that the asset, if distributed, would be eligible for the 
maximum reduction in local taxes (as determined under local law 
in effect on October 13, 1995).
      Under the Senate amendment, a special grandfather rule 
applies to corporations that are existing credit claimants with 
respect to Guam, American Samoa or the Commonwealth of the 
Northern Mariana Islands. A corporation that is an existing 
credit claimant with respect to such a possession continues to 
determine its section 936 credit with respect to operations in 
such possession under present law for its taxable years 
beginning before January 1, 2006.
      Effective date.--The provision in the Senate amendment is 
effective on date of enactment.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment with modifications and clarifications. The 
conference agreement generally repeals the section 936 credit 
for taxable years beginning after December 31, 1995. However, 
the conference agreement provides grandfather rules under which 
a corporation that is an existing credit claimant is eligible 
to claim section 936 credits for a transition period. As under 
the Senate amendment, a special transition rule applies to the 
section 936 credit attributable to operations in Guam, American 
Samoa, and the Commonwealth of the Northern Mariana Islands.
      For taxable years beginning after December 31, 1995, the 
section 936 credit applies only to a corporation that qualifies 
as an existing credit claimant (as defined below). A 
corporation that is an existing credit claimant is subject to 
the limitations described below in determining the section 936 
credit for taxable years beginning after December 31, 1995.
      The section 936 credit attributable to QPSII is 
eliminated for taxable years beginning after December 31, 1995. 
For taxable years beginning after December 31, 1995, the 
section 936 credit is available only with respect to possession 
business income. The computation of the section 936 credit 
attributable to possession business income during the 
grandfather period depends upon whether the corporation is 
using the economic activity limit or the applicable percentage 
limit.
      For corporations that are existing credit claimants and 
that use the economic activity limit, the section 936 credit 
attributable to possession business income (determined under 
the economic activity limit) continues to be determined as 
under present law for taxable years beginning after December 
31, 1995 and before January 1, 2002. For taxable years 
beginning after December 31, 2001 and before January 1, 2006, 
the corporation's possession business income that is eligible 
for the section 936 credit is subject to a cap computed as 
described below. For taxable years beginning in 2006 and 
thereafter, the section 936 credit attributable to possession 
business income (determined under the economic activity limit) 
is eliminated.
      For corporations that are existing credit claimants and 
that elected to use the applicable percentage limit and not to 
use the economic activity limit, the section 936 credit 
attributable to possession business income continues to be 
determined as under present law for taxable years beginning 
after December 31, 1995 and before January 1, 1998. For taxable 
years beginning after December 31, 1997 and before January 1, 
2006, the corporation's possession business income that is 
eligible for the section 936 credit is subject to a cap 
computed as described below. For taxable years beginning in 
2006 and thereafter, the section 936 credit attributable to 
possession business income (determined under the applicable 
percentage limit) is eliminated.
      A corporation that had elected to use the applicable 
percentage limit is permitted to revoke that election under 
present law. Under the conference agreement, as under the 
Senate amendment, such a revocation must be made not later than 
with respect to the first taxable year beginning after December 
31, 1996; such revocation, if made, applies to such taxable 
year and to all subsequent taxable years. Accordingly, a 
corporation that had an election in effect to use the 
applicable percentage limit could revoke such election 
effective for its taxable year beginning in 1997 and 
thereafter; such corporation would continue to use the 
applicable percentage limit for its taxable year beginning in 
1996 and would use the economic activity limit for its taxable 
year beginning in 1997 and thereafter.
      The cap on a corporation's possession business income 
that is eligible for the section 936 credit is computed based 
on the corporation's possession business income for the base 
period years (``average adjusted base period possession 
business income''). Average adjusted base period possession 
business income is the average of the adjusted possession 
business income for each of the corporation's base period 
years. For the purpose of this computation, the corporation's 
possession business income for a base period year is adjusted 
by an inflation factor that reflects inflation from such year 
to 1995. In addition, as a proxy for real growth in income 
throughout the base period, the inflation factor is increased 
by 5 percentage points compounded for each year from such year 
to the corporation's first taxable year beginning on or after 
October 14, 1995.
      The corporation's base period years generally are three 
of the corporation's five most recent years ending before 
October 14, 1995, determined by disregarding the taxable years 
in which the adjusted possession business incomes were highest 
and lowest. For purposes of this computation, only years in 
which the corporation had significant possession business 
income are taken into account. A corporation is considered to 
have significant possession business income for a taxable year 
if such income exceeds 2 percent of the corporation's 
possession business income for the each of the six taxable 
years ending with the first taxable year ending on or after 
October 14, 1995. If the corporation has significant possession 
business income for only four of the five most recent taxable 
years ending before October 14, 1995, the base period years are 
determined by disregarding the year in which the corporation's 
possession business income was lowest. If the corporation has 
significant possession business income for three years or fewer 
of such five years, then the base period years are all such 
years. If there is no year of such five taxable years in which 
the corporation has significant possession business income, 
then the corporation may use as its base period its first 
taxable year ending on or after October 14, 1995; for this 
purpose, the amount of possession business income taken into 
account would be the annualized amount of such income for the 
portion of the year ended September 30, 1995.
      As one alternative, the corporation may elect to use its 
taxable year ending in 1992 as its base period (with the 
adjusted possession business income for such year constituting 
its cap). As another alternative, the corporation may elect to 
use as its cap the annualized amount of its possession business 
income for the first ten months of calendar year 1995, 
calculated by excluding any extraordinary items (as determined 
under generally accepted accounting principles) for such 
period. For this purpose, the conferees intend that 
transactions with a related party that are not in the ordinary 
course of business will be considered to be extraordinary 
items.
      If a corporation's possession business income in a year 
for which the cap is applicable exceeds the cap, then the 
corporation's possession business income for purposes of 
computing its section 936 credit for the year is an amount 
equal to the cap. The corporation's section 936 credit 
continues to be subject to either the economic activity limit 
or the applicable percentage limit, with such limit applied to 
the corporation's possession business income as reduced to 
reflect the application of the cap.
      A corporation is an existing credit claimant if (1) the 
corporation is engaged in the active conduct of a trade or 
business within a possession on October 13, 1995, and (2) the 
corporation has elected the benefits of section 936 pursuant to 
an election which is in effect for its taxable year that 
includes October 13, 1995. A corporation that adds a 
substantial new line of business after October 13, 1995, ceases 
to be an existing credit claimant as of the beginning of the 
taxable year during which such new line of business is added.
      For purposes of these rules, a corporation is treated as 
engaged in the active conduct of a trade or business within a 
possession on October 13, 1995, if such corporation is engaged 
in the active conduct of such trade or business before January 
1, 1996, and such corporation has in effect on October 13, 
1995, a binding contract for the acquisition of assets to be 
used in, or the sale of property to be produced in, such trade 
or business. For example, if a corporation has in effect on 
October 13, 1995, binding contracts for the lease of a facility 
and the purchase of machinery to be used in a manufacturing 
business in a possession and if the corporation begins actively 
conducting that manufacturing business in the possession before 
January 1, 1996, that corporation is an existing credit 
claimant. A change in the ownership of a corporation will not 
affect its status as an existing credit claimant.
      In determining whether a corporation has added a 
substantial new line of business, the conferees intend that 
principles similar to those reflected in Treas. Reg. section 
1.7704-2(d) (relating to the transition rules for existing 
publicly traded partnerships) will apply. For example, a 
corporation that modifies its current production methods, 
expands existing facilities, or adds new facilities to support 
the production of its current product lines and products within 
the same four-digit Industry Number Standard Industrial 
Classification Code (Industry SIC Code) will not be considered 
to have added a substantial new line of business. In this 
regard, the conferees intend that the fact that a business 
which is added is assigned a different four-digit Industry SIC 
Code than is assigned to an existing business of the 
corporation will not automatically cause the corporation to be 
considered to have added a new line of business. For example, a 
pharmaceutical corporation that begins manufacturing a new drug 
will not be considered to have added a new line of business. 
Moreover, a pharmaceutical corporation that begins to 
manufacture a complete product from the bulk active chemical 
through the finished dosage form, a process that may be 
assigned two separate four-digit Industry SIC Codes, will not 
be considered to have added a new line of business even though 
it was previously engaged in activities that involved only a 
portion of the entire manufacturing process from bulk chemicals 
to finished dosages.
      A special transition rule applies to the section 936 
credit with respect to operations in Guam, American Samoa, and 
the Commonwealth of the Northern Mariana Islands. Income 
attributable to operations in these possessions is not taken 
into account in computing the income cap described above. A 
corporation is considered to be an existing credit claimant 
with respect to one of these possessions if the corporation is 
an existing credit claimant and is engaged in the active 
conduct of a trade or business within such possession on 
October 13, 1995 (or is treated as so engaged under the binding 
contract rule described above). For any taxable year beginning 
after December 31, 1995, a corporation that is not an existing 
credit claimant with respect to one of these possessions for 
such year is not entitled to the section 936 credit with 
respect to operations in such possession. For any taxable year 
beginning after December 31, 1995, and before January 1, 2006, 
a corporation that is an existing credit claimant with respect 
to one of these possessions for such year continues to 
determine its section 936 credit with respect to operations in 
such possession as under present law. For taxable years 
beginning in 2006 and thereafter, the section 936 credit with 
respect to operations in Guam, American Samoa, and the 
Commonwealth of the Northern Mariana Islands is eliminated.

 6. corporate accounting--reform of income forecast method (sec. 13604 
       of the house bill and sec. 12806 of the senate amendment)

Present law
      A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through allowances for depreciation or amortization. The cost 
of a film, video tape, or similar property that is produced by 
the taxpayer or is acquired on a ``stand-alone'' basis by the 
taxpayer may not be recovered pursuant to either the general 
depreciation provisions of section 168 or the intangible 
amortization provisions of section 197. The cost of such 
property may be depreciated under the ``income forecast'' 
method. The income forecast method also has been held to be 
applicable for computing depreciation deductions for television 
shows, books, patents, master sound recordings and video games.
      Under the income forecast method, the depreciation 
deduction for a taxable year for a property is determined by 
multiplying the cost of the property (less estimated salvage 
value) by a fraction, the numerator of which is the income 
generated by the property during the year and the denominator 
of which is the total forecasted or estimated income to be 
derived from the property during its useful life. The total 
forecasted or estimated income to be derived from a property is 
to be based on the conditions known to exist at the end of the 
period for which depreciation is claimed. This estimate can be 
revised upward or downward at the end of a subsequent taxable 
period based on additional information that becomes available 
after the last prior estimate. These revisions, however, do not 
affect the amount of depreciation claimed in a prior taxable 
year.
      In the case of a film, income to be taken into account 
under the income forecast method means income from the film 
less the expense of distributing the film, including estimated 
income from foreign distribution or other exploitation of the 
film. In the case of a motion picture released for theatrical 
exhibition, income does not include estimated income from 
future television exhibition of the film (unless an arrangement 
for domestic television exhibition has been entered into before 
the film has been depreciated to its reasonable salvage value). 
In the case of a series or a motion picture produced for 
television exhibition, income does not include estimated income 
from domestic syndication of the series or the film (unless an 
arrangement for syndication has been entered into before the 
series or film has been depreciated to its reasonable salvage 
value). The Internal Revenue Service also has ruled that income 
does not include net merchandising revenue received from the 
exploitation of film characters.
House bill
      The House bill makes several amendments to the income 
forecast method of determining depreciation deductions.
      First, the House bill provides that income to be taken 
into account under the income forecast method includes all 
estimated income derived from use of the property. In the case 
of a film, television show, or similar property, such income 
includes, but would not necessarily be limited to, income from 
foreign and domestic theatrical, television, and other releases 
and syndications; video tape releases, sales, rentals, and 
syndications; and the exploitation of film or program 
characters, prints, scripts, and scores. Pursuant to a special 
rule, if a taxpayer produces a television series and initially 
does not anticipate syndicating the episodes from the series, 
the forecasted income for the episodes of the first three years 
of the series need not take into account any future syndication 
fees (unless the taxpayer reasonably anticipates syndicating 
such episodes during such period).
      In addition, the cost of property subject to depreciation 
only includes amounts that satisfy the economic performance 
standard of section 461(h). Any costs that are taken into 
account after the property is placed in service are treated as 
a separate piece of property to the extent (1) such amounts are 
significant and are expected to give rise to a significant 
increase in the income from the property that was not included 
in the estimated income from the property, or (2) such costs 
are incurred more than 10 years after the property was placed 
in service. Except as provided in regulations, any costs that 
are not recovered by the end of the tenth taxable year after 
the property was placed in service may be taken into account as 
depreciation in such year.
      Further, taxpayers that claim depreciation deductions 
under the income forecast method are required to pay (or would 
receive) interest based on the recalculation of depreciation 
under a ``look-back'' method. The ``look-back'' method is 
applied in any ``recomputation year'' by: (1) comparing 
depreciation deductions that had been claimed in prior periods 
to depreciation deductions that would have been claimed had the 
taxpayer used actual, rather than estimated, total income from 
the property; (2) determining the hypothetical overpayment or 
underpayment of tax based on this recalculated depreciation; 
and (3) applying the overpayment rate of section 6621. Except 
as provided in regulations, a ``recomputation year'' would be 
the third and tenth taxable year after the taxable year the 
property was placed in service unless the actual income from 
the property for each taxable year ending with or before the 
close of such years was within 10 percent of the estimated 
income from the property for such years. The Secretary of the 
Treasury has the authority to allow a taxpayer to delay the 
initial application of the look-back method where the taxpayer 
may be expected to have significant income from the property 
after the third taxable year after the taxable year the 
property was placed in service (e.g., the Treasury Secretary 
may exercise such authority where the depreciable life of the 
property is expected to be longer than three years). In 
applying the look-back method, any cost that is taken into 
account after the property was placed in service may be taken 
into account by discounting (using the Federal mid-term rate 
determined under sec. 1274(d) as of the time the costs were 
taken into account) such cost to its value as of the date the 
property was placed in service. Property with an adjusted basis 
of $100,000 or less when the property was placed in service is 
not subject to the look-back method.
      Effective date.--The provision is effective for property 
placed in service after September 13, 1995, unless placed in 
service pursuant to a binding written contract in effect before 
such date and all times thereafter.
Senate amendment
      The Senate amendment follows the House bill, with certain 
modifications.
      First, the Senate amendment provides that estimated 
income to be taken into account under the income forecast 
method includes all income earned in connection with the 
property before the close of the tenth taxable year following 
the taxable year in which the property was placed in service. 
This 11-year rule also will apply for purposes of the look-back 
method.
      Second, income from the exploitation of characters is 
expected to be limited to income from licensing and similar 
agreements with third parties and sales of tangible property 
incorporating such characters.
      Third, the special rule that applies to the syndication 
of a television series will apply such that the forecasted 
income for the episodes of the first three years of the series 
need not take into account any future syndication fees (unless 
the taxpayer has an arrangement to syndicate such episodes 
during such period).
      Fourth, the Senate amendment clarifies the application of 
the economic performance standard of section 461(h).
      Effective date.--Same as the House bill.
Conference agreement
      The conference agreement follows the Senate amendment, 
with the following modifications.
      The conference agreement provides that estimated income 
to be taken into account under the income forecast method 
includes all income earned before the close of the tenth 
taxable year following the taxable year in which the property 
was placed in service in connection with the ultimate use of 
the property by, or the ultimate sale of merchandise to, 
unrelated parties (as defined in sec. 267(b)). This rule also 
will apply for purposes of the look-back method. The conferees 
wish to clarify that the Secretary of the Treasury has the 
authority to issue regulations that provide anti-abuse rules to 
address the improper timing of earnings.
      The conferees also wish to clarify that income earned by 
a taxpayer in connection with a property subject to the income 
forecast method does not include income earned from a related 
party. However, certain income earned by the related party from 
unrelated persons in connection with the property must be taken 
into account by the taxpayer. For example, if a taxpayer 
licenses the use of property subject to the income forecast 
method to a member of the taxpayer's affiliated group and such 
member sublicenses similar rights to an unrelated third party, 
the licensing agreement between the affiliated members would be 
ignored, and the sublicensing agreement with the unrelated 
third party would be taken into account, for purposes of 
applying the income forecast method to the taxpayer's property. 
In addition, the conferees wish to clarify that, for purposes 
of the income forecast method, the Secretary of the Treasury 
has the authority to allocate properly income under section 482 
or any other applicable present-law provision with respect to 
agreements, arrangements, or transactions between the taxpayer 
and any other related parties.
      Further, the conferees wish to clarify that in applying 
the economic performance rules of section 461(h) in determining 
the cost of property subject to the income forecast method, the 
recurring item exception of section 461(h)(3) shall apply in a 
manner similar to the way such exception applies under present 
law. Thus, expenditures that relate to an item of property that 
are incurred in the taxable year following the taxable year in 
which the property is placed in service may be taken into 
account in the year the property is placed in service to the 
extent such expenditures meet the recurring item exception for 
such year.

     7. Repeal 50-percent interest income exclusion for financial 
    institution loans to ESOPs (sec. 12807 of the Senate amendment)

Present law
      A bank, insurance company, regulated investment company, 
or a corporation actively engaged in the business of lending 
money may generally exclude from gross income 50 percent of 
interest received on an ESOP loan (sec. 133). The 50-percent 
interest exclusion only applies if: (1) immediately after the 
acquisition of securities with the loan proceeds, the ESOP owns 
more than 50 percent of the outstanding stock or more than 50 
percent of the total value of all outstanding stock of the 
corporation; (2) the ESOP loan term will not exceed 15 years; 
and (3) the ESOP provides for full pass-through voting to 
participants on all allocated shares acquired or transferred in 
connection with the loan.
House bill
      No provision.
Senate amendment
      The Senate amendment repeals the 50-percent interest 
exclusion with respect to ESOP loans.
      Effective date.--The provision generally is effective 
with respect to loans made after October 13, 1995. The repeal 
of the 50-percent interest exclusion does not apply to the 
refinancing of an ESOP loan originally made on or before 
October 13, 1995, provided: (1) such refinancing loan otherwise 
meets the requirements of section 133 in effect on or before 
October 13, 1995; (2) the outstanding principal amount of the 
loan is not increased; and (3) the term of the refinancing loan 
does not extend beyond the term of the original ESOP loan.
Conference agreement
      The conference agreement follows the Senate amendment.

     8. Corporate pension transfers (sec. 13607 of the House bill)

Present law
            In general
      Under present law, defined benefit pension plan assets 
generally may not revert to an employer prior to the 
termination of the plan and the satisfaction of all plan 
liabilities. Any assets that revert to the employer upon such 
termination are includible in the gross income of the employer 
and subject to an excise tax. The rate of the excise tax 
generally is 20 percent and is increased to 50 percent unless 
the employer maintains a replacement plan or makes certain 
benefit increases in connection with the plan termination.
            Transfers from ongoing plans
      Under section 420 of the Code and under the Employee 
Retirement Income Security Act of 1974, as amended (``ERISA'') 
, employers may transfer excess assets in an overfunded defined 
benefit pension plan (other than a multiemployer plan) to pay 
certain retiree health liabilities. The assets transferred are 
not includible in the gross income of the employer and are not 
subject to the excise tax on reversions. The employer is not 
entitled to deduct retiree health benefits paid with 
transferred assets. Any transferred amounts not used for 
retiree health benefits for the year of transfer are required 
to be returned to the pension plan (with earnings). Returned 
amounts are not includible in income and are subject to the 20-
percent excise tax.
            Transfer requirements
      A section 420 transfer is subject to a vesting 
requirement, an asset cushion requirement, and a notice 
requirement.
                Vesting requirement
      Under the vesting requirement, the accrued retirement 
benefits of plan participants (including participants who 
separated from service during the 1-year period ending on the 
date of transfer) must be nonforfeitable as if the plan 
terminated immediately before the transfer.
                Asset cushion requirement
      Under the asset cushion requirement, excess assets are 
defined to be the excess of the value of plan assets over the 
greater of (1) the plan's full funding limit, or (2) 125 
percent of current liability. Excess assets are determined as 
of the most recent plan valuation date preceding the transfer. 
Thus, a transfer can only be made from a plan that is at least 
at the full funding limit and to which deductible employer 
contributions can no longer be made.
                Notice requirement
      An employer is required to notify plan participants 60 
days before a transfer occurs.
            Expiration of provision
      Section 420 was originally adopted for a 5-year period, 
through 1995. It was extended in the implementing legislation 
for the General Agreement on Tariffs and Trade (``GATT'') for 
an additional 5 years, through 2000.
House bill
            Transfers from ongoing plans
      Under the House bill, section 420 is expanded to permit a 
qualified transfer of excess assets from a defined benefit 
pension plan (other than a multiemployer plan) to the employer, 
without limitation on the use of the excess assets. Amounts 
transferred are includible in the gross income of the employer 
and generally subject to a 6.5 percent excise tax. No excise 
tax applies in the case of transfers occurring before July 1, 
1996.
            Transfer requirements
                Vesting requirement
      Same as present law.
                Asset cushion requirement
      Same as present law, except that excess assets are 
determined as of whichever of the following dates results in a 
lower value of excess assets: (1) January 1, 1995, or the last 
plan valuation date preceding January 1, 1995, or (2) the most 
recent plan valuation date preceding the transfer.
                Notice requirement
      Same as present law.
            Expiration of provision
      Same as present law.
            Effective date
      January 1, 1995.
Senate amendment
      No provision. (However, the Senate Finance Committee 
adopted a proposal similar to, but more limited than, the House 
bill. Under that proposal, transfers of excess pension assets 
could have been made to pay for qualified retirement benefits, 
accident and health benefits, disability benefits, educational 
assistance, and dependent care assistance (i.e., broad-based 
ERISA-covered plans). The amount transferred would have been 
includible in the gross income of the employer. No excise tax 
would have applied. The present-law asset cushion would have 
applied. The proposal would have been effective with respect to 
amounts transferred on or after the date of enactment in 
taxable years beginning before January 1, 2002. The proposal 
was deleted by a Senate floor amendment.)
Conference agreement
            In general
      The conference agreement follows the House bill, with 
several modifications. Under the conference agreement, section 
420 is expanded to permit a transfer of excess assets from a 
defined benefit pension plan (other than a multiemployer plan) 
to pay for certain employee benefits that are provided to a 
broad group of employees and regulated under ERISA and the 
Internal Revenue Code. The amount transferred is includible in 
the gross income of the employer, but is not subject to the 
excise tax on reversions. The conference agreement modifies the 
definition of excess assets, both for purposes of transfers 
under present-law section 420, as well as for purposes of the 
transfers allowed under the provision. The conference agreement 
also provides that an employer cannot make a transfer under the 
provision or present law if the employer has filed or has had 
filed against it (as of the date of transfer) a petition 
seeking liquidation in bankruptcy under title 11 of the U.S. 
Code, or under similar State or Federal law. The modifications 
to section 420 are not intended to affect the ability under 
present law to transfer assets within a defined benefit pension 
plan under section 414(k).
            Transfer requirements
                Vesting requirement
      Same as the House bill.
                Asset cushion requirement
       The conference agreement modifies the asset cushion 
requirement both with respect to transfers under present-law 
section 420, as well as with respect to the expanded transfers 
under the provision. Under the provision, excess assets are 
defined as the excess of the value of plan assets over the 
greater of (1) 125 percent of termination liability, or (2) the 
plan's accrued liability. Accrued liability is determined as 
under the full-funding limitation (without regard to the 150 
percent of current liability cap). Termination liability is 
generally defined as under section 414(l) of the Code. However, 
for this purpose, the actuarial assumptions used are those used 
by the Pension Benefit Guaranty Corporation (``PBGC'') for 
single-employer plan termination purposes under title IV of 
ERISA. It is expected that the PBGC will continue to calculate 
its termination liability assumptions under its current 
methodology. Excess assets are determined as of the date of 
transfer.
                Notice requirement
      Same as present law.
                Use of excess assets
      The total amount of excess pension assets which can be 
transferred during any year cannot exceed the amount the 
employer would be able to deduct for the year of transfer 
(determined on a controlled group basis) for qualified employee 
benefits. Qualified employee benefits are defined as qualified 
retirement plan benefits, accident and health benefits, 
disability benefits, educational assistance, and dependent care 
assistance. For example, under the conference agreement, excess 
pension assets can be transferred from an overfunded pension 
plan maintained by an employer to an underfunded pension plan 
maintained by the same employer.
      Transferred amounts (and income thereon) that are not 
used to pay for qualified employee benefits for the year of 
transfer must be returned to the pension plan. Income on 
returned amounts is calculated using the short-term applicable 
Federal rate. Amounts returned are not includible in the gross 
income of the employer, but are subject to the 20-percent 
excise tax on reversions. No deduction is allowed with respect 
to returned amounts (and income thereon).
            Expiration of provision
      Transfers for qualified employee benefits cannot be made 
in taxable years beginning after December 31, 2001.
            Effective date
      The provision is effective with respect to transfers on 
and after the date of enactment, except that the changes with 
respect to transfers under present-law section 420 are 
effective with respect to transfers occurring after December 
31, 1995.

 9. Modify exclusion of damages received on account of personal injury 
or sickness (sec. 13611 of the House bill and sec. 12811 of the Senate 
                               amendment)

Present law
      Under present law, gross income does not include any 
damages received (whether by suit or agreement and whether as 
lump sums or as periodic payments) on account of personal 
injury or sickness (sec. 104(a)(2)).
      The exclusion from gross income of damages received on 
account of personal injury or sickness specifically does not 
apply to punitive damages received in connection with a case 
not involving physical injury or sickness. Courts presently 
differ as to whether the exclusion applies to punitive damages 
received in connection with a case involving a physical injury 
or physical sickness. Certain States provide that, in the case 
of claims under a wrongful death statute, only punitive damages 
may be awarded.
      Courts have interpreted the exclusion from gross income 
of damages received on account of personal injury or sickness 
broadly in some cases to cover awards for personal injury that 
do not relate to a physical injury or sickness. For example, 
some courts have held that the exclusion applies to damages in 
cases involving certain forms of employment discrimination and 
injury to reputation where there is no physical injury or 
sickness. The damages received in these cases generally consist 
of back pay and other awards intended to compensate the 
claimant for lost wages or lost profits. The Supreme Court 
recently held that damages received based on a claim under the 
Age Discrimination in Employment Act could not be excluded from 
income.67 In light of the Supreme Court decision, the 
Internal Revenue Service has suspended existing guidance on the 
tax treatment of damages received on account of other forms of 
employment discrimination.
    \67\ Schleier v. Commissioner, 115 S. Ct. 2159 (1995).
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House bill
            Include in income all punitive damages
      The House bill provides that the exclusion from gross 
income does not apply to any punitive damages received on 
account of personal injury or sickness whether or not related 
to a physical injury or physical sickness. The House bill 
intends no inference as to the application of the exclusion to 
punitive damages received prior to the effective date of the 
bill in connection with a case involving a physical injury or 
physical sickness.
            Include in income damage recoveries for nonphysical 
                    injuries
      The House bill provides that the exclusion from gross 
income only applies to damages received on account of a 
personal physical injury or physical sickness. If an action has 
its origin in a physical injury or physical sickness, then all 
damages (other than punitive damages) that flow therefrom are 
treated as payments received on account of physical injury or 
physical sickness whether or not the recipient of the damages 
is the injured party. For example, damages (other than punitive 
damages) received by an individual on account of a claim for 
loss of consortium due to the physical injury or physical 
sickness of such individual's spouse are excludable from gross 
income. In addition, damages (other than punitive damages) 
received on account of a claim of wrongful death continue to be 
excludable from taxable income as under present law.
      The House bill also specifically provides that emotional 
distress is not considered a physical injury or physical 
sickness. Thus, the exclusion from gross income does not apply 
to any damages received (other than for medical expenses as 
discussed below) based on a claim of employment discrimination 
or injury to reputation accompanied by a claim of emotional 
distress. Because all damages received on account of physical 
injury or physical sickness are excludable from gross income, 
the exclusion from gross income does apply to any damages 
received based on a claim of emotional distress that is 
attributable to a physical injury or physical sickness. In 
addition, the exclusion from gross income specifically does 
apply to the amount of damages received that is not in excess 
of the amount paid for medical care attributable to emotional 
distress.
      Effective date.--The provisions generally are effective 
with respect to amounts received after December 31, 1995. The 
provisions do not apply to amounts received under a written 
binding agreement, court decree, or mediation award in effect 
on (or issued on or before) September 13, 1995.
Senate amendment
      Same as the House bill, except that the exclusion from 
gross income applies to punitive damages received in a wrongful 
death action, provided that the applicable State law (as in 
effect on September 13, 1995 without regard to subsequent 
modification) provides, or has been construed to provide by a 
court decision issued on or before such date, that only 
punitive damages may be awarded in a wrongful death action.
Conference agreement
      The conference agreement follows the Senate amendment, 
except the conference agreement clarifies that the special rule 
contained in the Senate amendment pertaining to punitive 
damages received in a wrongful death action only applies if the 
punitive damages received would have been excludable from gross 
income under the law in effect before February 1, 1996.

10. Reporting of certain payments made to attorneys (sec. 13612 of the 
           House bill and sec. 12812 of the Senate amendment)

Present law
      Information reporting is required by persons engaged in a 
trade or business and making payments in the course of that 
trade or business of ``rent, salaries, wages, . . . or other 
fixed or determinable gains, profits, and income'' (Code sec. 
6041(a)). Treas. Reg. sec. 1.6041-1(d)(2) provides that 
attorney's fees are required to be reported if they are paid by 
a person in a trade or business in the course of a trade or 
business. Reporting is required to be done on Form 1099-Misc. 
If, on the other hand, the payment is a gross amount and it is 
not known what portion is the attorney's fee, no reporting is 
required on any portion of the payment.
House bill
      The House bill requires gross proceeds reporting on all 
payments to attorneys made by a trade or business in the course 
of that trade or business. It is anticipated that gross 
proceeds reporting would be required on Form 1099-B (currently 
used by brokers to report gross proceeds). The only exception 
to this new reporting requirement is for any payments reported 
on either Form 1099-Misc under section 6041 (reports of payment 
of income) or on Form W-2 under section 6051 (payments of 
wages).
      In addition, the present exception in the regulations 
exempting from reporting any payments made to corporations will 
not apply to payments made to attorneys. Treas. Reg. sec. 
1.6041-3(c) exempts payments to corporations generally 
(although payments to most corporations providing medical 
services must be reported). Reporting is required under both 
Code sections 6041 and 6045 (as proposed) for payments to 
corporations that provide legal services. The exception of 
Treas. Reg. sec. 1.6041-3(g) exempting from reporting payments 
of salaries or profits paid or distributed by a partnership to 
the individual partners will continue to apply to both sections 
(since these amounts are required to reported on Form K-1).
      Effective date.--The provision is effective for payments 
made after December 31, 1995. Consequently, the first 
information reports will be filed with the IRS (and copies will 
be provided to recipients of the payments) in 1997, with 
respect to payments made in 1996.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment, with several clarifications. First, the 
conferees clarify that the provision applies to payments made 
to attorneys regardless of whether the attorney is the 
exclusive payee. Second, the conferees clarify that payments to 
law firms are payments to attorneys, and therefore are subject 
to this reporting provision. Third, the conferees clarify that 
attorneys must promptly supply their TINs to persons required 
to file these information reports, pursuant to section 6109. 
Failure to do so could result in the attorney being subject to 
penalty under section 6723 and the payments being subject to 
backup withholding under section 3406. Fourth, the conferees 
clarify their intent that the IRS administer this provision so 
that there is no overlap between reporting under section 6041 
and reporting under section 6045. For example, if two payments 
are simultaneously made to an attorney, one of which represents 
the attorney's fee and the second of which represents the 
settlement with the attorney's client, the first payment will 
be reported under section 6041 and the second payment will not 
be reported under either section 6041 or section 6045, since it 
is known that the entire payment represents the settlement with 
the client (and therefore no portion of it represents income to 
the attorney).
      Effective date.--The provision is effective for payments 
made after December 31, 1996. Consequently, the first 
information reports will be filed with the IRS (and copies will 
be provided to recipients of the payments) in 1998, with 
respect to payments made in 1997.

 11. Expatriation tax provisions (secs. 13616-13618 of the House bill 
             and secs. 12441-12442 of the Senate amendment)

Present law
      Individuals who relinquish U.S. citizenship with a 
principal purpose of avoiding U.S. taxes are subject to special 
tax provisions for 10 years after expatriation. The 
determination of who is a U.S. citizen for tax purposes, and 
when such citizenship is lost, is governed by the provisions of 
the Immigration and Nationality Act, 8 U.S.C. section 1401, et. 
seq.
      An individual who relinquishes his U.S. citizenship with 
a principal purpose of avoiding U.S. taxes is subject to tax on 
his or her U.S. source income at the rates applicable to U.S. 
citizens, rather than the rates applicable to other non-
resident aliens, for 10 years after expatriation. In addition, 
the scope of items treated as U.S. source income for this 
purpose is broader than those items generally considered to be 
U.S. source income. For example, gains on the sale of personal 
property located in the United States and gains on the sale or 
exchange of stock or securities issued by U.S. persons are 
treated as U.S. source income. This alternative method of 
income taxation applies only if it results in a higher U.S. tax 
liability.
      Rules applicable in the estate and gift tax contexts 
expand the categories of items that are subject to the gift and 
estate taxes in the case of a U.S. citizen who relinquished 
citizenship with a principal purpose of avoiding U.S. taxes 
within the 10-year period ending on the date of the transfer. 
For example, U.S. property held through a foreign corporation 
controlled by such individual and related persons is included 
in his or her estate and gifts of U.S.-situs intangible 
property by such individual are subject to the gift tax.
House bill
            Overview
      The House bill expands and substantially strengthens in 
several ways the present-law provisions that subject U.S. 
citizens who lose their citizenship for tax avoidance purposes 
to special tax rules for 10 years after such loss of 
citizenship (secs. 877, 2107, and 2501(a)(3)). First, the House 
bill extends the expatriation tax provisions to apply not only 
to U.S. citizens who lose their citizenship but also to certain 
long-term residents of the United States whose U.S. residency 
is terminated. Second, the House bill subjects certain 
individuals to the expatriation tax provisions without inquiry 
as to their motive for losing their U.S. citizenship or 
residency, but allows certain categories of citizens to show an 
absence of tax-avoidance motives if they request a ruling from 
the Secretary of the Treasury as to whether the loss of 
citizenship had a principal purpose of tax avoidance. Third, 
the House bill expands the categories of income and gains that 
are treated as U.S. source (and therefore subject to U.S. 
income tax under section 877) if earned by an individual who is 
subject to the expatriation tax provisions and includes 
provisions designed to eliminate the ability to engage in 
certain transactions that under current law partially or 
completely circumvent the 10-year reach of section 877. 
Further, the House bill provides relief from double taxation in 
circumstances where another country imposes tax on items that 
would be subject to U.S. tax under the expatriation tax 
provisions.
      The House bill also contains provisions to enhance 
compliance with the expatriation tax provisions. The House bill 
imposes information reporting obligations on U.S. citizens who 
lose their citizenship and long-term residents whose U.S. 
residency is terminated at the time of expatriation. In 
addition, the House bill directs the Treasury Department to 
undertake a study regarding compliance by individuals living 
abroad with their U.S. tax reporting obligations and to make 
recommendations with respect to improving such compliance.
            Individuals covered
      The present-law expatriation tax provisions apply only to 
certain U.S. citizens who lose their citizenship. The House 
bill extends these expatriation tax provisions to apply also to 
long-term residents of the United States whose U.S. residency 
is terminated. For this purpose, a long-term resident is any 
individual who was a lawful permanent resident of the United 
States for at least 8 out of the 15 taxable years ending with 
the year in which such termination occurs. In applying this 8-
year test, an individual is not considered to be a lawful 
permanent resident for any year in which the individual is 
taxed as a resident of another country under a treaty tie-
breaker rule. An individual's U.S. residency is considered to 
be terminated when either the individual ceases to be a lawful 
permanent resident pursuant to section 7701(b)(6) (i.e., the 
individual loses his or her green-card status) or the 
individual is treated as a resident of another country under a 
tie-breaker provision of a tax treaty (and the individual does 
not elect to waive the benefits of such treaty). Furthermore, a 
long-term resident may elect to use the fair market value basis 
of property on the date the individual became a U.S. resident 
(rather than the property's historical basis) to determine the 
amount of gain subject to the expatriation tax provisions if 
the asset is sold within the 10-year period.
      Under present law, the expatriation tax provisions are 
applicable to a U.S. citizen who loses his or her citizenship 
unless such loss did not have as a principal purpose the 
avoidance of taxes. Under the House bill, U.S. citizens who 
lose their citizenship and long-term residents whose U.S. 
residency is terminated are generally treated as having lost 
such citizenship or terminated such residency with a principal 
purpose of the avoidance of taxes if either: (1) the 
individual's average annual U.S. Federal income tax liability 
for the 5 taxable years ending before the date of such loss or 
termination is greater than $100,000 (the ``tax liability 
test''), or (2) the individual's net worth as of the date of 
such loss or termination is $500,000 or more (the ``net worth 
test''). The dollar amount thresholds contained in the tax 
liability test and the net worth test are indexed for inflation 
in the case of a loss of citizenship or termination of 
residency occurring in any calendar year after 1996. An 
individual who falls below the thresholds specified in both the 
tax liability test and the net worth test is subject to the 
expatriation tax provisions unless the individual's loss of 
citizenship or termination of residency did not have as a 
principal purpose the avoidance of tax (as under present law in 
the case of U.S. citizens).
      A U.S. citizen, who loses his or her citizenship and who 
satisfies either the tax liability test or the net worth test, 
is not subject to the expatriation tax provisions if such 
individual can demonstrate that he or she did not have a 
principal purpose of tax avoidance and the individual is within 
one of the following categories: (1) the individual was born 
with dual citizenship and retains only the non-U.S. 
citizenship; (2) the individual becomes a citizen of the 
country in which the individual, the individual's spouse, or 
one of the individual's parents, was born; (3) the individual 
was present in the United States for no more than 30 days 
during any year in the 10-year period immediately preceding the 
date of his or her loss of citizenship; (4) the individual 
relinquishes his or her citizenship before reaching age 18\1/
2\; or (5) any other category of individuals prescribed by 
Treasury regulations. In all of these situations, the 
individual would have been subject to tax on his or her 
worldwide income (as are all U.S. citizens) until the time of 
expatriation. In order to qualify for one of these exceptions, 
the former U.S. citizen must, within one year from the date of 
loss of citizenship, submit a ruling request for a 
determination by the Secretary of the Treasury as to whether 
such loss had as one of its principal purposes the avoidance of 
taxes. A former U.S. citizen who submits such a ruling request 
is entitled to challenge an adverse determination by the 
Secretary of the Treasury. However, a former U.S. citizen who 
fails to submit a timely ruling request is not eligible for 
these exceptions. It is expected that in making a determination 
as to the presence of a principal purpose of tax avoidance, the 
Secretary of the Treasury will take into account factors such 
as the substantiality of the former citizen's ties to the 
United States (including ownership of U.S. assets) prior to 
expatriation, the retention of U.S. citizenship by the former 
citizen's spouse, and the extent to which the former citizen 
resides in a country that imposes little or no tax.
      The foregoing exceptions are not available to long-term 
residents whose U.S. residency is terminated. However, the 
House bill authorizes the Secretary of the Treasury to 
prescribe regulations to exempt certain categories of long-term 
residents from the House bill's provisions.
            Items subject to section 877
      Under section 877, an individual covered by the 
expatriation tax provisions is subject to tax on U.S. source 
income and gains for a 10-year period after expatriation at the 
graduated rates applicable to U.S. citizens.68 The tax 
under section 877 applies to U.S. source income and gains of 
the individual for the 10-year period, without regard to 
whether the property giving rise to such income or gains was 
acquired before or after the date the individual became subject 
to the expatriation tax provisions. For example, a U.S. citizen 
who inherits an appreciated asset immediately before losing 
citizenship and disposes of the asset immediately after such 
loss would not recognize any taxable gain on such disposition 
(because of the date of death fair market value basis accorded 
to inherited assets), but the individual would continue to be 
subject to tax under section 877 on the income or gain derived 
from any U.S. property acquired with the proceeds from such 
disposition.
    \68\ Under present law, all nonresident aliens (including 
expatriates) are subject to U.S. income tax at graduated rates on 
certain types of income. Such income includes income effectively 
connected with a U.S. trade or business and gains from the disposition 
of interests in U.S. real property. For example, compensation 
(including deferred compensation) paid with respect to services 
performed in the United States is subject to such tax. Thus, under 
current law, a U.S. citizen who earns a stock option while employed in 
the United States and delays the exercise of such option until after 
such individual loses his or her citizenship is subject to U.S. tax on 
the compensation income recognized upon exercise of the stock option 
(even if the stock received upon the exercise is stock in foreign 
corporation).
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      In addition, section 877 currently recharacterizes as 
U.S. source income certain gains of individuals who are subject 
to the expatriation tax provisions, thereby subjecting such 
individuals to U.S. income tax on such gains. Under this rule, 
gain on the sale or exchange of stock of a U.S. corporation or 
debt of a U.S. person is treated as U.S. source income. In this 
regard, under current law, the substitution of a foreign 
obligor for a U.S. obligor is generally treated as a taxable 
exchange of the debt instrument, and therefore any gain on such 
exchange is subject to tax under section 877. The House bill 
extends this recharacterization to income and gains derived 
from property obtained in certain transactions on which gain or 
loss is not recognized under present law. An individual covered 
by section 877 who exchanges property that would produce U.S. 
source income for property that would produce foreign source 
income is required to recognize immediately as U.S. source 
income any gain on such exchange (determined as if the property 
had been sold for its fair market value on such date). To the 
extent gain is recognized under this provision, the property 
would be accorded the step-up in basis provided under current 
law. This rule requiring immediate gain recognition does not 
apply if the individual enters into an agreement with the 
Secretary of the Treasury specifying that any income or gains 
derived from the property received in the exchange during the 
10-year period after the loss of citizenship (or termination of 
U.S. residency, as applicable) would be treated as U.S. source 
income. Such a gain recognition agreement terminates if the 
property transferred in the exchange is disposed of by the 
acquiror, and any gain that had not been recognized by reason 
of such agreement is recognized as U.S. source as of such date. 
It is expected that a gain recognition agreement would be 
entered into not later than the due date for the tax return for 
the year of the exchange. In this regard, the Secretary of the 
Treasury is authorized to issue regulations providing similar 
treatment for nonrecognition transactions that occur within 5 
years immediately prior to the date of loss of citizenship (or 
termination of U.S. residency, as applicable).
      The Secretary of the Treasury is authorized to issue 
regulations to treat removal of tangible personal property from 
the United States, and other circumstances that result in a 
conversion of U.S. source income to foreign source income 
without recognition of any unrealized gain, as exchanges for 
purposes of computing gain subject to section 877. The taxpayer 
may defer the recognition of the gain if he or she enters into 
a gain recognition agreement as described above. For example, a 
former citizen who removes appreciated artwork that he or she 
owns from the United States could be subject to immediate tax 
on the appreciation under this provision unless the individual 
enters into a gain recognition agreement.
      The foregoing rules regarding the treatment under section 
877 of nonrecognition transactions are illustrated by the 
following examples: Ms. A loses her U.S. citizenship on January 
1, 1996, and is subject to section 877. On June 30, 1997, Ms. A 
transfers the stock she owns in a U.S. corporation, USCo, to a 
wholly-owned foreign corporation, FCo, in a transaction that 
qualifies for tax-free treatment under section 351. At the time 
of such transfer, A's basis in the stock of USCo is $100,000 
and the fair market value of the stock is $150,000. Under 
present law, Ms. A. would not be subject to U.S. tax on the 
$50,000 of gain realized on the exchange. Moreover, Ms. A would 
not be subject to U.S. tax on any distribution of the proceeds 
from a subsequent disposition of the USCo stock by FCo. Under 
the House bill, if Ms. A does not enter into a gain recognition 
agreement with the Secretary of the Treasury, Ms. A would be 
deemed to have sold the USCo stock for $150,000 on the date of 
the transfer, and would be subject to U.S. tax in 1997 on the 
$50,000 of gain realized. Alternatively, if Ms. A enters into a 
gain recognition agreement, she would not be required to 
recognize for U.S. tax purposes in 1997 the $50,000 of gain 
realized upon the transfer of the USCo stock to FCo. However, 
under the gain recognition agreement, for the 10-year period 
ending on December 31, 2005, any income (e.g., dividends) or 
gain with respect to the FCo stock would be treated as U.S. 
source, and therefore Ms. A would be subject to tax on such 
income or gain under section 877. If FCo disposes of the USCo 
stock on January 1, 2002, Ms. A's gain recognition agreement 
would terminate on such date, and Ms. A would be required to 
recognize as U.S. source income at that time the $50,000 of 
gain that she previously deferred under the gain recognition 
agreement. (The amount of gain required to be recognized by Ms. 
A in this situation would not be affected by any changes in the 
value of the USCo stock since her June 30, 1997 transfer of 
such stock to FCo.)
      The House bill also extends the recharacterization rules 
of section 877 to treat as U.S. source any income and gains 
derived from stock in a foreign corporation if the individual 
losing citizenship or terminating residency owns, directly or 
indirectly, more than 50 percent of the vote or value of the 
stock of the corporation on the date of such loss or 
termination or at any time during the 2 years preceding such 
date. Such income and gains are recharacterized as U.S. source 
only to the extent of the amount of earnings and profits 
attributable to such stock earned or accumulated prior to the 
date of loss of citizenship (or termination of residency, as 
applicable) and while such ownership requirement is satisfied.
      The following example illustrates this rule: Mr. B loses 
his U.S. citizenship on July 1, 1996 and is subject to section 
877. Mr. B has owned all of the stock of a foreign corporation, 
FCo, since its incorporation in 1991. As of FCo's December 31, 
1995 year-end, FCo has accumulated earnings and profits of 
$500,000. FCo has earnings and profits of $100,000 for 1996 and 
does not have any subpart F income (as defined in sec. 952). 
FCo makes a $100,000 distribution to Mr. B in each of 1997 and 
1998. On January 1, 1999, Mr. B disposes of all his stock of 
FCo and realizes $400,000 of gain. Under present law, neither 
the distributions from FCo nor the gain on the disposition of 
the FCo stock would be subject to U.S. tax. Under the House 
bill, the distributions from FCo and the gain on the sale of 
the stock of FCo would be treated as U.S. source income and 
would be taxed to Mr. B under section 877, subject to the 
earnings and profits limitation. For this purpose, the amount 
of FCo's earnings and profits for 1996 is prorated based on the 
number of days during 1996 that Mr. B is a U.S. citizen. Thus, 
the amount of FCo's earnings and profits earned or accumulated 
before Mr. B's loss of citizenship is $550,000. Accordingly, 
the $100,000 distributions from FCo in 1997 and 1998 would be 
treated as U.S. source income taxable to Mr. B under section 
877 in such years. In addition, $350,000 of the gain realized 
from the sale of the stock of FCo in 1999 would be treated as 
U.S. source income taxable to Mr. B under section 877 in that 
year.
            Special rule for shift in risks of ownership
      Section 877 applies to income and gains for the 10-year 
period following the loss of citizenship (or termination of 
residency, as applicable). For purposes of applying section 
877, the House bill suspends this 10-year period for gains 
derived from a particular property during any period in which 
the individual's risk of loss with respect to such property is 
substantially diminished. For example, Ms. C loses her 
citizenship on January 1, 1996 and is subject to section 877. 
On that date Ms. C owns 10,000 shares of stock of a U.S. 
corporation, USCo, with a value of $1 million. On the same date 
Ms. C enters into an equity swap with respect to such USCo 
stock with a 5-year term. Under the transaction, Ms. C will 
transfer to the counter-party an amount equal to the dividends 
on the USCo stock and any increase in the value of the USCo 
stock for the 5-year period. The counter-party will transfer to 
Ms. C an amount equal to a market rate of interest on $1 
million and any decrease in the value of the USCo stock for the 
same period. Ms. C's risk of loss with respect to the USCo 
stock is substantially diminished during the 5-year period in 
which the equity swap is in effect, and therefore, under the 
House bill, the 10-year period under section 877 is suspended 
during such period. Accordingly, under the House bill, if Ms. C 
sells her USCo stock for a gain on January 1, 2010, such gain 
would be treated as U.S. source income taxable to Ms. C under 
section 877. Such gain would not be subject to U.S. tax under 
present law.
            Double tax relief
      In order to avoid the double taxation of individuals 
subject to the expatriation tax provisions, the House bill 
provides a credit against the U.S. tax imposed under such 
provisions for any foreign income, gift, estate or similar 
taxes paid with respect to the items subject to such taxation. 
This credit is available only against the tax imposed solely as 
a result of the expatriation tax provisions, and is not 
available to be used to offset any other U.S. tax liability. 
For example, Mr. D loses his citizenship on January 1, 1996 and 
is subject to section 877. Mr. D becomes a resident of Country 
X. During 1996, Mr. D recognizes a $100,000 gain upon the sale 
of stock a U.S. corporation, USCo. Country X imposes $20,000 
tax on this capital gain. But for the double tax relief 
provision, Mr. D would be subject to tax of $28,000 on this 
gain under section 877. However, Mr. D's U.S. tax under section 
877 would be reduced by the $20,000 of foreign tax paid, and 
Mr. D's resulting U.S. tax on this gain would be $8,000.
            Effect on tax treaties
      While it is believed that the expatriation tax 
provisions, as amended by the House bill, are generally 
consistent with the underlying principles of income tax 
treaties to the extent the House bill provides a foreign tax 
credit for items taxed by another country, it is intended that 
the purpose of the expatriation tax provisions, as amended, not 
be defeated by any treaty provision. The Treasury Department is 
expected to review all outstanding treaties to determine 
whether the expatriation tax provisions, as revised, 
potentially conflict with treaty provisions and to eliminate 
any such potential conflicts through renegotiation of the 
affected treaties as necessary. Beginning on the tenth 
anniversary of the enactment of the House bill, any conflicting 
treaty provisions that remain in force would take precedence 
over the expatriation tax provisions as revised.
            Required information reporting and sharing
      Under the House bill, a U.S. citizen who loses his or her 
citizenship is required to provide a statement to the State 
Department (or other designated government entity) which 
includes the individual's social security number, forwarding 
foreign address, new country of residence and citizenship and, 
in the case of individuals with a net worth of at least 
$500,000, a balance sheet. The entity to which such statement 
is to be provided is required to provide to the Secretary of 
the Treasury copies of all statements received and the names of 
individuals who refuse to provide such statements. A long-term 
resident whose U.S. residency is terminated is required to 
attach a similar statement to his or her U.S. income tax return 
for the year of such termination. An individual's failure to 
provide the required statement results in the imposition of a 
penalty for each year the failure continues equal to the 
greater of (1) 5 percent of the individual's expatriation tax 
liability for such year, or (2) $1,000.
      The House bill requires the State Department to provide 
the Secretary of the Treasury with a copy of each certificate 
of loss of nationality (CLN) approved by the State Department. 
Similarly, the House bill requires the agency administering the 
immigration laws to provide the Secretary of the Treasury with 
the name of each individual whose status as a lawful permanent 
resident has been revoked or has been determined to have been 
abandoned.
      Further, the House bill requires the Secretary of the 
Treasury to publish in the Federal Register the names of all 
former U.S. citizens from whom it receives the required 
statements or whose names it receives under the foregoing 
information-sharing provisions.
            Treasury report on tax compliance by U.S. citizens and 
                    residents living abroad
      The Treasury Department is directed to undertake a study 
on the tax compliance of U.S. citizens and green-card holders 
residing outside the United States and to make recommendations 
regarding the improvement of such compliance. The findings of 
such study and such recommendations are required to be reported 
to the House Committee on Ways and Means and the Senate 
Committee on Finance within 90 days of the date of enactment.
      During the course of the Joint Committee on Taxation 
staff study on expatriation, a specific issue was identified 
regarding the difficulty in determining when a U.S. citizen has 
committed an expatriating act with the requisite intent, and 
thus no longer has the obligation to continue to pay U.S. taxes 
on his or her worldwide income due to the fact that the 
individual is no longer a U.S. citizen. Neither the Immigration 
and Nationality Act nor any other Federal law requires an 
individual to request a CLN within a specified amount of time 
after an expatriating act has been committed, even though the 
expatriating act terminates the status of the individual as a 
U.S. citizen for all purposes, including the status of being 
subject to U.S. tax on worldwide income. Accordingly, it is 
anticipated that the Treasury report, in evaluating whether 
improved coordination between executive branch agencies could 
improve compliance with the requirements of the Internal 
Revenue Code, will review the process through which the State 
Department determines when citizenship has been lost, and make 
recommendations regarding changes to such process to recognize 
the importance of such date for tax purposes. In particular, it 
is anticipated that the Treasury Department will explore ways 
of working with the State Department to insure that the State 
Department will not issue a CLN confirming the commission of an 
expatriating act with the requisite intent necessary to 
terminate citizenship in the absence of adequate evidence of 
both the occurrence of the expatriating act (e.g., the joining 
of a foreign army) and the existence of the requisite intent.
            Effective date
      The expatriation tax provisions as modified by the House 
bill generally apply to any individual who loses U.S. 
citizenship on or after February 6, 1995, and any long-term 
residents whose U.S. residency is terminated on or after June 
13, 1995. For citizens, the determination of the date of loss 
of citizenship remains the same as under present law (i.e., the 
date of loss of citizenship is the date of the expatriating 
act). However, a special transition rule applies to individuals 
who committed an expatriating act within one year prior to 
February 6, 1995, but had not applied for a CLN as of such 
date. Such an individual is subject to the expatriation tax 
provisions as amended by the House bill as of the date of 
application for the CLN, but is not retroactively liable for 
U.S. income taxes on his or her worldwide income. In order to 
qualify for the exceptions provided for individuals who fall 
within one of the specified categories, such individual is 
required to submit a ruling request within 1 year after the 
date of enactment of the House bill.
      The special transition rule is illustrated by the 
following example. Mr. E joined a foreign army on October 1, 
1994 with the intent to relinquish his U.S. citizenship, but 
Mr. E does not apply for a CLN until October 1, 1995. Mr. E 
would be subject to the expatriation tax provisions (as 
amended) for the 10-year period beginning on October 1, 1995. 
Moreover, if Mr. E falls within one of the specified categories 
(i.e., Mr. E is age 18 when he joins the foreign army), in 
order to qualify for the exception provided for such 
individuals, Mr. E would be required to submit his ruling 
request within 1 year after the date of enactment of the House 
bill. Mr. E would not, however, be liable for U.S. income taxes 
on his worldwide income for any period after October 1, 1994.
Senate amendment
            In general
      The Senate amendment replaces the present-law 
expatriation income tax rules with rules that generally subject 
certain U.S. citizens who relinquish their U.S. citizenship and 
certain long-term U.S. residents who relinquish their U.S. 
residency to tax on the net unrealized gain in their property 
as if such property were sold for fair market value on the 
expatriation date. The Senate amendment also imposes 
information reporting obligations on U.S. citizens who 
relinquish their citizenship and long-term residents whose U.S. 
residency is terminated.
            Individuals covered
      The Senate amendment applies the expatriation tax to 
certain U.S. citizens and long-term residents who terminate 
their U.S. citizenship or residency. For this purpose, a long-
term resident is any individual who was a lawful permanent 
resident of the United States for at least 8 out of the 15 
taxable years ending with the year in which the termination of 
residency occurs. In applying this 8-year test, an individual 
is not considered to be a lawful permanent resident of the 
United States for any year in which the individual is taxed as 
a resident of another country under a treaty tie-breaker rule. 
An individual's U.S. residency is considered to be terminated 
when either the individual ceases to be a lawful permanent 
resident pursuant to section 7701(b)(6) (i.e., the individual 
loses his or her green-card status) or the individual is 
treated as a resident of another country under a tie-breaker 
provision of a tax treaty (and the individual does not elect to 
waive the benefits of such treaty).
      The expatriation tax under the Senate amendment applies 
only to individuals whose average income tax liability or net 
worth exceeds specified levels. U.S. citizens who lose their 
citizenship and long-term residents who terminate U.S. 
residency are subject to the expatriation tax if they meet 
either of the following tests: (1) the individual's average 
annual U.S. Federal income tax liability for the 5 taxable 
years ending before the date of such loss or termination is 
greater than $100,000, or (2) the individual's net worth as of 
the date of such loss or termination is $500,000 or more. The 
dollar amount thresholds contained in these tests are indexed 
for inflation in the case of a loss of citizenship or 
termination of residency occurring in any calendar year after 
1996.
      Exceptions from the expatriation tax under the Senate 
amendment are provided for individuals in two situations. The 
first exception applies to an individual who was born with 
citizenship both in the United States and in another country, 
provided that (1) as of the date of relinquishment of U.S. 
citizenship the individual continues to be a citizen of, and is 
taxed as a resident of, such other country, and (2) the 
individual was a resident of the United States for no more than 
8 out of the 15 taxable years ending with the year in which the 
relinquishment of U.S. citizenship occurred. The second 
exception applies to a U.S. citizen who relinquishes 
citizenship before reaching age 18\1/2\, provided that the 
individual was a resident of the United States for no more than 
5 taxable years before such relinquishment.
            Deemed sale of property upon expatriation
      Under the Senate amendment, individuals who are subject 
to the expatriation tax generally are treated as having sold 
all of their property at fair market value immediately prior to 
the relinquishment of citizenship or termination of residency. 
Gain or loss from the deemed sale of property is recognized at 
that time, generally without regard to provisions of the Code 
that would otherwise provide nonrecognition treatment. The net 
gain, if any, on the deemed sale of all such property is 
subject to U.S. tax at such time to the extent it exceeds 
$600,000 ($1.2 million in the case of married individuals 
filing a joint return, both of whom expatriate).
      The deemed sale rule of the Senate amendment generally 
applies to all property interests held by the individual on the 
date of relinquishment of citizenship or termination of 
residency, provided that the gain on such property interest 
would be includible in the individual's gross income if such 
property interest were sold for its fair market value on such 
date. Special rules apply in the case of trust interests (see 
``Interests in trusts,'' below). U.S. real property interests, 
which remain subject to U.S. taxing jurisdiction in the hands 
of nonresident aliens, generally are excepted from the Senate 
amendment. An exception also applies to interests in qualified 
retirement plans and, subject to a limit of $500,000, interests 
in certain foreign pension plans as prescribed by regulations. 
The Secretary of the Treasury is authorized to issue 
regulations exempting other property interests as appropriate. 
For example, an exclusion may be provided for an interest in a 
nonqualified compensation plan of a U.S. employer, where 
payments from such plan to the individual following 
expatriation would continue to be subject to U.S. withholding 
tax.
      Under the Senate amendment, an individual who is subject 
to the expatriation tax is required to pay a tentative tax 
equal to the amount of tax that would be due for a hypothetical 
short tax year ending on the date the individual relinquished 
citizenship or terminated residency. Thus, the tentative tax is 
based on all the income, gain, deductions, loss and credits of 
the individual for the year through such date, including 
amounts realized from the deemed sale of property. The 
tentative tax is due on the 90th day after the date of 
relinquishment of citizenship or termination of residency.
            Deferral of payment of tax
      Under the Senate amendment, an individual is permitted to 
elect to defer payment of the expatriation tax with respect to 
the deemed sale of any property. Under this election, the 
expatriation tax with respect to a particular property, plus 
interest thereon, is due when the property is subsequently 
disposed of. For this purpose, except as provided in 
regulations, the disposition of property in a nonrecognition 
transaction constitutes a disposition. In addition, if an 
individual holds property until his or her death, the 
individual is treated as having disposed of the property 
immediately before death. In order to elect deferral of the 
expatriation tax, the individual is required to provide 
adequate security to ensure that the deferred expatriation tax 
and interest ultimately will be paid. A bond in the amount of 
the deferred tax and interest constitutes adequate security. 
Other security mechanisms are also permitted provided that the 
individual establishes to the satisfaction of the Secretary of 
the Treasury that the security is adequate. In the event that 
the security provided with respect to a particular property 
subsequently becomes inadequate and the individual fails to 
correct such situation, the deferred expatriation tax and 
interest with respect to such property will become due. As a 
further condition to making this election, the individual is 
required to consent to the waiver of any treaty rights that 
would preclude the collection of the expatriation tax.
            Interests in trusts
                In general
      Under the Senate amendment, special rules apply to trust 
interests held by the individual at the time of relinquishment 
of citizenship or termination of residency. The treatment of 
trust interests depends upon whether the trust is a qualified 
trust. For this purpose, a ``qualified trust'' is a trust that 
is organized under and governed by U.S. law and that is 
required by its instruments to have at least one U.S. trustee.
      Constructive ownership rules apply to a trust beneficiary 
that is a corporation, partnership, trust or estate. In such 
cases, the shareholders, partners or beneficiaries of the 
entity are deemed to be the direct beneficiaries of the trust 
for purposes of applying these provisions. In addition, an 
individual who holds (or who is treated as holding) a trust 
interest at the time of relinquishment of citizenship or 
termination of residency is required to disclose on his or her 
tax return the methodology used to determine his or her 
interest in the trust, and whether such individual knows (or 
has reason to know) that any other beneficiary of the trust 
uses a different method.
                Nonqualified trusts
      If an individual holds an interest in a trust that is not 
a qualified trust, a special rule applies for purposes of 
determining the amount of the expatriation tax due with respect 
to such trust interest. The individual's interest in the trust 
is treated as a separate trust consisting of the trust assets 
allocable to such interest. Such separate trust is treated as 
having sold its assets as of the date of relinquishment of 
citizenship or termination of residency and having distributed 
all proceeds to the individual, and the individual is treated 
as having recontributed such proceeds to the trust. The 
individual is subject to the expatriation tax with respect to 
any net income or gain arising from the deemed distribution 
from the trust. The election to defer payment is available for 
the expatriation tax attributable to a nonqualified trust 
interest.
      A beneficiary's interest in a nonqualified trust is 
determined on the basis of all facts and circumstances. These 
include the terms of the trust instrument itself, any letter of 
wishes or similar document, historical patterns of trust 
distributions, and the role of any trust protector or similar 
advisor.
                Qualified trusts
      If the individual has an interest in a qualified trust, a 
different set of rules applies. Under these rules, the amount 
of unrealized gain allocable to the individual's trust interest 
is calculated at the time of expatriation. In determining this 
amount, all contingencies and discretionary interests are 
assumed to be resolved in the individual's favor (i.e., the 
individual is allocated the maximum amount that he or she 
potentially could receive under the terms of the trust 
instrument). The expatriation tax imposed on such gains 
generally is collected when the individual receives 
distributions from the trust, or, if earlier, upon the 
individual's death. Interest is charged for the period between 
the date of expatriation and the date on which the tax is paid.
      If an individual has an interest in a qualified trust, 
the individual is subject to expatriation tax upon the receipt 
of any distribution from the trust. Such distributions may also 
be subject to U.S. income tax. For any distribution from a 
qualified trust made to an individual after he or she has 
expatriated, expatriation tax is imposed in an amount equal to 
the amount of the distribution multiplied by the highest tax 
rate generally applicable to trusts and estates, but in no 
event will the tax imposed exceed the deferred tax amount with 
respect to such trust interest. The ``deferred tax amount'' 
would be equal to (1) the tax calculated with respect to the 
unrealized gain allocable to the trust interest at the time of 
expatriation, (2) increased by interest thereon, and (3) 
reduced by the tax imposed under this provision with respect to 
prior trust distributions to the individual.
      If an individual's interest in a trust is vested as of 
the expatriation date (e.g., if the individual's interest in 
the trust is non-contingent and non-discretionary), the gain 
allocable to the individual's trust interest is determined 
based on the trust assets allocable to his or her trust 
interest. If the individual's interest in the trust is not 
vested as of the expatriation date (e.g., if the individual's 
trust interest is a contingent or discretionary interest), the 
gain allocable to his or her trust interest is determined based 
on all of the trust assets that could be allocable to his or 
her trust interest, determined by resolving all contingencies 
and discretionary powers in the individual's favor. In the case 
where more than one trust beneficiary is subject to the 
expatriation tax with respect to trust interests that are not 
vested, the rules are intended to apply so that the same 
unrealized gain with respect to assets in the trust is not 
taxed to both individuals.
      If the individual disposes of his or her trust interest, 
the trust ceases to be a qualified trust, or the individual 
dies, expatriation tax is imposed as of such date. The amount 
of such tax equal to the lesser of (1) the tax calculated under 
the rules for nonqualified trust interests applied as of such 
date or (2) the deferred tax amount with respect to the trust 
interest as of such date.
      If the individual agrees to waive any treaty rights that 
would preclude collection of the tax, the tax is imposed under 
this provision with respect to distributions from a qualified 
trust to the individual deducted and withheld from 
distributions. If the individual does not agree to such a 
waiver of treaty rights, the tax with respect to distributions 
to the individual is imposed on the trust, the trustee is 
personally liable therefor, and any other beneficiary of the 
trust has a right of contribution against such individual with 
respect to such tax. Similarly, in the case of the tax imposed 
in connection with an individual's disposition of a trust 
interest, the individual's death while holding a trust interest 
or the individual's holding of an interest in a trust that 
ceases to be qualified, the tax is imposed on the trust, the 
trustee is personally liable therefor, and any other 
beneficiary of the trust has a right of contribution against 
such individual with respect to such tax.
            Election to be treated as a U.S. citizen
      Under the Senate amendment, an individual is permitted to 
make an irrevocable election to continue to be taxed as a U.S. 
citizen with respect to all property that otherwise is covered 
by the expatriation tax. This election is an ``all-or-nothing'' 
election; an individual is not permitted to elect this 
treatment for some property but not other property. The 
election, if made, applies to all property that would be 
subject to the expatriation tax and to any property the basis 
of which is determined by reference to such property. Under 
this election, the individual continues to pay U.S. income 
taxes at the rates applicable to U.S. citizens following 
expatriation on any income generated by the property and on any 
gain realized on the disposition of the property, as well as 
any excise tax imposed with respect to the property (see, e.g., 
sec. 1491). In addition, the property continues to be subject 
to U.S. gift, estate, and generation-skipping transfer taxes. 
However, the amount of any transfer tax so imposed is limited 
to the amount of income tax that would have been due if the 
property had been sold for its fair market value immediately 
before the transfer or death. The $600,000 exclusion provided 
with respect to the expatriation tax under the Senate amendment 
is available to reduce the tax imposed by reason of this 
election. In order to make this election, the taxpayer is 
required to waive any treaty rights that would preclude the 
collection of the tax. The individual is also required to 
provide security to ensure payment of the tax under this 
election in such form, manner, and amount as the Secretary of 
the Treasury requires.
            Date of relinquishment of citizenship
      Under the Senate amendment, an individual is treated as 
having relinquished U.S. citizenship on the date that the 
individual first makes known to a U.S. government or consular 
officer his or her intention to relinquish U.S. citizenship. 
Thus, a U.S. citizen who relinquishes citizenship by formally 
renouncing his or her U.S. nationality before a diplomatic or 
consular officer of the United States is treated as having 
relinquished citizenship on that date, provided that the 
renunciation is later confirmed by the issuance of a CLN. A 
U.S. citizen who furnishes to the State Department a signed 
statement of voluntary relinquishment of U.S. nationality 
confirming the performance of an expatriating act with the 
requisite interest to relinquish his or her citizenship is 
treated as having relinquished his or her citizenship on the 
date the statement is so furnished (regardless of when the 
expatriating act was performed), provided that the voluntary 
relinquishment is later confirmed by the issuance of a CLN. If 
neither of these circumstances exist, the individual is treated 
as having relinquished citizenship on the date a CLN is issued 
or a certificate of naturalization is cancelled. The date of 
relinquishment of citizenship determined under the Senate 
amendment applies for all tax purposes.
            Effect on present-law expatriation provisions
      Under the Senate amendment, the present-law income tax 
provisions with respect to U.S. citizens who expatriate with a 
principal purpose of avoiding tax (sec. 877) and certain aliens 
who have a break in residency status (sec. 7701(b)(10)) do 
apply to U.S. citizens who are treated as relinquishing their 
citizenship on or after February 6, 1995 or to long-term U.S. 
residents who terminate their residency on or after such date. 
The special estate and gift tax provisions with respect to 
individuals who expatriate with a principal purpose of avoiding 
tax (secs. 2107 and 2501(a)(3)), however, continue to apply; a 
credit against the tax imposed solely by reason of such special 
provisions is allowed for the expatriation tax imposed with 
respect to the same property.
            Treatment of gifts and inheritances from an expatriate
      Under the Senate amendment, the exclusion from income 
provided in section 102 does not apply to the value of any 
property received by gift or inheritance from an individual who 
was subject to the expatriation tax (i.e., an individual who 
relinquished citizenship or terminated residency and to whom 
the expatriation tax was applicable). Accordingly, a U.S. 
taxpayer who receives a gift or inheritance from such an 
individual is required to include the value of such gift or 
inheritance in gross income and is subject to U.S. income tax 
on such amount.
            Required information reporting and sharing
      Under the Senate amendment, an individual who 
relinquishes citizenship or terminates residency is required to 
provide a statement which includes the individual's social 
security number, forwarding foreign address, new country of 
residence and citizenship and, in the case of individuals with 
a net worth of at least $500,000, a balance sheet. In the case 
of a former citizen, such statement is due not later than the 
date the individual's citizenship is treated as relinquished 
and is to be provided to the State Department (or other 
government entity involved in the administration of such 
relinquishment). The entity to which the statement is to be 
provided by former citizens is required to provide to the 
Secretary of the Treasury copies of all statements received and 
the names of individuals who refuse to provide such statements. 
In the case of a former long-term resident, the statement is 
provided to the Secretary of the Treasury with the individual's 
tax return for the year in which the individual's U.S. 
residency is terminated. An individual's failure to provide the 
statement required under this provision results in the 
imposition of a penalty for each year the failure continues 
equal to the greater of (1) 5 percent of the individual's 
expatriation tax liability for such year or (2) $1,000.
      The Senate amendment requires the State Department to 
provide the Secretary of the Treasury with a copy of each CLN 
approved by the State Department. Similarly, the Senate 
amendment requires the agency administering the immigration 
laws to provide the Secretary of the Treasury with the name of 
each individual whose status as a lawful permanent resident has 
been revoked or has been determined to have been abandoned.
      Further, the Senate amendment requires the Secretary of 
the Treasury to publish in the Federal Register the names of 
all former U.S. citizens with respect to whom it receives the 
required statements or whose names it receives under the 
foregoing information-sharing provisions.
            Effective date
      The provision is effective for U.S. citizens whose date 
of relinquishment of citizenship (as determined under the 
Senate amendment, see ``Date of relinquishment of citizenship'' 
above) occurs on or after February 6, 1995. Similarly, the 
provision is effective for long-term residents who terminate 
their U.S. residency on or after February 6, 1995.
      U.S. citizens who committed an expatriating act with the 
requisite intent to relinquish their U.S. citizenship prior to 
February 6, 1995, but whose date of relinquishment of 
citizenship (as determined under the Senate amendment) does not 
occur until after such date, are subject to the expatriation 
tax under the Senate amendment as of date of relinquishment of 
citizenship. However, the individual is not subject 
retroactively to worldwide tax as a U.S. citizen for the period 
after he or she committed the expatriating act (and therefore 
ceased being a U.S. citizen for tax purposes under present 
law). Such an individual continues to be subject to the 
expatriation tax imposed by present-law section 877 until the 
individual's date of relinquishment of citizenship (at which 
time the individual would be subject to the expatriation tax of 
the Senate amendment). The rules described in this paragraph do 
not apply to an individual who committed an expatriating act 
prior to February 6, 1995, but did not do so with the requisite 
intent to relinquish his or her U.S. citizenship.
      The tentative tax is not required to be paid, and the 
reporting requirements would not be required to be met, until 
90 days after the date of enactment. Such provisions apply to 
all individuals whose date of relinquishment of U.S. 
citizenship or termination of U.S. residency occurs on or after 
February 6, 1995.
Conference agreement
      The conference agreement follows the House bill with 
modifications. Under the conference agreement, the expatriation 
tax provisions apply both to U.S. citizens who lose citizenship 
on or after February 6, 1995, and to long-term residents whose 
U.S. residency is terminated on or after February 6, 1995. The 
information reporting provisions apply to U.S. citizens who 
lose citizenship and long-term residents whose U.S. residency 
is terminated on or after February 6, 1995. The conference 
agreement does not include the provisions of the House bill 
with respect to the publication of the names of expatriates in 
the Federal Register and the direction to the Treasury 
Department to study tax compliance by individuals living 
abroad.

 12. Repeal advance refunds of diesel fuel tax for diesel automobiles, 
vans, and light trucks (sec. 13638 of the House bill and sec. 12831 of 
                         the Senate amendment)

Present law
      Excise taxes are imposed on gasoline (11.5 cents per 
gallon) and diesel fuel (17.5 cents per gallon) to fund the 
Federal Highway Trust Fund. Before 1985, the gasoline and 
diesel fuel tax rates were the same. The predominate highway 
use of diesel fuel is by trucks. In 1984, the diesel excise tax 
rate was increased above the gasoline tax rate as the revenue 
offset for a reduction in the annual heavy truck excise tax. 
Because automobiles, vans, and light trucks did not benefit 
from the use tax reduction, a provision was enacted allowing 
first purchasers of model year 1979 and later diesel-powered 
automobiles, vans, and light trucks a tax credit to offset this 
increased diesel fuel tax. The credit is $102 for automobiles, 
and $198 for vans and light trucks.
House bill
      The House bill repeals the advance refunds of diesel tax 
for purchasers of diesel-powered automobiles, vans, and light 
trucks.
      Effective date.--Vehicles purchased after December 31, 
1995.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

   13. Repeal wine and flavors tax credit (sec. 12832 of the Senate 
                               amendment)

Present law
      Producers of distilled spirits are allowed a tax credit 
for the alcohol contained in products that are (1) derived from 
fruit (i.e., ``wine'') or (2) attributable to certain 
flavorings.
House bill
      No provision.
Senate amendment
      The Senate amendment repeals the wine and flavors tax 
credit (i.e., taxes all alcohol in distilled spirits products 
at the statutory $13.50-per-proof-gallon rate).
      Effective date.--January 1, 1996.
Conference agreement
      The conference agreement does not include the Senate 
amendment.

14. Modifications to the excise tax on ozone-depleting chemicals (sec. 
                     12833 of the Senate amendment)

Present law
      An excise tax is imposed on the sale or use by the 
manufacturer or importer of certain ozone-depleting chemicals 
(Code sec. 4681). Taxable chemicals that are recovered and 
recycled within the United States are exempt from tax.
House bill
      No provision.
Senate amendment
      The Senate amendment extends the exemption from tax for 
domestically recovered and recycled ozone-depleting chemicals 
to imported recycled halons. The exemption for imported 
recycled halons applies only to such chemicals imported from 
countries that are signatories to the Montreal Protocol.
      Effective date.--Date of enactment.
Conference agreement
      The conference agreement follows the Senate amendment.

 15. Allow certain persons to elect not to be eligible for future tax-
       exempt bond financing (sec. 12834 of the Senate amendment)

Present law
      Tax-exempt bonds may be issued to benefit private 
businesses engaged in the furnishing of electric energy or gas 
if the business' service area does not exceed (1) two 
contiguous counties or (2) a city and one contiguous county. 
These businesses are described as engaged in the local 
furnishing of electricity or gas.
      If certain disqualifying events occur after these and 
other private activity tax- exempt bonds are issued, (1) 
interest on the bonds may become taxable, and (2) interest paid 
by the private parties on bond-financed loans becomes 
nondeductible. Expansion of the service area of a person 
engaged in these local furnishing activities beyond the 
permitted geographic areas, described above, is a disqualifying 
event.
House bill
      No provision.
Senate amendment
      The Senate amendment allows private businesses engaged in 
the local furnishing of electricity or gas to expand their 
service areas beyond the geographic bounds allowed under 
present law without penalty if:
            (1) No additional tax-exempt bonds are issued after 
        the date of the amendment's enactment for any 
        facilities to be used by them;
            (2) Outstanding tax-exempt bonds benefiting the 
        electing persons are redeemed on the earliest date 
        allowed under the bond documents; and
            (3) No tax-exempt bonds are used to finance the 
        service area expansion.
      In addition, availability of tax-exempt private activity 
bond financing under the exception for facilities of private 
persons engaged in the local furnishing of electricity or gas 
is limited to financing for facilities used in qualified 
businesses being conducted by such persons on the date of the 
amendment's enactment.
      Effective date.--Date of enactment.
Conference agreement
      The conference agreement follows the Senate amendment. 
The conferees wish to clarify two points regarding this 
provision. First, an election to terminate a person's status as 
engaged in the local furnishing of electricity or gas is 
independent of, and has no relation to, the determination of 
whether transmission of electricity pursuant to certain Federal 
Energy Regulatory Commission orders (sec. 142(f)(2)) violates 
the local furnishing exception. Second, the provision 
precluding new entities from qualifying as engaged in the local 
furnishing of electricity or gas is not intended to preclude 
qualification of successor entities resulting from corporate 
reorganizations where the area served remains unchanged and 
there is common ownership of both the predecessor and successor 
entities.

   16. Tax-exempt bonds for the sale of Alaska Power Administration 
             facility (sec. 12835 of the Senate amendment)

Present law
      Tax-exempt bonds may be issued for the benefit of certain 
private electric utilities. If the bonds are used to finance 
acquisition of existing property by these utilities, a minimum 
amount of rehabilitation must be performed on the property as a 
condition of receiving the tax-exempt bond financing.
House bill
      No provision.
Senate amendment
      The Senate amendment waives the rehabilitation 
requirement in the case of bonds to be issued as part of sale 
of the Snettisham facility by the Alaska Power Administration.
      Effective date.--Bonds issued after date of enactment.
Conference agreement
      The conference agreement follows the Senate amendment.

17. Modify treatment of foreign trusts (secs. 12841-12846 of the Senate 
                               amendment)

Present law
            Inbound foreign grantor trust rules
      Under the grantor trust rules (secs. 671-679), a grantor 
that retains certain rights or powers generally is treated as 
the owner of the trust's assets without regard to whether the 
grantor is a domestic or foreign person. Under these rules, 
U.S. trust beneficiaries can avoid U.S. tax on distributions 
from a trust where a foreign grantor is treated as owner of the 
trust, even though no tax may be imposed on the trust income by 
any jurisdiction. In addition, a special rule treats a U.S. 
beneficiary of an inbound grantor trust who transferred 
property to the foreign grantor by gift of a portion of the 
trust as a grantor of the trust to the extent of the transfer.
            Foreign nongrantor trust rules
      Under the accumulation distribution rules (which 
generally apply to distributions from a trust in excess of the 
trust's distributable net income for the taxable year), a 
distribution by a foreign nongrantor trust of previously 
accumulated income generally is taxed at the U.S. beneficiary's 
average marginal rate for the prior 5 years, plus interest 
(secs. 666, 667). Interest is computed at a fixed annual rate 
of 6 percent, with no compounding (sec. 668). If adequate 
records of the trust are not available to determine the proper 
application of the rules relating to accumulation distributions 
to any distribution from a trust, the distribution is treated 
as an accumulation distribution out of income earned during the 
first year of the trust (sec. 666(d)).
      If a foreign nongrantor trust makes a loan to one of its 
beneficiaries, the principal of such a loan generally is not 
taxable as income to the beneficiary.
            Outbound foreign grantor trust rules
      Under the grantor trust rules, a U.S. person who 
transfers property to a foreign trust generally is treated as 
the owner of the portion of the trust comprising that property 
for any taxable year in which there is a U.S. beneficiary of 
any portion of the trust (sec. 679(a)). This treatment 
generally does not apply, however, to transfers by reason of 
death, to transfers made before the transferor became a U.S. 
person, or to sales or exchanges of property at fair market 
value where gain is recognized to the transferor.
            Residence of estates and trusts
      An estate or trust is treated as foreign if it is not 
subject to U.S. income taxation on its income that is neither 
derived from U.S. sources nor effectively connected with the 
conduct of a U.S. trade or business. Thus, if a trust is taxed 
in a manner similar to a nonresident alien individual, it is 
considered to be a foreign trust. Any other estate or trust is 
treated as domestic.
      Section 1491 generally imposes a 35-percent excise tax on 
a U.S. person that transfers appreciated property to certain 
foreign entities, including a foreign trust. In the case of a 
domestic trust that changes its situs and becomes a foreign 
trust, it is unclear whether property has been transferred from 
a U.S. person to a foreign entity, and, thus, whether the 
transfer is subject to the excise tax.
            Information reporting requirements and associated penalties
      Any U.S. person who creates a foreign trust or transfers 
money or property to a foreign trust is required to report that 
event to the IRS without regard to whether the trust is a 
grantor or a nongrantor trust. Similarly, any U.S. person who 
transfers property to a foreign trust that has one or more U.S. 
beneficiaries is required to report annually to the IRS. In 
addition, if the transfer of any appreciated property by a U.S. 
person is subject to section 1491, the transferor is required 
to report the transfer to the IRS.
      Any person who fails to file a required report with 
respect to the creation of, or a transfer to, a foreign trust 
may be subjected to a penalty of 5 percent of the amount 
transferred to the foreign trust. Similarly, any person who 
fails to file a required annual report with respect to a 
foreign trust with U.S. beneficiaries may be subjected to a 
penalty of 5 percent of the value of the corpus of the trust at 
the close of the taxable year. The maximum amount of the 
penalty imposed under either case may not exceed $1,000. A 
reasonable cause exception is available.
            Reporting of certain foreign gifts
      There is no requirement to report gifts or bequests from 
foreign sources.
House bill
      No provision.
Senate amendment
            Inbound foreign grantor trust rules
      The Senate amendment generally applies the grantor trust 
rules only to the extent that they result, directly or 
indirectly, in amounts being currently taken into account in 
computing the income of a U.S. citizen or resident or a 
domestic corporation. Certain exceptions apply to this general 
rule. Under the exceptions, the general rule does not apply in 
the case of revocable trusts and trusts where the only amounts 
distributable during the lifetime of the grantor are to the 
grantor or the grantor's spouse. These exceptions do not apply 
to the extent of gifts made by a U.S. beneficiary of the trust 
to the foreign grantor. The provision also does not apply to 
trusts established to pay compensation, and certain trusts in 
existence as of September 19, 1995 provided such trust is 
treated as owned by the grantor or another person under section 
676 or 677 (other than sec. 677(a)(3)). The exception does not 
apply to the portion of any such trust attributable to any 
transfers made after September 19, 1995.
      Effective date.--The provision is effective on the date 
of enactment.
            Foreign nongrantor trust rules
      Under the Senate amendment, the interest rate applicable 
to accumulation distributions from foreign nongrantor trusts is 
the interest rate applicable to underpayments of tax under 
section 6621(a)(2), with compounding. Simple interest continues 
to accrue at the rate of 6 percent through 1995. Beginning on 
January 1, 1996, compound interest based on the underpayment 
rate will be imposed on tax amounts determined under the 
accumulation distribution rules and the total simple interest 
for pre-1996 periods, if any. For purposes of computing the 
interest charge, the accumulation distribution is allocated 
proportionately to prior trust years in which the trust has 
undistributed net income (and the beneficiary receiving the 
distribution was a U.S. citizen or resident), rather than to 
the earliest of such years.
      Effective date.--The provision applies to distributions 
after the date of enactment.
      Under the Senate amendment, the full amount of a loan of 
cash or marketable securities by the foreign nongrantor trust 
to a U.S. grantor or a U.S. beneficiary (or a U.S. person 
related to such a grantor or beneficiary) is treated as 
distributed to the grantor or beneficiary, even if the loan 
bears interest at an adequate rate and is subsequently repaid.
      Effective date.--The provision applies to loans made 
after September 19, 1995.
            Outbound foreign grantor trust rules
      The Senate amendment treats a nonresident alien 
individual who transfers property to a foreign trust and then 
becomes a U.S. resident within 5 years after the transfer as 
making a transfer to the foreign trust on his residency 
starting date. Under the Senate amendment, in determining 
whether a foreign trust paid fair market value to the 
transferor for property transferred to the trust, obligations 
issued by the trust, by any grantor or beneficiary of the 
trust, or by any person related to any grantor or beneficiary 
generally are not taken into account except as provided in 
regulations. The Senate amendment grants broad authority to the 
Secretary of the Treasury to treat anyone who was a U.S. person 
at any time during the existence of the trust as a U.S. person 
in determining whether there are U.S. beneficiaries of the 
trust.
      Effective date.--The provision applies to transfers of 
property after February 6, 1995.
            Residence of estates and trusts
      The Senate amendment establishes a two-part objective 
test for determining whether a trust is foreign or domestic for 
tax purposes. If both parts of the test are satisfied, the 
trust is treated as domestic. Only the first part of the test 
applies to estates. First, if a U.S. court exercises primary 
supervision over the administration of the estate or trust, the 
estate or trust is treated as domestic. Second, if one or more 
U.S. fiduciaries have the authority to control all substantial 
decisions of the trust, the trust is treated as domestic.
      Under the Senate amendment, if a domestic trust changes 
its situs and becomes a foreign trust, the trust is treated as 
having made a transfer of its assets to the foreign trust and 
is subject to the 35-percent excise tax imposed by present-law 
section 1491 unless one of the exceptions to this excise tax is 
applicable.
      Effective date.--The provision modifying the rules to 
determine the residence of a trust or estate is effective for 
taxable years beginning after December 31, 1996. A trustee may 
elect to apply the provision to taxable years ending after the 
date of enactment. The amendment to section 1491 is effective 
on the date of enactment.
            Information reporting requirements and associated penalties
      Under the Senate amendment, the grantor, transferor or 
executor (the ``responsible party'') is required to notify the 
Treasury department upon the occurrence of certain reportable 
events: the creation of a foreign trust by a U.S. person, the 
transfer of money or property to a foreign trust by a U.S. 
person and the death of a U.S. citizen or U.S. resident if any 
portion of a foreign trust was included in the gross estate of 
the decedent. In addition, a U.S. owner of any portion of a 
foreign trust is required to ensure that the trust files an 
annual report with the Treasury department to provide full 
accounting of all the trust activities for the taxable year. 
Finally, any U.S. person who receives any distribution from a 
foreign trust is required to file a notice with the Treasury 
department to report the aggregate amount of the distributions 
received during the taxable year.
      The Senate amendment provides that if a U.S. owner of any 
portion of a foreign trust fails to appoint a limited U.S. 
agent to accept service of process with respect to requests and 
summons by the Secretary of the Treasury in connection with tax 
treatment of items related to the trust, the Secretary of the 
Treasury may determine, in its sole discretion, the amount to 
be taken into account by a U.S. person under the grantor trust 
rules. In cases where adequate records are not provided to the 
Treasury department to determine the proper treatment of any 
distributions from a foreign trust, the distribution includible 
in the gross income of the distributee will be treated as an 
accumulation distribution from a foreign trust, unless the 
foreign trust elects to have a U.S. agent for the limited 
purpose of accepting service of process (as described above).
      Under the Senate amendment, a person who fails to provide 
the required notice in cases involving the transfer of property 
to any foreign trust, or a distribution by a foreign trust to a 
U.S. person, is subject to an initial penalty equal to 35 
percent of the ``gross reportable amount'' (generally the value 
of the property involved in the transaction). A failure to 
provide an annual reporting of trust activities will result in 
an initial penalty equal to 5 percent of the gross reportable 
amount. An additional $10,000 penalty is imposed for continued 
failure for each 30-day period beginning 90 days after the 
Secretary of the Treasury notifies the responsible party of 
such failure. Such penalties are subject to a reasonable cause 
exception. In no event will the total amount of penalties 
exceed the gross reportable amount.
      Effective date.--The reporting requirements and 
applicable penalties generally apply to reportable events 
occurring or distributions received after the date of 
enactment. The annual reporting requirement and penalties 
applicable to U.S. grantors apply to taxable years of such 
persons beginning after the date of enactment.
            Reporting of certain foreign gifts
      The Senate amendment generally requires any U.S. person 
(other than certain tax-exempt organizations) that receives 
purported gifts or bequests from foreign sources totaling more 
than $10,000 during the taxable year to report them to the 
Treasury department. If the U.S. person fails, without 
reasonable cause, to report foreign gifts as required, the U.S. 
person will be subject to a penalty equal to 5 percent of the 
amount of the gift for each month that the failure continues, 
with the total penalty not to exceed 25 percent of such amount. 
In addition, certain sanctions may apply.
      Effective date.--This provision applies to amounts 
received after the date of enactment.
Conference agreement
      The conference agreement follows the Senate amendment, 
with modifications and clarifications.
            Inbound foreign grantor trust rules
      The conference agreement clarifies that a foreign 
corporation that is otherwise a passive foreign investment 
company (``PFIC'') as defined in section 1296 may not avoid 
PFIC characterization under the grantor trust rules (e.g., by 
transferring its assets to a grantor trust).
      The conference agreement modifies the Senate amendment by 
providing that the rule which treats a U.S. beneficiary of an 
inbound grantor trust who transferred property to the foreign 
grantor by gift as a grantor of the trust to the extent of the 
transfer applies without regard to whether the foreign grantor 
would otherwise be treated as the owner of any portion of such 
trust. This provision is designed to prevent the use of pre-
immigration gifts to avoid the application of the grantor trust 
rules.
            Foreign nongrantor trust rules
      Under the Senate amendment, the full amount of a loan of 
cash or marketable securities by a foreign nongrantor trust to 
a U.S. grantor or a U.S. beneficiary (or a U.S. person related 
to such a grantor or beneficiary) is treated as distributed to 
the grantor or beneficiary, even if the loan bears interest at 
an adequate rate and is subsequently repaid. The conference 
agreement provides that the Secretary of the Treasury may 
prescribe regulations providing exceptions to this rule. The 
conferees intend that a loan that bears arm's-length terms 
would qualify for such an exception.
            Outbound foreign grantor trust rules
      Under the Senate amendment, in determining whether a 
foreign trust paid fair market value to the transferor for 
property transferred to the trust, obligations issued by the 
trust, by any grantor or beneficiary of the trust, or by any 
person related to any grantor or beneficiary generally are not 
taken into account except as provided in regulations. The 
conferees intend to clarify that an obligation that bears 
arm's-length terms would qualify for such an exception.
      The conference agreement deletes the provision of the 
Senate amendment that grants broad authority to the Secretary 
of the Treasury to treat anyone who was a U.S. person at any 
time during the existence of the trust as a U.S. person in 
determining whether there are U.S. beneficiaries of the trust.
            Information reporting requirements and associated reporting 
                    penalties
                Transfers to certain nonexempt trusts
      The Senate amendment requires the grantor, transferor, or 
executor to notify the Treasury department upon the occurrence 
of certain reportable events: the creation of a foreign trust 
by a U.S. person, the transfer of money or property to a 
foreign trust by a U.S. person, and the death of a U.S. citizen 
or U.S. resident if any portion of a foreign trust was included 
in the gross estate of the decedent. The conference agreement 
modifies the Senate amendment and excludes from the definition 
of reportable events any such occurrence with respect to a 
nonexempt employees' trust that is described in section 402(b).
                Sanction for failure to appoint limited U.S. agent
      The Senate amendment provides that if a U.S. owner of any 
portion of a foreign trust fails to appoint a limited U.S. 
agent to accept service of process with respect to requests and 
summons by the Secretary of the Treasury in connection with the 
tax treatment of items related to the trust, the Secretary of 
the Treasury may determine, in its sole discretion, the amount 
to be taken into account by a U.S. person under the grantor 
trust rules. Under the conference agreement, in cases where a 
U.S. grantor of a foreign trust does not appoint such a limited 
agent, the Secretary of the Treasury may determine the amount 
to be taken into account by a U.S. person under the grantor 
trust rules. In this regard, the conferees intend that the 
Treasury Secretary's exercise of its authority to make such a 
determination will be subject to judicial review under an 
arbitrary or capricious standard, which accordingly provides a 
high degree of deference to such determination.
                Sanction for failure to maintain adequate records
      The conference agreement clarifies the provision of the 
Senate amendment which provides that in cases where adequate 
records are not provided to the Treasury department to 
determine the proper treatment of any distributions from a 
foreign trust, the distribution includible in the gross income 
of the distributee generally will be treated as an accumulation 
distribution includible in the gross income of the distributee 
from a foreign trust. Under the conference agreement, when a 
U.S. distributee does not provide sufficient records, the 
accumulation distribution is deemed to come from the trust's 
average year (i.e., the number of years that the trust has been 
in existence divided by two) for purposes of computing the 
interest charge applicable to such distribution.
            Reporting of certain foreign gifts
      The Senate amendment generally requires any U.S. person 
(other than certain tax-exempt organizations) that receives 
purported gifts or bequests from foreign sources totaling more 
than $10,000 during the taxable year to report them to the 
Treasury department. Under the conference agreement, the 
threshold for this reporting requirement is indexed for 
inflation.

   18. Treatment of financial asset securitization investment trusts 
           (``FASITs'') (sec. 12851 of the Senate amendment)

Present law
      An individual can own income-producing assets directly, 
or indirectly through an entity (i.e., a corporation, 
partnership, or trust). Where an individual owns assets through 
an entity (e.g., a corporation), the nature of the interest in 
the entity (e.g., stock of a corporation) is different than the 
nature of the assets held by the entity (e.g., assets of the 
corporation).
      Securitization is the process of converting one type of 
asset into another and generally involves the use of an entity 
separate from the underlying assets. In the case of 
securitization of debt instruments, the instruments created in 
the securitization typically have different maturities and 
characteristics than the debt instruments that are securitized.
      Entities used in securitization include entities that are 
subject to tax (e.g., a corporation), conduit entities that 
generally are not subject to tax (e.g., a partnership, grantor 
trust, or real estate mortgage investment conduit (``REMIC'')), 
or partial-conduit entities that generally are subject to tax 
only to the extent income is not distributed to owners (e.g., a 
trust, real estate investment trust (``REIT''), or regulated 
investment company (``RIC'')).
      There is no statutory entity that facilitates the 
securitization of revolving, non-mortgage debt obligations.
House bill
      No provision.
Senate amendment
      The Senate amendment creates a new type of statutory 
entity called a ``financial asset securitization investment 
trust'' (``FASIT'') that facilitates the securitization of debt 
obligations such as credit card receivables, home equity loans, 
and auto loans. A FASIT generally will not be taxable; the 
FASIT's taxable income or net loss will flow through to the 
owner of the FASIT.
      The ownership interest of a FASIT generally will be 
required to be entirely held by a single domestic C 
corporation. In addition, a FASIT generally may hold only 
qualified debt obligations, and certain other specified assets, 
and will be subject to certain restrictions on its activities. 
An entity that qualifies as a FASIT can issue instruments that 
meet certain specified requirements and treat those instruments 
as debt for Federal income tax purposes. Instruments issued by 
a FASIT bearing yields to maturity over 5 percentage points 
above the yield to maturity on specified United States 
government obligations (i.e., ``high-yield interests'') may be 
held only by domestic C corporations that are not exempt from 
income tax.
      Effective date.--The provisions take effect on the date 
of enactment.
Conference agreement
            In general
      The conference agreement adopts the provisions of the 
Senate amendment with modifications. Thus, the conference 
agreement creates a new type of statutory entity called a 
``financial asset securitization investment trust'' (``FASIT'') 
that facilitates the securitization of debt obligations such as 
credit card receivables, home equity loans, and auto loans. A 
FASIT generally will not be taxable; the FASIT's taxable income 
or net loss will flow through to the owner of the FASIT.
      The ownership interest of a FASIT generally will be 
required to be entirely held by a single domestic C 
corporation. The conferees expect that the Treasury Department 
will issue guidance on how this rule would apply to cases in 
which the entity that owns the FASIT join in the filing of a 
consolidated return with other members of the group that wish 
to hold an ownership interest in the FASIT. In addition, a 
FASIT generally may hold only qualified debt obligations, and 
certain other specified assets, and will be subject to certain 
restrictions on its activities. An entity that qualifies as a 
FASIT can issue instruments that meet certain specified 
requirements and treat those instruments as debt for Federal 
income tax purposes. Instruments issued by a FASIT bearing 
yields to maturity over 5 percentage points above the yield to 
maturity on specified United States government obligations 
(i.e., ``high-yield interests'') may be held only by domestic C 
corporations that are not exempt from income tax.
            Qualification as a FASIT
                In general
      To qualify as a FASIT an entity must: (1) make an 
election to be treated as a FASIT for the year of the election 
and all subsequent years; (2) have assets substantially all of 
which (including assets that the FASIT is treated as owning 
because they support regular interests) are specified types 
called ``permitted assets;'' (3) have non-ownership interests 
be certain specified types of debt instruments called ``regular 
interests''; (4) have a single ownership interest which is held 
by an ``eligible holder''; and (5) not qualify as a RIC.69
    \69\ The Senate amendment also required that an entity cannot be a 
FASIT if any person other than the FASIT's owner holds the right to 
receive excess servicing fees with respect to permitted debt 
instruments. The conference agreement deleted this requirement in favor 
of a requirement that gain on retained servicing fees and other 
stripped interests be recognized.
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                Election to be a FASIT
      Once an election to be a FASIT is made, the election 
applies for that year and all subsequent years until the entity 
ceases to be a FASIT.70 Once an entity ceases to be a 
FASIT, it is not a FASIT for that year or any subsequent year. 
Nonetheless, an entity can continue to be a FASIT where the 
Treasury Department determines that the entity inadvertently 
ceases to be a FASIT, steps are taken reasonably soon after it 
is discovered that the entity ceased being a FASIT so that it 
again qualifies as a FASIT, and the FASIT and its owner take 
those steps that the Treasury Department deems necessary. If an 
election to be a FASIT is made after the initial year of an 
entity, all of the assets in the entity at the time of the 
FASIT election are deemed contributed to the FASIT at that time 
and, accordingly, any gain (but not loss) on such assets will 
be recognized at that time.
    \70\ The Senate amendment required that the election to be a FASIT 
must be made on its return for its first year. The conference agreement 
deleted this rule.
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                Permitted assets
      In general.--For an entity or arrangement to qualify as a 
FASIT, substantially all of its assets must consist of the 
following ``permitted assets'': 71 (1) cash and cash 
equivalents; 72 (2) certain permitted debt instruments; 
(3) certain foreclosure property; (4) certain instruments or 
contracts that represent a hedge or guarantee of debt held or 
issued by the FASIT; and (5) contract rights to acquire 
permitted debt instruments or hedges. A FASIT must meet the 
asset test at the 90th day after its formation and at all times 
thereafter. Permitted assets may be acquired at any time by a 
FASIT, including any time after its formation.
    \71\ The conference agreement deleted the provision in the Senate 
amendment that included a partnership interest as a permitted asset if 
all of the assets of the partnership are permitted debt instruments and 
the partnership interest provides the partner with an undivided 
interest in those permitted debt instruments.
    \72\ The Senate amendment provided that permitted assets included 
investments of amounts received from permitted debt obligations for a 
temporary period before distributions to regular and ownership 
interests in the FASIT. The conference agreement expanded the 
definition of permitted assets to include cash and cash equivalents and 
deleted the category for temporary period investments.
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      Permitted debt instruments.--A debt instrument will be a 
permitted asset only if the instrument is indebtedness for 
Federal income tax purposes and it bears (1) fixed interest or 
(2) variable interest of a type that relates to qualified 
variable rate debt (as defined in Treasury regulations 
prescribed under sec. 860G(a)(1)(B)). Except for cash 
equivalents, permitted debt obligations cannot be obligations 
issued, directly or indirectly, by the owner of the FASIT or a 
related person.
      Foreclosure property.--Permitted assets include property 
acquired on default (or imminent default) of debt instruments 
held by the FASIT that would be foreclosure property to a REIT 
(under sec. 856(e)) or would be foreclosure property to a REIT 
but for certain leases entered into or construction performed 
(as described in sec. 856(e)(4)) while held by the FASIT.
      Hedges.--Permitted assets include interest rate or 
foreign currency notional principal contracts, letters of 
credit, insurance, guarantees against payment defaults, or 
other similar instruments as permitted under Treasury 
regulations, which are reasonably required to guarantee or 
hedge against the FASIT's risks associated with being the 
obligor of regular interests.
                ``Regular interests'' of a FASIT
      Under the conference agreement, ``regular interests,'' 
including ``high-yield interests,'' of a FASIT are treated as 
debt for Federal income tax purposes regardless of whether 
instruments with similar terms issued by non-FASITs might be 
characterized as equity under general tax principles. To be 
treated as a ``regular interest,'' an instrument must have 
fixed terms and must: (1) unconditionally entitle the holder to 
receive a specified principal amount; (2) pay interest that is 
based on (a) one or more rates that are fixed, (b) rates that 
measure contemporaneous variations in the cost of newly 
borrowed funds, or (c) to the extent permitted by Treasury 
regulations, variable rates allowed to regular interests of a 
REMIC if the FASIT would otherwise qualify as a REMIC; (3) have 
a term to maturity of no more than 30 years, except as 
permitted by Treasury regulations; (4) be issued to the public 
with a premium of not more than 25 percent of its stated 
principal amount; and (5) have a yield to maturity at issue of 
no more than 5 percentage points above the applicable Federal 
rate (AFR) for the calendar month in which the instrument is 
issued.
      A FASIT also may issue high-yield debt instruments, which 
includes any debt instrument issued by a FASIT that meets the 
second and third conditions described above, so long as such 
interests are not held by a disqualified holder. A 
``disqualified holder'' generally is any holder other than (1) 
a domestic C corporation that does not qualify as a RIC, REIT, 
REMIC, or cooperative 73 or (2) a dealer who acquires 
FASIT debt for resale to customers in the ordinary course of 
business.74 An excise tax is imposed at the highest 
corporate rate on a dealer if there is a change in dealer 
status or if the holding of the instrument is for investment 
purposes. A 31-day grace period is granted before ownership of 
an interest held by a dealer generally could be treated as held 
by the FASIT owner for investment purposes.
    \73\ The Senate amendment did not include cooperatives as a 
disqualified holder. The conferees believe that cooperatives also 
should be treated as disqualified holders since cooperatives, like RICs 
and REITs, are treated as pass-through entities and, also like the 
owners of RIC's and REITs, the cooperative's members and patrons need 
not be C corporations.
    \74\ The Senate amendment also excluded from a disqualified holder 
a dealer in goods and services provided that the permitted debt 
instruments in the FASIT exclusively were loans made by a dealer in the 
ordinary course of his business to finance the dealer's goods or 
services. The conference agreement deleted this rule. In addition, in 
the case of a securities dealer which may be an eligible holder, the 
conferees understand that the mark-to-market rule of section 475 will 
not apply to an ownership interest in a FASIT or assets held in the 
FASIT.
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                Permitted ownership holder
      A permitted holder of the ownership interest in a FASIT 
generally is a non-exempt domestic C corporation, other than a 
corporation that qualifies as a RIC, REIT, REMIC, or 
cooperative.
            Transfers to non-permitted holders of high-yield interest
      A transfer of a high-yield interest to a disqualified 
holder is to be ignored for Federal income tax purposes. Thus, 
such a transferor will continue to be liable for any taxes due 
with respect to the transferred interest.
            Taxation of a FASIT
                In general
      A FASIT generally is not subject to tax. Instead, all of 
the FASIT's assets and liabilities are treated as assets and 
liabilities of the FASIT's owner and any income, gain, 
deduction or loss of the FASIT is allocable directly to its 
owner.75 Any securities held by the FASIT that are treated 
as held its owner are treated as held for investment. The 
taxable income of a FASIT is calculated using an accrual method 
of accounting. The constant yield method and principles that 
apply for purposes of determining OID accrual on debt 
obligations whose principal is subject to acceleration apply to 
all debt obligations held by a FASIT to calculate the FASIT's 
interest and discount income and premium deductions or 
adjustments. For this purpose, a FASIT's income does not 
include any income subject to the 100-percent penalty excise 
tax on prohibited transactions and a deduction is allowed for 
the corporate tax paid on income from foreclosure property.
    \75\ The Senate amendment required that the taxable income of a 
FASIT generally is calculated as if it were a partnership. The 
conference agreement deleted this rule in favor of a rule stating that 
the FASIT's owner include all of the FASIT's assets, liabilities, 
income, gain, deductions, losses and credits in computing its Federal 
income tax since the Senate amendment's partnership rule might result 
in unexpected erroneous consequences where the FASIT can have only one 
owner. The conference agreement retained the rule of the Senate 
amendment that treats tax-exempt interest to the FASIT as taxable 
ordinary income to the FASIT owner. The Senate amendment required that 
the FASIT have the same taxable year as its owner. The conference 
agreement deleted this requirement as unnecessary in light of the 
conference agreement's adoption of a flow-through rule in lieu of the 
partnership rule.
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                Income from foreclosure property
      A FASIT is subject to tax at the highest corporate rate 
on net income from any foreclosure property that was acquired 
in connection with the default or imminent default of a 
permitted debt obligation. For this purpose, property is 
foreclosure property if it would be foreclosure property to a 
REIT, determined without the special rules for leased property 
or property under construction (sec. 856(e)(4)). Foreclosure 
property does not include property acquired pursuant to a 
security interest that was created for the principal purpose of 
having the FASIT acquire such property.
                Income from prohibited transactions
      In addition to any tax on foreclosure property, a FASIT 
is required to pay a penalty excise tax equal to 100 percent of 
net income derived from (1) an asset that is not a permitted 
asset, (2) any disposition of an asset other than a permitted 
disposition, (3) any income attributable to loans originated by 
the FASIT,76 and (4) compensation for services (other than 
fees for a waiver, amendment, or consent under permitted assets 
not acquired through foreclosure). A permitted disposition is 
any disposition (1) arising from complete liquidation of a 
class of regular interests (i.e., a qualified liquidation), (2) 
incident to the foreclosure, default, or imminent default of 
the asset, (3) incident to the bankruptcy or insolvency of the 
FASIT, (4) necessary to avoid a default on any indebtedness of 
the FASIT attributable to a default (or imminent default) on an 
asset of the FASIT, (4) to facilitate a clean-up call, or (5) 
to substitute a permitted debt instrument for another such 
instrument in order to reduce over-collateralization where a 
principal purpose of the disposition was not to avoid 
recognition of gain arising from an increase in its market 
value after its acquisition by the FASIT.
    \76\ The conference agreement added this rule.
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            Taxation of interests in the FASIT
                Taxation of holders of regular interests
      In general.--A holder of a regular interest, including a 
high-yield interest, is taxed in the same manner as a holder of 
any other debt instrument, except that the regular interest 
holder is required to account for income relating to the 
interest on an accrual method of accounting, regardless of the 
method of accounting otherwise used by the holder.
      High-yield interests.--Holders of high-yield interests 
are not allowed to use net operating losses to offset any 
income derived from the high-yield debt. Any net operating loss 
carryover shall be computed by disregarding any income arising 
by reason of the disallowed loss.
      In addition, a transfer of a high-yield interest to a 
disqualified holder is not recognized for Federal income tax 
purposes such that the transferor will continue to be taxed on 
the income from the high-yield interest unless the transferee 
provides the transferor with an affidavit that the transferee 
is not a disqualified person or the Treasury Secretary 
determines that the high-yield interest is no longer held by a 
disqualified person and a corporate tax has been paid on the 
income from the high-yield interest while it was held by a 
disqualified person. High-yield interests may be held without a 
corporate tax being imposed on the income from the high-yield 
interest where the interest is held by a dealer in securities 
who acquired such high-yield interest for sale in the ordinary 
course of his business as a securities dealer. In such a case, 
a corporate tax is imposed on such a dealer if his reason for 
holding the high-yield interest changes to investment. There is 
a presumption that the dealer has not changed his intent for 
holding high-yield instruments to investment for the first 31 
days he holds such interests unless such holding is part of a 
plan to avoid the restriction on holding of high-yield 
interests by disqualified persons.
      Where a pass-through entity (other than a FASIT) issues 
either debt or equity instruments that are supported by regular 
interests in a FASIT and such instruments bear a yield to 
maturity greater than the yield on the regular interests or the 
applicable Federal rate plus 5 percentage points, then an 
excise tax is imposed on the pass-through entity at a rate 
equal to the highest corporate rate on the income of any holder 
of such instrument attributable to the regular 
interests.77
    \77\ The conference agreement added this provision.
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                Taxation of holder of ownership interest
      All of the FASIT's assets and liabilities are treated as 
assets and liabilities of the holder of a FASIT ownership 
interest and that owner takes into account all of the FASIT's 
income, gain, deduction, or loss in computing its taxable 
income or net loss for the taxable year. The character of the 
income to the holder of an ownership interest is the same as 
its character to the FASIT, except tax-exempt interest is taken 
into income of the holder as ordinary income.
      Losses on assets contributed to the FASIT are not allowed 
upon their contribution, but may be allowed to the FASIT owner 
upon their disposition by the FASIT. A special rule provides 
that the holder of a FASIT ownership interest cannot offset 
income from the FASIT ownership interest with any other losses. 
Any net operating loss carryover of the FASIT owner shall be 
computed by disregarding any income arising by reason of a 
disallowed loss.
      For purposes of the alternative minimum tax, the owner's 
taxable income is determined without regard to the minimum 
FASIT income. The alternative minimum taxable income of the 
FASIT owner cannot be less than the FASIT income for that year, 
and the alternative minimum tax net operating loss deduction is 
computed without regard to the minimum FASIT income.
            Transfers to and distributions from FASITs
      Gain generally is recognized immediately by the owner of 
the FASIT upon the transfer of assets to a FASIT. Assets that 
are acquired by the FASIT from someone other than its owner are 
treated as if they were acquired by the owner and then 
contributed to the FASIT. In addition, any assets of the FASIT 
owner or a related person that are used to support FASIT 
regular interests are treated as contributed to the FASIT and 
thus also aretreated as sold at the earliest date that such 
assets support any FASIT's regular interests.\78\ To the extent 
provided by Treasury regulations, gain recognition on the contributed 
assets may be deferred until such assets support regular interests 
issued by the FASIT or any indebtedness of the owner or related person. 
These regulations may adjust other statutory FASIT provisions to the 
extent such provisions are inconsistent with such regulations. For 
example, such regulations may disqualify certain assets as permitted 
assets.
    \78\ The Senate amendment directly reached that result since it 
provided that any assets of the FASIT's owner or its related person are 
treated as sold at the earliest date that such assets support of the 
FASIT's regular interests.
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      A distribution of assets by a FASIT with respect to a 
regular or ownership interest generally is treated as a sale of 
the assets and distribution of the sale proceeds. The conferees 
understand that gain may be recognized if the FASIT distributes 
assets to retire a regular interest because such a transaction 
is treated as a sale or exchange.
      The basis of any FASIT asset is increased by the amount 
of the taxable gain recognized on the contribution of the 
assets to, or distribution of the assets from, the FASIT.
            Valuation rules
      In general, except in the case of debt instruments, the 
value of FASIT assets is their fair market value. The 
conference agreement contains special rules for valuing debt 
instruments for purposes of computing gain on the transfer to 
or from a FASIT.79 Under these rules, the value of debt 
instruments generally is the sum of the present values of the 
reasonably expected cash flows from such obligations discounted 
over the weighted average life of such assets. The discount 
rate is 120 percent of the applicable Federal rate, compounded 
semiannually, or such other rate that the Treasury Secretary 
shall prescribe by regulations.80 For purposes of 
determining the value of a pool of revolving loan accounts 
having substantially the same terms, each extension of credit 
(other than the accrual of interest) is treated as a separate 
debt instrument and the maturity of the instruments is 
determined using the reasonably anticipated periodic payment 
rate at which principal payments will be made as a proportion 
of their aggregate outstanding principal balances assuming that 
payments are applied to the earliest credit extensions. The 
conferees understand that reasonably expected cash flows from 
loans will reflect nonpayments (i.e., losses) and early 
payments (i.e., prepayments), but not costs of servicing the 
loans.
    \79\ The Senate amendment provided that the valuation rules only 
applied in determining the value of assets contributed to the FASIT. 
The conference agreement extended the valuation rules to distributions 
from a FASIT.
    \80\ The Senate amendment provided that the discount rate be 130 
percent of the applicable Federal rate (AFR). Since the conference 
agreement allows the reasonably expected cash flows to reflect losses, 
the conferees believe that the proper rate to discount those net cash 
flows should be 120 percent of the AFR.
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            Related person
      For purposes of the FASIT rules, a person is related to 
another person if that person bears a relationship to the other 
person specified in sections 267(b) or 707(b)(1), using a 20-
percent ownership test instead of the 50-percent test, or such 
persons are engaged in trades or businesses under common 
control as determined under sections 52(a) or (b).
            Effective date
      The provisions of the conference agreement take effect on 
the date of enactment.

    19. Treatment of contributions in aid of construction for water 
           utilities (sec. 12861(a) of the Senate amendment)

Present and prior law
      The gross income of a corporation does not include 
contributions to its capital. A contribution to the capital of 
a corporation does not include any contribution in aid of 
construction or any other contribution as a customer or 
potential customer.
      Prior to the enactment of the Tax Reform Act of 1986 
(``1986 Act''), a regulated public utility that provided 
electric energy, gas, water, or sewage disposal services was 
allowed to treat any amount of money or property received from 
any person as a tax-free contribution to its capital so long as 
such amount: (1) was a contribution in aid of construction; and 
(2) was not included in the taxpayer's rate base for rate-
making purposes. A contribution in aid of construction did not 
include a connection fee. The basis of any property acquired 
with a contribution in aid of construction was zero.
      If the contribution was in property other than electric 
energy, gas, steam, water, or sewerage disposal facilities, 
such contribution was not includible in the utility's gross 
income so long as: (1) an amount at least equal to the amount 
of the contribution was expended for the acquisition or 
construction of tangible property that was used predominantly 
in the trade or business of furnishing utility services; (2) 
the expenditure occurred before the end of the second taxable 
year after the year that the contribution was received; and (3) 
certain records were kept with respect to the contribution and 
the expenditure. In addition, the statute of limitations for 
the assessment of deficiencies was extended in the case of 
these contributions.
      These rules were repealed by the 1986 Act. Thus, after 
the 1986 Act, the receipt by a utility of a contribution in aid 
of construction is includible in the gross income of the 
utility, and the basis of property received or constructed 
pursuant to the contribution is not reduced.
House bill
      No provision.
Senate amendment
      The Senate amendment restores the contributions in aid of 
construction provisions that were repealed by the 1986 Act for 
regulated public utilities that provide water or sewerage 
disposal services.
      Effective date.--The provision is effective for amounts 
received after the date of enactment.
Conference agreement
      The conference agreement follows the Senate amendment.

  20. Require water utility property to be depreciated over 25 years 
                (sec. 12861(b) of the Senate amendment)

Present law
      Property used by a water utility in the gathering, 
treatment, and commercial distribution of water and municipal 
sewers are depreciated over a 20-year period for regular tax 
purposes. The depreciation method generally applicable to 
property with a recovery period of 20 years is the 150-percent 
declining balance method (switching to the straight-line method 
in the year that maximizes the depreciation deduction). The 
straight-line method applies to property with a recovery period 
over 20 years.
House bill
      No provision.
Senate amendment
      The Senate amendment provides that water utility property 
will be depreciated using a 25-year recovery period and the 
straight-line method for regular tax purposes. For this 
purpose, ``water utility property'' means (1) property that is 
an integral part of the gathering, treatment, or commercial 
distribution of water, and that, without regard to the 
proposal, would have had a recovery period of 20 years and (2) 
any municipal sewer. Such property generally is described in 
Asset Classes 49.3 and 51 of Revenue Procedure 87-56, 1987-2 
C.B. 674. The Senate amendment does not change the class lives 
of water utility property for purposes of the alternative 
depreciation system of section 168(g).
      Effective date.--The provision is effective for property 
placed in service after the date of enactment, other than 
property placed in service pursuant to a binding contract in 
effect on such date and at all times thereafter before the 
property is placed in service.
Conference agreement
      The conference agreement follows the Senate amendment.

    21. Allow amortization for intrastate operating rights of motor 
             carriers (sec. 12862 of the Senate amendment)

Present law and background
      A taxpayer is allowed to write-off and deduct the 
adjusted basis of property used in trade or business when such 
property becomes worthless (sec. 165). A deduction is not 
allowed if the property merely loses value but does not become 
worthless. For example, in CRST, Inc., 909 F2d. 1146 (8th Cir. 
1990), a motor carrier was denied a worthlessness deduction for 
the basis of operating authorities that had become less 
valuable, but not worthless, due to deregulation.
      Effective January 1, 1995, section 601 of the Federal 
Aviation Administration Authorization Act of 1994 preempts and 
prohibits State regulation of the price, route, or service of 
intrastate operations of motor carriers. In 1980, Congress 
similarly deregulated the operation of interstate motor 
carriers. Pursuant to section 266 of the Economic Recovery Tax 
Act of 1981, Congress allowed taxpayers who held operating 
authorities as of the effective date of such deregulation to 
amortize the adjusted basis of the authorities over a 60-month 
period.
House bill
      No provision.
Senate amendment
      The Senate amendment allows a taxpayer who held, on 
January 1, 1995, one or more operating authorities that were 
preempted by section 601 of the Federal Aviation Administration 
Authorization Act of 1994, to amortize the aggregate adjusted 
bases of such authorities ratably (i.e., on straight-line 
basis) over the 36-month period beginning January 1, 1995. The 
amortization deductions provided under the amendment are 
treated as depreciation deductions for purposes of the Internal 
Revenue Code.
      Effective date.--The provision is effective for taxable 
years ending on or after January 1, 1995.
Conference agreement
      The conference agreement follows the Senate amendment.

  22. establish 15-year recovery period for retail motor fuels outlet 
              stores (sec. 12863 of the senate amendment)

Present law
      Under present law, property used in the retail gasoline 
trade is depreciated under section 168 using a 15-year recovery 
period and the 150-percent declining balance method. 
Nonresidential real property (such as a convenience store) is 
depreciated using a 39-year recovery period and the straight-
line method. It is understood that taxpayers generally have 
taken the position that convenience stores and other buildings 
installed at retail motor fuels outlets have a 15-year recovery 
period. The IRS, in a position described in a recent 
Coordinated Issues Paper, generally limits the application of 
the 15-year recovery period to instances where the structure: 
(1) is 1,400 square feet or less or (2) meets a 50-percent 
test. The 50-percent test is met if: (1) 50 percent or more of 
the gross revenues that are generated from the building are 
derived from petroleum sales and (2) 50 percent or more of the 
floor space in the building is devoted to petroleum marketing 
sales.
House bill
      No provision.
Senate amendment
      The Senate amendment provides that 15-year property 
includes any section 1250 property (generally, depreciable real 
property) that is a retail motor fuels outlet (whether or not 
food or other convenience items are sold at the outlet). A 
retail motor fuels outlet does not include any facility related 
to petroleum or natural gas trunk pipelines or to any section 
1250 property used only to an insubstantial extent in the 
retail marketing of petroleum or petroleum products.
      Effective date.--The provision is effective for property 
placed in service before, on, or after the date of enactment 
and to which the amendments made by section 201 of the Tax 
Reform Act of 1986 apply (i.e., property subject to the 
modified Accelerated Cost Recovery System of sec. 168). The 
taxpayer may elect to forego the application of the provision 
for any property placed in service prior to the date of 
enactment.
Conference agreement
      The conference agreement follows the Senate amendment, 
with modifications.
      The conference agreement provides a 20-year class life 
for retail motor fuels outlets for purposes of the alternative 
depreciation system of section 168(g).
      In addition, the conferees wish to clarify what types of 
property qualify as a retail motor fuels outlet. Section 1250 
property will so qualify if it meets a 50-percent test. The 50-
percent test is met if : (1) 50 percent or more of the gross 
revenues that are generated from the property are derived from 
petroleum sales or (2) 50 percent or more of the floor space in 
the property is devoted to petroleum marketing sales. The 
conferees intend that the determination of whether either prong 
of this test is met will be made pursuant to the recent 
Coordinated Issue Paper. Property not meeting the test will not 
qualify as a retail motor fuels outlet. For property placed in 
service in taxable years that end after the date of enactment, 
the determination of whether the property meets the 50-percent 
test generally will be made in the year the property is placed 
in service. However, the test may be applied in the subsequent 
taxable year if the property is placed in service near the end 
of the taxable year and the use of the property during such 
short period is not representative of the subsequent use of the 
property. The conferees intend that with respect to property 
placed in service in taxable years that ended before the date 
of enactment of the provision, the determination of whether the 
property meets the 50-percent test generally will be made in a 
manner consistent with the manner in which the 50-percent test 
of the current Coordinated Issues Paper is applied (but by 
substituting the disjunctive test of the conference agreement 
for the present conjunctive test of the Paper). The conferees 
also intend that if property meets (or fails to meet) the 50-
percent test but subsequently fails to meet (or meets) such 
test for more than a temporary period, such failure (or 
qualification) may be treated as a change in the use of 
property to which section 168(I)(5) applies.
      In addition, property the size of which is 1,400 square 
feet or less also will qualify if such property would have 
qualified under the current Coordinated Issues Paper.

 23. application of failure-to-pay penalty to substitute returns (sec. 
    13639 of the house bill and sec. 12871 of the senate amendment)

Present law
      Section 6651(a)(2) provides that the IRS may assess a 
penalty for failure to pay tax from the due date of the return 
until the tax is paid. If no return is filed by the taxpayer 
and the IRS files a substitute return under section 6020, the 
tax on which the penalty is measured is considered a deficiency 
assessable under section 6212 or 6213, and the failure to pay 
penalty begins to accumulate 10 days after the IRS sends the 
taxpayer a notice and demand for payment of the tax.
House bill
      The House bill applies the failure to file penalty to 
substitute returns in the same manner as the penalty applies to 
delinquent filers.
      Effective date.--The provision applies in the case of any 
return the due date for which (determined without regard to 
extensions) is after the date of enactment.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

 24. repeal exemption for withholding on gambling winnings from bingo 
and keno where proceeds exceed $5,000 (sec. 13633 of the house bill and 
                  sec. 12872 of the senate amendment)

Present law
      In general, proceeds from a wagering transaction are 
subject to withholding at a rate of 28 percent if the proceeds 
exceed $5,000 and are at least 300 times as large as the amount 
wagered. No withholding tax is imposed on winnings from bingo 
or keno.
House bill
      The House bill imposes withholding on proceeds from bingo 
or keno wagering transactions at a rate of 28 percent if such 
proceeds exceed $5,000, regardless of the odds of the wager.
      Effective date.--The provision is effective on January 1, 
1996.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

 25. treatment of certain gains and losses of life insurance companies 
       under section 818(b) (sec. 12873 of the senate amendment)

Present law
      In the case of a taxpayer that is a corporation, losses 
from the sale or exchange of a capital asset generally are 
allowed only to the extent of gains from such sales or 
exchanges (sec. 1211(a)). A loss on the sale or exchange of 
property used in the trade or business of the taxpayer, 
however, is treated as an ordinary loss, rather than as a loss 
from the sale or exchange of a capital asset (secs. 1221(2)). 
In addition, if losses from property used in the trade or 
business equal or exceed a taxpayer's gains from such property, 
then the gains and losses are treated as ordinary (sec. 1231).
      A special limitation on ordinary loss treatment applies 
in the case of a life insurance company, under section 818(b). 
Section 818(b) provides that property used in the trade or 
business includes only property used in carrying on an 
insurance business. Thus, for example, a loss on the sale or 
exchange of real estate that is held by a life insurance 
company and that is not used in the insurance business is 
treated as a capital loss, and is allowed only to the extent of 
the taxpayer's capital gain.
      Capital losses of a corporation generally may be carried 
back to each of the three taxable years preceding the loss 
year, and forward to each of the five taxable years succeeding 
the loss year (sec. 1212).
House bill
      No provision.
Senate amendment
      Under the Senate amendment, capital loss treatment under 
present-law section 818(b) does not apply to 85 percent of a 
life insurance company's losses from the sale or exchange of 
foreclosed real estate. Losses from such property are treated 
as ordinary losses allowable in equal amounts over each of the 
first 10 taxable years following the year of disposition. 
Present-law capital loss treatment under section 818(b) is 
retained for the remaining 15 percent of such losses. 
Foreclosure property means real property used in the trade or 
business that is acquired by a life insurance company as the 
result of (1) such company having bid on such property at 
foreclosure, or (2) such company having otherwise reduced such 
property to ownership or possession by agreement or process of 
law, after there was a default (or default was imminent) on 
indebtedness which such property secured.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1994.
Conference agreement
      The conference agreement follows the Senate amendment, 
with modifications.
      Under the conference agreement, a life insurance company 
may elect ordinary loss treatment for up to 20 percent of the 
losses for a taxable year from the sale or exchange of 
foreclosure property. The amount of the loss from foreclosure 
property for which the taxpayer elects ordinary loss treatment 
is amortized and recognized ratably over the 10-taxable-year 
period beginning with the taxable year following the taxable 
year in which the sale or exchange of the foreclosure property 
occurred.
      Two further elections are provided under the conference 
agreement, in addition to the first election under the 
provision described in the previous paragraph. Under the second 
election, the taxpayer may elect for any of the taxable years 
in a ``change period'' to change the percentage of the loss 
from sale or exchange of foreclosure property that was treated 
as ordinary loss and amortized over a 10-taxable-year period. 
In no event may the percentage exceed 20 percent of the loss 
from sale or exchange of foreclosure property for the taxable 
year of such sale or exchange. If the taxpayer elects to change 
the percentage, the changed percentage is treated as if it were 
the percentage the taxpayer elected in the year of the sale or 
exchange of the foreclosure property. Proper adjustments must 
be made for all taxable years to reflect the change. The 
``change period'' is the 3-taxable-year period following the 
taxable year in which the sale or exchange of the foreclosure 
property occurred.
      For purposes of the statute of limitations only, any such 
change in the percentage made during the ``change period'' is 
treated as a capital loss carryback from the year of the 
change.
      The conference agreement provides a third election. The 
taxpayer may elect to treat as a capital loss arising in the 
taxable year of this third election any unused amount of an 
ordinary loss from sale or exchange of foreclosure property 
that was amortized over a 10-taxable-year period under the 
provision. The unused amount of such a loss is the amount of 
the amortizable portion of the loss that has not been 
recognized as of the close of the preceding taxable year. This 
third election may be made only for any taxable year in the 5-
taxable-year period following the taxable year in which the 
sale or exchange of the foreclosure property occurred. 81
    \81\ This period parallels the 5-year period during which the 
taxpayer could have carried forward the loss, had it been a capital 
loss.
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      An ordering rule is provided under the third election. 
The unused amount of the loss is treated as coming first from 
the last taxable year in the 10-taxable year period of 
amortization, and then from each preceding taxable year in 
reverse chronological order.
      Any of the elections under the provision must be made on 
or before the due date (including extensions) for the tax 
return of the taxable year of the election.
      The definition of foreclosure property and the effective 
date are the same as provided in the Senate amendment.

26. clarify treatment of newspaper distributors and carriers as direct 
              sellers (sec. 12874 of the senate amendment)

Present law
      For Federal tax purposes, there are two classifications 
of workers: a worker is either an employee of the service 
recipient or an independent contractor. Significant tax 
consequences result from the classification of a worker as an 
employee or independent contractor. These differences relate to 
withholding and employment tax requirements, as well as the 
ability to exclude certain types of compensation from income or 
take tax deductions for certain expenses. Some of these 
consequences favor employee status, while others favor 
independent contractor status. For example, an employee may 
exclude from gross income employer-provided benefits such as 
pension, health, and group-term life insurance benefits. On the 
other hand, an independent contractor can establish his or her 
own pension plan and deduct contributions to the plan. An 
independent contractor also has greater ability to deduct work-
related expenses.
      Under present law, the determination of whether a worker 
is an employee or an independent contractor is generally made 
under a 20-factor common-law facts and circumstances test that 
seeks to determine whether the service provider is subject to 
the control of the service recipient, not only as to the nature 
of the work performed, but the circumstances under which it is 
performed. Under a special safe harbor rule (sec. 530 of the 
Revenue Act of 1978), a service recipient may treat a worker as 
an independent contractor for employment tax purposes even 
though the worker is an employee under the common-law test if 
the service recipient has a reasonable basis for treating the 
worker as an independent contractor and certain other 
requirements are met.
      In addition to the 20-factor common-law test, there are 
also some persons who are treated by statute as either 
employees or independent contractors. For example, ``direct 
sellers'' are deemed to be independent contractors. A direct 
seller is a person engaged in the trade or business of selling 
consumer products in the home or otherwise than in a permanent 
retail establishment, if substantially all the remuneration for 
the performance of the services is directly related to sales or 
other output rather than to the number of hours worked, and the 
services performed by the person are performed pursuant to a 
written contract between such person and the service recipient 
and such contract provides that the person will not be treated 
as an employee for Federal tax purposes.
      The newspaper industry has generally taken the position 
that newspaper distributors and carriers should be treated as 
direct sellers for income and employment tax purposes. The 
Internal Revenue Service has generally taken the position that 
the direct seller rules do not apply to newspaper distributors 
and carriers operating under an agency distribution system 
(i.e., where the publisher retains title to the newspapers).
House bill
      No provision.
Senate amendment
      The Senate amendment clarifies the treatment of 
qualifying newspaper distributors and carriers as direct 
sellers. Under the Senate amendment, a person engaged in the 
trade or business of the delivery or distribution of newspapers 
or shopping news (including any services that are directly 
related to such trade or business such as solicitation of 
customers or collection of receipts) qualifies as a direct 
seller, provided substantially all the remuneration for the 
performance of the services is directly related to sales or 
other output rather than to the number of hours worked, and the 
services performed by the person are performed pursuant to a 
written contract between such person and the service recipient 
and such contract provides that the person will not be treated 
as an employee for Federal tax purposes. The provision is 
intended to apply to newspaper distributors and carriers 
whether or not they hire others to assist in the delivery of 
newspapers. The provision also applies to newspaper 
distributors and carriers operating under either a buy-sell 
distribution system (i.e., where the newspaper distributors or 
carriers purchase the newspapers from the publisher) or an 
agency distribution system. For example, newspaper distributors 
and carriers operating under an agency distribution system who 
are paid based on the number of papers delivered and have an 
appropriate written agreement qualify as direct sellers. The 
status of newspaper distributors and carriers who do not 
qualify as direct sellers under the proposal continue to be 
determined under present-law rules. No inference is intended 
with respect to the employment status of newspaper distributors 
and carriers prior to the effective date of the provision.
      Effective date.--The provision is effective with respect 
to services performed after December 31, 1995.
Conference agreement
      The conference agreement follows the Senate amendment. 
This provision is intended to clarify the worker classification 
issue for income and employment taxes only. The conferees do 
not intend this provision to have any impact whatsoever on the 
interpretation or applicability of Federal, State, or local 
labor laws.

   27. allow bank common trust funds to transfer assets to regulated 
    investment companies without taxation (sec. 12875 of the senate 
                               amendment)

Present law
      The common trust fund of a bank is not subject to tax and 
is not treated as a corporation. Each participant in a common 
trust fund includes his proportional share of common trust fund 
income, whether or not the income is distributed or 
distributable. Participants generally treat their admission to 
the fund as the purchase of an interest. Withdrawals from the 
fund generally are treated as the sale of an interest by the 
participant.
      A RIC also is treated as a conduit for Federal income tax 
purposes. Present law is unclear as to the tax consequences 
when a common trust fund transfers its assets to one or more 
RICs.
House bill
      No provision.
Senate amendment
      The Senate amendment permits a common trust fund to 
transfer substantially all of its assets to one or more RICs 
without gain or loss being recognized by the fund or its 
participants. The fund must transfer its assets to the RICs 
solely in exchange for shares of the RICs, and the fund must 
then distribute the RIC shares to the fund's participants in 
exchange for the participant's interests in the fund.
      The basis of any asset that is received by a RIC will be 
the basis of the asset in the hands of the fund prior to 
transfer. In addition, the basis of any RIC shares that are 
received by a fund participant will be an allocable portion of 
the participant's basis in the interests exchanged.
      Effective date.--Transfers after December 31, 1995.
Conference agreement
      The conference agreement follows the Senate amendment.

 28. remove business exclusion for energy subsidies provided by public 
                utilities (sec. 13622 of the house bill)

Present law
      Internal Revenue Code section 136, as added by the Energy 
Policy Act of 1992, provides an exclusion from the gross income 
of a customer of a public utility for the value of any subsidy 
provided by the utility for the purchase or installation of an 
energy conservation measure with respect to a dwelling unit (as 
defined by sec. 280A(f)(1)). In addition, for subsidies 
received after 1994, section 136 provides a partial exclusion 
from gross income for the value of any subsidy provided by a 
utility for the purchase or installation of an energy 
conservation measure with respect to property that is not a 
dwelling unit. The amount of the exclusion is 40 percent of the 
value for subsidies received in 1995, 50 percent of the value 
for subsidies received in 1996, and 65 percent of the value for 
subsidies received after 1996.
      For this purpose, an energy conservation measure is any 
installation or modification primarily designed to reduce 
consumption of electricity or natural gas or to improve the 
management of energy demand with respect to property. With 
respect to property other than a dwelling unit, an energy 
conservation measure includes ``specially defined energy 
property'' (generally, property described in sec. 48(l)(5) of 
the Code as in effect on the day before the date of enactment 
of the Revenue Reconciliation Act of 1990).
      The exclusion does not apply to payments made to or from 
a qualified cogeneration facility or a qualifying small power 
production facility pursuant to section 210 of the Public 
Utility Regulatory Policy Act of 1978.
      Section 136 denies a deduction or credit to a taxpayer 
(or in appropriate cases requires a reduction in the adjusted 
basis of property of a taxpayer) for any expenditure to the 
extent that a subsidy related to the expenditure was excluded 
from the gross income of the taxpayer.
House bill
      The House bill repeals the partial exclusion for any 
subsidy provided by a utility for the purchase or installation 
of an energy conservation measure with respect to property that 
is not a dwelling unit.
      Effective date.--The provision is effective for subsidies 
received after September 13, 1995, unless received pursuant to 
a binding written contract in effect on that date and all times 
thereafter.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill, except 
that the provision is effective for subsidies received after 
December 31, 1995, unless received pursuant to a binding 
written contract in effect on September 13, 1995, and all times 
thereafter.

 29. require taxpayers to include rental value of residence in income 
   without regard to period of rental (sec. 13640 of the house bill)

Present law
      Gross income for purposes of the Internal Revenue Code 
generally includes all income from whatever source derived, 
including rents. The Code (sec. 280A(g)) provides a de minimis 
exception to this rule where a dwelling unit is used during the 
taxable year by the taxpayer as a residence and such dwelling 
unit is actually rented for less than 15 days during the 
taxable year. In this case, the income from such rental is not 
included in gross income and no deductions arising from such 
rental use are allowed as a deduction.
House bill
      The House bill repeals the 15-day rule of section 
280A(g). It also provides that no reduction in basis is 
required if the taxpayer: (1) rented the dwelling unit for less 
than 15 days during the taxable year and (2) did not claim 
depreciation on the dwelling unit for the period of rental.
      Effective date.--Taxable years beginning after December 
31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  30. allow conversion of scholarship funding corporation to taxable 
               corporation (sec. 13641 of the house bill)

Present law
      Qualified scholarship funding corporations are nonprofit 
corporations established and operated exclusively for the 
purpose of acquiring student loan notes incurred under the 
Higher Education Act of 1965 (sec. 150(d)). In addition, a 
qualified scholarship funding corporation must be required by 
its corporate charter and bylaws, or under State law, to devote 
any income (after payment of expenses, debt service and the 
creation of reserves for the same) to the purchase of 
additional student loan notes or to pay over any income to the 
United States.
      In general, State and local government bonds issued to 
finance private loans (e.g., student loans) are taxable private 
activity bonds. However, interest on qualified student loan 
bonds is tax-exempt. Qualified scholarship funding corporations 
are eligible issuers of qualified student loan bonds.
      The Internal Revenue Code restricts the direct and 
indirect investment of bond proceeds in higher yielding 
investments and requires that profits on investments that are 
unrelated to the government purpose for which the bonds are 
issued be rebated to the United States. Special allowance 
payments (SAP) made by the Department of Education are treated 
as interest on notes and, therefore, are permitted arbitrage 
that need not be rebated to the United States.
      Generally, a private foundation and disqualified persons 
may, in the aggregate, own 20 percent of the voting stock of a 
functionally unrelated corporation.
House bill
      In general.--The House bill provides that a nonprofit 
student loan funding corporation may elect to cease its status 
as a qualified scholarship funding corporation. If the 
corporation meets the requirements outlined below, such an 
election will not cause any bond outstanding as of the date of 
the issuer's election and any bond issued to refund such a bond 
to fail to be a qualified student loan bond. Once made, an 
election may be revoked only with the consent of the Secretary 
of Treasury. After making the election, the issuer is not 
authorized to issue any new bonds.
      Requirements.--First, upon making the election, the 
issuer is required to transfer all of the student loan notes to 
another, taxable, corporation in exchange for senior stock of 
such corporation within a reasonable period of time after the 
election is made. Immediately after the transfer, the issuer, 
and any other issuer who made the election, is required to hold 
all of the senior stock of the corporation. Senior stock is 
stock whose rights to dividends, liquidation or redemption 
rights are not inferior to those of any other class of stock 
and that (1) participates pro rata and fully in the equity 
value of any other common stock of the corporation, (2) has the 
right to payments receivable in liquidation prior to any other 
stock in the corporation, (3) upon liquidation or redemption, 
has a fixed right to receive the greater of (a) the fair market 
value of the stock at the date of liquidation or redemption or 
(b) the net fair market value of all assets transferred to the 
corporation by the issuer, and (4) has a right to require its 
redemption by a date which is not later than 10 years after the 
date that the election is made.
      Second, the transferee corporation is required to assume 
or otherwise provide for the payment of all the qualified 
scholarship funding bond indebtedness of the issuer within a 
reasonable period after the election.
      Third, immediately after the transfer, the issuer (i.e., 
the nonprofit student loan funding corporation) is required to 
become a charitable organization (described in section 
501(c)(3) that is exempt from tax under section 501(a)), at 
least 80 percent of the members of its board of directors must 
be independent members, and it must hold all of the senior 
stock of the corporation.
      Excess business holdings.--For purposes of the excess 
business holding restrictions imposed on a private foundation, 
the charity would not be required to divest its ownership in a 
corporation most of whose assets are student loan notes 
incurred under the Higher Education Act of 1965.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  31. apply look-through rule for purposes of characterizing certain 
 subpart f insurance income as unrelated business taxable income (sec. 
                        13642 of the house bill)

Present law
      An organization that is exempt from tax by reason of Code 
section 501(a) (e.g., a charity, business league, or qualified 
pension trust) is nonetheless subject to tax on its unrelated 
business taxable income (UBTI) (sec. 511). Unrelated business 
taxable income generally excludes dividend income (sec. 
512(b)(1)).
      Special rules apply to a tax-exempt organization 
described in section 501(c)(3) or (c)(4) (i.e., a charity or 
social welfare organization) that is engaged in commercial-type 
insurance activities. Such activities are treated as an 
unrelated trade or business and the tax-exempt organization is 
subject to tax on the income from such insurance activities 
(including investment income that might otherwise be excluded 
from the definition of unrelated business taxable income) under 
subchapter L (sec. 501(m)(2)). 82 Accordingly, a tax-
exempt organization described in section 501(c)(3) or (c)(4) is 
generally subject to tax on its income from commercial-type 
insurance activities in the same manner as a taxable insurance 
company.
    \82\ If the commercial-type insurance activities constitute a 
substantial part of the organization's activities, the organization 
will not be tax-exempt under section 501 (c)(3) or (c)(4) (sec. 
501(m)(1)).
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      A tax-exempt organization that conducts insurance 
activities through a foreign corporation is not subject to U.S. 
tax with respect to such activities. Under the subpart F rules, 
the United States shareholders (as defined in sec. 951(b)) of a 
controlled foreign corporation (CFC) are required to include in 
income currently their shares of certain income of the CFC, 
whether or not such income is actually distributed to the 
shareholders. This current inclusion rule applies to certain 
insurance income of the CFC (sec. 953). However, income 
inclusions under subpart F have been characterized as dividends 
for unrelated business income tax purposes.83 Accordingly, 
insurance income earned by the CFC that is includible in income 
currently under subpart F by the taxable United States 
shareholders of the CFC is excluded from unrelated business 
taxable income in the case of a shareholder that is a tax-
exempt organization.
    \83\ The Internal Revenue Service has concluded in private letter 
rulings, which are not to be used or cited as precedent, that subpart F 
inclusions are treated as dividends received by the United States 
shareholder (a tax-exempt entity) for purposes of computing the 
shareholder's UBTI (see LTRs 9407007 (November 12, 1993), 9027051 
(April 13, 1990), 9024086 (March 22, 1990), 9024026 (March 15, 1990), 
8922047 (March 6, 1989), 8836037 (June 14, 1988), 8819034 (February 10, 
1988)). However, the IRS issued one private ruling in which it 
concluded that subpart F inclusions are treated as if the underlying 
income were realized directly by the United States shareholder (a tax-
exempt entity) for purposes of computing the shareholder's UBTI (see 
LTR 9043039 (July 30, 1990)). This ruling gave no explanation for the 
IRS's departure from the position in its prior rulings, and the IRS 
reiterated in a subsequent ruling the position that subpart F 
inclusions are characterized as dividends for purposes of computing 
UBTI. Moreover, the application of the look-through rule in the ruling 
in question did not affect the ultimate result in the ruling because 
the income to which the subpart F inclusion was attributable was of a 
type that was excludible from UBTI. The conferees believe that LTR 
9043039 (July 30, 1990) is incorrect in its application of a look-
through rule in characterizing income inclusions under subpart F for 
unrelated business income tax purposes.
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House Bill
      The House bill applies a look-through rule in 
characterizing certain subpart F insurance income for unrelated 
business income tax purposes. The look-through rule applies to 
amounts that constitute insurance income currently includible 
in gross income under the subpart F rules and that are not 
attributable to the insurance of risks of (1) the tax-exempt 
organization itself, (2) tax-exempt affiliates of such 
organization, and (3) directors, officers, or employees of such 
organization or such affiliates if the insurance covers solely 
risks associated with the performance of services for the 
benefit of such organization or affiliates. Such amounts are 
treated as income from an unrelated trade or business to the 
extent such amounts would constitute income from an unrelated 
trade or business if received directly by the tax-exempt 
organization. Deductions connected with amounts treated as 
unrelated business taxable income are allowed to the same 
extent as such deductions are allowed to a taxable entity.
      Effective date.--The provision applies to amounts 
includible in gross income in taxable years beginning after 
December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill with 
modifications. Under the conference agreement, the look-through 
rule applies to amounts that constitute insurance income 
currently includible in gross income under the subpart F rules 
and that are not attributable to the insurance of risks of (1) 
the tax-exempt organization itself, (2) certain tax-exempt 
affiliates of such organization, and (3) any individual who 
performs services for the benefit of the tax-exempt 
organization (or certain tax-exempt affiliates) provided that 
the insurance covers primarily risks associated with the 
individual's performance of services for the benefit of the 
tax-exempt organization (or tax-exempt affiliates). The 
conferees intend that the determination of whether insurance 
covers primarily risks associated with the performance of 
services for the benefit of the tax-exempt organization or its 
tax-exempt affiliates is to be based on all the facts and 
circumstances. The conferees further intend that a safe harbor 
be provided under which this ``primarily'' requirement will be 
considered to be satisfied where at least 80 percent of the 
services covered by the insurance are performed by the insured 
individual for the benefit of the tax-exempt organization or 
its tax-exempt affiliates.
      The conference agreement clarifies that, for purposes of 
this provision, a tax-exempt organization is an affiliate of 
another tax-exempt organization if (1) the two organizations 
have significant common purposes and substantial common 
membership or (2) the two organizations have directly or 
indirectly substantial common direction or control.
      Finally, the conferees clarify the operation of the look-
through rule in the case of a CFC that insures the risks of 
multiple shareholders of the CFC, one or more of which are tax-
exempt organizations. The specified exceptions from the look-
through rule apply on a shareholder by shareholder basis. 
Accordingly, if the subpart F insurance income allocable to a 
tax-exempt organization includes both income attributable to 
the insurance of risks of the organization itself and income 
attributable to the insurance of risks of another shareholder 
that is not a tax-exempt affiliate of such organization, the 
look-through rule applies only to that portion of the income 
that represents income attributable to the insurance of risks 
of such other shareholder (and does not apply to the portion of 
the income that represents income attributable to the insurance 
of risks of the organization itself). In this regard, the 
conferees intend that if the CFC serves as a vehicle for the 
separate funding by each shareholder of its risks or 
liabilities for claims, without any pooling of a shareholder's 
risks or liabilities for claims with those of another 
shareholder either directly or through reinsurance, allocations 
that fairly reflect such arrangement will be respected for 
purposes of applying the look-through rule.

 32. $1 million compensation deduction limit extended to all employees 
                  (sec. 12878 of the Senate amendment)

Present law
      Under present law, the otherwise allowable deduction for 
compensation paid or accrued with respect to a covered employee 
of a publicly held corporation is limited to no more than $1 
million per year. A person is a covered employee if (1) they 
are the chief executive officer of the corporation, or (2) 
their total compensation is required to be reported for the 
taxable year under the Securities Exchange Act of 1934 because 
the employee is one of the 4 highest compensated officers for 
the year (other than the chief executive officer). The 
deduction limitation applies to (1) all remuneration for 
services, including cash and the cash value of all remuneration 
paid in a form other than cash, other than remuneration payable 
on a commission basis, (2) certain performance-based 
compensation, (3) payments to a tax-qualified retirement plan, 
and (4) amounts excludable from the executive's gross income 
(e.g., health benefits).
House bill
      No provision.
Senate amendment
      Under the Senate amendment, the denial of the deduction 
for compensation is extended to compensation of all employees, 
other than employees of personal service corporations. The 
definition of compensation subject to the deduction denial is 
not modified.
      The Commissioner of Social Security is to increase the 
amount of earnings that an individual may receive and still 
qualify for full social security benefits by an amount which 
takes into account the revenues resulting from the expansion of 
the compensation deduction denial.
      Effective date.--The expansion of the deduction denial 
applies to taxable years beginning after December 31, 1995, 
except that it does not apply to remuneration payable under a 
written binding contract in effect on October 25, 1995, and 
which was not modified thereafter in any material respect 
before the remuneration was paid.
Conference agreement
      The conference agreement does not include the Senate 
amendment provision.

 33. Sense of the Senate regarding an increase in the social security 
          earnings limit (sec. 12879 of the Senate amendment)

Present law
      In 1995, social security beneficiaries aged 62 to 64 lose 
$1 in benefits for each $2 of earnings from work in excess of 
$8,160. Social security beneficiaries aged 65 to 69 lose $1 in 
benefits for each $3 of earnings from work in excess of 
$11,280. These earnings limits are indexed for inflation.
House bill
      No provision.
Senate amendment
      The Senate amendment expresses the sense of the Senate 
that Congress intends to pass legislation before the end of 
1995 to raise the social security earnings limit for social 
security beneficiaries aged 65 to 69 in a manner that will 
insure the financial integrity of the social security trust 
funds and that will be consistent with the goal of achieving a 
balanced Federal budget in seven years.
Conference agreement
      The conference agreement does not include the Senate 
amendment.

 34. Increase deductibility of business meal expenses for individuals 
 subject to Federal hours of service limitations (sec. 12880(a) of the 
                           Senate amendment)

Present law
      In general, 50 percent of meal and entertainment expenses 
incurred in connection with a trade or business that are 
ordinary and necessary (and not lavish or extravagant) are 
deductible (sec. 274). Food or beverage expenses are fully 
deductible provided that they are (1) required by Federal law 
to be provided to crew members of a commercial vessel, (2) 
provided to crew members of similar commercial vessels not 
operated on the oceans, or (3) provided on certain oil or gas 
platforms or drilling rigs.
House bill
      No provision.
Senate amendment
      The Senate amendment provides that 80 percent of meal 
expenses are deductible with respect to food or beverages 
consumed by an individual during, or incident to, any period of 
duty subject to the hours of service limitations of the 
Department of Transportation. There are four general groupings 
of individuals subject to these limitations. The first is 
certain air transportation employees, such as pilots, crew, 
dispatchers, mechanics, and control tower operators, pursuant 
to Federal Aviation Administration regulations. The second is 
interstate truck and bus drivers, pursuant to Department of 
Transportation regulations. The third is certain railroad 
employees, such as engineers, conductors, train crews, 
dispatchers, and control operations personnel, pursuant to 
Federal Railroad Administration regulations. The fourth is 
certain merchant mariners, pursuant to Coast Guard regulations.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995.
Conference agreement
      The conference agreement does not include the Senate 
amendment.

    35. Allocation and apportionment of interest expense of certain 
   nonfinancial institutions (sec. 12880(b) of the Senate amendment)

Present law
      For foreign tax credit purposes, taxpayers generally are 
required to allocate and apportion interest expense between 
U.S. and foreign source income based on the proportion of the 
taxpayer's total assets in each location. Such allocation and 
apportionment is required to be made for affiliated groups (as 
defined in sec. 864(e)(5)) as a whole rather than on a 
subsidiary-by-subsidiary basis. However, certain types of 
financial institutions that are members of an affiliated group 
are treated as members of a separate affiliated group for 
purposes of the allocation and apportionment of interest 
expense (sec. 864(e)(5)(B)). Section 1215(c)(5) of the Tax 
Reform Act of 1986 (P.L. 99-514, 100 Stat. 2548) includes a 
targeted rule which treats a certain corporation as a financial 
institution for this purpose.
House bill
      No provision.
Senate amendment
      The Senate amendment repeals the targeted rule of section 
1215(c)(5) of the Tax Reform Act of 1986.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.
Conference agreement
      The conference agreement follows the Senate amendment.

36. Rollover of gain from sale of farm assets to individual retirement 
               plans (sec. 12881 of the Senate amendment)

Present law
      Under present law, gain recognized upon the sale of farm 
assets is generally includible in the gross income of the 
taxpayer. There is no provision under present law for deferring 
the recognition of such gain by making contributions to an 
asset rollover account.
House bill
      No provision.
Senate amendment
            In general
      Under the Senate amendment, a taxpayer who has a 
qualified net farm gain from the sale of a qualified farm asset 
may, at the taxpayer's election, recognize the gain from such 
sale only to the extent the gain exceeds the contributions to 
one or more asset rollover accounts of the taxpayer for the 
taxable year in which such sale occurs.
            Contributions to an asset rollover account
      No deductions are permitted with respect to contributions 
to an asset rollover account. Contributions to an asset 
rollover account are subject to an annual limit and a lifetime 
limit. Under the annual limit, the total contributions that can 
be made to an asset rollover account in a taxable year cannot 
exceed 100 percent of the lesser of (1) the qualified net farm 
gain for the taxable year, or (2) an amount equal to the number 
of years the taxpayer is a qualified farmer times $10,000 
($20,000 for years the taxpayer files a joint return). The 
Secretary may reduce the 100 percent in the preceding sentence 
to a lower percentage to the extent necessary if the reduction 
in Federal receipts as a result of this provision exceeds the 
increases in Federal receipts resulting from the amendments 
made by section 12882 (disposition of stock in domestic 
corporations by 10-percent foreign shareholders) and section 
12883 (limitation on treaty benefits) of the Balanced Budget 
Reconciliation Act of 1995 (as passed by the Senate). Qualified 
net farm gain is, for the taxable year, the lesser of (1) the 
net capital gain of the taxpayer, or (2) the net capital gain 
only taking into account gain in connection with a disposition 
of a qualified farm asset. Qualified farm asset means an asset 
used by a qualified farmer in the active conduct of the trade 
or business of farming. A qualified farmer is a taxpayer who 
(1) during the 5-year period ending on the date of the 
disposition of the qualified farm asset materially participated 
in the trade or business of farming, and (2) owned (or the 
taxpayer's spouse owned) 50 percent or more of such trade or 
business during such 5-year period. Under the lifetime limit on 
contributions to an asset rollover account, the aggregate 
amount for all taxable years that can be contributed to all 
asset rollover accounts by an individual cannot exceed $500,000 
($250,000 in the case of a separate return filed by a married 
individual), reduced by the amount by which the aggregate value 
of assets held in all individual retirement arrangements 
(``IRAs'') by the individual exceeds $100,000. The lifetime 
limit is applied as of the close of the taxable year in which a 
contribution to an asset rollover account is made. To the 
extent contributions to an asset rollover account exceed the 
annual or lifetime limits, such excess contributions are 
subject to a 6-percent excise tax.
            Definition and tax treatment of an asset rollover account
      In general, an asset rollover account is treated in the 
same manner as an IRA. Consequently, earnings are not currently 
includible in income. Amounts in an asset rollover account are 
includible in income when withdrawn. In addition, the 10-
percent additional tax on early distributions applies, unless 
the distribution is made after the individual attains age 59-
\1/2\, dies, or becomes disabled, or the distribution is paid 
in the form of a life annuity. Amounts in an asset rollover 
account may be rolled over to another asset rollover account 
without income inclusion.
            Reporting
      Any individual who makes a contribution to an asset 
rollover account or receives a distribution from such account 
is required to include such information on the individual's 
Federal income tax return as the Secretary may prescribe. Such 
information is the same information required by the Secretary 
to be reported by individuals making nondeductible 
contributions to an IRA.
            Effective date
      The provision applies to sales and exchanges after the 
date of enactment.
Conference agreement
      The conference agreement does not include the Senate 
amendment.

37. Taxation of certain stock gains of foreign persons (secs. 12882 and 
                     12883 of the Senate amendment)

Present law
            Disposition of stock in domestic corporations
      Foreign persons generally are subject to a 30-percent 
U.S. tax on dividends received from a U.S. corporation. Foreign 
persons generally are not subject to U.S. tax on gain realized 
on the disposition of stock in a U.S. corporation (other than a 
U.S. real property holding corporation), unless the gain is 
effectively connected with the conduct of a trade or business 
in the United States. Many U.S. income tax treaties contain 
provisions that preclude the imposition of U.S. tax on such 
gains realized by treaty-country residents.
            Limitation on treaty benefits
      The United States has entered into bilateral income tax 
treaties with many foreign countries. A function served by 
these treaties is to reduce the U.S. tax on U.S. source income 
earned by a resident of a treaty country. Tax treaty abuse (or 
``treaty shopping'') occurs when a person who is not a resident 
of either country seeks certain benefits under the income tax 
treaty between the two countries. Newer treaties negotiated by 
the United States usually contain a ``Limitation on Benefit'' 
article that may deny treaty benefits to foreign persons that 
wish to ``treaty-shop'' the U.S. treaty network. However, not 
all of the U.S. income tax treaties now in force contain such 
an article.
House bill
      No provision.
Senate amendment
            Disposition of stock in domestic corporations
      Under the Senate amendment, where a foreign person owns, 
or has owned at any time during the previous 5 years, 10 
percent or more of the stock in a U.S. corporation, gain or 
loss from the disposition of the stock is subject to U.S. 
income tax at graduated rates. Constructive ownership rules 
apply in determining whether a foreign person is a 10-percent 
shareholder. In addition, certain ownership interests are 
treated as stock for purposes of this provision.
      Certain nonrecognition provisions that would otherwise 
apply to dispositions of U.S. stock are suspended, and the 
Secretary of the Treasury is authorized to prescribe 
regulations providing the extent to which nonrecognition 
provisions will apply for purposes of this provision. Special 
alternative minimum tax rules apply in the case of nonresident 
aliens who recognize net gains on dispositions of stock that 
are subject to this provision.
      This tax generally is collected through withholding at 
the rate of 10 percent of the proceeds of the disposition 
giving rise to the liability. Exceptions apply in cases of 
dispositions of stock that is regularly traded on an 
established securities market. Amounts withheld in excess of 
the tax liability are refundable.
      This provision does not override any current U.S. income 
tax treaty obligations. However, in certain cases where a 
treaty prevents the imposition of U.S. tax on stock gains of a 
qualified resident of a treaty country (as defined below), the 
provision treats as dividends gain resulting from any 
distribution in liquidation or redemption that would (but for 
the treaty) be subject to U.S. tax. Dividend treatment only 
applies to such gain to the extent of the earnings and profits 
of the distributing corporation which are attributable to the 
stock with respect to which the distribution is made.
      Effective date.--The provision generally is effective for 
dispositions after December 31, 1995. The withholding 
requirements are applicable only to dispositions occurring 6 
months or more after the date of enactment.
            Limitation on treaty benefits
      The Senate amendment imposes a qualified resident 
requirement as a prerequisite for the reduction of U.S. tax on 
a foreign entity under any treaty. For this purpose, a foreign 
entity that is a resident of a foreign country is a qualified 
resident of such country unless (1) 50 percent or more (by 
value) of the interests in such entity are owned (directly or 
indirectly) by individuals who are not residents of such 
country or citizens or residents of the United States, or (2) 
50 percent or more of the entity's income is used (directly or 
indirectly) to meet liabilities to persons who are not 
residents of the foreign country or citizens or residents of 
the United States. Special rules apply in the case of entities 
that are publicly traded or that are wholly-owned by publicly-
traded corporations. The Secretary of the Treasury may, in 
certain cases, treat a foreign entity as a qualified resident.
      In addition, the Senate amendment provides that no person 
is entitled to benefits granted by the United States under a 
treaty with respect to any income that bears a significantly 
lower tax under the laws of the other treaty country than 
similar income arising from sources within such foreign country 
derived by residents of such foreign country.
      Effective date.--The provision takes effect on January 1, 
1996, and applies to any treaty whether entered into before, 
on, or after such date.
Conference agreement
      The conference agreement does not include the Senate 
amendment.

38. Treatment of bad debt deductions of thrift institutions (H.R. 2494 
                and sec. 12884 of the Senate amendment)

Present Law and Background
            Reserve method of accounting for bad debts of thrift 
                    institutions
      Generally, a taxpayer engaged in a trade or business may 
deduct the amount of any debt that becomes wholly or partially 
worthless during the year (the ``specific charge-off'' method 
of sec. 166). Certain thrift institutions (building and loan 
associations, mutual savings banks, or cooperative banks) are 
allowed deductions for bad debts under rules more favorable 
than those granted to other taxpayers (and more favorable than 
the rules applicable to other financial institutions). 
Qualified thrift institutions may compute deductions for bad 
debts using either the specific charge-off method or the 
reserve method of section 593. To qualify for this reserve 
method, a thrift institution must meet an asset test, requiring 
that 60 percent of its assets consist of ``qualifying assets'' 
(generally cash, government obligations, and loans secured by 
residential real property). This percentage must be computed at 
the close of the taxable year, or at the option of the 
taxpayer, as the annual average of monthly, quarterly, or 
semiannual computations of similar percentages.
      If a thrift institution uses the reserve method of 
accounting, it must establish and maintain a reserve for bad 
debts and charge actual losses against the reserve, and is 
allowed a deduction for annual additions to restore the reserve 
to its permitted balance. Under section 593, a thrift 
institution annually may elect to calculate its addition to its 
bad debt reserve under either (1) the ``percentage of taxable 
income'' method applicable only to thrift institutions, or (2) 
the ``experience'' method that also is available to small 
banks.
      Under the ``percentage of taxable income'' method, a 
thrift institution generally is allowed a deduction for an 
addition to its bad debt reserve equal to 8 percent of its 
taxable income (determined without regard to this deduction and 
with additional adjustments). Under the experience method, a 
thrift institution generally is allowed a deduction for an 
addition to its bad debt reserve equal to the greater of: (1) 
an amount based on its actual average experience for losses in 
the current and five preceding taxable years, or (2) an amount 
necessary to restore the reserve to its balance as of the close 
of the base year. For taxable years beginning before 1988, the 
``base year'' was the last taxable year before the most recent 
adoption of the experience method (i.e., generally, the last 
year the taxpayer was on the percentage of taxable income 
method). For taxable years beginning after 1987, the base year 
is the last taxable year beginning before 1988. Prior to 1988, 
computing bad debts under a ``base year'' rule allowed a thrift 
institution to claim a deduction for bad debts for an amount at 
least equal to the institution's actual losses that were 
incurred during the taxable year.
            Bad debt methods of commercial banks
      A small commercial bank (i.e., one with adjusted bases of 
assets of $500 million or less) may use the experience method 
or the specific charge-off method for purposes of computing its 
deduction for bad debts. A large commercial bank only may use 
the specific charge-off method of section 166. If a small bank 
becomes a large bank, it must recapture its existing bad debt 
reserve (i.e., include the amount of the reserve in income) 
through one of two elective methods. Under the 4-year recapture 
method, the bank generally includes 10 percent of the reserve 
in income in the first taxable year, 20 percent in the second 
year, 30 percent in the third year, and 40 percent in the 
fourth year. Under the cut-off method, the bank generally 
neither restores its bad debt reserve to income nor may it 
deduct losses relating to loans held by the bank as of the date 
of the required change in the method of accounting. Rather, the 
amount of such losses are charged against and reduce the 
existing bad debt reserve; any losses in excess of the reserve 
are deductible. Any reserve balance in excess of the balance of 
related loans is includible in income.
            Recapture of bad debt reserves by thrift institutions
      If a thrift institution becomes a commercial bank, or if 
the institution fails to satisfy the 60-percent qualified asset 
test, it is required to change its method of accounting for bad 
debts and, under proposed Treasury regulations,84 is 
required to recapture its bad debt reserve. The percentage-of-
taxable-income portion of the reserve generally is included in 
income ratably over a 6-taxable year period. The experience 
method portion of the reserve is not restored to income if the 
former thrift institution qualifies as a small bank. If the 
former thrift institution is treated as a large bank, the 
experience method portion of the reserve is restored to income 
ratably over a 6-taxable year period, or under the 4-year 
recapture method or the cut-off method described above.
    \84\Prop. Treas. reg. sec. 1.593-13.
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      In addition, a thrift institution may be subject to a 
form of reserve recapture even if the institution continues to 
qualify for the percentage of taxable income method. 
Specifically, if a thrift institution distributes to its 
shareholders an amount in excess of its post-1951 earnings and 
profits, such excess is deemed to be distributed from the 
institution's bad debt reserve and is restored to income. In 
the case of any distribution in redemption of stock or in 
partial or complete liquidation of an institution, the 
distribution is treated as first coming out of the bad debt 
reserves of the institution (sec. 593(e)).
            Proposed banking legislation (H.R. 2491)
                Treatment of thrift institutions under H.R. 2491
      Title II (Chapter 2, subtitle B) of H.R. 2491, which 
passed the House of Representatives on October 26, 1995, would 
require savings and loan institutions to forego their Federal 
thrift charters and become either State-chartered depository 
institutions or Federally-chartered banks. Under proposed 
Treasury regulations, if a thrift institution becomes a bank, 
the institution would be required to recapture all or a portion 
of its bad debt reserve. As described in detail below, the 
conferees understand that such recapture would require the 
institution immediately to record, for financial accounting 
purposes, a current or deferred tax liability for the amount of 
bad debt recapture for which liabilities previously had not 
been recorded (generally, with respect to the pre-1988 
reserves), regardless of when such recapture is taken into 
account for Federal income tax purposes. The conferees further 
understand that the recording of this liability generally would 
decrease the regulatory capital of the new bank.
            Financial accounting treatment of tax reserves of bad debts 
                    of thrift institutions
      In general, for financial accounting purposes, a 
corporation must record a deferred tax liability with respect 
to items that are deductible for tax purposes in a period 
earlier than they are expensed for book purposes. The deferred 
tax liability signifies that, although a corporation may be 
reducing its current tax expense because of the accelerated tax 
deduction, the corporation will become liable for tax in a 
future period when the timing item ``reverses'' (i.e., when the 
item is expensed for book purposes but for which the tax 
deduction had already been allowed). Under the applicable 
accounting standard (Accounting Principles Board Opinion 23), 
deferred tax liabilities generally were not required for pre-
1988 tax deductions attributable to the bad debt reserve method 
of thrift institutions because the potential reversal of the 
bad debt reserve was indefinite (i.e., generally, a reversal 
only would occur by operation of sec. 593(e), a condition 
within the control of a thrift institution). However, the 
establishment of 1987 as a base year increased the likelihood 
of bad debt reserve reversals with respect to post-1987 
additions to the reserve and the conferees understand that 
thrift institutions generally have recorded deferred tax 
liabilities for these additions under the current generally 
accepted accounting principles.85
    \85\ For taxable years beginning before 1988, the base year balance 
of a thrift institution was the reserve balance whenever the 
institution changed from one bad debt method to another (e.g., from the 
percentage of taxable income method to the experience method). How the 
establishment of 1987 as a permanent base year changed the nature of 
the bad debt reserves of thrift institutions between pre-1988 years and 
post-1987 years (which, in turn, contributed to the change in the 
financial accounting treatment of such reserves) can be illustrated by 
the following example:
    Assume that a thrift institution (``T'') always had used the 
percentage of taxable income (``PHI'') method to deduct bad debts 
through 1986 when its reserve balance was $10,000. Further assume that 
in 1987, T: (1) has insufficient taxable income to use the PHI method, 
(2) has actual bad debt losses of $1,000, and (3) under the six-year 
average formula of the experience method, would be allowed a deduction 
of $900. Under these facts, T would be allowed a bad debt deduction of 
$1,000 (rather than $900) in 1987 because $1,000 is the amount 
necessary to restore the reserve to its base year (PHI) level. 
Specifically, in 1987, T would charge the year-end 1986 reserve of 
$10,000 for the $1,000 actual loss and then add (and deduct) $1,000 to 
the reserve so that the balance of the reserve at year end 1987 is once 
again $10,000. Thus, T's former PHI deductions, which gave rise to the 
$10,000 reserve balance, generally would not be restored to income 
(unless subject to sec. 593(e)).
    Further assume that in 1988, T has sufficient taxable income to be 
allowed a PHI deduction of $1,500, increasing the balance of the 
reserve to $11,500 at year-end 1988. Further assume that in 1989, T: 
(1) again has insufficient taxable income to use the PHI method, (2) 
has actual bad debts of $2,500, and (3) under the six-year average 
formula of the experience method would be allowed a deduction of $900. 
Under these facts, T would be allowed a deduction of $1,000 (i.e., the 
amount necessary to in the restore the reserve to its base year (year-
end 1987) level). Specifically, T would charge the year-end 1988 
reserve balance of $11,500 for the $2,500 actual loss and then add (and 
deduct) $1,000 to the reserve to restore the balance to the $10,000 
base year amount. Thus, T's post-1987 PHI deduction of $1,500 is 
restored to income (i.e., T actually had losses of $2,500 in 1989, but 
only was allowed to deduct $1,000).
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House bill
      No provision in H.R. 2491. However, on November 7, 1995, 
the Committee on Ways and Means reported, with an amendment, 
H.R. 2494 (the ``Thrift Charter Conversion Act of 1995''). 
86 The provisions of H.R. 2494 are described below.
    \86\ H. Rept. 104-324.
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            Repeal of section 593
      The House bill repeals the section 593 reserve method of 
accounting for bad debts by thrift institutions, effective for 
taxable years beginning after 1995. Under the House bill, 
thrift institutions that qualify as small banks are allowed to 
utilize the experience method applicable to such institutions, 
while thrift institutions that are treated as large banks are 
required to use only the specific charge-off method.
            Treatment of recapture of bad debt reserves
                In general
      A thrift institution required to change its method of 
computing reserves for bad debts will treat such change as a 
change in a method of accounting, initiated by the taxpayer, 
and having been made with the consent of the Secretary of the 
Treasury. Any section 481(a) adjustment required to be taken 
into account with respect to such change generally will be 
determined solely with respect to the ``applicable excess 
reserves'' of the taxpayer. The amount of applicable excess 
reserves shall be taken into account ratably over a 6-taxable 
year period, beginning with the first taxable year beginning 
after 1995, subject to the residential loan requirement 
described below. In the case of a thrift institution that 
becomes a ``large bank'' (as determined under sec. 585(c)(2)), 
the amount of the institution's applicable excess reserves will 
be the excess of (1) the balance of its reserves described in 
section 593(c)(1) (i.e., its supplemental reserve for losses on 
loans, its reserve for losses on qualifying real property 
loans, and its reserve for losses on nonqualifying loans) as of 
the close of its last taxable year beginning before January 1, 
1996, over (2) the balance of such reserves as of the close of 
its last taxable year beginning before January 1, 1988 (i.e., 
the ``pre-1988 reserves''). Similar rules are provided for 
``small banks'' and for small banks that subsequently become 
large banks.
      The balance of the pre-1988 reserves will continue to be 
subject to the provisions of present-law section 593(e) 
(requiring recapture in the case of certain excess 
distributions to, and redemptions of, shareholders).
                Residential loan requirement
      Under a special rule, if the taxpayer meets the 
``residential loan requirement'' for any taxable year beginning 
after December 31, 1995, the recapture of the applicable excess 
reserves otherwise to be taken into account as a section 481(a) 
adjustment for such year will be suspended. A taxpayer 
generally meets the residential loan requirement if, for any 
taxable year, the principal amount of residential loans made by 
the taxpayer during the year is not less than its base amount. 
A taxpayer will be deemed to meet the residential loan 
requirement for any taxable year beginning after December 31, 
1997, if the taxpayer met the requirement for the two preceding 
years (determined without the application of this special, two-
out-of-three rule). For the first taxable year beginning after 
December 31, 1995, the ``base amount'' for a taxpayer generally 
means the average of the principal amounts of the residential 
loans made by the taxpayer during the six most recent taxable 
years beginning before January 1, 1996. For taxable years 
beginning after December 31, 1996, the base amount is indexed 
for inflation.
            Treatment of special assessments
      The House bill also provides for the deductibility of 
certain special assessments to be paid by thrift institutions 
to the Savings Association Insurance Fund (``SAIF'') pursuant 
to a provision of Title II of H.R. 2491.
            Effective date
      The provision of H.R. 2494 relating to the deduction for 
bad debts by thrift institutions generally is effective for 
taxable years beginning after December 31, 1995. The provision 
of H.R. 2494 relating to the treatment of the special 
assessments to be paid to the SAIF is effective upon enactment.
Senate amendment
      The Senate amendment contains a Sense of the Senate that, 
in order to further national banking policy and assist in the 
conversion of thrift charters to bank charters, Code section 
593 (relating to reserves for losses on loans) should be 
repealed and appropriate relief should be granted for the pre-
1988 portion of any bad debt reserves of a thrift institution.
Conference agreement
      The conference agreement includes the following.
            Repeal of section 593
      The conference agreement repeals the section 593 reserve 
method of accounting for bad debts by thrift institutions, 
effective for taxable years beginning after 1995. Thrift 
institutions that qualify as small banks are allowed to utilize 
the experience method applicable to such institutions, while 
thrift institutions that are treated as large banks are 
required to use only the specific charge-off method. Thus, the 
percentage of taxable income method of accounting for bad debts 
is no longer available for any financial institution. The 
conference agreement also repeals the following present-law 
provisions that only apply to thrift institutions to which 
section 593 applies: (1) the denial of a portion of certain tax 
credits to a thrift institution (sec. 50(d)(1)); (2) the 
special rules with respect to the foreclosure of property 
securing loans of a thrift institution (sec. 595); (3) the 
reduction in the dividends received reduction of a thrift 
institution (sec. 596); and (4) the ability of a thrift 
institution to use a net operating loss to offset its income 
from a residual interest in a REMIC.
            Treatment of recapture of bad debt reserves
                In general
      A thrift institution required to change its method of 
computing reserves for bad debts will treat such change as a 
change in a method of accounting, initiated by the taxpayer, 
and having been made with the consent of the Secretary of the 
Treasury. 87 Any section 481(a) adjustment required to be 
taken into account with respect to such change generally will 
be determined solely with respect to the ``applicable excess 
reserves'' of the taxpayer. The amount of applicable excess 
reserves shall be taken into account ratably over a 6-taxable 
year period, beginning with the first taxable year beginning 
after 1995, subject to the residential loan requirement 
described below. In the case of a thrift institution that 
becomes a ``large bank'' (as determined under sec. 585(c)(2)), 
the amount of the institution's applicable excess reserves 
generally is the excess of (1) the balance of its reserves 
described in section 593(c)(1) (i.e., its supplemental reserve 
for losses on loans, its reserve for losses on qualifying real 
property loans, and its reserve for losses on nonqualifying 
loans) as of the close of its last taxable year beginning 
before January 1, 1996, over (2) the balance of such reserves 
as of the close of its last taxable year beginning before 
January 1, 1988 (i.e., the ``pre-1988 reserves''). 88 
Thus, a thrift institution that is treated as a large bank 
generally is required to recapture its post-1987 additions to 
its bad debt reserves, whether such additions are made pursuant 
to the percentage of taxable income method or the experience 
method. The timing of this recapture may be delayed for a two-
year period to the extent the residential loan requirement 
described below applies.
    \87\ A thrift institution that uses a reserve method described in 
sec. 593 will be deemed to have changed its method of computing 
reserves for bad debts even though such institution will be allowed to 
use the reserve method of section 585. Similarly, a large thrift 
institution will be deemed to have changed its method of computing 
reserves for bad debts even though such institution used the 
experience-method portion of sec. 593 in lieu of the percentage-of-
taxable-income method of sec. 593.
    \88\ The balance of a taxpayer's pre-1988 reserves is reduced if 
the taxpayer's loan portfolio had decreased since 1988. The balance of 
a taxpayer's pre-1988 reserves is reduced by multiplying such balance 
by the ratio of the balance of the taxpayer's loans outstanding at the 
close of the last taxable beginning before 1996, to the balance of the 
taxpayer's loans outstanding at the close of the last taxable beginning 
before 1988. This reduction is required for both large and small banks.
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      In the case of a thrift institution that becomes a 
``small bank'' (as determined under sec. 585(c)(2)), the amount 
of the institution's applicable excess reserves will be the 
excess of (1) the balance of its reserves described in section 
593(c)(1) as of the close of its last taxable year beginning 
before January 1, 1996, over (2) the greater of the balance of: 
(a) its pre-1988 reserves or (b) what the institution's 
reserves would have been at the close of its last taxable year 
beginning before January 1, 1996, had the institution always 
used the experience method described in section 585(b)(2)(A) 
(i.e., the six-year average method). For purposes of the future 
application of section 585, the beginning balance of the small 
bank's reserve for its first taxable year beginning after 
December 31, 1995, will be the greater of the two amounts 
described in (2) in the preceding sentence, and the balance of 
the reserve at the close of the base year (for purposes of sec. 
585(b)(2)(B)) will be the amount of its pre-1988 reserves. The 
residential loan requirement described below also applies to 
small banks. If such small bank later becomes a large bank, any 
section 481(a) adjustment amount required to be taken into 
account under section 585(c)(3) will not include any portion of 
the bank's pre-1988 reserve. Similarly, if the bank elects the 
cut-off method to implement its conversion to large bank 
status, the amount of the reserve against which the bank 
charges its actual losses will not include any portion of the 
bank's pre-1988 reserve and the amount by which the pre-1988 
reserve exceeds actual losses will not be included in gross 
income.
      The balance of the pre-1988 reserves is subject to the 
provisions of present-law section 593(e) (requiring recapture 
in the case of certain excess distributions to, and redemptions 
of, shareholders). Thus, section 593(e) will continue to apply 
to an institution regardless of whether the institution becomes 
a bank or remains a thrift institution. In addition, the 
balance of the pre-1988 reserve will be treated as a tax 
attribute to which section 381 applies. Treasury regulations 
are expected to provide rules for the continued application of 
section 593(e) in the case of mergers, acquisitions, spin-offs, 
and other reorganizations of thrift and other institutions. The 
conferees believe that any such regulations should provide that 
if the stock of an institution with a pre-1988 reserve is 
acquired by another depository institution, the pre-1988 
reserve will not be restored to income by reason of the 
acquisition. Similarly, if an institution with a pre-1988 
reserve is merged or liquidated tax-free into a bank, the pre-
1988 reserve should not be restored to income by reason of the 
merger or liquidation. 89 Rather, the bank will inherit 
the pre-1988 reserve and the post-1951 earnings and profits of 
the former thrift institution and section 593(e) will apply to 
the bank as if it were a thrift institution. That is, the pre-
1988 reserve will be restored into income in the case of any 
distribution in redemption of the stock of the bank or in 
partial or complete liquidation of the bank following the 
merger or liquidation. In the case of any other distribution, 
the pre-1988 reserve will not be restored to income unless the 
distribution is in excess of the sum of the post-1951 earnings 
and profits inherited from the thrift institution and the post-
1913 earnings and profits of the acquiring bank. 90 
Treasury regulations should address the case where the 
shareholders of an institution with a pre-1988 reserve are 
``cashed out'' in a taxable merger of the institution and a 
bank. Such regulations may provide that the pre-1988 reserve 
may be restored to income if such redemption represents a 
concealed distribution from the former thrift institution. For 
example, cash received by former thrift shareholders pursuant 
to a taxable reverse merger may represent a concealed 
distribution if, immediately preceding the merger, the 
acquiring bank had no available resources to distribute and its 
existing debt structure, indenture restrictions, financial 
condition, or regulatory capital requirements precluded it from 
borrowing money for purposes of making the cash payment to the 
former thrift shareholders. Treasury regulations also should 
address the treatment of boot received in a tax-free 
reorganization. No inference is intended as to the application 
of section 593(e) to these and similar transactions under 
present law.
    \89\ The issue of whether section 593(e) applies in cases where a 
thrift institution is merged into a bank generally does not arise under 
present law because such merger results in a charter change and, under 
proposed Treasury regulations, requires full bad debt reserve 
recapture.
    \90\ If the acquiring bank is a former thrift itself and the pre-
1988 reserves of neither institution are restored to income pursuant to 
the merger, the conferees expect that the pre-1988 reserves and the 
post-1951 earnings and profits of the two institutions will be combined 
for purposes of the continued application of sec. 593(e) with respect 
to the combined institution.
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      Further, if a taxpayer no longer qualifies as a bank (as 
defined by sec. 581), the balance of the taxpayer's pre-1988 
reserve is restored to income ratably over a 6-year period, 
beginning in the taxable year the taxpayer no longer qualifies 
as a bank.
                Residential loan requirement
      Under a special rule, if the taxpayer meets the 
``residential loan requirement'' for a taxable year, the 
recapture of the applicable excess reserves otherwise required 
to be taken into account as a section 481(a) adjustment for 
such year will be suspended. A taxpayer meets the residential 
loan requirement if, for the taxable year, the principal amount 
of residential loans made by the taxpayer during the year is 
not less than its base amount. The residential loan requirement 
is applicable only for taxable years that begin after December 
31, 1995, and before January 1, 1998, and must be applied 
separately with respect to each such year. Thus, all taxpayers 
are required to recapture their applicable excess reserves 
within six, seven, or eight years after the effective date of 
the provision.
      The ``base amount'' of a taxpayer means the average of 
the principal amounts of the residential loans made by the 
taxpayer during the six most recent taxable years beginning 
before January 1, 1996. At the election of the taxpayer, the 
base amount may be computed by disregarding the taxable years 
within that 6-year period in which the principal amounts of 
loans made during such years were highest and lowest. This 
election must be made for the first taxable year beginning 
after December 31, 1995, and applies to the succeeding taxable 
year unless revoked with the consent of the Secretary of the 
Treasury or his delegate.
      For purposes of the residential loan requirement, a loan 
will be deemed to be ``made'' by a financial institution to the 
extent the institution is, in fact, the principal source of the 
loan financing. Thus, any loan only can be ``made'' once. The 
conferees expect that loans ``made'' by a financial institution 
may include, but are not limited to, loans (1) originated 
directly by the institution through its place of business or 
its employees, (2) closed in the name of the institution, (3) 
originated by a broker that acts as an agent for the 
institution, and (4) originated by another person (other than a 
financial institution) and that are acquired by the institution 
pursuant to a preexisting, enforceable agreement to acquire 
such loans. In addition, Treasury regulations also may provide 
that loans ``made'' by a financial institution may include 
loans originated by another person (other than a financial 
institution) acquired by the institution soon after origination 
if such acquisition is pursuant to a customary practice of 
acquiring such loans from such person. A loan acquired by a 
financial institution from another financial institution 
generally will be considered to be made by the transferor 
rather than the transferee of the loan; however, such loan may 
be completely disregarded if a principal purpose of the 
transfer was to allow the transferor to meet the residential 
loan requirement. A loan may be considered to be made by a 
financial institution even if such institution has an 
arrangement to transfer such loan to the Federal National 
Mortgage Association or the Federal Home Loan Mortgage 
Corporation.
      For purposes of the residential loan requirement, a 
``residential loan'' is a loan described in section 
7701(a)(19)(C)(v) (generally, loans secured by residential real 
and church property and certain mobile homes), 91 but only 
to the extent the loan is made to the owner of the property to 
acquire, construct, or improve the property. Thus, mortgage 
refinancings and home equity loans are not considered to be 
residential loans, except to the extent the proceeds of the 
loan are used to acquire, construct, or improve qualified 
residential real property. The conferees understand that 
pursuant to the Home Mortgage Disclosure Act, financial 
institutions are required to disclose the purpose for which 
loans are made. The conferees further understand that for 
purposes of this disclosure, institutions are required to 
classify loans as home purchase loans, home improvement loans, 
refinancings, and multifamily dwelling loans (whether for 
purchase, improvement or refinancing of such property). The 
conferees expect that taxpayers (and the Secretary of the 
Treasury in promulgating guidance) may take such reporting into 
account, and make such adjustments as are appropriate, 92 
in determining: (1) whether or not a loan qualifies as a 
``residential loan'' and (2) whether the institution ``made'' 
the loan. A taxpayer must use consistent standards for 
determining whether loans qualify as residential loans made by 
the institution both for purposes of determining its base 
amount and for purposes of determining whether it met the 
residential loan requirement for a taxable year.
    \91\ For this purpose, as under present law, if a multifamily 
structure securing a loan is used in part for nonresidential purposes, 
the entire loan will be deemed a residential real property loan if the 
planned residential use exceeds 80 percent of the property's planned 
use (determined as of the time the loan is made). In additions, loans 
made to finance the acquisition or development of land will be deemed 
to be loans secured by an interest in residential real property if, 
under regulations prescribed by the Secretary of the Treasury, there is 
a reasonable assurance that the property will become residential real 
property within a period of three years from the date of acquisition of 
the land.
    \92\ For example, adjustments will be required with respect to the 
reporting of multifamily dwellings in order to distinguish home 
purchase, home improvement, and refinancing loans.
---------------------------------------------------------------------------
      The residential loan requirement is determined on a 
controlled group basis. Thus, for example, if a controlled 
group consists of two thrift institutions with applicable 
excess reserves that are wholly-owned by a bank, the 
residential loan requirement will be met (or not met) with 
respect to both thrift institutions by comparing the principal 
amount of the residential loans made by all three members of 
the group during the taxable year to the group's base amount. 
The group's base amount will be the average principal amount of 
residential loans made by all three members of the group during 
the base period. The election to disregard the high and low 
taxable years during the 6-year base period also would be 
applied on a controlled group basis (i.e., generally by 
treating the members of the group as one taxpayer so that all 
members of the group must join in the election, and the same 
corresponding years of each member would be so disregarded).
      The balance of a taxpayer's applicable excess reserve is 
treated as a tax attribute to which section 381 applies. Thus, 
if an institution with an applicable excess reserve is acquired 
in a tax-free reorganization, the balance of such reserve will 
not be immediately restored to income but will continue to be 
subject to the residential loan requirement in the hands of the 
acquirer. Treasury regulations may provide rules for the 
application of the residential loan requirement in the case of 
mergers, acquisitions, and other reorganizations of thrift and 
other institutions. The conferees expect that if a financial 
institution joins or merges into (or leaves) a group of 
financial institutions, the base amount of the acquiring (or 
remaining) group will be appropriately adjusted to reflect the 
base amount of the acquired (or departing) institution for 
purposes of determining whether the group meets the residential 
loan requirement for the year of the acquisition (or departure) 
and subsequent years. Similarly, if a controlled group of 
institutions had made an election to disregard its high and low 
years in computing its base amount, it is anticipated that such 
election shall be binding on any institution that subsequently 
joins the group and the election shall be applied to the new 
member by disregarding the high and low years of the new member 
even if such years do not correspond to the years applicable to 
the other members of the group.
            Treatment of conversions to credit unions
      The conference agreement provides that if a thrift 
institution to which the repeal of section 593 applies becomes 
a credit union (as described in sec. 501(c)(14)(A)), the credit 
union will be treated as a institution that is not a bank and 
any section 481(a) adjustment required to be included in gross 
income will be treated as derived from an unrelated trade or 
business. Thus, if a thrift institution becomes a credit union 
in its first taxable year beginning after December 31, 1995, 
the entire balance of the institution's bad debt reserve will 
be included in income, and subject to tax, over a 6-year period 
beginning with such taxable year. No inference is intended as 
to the Federal income tax treatment of any other aspect of the 
conversion of a financial institution to a credit union.
            Treatment of special assessments
      The conferees did not adopt the provision of H.R. 2494 
that provided for the deductibility of certain special 
assessments to be paid to the SAIF. The conferees understand 
that it is the view of the Department of the Treasury that such 
payments would be deductible under present law. 93 The 
conferees understand that the Treasury analysis is based, in 
part, upon the fact that the proposed special assessments are 
designed to provide SAIF coverage for 1996. As such, the 
conferees believe that a special statutory provision providing 
deductibility is unnecessary and the special assessments should 
give rise to deductions to which section 172(f) does not apply. 
94
    \93\ See, e.g., the testimony of Cynthia G. Beerbower, Deputy 
Assistant Secretary (Tax Policy) Department of the Treasury, on H.R. 
2494 before the House Committee on Ways and Means, October 26, 1995.
    \94\ Under present law, net operating losses can be carried back 
three years. Section 172(f) allows ``specified liability losses' to be 
carried back ten years. Specified liability losses include amounts 
allowable as deductions with respect to product liabilities or with 
respect to certain acts (or failures to act) that occurred more than 
three years ago.
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            Effective date
      The repeal of section 593 is effective for taxable years 
beginning after December 31, 1995. The repeal of section 595 is 
effective for property acquired in taxable years beginning 
after December 31, 1995.

39. Limitation on State income taxation of certain pension income (H.R. 
              394 and sec. 12944 of the Senate amendment)

Present Law
      Certain State laws provide that some or all retirement 
income is included in income for State income tax purposes if 
the income was earned within the State, even though the 
individual resides outside the State when the retirement income 
is actually received. Some States achieve this result through 
general rules that tax income earned within the State, whereas 
others have explicit provisions regarding retirement income.
House bill
      No provision in H.R.2491. However, on October 31, 1995, 
the House Committee on the Judiciary ordered favorably H.R. 
394, which would amend title 4 of the United States Code 
(entitled ``Flag and Seal, Seat of Government, and the 
States''), to prohibit any State, including any political 
subdivision of a State, the District of Columbia, and the 
possessions of the United States, from imposing income tax on 
any retirement income of any individual who is not a resident 
or domiciliary of the State. For this purpose, retirement 
income would include any income from a qualified retirement or 
annuity plan, a simplified employee pension, a tax-sheltered 
annuity plan, an eligible deferred compensation plan of a tax-
exempt or State and local government, an individual retirement 
arrangement, a governmental plan, a trust created before June 
25, 1959, and that is part of a plan funded only by employee 
contributions, and certain retired or retainer pay of a member 
or former member of the uniformed services. The term retirement 
income also would include income from a nonqualified deferred 
compensation plan, provided such income is part of a series of 
substantially equal periodic payments made over (1) the life or 
life expectancy of the recipient (or the joint lives or life 
expectancies of the recipient and the recipient's beneficiary), 
or (2) a period not less than 10 years. The preceding sentence 
would not apply to a plan, program, or arrangement which 
provides benefits in excess of certain limitations contained in 
the Code on benefits provided under qualified retirement plans. 
The provision would not apply to any retirement income received 
by an individual who renounces his or her United States 
citizenship for reasons of avoiding Federal and State income 
taxation (as determined by the Attorney General). The Attorney 
General would publish quarterly a list of such individuals in 
the Federal Register. The provision would have no effect on the 
application of the provision in the Employee Retirement Income 
Security Act of 1974 (''ERISA'') that generally preempts State 
laws.
      Effective date.--H.R. 394 would be effective with respect 
to amounts received after December 31, 1994.
Senate amendment
      The Senate amendment amends title 4 of the United States 
Code (entitled ``Flag and Seal, Seat of Government, and the 
States''), to prohibit any State, including any political 
subdivision of a State, the District of Columbia, and the 
possessions of the United States, from imposing income tax on 
any retirement income of any individual who is not a resident 
or domiciliary of the State. For this purpose, retirement 
income includes any income from a qualified retirement or 
annuity plan, a simplified employee pension, a tax- sheltered 
annuity plan, an eligible deferred compensation plan of a tax-
exempt or State and local government, an individual retirement 
arrangement, a governmental plan, a trust created before June 
25, 1959, and that is part of a plan funded only by employee 
contributions, and certain retired or retainer pay of a member 
or former member of the uniformed services. The term retirement 
income also includes income from a nonqualified deferred 
compensation plan, provided such income is part of a series of 
substantially equal periodic payments made over (1) the life or 
life expectancy of the recipient (or the joint lives or life 
expectancies of the recipient and the recipient's beneficiary), 
or (2) a period not less than 10 years. The provision has no 
effect on the application of the provision in the Employee 
Retirement Income Security Act of 1974 (''ERISA'') that 
generally preempts State laws.
      Effective date.--The provision applies to amounts 
received after December 31, 1994.
Conference agreement
      The conference agreement does not include the Senate 
amendment.

  40. Coal industry retiree health security (sec. 13901 of the House 
                                 bill)

Present law
      The financing of retiree health benefits previously 
provided by the United Mine Workers of America (''UMWA'') 1950 
and 1974 Benefit Funds was substantially revised by the Energy 
Policy Act of 1992 (H.R. 776, P.L. 102-486), enacted October 
24, 1992. The relevant provisions, contained in the Coal 
Industry Retiree Health Benefit Act of 1992 (the ``Coal Act''), 
created two new UMWA retiree health benefit funds and 
completely changed the financing mechanism. The two funds, 
known as the UMWA Combined Benefit Fund (the ``Combined Fund'') 
and the UMWA 1992 Benefit Plan, service beneficiaries who 
retired on or before September 30, 1994. The Combined Fund 
provides benefits to coal miners (and their beneficiaries) who 
retired on or before July 20, 1992, and the 1992 UMWA Benefit 
Plan provides benefits to coal miners (and their beneficiaries) 
who retired between July 21, 1992, and September 30, 1994, and 
(1) would have been eligible for benefits under the Combined 
Fund had they retired earlier, or (2) whose last employer does 
not provide the benefits promised under a 1978 or later 
collective bargaining agreement. No provision was made for 
employees who retired or will retire after September 30, 1994. 
Future retirees will remain dependent on the provisions of 
future collective bargaining agreements.
      Under the Coal Act, which supersedes the retiree health 
benefits financing provisions of the 1988 National Bituminous 
Coal Wage Agreement (''NBCWA''), a company is charged an 
insurance premium based on the number of beneficiaries assigned 
to the company in its role as the retiree's ``last signatory 
employer.'' Under what are referred to as the ``reachback'' 
provisions of the Coal Act, companies responsible for paying 
premiums include any company that had signed any NBCWA since 
1946 or any related company as defined under the Act. To cover 
the costs associated with beneficiaries who cannot be assigned, 
up to $70 million per year is transferred into the Combined 
Fund. The first three transfers came from the surplus in the 
UMWA 1950 Pension Plan. Subsequent transfers will be made from 
the interest earnings of the Federal Abandoned Mine Reclamation 
Fund. If costs for unassigned beneficiaries exceed the annual 
transfer, they can be allocated to the companies in proportion 
to their share of assigned beneficiaries. If, for any plan 
year, there is a shortfall in the Combined Fund, the insurance 
premiums payable by companies for the following plan year are 
proportionally increased.
      The per beneficiary insurance premium is calculated each 
year by the Commissioner of the Social Security Administration, 
and is based on a base insurance premium increased each year 
for medical inflation. The base insurance premium is equal to 
the payments from the 1950 UMWA and 1974 UMWA Benefit Plans for 
health benefits (including administrative costs) for the plan 
year beginning July 1, 1991, divided by the number of 
individuals covered by such plans. The base insurance premium 
was determined initially by the Secretary of Health and Human 
Services to be equal to $2,116.67 per beneficiary. There has 
been some dispute regarding the initial determination of the 
base insurance premium, and on June 2, 1995, a United States 
District Court in Alabama granted summary judgment on behalf of 
eight companies holding that the Secretary of Health and Human 
Services misapplied the provisions of the Coal Act in initially 
determining the base insurance premium. 95 This decision 
is currently on appeal.
    \95\ National Coal Association v. Shalala (No. CV94-H-780-S, Slip 
opinion (N.D. Ala. June 2, 1995). As a result of this decision, the 
Social Security Administration, which is responsible for calculating 
the annual insurance premium, set the annual insurance premium for the 
1996 Combined Fund year (beginning October 1, 1995) at $2,200.53 per 
beneficiary. According to the Social Security Administration, if the 
decision is overturned, the per beneficiary insurance premium would 
rise to $2,454.05.
---------------------------------------------------------------------------
      Under present law, the Coal Act does not require the 
trustees of the Combined Fund to disclose any information 
pertaining to the financial solvency and operational status of 
the Combined Fund to companies required to pay insurance 
premiums to the Combined Fund.
House bill
      The House bill exempts from the Coal Act's provisions 
companies that did not sign the 1988 NBCWA (or an agreement 
(other than the National Coal Mine Construction Agreement and 
the Coal Haulers' Agreement) containing pension and health care 
contribution and benefit provisions identical to the 1988 
NBCWA) and companies who made withdrawal liability payments 
under the terms of the 1988 NBCWA. Such companies are no longer 
obligated to pay insurance premiums to the Combined Fund or the 
1992 UMWA Benefit Plan. Beneficiaries allocated to these 
companies are reallocated to the unassigned pool. To the extent 
the insurance premiums associated with these unassigned 
beneficiaries are not paid from amounts transferred from the 
Federal Abandoned Mine Reclamation Fund, the insurance premiums 
will be allocated to the companies that signed the 1988 NBCWA 
(or an agreement (other than the National Coal Mine 
Construction Agreement and the Coal Haulers' Agreement) 
containing pension and health care contribution and benefit 
provisions identical to the 1988 NBCWA) in proportion to their 
share of assigned beneficiaries. As under present law, if, for 
any plan year, there is a shortfall in the Combined Fund, the 
insurance premiums payable by companies for the following plan 
year are proportionally increased.
      The House bill also provides that the trustees of the 
Combined Fund must provide to any company required to pay 
insurance premiums to the Combined Fund, within 30 days of a 
written request, information regarding the financial and 
operational status of the Combined Fund.
      Effective date.--The provision is effective with respect 
to plan years beginning after September 30, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

          41. Modification of luxury excise tax on automobiles

Present law
      Present law imposes a 10-percent excise tax on that 
amount of an automobile's sales price in excess of $32,000. The 
$32,000 threshold is indexed for inflation. The tax is 
scheduled to expire after December 31, 1999.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement extends the luxury excise tax on 
automobiles through December 31, 2002, and reduces the rate of 
tax by one percentage point per year beginning in 1996. Thus, 
the rate of tax for 1996 is nine percent; for 1997, eight 
percent; for 1998, seven percent; for 1999, six percent; for 
2000, five percent; for 2001, four percent; and for 2002, three 
percent. The conference agreement provides that the luxury tax 
on automobiles expires after December 31, 2002.
      Effective date.--The provision is effective on January 1, 
1996.

                  X. Technical Corrections Provisions

  A. Technical Corrections to the Revenue Reconciliation Act of 1990 
                        (sec. 6602 of H.R. 1215)

House bill
            1. Application of the 2.5-cents-per-gallon tax on fuel used 
                    in rail transportation to States and local 
                    governments (sec. 6602(b)(2))
      The House bill clarifies that the 2.5-cents-per-gallon 
tax on fuel used in rail transportation does not apply to such 
uses by States and local governments.
            2. Small winery production credit and bonding requirements 
                    (secs. 6602(b)(5), (6), and (7))
      The House bill clarifies that wine produced by eligible 
small wineries may be transferred without payment of tax to 
bonded warehouses that become liable for payment of the wine 
excise tax without losing credit eligibility.
            3. Deposits of Railroad Retirement Tax Act taxes (sec. 
                    6602(c)(3))
      The House bill conforms the Internal Revenue Code to the 
provision in the Railroad Retirement Solvency Act of 1993 that 
applies the deposit rules for income taxes withheld from 
employees' wages and FICA taxes to Railroad Retirement Tax Act 
taxes.
            4. Treatment of salvage and subrogation of property and 
                    casualty insurance companies (sec. 6602(c)(4))
      The House bill makes adjustments to the calculation of a 
property and casualty insurance company's earnings and profits, 
so as to equalize the treatment of companies that did, and 
those that did not, take into account estimated salvage and 
subrogation recoverable in determining losses incurred prior to 
1990.
            5. Information with respect to certain foreign-owned or 
                    foreign corporations: Suspension of statute of 
                    limitations during certain judicial proceedings 
                    (sec. 6602(c)(5))
      The House bill modifies the provisions in sections 6038A 
and 6038C that suspend the statute of limitations to clarify 
that the suspension applies to any taxable year the 
determination of the amount of tax imposed for which is 
affected by the transaction or item to which the summons 
relates.
            6. Rate of interest for large corporate underpayments 
                    (secs. 6602(c)(6) and (7))
      The House bill provides that an IRS notice that is later 
withdrawn because it was issued in error does not trigger the 
higher rate of interest applicable to certain corporate 
underpayments.
            7. Research credit provision: Effective date for repeal of 
                    special proration rule (sec. 6602(d)(1))
      The bill repeals for all taxable years ending after 
December 31, 1989, the special proration rule for certain 
qualified research provided for by the 1989 Act.
            8. Energy tax provision: Alternative minimum tax adjustment 
                    based on energy preferences (secs. 6602(e)(1) and 
                    (4))
      The House bill clarifies that the amount of alternative 
tax net operating loss that is utilized in any taxable year is 
to be appropriately adjusted to take into account the amount of 
special energy deduction claimed for that year.
      The House bill also provides that the ACE adjustment for 
taxable years beginning in 1991 and 1992 is to be computed 
without regard to the special energy deduction.
            9. Estate tax freezes (sec. 6602(f))
      Chapter 14 of the Code contains rules that supersede the 
willing buyer, willing seller standard for valuation of 
preferred interest in corporations and partnerships, property 
held in trust, and term interests in property.
      The House bill provides that an applicable retained 
interest conferring a distribution right to qualified payments 
with respect to which there is no liquidation, put, call, or 
conversion right is valued without regard to section 2701. The 
House bill also provides that the retention of such right gives 
rise to potential inclusion in the transfer tax base.
      The House bill modifies the definition of junior equity 
interest by granting regulatory authority to treat a 
partnership interest with rights that are junior with respect 
to either income or capital as a junior equity interest. The 
House bill also modifies the definition of distribution right 
by replacing the junior equity interest exception with an 
exception for a right under an interest that is junior to the 
rights of the transferred interest.
      The House bill modifies the rules for electing into or 
out of qualified payment treatment. A dividend payable on a 
periodic basis and at a fixed rate under a cumulative preferred 
stock held by the transferor is treated as a qualified payment 
unless the transferor elects otherwise. If held by an 
applicable family member, such stock is not treated as a 
qualified payment unless the holder so elects. In addition, a 
transferor or applicable family member holding any other 
distribution right may treat such right as a qualified payment 
to be paid in the amounts and at the times specified in the 
election.
      The House bill grants the Treasury Department regulatory 
authority to make subsequent transfer tax adjustments to 
reflect the inclusion of unpaid amounts with respect to a 
qualified payment. The House bill treats a transfer to a spouse 
falling under the annual exclusion the same as a transfer 
qualifying for the marital deduction. The bill also clarifies 
that the inclusion continues to apply if an applicable family 
member transfers a right to qualified payments to the 
transferor. Under the House bill, the election to treat a 
distribution as giving rise to an inclusion results in an 
inclusion only with respect to the payment for which the 
election is made.
      The House bill conforms section 2702 to existing 
regulatory terminology by substituting the term ``incomplete 
gift'' for ``incomplete transfer.'' In addition, the House bill 
limits the exception for incomplete gifts to instances in which 
the entire gift is incomplete. The Treasury Department is 
granted regulatory authority, however, to create additional 
exceptions not inconsistent with the purposes of the section.
            10. Conforming amendments to the repeal of the General 
                    Utilities doctrine (secs. 6602(g)(1) and (2))
      The House bill makes three conforming changes to the Code 
with respect to the repeal of the General Utilities doctrine. 
Two of the changes affect section 1248: the first includes a 
reference to section 355(c)(1) and the second clarifies that, 
with respect to any transaction in which a U.S. person is 
treated as realizing gain from the sale or exchange of stock of 
a controlled foreign corporation, the U.S. person shall be 
treated as having sold or exchanged the stock for purposes of 
applying section 1248. The third change repeals section 897(f) 
as deadwood.
            11. Prohibited transaction rules (sec. 6602(g)(3))
      The House bill conforms the statutory language to 
legislative intent by providing that transactions that are 
exempt from the prohibited transaction rules of the Employee 
Retirement Income Security Act of 1974 (``ERISA'') by reason of 
ERISA section 408(b)(12) are also exempt from the prohibited 
transaction rules of the Code.
            12. Effective date of LIFO adjustment for purposes of 
                    computing adjusted current earnings (sec. 
                    6602(g)(4))
      The House bill clarifies that the calculation of the LIFO 
adjustment of the adjusted current earnings component of the 
corporate alternative minimum tax would be effective with 
respect to adjustments occurring in taxable years beginning 
after December 31, 1989.
            13. Low-income housing tax credit (sec. 6602(g)(5))
      The House bill repeals a 1990 technical correction 
regarding treatment of low-income housing buildings financed 
with tax-exempt bonds. The House bill provides, however, that 
pre-1989 Act law will apply to a bond-financed building if the 
owner of the building establishes to the satisfaction of the 
Secretary of the Treasury reasonable reliance upon the 1990 
technical correction.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provisions.

  B. Technical Corrections to the Revenue Reconciliation Act of 1993 
                        (sec. 6603 of H.R. 1215)

House bill
            1. Treatment of full-time students under the low-income 
                    housing credit (sec. 6603(b))
      The House bill provides that the full-time student 
provision is effective on the date of enactment of the Revenue 
Reconciliation Act of 1993 (``1993 Act'').
            2. Indexation of threshold applicable to excise tax on 
                    luxury automobiles (sec. 6603(c))
      The House bill corrects the application of the indexing 
adjustment applicable to the threshold above which the excise 
tax on luxury automobiles is to apply so that the adjustment 
calculated for a given calendar year applies for that calendar 
year rather than in the subsequent calendar year. The House 
bill is effective on the date of enactment of this act.
            3. Indexation of the limitation based on modified adjusted 
                    gross income for income from United States savings 
                    bonds used to pay higher education tuition and fees 
                    (sec. 6603(d))
      The House bill corrects the indexing of the $60,000 
($40,000 for taxpayers filing as single) threshold to provide 
that the thresholds be indexed for inflation after 1989.
            4. Reporting and notification requirements for lobbying and 
                    political expenditures of tax-exempt organizations 
                    (sec. 6603(g))
      Tax-exempt organizations that incur political 
expenditures are subject to tax under section 527(f). Section 
6033(e) requires tax-exempt organizations (other than 
charities) to (1) report on their annual information returns 
both the total amount of their lobbying and political 
expenditures, and the total amount of dues payments allocable 
to such expenditures, and (2) provide notice to their members 
of the portion of dues allocable to lobbying and political 
expenditures (so that such amounts are not deductible to 
members), or the organization may elect to pay a proxy tax on 
its lobbying and political expenditures, up to the amount of 
its dues receipts. The House bill amends section 6033(e) to 
clarify that any political expenditures on which tax is paid 
pursuant to section 527(f) are not subject to the reporting and 
notification requirements of section 6033(e). In addition, the 
House bill clarifies that the reporting and notification 
requirements of section 6033(e) apply to organizations exempt 
from tax under section 501(a), other than charities described 
in section 501(c)(3).
            5. Estimated tax rules for certain tax-exempt organizations 
                    (sec. 6603(h))
      The House bill clarifies that the Revenue Reconciliation 
Act of 1993 did not change the method by which a tax-exempt 
organization annualizes its current year tax liability for 
purposes of avoiding an underpayment of estimated tax.
            6. Current taxation of certain earnings of controlled 
                    foreign corporations--application of foreign tax 
                    credit limitation (sec. 6603(I)(l))
      The House bill clarifies that a U.S. shareholder's 
inclusion of a controlled foreign corporation's earnings 
invested in excess passive assets is treated like a dividend 
for purposes of the foreign tax credit limitation.
            7. Current taxation of certain earnings of controlled 
                    foreign corporations--measurement of accumulated 
                    earnings (sec. 6603(I)(2))
      The House bill clarifies that the accumulated earnings 
and profits of a controlled foreign corporation taken into 
account for purposes of determining the foreign corporation's 
earnings invested in excess passive assets do not include any 
deficit in accumulated earnings and profits, and do not include 
current earnings (which are taken into account separately).
            8. Current taxation of certain earnings of controlled 
                    foreign corporations--aggregation and look-through 
                    rules (sec. 6603(I)(3))
      The House bill clarifies that, within the regulatory 
authority provided to the Secretary of the Treasury under the 
1993 Act, regulations are specifically authorized to coordinate 
the CFC group treatment and look-through treatment applicable 
for purposes of determining a foreign corporation's earnings 
invested in excess passive assets. Pending the promulgation of 
guidance by the Secretary, it is intended that taxpayers be 
permitted to coordinate such treatment using any reasonable 
method for taking assets into account only once, so long as the 
method is consistently applied to all controlled foreign 
corporations (whether or not members of any CFC group) in all 
taxable years.
            9. Treatment of certain leased assets for PFIC purposes 
                    (sec. 6603(I)(5))
      The House bill clarifies that, in the case of any item of 
property leased by a foreign corporation and treated as an 
asset actually owned by the foreign corporation in measuring 
the assets of the foreign corporation for purposes of the PFIC 
asset test, the amount taken into account with respect to the 
leased property is the amount determined under the 1993 Act's 
special measurement rule, which is based on the unamortized 
portion of the present value of the payments under the lease 
for the use of the property.
            10. Amortization of goodwill and certain other intangibles 
                    (sec. 6603(k))
      The House bill clarifies the antichurning rules of the 
1993 Act amortization of intangibles provision. It is clarified 
that when a taxpayer and its related parties have made an 
election to apply the 1993 Act to all acquisitions after July 
25, 1991, the antichurning rules will not apply when property 
acquired from an unrelated party after July 25, 1991 (and not 
subject to the antichurning rules in the hands of the acquirer) 
is transferred to a taxpayer related to the acquirer after the 
date of enactment of the 1993 Act.
            11. Empowerment zones and eligibility of small farms for 
                    tax incentives (sec. 6603(l))
      The bill provides that the $500,000 asset test for 
determining whether a farm is eligible for section 179 
expensing in an empowerment zone and expanded tax-exempt 
financing benefits in an empowerment zone or enterprise 
community is applied based on assets of the farm at the end of 
the current taxable year.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment, 
except with respect to the indexation of the threshold 
applicable to the excise tax on luxury automobiles (item B.2., 
above). With respect to the indexation of the threshold 
applicable to the excise tax on luxury automobiles, the 
conference agreement follows the House bill.

      C. Other tax technical corrections (sec. 6604 of h.r. 1215)

House bill
            1. Hedge bonds (sec. 6604(b))
      The House bill clarifies that the 30-day exception for 
temporary investments of investment earnings applies to amounts 
(i.e., principal and earnings thereon) temporarily invested 
during the 30-day period immediately preceding redemption of 
the bonds as well as such periods preceding reinvestment of the 
proceeds.
            2. Withholding on distributions from U.S. real property 
                    holding companies (sec. 6604(c))
      The House bill clarifies that withholding requirements 
under section 1445 apply to any section 301 distribution to a 
foreign person by a domestic corporation that is or was a U.S. 
real property holding corporation which distribution is not 
made out of the corporation's earnings and profits and is 
therefore treated as an amount received in a sale or exchange 
of a U.S. real property interest. The provision is effective 
for distributions made after the date of enactment of the bill.
            3. Treatment of credits attributable to working interests 
                    in oil and gas properties (sec. 6604(d))
      A working interest in an oil and gas property which does 
not limit the liability of the taxpayer is not a ``passive 
activity'' for purposes of the passive loss rules (sec. 469). 
However, if any loss from an activity is treated as not being a 
passive loss by reason of being from a working interest, any 
net income from the activity in subsequent years is not treated 
as income from a passive activity, notwithstanding that the 
activity may otherwise have become passive with respect to the 
taxpayer.
      The House bill clarifies that any credit attributable to 
a working interest in an oil and gas property, in a taxable 
year in which the activity is no longer treated as not being 
passive activity, will not be treated as attributable to a 
passive activity to the extent of any tax allocable to the net 
income from the activity for the taxable year.
            4. Clarification of passive loss disposition rule (sec. 
                    6604(e))
      The House bill clarifies the rule relating to the 
computation of the overall loss allowed upon the disposition of 
a passive activity under the passive loss rules.
            5. Estate tax unified credit allowed nonresident aliens 
                    under treaty (sec. 6604(f)(1))
      The House bill clarifies that in determining the pro rata 
unified credit required by treaty, property exempted by the 
treaty from U.S. estate tax is not treated as situated in the 
United States. The provision is effective on the date of 
enactment.
            6. Limitation on deduction for certain interest paid by 
                    corporation to related person (sec. 6604(f)(2))
      The House bill clarifies that, under the earnings 
stripping provision, excess interest carried forward from a 
year in which the debt-equity ratio threshold is exceeded may 
be deducted in a subsequent year in which that threshold is not 
exceeded, but only to the extent that such interest would not 
otherwise be treated as excess interest expense in the 
carryforward year. The provision is effective as if included in 
the amendments made by section 7210(a) of the 1989 Act.
            7. Branch-level interest tax (sec. 6604(f)(3))
      The House bill clarifies that where an interest expense 
of a foreign corporation is allocable to U.S. effectively 
connected income, but that interest expense would not have been 
fully deductible for tax purposes under another Code provision 
had it been paid by a U.S. corporation, such interest is 
nonetheless treated for branch level interest tax purposes like 
a payment by a U.S. corporation to a foreign corporate parent. 
Similarly, with regard to the Treasury's regulatory authority 
to treat an interest payment by a foreign corporation's U.S. 
branch as though not paid by a U.S. person for source and 
withholding purposes, the bill clarifies that the authority 
extends to interest payments in excess of those reasonably 
expected to be allocable to U.S. effectively connected income 
of the foreign corporation. These provisions are effective as 
if they were made by the Tax Reform Act of 1986 (``1986 Act'').
            8. Determination of source in case of sales of inventory 
                    property (sec. 6604(f)(4))
      The House bill clarifies that, to the extent that the 
Secretary of the Treasury had general regulatory authority to 
provide rules for the sourcing of income from the sales of 
personal property prior to the 1986 Act, the Secretary of the 
Treasury retains that authority under present law with respect 
to inventory property. The provision is effective as if it were 
included in the 1986 Act.
            9. Repeal of obsolete provisions (sec. 6604(f)(5))
      The House bill repeals as obsolete the information 
reporting requirements of sections 6038 and 6038A relating to 
section 453C.
            10. Clarification of certain stadium bond transition rule 
                    in Tax Reform Act of 1986 (sec. 6604(g))
      The House bill permits the residual interest in the 
stadium currently held by the City of Cleveland to be assigned 
to Cuyahoga County, Ohio (the county in which both Cleveland 
and the stadium are located) because of a change in Ohio State 
law prior to issuance of the bonds. The House bill does not 
extend the time for issuing the bonds or otherwise affect the 
amount of bonds or the location or design of the stadium.
            11. Health care continuation rules (sec. 6604(h))
      The 1989 Act amended the health care continuation rules 
to provide that if a covered employee is entitled to Medicare 
and within 18 months of such entitlement separates from service 
or has a reduction in hours, the duration of continuation 
coverage for the spouse and dependents is 36 months from the 
date the covered employee became entitled to Medicare. One 
possible unintended interpretation of the statutory language, 
however, would permit continuation coverage for up to 54 
months. The House bill amends the Code (sec. 4980B), title I of 
the Employee Retirement Income Security Act of 1974 (sec. 602), 
and the Public Health Service Act (sec. 2202(2)(A)), to limit 
the continuation coverage in such cases to no more than 36 
months. The provision is effective for plan years beginning 
after December 31, 1989.
            12. Taxation of excess inclusions of a residual interest in 
                    a REMIC for taxpayers subject to alternative 
                    minimum tax with net operating losses (sec. 
                    6604(I))
      The House bill provides the following three rules for 
determining the alternative minimum taxable income of a 
taxpayer that is not a thrift institution that holds residual 
interests in a REMIC: (1) the alternative minimum taxable 
income of such a taxpayer is computed without regard to the 
REMIC rule that taxable income cannot be less than the amount 
of excess inclusions; (2) the alternative minimum taxable 
income of such a taxpayer for a taxable year cannot be less 
than the excess inclusions of the residual interests for that 
year; and (3) the amount of any alternative minimum tax net 
operating loss deduction of such a taxpayer is computed without 
regard to any excess inclusions. The provision is effective for 
all taxable years beginning after December 31, 1986, unless the 
taxpayer elects to apply the rules of the bill only to taxable 
years beginning after the date of enactment.
            13. Application of harbor maintenance tax to Alaska and 
                    Hawaii ship passengers (sec. 6604(j))
      The House bill clarifies that the harbor maintenance tax 
does not apply to passenger fares where the passengers are 
transported on U.S. flag vessels operating solely within the 
State waters of Alaska or Hawaii and adjacent international 
waters (i.e., leaving and returning to a port in the same State 
without stopping elsewhere). The provision is effective as of 
April 1, 1987 (the effective date of the tax).
            14. Modify effective date provision relating to the Energy 
                    Policy Act of 1992 (sec. 6604(k))
      The House bill corrects several cross-references in the 
Energy Policy Act of 1992, and also clarifies the relationship 
between the basis adjustment rules for the electric vehicle 
credit (sec. 30(d)(1) and the alternative minimum tax.
            15. Determination of unrecovered investment in annuity 
                    contract (sec. 6604(m))
      In the case of an annuity contract with a refund feature, 
the House bill modifies the definition of the unrecovered 
investment in the contract, so that the entire investment in 
the contract can be recovered tax-free.
            16. Election by parent to claim unearned income of certain 
                    children on parent's return (sec. 6604(n))
      The House bill provides for adjustments for inflation, 
effective for taxable years beginning after December 31, 1994.
            17. Exclusion from income for combat zone compensation 
                    (sec. 6604(o)(4))
      The House bill changes obsolete references to ``combat 
pay'' to references to ``combat zone compensation.''
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provisions.

D. Additional tax technical corrections (secs. 13401-13405 of the house 
                                 bill)

House bill
            1. Reporting of real estate transactions (sec. 13401)
      The House bill clarifies that real estate reporting 
persons may take into account the cost of complying with the 
reporting requirements of Code section 6045 in establishing 
charges for their services, so long as a separately listed 
charge for such costs is not made.
            2. Clarification of denial of deduction for stock 
                    redemption expenses (sec. 13402)
      The House bill clarifies that amounts properly allocable 
to indebtedness on which interest is deductible and properly 
amortized over the term of that indebtedness are not subject to 
the provision of section 162(k) denying a deduction for any 
amount paid or incurred by a corporation in connection with the 
redemption of its stock. This clarification is effective as if 
included in the 1986 Act.
      In addition, the House bill clarifies that the rules of 
section 162(k) apply to any acquisition of its stock by a 
corporation or by a party that has a relationship to the 
corporation described in section 465(b)(3)(C)(which applies a 
more than 10-percent relationship test in certain cases). These 
clarifications apply to amounts paid or incurred after 
September 13, 1995.
            3. Clarification of depreciation class for certain energy 
                    property (sec. 13403)
      The House bill clarifies that solar or wind property 
owned by a public utility may qualify as 5-year MACRS property.
            4. Treatment of certain veterans' reemployment rights (sec. 
                    13405)
      The House bill conforms the Internal Revenue Code 
provisions relating to tax-qualified retirement plans to the 
Uniformed Services Employment and Reemployment Rights Act of 
1994 (``USERRA''), which provides for the rights of reemployed 
veterans. Thus, under the House bill, the tax-qualified status 
of a plan will not be affected merely because the plan provides 
benefits to a reemployed veteran as required or authorized by 
USERRA. The provision is effective as of December 12, 1994, the 
effective date of the benefits-related provisions of USERRA.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provisions.

E. Treat Qualified Football Coaches Plan as Multiemployer Pension Plan 
               for Purposes of the Internal Revenue Code

(sec. 6604(l) of the House bill and sec. 12705 of the Senate amendment)

Present law
      Under present law, a tax-qualified pension plan 
(including a qualified cash or deferred arrangement) must be 
maintained for the exclusive benefit of the employees and their 
beneficiaries covered under the plan.
      The American Football Coaches Association (``AFCA'') is a 
tax-exempt organization described in section 501(c)(6) of the 
Code. The members of the AFCA include college coaches, athletic 
directors, and high school coaches. The participating members 
of the AFCA are not employees of the organization. The AFCA 
maintains a cash or deferred arrangement (i.e., a ``401(k) 
plan'') on behalf of participating members.
      The Employee Retirement Income Security Act of 1974 
(``ERISA''), as amended by the Continuing Appropriations for 
Fiscal Year 1988, provides that, for purposes of the labor law 
provisions of ERISA, a qualified football coaches plan 
generally is treated as a multiemployer plan and may include a 
qualified cash or deferred arrangement. Under ERISA, a 
qualified football coaches plan is defined as any defined 
contribution plan established and maintained by an organization 
described in Code section 501(c)(6), the membership of which 
consists entirely of individuals who primarily coach football 
as full-time employees of 4-year colleges or universities, if 
the organization was in existence on September 18, 1986. This 
definition is generally intended to apply to the AFCA.
      However, the Omnibus Budget Reconciliation Act of 1987 
provided that certain provisions of ERISA are not applicable in 
interpreting the Internal Revenue Code, except to the extent 
specifically provided in the Code or as determined by the 
Secretary of the Treasury.
      The Internal Revenue Service determined that the cash or 
deferred arrangement maintained by the AFCA is not a qualified 
cash or deferred arrangement under the Internal Revenue Code. 
In making this determination, the IRS also observed that the 
AFCA plan may also violate a number of provisions of the Code. 
For example, the Code requires that a qualified plan be 
maintained for the benefit of employees, but the coaches are 
not employees of the AFCA.
House bill
      Under the House bill, a correction to the Continuing 
Appropriations for Fiscal Year 1988 provides that a qualified 
football coaches plan (as defined in ERISA) is eligible to 
maintain a qualified cash or deferred arrangement under the 
Internal Revenue Code on behalf of the football coaches 
belonging to the AFCA.
      Effective date.--The provision generally is effective as 
if included in the Continuing Appropriations for Fiscal Year 
1988 (i.e., years beginning after December 22, 1987).
Senate amendment
      Same as the House bill, except that in order for the plan 
to be reinstated as a qualified football coaches plan, a 
$25,000 excise tax is imposed on the plan.
      Effective date.--Same as the House bill, except that the 
excise tax is required to be paid in the first plan year 
beginning after the date of enactment.
Conference agreement
      The conference agreement does not include the House bill 
or Senate amendment provision.

         XI. Simplification Provisions Relating to Individuals

    1. Provisions relating to rollover of gain on sale of principal 
            residence (secs. 14101-14102 of the House bill)

Present law
      In general.--No gain is recognized on the sale of a 
principal residence if a new residence at least equal in cost 
to the sales price of the old residence is purchased and used 
by the taxpayer as his or her principal residence within a 
specified period of time (sec. 1034). This replacement period 
generally begins two years before and ends two years after the 
date of sale of the old residence. The basis of the replacement 
residence is reduced by the amount of any gain not recognized 
on the sale of the old residence by reason of section 1034.
      Multiple rollovers.--In general, nonrecognition treatment 
is available only once during any two-year period. In addition, 
if the taxpayer purchases more than one residence during the 
replacement period and such residences are each used as the 
taxpayer's principal residence within two years after the date 
of sale of the old residence, only the last residence so used 
is treated as the replacement residence.
      Special rules apply, however, if residences are sold in 
order to relocate for employment reasons. First, the number of 
times nonrecognition treatment is available during a two-year 
period is not limited. Second, if a residence is sold within 
two years after the sale of the old residence, the residence 
sold is treated as the last residence used by the taxpayer and 
thus as the only replacement residence.
      Rollovers in the case of divorce or separation.--The 
determination whether property is used by a taxpayer as a 
principal residence depends upon all the facts and 
circumstances in each case, including the good faith of the 
taxpayer. No safe harbor is provided for sales of principal 
residences incident to divorce or marital separation.
House bill
      Multiple rollovers.--Gain is rolled over from one 
residence to another residence in the order the residences are 
purchased and used, regardless of the taxpayer's reasons for 
the sale of the old residence. In addition, gain may be rolled 
over more than once within a two-year period. Thus, the rules 
that formerly applied only if a taxpayer sold his residence in 
order to relocate for employment purposes will apply in all 
cases. As under present law, the basis of each succeeding 
residence is reduced by the amount of gain not recognized on 
the sale of the prior residence.
      Rollovers in the case of divorce or separation.--The 
House bill provides a safe harbor in the determination of 
principal residence in certain cases incident to divorce or 
marital separation. Specifically, the House bill provides that 
a residence is treated as the taxpayer's principal residence at 
the time of sale if (1) the residence is sold pursuant to a 
divorce or marital separation and (2) the taxpayer used such 
residence as his or her principal residence at any time during 
the two-year period ending on the date of sale.
      Effective date.--Sales of old residences (within the 
meaning of sec. 1034) after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  2. One-time exclusion of gain from sale of principal residence for 
             certain spouses (sec. 14103 of the House bill)

Present law
      In general, a taxpayer may exclude from gross income up 
to $125,000 of gain from the sale or exchange of a principal 
residence if the taxpayer (1) has attained age 55 before the 
sale, and (2) has used the residence as a principal residence 
for three or more years of the five years preceding the sale. 
This election is allowed only once in a lifetime unless all 
previous elections are revoked. For these purposes, sales on or 
before July 26, 1978 are not counted against the once in a 
lifetime limit.
House bill
      The House bill allows an exclusion to an individual who 
otherwise qualifies for an exclusion under section 121 of the 
Code but for a marriage to a spouse with an existing election 
in effect. The exclusion will only be available if the 
individual held the property which is the subject of the 
exclusion for at least three years prior to marrying the spouse 
with the existing election.
      Effective date.--Sales or exchanges after September 13, 
1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

3. Payment of taxes by commercially acceptable means (sec. 14111 of the 
                              House bill)

Present law
      Payment of taxes may be made by checks or money orders, 
to the extent and under the conditions provided by regulations.
House bill
      The House bill allows the IRS to accept payment by any 
commercially acceptable means that the Secretary deems 
appropriate, to the extent and under the conditions provided in 
Treasury regulations.
      Effective date.--Nine months after the date of enactment. 
The IRS may, in this interim period, conduct internal tests and 
negotiate with card issuers, but may not accept credit or debit 
cards for payment of tax liability.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

4. Simplified foreign tax credit limitation for individuals (sec. 14112 
                           of the House bill)

Present law
      In order to compute the foreign tax credit, a taxpayer 
computes foreign source taxable income and foreign taxes paid 
in each of the applicable separate foreign tax credit 
limitation categories. In the case of an individual, this 
requires the filing of IRS Form 1116, designed to elicit 
sufficient information to perform the necessary calculations.
House bill
      The House bill allows individuals with no more than $200 
($400 in the case of married persons filing jointly) of 
creditable foreign taxes, and no foreign source income other 
than passive income, to elect a simplified foreign tax credit 
limitation equal to the lesser of 25 percent of the 
individual's foreign source gross income or the amount of the 
creditable foreign taxes paid or accrued by the individual 
during the taxable year. For this purpose, passive income is 
defined to include all types of income that is foreign personal 
holding company income under the subpart F rules, provided that 
the income is shown on a payee statement furnished to the 
individual. Under the election, a credit is allowed only for 
taxes shown on a payee statement.
      Effective date.--Taxable years beginning after December 
31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  5. Treatment of personal transactions by individuals under foreign 
             currency rules (sec. 14113 of the House bill)

Present law
      When a U.S. taxpayer with a U.S. dollar functional 
currency makes a payment in a foreign currency, gain or loss 
(referred to as ``exchange gain or loss'') arises from any 
change in the value of the foreign currency relative to the 
U.S. dollar between the time the currency was acquired (or the 
obligation to pay was incurred) and the time that the payment 
is made. The 1986 Act provisions designed to clarify the 
treatment of currency transactions, primarily found in section 
988, apply to transactions entered into by an individual only 
to the extent that expenses attributable to such transactions 
will be deductible under section 162 (as a trade or business 
expense) or section 212 (as an expense of producing income, 
other than expenses incurred in connection with the 
determination, collection, or refund of taxes). Therefore, the 
principles of pre-1986 law continue to apply to personal 
currency transactions.
House bill
      In a case where an individual acquires nonfunctional 
currency and then disposes of it in a personal transaction, and 
where exchange rates have changed in the intervening period, 
the House bill provides for nonrecognition of an individual's 
resulting exchange gain provided that such gain does not exceed 
$200. The House bill does not change the treatment of resulting 
exchange losses.
      Effective date.--Taxable years beginning after December 
31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  6. Treatment of certain reimbursed expenses of rural mail carriers 
                     (sec. 14114 of the House bill)

Present law
      A taxpayer who uses his or her automobile for business 
purposes may deduct the business portion of the actual 
operation and maintenance expenses of the vehicle, plus 
depreciation (subject to the limitations of sec. 280F). 
Alternatively, the taxpayer may elect to utilize a standard 
mileage rate in computing the deduction allowable for business 
use of an automobile that has not been fully depreciated. Under 
this election, the taxpayer's deduction equals the applicable 
rate multiplied by the number of miles driven for business 
purposes and is taken in lieu of deductions for depreciation 
and actual operation and maintenance expenses.
      An employee of the U.S. Postal Service may compute his 
deduction for business use of an automobile in performing 
services involving the collection and delivery of mail on a 
rural route by using, for all business use mileage, 150 percent 
of the standard mileage rate.
House bill
      The House bill repeals the special rate for Postal 
Service employees of 150 percent of the standard mileage rate. 
In its place, the House bill provides that the rate of 
reimbursement provided by the Postal Service to rural letter 
carriers is considered to be equivalent to their expenses. The 
rate of reimbursement that is considered to be equivalent to 
their expenses is the rate of reimbursement contained in the 
1991 collective bargaining agreement, which may in the future 
be increased by no more than the rate of inflation.
      Effective date.--Taxable years beginning after December 
31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

7. Exclusion of combat pay from withholding limited to amount excluded 
            from gross income (sec. 14115 of the House bill)

Present law
      Gross income does not include certain combat pay of 
members of the Armed Forces (Code sec. 112). If enlisted 
personnel serve in a combat zone during any part of any month, 
military pay for that month is excluded from gross income. In 
the case of commissioned officers, these exclusions from income 
are limited to $500 per month of military pay.
      There is no income tax withholding with respect to 
military pay for a month in which a member of the Armed Forces 
of the United States is entitled to the benefits of section 112 
(sec. 3401(a)(2)). With respect to enlisted personnel, this 
income tax withholding rule parallels the exclusion from income 
under section 112: there is total exemption from income tax 
withholding and total exclusion from income. With respect to 
officers, however, the withholding rule is not parallel: there 
is total exemption from income tax withholding, although the 
exclusion from income is limited to $500 per month.
House bill
      The House bill makes the income tax withholding exemption 
rules parallel to the rules providing an exclusion from income 
for combat pay.
      Effective date.--Remuneration paid after December 31, 
1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

8. Treatment of traveling expenses of certain Federal employees engaged 
       in criminal investigations (sec. 14116 of the House bill)

Present law
      Unreimbursed ordinary and necessary travel expenses paid 
or incurred by an individual in connection with temporary 
employment away from home are generally deductible, subject to 
the two-percent floor on miscellaneous itemized deductions. 
Travel expenses paid or incurred in connection with indefinite 
employment away from home, however, are not deductible. A 
taxpayer's employment away from home in a single location is 
indefinite rather than temporary if it lasts for one year or 
more; thus, no deduction is permitted for travel expenses paid 
or incurred in connection with such employment (sec. 162(a)). 
If a taxpayer's employment away from home in a single location 
lasts for less than one year, whether such employment is 
temporary or indefinite is determined on the basis of the facts 
and circumstances.
House bill
      The one-year limitation with respect to deductibility of 
expenses while temporarily away from home does not include any 
period during which a Federal employee is certified by the 
Attorney General (or the Attorney General's designee) as 
traveling on behalf of the Federal Government in a temporary 
duty status to investigate or provide support services for the 
investigation of a Federal crime. Thus, expenses for these 
individuals during these periods are fully deductible, 
regardless of the length of the period for which certification 
is given (provided that the other requirements for 
deductibility are satisfied).
      Effective date.--Taxable years ending after the date of 
enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

                 XII. Pension Simplification Provisions

 A. Simplified Distribution Rules (secs. 14201-14204 of the House bill 
             and secs. 12911-12914 of the Senate amendment)

Present law

      In general, a distribution of benefits from a tax-favored 
retirement arrangement (i.e., a qualified plan) generally is 
includible in gross income in the year it is paid or 
distributed under the rules relating to the taxation of 
annuities. A qualified plan includes a qualified pension plan, 
a qualified annuity plan, and a tax-sheltered annuity contract 
(sec. 403(b) annuity).
            Lump-sum distributions
      Lump-sum distributions from qualified plans and annuities 
are eligible for special 5-year forward averaging. In general, 
a lump-sum distribution is a distribution within one taxable 
year of the balance to the credit of an employee that becomes 
payable to the recipient first, on account of the death of the 
employee, second, after the employee attains age 59\1/2\, 
third, on account of the employee's separation from service, or 
fourth, in the case of self-employed individuals, on account of 
disability. Lump-sum treatment is not available for 
distributions from a tax-sheltered annuity.
      A taxpayer is permitted to make an election with respect 
to a lump-sum distribution received on or after the employee 
attains age 59\1/2\ to use 5-year forward income averaging 
under the tax rates in effect for the taxable year in which the 
distribution is made. In general, this election allows the 
taxpayer to pay a separate tax on the lump-sum distribution 
that approximates the tax that would be due if the lump-sum 
distribution were received in 5 equal installments. If the 
election is made, the taxpayer is entitled to deduct the amount 
of the lump-sum distribution from gross income. Only one such 
election on or after age 59\1/2\ may be made with respect to 
any employee.
            $5,000 exclusion for employer-provided death benefits
      Under present law, the beneficiary or estate of a 
deceased employee generally can exclude up to $5,000 in 
benefits paid by or on behalf of an employer by reason of the 
employee's death (sec. 101(b)).
            Recovery of basis
      Amounts received as an annuity under a qualified plan 
generally are includible in income in the year received, except 
to the extent they represent the return of the recipient's 
investment in the contract (i.e., basis). Under present law, a 
pro-rata basis recovery rule generally applies, so that the 
portion of any annuity payment that represents nontaxable 
return of basis is determined by applying an exclusion ratio 
equal to the employee's total investment in the contract 
divided by the total expected payments over the term of the 
annuity.
      Under a simplified alternative method provided by the 
IRS, the taxable portion of qualifying annuity payments is 
determined under a simplified exclusion ratio method.
      In no event can the total amount excluded from income as 
nontaxable return of basis be greater than the recipient's 
total investment in the contract.
            Required distributions
      Present law provides uniform minimum distribution rules 
generally applicable to all types of tax-favored retirement 
vehicles, including qualified plans and annuities, IRAs, and 
tax-sheltered annuities.
      Under present law, a qualified plan is required to 
provide that the entire interest of each participant will be 
distributed beginning no later than the participant's required 
beginning date (sec. 401(a)(9)). The required beginning date is 
generally April 1 of the calendar year following the calendar 
year in which the plan participant or IRA owner attains age 
70\1/2\. In the case of a governmental plan or a church plan, 
the required beginning date is the later of first, such April 
1, or second, the April 1 of the year following the year in 
which the participant retires.

House bill

            Lump-sum distributions
      The House bill repeals 5-year averaging for lump-sum 
distributions from qualified plans. Thus, the bill repeals the 
separate tax paid on a lump-sum distribution and also repeals 
the deduction from gross income for taxpayers who elect to pay 
the separate tax on a lump-sum distribution. The bill preserves 
the transition rules adopted in the Tax Reform Act of 1986.
      Effective date.--Taxable years beginning after December 
31, 1995.
            $5,000 exclusion for employer-provided death benefits
      The House bill repeals the $5,000 exclusion for employer-
provided death benefits.
      Effective date.--Taxable years beginning after December 
31, 1995.
            Recovery of basis
      The House bill provides that basis recovery on payments 
from qualified plans generally is determined under a method 
similar to the present-law simplified alternative method 
provided by the IRS. The portion of each annuity payment that 
represents a return of basis is equal to the employee's total 
basis as of the annuity starting date, divided by the number of 
anticipated payments under the following table:
  Age:                                                Number of payments
        Not more than 55..........................................   300
        56-60.....................................................   260
        61-65.....................................................   240
        66-70.....................................................   170
        More than 70..............................................   120
      Effective date.--Annuity starting dates after December 
31, 1995.
            Required distributions
      The House bill modifies the rule that requires all 
participants in qualified plans to commence distributions by 
age 70\1/2\ without regard to whether the participant is still 
employed by the employer and generally replaces it with the 
rule in effect prior to the Tax Reform Act of 1986. Under the 
House bill, distributions generally are required to begin by 
April 1 of the calendar year following the later of first, the 
calendar year in which the employee attains age 70\1/2\ or 
second, the calendar year in which the employee retires. 
However, in the case of a 5-percent owner of the employer, 
distributions are required to begin no later than the April 1 
of the calendar year following the year in which the 5-percent 
owner attains age 70\1/2\.
      In addition, in the case of an employee (other than a 5-
percent owner) who retires in a calendar year after attaining 
age 70\1/2\, the bill generally requires the employee's accrued 
benefit to be actuarially increased to take into account the 
period after age 70\1/2\ in which the employee was not 
receiving benefits under the plan. Thus, under the House bill, 
the employee's accrued benefit is required to reflect the value 
of benefits that the employee would have received if the 
employee had retired at age 70\1/2\ and had begun receiving 
benefits at that time.
      The actuarial adjustment rule and the rule requiring 5-
percent owners to begin distributions after attainment of age 
70\1/2\ do not apply, under the House bill, in the case of a 
governmental plan or church plan.
      Effective date.--Years beginning after December 31, 1995.
Senate amendment
            Lump-sum distributions
      The Senate amendment is the same as the House bill.
      Effective date.--Taxable years beginning after December 
31, 1998.
            $5,000 exclusion for employer-provided death benefits
      The Senate amendment is the same as the House bill.
            Recovery of basis
      The Senate amendment is the same as the House bill, 
except that the number of anticipated payments is determined 
under the following table:
        Age:                                          Number of payments
        Not more than 55..........................................   360
        56-60.....................................................   310
        61-65.....................................................   260
        66-70.....................................................   210
        More than 70..............................................   160
      Effective date.--Same as House bill.
            Required distributions
      The Senate amendment is the same as the House bill.
Conference agreement
            Lump-sum distributions
      The conference agreement follows the Senate amendment.
            $5,000 exclusion for employer-provided death benefits
      The conference agreement follows the House bill and the 
Senate amendment.
            Recovery of basis
      The conference agreement follows the Senate amendment.
            Required distributions
      The conference agreement follows the House bill and the 
Senate amendment.

                  B. Increased Access to Pension Plans

  1. modifications of simplified employee pensions (sec. 14211 of the 
                              House bill)

Present law
      Certain employers (other than tax-exempt and governmental 
employers) can establish a simplified employee pension 
(``SEP'') for the benefit of their employees under which the 
employees can elect to have contributions made to the SEP or to 
receive the contributions in cash. The amounts the employee 
elects to have contributed to the SEP are not currently 
includible in income.
      The election to have amounts contributed to a SEP or 
received in cash is available only if at least 50 percent of 
the eligible employees of the employer elect to have amounts 
contributed to the SEP. In addition, such election is available 
for a taxable year only if the employer maintaining the SEP had 
25 or fewer eligible employees at all times during the prior 
taxable year.
      Elective deferrals under SEPs are subject to a special 
nondiscrimination test.
House bill
      The House bill modifies the rules relating to salary 
reduction SEPs by providing that such SEPs may be established 
by employers with 100 or fewer employees. The House bill 
repeals the requirement that at least 50 percent of eligible 
employees actually participate in a salary reduction SEP. The 
House bill modifies the special nondiscrimination test 
applicable to elective deferred under SEPs and permits a salary 
reduction SEP to satisfy the design-based safe harbor available 
to qualified cash or deferred arrangements (see C.3., below).
      Effective date.--Years beginning after December 31, 1995.
Senate amendment
      No provision. However, the Senate amendment adopts a new 
type of retirement plan (called a ``SIMPLE'' retirement plan) 
(see the description in II.B., above).
Conference agreement
      The conference agreement does not include the House bill 
provision.

 2. state and local governments and tax-exempt organizations eligible 
 under section 401(k) (sec. 14212 of the house Bill and sec. 12917 of 
                         the senate amendment)

Present law
      Under present law, tax-exempt and State and local 
government organizations are generally prohibited from 
establishing qualified cash or deferred arrangements (sec. 
401(k) plans). Qualified cash or deferred arrangements (1) of 
rural cooperatives, (2) adopted by State and local governments 
before May 6, 1986, or (3) adopted by tax-exempt organizations 
before July 2, 1986, are not subject to this prohibition.
House bill
      The House bill allows tax-exempt organizations and State 
and local governments and their agencies and instrumentalities 
to maintain qualified cash or deferred arrangements, unless the 
entity maintains a section 457 plan.
      Tax-exempt and governmental plans eligible to maintain 
qualified cash or deferred arrangements under present law are 
not to be subject to the prohibition on maintaining such a plan 
if the entity maintains a section 457 plan.
      Effective date.--Years beginning after December 31, 1996.
Senate amendment
      The Senate amendment permits organizations exempt from 
tax (other than an organization described in sec. 501(c)(3)) to 
maintain qualified cash or deferred arrangements.
      Effective date.--Years beginning after December 31, 1997.
Conference agreement
      The conference agreement follows the Senate amendment, 
except that the provision applies to all tax-exempt 
organizations (including, for this purpose, Indian tribes). The 
conference report retains the present-law prohibition in the 
maintenance of cash or deferred arrangements by State and local 
governments, (except to the extent it may apply to Indian 
tribes).
      Effective date.--Years beginning after December 31, 1996.

3. tax credit for pension plan start-up costs of small employers (sec. 
                     12916 of the senate amendment)

Present law
      An employer is generally entitled to deduct ordinary and 
necessary business expenses, including expenses associated with 
establishing pension plans.
House bill
      No provision.

Senate amendment

      In lieu of the present-law deduction, small employers 
would be entitled to a credit with respect to the expenses of 
establishing a SIMPLE retirement plan (see the description in 
II.B., above). The credit equals 50 percent of the start-up 
costs of establishing the plan up to a maximum credit of $500.
      The credit is not available to an employer that made 
contributions to a qualified plan (or a SIMPLE plan) during the 
2 years preceding the year in question. In addition, the credit 
is not available to employers--substantially all of the 
activities of which involve the performance of services in the 
fields of health, law, engineering, architecture, accounting, 
actuarial science, performing arts, or consulting.
      Effective date.--Costs incurred after the date of 
enactment in taxable years ending after that date.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

                    C. Nondiscrimination Provisions

 1. definition of highly compensated employees and family aggregation 
rules (secs. 14221-14222 of the house bill and sec. 12901 of the senate 
                               amendment)

Present law

            Definition of highly compensated employee
      An employee, including a self-employed individual, is 
treated as highly compensated if, at any time during the year 
or the preceding year, the employee (1) was a 5-percent owner 
of the employer, (2) received more than $100,000 (for 1995) in 
annual compensation from the employer, (3) received more than 
$66,000 (for 1995) in annual compensation from the employer and 
was one of the top-paid 20 percent of employees during the same 
year, or (4) was an officer of the employer who received 
compensation in excess of $60,000 (for 1995). If, for any year, 
no officer has compensation in excess of the threshold, then 
the highest paid officer of the employer is treated as a highly 
compensated employee.
            Family aggregation rules
      A special rule applies with respect to the treatment of 
family members of certain highly compensated employees for 
purposes of the nondiscrimination rules applicable to qualified 
plans. Under the special rule, if an employee is a family 
member of either a 5-percent owner or 1 of the top-10 highly 
compensated employees by compensation, then any compensation 
paid to such family member and any contribution or benefit 
under the plan on behalf of such family member is aggregated 
with the compensation paid and contributions or benefits on 
behalf of the 5-percent owner or the highly compensated 
employee in the top-10 employees by the compensation. 
Therefore, such family member and employee are treated as a 
single highly compensated employee. An individual is considered 
a family member if, with respect to an employee, the individual 
is a spouse, lineal ascendant or descendant, or spouses of a 
lineal ascendant or descendant of the employee.
      Similar family aggregation rules apply with respect to 
the $150,000 (for 1995) limit on compensation that may be taken 
into account under a qualified plan (sec. 401(a)(17)) and for 
deduction purposes (sec. 404(1)). However, under such 
provisions, only the spouse of the employee and lineal 
descendants of the employee who have not attained the age 19 
are taken into account.

House bill

            Definition of highly compensated employee
      Under the House bill, an employee is highly compensated 
if the employee (1) was a 5-percent owner of the employer at 
any time during the year or the preceding year or (2) had 
compensation for the preceding year in excess of $80,000 
(indexed for inflation). The House bill repeals the rule 
requiring the highest paid officer to be treated as a highly 
compensated employee.
      Effective date.--Years beginning after December 31, 1995.
            Family aggregation rules
      The House bill repeals the family aggregation rules.
      Effective date.--The provision is effective for years 
beginning after December 31, 1995.

Senate amendment

            Definition of highly compensated employee
      Under the Senate amendment, an employee is highly 
compensated if the employee (1) was a 5-percent owner of the 
employer at any time during the year or the preceding year, (2) 
had compensation for the preceding year in excess of $80,000 
(indexed for inflation), or (3) was the most highly compensated 
officer of the employer for the preceding year. The rule 
providing that the most highly compensated officer is a highly 
compensated employee does not apply to plans maintained by tax-
exempt or State and local governmental organizations for 
purposes of applying the nondiscrimination tests applicable to 
cash or deferred arrangements.
      Effective date.--Years beginning after December 31, 1996.
            Family aggregation rules
      The Senate amendment is the same as the House bill.

Conference agreement

            Definition of highly compensated employee
      The conference agreement follows the House bill, except 
that an employee with compensation for the preceding year in 
excess of $80,000 (indexed for inflation) is not considered 
highly compensated unless the employee was in the top 20 
percent of employees by compensation for such year.
            Family aggregation rules
      The conference agreement follows the House bill and the 
Senate amendment.

2. modification of additional participation requirements (sec. 14223 of 
            the bill and sec. 12903 of the senate amendment)

Present law

      Under present law, a plan is not a qualified plan unless 
it benefits no fewer than the lesser of (a) 50 employees of the 
employer or (b) 40 percent of all employees of the employer 
(sec. 401(a)(26)). This requirement may not be satisfied by 
aggregating comparable plans, but may be applied separately to 
different lines of business of the employer. A line of business 
of the employer does not qualify as a separate line of business 
unless it has at least 50 employees.

House bill

      The bill provides that the minimum participation rule 
applies only to defined benefit pension plans. In addition, the 
bill provides that a defined benefit pension plan does not 
satisfy the rule unless it benefits no fewer than the lesser of 
first, 50 employees or second, the greater of (a) 40 percent of 
all employees of the employer or (b) 2 employees (1 employee if 
there is only 1 employee).
      The bill provides that the requirement that a line of 
business has at least 50 employees does not apply in 
determining whether a plan satisfies the minimum participation 
rule on a separate line of business basis.
      Effective date.--The provision is effective for years 
beginning after December 31, 1995.

Senate amendment

      The Senate amendment is the same as the House bill.

Conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

3. nondiscrimination rules for qualified cash or deferred arrangements 
and matching contributions (sec. 14224 of the house bill and sec. 12904 
                        of the senate amendment)

Present law

      Under present law, a special nondiscrimination test 
applies to qualified cash or deferred arrangements. The special 
nondiscrimination test is satisfied if the actual deferral 
percentage (ADP) for eligible highly compensated employees for 
a plan year is equal to or less than either (1) 125 percent of 
the ADP of all nonhighly compensated employees eligible to 
defer under the arrangement or (2) the lesser of 200 percent of 
the ADP of all eligible nonhighly compensated employees or such 
ADP plus 2 percentage points.
      Employer matching contributions and after-tax employee 
contributions under qualified defined contribution plans are 
subject to a special nondiscrimination test similar to the 
special nondiscrimination test applicable to qualified cash or 
deferred arrangements.
      A plan that would otherwise fail to meet the special 
nondiscrimination test for qualified cash or deferred 
arrangements is not treated as failing such test if excess 
contributions (with allocable income) are distributed to the 
employee or, in accordance with Treasury regulations, 
recharacterized as after-tax employee contributions. For 
purposes of this rule, in determining the amount of excess 
contributions and the employees to whom they are allocated, the 
elective deferrals of highly compensated employees are reduced 
in the order of their actual deferral percentage beginning with 
those highly compensated employees with the highest actual 
deferral percentages. A similar rule applies to matching 
contributions.

House bill

      Prior-year data.--The House bill modifies the special 
nondiscrimination tests applicable to elective deferrals and 
employer matching and after-tax employee contributions to 
provide that the maximum permitted actual deferral percentage 
for highly compensated employees for the year is determined by 
reference to the actual deferral percentage for nonhighly 
compensated employees for the preceding, rather than the 
current, year. A special rule applies for the first plan year.
      Safe harbor for cash or deferred arrangements.--The bill 
provides that a cash or deferred arrangement satisfies the 
special nondiscrimination tests if the plan satisfies one of 
two contribution requirements and satisfies a notice 
requirement.
      A plan satisfies the contribution requirements under the 
safe harbor rule for qualified cash or deferred arrangements if 
the plan either first, satisfies a matching contribution 
requirement or second, the employer makes a nonelective 
contribution to a defined contribution plan of at least 3 
percent of an employee's compensation on behalf of each 
nonhighly compensated employee who is eligible to participate 
in the arrangement without regard to whether the employee makes 
elective contributions under the arrangement.
      A plan satisfies the matching contribution requirement 
if, under the arrangement: First, the employer makes a matching 
contribution on behalf of each nonhighly compensated employee 
that is equal to (a) 100 percent of the employee's elective 
contributions up to 3 percent of compensation and (b) 50 
percent of the employee's elective contributions from 3 to 5 
percent of compensation; and second, the level of match for 
highly compensated employees is not greater than the match rate 
for nonhighly compensated employees at any level of 
compensation.
      Alternatively, if the matching contribution requirement 
is not satisfied at some level of employee compensation, the 
requirement is deemed to be satisfied if first, the level of 
employer matching contributions does not increase as employee 
elective contributions increase and second, the aggregate 
amount of matching contributions with respect to elective 
contributions up to that level of compensation at least equals 
the amount of matching contributions that would be made if 
matching contributions satisfied the percentage requirements. 
For example, the alternative test would be satisfied if an 
employer matches 125 percent of an employee's elective 
contributions up to the first 3 percent of compensation, 25 
percent of elective deferrals from 3 to 4 percent of 
compensation, and provides no match thereafter. This is because 
the employer match does not increase and the aggregate amount 
of matching contributions is at least equal to the matching 
contributions required under the general safe harbor rule.
      Employer matching and nonelective contributions used to 
satisfy the contribution requirements of the safe harbor rules 
are required to be nonforfeitable and subject to the 
restrictions on withdrawals that apply to an employee's 
elective deferrals under a qualified cash or deferred 
arrangement (sec. 401(k)(2)(B) and (C)).
      The notice requirement is satisfied if each employee 
eligible to participate in the arrangement is given written 
notice, within a reasonable period before any year, of the 
employee's rights and obligations under the arrangement.
      Alternative method of satisfying special 
nondiscrimination test for matching contributions.--The bill 
provides a safe harbor method of satisfying the special 
nondiscrimination test applicable to employer matching 
contributions. Under this safe harbor, a plan is treated as 
meeting the special nondiscrimination test if first, the plan 
meets the contribution and notice requirements applicable under 
the safe harbor method of satisfying the special 
nondiscrimination requirement for qualified cash or deferred 
arrangements, and second, the plan satisfies a special 
limitation on matching contributions. After-tax employee 
contributions are tested separately under the ACP test.
      The limitation on matching contributions is satisfied if 
first, the matching contributions on behalf of any employee may 
not be made with respect to employee contributions or elective 
deferrals in excess of 6 percent of compensation and second, 
the level of an employer's matching contribution does not 
increase as an employee's contributions or elective deferrals 
increase.
      Simplified employee pensions.--The bill modifies the 
present-law nondiscrimination test applicable to salary 
reduction SEPs to provide that the average of deferral 
percentages for all nonhighly compensated employees for the 
preceding, rather than the current, year is to be used. In 
addition, the bill permits a salary reduction SEP to satisfy 
the qualified cash or deferred arrangement safe harbor 
nondiscrimination test.
      Distribution of excess contributions.--The House bill 
provides that the total amount of excess contributions is 
determined as under present law, but the distribution of excess 
contributions is required to be made on the basis of the amount 
of contribution by, or on behalf of, each highly compensated 
employee. Thus, excess contributions are deemed attributable 
first to those highly compensated employees who have the 
greatest dollar amount of elective deferrals.
      Effective date.--Years beginning after December 31, 1995.

Senate amendment

      Prior-year data.--Same as the House bill, except that an 
employer is allowed to elect to use current year actual 
deferral percentages. Such an election can be revoked only as 
provided by the Secretary.
      Safe harbor for cash or deferred arrangements.--Same as 
House bill.
      Alternative method of satisfying special 
nondiscrimination test for matching contributions.--Same as 
House bill, except that an employer is allowed to elect to use 
current year actual deferral percentages. Such an election can 
be revoked only as provided by the Secretary.
      Simplified employee pensions.--No provision. However, the 
Senate amendment adopts a new type of retirement plan (called a 
``SIMPLE'' retirement plan) (see the description in II.B., 
above).
      Distribution of excess contributions.--No provision.
      Effective date.--Years beginning after December 31, 1998.

Conference agreement

      The conference agreement follows the Senate amendment, 
except that it includes the House bill provision providing that 
allocations of excess contributions are to be made on the basis 
of the amount of contribution by, or on behalf of, each highly 
compensated employee.
      Effective date.--The safe harbor for cash or deferred 
arrangements and the alternative method of satisfying the 
special nondiscrimination test for matching contributions are 
effective for plan years beginning after December 31, 1998. The 
provision relating to the distribution of excess contributions 
is effective for plan years beginning after December 31, 1995.

      4. definition of compensation for purposes of the limits on 
    contributions and benefits (sec. 12902 of the senate amendment)

Present law

      Present law imposes limits on contributions and benefits 
under qualified plans based on the type of plan. For purposes 
of these limits, present law provides that the definition of 
compensation generally does not include elective employee 
contributions to certain employee benefit plans.

House bill

      No provision.

Senate amendment

      The Senate amendment provides that elective deferrals to 
section 401(k) plans and similar arrangements, elective 
contributions to nonqualified deferred compensation plans of 
tax-exempt employers and State and local governments (sec. 457 
plans), and salary reduction contributions to a cafeteria plan 
are considered compensation for purposes of the limits on 
contributions and benefits.
      Effective date.--Years beginning after December 31, 1997.

Conference agreement

      The conference agreement follows the Senate amendment.

                D. Miscellaneous Pension Simplification

1. treatment of leased employees (sec. 14231 of the house bill and sec. 
                     12931 of the senate amendment)

Present law

      An individual (a leased employee) who performs services 
for another person (the recipient) may be required to be 
treated as the recipient's employee for various employee 
benefit provisions, if the services are performed pursuant to 
an agreement between the recipient and any other person (the 
leasing organization) who is otherwise treated as the 
individual's employer (sec. 414(n)). The individual is to be 
treated as the recipient's employee only if the individual has 
performed services for the recipient on a substantially full-
time basis for a year, and the services are of a type 
historically performed by employees in the recipient's business 
field.
      An individual who otherwise would be treated as a 
recipient's leased employee will not be treated as such an 
employee if the individual participates in a safe harbor plan 
maintained by the leasing organization meeting certain 
requirements. Each leased employee is to be treated as an 
employee of the recipient, regardless of the existence of a 
safe harbor plan, if more than 20 percent of an employer's 
nonhighly compensated workforce are leased.

House bill

      Under the House bill, the present-law ``historically 
performed'' test is replaced with a new rule under which an 
individual is not considered a leased employee unless the 
services are performed under significant direction or control 
by the recipient.
      Effective date.--The provision is effective for years 
beginning after December 31, 1995, except that the changes do 
not apply to relationships that have been previously determined 
by an IRS ruling not to involve leased employees. In applying 
the leased employee rules to years beginning before the 
effective date, it is intended that the Secretary use a 
reasonable interpretation of the statute to apply the leasing 
rules to prevent abuse.

Senate amendment

      Under the Senate amendment, the present-law 
``historically performed'' test is replaced with a new rule 
under which an individual is not considered a leased employee 
unless the individual's services are performed under the 
primary direction or control of the service recipient.
      Effective date.--Same as House bill.

Conference agreement

      The conference agreement follows the Senate amendment. 
Consequently, an individual is not considered a leased employee 
unless the individual's services are performed under primary 
direction or control by the service recipient. As under present 
law, the determination of whether someone is a leased employee 
is made after determining whether the individual is a common-
law employee of the recipient. Thus, an individual who is not a 
common-law employee of the service recipient could nevertheless 
be a leased employee of the service recipient. Similarly, the 
fact that a person is or is not found to perform services under 
primary direction or control of the recipient for purposes of 
the employee leasing rules is not determinative of whether the 
person is or is not a common-law employee of the recipient.
      Whether services are performed by an individual under 
primary direction or control by the service recipient depends 
on the facts and circumstances. In general, primary direction 
and control means that the service recipient exercises the 
majority of direction and control over the individual. Factors 
that are relevant in determining whether primary direction or 
control exists include whether the individual is required to 
comply with instructions of the service recipient about when, 
where, and how he or she is to perform the services, whether 
the services must be performed by a particular person, whether 
the individual is subject to the supervision of the service 
recipient, and whether the individual must perform services in 
the order or sequence set by the service recipient. Factors 
that generally are not relevant in determining whether such 
direction or control exists include whether the service 
recipient has the right to hire or fire the individual and 
whether the individual works for others.
      For example, an individual who works under the direct 
supervision of the service recipient would be considered to be 
subject to primary direction or control of the service 
recipient even if another company hired and trained the 
individual, had the ultimate (but unexercised) legal right to 
control the individual, paid his wages, withheld his employment 
and income taxes, and had the exclusive right to fire him. 
Thus, for example, temporary secretaries, receptionists, word 
processing personnel and similar office personnel who are 
subject to the day-to-day control of the employer in 
essentially the same manner as a common-law employee are 
treated as leased employees if the period of service threshold 
is reached.
      On the other hand, an individual who is a common-law 
employee of Company A who performs services for Company B on 
the business premises of Company B under the supervision of 
Company A would generally not be considered to be under primary 
direction or control of Company B. The supervision by Company A 
must be more than nominal, however, and not merely a mechanism 
to avoid the literal language of the direction or control test.
      An example of the situation in the preceding paragraph 
might be a work crew that comes into a factory to install, 
repair, maintain, or modify equipment or machinery at the 
factory. The work crew includes a supervisor who is an employee 
of the equipment (or equipment repair) company and who has the 
authority to direct and control the crew, and who actually does 
exercise such direction and control. In this situation, the 
supervisor and his or her crew are required to comply with the 
safety and environmental precautions of the manufacturer. As 
another example, certain professionals (e.g., attorneys, 
accountants, actuaries, doctors, computer programmers, systems 
analysts, and engineers) who regularly make use of their own 
judgement and discretion on matters of importance in the 
performance of their services and are guided by professional or 
industry standards, are not leased employees merely because the 
service recipient requires the services to be performed on site 
and according to certain stages and timetables.
      Under the direction or control test, clerical and similar 
support staff (e.g., secretaries and nurses in a doctor's 
office) generally would be considered to be subject to primary 
direction or control of the service recipient and would be 
leased employees provided the other requirements of section 
414(n) are met. On the other hand, outside professionals who 
maintain their own businesses (e.g., lawyers and accountants) 
generally would not be considered to be subject to such primary 
direction or control.
      In many cases, the ``historically performed'' test is 
overly broad, and results in the unintended treatment of 
individuals as leased employees. One of the principal purposes 
for changing the leased employee rules is to relieve the 
unnecessary hardship and uncertainty created for employers in 
these circumstances. However, it is not intended that the 
direction or control test enable employers to engage in abusive 
practices. Thus, it is intended that the Secretary interpret 
and apply the leased employee rules in a manner so as to 
prevent abuses. This ability to prevent abuses under the 
leasing rules is in addition to the present-law authority of 
the Secretary under section 414(o). For example, one 
potentially abusive situation exists where the benefit 
arrangements of the service recipient overwhelmingly favor its 
highly compensated employees, the employer has no or very few 
nonhighly compensated common-law employees, yet the employer 
makes substantial use of the services of nonhighly compensated 
individuals who are not its common-law employees.
       The conferees do not intend this provision to have any 
impact whatsoever on the interpretation or applicability of 
Federal, State, or local labor laws.

 2. Plans covering self-employed individuals (sec. 14232 of the House 
              bill and sec. 12932 of the Senate amendment)

Present law

      Prior to the Tax Equity and Fiscal Responsibility Act of 
1982 (``TEFRA''), different rules applied to retirement plans 
maintained by incorporated employers and unincorporated 
employers (such as partnerships and sole proprietors). In 
general, plans maintained by unincorporated employers were 
subject to special rules in addition to the other qualification 
requirements of the Code. Most, but not all, of this disparity 
was eliminated by TEFRA. Under present law, certain special 
aggregation rules apply to plans maintained by owner employees 
of unincorporated businesses that do not apply to other 
qualified plans (sec. 401(d)(1) and (2)).

House bill

      The bill eliminates the special aggregation rules that 
apply to plans maintained by self-employed individuals that do 
not apply to other qualified plans.
      Effective date.--The provision is effective for years 
beginning after December 31, 1995.

Senate amendment

      The Senate amendment is the same as the House bill.

Conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 3. Elimination of special vesting rule for multiemployer plans (sec. 
    14233 of the House bill and sec. 12933 of the Senate amendment)

Present law

      Under present law, except in the case of multiemployer 
plans, a plan is not a qualified plan unless a participant's 
employer-provided benefit vests at least as rapidly as under 
one of two alternative minimum vesting schedules. A plan 
satisfies the first schedule if a participant acquires a 
nonforfeitable right to 100 percent of the participant's 
accrued benefit derived from employer contributions upon the 
participant's completion of 5 years of service. A plan 
satisfies the second schedule if a participant has a 
nonforfeitable right to at least 20 percent of the 
participant's accrued benefit derived from employer 
contributions after 3 years of service, 40 percent at the end 
of 4 years of service, 60 percent at the end of 5 years of 
service, 80 percent at the end of 6 years of service, and 100 
percent at the end of 7 years of service.
      In the case of a multiemployer plan, a participant's 
accrued benefit derived from employer contributions is required 
to be 100-percent vested no later than upon the participant's 
completion of 10 years of service. This special rule applies 
only to employees covered by the plan pursuant to a collective 
bargaining agreement.

House bill

      The bill conforms the vesting rules for multiemployer 
plans to the rules applicable to other qualified plans.
      Effective date.--The provision is effective for plan 
years beginning on or after the earlier of (1) the later of 
January 1, 1996, or the date on which the last of the 
collective bargaining agreements pursuant to which the plan is 
maintained terminates, or (2) January 1, 1998, with respect to 
participants with an hour of service after the effective date.

Senate amendment

      The Senate amendment is the same as the House bill.

Conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

4. Distributions under rural cooperative plans (sec. 14232 of the House 
              bill and sec. 12938 of the Senate amendment)

Present law

      A qualified cash or deferred arrangement can permit 
withdrawals of employee elective deferrals only after the 
earlier of (1) the participant's separation from service, 
death, or disability, (2) termination of the arrangement, or 
(3) in the case of a profit-sharing or stock bonus plan, the 
attainment of age 59\1/2\ or the occurrence of a hardship of 
the participant. In the case of a money purchase pension plan, 
including a rural cooperative plan, withdrawals by participants 
cannot occur upon attainment of age 59\1/2\ or upon hardship.

House bill

      The House bill provides that a rural cooperative plan 
that includes a cash or deferred arrangement may permit 
distributions to plan participants after the attainment of age 
59\1/2\.
      Effective date.--Distributions after December 31, 1995.

Senate amendment

      Same as House bill, except that withdrawals are also 
permitted on account of hardship. In addition, the definition 
of a rural cooperative is expanded to include certain public 
utility districts, a national association of rural 
cooperatives, and any other organization providing services 
related to the activities of rural cooperatives, but only in 
the case of a plan with respect to which substantially all of 
the organizations maintaining are rural cooperatives.
      Effective date.--Distributions after the date of 
enactment. The modifications to the definition of a rural 
cooperative applies to plan years beginning after December 31, 
1994.

Conference agreement

      The conference agreement follows the Senate amendment, 
except that the definition of rural cooperative does not 
include any other organization providing services related to 
the activities of rural cooperatives. 96
    \96\ Of course, such organizations may be eligible to maintain a 
qualified cash or deferred arrangement under the provision of the 
conference agreement allowing tax-exempt employers to maintain cash or 
deferred arrangements.
---------------------------------------------------------------------------

5. Treatment of governmental plans under section 415 (sec. 14235 of the 
           House bill and sec. 12935 of the Senate amendment)

Present law

      Present law imposes limits on contributions and benefits 
under qualified plans based on the type of plan (sec. 415). 
Certain special rules apply to State and local governmental 
plans under which such plans may provide benefits greater than 
those permitted by the limits on benefits applicable to plans 
maintained by private employers.
      In the case of defined benefit pension plans, the limit 
on the annual retirement benefit is the lesser of (1) 100 
percent of compensation or (2) $120,000 (indexed for 
inflation). The dollar limit is reduced in the case of early 
retirement or if the employee has less than 10 years of plan 
participation.

House bill

      The House bill makes the following modifications to the 
limits on contributions and benefits as applied to governmental 
plans:
            (1) compensation includes employer contributions to 
        certain plans under a salary reduction arrangement;
            (2) the 100 percent of compensation limitation on 
        defined benefit pension plan benefits does not apply; 
        and
            (3) the early retirement reduction and the 10-year 
        phase in of the defined benefit plan dollar limit do 
        not apply to certain disability and survivor benefits.
      The House bill also permits State and local government 
employers to maintain excess benefit plans without regard to 
the limits on unfunded deferred compensation arrangements of 
State and local government employers (sec. 457).
      Effective date.--Years beginning on or after January 1, 
1996. Governmental plans are treated as if in compliance with 
the requirements of section 415 for years beginning before 
January 1, 1996.

Senate amendment

      The Senate amendment is the same as the House bill, 
except that the exemption from the 100 percent of compensation 
limit does not apply to State legislators. The modification of 
the definition of compensation to include contributions under a 
salary reduction agreement is contained in another provision 
(see C.4., above) and applies to all employers.
      Effective date.--Years beginning on or after January 1, 
1995. With respect to governmental plans, no inference is 
intended with respect to prior years.

Conference agreement

      The conference agreement follows the House bill, except 
the provision is effective for years beginning after December 
31, 1994. The provision should not be construed to infer that a 
governmental plan fails to satisfy the requirements of section 
415 with respect to years beginning before January 1, 1995. 
With respect to years before the effective date of this 
provision, the Secretary is directed to enforce the 
requirements of section 415 consistent with the amendments in 
this provision.

6. Uniform retirement age (sec. 14236 of the bill and sec. 12940 of the 
                           Senate amendment)

Present law

      A qualified plan generally must provide that payment of 
benefits under the plan must begin no later than 60 days after 
the end of the plan year in which the participant reaches age 
65. Also, for purpose of the vesting and benefit accrual rules, 
normal retirement age generally can be no later than age 65. 
For purposes of applying the limits on contributions and 
benefits (sec. 415), Social Security retirement age is 
generally used as retirement age. The Social Security 
retirement age as used for such purposes is presently age 65, 
but is scheduled to gradually increase.

House bill

      The bill provides that for purposes of the general 
nondiscrimination rule (sec. 401(a)(4)) the Social Security 
retirement age (as defined in sec. 415) is a uniform retirement 
age and that subsidized early retirement benefits and joint and 
survivor annuities are not treated as not being available to 
employees on the same terms merely because they are based on an 
employee's Social Security retirement age (as defined in sec. 
415).
      Effective date.--The provision is effective for years 
beginning after December 31, 1995.

Senate amendment

      The Senate amendment is the same as the House bill.

Conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  7. Uniform penalty provisions to apply to certain pension reporting 
              requirements (sec. 14237 of the House bill)

Present law

      Any person who fails to file an information report with 
the IRS on or before the prescribed filing date is subject to 
penalties for each failure. A different, flat-amount penalty 
applies for each failure to provide information reports to the 
IRS or statements to payees relating to pension payments.

House bill

      The House bill incorporates into the general penalty 
structure the penalties for failure to provide information 
reports relating to pension payments to the IRS and to 
recipients.
      Effective date.--Returns and statements the due date for 
which is after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

  8. Contributions on behalf of disabled employees (sec. 14238 of the 
           House bill and sec. 12937 of the Senate amendment)

Present law

      Under present law, an employer may elect to continue 
deductible contributions to a defined contribution plan on 
behalf of an employee who is permanently and totally disabled. 
For purposes of the limit on annual additions (sec. 415(c)), 
the compensation of a disabled employee is deemed to be equal 
to the annualized compensation of the employee prior to the 
employee's becoming disabled. Contributions are not permitted 
on behalf of disabled employees who were officers, owners, or 
highly compensated before they became disabled.

House bill

      The bill provides that the special rule for contributions 
on behalf of disabled employees is applicable without an 
employer election and to highly compensated employees if the 
defined contribution plan provides for the continuation of 
contributions on behalf of all participants who are permanently 
and totally disabled.
      Effective date.--The provision applies to years beginning 
after December 31, 1995.

Senate amendment

      The Senate amendment is the same as the House bill.

Conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

    9. Treatment of deferred compensation plans of State and local 
governments and tax-exempt organizations (sec. 14239 of the House bill 
                and sec. 12936 of the Senate amendment)

Present law

      Under a section 457 plan, an employee who elects to defer 
the receipt of current compensation is taxed on the amounts 
deferred when such amounts are paid or made available. The 
maximum annual deferral under such a plan is the lesser of (1) 
$7,500 or (2) 33\1/3\ percent of compensation (net of the 
deferral).
      Amounts deferred under a section 457 plan may not be made 
available to an employee before the earlier of (1) the calendar 
year in which the participant attains age 70\1/2\, (2) when the 
participant is separated from the service with the employer, or 
(3) when the participant is faced with an unforeseeable 
emergency.
      Benefits under a section 457 plan are not treated as made 
available if the participant may elect to receive a lump sum 
payable after separation from service and within 60 days of the 
election. This exception is available only if the total amount 
payable to the participant under the plan does not exceed 
$3,500 and no additional amounts may be deferred under the plan 
with respect to the participant.

House bill

      The House bill makes three changes to the rules governing 
section 457 plans.
       (1) The bill permits in-service distributions of 
accounts that do not exceed $3,500 under certain circumstances.
       (2) The bill increases the number of elections that can 
be made with respect to the time distributions must begin under 
the plan.
       (3) The bill provides for indexing of the dollar limit 
on deferrals. No rounding rules apply to such indexing.
      Effective date.--Taxable years beginning after December 
31, 1995.

Senate amendment

       Same as the House bill, except that a rounding rule 
applies to the indexing of the dollar limits on deferrals.
      Effective date.--Same as House bill.

Conference agreement

      Same as the Senate amendment, except when indexing the 
dollar limit on deferrals, the limit is rounded to the next 
lowest multiple of $500.

  10. Trust requirement for deferred compensation plans of State and 
            local governments (sec. 14240 of the House bill)

Present law

      Until deferrals under a section 457 plan are made 
available to a plan participant, such amounts deferred, all 
property and rights purchased with such amounts, and all income 
attributable to such amounts, property, or rights must remain 
solely the property and rights of the employer, subject only to 
the claims of the employer's general creditors.

House bill

      Under the House bill, all amounts deferred under a 
section 457 plan maintained by a State and local governmental 
employer are to be held in trust (or custodial account or 
annuity contract) for the exclusive benefit of employees. The 
trust (or custodial account or annuity contract) is provided 
tax-exempt status. Amounts are not considered made available 
merely because they are held in a trust, custodial account, or 
annuity contract.
      Effective date.--Generally effective with respect to plan 
assets held on or after the date of enactment. In the case of 
assets held within the 90-day period after the date of 
enactment, the provision does not apply until such 90th day.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.
      Effective date.--Generally effective with respect to 
amounts held on or after the date of enactment. In the case of 
amounts deferred before the first day of the first calendar 
quarter beginning after the close of the first regular session 
of the State legislature beginning after the date of enactment, 
a trust need not be established by reason of this provision 
before such first day. In the case of a State that has a 2-year 
legislative session, each year of such session is deemed to be 
a separate regular session of the State legislature.

 11. Correction of GATT interest and mortality rate provisions in the 
        Retirement Protection Act (sec. 14241 of the House bill)

Present law

      The Retirement Protection Act of 1994, enacted as part of 
the implementing legislation for the General Agreement on 
Tariffs and Trade (GATT), modified the actuarial assumptions 
that must be used in adjusting benefits and limitations. In 
general, in adjusting a benefit that is payable in a form other 
than a straight life annuity and in adjusting the dollar 
limitation if benefits begin before Social Security retirement 
age, the interest rate to be used cannot be less than the 
greater of 5 percent or the rate specified in the plan. Under 
the Retirement Protection Act, if the benefit is payable in a 
form subject to the requirements of section 417(e)(3), then the 
interest rate on 30-year Treasury securities is substituted for 
5 percent. Also under the Retirement Protection Act, for 
purposes of adjusting any limit or benefit, the mortality table 
prescribed by the Secretary must be used.
      This provision of the Retirement Protection Act is 
generally effective as of the first day of the first limitation 
year beginning in 1995.
      The Retirement Protection Act made similar changes to the 
interest rate and mortality assumptions used to calculate the 
value of lump-sum distributions for purposes of the rule 
permitting involuntary dispositions of certain accrued 
benefits. In the case of a plan adopted and in effect before 
December 8, 1995, those provisions do not apply before the 
earlier of (1) the date a plan amendment applying the new 
assumption is adopted or made effective (whichever is later), 
or (2) the first day of the first plan years beginning after 
December 31, 1999.

House bill

      The House bill conforms the effective date of the new 
interest rate and mortality assumptions that must be used under 
section 415 to calculate the limits on benefits and 
contributions to the effective date of the provision relating 
to the calculation of lump-sum distributions. This rule applies 
only in the case of plans that were adopted and in effect 
before the date of enactment of the Retirement Protection Act 
(December 8, 1994).
      To the extent plans have already been amended to reflect 
the new assumptions, plan sponsors are permitted within 1 year 
of the date of enactment to amend the plan to reverse 
retroactively such amendment.
      Effective date.--Effective as if included in the 
Retirement Protection Act.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill, except 
the provision repeals the Retirement Protection Act provision 
which requires that if the benefit is payable in a form subject 
to the requirements of section 417(e)(3) (e.g., lump sum), then 
the interest rate to be used to reduce the dollar limit on 
benefits under section 415 cannot be less than the greater of 
the rate on 30-year Treasury securities or the rate specified 
in the plan. Consequently, regardless of the form of benefit, 
the interest rate to be used cannot be less than the greater of 
5 percent or the rate specified in the plan.
      Effective date.--Same as the House bill.

12. Multiple salary reduction agreements permitted under section 403(b) 
    (sec. 14242 of the bill and sec. 12941 of the Senate amendment)

Present law

      Under Treasury regulations, a participant in a tax-
sheltered annuity plan (sec. 403(b)) is not permitted to enter 
into more than one salary reduction agreement in any taxable 
year. These regulations further provide that a salary reduction 
agreement is effective only with respect to amounts ``earned'' 
after the agreement becomes effective, and that a salary 
reduction agreement must be irrevocable with respect to amounts 
earned while the agreement is in effect.
      These restrictions do not apply to other elective 
deferral arrangements such as a qualified cash or deferred 
arrangement (sec. 401(k)). Under Treasury regulations, 
participants in a qualified cash or deferred arrangement may 
enter into more than one salary reduction agreement in a 
taxable year, such an agreement is effective with respect to 
compensation currently available to the participant after the 
agreement becomes effective even though previously ``earned,'' 
and the agreement may be revoked by the participant.

House bill

      The bill provides that for participants in a tax-
sheltered annuity plan, the frequency that a salary reduction 
agreement may be entered into, the compensation to which such 
agreement applies, and the ability to revoke such agreement 
shall be determined under the rules applicable to qualified 
cash or deferred arrangements.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1995.

Senate amendment

      The Senate amendment is the same as the House bill.

Conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 13. Waiver of minimum waiting period for qualified plan distributions 
                     (sec. 14243 of the House bill)

Present law

      Under present law, in the case of a qualified joint and 
survivor annuity, a written explanation of the form of benefit 
must generally be provided to participants no less than 30 days 
and no more than 90 days before the annuity starting day. Even 
if a participant has elected to waive the qualified joint and 
survivor annuity and the spouse has consented to the 
distribution, the distribution from the plan cannot be made 
until 30 days after the written explanation was provided to the 
participant.97
    \97\ On September 15, 1995, Treasury issued temporary regulations 
(T.D. 8620) which provide that a plan may permit a participant to elect 
(with any applicable spousal consent) a distribution with an annuity 
starting date before 30 days have elapsed since the explanation was 
provided, as long as the distribution commences more than seven days 
after the explanation was provided. Consequently, even if the 
participant (and spouse, if applicable) has elected to waive the 
minimum waiting period for receiving a qualified plan distribution, the 
distribution from the plan cannot be made until seven days have elapsed 
since the explanation was provided to the participant.
---------------------------------------------------------------------------

House bill

      The House bill provides that the minimum period between 
the date the explanation of the qualified joint and survivor 
annuity is provided and the annuity starting date does not 
apply if it is waived by the participant and, if applicable, 
the participant's spouse. For example, if the participant has 
not elected to waive the qualified joint and survivor annuity, 
only the participant need waive the minimum waiting period.
      Effective date.--The provision is effective with respect 
to plan years beginning after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

  14. Repeal of combined plan limit (sec. 14244 of the House bill and 
                  sec. 12921 of the Senate amendment)

Present law

      Present law provides limits on contributions and benefits 
under qualified plans based on the type of plan, i.e., based on 
whether the plan is a defined contribution plan or a defined 
benefit pension plan.
      Combined plan limit.--An overall limit applies if an 
individual is a participant in both a defined benefit pension 
plan and a defined contribution plan (the combined plan limit).
      Excess distribution tax.--Present law imposes a 15-
percent excise tax on excess distributions from qualified 
retirement plans, tax-sheltered annuities, and IRAs. Excess 
distributions are generally the aggregate amount of retirement 
distributions from such plans during any calendar year in 
excess of $150,000 (or $750,000 in the case of a lump-sum 
distribution). An additional 15-percent estate tax is also 
imposed on an individual's excess retirement accumulation.

House bill

      Combined plan limit.--The House bill repeals the combined 
plan limit.
      Effective date.--Limitation years beginning after 
December 31, 1996.
      Excess distribution tax.--No provision.

Senate amendment

      Combined plan limit.--Same as House bill, except that the 
repeal of the combined plan limit would not apply with respect 
to plans maintained by professional service employers (an 
employer substantially all of the activities of which are in 
the fields of architecture, science, health, law, performing 
arts, financial services, actuarial services, engineering, 
accounting, and consulting).
      Effective date.--Limitation years beginning after 
December 31, 1998.
      Excess distribution tax.--Until the repeal of the 
combined plan limit is effective, the Senate amendment suspends 
the excise tax on excess distributions. The additional estate 
tax on excess accumulations continues to apply.
      Effective date.--Distributions in 1996, 1997, and 1998.

Conference agreement

      Combined plan limit.--The conference agreement follows 
the House bill, effective with respect to limitation years 
beginning after December 31, 1998.
      Excess distribution tax.--The conference agreement 
follows the Senate amendment.

15. Date for adoption of plan amendments (sec. 14245 of the House bill 
                and sec. 12914 of the Senate amendment)

Present law

      Plan amendments to reflect amendments to the law 
generally must be made by the time prescribed by law for filing 
the income tax return of the employer for the employer's 
taxable year in which the change in law occurs.

House bill

      The House bill generally provides that any plan 
amendments required by the bill are not required to be made 
before the first plan year beginning on or after January 1, 
1997.
      Effective date.--Date of enactment.

Senate amendment

      Same as the House bill, except that the date for plan 
amendments is extended to the first plan year beginning on or 
after January 1, 1999, in the case of a governmental plan.
      Effective date.--Same as House bill.

Conference agreement

      The conference agreement does not include the House bill 
or the Senate amendment.

 16. Full funding limitation of multiemployer plans (sec. 12934 of the 
                           Senate amendment)

Present law

      An employer may make deductible contributions to a 
defined benefit pension plan up to the full funding limitation. 
The full funding limitation is generally defined as the lesser 
of (1) the accrued liability under the plan or (2) 150 percent 
of the plan's current liability. Valuation of defined benefit 
pension plans are required annually.

House bill

      No provision.

Senate amendment

      The Senate amendment provides that the 150 percent of 
current liability limitation does not apply to multiemployer 
plans. In addition, the amendment repeals the annual valuation 
requirement for multiemployer plans and applies the prior-law 
rule that valuations generally be performed at least every 3 
years.
      Effective date.--Years beginning after December 31, 1997.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

  17. Limits on contributions and benefits under multiemployer plans 
                  (sec. 12935 of the Senate amendment)

Present law

      Present law imposes limits on contributions and benefits 
under qualified plans based on the type of plan (sec. 415). In 
the case of a defined benefit pension plan, the limit on the 
annual retirement benefit is the lesser of (1) 100 percent of 
compensation or (2) $120,000 (indexed for inflation). The 
dollar limit is reduced in the case of early retirement or if 
the employee has less than 10 years of plan participation.

House bill

      No provision.

Senate amendment

      Under the Senate amendment, in the case of a 
multiemployer plan, the 100 percent of compensation limit, the 
early retirement reduction, and the 10-year phase in of the 
defined benefit plan dollar limit do not apply.
      Effective date.--Years beginning after December 31, 1995.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

        18. Tenured faculty (sec. 12939 of the Senate amendment)

Present law

      Under a section 457 plan, an employee who elects to defer 
the receipt of current compensation is taxed on the amounts 
deferred when such amounts are paid or made available. The 
maximum annual deferral under such a plan is the lesser of (1) 
$7,500 or (2) 33\1/2\ percent of compensation (net of the 
deferral).

House bill

      No provision.

Senate amendment

      The Senate amendment provides that the limits of section 
457 do not apply to eligible faculty voluntary retirement 
incentive pay. In order to qualify for the exception, the 
payments must be made to employees who elect, during a 
specified period of time of limited duration (as established by 
the employer) to retire early, the total amount of the payments 
cannot exceed twice the individual's annual compensation and 
all such payments to the employee must be completed within 5 
years after the employee's termination of employment.
      Effective date.--Years beginning after December 31, 1995.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

  19. Application of elective deferral limit to section 403(b) plans 
                  (sec. 12941 of the Senate amendment)

Present law

      A tax-sheltered annuity plan must provide that elective 
deferrals made under the plan on behalf of an employee may not 
exceed the annual limit on elective deferrals ($9,500 for 
1995). Plans that do not comply with this requirement may lose 
their tax-favored status.

House bill

      No provision.

Senate amendment

      The Senate amendment eliminates the requirement that a 
tax-sheltered annuity plan must provide that elective deferrals 
under the plan may not exceed the annual limit on elective 
deferrals. As under present law, employees who make elective 
deferrals in excess of the annual limit must include such 
amounts in their taxable income.
      Effective date.--The provision is effective with respect 
to plan years beginning after December 31, 1995.

Conference agreement

      Under the conference agreement, each tax-sheltered 
annuity contract, not the tax-sheltered annuity plan, must 
provide that elective deferrals made under the contract may not 
exceed the annual limit on elective deferrals. It is intended 
that the contract terms be given effect in order for this 
requirement to be satisfied. Thus, for example, if the annuity 
contract issuer takes no steps to ensure that deferrals under 
the contract do not exceed the applicable limit, then the 
contract will not be treated as satisfying section 403(b). The 
provision is intended to make clear that the exclusion of 
elective deferrals from gross income by employees who have not 
exceeded the annual limit on elective deferrals will not be 
affected to the extent other employees exceed the annual limit. 
However, if the occurrence of an uncorrected elective deferral 
made by an employee is attributable to reasonable error, the 
contract does not fail to satisfy section 403(b), and only the 
portion of the elective deferral in excess of the annual limit 
is includible in gross income.
      Effective date.--Years beginning after December 31, 1995.

 20. Treatment of Indian tribal governments under section 403(b) (sec. 
                     12941 of the Senate amendment)

Present law

      Under present law, certain tax-exempt employers and 
certain State and local government educational organizations 
are permitted to maintain tax-sheltered annuity plans (sec. 
403(b)). Indian tribal governments are treated as States for 
this purpose, so certain educational organizations associated 
with a tribal government are eligible to maintain tax-sheltered 
annuity plans.

House bill

      No provision.

Senate amendment

      The Senate amendment provides that any 403(b) annuity 
contract purchased in a plan year beginning before January 1, 
1995.
      Effective date.--Date of enactment.

Conference agreement

      The conference agreement follows the Senate amendment and 
also provides that such contracts may be rolled over into a 
section 401(k) plan maintained by the Indian tribal government 
pursuant to the conference agreement.

21. Tax on prohibited transactions (sec. 12942 of the Senate amendment)

Present law

      Present law prohibits certain transactions (prohibited 
transactions) between a qualified pension plan and a 
disqualified person in order to prevent persons with a close 
relationship to the qualified plan from using that relationship 
to the detriment of plan participants and beneficiaries. A two-
tier excise tax is imposed on prohibited transactions. The 
initial level tax is equal to 5 percent of the amount involved 
with respect to the transaction. If the transaction is not 
corrected within a certain period, a tax equal to 100 percent 
of the amount involved may be imposed.

House bill

      No provision.

Senate amendment

      The Senate amendment increases the initial-level 
prohibited transaction tax from 5 percent to 10 percent.
      Effective date.--Transactions occurring after December 
31, 1995.

Conference agreement

      The conference agreement follows the Senate amendment.

  E. Special Rules for Church Pension Plans (secs. 12951-12968 of the 
                           Senate amendment)

Present law

      In general, a church plan is a pension plan established 
and maintained for employees (or their beneficiaries) by a 
church or a church convention or association of churches that 
is exempt from tax (sec. 414(e)). Church plans include plans 
maintained by an organization, whether a corporation or 
otherwise, that has as its principal purpose or function the 
administration or funding of a plan or program for providing 
retirement or welfare benefits for the employees of the church 
or convention or association of churches. For most purposes, 
employees of a church include any minister, regardless of the 
source of his or her compensation, and an employee of an 
organization which is exempt from tax and which is controlled 
by or associated with a church or a convention or association 
of churches.
      Plans maintained by churches and certain church-
controlled organizations are exempt from certain of the 
requirements applicable to pension plans under the code 
pursuant to the Employee Retirement Income Security Act of 1974 
(as amended) (``ERISA''). For example, such plans are not 
subject to ERISA's vesting, coverage, and funding requirements. 
In some cases, such plans are subject to provisions in effect 
before the enactment of ERISA. Church plans may elect to waive 
the exemption from the qualification rules (sec. 410(d)). 
Electing plans become subject to all the tax code (sec. 401(a)) 
qualification requirements. Title I of ERISA, the excise tax on 
prohibited transactions, and participation in the pension plan 
termination insurance program administered by the Pension 
Benefit Guaranty Corporation.
      Certain eligible employers may maintain tax-sheltered 
annuity plans (sec. 403(b)). These plans provide tax-deferred 
retirement savings for employees of public education 
institutions and employees of certain tax-exempt organizations 
(including churches and certain organizations associated with 
churches). In addition to tax-sheltered annuities, alternative 
funding mechanisms that provide similar tax benefits include 
church-maintained retirement income accounts (sec. 403(b)(9)).

House bill

      No provision.

Senate amendment

      In general, the Senate amendment revises the rules 
relating to church-maintained qualified retirement plans. In 
addition, the Senate amendment modifies the rules relating to 
employee annuity contracts and retirement income accounts 
maintained for the benefit of church employees. The Senate 
amendment also provides that all retirement benefits of 
ministers are not subject to self-employment taxes.
      No inference is intended with respect to the application 
of the present-law rules to church-maintained qualified 
retirement plans.
      Effective date.--The provisions of the Senate amendment 
providing special rules for church plans are generally 
effective for years beginning after December 31, 1994.

Conference agreement

      The conference agreement does not include the Senate 
amendment.

              XIII. Partnership Simplification Provisions

                         A. General Provisions

 1. Simplified flow-through for large partnerships (sec. 14301 of the 
                              House bill)

Present law

      A partnership generally is treated as a conduit for 
Federal income tax purposes. Each partner takes into account 
separately his distributive share of the partnership's items of 
income, gain, loss, deduction or credit. The character of an 
item is the same as if it had been directly realized or 
incurred by the partner. Limitations affecting the computation 
of taxable income generally apply at the partner level.
      The taxable income of a partnership is computed in the 
same manner as that of an individual, except that no deduction 
is permitted for personal exemptions, foreign taxes, charitable 
contributions, net operating losses, certain itemized 
deductions, or depletion. Elections affecting the computation 
of taxable income derived from a partnership are made by the 
partnership, except for certain elections such as those 
relating to discharge of indebtedness income and the foreign 
tax credit.
      Taxpayers involved in the search for and extraction of 
crude oil and natural gas are subject to certain special tax 
rules. As a result, in the case of partnerships engaged in such 
activities, certain specific information is separately reported 
to partners.

House bill

      The House bill modifies the tax treatment of a large 
partnership (generally, a partnership with at least 250 
partners, or an electing partnership with at least 100 
partners) and its partners. The provision provides that each 
partner takes into account separately the partner's 
distributive share of the following items, which are determined 
at the partnership level: (1) taxable income or loss from 
passive loss limitation activities; (2) taxable income or loss 
from other activities (e.g., portfolio income or loss); (3) net 
capital gain or loss to the extent allocable to passive loss 
limitation activities and other activities; (4) tax-exempt 
interest; (5) net alternative minimum tax adjustment separately 
computed for passive loss limitation activities and other 
activities; (6) general credits; (7) low-income housing credit; 
(8) rehabilitation credit; (9) credit for producing fuel from a 
nonconventional source; (10) creditable foreign taxes and 
foreign source items; and (11) any other items to the extent 
that the Secretary determines that separate treatment of such 
items is appropriate.98 Separate treatment may be 
appropriate, for example, should changes in the law necessitate 
such treatment for any items.
    \98\ In determining the amounts required to be separately taken 
into account by a partner, those provisions of the large partnership 
rules governing computations of taxable income would be applied 
separately with respect to that partner by taking into account that 
partner's distributive share of the partnership's items of income, 
gain, loss, deduction or credit. This rule permits partnerships to make 
otherwise valid special allocations of partnership items to partners.
---------------------------------------------------------------------------
      Under the House bill, the taxable income of a large 
partnership is computed in the same manner as that of an 
individual, except that the items described above are 
separately stated and certain modifications are made. These 
modifications include disallowing the deduction for personal 
exemptions, the net operating loss deduction and certain 
itemized deductions.99 All limitations and other 
provisions affecting the computation of taxable income or any 
credit (except for the at risk, passive loss and itemized 
deduction limitations, and any other provision specified in 
regulations) are applied at the partnership (and not the 
partner) level.
    \99\ A large partnership would be allowed a deduction under section 
212 for expenses incurred for the production of income, subject to 70-
percent disallowance. No income from a large partnership would be 
treated as fishing or farming income.
---------------------------------------------------------------------------
      All elections affecting the computation of taxable income 
or any credit generally are made by the partnership.
      A ``large partnership'' is any partnership with at least 
250 partners in any preceding taxable year beginning after 
December 31, 1995.100 Any partnership treated as a large 
partnership for a taxable year is so treated for all succeeding 
years, even if the number of partners falls below 250. 
Regulations may provide, however, that if the number of 
partners in any taxable year falls below 100, the partnership 
is not treated as a large partnership. Partnerships with at 
least 100 partners can elect to be treated as large 
partnerships. The election applies to the year for which made 
and all subsequent years and cannot be revoked without the 
Secretary's consent.
    \100\ The number of partners is determined by counting only persons 
directly holding partnership interests in the taxable year, including 
persons holding through nominees; persons holding indirectly (e.g., 
through another partnership) are not counted. It is not necessary for a 
partnership to have 250 or more partners at any one time in a taxable 
year for the partnership to constitute a large partnership.
---------------------------------------------------------------------------
      Service partnerships.--A large partnership does not 
include any partnership if substantially all the partners are: 
(1) individuals performing substantial services in connection 
with the partnership's activities, or personal service 
corporations the owner-employees of which perform such 
services; (2) retired partners who had performed such services; 
or (3) spouses of partners who had performed such services. In 
addition, the term ``partner'' does not include any individual 
performing substantial services in connection with the 
partnership's activities and holding a partnership interest, or 
an individual who formerly performed such services and who held 
a partnership interest at the time the individual performed 
such services.
      Commodity partnerships.--The large partnership rules do 
not apply to any partnership the principal activity of which is 
the buying and selling of commodities (not described in sec. 
1221(l)), or options, futures or forwards with respect to 
commodities.
      Partnerships holding oil and gas properties.--In general, 
a large partnership that otherwise meets the qualifications for 
simplified reporting is not required to report information to 
its partners under the rules of that regime if it is 
substantially engaged in oil and gas related activities. 
Rather, such a partnership continues to report information to 
its partners as under present law. The bill permits such a 
partnership, however, to elect to utilize the simplified 
reporting regime, as modified for oil and gas purposes. If an 
election is made for any taxable year, it will also apply for 
all subsequent taxable years unless revoked with the consent of 
the Secretary.
      A partnership is considered to be substantially engaged 
in oil and gas activities if at least 25 percent of the average 
value of its assets during the taxable year consists of oil or 
gas properties.101 In making this determination, a 
partnership is treated as owning its proportionate share of 
assets of any partnership in which it holds an interest.
    \101\ For this purpose, ``oil or gas properties'' means the mineral 
interests in oil gas which are of a character with respect to which a 
deduction for depletion is allowable under section 611.
---------------------------------------------------------------------------
      The bill provides special rules for large partnerships 
with oil and gas activities that operate under the simplified 
reporting regime (i.e., either (1) large partnerships that are 
substantially engaged in oil and gas activities and which elect 
to use the regime, or (2) large partnerships that are not 
substantially engaged in oil and gas operations, but do have 
some oil and gas activities).
      Effective date.--Partnership taxable years beginning 
after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill, with a 
modification of the definition of a partnership to which the 
simplified flow-through rules apply. Under the conference 
agreement, a partnership to which these rules apply is an 
electing large partnership, which is defined as any partnership 
that elects under the provision, if the number of partners in 
the preceding partnership taxable year is 100 or more. To the 
extent so provided in regulations, if the number of partners in 
any taxable year falls below 100, the partnership is not 
treated as a large partnership. The conference agreement 
retains the House bill rules relating to service partnerships, 
commodity partnerships, and partnerships holding oil and gas 
properties.

 2. Simplified audit procedures for large partnerships (sec. 14302 of 
                            the House bill)

Present law

      The Tax Equity and Fiscal Responsibility Act of 1982 
(``TEFRA'') established unified audit rules applicable to all 
but certain small (10 or fewer partners) partnerships. These 
rules require the tax treatment of all ``partnership items'' to 
be determined at the partnership, rather than the partner, 
level. Partnership items are those items that are more 
appropriately determined at the partnership level than at the 
partner level, as provided by regulations.
      Under the TEFRA rules, a partner must report all 
partnership items consistently with the partnership return or 
must notify the IRS of any inconsistency. If a partner fails to 
report any partnership item consistently with the partnership 
return, the IRS may make a computational adjustment and 
immediately assess any additional tax that results.
      Under the TEFRA rules, a partner must report all 
partnership items consistently with the partnership return or 
must notify the IRS of any inconsistency. If a partner fails to 
report any partnership item consistently with the partnership 
return, the IRS may make a computational adjustment and 
immediately assess any additional tax that results.
      The IRS may challenge the reporting position of a 
partnership by conducting a single administrative proceeding to 
resolve the issue with respect to all partners. But the IRS 
must still assess any resulting deficiency against each of the 
taxpayers who were partners in the year in which the 
understatement of tax liability arose.
      The IRS generally is required to give notice of the 
beginning of partnership-level administrative proceedings and 
any resulting administrative adjustment to all partners whose 
names and addresses are furnished to the IRS. For partnerships 
with more than 100 partners, however, the IRS generally is not 
required to give notice to any partner whose profits interest 
is less than one percent.

House bill

      The House bill creates a new audit system for large 
partnerships. The provision defines ``large partnership'' the 
same way for audit and reporting purposes (generally 
partnerships with at least 250 partners) except that certain 
oil and gas partnerships exempted from the large partnership 
reporting requirements are large partnerships for the audit 
rules.
      As under present law, large partnerships and their 
partners are subject to unified audit rules. Thus, the tax 
treatment of ``partnership items'' are determined at the 
partnership, rather than the partner, level. The term 
``partnership items'' is defined as under present law.
      Unlike present law, however, partnership adjustments 
generally will flow through to the partners for the year in 
which the adjustment takes effect. Thus, the current-year 
partners' share of current-year partnership items of income, 
gains, losses, deductions, or credits will be adjusted to 
reflect partnership adjustments that take effect in that year. 
The adjustments generally will not affect prior-year returns of 
any partners (except in the case of changes to any partner's 
distributive shares).
      In lieu of flowing an adjustment through to its partners, 
the partnership may elect to pay an imputed underpayment. The 
imputed underpayment generally is calculated by netting the 
adjustments to the income and loss items of the partnership and 
multiplying that amount by the highest tax rate (whether 
individual or corporate). A partner may not file a claim for 
credit or refund of his allocable share of the payment. A 
partnership may make this election only if it meets 
requirements set forth in Treasury regulations designed to 
ensure payment (for example, in the case of a foreign 
partnership).
      Effective date.--Partnership taxable years beginning 
after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

      3. Due date for furnishing information to partners of large 
              partnerships (sec. 14303 of the House bill)

Present law

      A partnership required to file an income tax return with 
the Internal Revenue Service must also furnish an information 
return to each of its partners on or before the day on which 
the income tax return for the year is required to be filed, 
including extensions. Under regulations, a partnership must 
file its income tax return on or before the fifteenth day of 
the fourth month following the end of the partnership's taxable 
year (on or before April 15, for calendar year partnerships). 
This is the same deadline by which most individual partners 
must file their tax returns.

House bill

      The House bill provides that a large partnership must 
furnish information returns to partners by the first March 15 
following the close of the partnership's taxable year. Large 
partnerships are only those partnerships subject to the 
simplified reporting rules for large partnerships (generally, 
those with at least 250 partners, or electing partnerships with 
at least 100 partners).
      The provision also provides that, if the partnership is 
required to provide copies of the information returns to the 
Internal Revenue Service on magnetic media, each schedule (such 
as each Schedule K-1) with respect to each partner is treated 
as a separate information return with respect to the corrective 
periods and penalties that are generally applicable to all 
information returns.
      Effective date.--Partnership taxable years beginning 
after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 4. Partnership returns required on magnetic media (sec. 14304 of the 
                              House bill)

Present law

      Partnerships are permitted, but not required, to provide 
the tax return of the partnership (Form 1065), as well as 
copies of the schedules sent to each partner (Form K-1), to the 
Internal Revenue Service on magnetic media.

House bill

      The bill provides generally that any partnership is 
required to provide the tax return of the partnership (Form 
1065), as well as copies of the schedule sent to each partner 
(Form K-1), to the Internal Revenue Service on magnetic media. 
An exception is provided for partnerships with 100 or fewer 
partners.
      Effective date.--Partnership taxable years beginning 
after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

  5. Treatment of partnership items of individual retirement accounts 
                     (sec. 14305 of the House bill)

Present law

            Return filing requirements
      An individual retirement account (''IRA'') is a trust 
which generally is exempt from taxation except for the taxes 
imposed on income from an unrelated trade or business. A 
fiduciary of a trust that is exempt from taxation (but subject 
to the taxes imposed on income from an unrelated trade or 
business) generally is required to file a return on behalf of 
the trust for a taxable year if the trust has gross income of 
$1,000 or more included in computing unrelated business taxable 
income for that year (Treas. Reg. sec. 1.6012-3(a)(5)).
      Unrelated business taxable income is the gross income 
(including gross income from a partnership) derived by an 
exempt organization from an unrelated trade or business, less 
certain deductions which are directly connected with the 
carrying on of such trade or business (sec. 512(a)(1). In 
calculating unrelated business taxable income, exempt 
organizations (including IRAs) generally also are permitted a 
specific deduction of $1,000 (sec. 512(b)(12)).
            Unified audits of partnerships
      All but certain small partnerships are subject to unified 
audit rules established by the Tax Equity and Fiscal 
Responsibility Act of 1982. These rules require the tax 
treatment of all ``partnership items'' to be determined at the 
partnership, rather than the partner, level. Partnership items 
are those items that are more appropriately determined at the 
partnership level than at the partner level, including such 
items as gross income and deductions of the partnership.

House bill

      The House bill modifies the filing threshold for an IRA 
with an interest in a partnership that is subject to the 
partnership-level audit rules. A fiduciary of such an IRA could 
treat the trust's share of partnership taxable income as gross 
income, for purposes of determining whether the trust meets the 
$1,000 gross income filing threshold. A fiduciary of an IRA 
that receives taxable income from a partnership that is subject 
to partnership-level audit rules of less than $1,000 (before 
the $1,000 specific deduction) is not required to file an 
income tax return if the IRA does not have any other income 
from an unrelated trade or business.
      Effective date.--Taxable years beginning after December 
31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

                    B. Other Partnership Audit Rules

1. treatment of partnership items in deficiency proceedings (sec. 14311 
                           of the house bill)

Present law
      Partnership proceedings under rules enacted in TEFRA 
102 must be kept separate from deficiency proceedings 
involving the partners in their individual capacities. Prior to 
the Tax Court's opinion in Munro v. Commissioner, 92 T.C. 71 
(1989), the IRS computed deficiencies by assuming that all 
items that were subject to the TEFRA partnership procedures 
were correctly reported on the taxpayer's return. However, 
where the losses claimed from TEFRA partnerships were so large 
that they offset any proposed adjustments to nonpartnership 
items, no deficiency could arise from a non-TEFRA proceeding, 
and if the partnership losses were subsequently disallowed in a 
partnership proceeding, the non-TEFRA adjustments might be 
uncollectible because of the expiration of the statute of 
limitations with respect to nonpartnership items.
    \102\ Tax Equity and Fiscal Responsibility Act of 1982.
---------------------------------------------------------------------------
      Faced with this situation in Munro, the IRS issued a 
notice of deficiency to the taxpayer that presumptively 
disallowed the taxpayer's TEFRA partnership losses for 
computational purposes only. Although the Tax Court ruled that 
a deficiency existed and that the court had jurisdiction to 
hear the case, the court disapproved of the methodology used by 
the IRS to compute the deficiency. Specifically, the court held 
that partnership items (whether income, loss, deduction, or 
credit) included on a taxpayer's return must be completely 
ignored in determining whether a deficiency exists that is 
attributable to nonpartnership items.
House bill
      The House bill overrules Munro and allow the IRS to 
return to its prior practice of computing deficiencies by 
assuming that all TEFRA items whose treatment has not been 
finally determined had been correctly reported on the 
taxpayer's return. This eliminates the need to do special 
computations that involve the removal of TEFRA items from a 
taxpayer's return, and will restore to taxpayers a prepayment 
forum with respect to the TEFRA items. In addition, the 
provision provides a special rule to address the factual 
situation presented in Munro.
      Specifically, the House bill provides a declaratory 
judgment procedure in the Tax Court for adjustments to an 
oversheltered return. An oversheltered return is a return that 
shows no taxable income and a net loss from TEFRA partnerships. 
In such a case, the IRS is authorized to issue a notice of 
adjustment with respect to non-TEFRA items, notwithstanding 
that no deficiency would result from the adjustment. However, 
the IRS could only issue such a notice if a deficiency would 
have arisen in the absence of the net loss from TEFRA 
partnerships.
      The Tax Court is granted jurisdiction to determine the 
correctness of such an adjustment as well as to make a 
declaration with respect to any other item for the taxable year 
to which the notice of adjustment relates, except for 
partnership items and affected items which require partner-
level determinations. No tax is due upon such a determination, 
but a decision of the Tax Court is treated as a final decision, 
permitting an appeal of the decision by either the taxpayer or 
the IRS. An adjustment determined to be correct would thus have 
the effect of increasing the taxable income that is deemed to 
have been reported on the taxpayer's return. If the taxpayer's 
partnership items were then adjusted in a subsequent 
proceeding, the IRS has preserved its ability to collect tax on 
any increased deficiency attributable to the nonpartnership 
items.
      Alternatively, if the taxpayer chooses not to contest the 
notice of adjustment within the 90-day period, the bill 
provides that when the taxpayer's partnership items are finally 
determined, the taxpayer has the right to file a refund claim 
for tax attributable to the items adjusted by the earlier 
notice of adjustment for the taxable year. Although a refund 
claim is not generally permitted with respect to a deficiency 
arising from a TEFRA proceeding, such a rule is appropriate 
with respect to a defaulted notice of adjustment because 
taxpayers may not challenge such a notice when issued since it 
does not require the payment of additional tax.
      In addition, the House bill incorporates a number of 
provisions intended to clarify the coordination between TEFRA 
audit proceedings and individual deficiency proceedings. Under 
these provisions, any adjustment with respect to a non-
partnership item that caused an increase in tax liability with 
respect to a partnership item would be treated as a 
computational adjustment and assessed after the conclusion of 
the TEFRA proceeding. Accordingly, deficiency procedures do not 
apply with respect to this increase in tax liability, and the 
statute of limitations applicable to TEFRA proceedings are 
controlling.
      Effective date.--Partnership taxable years ending after 
the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  2. partnership return to be determinative of audit procedures to be 
                followed (sec. 14312 of the house bill)

Present law

      TEFRA established unified audit rules applicable to all 
partnerships, except for partnerships with 10 or fewer 
partners, each of whom is a natural person (other than a 
nonresident alien) or an estate, and for which each partner's 
share of each partnership item is the same as that partner's 
share of every other partnership item. Partners in the exempted 
partnerships are subject to regular deficiency procedures.

House bill

      The House bill permits the IRS to apply the TEFRA audit 
procedures if, based on the partnership's return for the year, 
the IRS reasonably determines that those procedures should 
apply. Similarly, the provision permits the IRS to apply the 
normal deficiency procedures if, based on the partnership's 
return for the year, the IRS reasonably determines that those 
procedures should apply.
      Effective date.--Partnership taxable years ending after 
the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

            3. provisions relating to statute of limitations

a. suspend statute when an untimely petition is filed (sec. 14313(a) of 
                            the house bill)

Present law

      In a deficiency case, section 6503(a) provides that if a 
proceeding in respect of the deficiency is placed on the docket 
of the Tax Court, the period of limitations on assessment and 
collection is suspended until the decision of the Tax Court 
becomes final, and for 60 days thereafter. The counterpart to 
this provision with respect to TEFRA cases is contained in 
section 6229(d). That section provides that the period of 
limitations is suspended for the period during which an action 
may be brought under section 6226 and, if an action is brought 
during such period, until the decision of the court becomes 
final, and for 1 year thereafter. As a result of this 
difference in language, the running of the statute of 
limitations in a TEFRA case will only be tolled by the filing 
of a timely petition whereas in a deficiency case, the statute 
of limitations is tolled by the filing of any petition, 
regardless of whether the petition is timely.

House bill

      The House bill conforms the suspension rule for the 
filing of petitions in TEFRA cases with the rule under section 
6503(a) pertaining to deficiency cases. Under the provision, 
the statute of limitations in TEFRA cases is suspended by the 
filing of any petition under section 6226, regardless of 
whether the petition is timely or valid, and the suspension 
will remain in effect until the decision of the court becomes 
final, and for one year thereafter. Hence, if the statute of 
limitations is open at the time that an untimely petition is 
filed, the limitations period would no longer continue to run 
and possibly expire while the action is pending before the 
court.
      Effective date.--All cases in which the period of 
limitations has not expired under present law as of the date of 
enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 b. suspend statute of limitations during bankruptcy proceedings (sec. 
                      14313(b) of the house bill)

Present law

      The period for assessing tax with respect to partnership 
items generally is the longer of the periods provided by 
section 6229 or section 6501. For partnership items that 
convert to nonpartnership items, section 6229(f) provides that 
the period for assessing tax shall not expire before the date 
which is 1 year after the date that the items become 
nonpartnership items. Section 6503(h) provides for the 
suspension of the limitations period during the pendency of a 
bankruptcy proceeding. However, this provision only applies to 
the limitations periods provided in sections 6501 and 6502.
      Under present law, because the suspension provision in 
section 6503(h) applies only to the limitations periods 
provided in section 6501 and 6502, some uncertainty exists as 
to whether section 6503(h) applies to suspend the limitations 
period pertaining to converted items provided in section 
6229(f) when a petition naming a partner as a debtor in a 
bankruptcy proceeding is filed. As a result, the limitations 
period provided in section 6229(f) may continue to run during 
the pendency of the bankruptcy proceeding, notwithstanding that 
the IRS is prohibited from making an assessment against the 
debtor because of the automatic stay provisions of the 
Bankruptcy Code.

House bill

      The House bill clarifies that the statute of limitations 
is suspended for a partner who is named in a bankruptcy 
petition. The suspension period is for the entire period during 
which the IRS is prohibited by reason of the bankruptcy 
proceeding from making an assessment, and for 60 days 
thereafter. The provision does not purport to create any 
inference as to the proper interpretation of present law.
      Effective date.--All cases in which the period of 
limitations has not expired under present law as of the date of 
enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 c. extend statute of limitations for bankrupt tmps (sec. 14313(c) of 
                            the house bill)

Present law

      Section 6229(b)(1)(B) provides that the statute of 
limitations is extended with respect to all partners in the 
partnership by an agreement entered into between the tax 
matters partner (TMP) and the IRS. However, Temp. Treas. Reg. 
secs. 301.6231(a)(7)-1T(1)(4) and 301.6231(c)-7T(a) provide 
that upon the filing of a petition naming a partner as a debtor 
in a bankruptcy proceeding, that partner's partnership items 
convert to nonpartnership items, and if the debtor was the tax 
matters partner, such status terminates. These rules are 
necessary because of the automatic stay provision contained in 
11 U.S.C. sec. 362(a)(8). As a result, if a consent to extend 
the statute of limitations is signed by a person who would be 
the TMP but for the fact that at the time that the agreement is 
executed the person was a debtor in a bankruptcy proceeding, 
the consent would not be binding on the other partners because 
the person signing the agreement was no longer the TMP at the 
time that the agreement was executed.

House bill

      The House bill provides that unless the IRS is notified 
of a bankruptcy proceeding in accordance with regulations, the 
IRS can rely on a statute extension signed by a person who is 
the tax matters partner but for the fact that said person was 
in bankruptcy at the time that the person signed the agreement. 
Statute extensions granted by a bankrupt TMP in these cases are 
binding on all of the partners in the partnership. The 
provision is not intended to create any inference as to the 
proper interpretation of present law.
      Effective date.--Effective for extension agreements 
entered into after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 4. expansion of small partnership exception (sec. 14314 of the house 
                                 bill)

Present law

      TEFRA established unified audit rules applicable to all 
partnerships, except for partnerships with 10 or fewer 
partners, each of whom is a natural person (other than a 
nonresident alien) or an estate, and for which each partner's 
share of each partnership item is the same as that partner's 
share of every other partnership item. Partners in the exempted 
partnerships are subject to regular deficiency procedures.

House bill

      The House bill permits a small partnership to have a C 
corporation as a partner or to specially allocate items without 
jeopardizing its exception from the TEFRA rules. However, the 
provision retains the prohibition of present law against having 
a flow-through entity (other than an estate of a deceased 
partner) as a partner for purposes of qualifying for the small 
partnership exception.
      Effective date.--Partnership taxable years ending after 
the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

     5. exclusion of partial settlements from 1-year limitation on 
               assessment (sec. 14315 of the house bill)

Present law

      The period for assessing tax with respect to partnership 
items generally is the longer of the periods provided by 
section 6229 or section 6501. For partnership items that 
convert to nonpartnership items, section 6229(f) provides that 
the period for assessing tax shall not expire before the date 
which is 1 year after the date that the items become 
nonpartnership items. Section 6231(b)(1)(C) provides that the 
partnership items of a partner for a partnership taxable year 
become nonpartnership items as of the date the partner enters 
into a settlement agreement with the IRS with respect to such 
items.

House bill

      The House bill provides that if a partner and the IRS 
enter into a settlement agreement with respect to some but not 
all of the partnership items in dispute for a partnership 
taxable year and other partnership items remain in dispute, the 
period for assessing any tax attributable to the settled items 
is determined as if such agreement had not been entered into. 
Consequently, the limitations period that is applicable to the 
last item to be resolved for the partnership taxable year is 
controlling with respect to all disputed partnership items for 
the partnership taxable year. The provision does not purport to 
create any inference as to the proper interpretation of present 
law.
      Effective date.--Settlements entered into after the date 
of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

6. extension of time for filing a request for administrative adjustment 
                     (sec. 14316 of the house bill)

Present law

      If an agreement extending the statute is entered into 
with respect to a non-TEFRA statute of limitations, that 
agreement also extends the statute of limitations for filing 
refund claims (sec. 6511(c)). There is no comparable provision 
for extending the time for filing refund claims with respect to 
partnership items subject to the TEFRA partnership rules.

House bill

      The House bill provides that if a TEFRA statute extension 
agreement is entered into, that agreement also extends the 
statute of limitations for filing refund claims attributable to 
partnership items or affected items until 6 months after the 
expiration of the limitations period for assessments.
      Effective date.--Effective as if included in the 
amendments made by section 402 of the Tax Equity and Fiscal 
Responsibility Act of 1982.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

  7. availability of innocent spouse relief in context of partnership 
               proceedings (sec. 14317 of the house bill)

Present law

      In general, an innocent spouse may be relieved of 
liability for tax, penalties and interest if certain conditions 
are met (sec. 6013(e)). However, existing law does not provide 
the spouse of a partner in a TEFRA partnership with a judicial 
forum to raise the innocent spouse defense with respect to any 
tax or interest that relates to an investment in a TEFRA 
partnership.

House bill

      The House bill provides both a prepayment forum and a 
refund forum for raising the innocent spouse defense in TEFRA 
cases.
      With respect to a prepayment forum, the provision 
provides that within 60 days of the date that a notice of 
computational adjustment relating to partnership items is 
mailed to the spouse of a partner, the spouse could request 
that the assessment be abated. Upon receipt of such a request, 
the assessment is abated and any reassessment will be subject 
to the deficiency procedures. If an abatement is requested, the 
statute of limitations does not expire before the date which is 
60 days after the date of the abatement. If the spouse files a 
petition with the Tax Court, the Tax Court only has 
jurisdiction to determine whether the requirements of section 
6013(e) have been satisfied. In making this determination, the 
treatment of the partnership items that gave rise to the 
liability in question is conclusive.
      Alternatively, the House bill provides that the spouse of 
a partner could file a claim for refund to raise the innocent 
spouse defense. The claim has to be filed within 6 months from 
the date that the notice of computational adjustment is mailed 
to the spouse. If the claim is not allowed, the spouse could 
file a refund action. For purposes of any claim or suit under 
this provision, the treatment of the partnership items that 
gave rise to the liability in question is conclusive.
      Effective date.--Effective as if included in the 
amendments made by section 402 of the Tax Equity and Fiscal 
Responsibility Act of 1982.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 8. determination of penalties at partnership level (sec. 14318 of the 
                              house bill)

Present law

      Partnership items include only items that are required to 
be taken into account under the income tax subtitle. Penalties 
are not partnership items since they are contained in the 
procedure and administration subtitle. As a result, penalties 
may only be asserted against a partner through the application 
of the deficiency procedures following the completion of the 
partnership-level proceeding.

House bill

      The House bill provides that the partnership-level 
proceeding is to include a determination of the applicability 
of penalties at the partnership level. However, the provision 
allows partners to raise any partner-level defenses in a refund 
forum.
      Effective date.--Effective for partnership taxable years 
ending after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

  9. provisions relating to tax court jurisdiction (sec. 14319 of the 
                              house bill)

Present law

      Improper assessment and collection activities by the IRS 
during the 150-day period for filing a petition or during the 
pendency of any Tax Court proceeding, ``may be enjoined in the 
proper court.'' Present law may be unclear as to whether this 
includes the Tax Court.
      For a partner other than the Tax Matters Partner to be 
eligible to file a petition for redetermination of partnership 
items in any court or to participate in an existing case, the 
period for assessing any tax attributable to the partnership 
items of that partner must not have expired. Since such a 
partner would only be treated as a party to the action if the 
statute of limitations with respect to them was still open, the 
law is unclear whether the partner would have standing to 
assert that the statute of limitations had expired with respect 
to them.

House bill

      The House bill clarifies that an action to enjoin 
premature assessments of deficiencies attributable to 
partnership items may be brought in the Tax Court. The 
provision also permits a partner to participate in an action or 
file a petition for the sole purpose of asserting that the 
period of limitations for assessing any tax attributable to 
partnership items has expired for that person. Additionally, 
the provision clarifies that the Tax Court has overpayment 
jurisdiction with respect to affected items.
      Effective date.--Effective for partnership taxable years 
ending after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

  10. treatment of premature petitions filed by notice partners or 5-
             percent groups (sec. 14320 of the house bill)

Present law

      The Tax Matters Partner is given the exclusive right to 
file a petition for a readjustment of partnership items within 
the 90-day period after the issuance of the notice of a final 
partnership administrative adjustment (FPAA). If the Tax 
Matters Partner does not file a petition within the 90-day 
period, certain other partners are permitted to file a petition 
within the 60-day period after the close of the 90-day period. 
There are ordering rules for determining which action goes 
forward and for dismissing other actions.

House bill

      The House bill treats premature petitions filed by 
certain partners within the 90-day period as being filed on the 
last day of the following 60-day period under specified 
circumstances, thus affording the partnership with an 
opportunity for judicial review that is not available under 
present law.
      Effective date.--Effective with respect to petitions 
filed after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 11. bonds in case of appeals from certain proceedings (sec. 14321 of 
                            the house bill)

Present law

      A bond must be filed to stay the collection of 
deficiencies pending the appeal of the Tax Court's decision in 
a TEFRA proceeding. The amount of the bond must be based on the 
court's estimate of the aggregate deficiencies of the partners.

House bill

      The House bill clarifies that the amount of the bond 
should be based on the Tax Court's estimate of the aggregate 
liability of the parties to the action (and not all of the 
partners in the partnership). For purposes of this provision, 
the amount of the bond could be estimated by applying the 
highest individual rate to the total adjustments determined by 
the Tax Court and doubling that amount to take into account 
interest and penalties.
      Effective date.--Effective as if included in the 
amendments made by section 402 of the Tax Equity and Fiscal 
Responsibility Act of 1982.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

  12. suspension of interest where delay in computational adjustment 
   resulting from certain settlements (sec. 14322 of the house bill)

Present law

      Interest on a deficiency generally is suspended when a 
taxpayer executes a settlement agreement with the IRS and 
waives the restrictions on assessments and collections, and the 
IRS does not issue a notice and demand for payment of such 
deficiency within 30 days. Interest on a deficiency that 
results from an adjustment of partnership items in TEFRA 
proceedings, however, is not suspended.

House bill

      The House bill suspends interest where there is a delay 
in making a computational adjustment relating to a TEFRA 
settlement.
      Effective date.--Effective with respect to adjustments 
relating to taxable years beginning after the date of 
enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 13. special rules for administrative adjustment requests with respect 
  to bad debts or worthless securities (sec. 14323 of the house bill)

Present law

      The non-TEFRA statute of limitations for filing a claim 
for credit or refund generally is the later of (1) three years 
from the date the return in question was filed or (2) two years 
from the date the claimed tax was paid, whichever is later 
(sec. 6511(b)). However, an extended period of time, seven 
years from the date the return was due, is provided for filing 
a claim for refund of an overpayment resulting from a deduction 
for a worthless security or bad debt (sec. 6511(d)).
      Under the TEFRA partnership rules, a request for 
administrative adjustment (``RAA'') must be filed within three 
years after the later of (1) the date the partnership return 
was filed or (2) the due date of the partnership return 
(determined without regard to extensions) (sec. 6227(a)(1)). In 
addition, the request must be filed before a final partnership 
administrative adjustment (``FPAA'') is mailed for the taxable 
year (sec. 6227(a)(2)). There is no special provision for 
extending the time for filing an RAA that relates to a 
deduction for a worthless security or an entirely worthless bad 
debt.

House bill

      The House bill extends the time for the filing of an RAA 
relating to the deduction by a partnership for a worthless 
security or bad debt. In these circumstances, in lieu of the 
three-year period provided in sec. 6227(a)(1), the period for 
filing an RAA is seven years from the date the partnership 
return was due with respect to which the request is made 
(determined without regard to extensions). The RAA is still 
required to be filed before the FPAA is mailed for the taxable 
year.
      Effective date.--Effective as if included in the 
amendments made by section 402 of the Tax Equity and Fiscal 
Responsibility Act of 1982.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

                 XIV. Foreign Simplification Provisions

  A. modification of passive foreign investment company provisions to 
 eliminate overlap with subpart f and to allow mark-to-market election 
                 (secs. 14401-14404 of the house bill)

Present law

      Under the rules of subpart F (secs. 951-964), certain 10-
percent U.S. shareholders of a controlled foreign corporation 
(CFC) are required to include in income currently their shares 
of certain earnings of the CFC.
      U.S. shareholders of a passive foreign investment company 
(PFIC) are subject to tax and an interest charge reflecting the 
value of deferral when earnings of the PFIC are included in the 
shareholders' income upon a distribution from the PFIC or a 
disposition of the PFIC stock. Alternatively, the U.S. 
shareholders may elect to include in income currently their 
shares of the PFIC's earnings.
      A foreign corporation is a PFIC if it satisfies a passive 
income test or a passive asset test. A foreign corporation that 
is a CFC may also be a PFIC.

House bill

            Elimination of overlap between subpart F and the PFIC 
                    provisions
      In the case of a PFIC that is also a CFC, the House bill 
generally treats the corporation as not a PFIC with respect to 
certain 10-percent shareholders. This rule applies if the 
corporation is a CFC (within the meaning of section 957(a)) and 
the shareholder is a U.S. shareholder (within the meaning of 
section 951(b)) of such corporation (i.e., if the shareholder 
is subject to the current inclusion rules of subpart F with 
respect to such corporation). Moreover, the rule applies for 
that portion of the shareholder's holding period with respect 
to the corporation's stock which is after December 31, 1995 and 
during which the corporation is a CFC and the shareholder is a 
U.S. shareholder. Accordingly, a shareholder that is subject to 
current inclusion under the subpart F rules with respect to 
stock of a PFIC that is also a CFC generally is not also 
subject to the PFIC provisions with respect to the same stock. 
As under present law, the PFIC provisions continue to apply in 
the case of a PFIC that is also a CFC to shareholders that are 
not subject to subpart F (i.e., to shareholders that are U.S. 
persons and that own (directly, indirectly, or constructively) 
less than 10 percent of the corporation's stock by vote).
      If a shareholder of a PFIC is subject to the rules 
applicable to nonqualified funds before becoming eligible for 
the special rules provided under the House bill for 
shareholders that are subject to subpart F, the stock held by 
such shareholder continues to be treated as PFIC stock unless 
the shareholder makes an election to pay tax and an interest 
charge with respect to the unrealized appreciation in the stock 
or the accumulated earnings of the corporation. This rule, 
which applies under current law to PFICs that had been 
nonqualified funds and that cease to satisfy the tests for PFIC 
status, prevents the shareholder from avoiding the interest 
charge imposed by the PFIC rules with respect to amounts 
accumulated by the PFIC while the shareholder held stock of the 
corporation but before the shareholder was subject to subpart 
F.
      If a shareholder is not subject to the PFIC provisions 
because the shareholder is subject to subpart F and the 
shareholder subsequently ceases to be subject to subpart F with 
respect to the corporation, for purposes of the PFIC 
provisions, the shareholder's holding period for such stock is 
treated as beginning immediately after such cessation. 
Accordingly, in applying the rules applicable to PFICs that are 
not qualified electing funds, the earnings of the corporation 
are not attributed to the period during which the shareholder 
was subject to subpart F with respect to the corporation and 
was not subject to the PFIC provisions.
            Mark-to-market election
      The House bill allows a shareholder of a PFIC to make a 
mark-to-market election with respect to the stock of the PFIC, 
provided that such stock is marketable (as defined below). 
Under such an election, the shareholder includes in income each 
year an amount equal to the excess, if any, of the fair market 
value of the PFIC stock as of the close of the taxable year 
over the shareholder's adjusted basis in such stock. The 
shareholder is allowed a deduction for the excess, if any, of 
the adjusted basis of the PFIC stock over its fair market value 
as of the close of the taxable year. However, deductions are 
allowable under this rule only to the extent of the excess, if 
any, of the total amount of mark-to-market gains with respect 
to the stock included by the shareholder for prior taxable 
years over the amount of mark-to-market losses with respect to 
such stock that were allowed as deductions for prior taxable 
years.
      The election provided in the House bill is available only 
for PFIC stock that is ``marketable.'' For this purpose, PFIC 
stock is considered marketable if it is regularly traded on a 
national securities exchange that is registered with the 
Securities and Exchange Commission or on the national market 
system established pursuant to section 11A of the Securities 
and Exchange Act of 1934. In addition, PFIC stock is considered 
marketable if it is regularly traded on any exchange or market 
that the Secretary of the Treasury determines has rules 
sufficient to ensure that the market price represents a 
legitimate and sound fair market value. In identifying foreign 
exchanges that qualify for these purposes, it is intended that 
the Secretary not be required to include exchanges that satisfy 
standards established under Federal securities law and 
regulations. Any option on stock that is considered marketable 
under the foregoing rules is treated as marketable, to the 
extent provided in regulations. It is intended that the 
Secretary may adopt a definition of the term ``regularly 
traded'' that differs from definitions provided for other 
purposes under the Code. Further, it is intended that the 
Secretary not be bound by definitions applied for purposes of 
enforcing other laws, including securities laws. PFIC stock 
also is treated as marketable, to the extent provided in 
regulations, if the PFIC offers for sale (or has outstanding) 
stock of which it is the issuer and which is redeemable at its 
net asset value in a manner comparable to a U.S. regulated 
investment company (RIC).
      In addition, the House bill treats as marketable any PFIC 
stock owned by a RIC that offers for sale (or has outstanding) 
any stock of which it is the issuer and which is redeemable at 
its net asset value. It is believed that the RIC's 
determination of PFIC stock value for this non-tax purpose 
would ensure a sufficiently accurate determination of the fair 
market value of the PFIC stock owned by the RIC. The House bill 
also treats as marketable any PFIC stock held by any other RIC 
that otherwise publishes net asset valuations at least 
annually, except to the extent provided in regulations. It is 
believed that even for RICs that do not make a market in their 
own stock, but that do regularly report their net asset values 
in compliance with the securities laws, inaccurate valuation 
may bring exposure to legal liabilities, and this exposure may 
ensure the reliability of the values such RICs assign to the 
PFIC stock they hold. However, it is intended that Treasury 
regulations will disallow marketable treatment for 
nonmarketable PFIC stock held by a RIC that is not required to 
perform such net asset valuation at the close of each taxable 
year, that does not publish such valuation, or that otherwise 
does not provide what the Secretary regards as sufficient 
indicia of the reliability of its valuations.
      The shareholder's adjusted basis in the PFIC stock is 
adjusted to reflect the amounts included or deducted under this 
election. In the case of stock owned indirectly by a U.S. 
person through a foreign entity (as discussed below), the basis 
adjustments for mark-to-market gains and losses apply to the 
basis of the PFIC in the hands of the intermediary owner, but 
only for purposes of the subsequent application of the PFIC 
rules to the tax treatment of the indirect U.S. owner. In 
addition, similar basis adjustments are made to the adjusted 
basis of the property actually held by the U.S. person by 
reason of which the U.S. person is treated as owning PFIC 
stock.
      Amounts included in income pursuant to a mark-to-market 
election, as well as gain on the actual sale or other 
disposition of the PFIC stock, are treated as ordinary 
income.\103\ Ordinary loss treatment also applies to the 
deductible portion of any mark-to-market loss on PFIC stock, as 
well as to any loss realized on the actual sale or other 
disposition of PFIC stock to the extent that the amount of such 
loss does not exceed the net mark-to-market gains previously 
included with respect to such stock. The source of amounts with 
respect to a mark-to-market election generally is determined in 
the same manner as if such amounts were gain or loss from the 
sale of stock in the PFIC.
    \103\ For purposes of the rules under section 851(b) regarding 
eligibility as a RIC, income includible pursuant to the election is 
treated as a dividend.
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      An election to mark to market applies to the taxable year 
for which made and all subsequent taxable years, unless the 
PFIC stock ceases to be marketable or the Secretary of the 
Treasury consents to the revocation of such election.
      Under constructive ownership rules, U.S. persons that own 
PFIC stock through certain foreign entities may make this 
election with respect to the PFIC. These constructive ownership 
rules apply to treat PFIC stock owned directly or indirectly by 
or for a foreign partnership, trust, or estate as owned 
proportionately by the partners or beneficiaries, except as 
provided in regulations.\104\ Stock in a PFIC that is thus 
treated as owned by a person is treated as actually owned by 
that person for purposes of again applying the constructive 
ownership rules. In the case of a U.S. person that is treated 
as owning PFIC stock by application of this constructive 
ownership rule, any disposition by the U.S. person or by any 
other person that results in the U.S. person being treated as 
no longer owning the PFIC stock, as well as any disposition by 
the person actually owning the PFIC stock, is treated as a 
disposition by the U.S. person of the PFIC stock.
    \104\ For this purpose, it is intended that proportionate ownership 
will be determined by taking into account any special or discretionary 
allocations of the distributions or gains with respect to the PFIC 
stock.
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      In addition, a CFC that owns stock in a PFIC is treated 
as a U.S. person that may make the election with respect to 
such PFIC stock. Any amount includible (or deductible) in the 
CFC's gross income pursuant to this mark-to-market election is 
treated as foreign personal holding company income (or a 
deduction allocable to foreign personal holding company 
income). The source of such amounts, however, is determined by 
reference to the actual residence of the CFC.
      In the case of a taxpayer that makes the mark-to-market 
election with respect to stock in a PFIC that is a nonqualified 
fund after the beginning of the taxpayer's holding period with 
respect to such stock, a coordination rule applies to ensure 
that the taxpayer does not avoid the interest charge with 
respect to amounts attributable to periods before such 
election. A similar rule applies to RICs that make the mark-to-
market election under the House bill after the beginning of 
their holding period with respect to PFIC stock (to the extent 
that the regulated investment company had not previously marked 
to market the stock of the PFIC).
      Except as provided in the coordination rules described 
above, the rules of section 1291 (with respect to nonqualified 
funds) do not apply to a shareholder of a PFIC if a mark-to-
market election is in effect for the shareholder's taxable 
year. Moreover, in applying section 1291 in a case where a 
mark-to-market election was in effect for any prior taxable 
year, the shareholder's holding period for the PFIC stock is 
treated as beginning immediately after the last taxable year 
for which such election applied.
      A special rule applicable in the case of a PFIC 
shareholder that becomes a U.S. person treats the adjusted 
basis of any PFIC stock held by such person on the first day of 
the year in which such shareholder becomes a U.S. person as 
equal to the greater of its fair market value on such date or 
its adjusted basis on such date. Such rule applies only for 
purposes of the mark-to-market election. This rule ensures that 
the appreciation in the stock's value prior to the time that 
the shareholder becomes subject to the U.S. tax jurisdiction is 
not subject to U.S. tax under the mark-to-market election.
            Clarifications of definition of passive income
      The House bill clarifies the definition of passive income 
for purposes of the PFIC provisions in two respects. First, the 
House bill clarifies that the same-country exceptions from the 
definition of foreign personal holding company income in 
section 954(c) do not apply in determining passive income for 
purposes of the PFIC definition.\105\ Second, the House bill 
clarifies that foreign trade income of a foreign sales 
corporation does not constitute passive income for purposes of 
the PFIC definition.
    \105\ H. Rept. No. 100-795, 100th Cong., 2d Sess. 272 (1988); S. 
Rept. No. 100-445, 100th Cong., 2d Sess. 285 (1988).
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            Effective date
      The provision is effective for taxable years of U.S. 
persons beginning after December 31, 1995, and taxable years of 
foreign corporations ending with or within such taxable years 
of U.S. persons.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

             b. treatment of controlled foreign corporations

    1. general provisions affecting treatment of controlled foreign 
           corporations (secs. 14411-14413 of the house bill)

Present law

      If an upper-tier controlled foreign corporation (``CFC'') 
sells stock of a lower-tier CFC, the gain generally is included 
in the income of certain U.S. shareholders as subpart F income 
and the U.S. shareholder's basis in the stock of the first-tier 
CFC is increased to account for the inclusion. The inclusion is 
not characterized for foreign tax credit limitation purposes by 
reference to the nature of the income of the lower-tier CFC; 
instead it generally is characterized as passive income.
      For foreign tax credit limitation purposes, a CFC is not 
treated as a noncontrolled section 902 corporation with respect 
to any distribution out of its earnings and profits for periods 
during which it was a CFC and, except as provided in 
regulations, the recipient of the distribution was a U.S. 
shareholder in such corporation.
      If subpart F income of a lower-tier CFC is included in 
the gross income of a U.S. shareholder, no provision of present 
law allows adjustment of the basis of the upper-tier CFC's 
stock in the lower-tier CFC.
      The subpart F income earned by a foreign corporation 
during its taxable year is taxed to the persons who are U.S. 
shareholders of the corporation on the last day, in that year, 
on which the corporation is a CFC. In the case of a U.S. 
shareholder who acquired stock in a CFC during the year, such 
inclusions are reduced by all or a portion of the amount of 
dividends paid in that year by the foreign corporation to any 
person other than the acquirer with respect to that stock.
      If in a year after the year of income inclusion under the 
subpart F provisions of the Code, a U.S. shareholder in the CFC 
receives a distribution from the corporation, the distribution 
may be deemed to come first out of the corporation's previously 
taxed income and, therefore, may be excluded from the U.S. 
shareholder's income. However, a distribution by a foreign 
corporation to a domestic corporation of earnings and profits 
previously taxed under subpart F is treated as an actual 
dividend, solely for purposes of determining the indirect 
foreign tax credit available to the domestic corporation.
      As a general rule, subpart F income does not include 
income earned from sources within the United States if the 
income is effectively connected with the conduct of a U.S. 
trade or business by the CFC. This general rule does not apply, 
however, if the income is exempt from, or subject to a reduced 
rate of, U.S. tax pursuant to a provision of a U.S. treaty.
      A U.S. corporation that owns at least 10 percent of the 
voting stock of a foreign corporation is treated as if it had 
paid a share of the foreign income taxes paid by the foreign 
corporation in the year in which the foreign corporation's 
earnings and profits become subject to U.S. tax as dividend 
income of the U.S. shareholder. A U.S. corporation also may be 
deemed to have paid taxes paid by a second- or third-tier 
foreign corporation if certain conditions are satisfied.

House bill

            Lower-tier controlled foreign corporations
                Characterization of gain on stock disposition
      The House bill provides that if a CFC is treated as 
having gain from the sale or exchange of stock in a foreign 
corporation, the gain is treated as a dividend to the same 
extent that it would have been so treated under section 1248 if 
the CFC were a U.S. person. This provision, however, does not 
affect the determination of whether the corporation whose stock 
is sold or exchanged is a CFC.
      Thus, for example, if a U.S. corporation owns 100 percent 
of the stock of a foreign corporation, which owns 100 percent 
of the stock of a second foreign corporation, then under the 
House bill, any gain of the first corporation upon a sale or 
exchange of stock of the second corporation is treated as a 
dividend for purposes of subpart F income inclusions to the 
U.S. shareholder, to the extent of earnings and profits of the 
second corporation attributable to periods in which the first 
foreign corporation owned the stock of the second foreign 
corporation while the latter was a CFC with respect to the U.S. 
shareholder.
      As another example, assume that the U.S. corporation has 
always owned 40 percent of the voting stock and 60 percent of 
the value of all of the stock of a foreign corporation, which 
has always owned 40 percent of the voting stock and 60 percent 
of the value of all of the stock of a second foreign 
corporation. All the other stock of the foreign corporations 
has always been owned by foreign individuals unrelated to the 
U.S. corporation. In this case, the second foreign corporation 
has never been a CFC. Therefore, none of the gain of the first 
corporation upon a sale of stock of the second corporation is 
treated as a dividend.
      Gain on disposition of stock in a related corporation 
created or organized under the laws of, and having a 
substantial part of its assets in a trade or business in, the 
same foreign country as the gain recipient, even if 
recharacterized as a dividend under the House bill, is not 
excluded from foreign personal holding company income under the 
same-country exception that applies to actual dividends.
      The House bill provides that for purposes of this 
provision, a CFC is treated as having sold or exchanged stock 
if, under any provision of subtitle A of the Code, the CFC is 
treated as having gain from the sale or exchange of such stock. 
Thus, for example, if a CFC distributes to its shareholder 
stock in a foreign corporation, and the distribution results in 
gain being recognized by the CFC under section 311(b) as if the 
stock were sold to the shareholder for fair market value, the 
House bill makes clear that for purposes of this provision, the 
CFC is treated as having sold or exchanged the stock.
      The House bill also repeals a provision added to the Code 
by the Technical and Miscellaneous Revenue Act of 1988 \106\ 
(the ``1988 Act'') that, except as provided by regulations, 
requires a recipient of a distribution from a CFC to have been 
a United States shareholder of that CFC for the period during 
which the earnings and profits which gave rise to the 
distribution were generated in order to avoid treating the 
distribution as one coming from a noncontrolled section 902 
corporation. Thus, under the House bill, a CFC is not treated 
as a noncontrolled section 902 corporation with respect to any 
distribution out of its earnings and profits for periods during 
which it was a CFC, whether or not the recipient of the 
distribution was a U.S. shareholder of the corporation when the 
earnings and profits giving rise to the distribution were 
generated.
    \106\ P.L. 100-647, section 1012(a)(10).
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                Adjustments to basis of stock
      The House bill also provides that when a lower-tier CFC 
earns subpart F income, and stock in that corporation is later 
disposed of by an upper-tier CFC, the resulting income 
inclusion of the U.S. shareholders are, under regulations, 
adjusted to account for previous inclusions, in a manner 
similar to the adjustments currently provided to the basis of 
stock in a first-tier CFC. Thus, just as the basis of a U.S. 
shareholder in a first-tier CFC rises when subpart F income is 
earned and falls when previously taxed income is distributed, 
so as to avoid double taxation of the income on a later 
disposition of the stock of that company, it is intended that 
by regulation the subpart F income from gain on the disposition 
of a lower-tier CFC generally would be reduced by income 
inclusions of earnings that were not subsequently distributed 
by the lower-tier CFC. It is intended that the Secretary will 
have sufficient flexibility in promulgating regulations under 
this provision to permit adjustments only in those cases where, 
by virtue of the historical ownership structure of the 
corporations involved, the Secretary is satisfied that the 
inclusions for which adjustments are to be made can be clearly 
identified.
      For example, assume that a U.S. person is the owner of 
all of the stock of a first-tier CFC which, in turn, is the 
sole shareholder of a second-tier CFC. In year 1, the second-
tier CFC earns $100 of subpart F income which is included in 
the U.S. person's gross income for that year. In year 2, the 
first-tier CFC disposes of the second-tier CFC's stock and 
recognizes $300 of income with respect to the disposition. All 
of that income would constitute subpart F foreign personal 
holding company income. Under the House bill, the Secretary is 
granted regulatory authority to reduce the U.S. person's year 2 
subpart F inclusion by $100--the amount of year 1 subpart F 
income of the second-tier CFC that was included, in that year, 
in the U.S. person's gross income. Such an adjustment would, in 
effect, allow for a step-up in the basis of the stock of the 
second-tier CFC to the extent of its subpart F income 
previously included in the U.S. person's gross income.
      As another example, assume the same facts as in the 
preceding paragraph except that in year 2, the first-tier CFC 
distributes the stock of the second-tier CFC to the U.S. 
person. Assume that as a result of the distribution, the first-
tier CFC recognizes taxable income of $300 under section 
311(b). This income represents subpart F income, $100 of which 
is due to no adjustment having been made to the basis of the 
second-tier CFC's stock for its year 1 subpart F income. The 
House bill contemplates that in such a situation, the $300 of 
subpart F income would be reduced under regulations to $200 to 
account for the year 1 subpart F income inclusion.
            Subpart F inclusions in year of acquisition
      If a U.S. shareholder acquires the stock of a CFC from 
another U.S. shareholder during a taxable year of the CFC in 
which it earns subpart F income, the House bill reduces the 
acquirer's subpart F income inclusion for that year by a 
portion of the amount of the dividend deemed (under sec. 1248) 
to be received by the transferor. The portion by which the 
inclusion is reduced (as is currently the case if a dividend 
was paid to the previous owner of the stock) would not exceed 
the lesser of the amount of dividends with respect to such 
stock deemed received (under sec. 1248) by other persons during 
the year or the amount determined by multiplying the subpart F 
income for the year by the proportion of the year during which 
the acquiring shareholder did not own the stock.
            Distributions of previously taxed income
      The House bill clarifies the appropriate scope of 
regulatory authority with respect to the treatment of cross-
chain section 304 dividends out of the earnings of CFCs that 
were previously included in the income of a U.S. shareholder 
under subpart F. The House bill contemplates that in such a 
case, the Secretary in his discretion may by regulation treat 
such dividends as distributions of previously taxed income, 
with appropriate basis adjustments. It is also anticipated that 
other occasions may arise where the exercise of similar 
regulatory authority may be appropriate to avoid double income 
inclusions, or an inclusion or exclusion of income without a 
corresponding basis adjustment. Therefore, the House bill 
provides that, in addition to cases involving section 304, the 
Secretary may by regulation modify the application of subpart F 
in any other case where there would otherwise be a multiple 
inclusion of any item of income (or an inclusion or exclusion 
without an appropriate basis adjustment) by reason of the 
structure of a U.S. shareholder's holdings in CFCs or by reason 
of other circumstances. The House bill is not intended to 
create any inference as to the application of present law in 
these cases.
            Treatment of United States income earned by a controlled 
                    foreign corporation
      The House bill provides that an exemption or reduction by 
treaty of the branch profits tax that would be imposed under 
section 884 on a CFC does not affect the general statutory 
exemption from subpart F income that is granted for U.S. source 
effectively connected income. For example, assume a CFC earns 
income of a type that generally would be subpart F income, and 
that income is earned from sources within the United States in 
connection with business operations therein. Further assume 
that repatriation of that income is exempted from the U.S. 
branch profits tax under a provision of an applicable U.S. 
income tax treaty. The House bill provides that, 
notwithstanding the treaty's effect on the branch tax, the 
income is not treated as subpart F income as long as it is not 
exempt from U.S. taxation (or subject to a reduced rate of tax) 
under any other treaty provision.
            Extension of indirect foreign tax credit
      The House bill extends the application of the indirect 
foreign tax credit (secs. 902 and 960) to certain taxes paid or 
accrued by certain fourth-, fifth-, and sixth-tier foreign 
corporations. In general, three requirements must be satisfied 
by a foreign company at any of these tiers to qualify for the 
credit. First, the company must be a CFC. Second, the domestic 
corporation referred to in section 902(a) must be a U.S. 
shareholder (as defined in sec. 951(b)) with respect to the 
foreign company. Third, the product of the percentage ownership 
of voting stock at each level from the U.S. corporation down 
must equal at least 5 percent. The House bill limits the 
application of the indirect foreign tax credit below the third 
tier to taxes paid or incurred in taxable years during which 
the payor is a CFC. No inference is intended as to the 
availability of indirect foreign tax credits, under present 
law, for taxes paid by foreign corporations in the first three 
tiers, for periods prior to the time when the present-law 
ownership requirements were met as to those corporations. All 
foreign taxes paid below the sixth tier of foreign corporations 
remain ineligible for the indirect foreign tax credit.
            Effective dates
      Lower-tier controlled foreign corporations.--The 
provision of the House bill that treats gains on dispositions 
of stock in lower-tier CFCs as dividends under section 1248 
principles applies to gains recognized on transactions 
occurring after the date of enactment of the House bill.
      The provision that expands look-through treatment, for 
foreign tax credit limitation purposes, of dividends from CFCs, 
is effective for distributions after the date of enactment.
      The provision that provides for regulatory adjustments to 
U.S. shareholder inclusions, with respect to gains of CFCs from 
dispositions of stock in lower-tier CFCs the earnings of which 
have been previously taxed under the subpart F provisions of 
the Code, is effective for determining inclusions for taxable 
years of U.S. shareholders beginning after December 31, 1995. 
Thus, the House bill permits regulatory adjustments to an 
inclusion occurring after the effective date to account for 
income previously taxed under the subpart F provisions 
occurring both prior to and subsequent to the effective date of 
the provision.
      Subpart F inclusions in year of acquisition.--The 
provision that permits dispositions of stock to be taken into 
consideration in determining a U.S. shareholder's subpart F 
inclusion for a taxable year is effective with respect to 
dispositions occurring after the date of enactment.
      Distributions of previously taxed income.--The provision 
that allows the Secretary to make regulatory adjustments to 
avoid double inclusions in cases such as those to which section 
304 applies takes effect on the date of enactment.
      Treatment of United States source income earned by a 
controlled foreign corporation.--The provision concerning the 
effect of treaty exemptions from, or reductions of, the branch 
profits tax on the determination of subpart F income is 
effective for taxable years beginning after December 31, 1986.
      Extension of indirect foreign tax credit.--The provision 
that extends application of the indirect foreign tax credit to 
certain CFCs below the third tier is effective for foreign 
taxes paid or incurred by CFCs for taxable years of such 
corporations beginning after the date of enactment.
      In the case of any chain of foreign corporations the 
taxes of which would be eligible for the indirect foreign tax 
credit, under present law or under the House bill, but for the 
denial of indirect credits below the third or sixth tier, as 
the case may be, no liquidation, reorganization, or similar 
transaction in a taxable year beginning after the date of 
enactment shall have the effect of permitting taxes to be taken 
into account under the indirect foreign tax credit provisions 
of the Code which could not have been taken into account under 
those provisions but for such transaction. As one example, no 
such transaction shall have the effect of permitting credits 
for taxes which, but for such transaction, would have been 
noncreditable (given the effective date provisions of the House 
bill) because they are taxes of a fourth-, fifth-, or sixth-
tier corporation for a year beginning before the date that the 
House bill is enacted. No inference is intended regarding the 
creditability or noncreditability of such taxes under present 
law.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

 2. repeal of excess passive assets provision (sec. 14414 of the house 
                                 bill)

Present law

      Under the rules of subpart F (secs. 951-964), certain 10-
percent U.S. shareholders of a controlled foreign corporation 
(CFC) are required to include in income currently for U.S. tax 
purposes certain earnings of the CFC, whether or not such 
earnings are actually distributed currently to the 
shareholders. The 10-percent U.S. shareholders of a CFC are 
subject to current U.S. tax on their shares of certain income 
earned by the CFC (referred to as ``subpart F income''). The 
10-percent U.S. shareholders are also subject to current U.S. 
tax on their shares of the CFC's earnings to the extent such 
earnings are invested by the CFC in certain U.S. property.
      In addition to these current inclusion rules, the Omnibus 
Budget Reconciliation Act of 1993 enacted section 956A, which 
applies another current inclusion rule to U.S. shareholders of 
a CFC. Section 956A requires the 10-percent U.S. shareholders 
of a CFC to include in income currently their shares of the 
CFC's earnings to the extent such earnings are invested by the 
CFC in excess passive assets. A CFC generally is treated as 
having excess passive assets if the average of the amounts of 
its passive assets exceeds 25 percent of the average of the 
amounts of its total assets; this calculation requires a 
quarterly determination of the CFC's passive assets and total 
assets.

House bill

      The House bill repeals section 956A.
       Effective date.--The provision applies to taxable years 
of U.S. shareholders beginning after September 30, 1995, and 
taxable years of foreign corporations ending with or within 
such taxable years of U.S. shareholders.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

                      c. other foreign provisions

 1. exchange rate used in translating foreign taxes (sec. 14421 of the 
                              house bill)

Present law

            Translation of certain accrued foreign taxes
      Foreign income taxes paid in foreign currencies are 
required to be translated into U.S. dollar amounts using the 
exchange rate as of the time such taxes are paid to the foreign 
country or U.S. possession (sec. 986(a)(1)). This rule applies 
to foreign taxes paid directly by U.S. taxpayers, which taxes 
are creditable only in the year paid or accrued (or during a 
carryover period), and to foreign taxes paid by foreign 
corporations that are deemed paid by a U.S. corporation, and 
hence creditable, in the year that the U.S. corporation 
receives a dividend or has an income inclusion.
            Redetermination of foreign taxes
      For taxpayers who utilize the accrual basis of accounting 
for determining creditable foreign taxes, accrued and unpaid 
foreign tax liabilities denominated in foreign currencies are 
translated into U.S. dollar amounts at the exchange rate as of 
the last day of the taxable year of accrual.107 In certain 
cases where a difference exists between the dollar value of 
accrued foreign taxes and the dollar value of those taxes when 
paid, a redetermination (or adjustment) of foreign taxes is 
required.108 Generally, such an adjustment may be 
attributable to one of three causes: (1) a refund of foreign 
taxes, (2) a difference between the amount of foreign currency 
units actually paid and the amount of foreign currency units 
accrued, and (3) fluctuations in the value of the foreign 
currency relative to the dollar between the date of accrual and 
the date of payment.
    \107\ Temp. Treas. Reg. sec. 1.905-3T(b)(1).
    \108\ Temp. Treas. Reg. sec. 1.905-3T(c).
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      A redetermination of foreign tax paid or accrued directly 
by a U.S. person requires notification of the Internal Revenue 
Service and a redetermination of U.S. tax liability for the 
taxable year for which the foreign tax was claimed as a credit. 
Exceptions to this rule apply for de minimis amounts of foreign 
tax redetermination.109 In the case of a redetermination 
of foreign taxes that qualify for the indirect foreign tax 
credit under sections 902 and 960, taxpayers generally are 
required to make appropriate adjustments to the relevant pools 
of earnings and profits and foreign taxes.110
    \109\ Temp. Treas. Reg. sec. 1.905-3T(d)(1).
    \110\ Temp. Treas. Reg. sec. 1.905-3T(d)(2); Notice 90-26, 1990-1 
C.B. 336.
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House bill

            In general
      The House bill sets forth two sets of operating rules for 
the translation of foreign taxes. The first set establishes new 
rules for the translation of certain accrued foreign taxes. The 
other set modifies the rules of present law for translating all 
other foreign taxes.
            Translation of foreign taxes
                Translation of certain accrued foreign taxes
      The House bill permits taxpayers who utilize the accrual 
basis of accounting for determining creditable foreign taxes to 
translate their foreign taxes at the average exchange rate for 
the taxable year to which such taxes relate, provided such 
taxes are actually paid no later than the date that is 2 years 
after the close of the year to which such taxes relate. This 
rule does not apply (1) with respect to taxes of an accrual-
basis taxpayer that are actually paid in a taxable year prior 
to the year to which they relate, or (2) to tax payments that 
are denominated in a hyperinflationary currency (as defined in 
Treas. Reg. Sec. 1.985-1(b)(2)(D)(ii)). In addition, as 
discussed in detail below, this set of rules does not apply to, 
and thus a redetermination of foreign tax is required for, any 
foreign income tax paid after the date two years after the 
close of the taxable year to which such taxes relate.
      For example, assume that in year 1 a taxpayer accrues 
1,000 units of foreign tax that relate to year 1. Further 
assume that as of the end of year 1 the tax is unpaid and the 
currency involved is not hyperinflationary. In this case, the 
House bill provides that the taxpayer would translate 1,000 
units of accrued foreign tax into U.S. dollars at the average 
exchange rate for year 1.111 If the 1,000 units of tax 
were paid by the taxpayer in either year 2 or year 3, no 
redetermination of foreign tax would be required. If, any 
portion of the tax so accrued remained unpaid as of the end of 
year 3, however, the taxpayer would be required to redetermine 
its foreign tax accrued in year 1 to account for the accrued 
but unpaid tax.
    \111\ The same result would occur if the 1,000 units of tax were 
both accrued and paid in year 1.
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      As another example, assume a taxpayer accrues 1,000 units 
of foreign tax in year 2, but pays the tax in year 1. Also 
assume that the tax relates to year 2. In this case, the 
taxpayer would translate the tax using the exchange rate as of 
the time the tax is paid (i.e., using the applicable year 1 
exchange rate) since the tax is paid in a year prior to the 
year to which it relates.
      As an illustration of what is meant by the taxable year 
to which taxes relate, assume that a foreign corporation is 
charged by a foreign government with an income tax of 100 units 
for 1996. Assume that the currency involved is not 
hyperinflationary. Due to a contest between the foreign 
government and the corporation that ends in 1996, the 100 units 
of tax are not paid until 1997. Assume that under the U.S. 
rules governing accrual, the foreign tax accrues for 1996 but 
does not do so until 1997.112 Under the House bill, the 
taxes would be translated at the rate in effect for 1996, 
because the taxes relate to 1996, even though they did not 
accrue until 1997. If instead the contest was over in 1999 and 
the taxes were accrued and paid at that time, the translation 
rate used would be that of 1999, rather than 1996, because 1999 
is more than 2 years after the end of 1996. Now assume that the 
contest was over in 2001, but the taxes were deposited in 1997 
and not accrued until 2001. These taxes are paid before the 
beginning of the year in which the taxes were accrued (2001), 
but after the year to which the taxes relate (1996). In this 
case, under the House bill, the taxes would be translated at 
the rate for the year (1996) to which the taxes relate. If the 
taxes are instead paid in 1999, they would be translated at the 
relevant rate for 1999 because 1999 is more than 2 years after 
the end of 1996.
    \112\ See, e.g., Rev. Rul. 84-125, 1984-2 C.B. 125.
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      As an additional illustration of what is meant under the 
House bill as the taxable year to which taxes relate, assume 
that a foreign corporation accrues a foreign income tax of 100 
units of non-hyperinflationary currency for 1996. Further 
assume that the actual amount of foreign tax liability of the 
foreign corporation for 1996 is 110 units, all of which is paid 
in 1997. Under the House bill, the 110 units of foreign tax are 
translated at the rate in effect for 1996 because the taxes 
relate to 1996, even though the total tax liability for that 
year was not actually accrued by the taxpayer in 1996.
      Finally, assume that under foreign law, a foreign income 
tax liability accrues in 2001 under a long-term contract method 
of accounting, but advance deposits of that liability accruing 
in 2001 are made in each of the years 1997 through 2000. Under 
the House bill, it is intended that if the payments in 1997 
through 2000 are treated as relating to 2001, these payments 
are nevertheless to be translated at the relevant rates for 
1997 through 2000. Although the House bill provides a rule for 
translation of the taxes in this case, no change is intended as 
to the application of present law accounting rules for 
determining the year for which the taxes are eligible for 
credit or deduction for U.S. income tax purposes.
                Translation of all other foreign taxes
      Foreign taxes not eligible for application of the 
preceding rules generally are translated into U.S. dollars 
using the exchange rates as of the time such taxes are paid. 
The House bill grants the Secretary of the Treasury authority 
to issue regulations that would allow foreign tax payments made 
by a foreign corporation or by a foreign branch of a U.S. 
person to be translated into U.S. dollar amounts using an 
average U.S. dollar exchange rate for a specified period. It is 
anticipated that the applicable average exchange rate would be 
the rate as published by a qualified source of exchange rate 
information for the period during which the tax payments were 
made.
            Redetermination of foreign taxes
      As revised by the House bill, section 905(c) of the Code 
defines a foreign tax redetermination to include: (1) a refund 
of foreign taxes, (2) a difference between accrued taxes when 
paid and the amounts claimed as credits by the taxpayer, and 
(3) accrued taxes not paid before the date two years after the 
close of the taxable year to which such taxes relate. Thus, for 
example, the House bill provides that if at the close of the 
second taxable year after the close of the taxable year to 
which an accrued tax relates, any portion of the tax so accrued 
has not yet been paid, a foreign tax redetermination under 
section 905(c) is required for the amount representing the 
unpaid portion of that accrued tax. That is, the accrual of any 
tax that is unpaid as of that date would be retroactively 
denied. In cases where a redetermination is required, as under 
present law, the House bill specifies that the taxpayer must 
notify the Secretary, who shall redetermine the amount of the 
tax for the year or years affected.
      The House bill provides that in the case of accrued taxes 
not paid within the date two years after the close of the 
taxable year to which such taxes relate, whether or not such 
taxes were previously accrued, any such taxes if subsequently 
paid are taken into account for the taxable year in which paid, 
and no redetermination with respect to the original year of 
accrual is required on account of such payment. In such a case, 
those taxes would be translated into U.S. dollar amounts using 
the exchange rates in effect for the period during which such 
taxes are paid. Nothing in the House bill is intended to change 
present law as to the length of time after the year to which 
the redetermination relates within which redetermination may be 
made or required.113
    \113\ See section 6501(c)(5). See also, e.g., Pacific Metals Corp. 
v. Commissioner, 1 T.C. 1028 (1943); Texas Co. (Caribbean) Ltd. v. 
Commissioner, 12 T.C. 925 (1949).
---------------------------------------------------------------------------
            Effective date
      The provision is effective for taxes paid (in the case of 
taxpayers using the cash basis for determining the foreign tax 
credit) or accrued (in the case of taxpayers using the accrual 
basis for determining the foreign tax credit) in taxable years 
beginning after December 31, 1995.
      With respect to taxes of an accrual-basis taxpayer that 
relate to a taxable year beginning before January 1, 1996, the 
return for which (if one were due) would not yet be due on date 
of enactment of the House bill (taking into account extensions 
of time to file), it is contemplated that the Secretary would, 
in appropriate circumstances, provide taxpayers with a 
reasonable average-rate method for translating such taxes that 
are not paid until after the effective date of the House bill.
      The House bill's changes to the foreign tax 
redetermination rules apply to taxes which relate to taxable 
years beginning after December 31, 1995. Thus, for example, the 
redetermination rules under the House bill do not apply to a 
foreign tax that relates to a taxable year beginning in or 
before 1995, even though the tax does not properly accrue until 
a taxable year beginning after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 2. election to use simplified foreign tax credit limitation under the 
         alternative minimum tax (sec. 14422 of the house bill)

Present law

      Foreign tax credit limitations must be computed both for 
regular tax purposes and alternative minimum tax (AMT) 
purposes. Each foreign tax credit limitation computation 
requires the allocation and apportionment of deductions between 
foreign source income and U.S. source income.

House bill

      The House bill permits taxpayers to elect to use as their 
AMT foreign tax credit limitation fraction the ratio of foreign 
source regular taxable income to entire alternative minimum 
taxable income, rather than the ratio of foreign source 
alternative minimum taxable income to entire alternative 
minimum taxable income. Foreign source regular taxable income 
is used only to the extent it does not exceed entire 
alternative minimum taxable income.
      The election must be made for the first taxable year 
beginning after December 31, 1995, for which the taxpayer 
claims an AMT foreign tax credit. It is intended that a 
taxpayer be treated, for this purpose, as claiming an AMT 
foreign tax credit for any taxable year for which the taxpayer 
chooses to have the benefits of the foreign tax credit and in 
which the taxpayer is subject to the alternative minimum tax or 
would be subject to the alternative minimum tax but for the 
availability of the AMT foreign tax credit. Once made, the 
election applies to all subsequent taxable years, and may be 
revoked only with consent.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

 3. treatment of inbound and outbound transfers (secs. 14423-14424 of 
                            the house bill)

Present law

            Outbound transfers
      If a U.S. person transfers property to a foreign 
corporation in connection with certain corporate organizations, 
reorganizations, or liquidations, the foreign corporation will 
not, for purposes of determining the extent to which gain is 
recognized on such transfer, be considered to be a corporation 
(sec. 367(a)(1)). Various exceptions to the operation of this 
rule are provided, including a broad grant of authority to 
provide exceptions by regulation. Because corporate status is 
essential to qualify for the tax-free organization, 
reorganization, and liquidation provisions, failure to satisfy 
the requirements of section 367 could result in the recognition 
of gain to the participant corporations and shareholders.
      An excise tax is imposed on outbound transfers that might 
not constitute income tax recognition events even after 
imposition of the anti-avoidance income tax rule adopted for 
corporate transactions. The excise tax generally applies on 
transfers of property by a U.S. person to a foreign 
corporation--as paid-in surplus or as a contribution to 
capital--or to a foreign estate, trust, or partnership.114 
The tax is 35 percent of the amount of gain inherent in the 
property transferred, but not recognized for income tax 
purposes at the time of the transfer (sec. 1491). For income 
tax purposes, the basis of the appreciated property whose 
transfer triggers the tax is not increased to account for 
imposition of the tax.
    \114\ The Internal Revenue Service has in the past wavered on the 
question whether this tax applies to a transfer to a foreign trust with 
respect to which the transferor is treated as the owner under the 
grantor trust rules. Compare Rev. Rul. 69-450, 1969-2 C.B. 168 (holding 
that such a transfer is subject to tax under section 1491); with Rev. 
Rul. 87-61, 1987-2 C.B. 219 (revoking Rev. Rul. 69-450, and holding 
that such a transfer is not subject to tax under section 1491).
---------------------------------------------------------------------------
      The excise tax does not apply in certain cases where the 
transferee is exempt from U.S. tax under Code sections 501-505 
(sec. 1492(1)). In addition, the excise tax does not apply in 
some cases where income tax rules governing outbound transfers 
apply, either by their terms or by the election of the 
taxpayer. Thus, the excise tax does not apply to a transfer 
described in section 367, or to a transfer not described in 
section 367 but with respect to which the taxpayer elects 
(before the transfer) the application of principles similar to 
the principles of section 367 (sec. 1492(2)).
      In addition, a taxpayer may elect (under regulations 
prescribed by the Secretary) to treat a transfer described in 
section 1491 as a sale or exchange of the property transferred 
and to recognize as gain (but not loss) in the year of the 
transfer the excess of the fair market value of the property 
transferred over the adjusted basis (for determining gain) of 
the property in the hands of the transferor (sec. 1057). To the 
extent that gain is recognized pursuant to the election in the 
year of the transfer, the transfer is not subject to the excise 
tax, and the basis of the property in the hands of the 
transferee will be increased by the amount of gain recognized 
(sec. 1492(3)). The legislative history of the elective income 
recognition provision indicates that the making of an election 
which has as one of its principle purposes the avoidance of 
Federal income taxes is not permitted.115
    \115\ Staff on the Joint Committee on Taxation, 94th Cong., 2d 
Sess., General Explanation of the Tax Reform Act of 1976, at 226 
(1976).
---------------------------------------------------------------------------
      The excise tax is due at the time of the transfer (sec. 
1494(a)). Under regulations, the excise tax may be abated, 
remitted, or refunded if the taxpayer, after the transfer, 
elects the application of principles similar to the principles 
of section 367 (sec. 1494(b)).
            Inbound transfers
      Section 367(b) provides, in part, that in the case of 
certain exchanges in connection with which there is no transfer 
of property described in section 367(a)(1), a foreign 
corporation will be considered to be a corporation except to 
the extent provided in regulations which are necessary or 
appropriate to prevent the avoidance of Federal income taxes.
      Although it is clear that absence of a toll charge on 
accumulated earnings of a foreign corporation upon liquidation 
or reorganization into a U.S. corporation leads to avoidance of 
tax, and Congress in 1976 noted without disapproval the 
adoption of IRS positions that would prevent the avoidance of 
tax in these cases,116 neither section 367(b) as revised 
in 1976, nor its predecessors, were drafted in such a way that 
directly causes tax to be imposed on foreign earnings.
    \116\ E.g., id. at 264.
---------------------------------------------------------------------------
      For example, assume that a U.S. corporation owns 100 
percent of the stock of a liquidating foreign corporation, and, 
pursuant to regulations under section 367(b), the foreign 
corporation is not treated as a corporation for purposes of 
section 332. In that case, the U.S. corporation would be 
required under the Code to recognize the difference between the 
basis and the value of its stock in the foreign corporation. 
That gain, however, may be more or less than the accumulated 
earnings of the foreign corporation attributable to the period 
when the U.S. corporation owned the stock of the foreign 
corporation.
      Perhaps as a result, neither the present temporary 
regulations nor the proposed regulations under section 367(b) 
mandate a tax based on the accumulated earnings of a foreign 
corporation that liquidates or reorganizes into a U.S. 
corporation. The temporary regulations allow the taxpayer to 
elect treatment of the foreign corporation as a corporation if 
the tax on earnings is paid. If the taxpayer chooses not to 
make the election, the foreign corporation is not treated as a 
corporation under the relevant nonrecognition provision (e.g., 
sec. 332, 354), but is treated as a corporation for other 
purposes, such as for purposes of the basis rules (secs. 334, 
358, 362), and carryover provisions (sec. 381) (Temp. Treas. 
Reg. secs. 7.367(b)-5(b) and 7.367(b)-7(c)(2)). The proposed 
regulations generally require that the foreign corporation be 
treated as a corporation, and permit the taxpayer to elect 
either to pay the tax on earnings, or to pay tax on the gain; 
but if the latter option is chosen, adjustments must be made to 
either net operating loss carryovers, capital loss carryovers, 
or asset bases (Proposed Treas. Reg. sec. 1.367(b)-3(b)(2)).

House bill

            Outbound transfers
      The House bill repeals the excise tax on outbound 
transfers. In its place, the House bill requires the full 
recognition of gain on a transfer of property by a U.S. person 
to a foreign corporation as either paid-in surplus or a 
contribution to capital, or to a foreign estate, trust, or 
partnership. Under the House bill, the Secretary of the 
Treasury may, however, provide regulations under which 
principles similar to the principles of section 367 would apply 
to any such transfer in lieu of the application of the full 
recognition rule. Moreover, the Secretary may provide rules 
under which recognition of gain would not be triggered by 
section 1491 in cases where the Secretary is satisfied that 
application of other Code rules (such as those relating to 
partnerships or trusts) would prevent the avoidance of tax 
consistent with the purposes of the bill. Full recognition of 
gain is also avoided in the case of a transfer described in 
section 367. It is anticipated that, prior to the promulgation 
of regulations, the Secretary generally will continue to permit 
taxpayers to elect the application of principles similar to the 
principles of section 367, provided the election is made by the 
time for filing the income tax return for the taxable year of 
the transfer.
            Inbound transfers
      The House bill provides that in the case of certain 
corporate organizations, reorganizations, and liquidations 
described in section 332, 351, 354, 355, 356, or 361 in which 
the status of a foreign corporation as a corporation is a 
condition for nonrecognition by a party to the transaction, 
income is recognized to the extent provided in regulations 
prescribed by the Secretary which are necessary or appropriate 
to prevent the avoidance of Federal income taxes. This 
provision is limited in its application, under the House bill, 
so as not to apply to a transaction in which the foreign 
corporation is not treated as a corporation under section 
367(a)(1). Thus, the House bill permits the Secretary to 
provide by regulations for recognition of income, without 
regard to the amount of gain that would be recognized in the 
absence of the relevant nonrecognition provision listed above. 
As under current law, such regulations will be subject to 
normal court review as to whether they are necessary or 
appropriate for the prevention of avoidance of Federal income 
taxes.
      In addition, the House bill clarifies that rules for 
income recognition under section 367(b) may also be applied in 
a case involving a transfer literally described in section 
367(a)(1), where necessary or appropriate to prevent the 
avoidance of Federal income taxes.
            Effective date
      The provision applies to taxable years beginning after 
December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not contain the House bill 
provision.

4. modification of reporting threshold for stock ownership of a foreign 
               corporation (sec. 14425 of the house bill)

Present law

      Section 6046 mandates the filing of information returns 
on behalf of a foreign corporation by certain U.S. persons upon 
the occurrence of certain events. U.S. persons required to file 
these information returns include those who own or acquire 5 
percent or more of the value of the stock of a foreign 
corporation.

House bill

      The House bill increases the reporting threshold for 
stock ownership of a foreign corporation under section 6046 
from 5 percent (based on value) to 10 percent (based on vote or 
value).
      Effective date.--The provision is effective for 
reportable transactions occurring after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

5. application of uniform capitalization rules to foreign persons (sec. 
                        14426 of the house bill)

Present law

      The uniform capitalization rules, which require certain 
direct and indirect costs allocable to property to be 
capitalized or included in inventory, generally apply in 
computing taxable income and earnings and profits of domestic 
and foreign taxpayers.

House bill

      The House bill reduces the number of foreign corporations 
that are required to apply the uniform capitalization rules 
under section 263A. Under the House bill, a foreign corporation 
is subject to the uniform capitalization rules only with 
respect to the determination of (1) its tax liability with 
respect to its U.S. trade or business and (2) the tax liability 
of its U.S. shareholders under the subpart F provisions of the 
Code. However, it is intended that a foreign corporation that 
is not required to apply the uniform capitalization rules, 
under the House bill may nevertheless continue to apply such 
rules.
      Exemption from uniform capitalization rules under the 
House bill constitutes a change of the accounting method of the 
foreign corporation adopted with the consent of the Secretary 
of the Treasury. No section 481(a) adjustment will arise in 
connection with such change; instead, the ``cut-off method'' is 
applicable. Under the cut-off method, the value of the 
beginning inventory of an affected taxpayer includes amounts 
properly capitalized in a previous year under the uniform 
capitalization rules, and the taxpayer would not apply the 
uniform capitalization rules with respect to inventory acquired 
or produced during the year for which the election is in 
effect.
      Effective date.--The provision is effective for taxable 
years of the foreign corporation beginning after December 31, 
1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

   6. prizes and awards received by a nonresident alien relating to 
 amateur sports competitions held in the united states (sec. 14427 of 
                              house bill)

Present law

      Amounts received by a nonresident alien as prizes or 
awards associated with athletic competitions held in the United 
States are generally treated as services income subject to U.S. 
income tax. A limited exception is available for U.S. source 
compensation income not exceeding $3,000 if certain criteria 
are satisfied.

House bill

      The House bill treats prizes and awards received by a 
nonresident alien with respect to his or her participation in 
an amateur sports competition held within the United States as 
foreign source income if the recipient does not perform any 
services for the prize or award. Thus, the value of the prize 
or award would be exempt from U.S. income tax. For this 
purpose, ``amateur sports competition'' means any competition 
in which the only prizes awarded by the sponsors are of nominal 
value. It is intended that medals that are awarded in athletic 
competitions and that contain small amounts of precious or 
semi-precious metals, such as Olympic medals, be considered to 
be of nominal value for purposes of this provision.
      Effective date.--The provision is effective for prizes 
and awards received on or after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

7. treatment for estate tax purposes of short-term obligations held by 
             nonresident aliens (sec. 14428 of house bill)

Present law

      The United States imposes estate tax on assets of 
noncitizen nonresidents that are situated in the United States 
at the time of the individual's death. Special rules apply to 
treat certain bank deposits and debt instruments the income 
from which qualifies for the bank deposit interest exemption or 
the portfolio interest exemption as property from without the 
United States so that these items are excluded from the U.S. 
gross estate of a nonresident not a citizen of the United 
States. However, no equivalent exemption is available from the 
U.S. estate tax for obligations held by a noncitizen 
nonresident that generate short-term original issue discount 
(``OID'') despite the fact that such income also is exempt from 
U.S. income tax in the hands of the nonresident recipient.

House bill

      The House bill treats any debt obligation the income from 
which would be eligible for the exemption for short-term OID 
obligations under section 871(g)(1)(B)(I) held by a decedent on 
the date of his or her death as property situated outside of 
the United States in determining the U.S. estate tax liability 
of a nonresident not a U.S. citizen. However, a short-term OID 
obligation the income from which is effectively connected with 
a U.S. trade or business conducted by the decedent is not 
subject to this rule.
      Effective date.--The provision is effective for estates 
of decedents dying after the date of enactment.

Senate amendment

      No provision.

Conference agreement

      The conference agreement does not include the House bill 
provision.

             XV. Other Income Tax Simplification Provisions

                A. provisions relating to s corporations

1. s corporations permitted to have 75 shareholders (sec. 14501 of the 
                              house bill)

Present law

      The taxable income or loss of an S corporation is taken 
into account by the corporation's shareholders, rather than by 
the entity, whether or not such income is distributed. A small 
business corporation may elect to be treated as an S 
corporation. A ``small business corporation'' is defined as a 
domestic corporation which is not an ineligible corporation and 
which does not have (1) more than 35 shareholders, (2) as a 
shareholder, a person (other than certain trusts or estates) 
who is not an individual, (3) a nonresident alien as a 
shareholder, and (4) more than one class of stock. For purposes 
of the 35-shareholder limitation, a husband and wife are 
treated as one shareholder.

House bill

      The House bill increases maximum number of eligible 
shareholders from 35 to 75.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

    2. electing small business trusts (sec. 14502 of the house bill)

Present law

      Under present law, trusts other than grantor trusts, 
voting trusts, certain testamentary trusts and ``qualified 
subchapter S trusts'' may not be shareholders in an S 
corporation. A ``qualified subchapter S trust'' is a trust 
which, under its terms, (1) is required to have only one 
current income beneficiary (for life), (2) any corpus 
distributed during the life of the beneficiary must be 
distributed to the beneficiary, (3) the beneficiary's income 
interest must terminate at the earlier of the beneficiary's 
death or the termination of the trust, and (4) if the trust 
terminates during the beneficiary's life, the trust assets must 
be distributed to the beneficiary. All the income (as defined 
for local law purposes) must be currently distributed to that 
beneficiary. The beneficiary is treated as the owner of the 
portion of the trust consisting of the stock in the S 
corporation.

House bill

            In general
      The House bill allows stock in an S corporation to be 
held by certain trusts (''electing small business trusts''). In 
order to qualify for this treatment, all beneficiaries of the 
trust must be individuals or estates eligible to be S 
corporation shareholders, except that charitable organizations 
may hold contingent remainder interests. No interest in the 
trust may be acquired by purchase. For this purpose, 
``purchase'' means any acquisition of property with a cost 
basis (determined under sec. 1012). Thus, interests in the 
trust must be acquired by reason of gift, bequest, etc. A trust 
must elect to be treated as an electing small business trust.
      Each potential current beneficiary of the trust is 
counted as a shareholder for purposes of the proposed 75 
shareholder limitation (or if there were no potential current 
beneficiaries, the trust would be treated as the shareholder). 
A potential current income beneficiary means any person, with 
respect to the applicable period, who is entitled to, or at the 
discretion of any person may receive, a distribution from the 
principal or income of the trust.
            Treatment of items relating to S corporation stock
      The portion of the trust which consists of stock in one 
or more S corporations is treated as a separate trust for 
purposes of computing the income tax attributable to the S 
corporation stock held by the trust. The trust is taxed at the 
highest individual rate (currently, 39.6 percent on ordinary 
income and 28 percent on net capital gain) on this portion of 
the trust's income. The taxable income attributable to this 
portion includes (1) the items of income, loss, or deduction 
allocated to it as an S corporation shareholder under the rules 
of subchapter S, (2) gain or loss from the sale of the S 
corporation stock, and (3) to the extent provided in 
regulations, any state or local income taxes and administrative 
expenses of the trust properly allocable to the S corporation 
stock. Otherwise allowable capital losses are allowed only to 
the extent of capital gains.
      In computing the trust's income tax on this portion of 
the trust, no deduction is allowed for amounts distributed to 
beneficiaries, and no deduction or credit is allowed for any 
item other than the items described above. This income is not 
included in the distributable net income of the trust, and thus 
is not included in the beneficiaries' income. No item relating 
to the S corporation stock could be apportioned to any 
beneficiary.
      On the termination of all or any portion of an electing 
small business trust the loss carryovers or excess deductions 
referred to in section 642(h) is taken into account by the 
entire trust, subject to the usual rules on termination of the 
entire trust.
            Treatment of remainder of items held by trust
      In determining the tax liability with regard to the 
remaining portion of the trust, the items taken into account by 
the subchapter S portion of the trust are disregarded. Although 
distributions from the trust are deductible in computing the 
taxable income on this portion of the trust, under the usual 
rules of subchapter J, the trust's distributable net income 
does not include any income attributable to the S corporation 
stock.
            Termination of trust and conforming amendment applicable to 
                    all trusts
      Where the trust terminates before the end of the S 
corporation's taxable year, the trust takes into account its 
pro rata share of S corporation items for its final year. The 
bill makes a conforming amendment applicable to all trusts and 
estates clarifying that this is the present-law treatment of 
trusts and estates that terminate before the end of the S 
corporation's taxable year.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

3. expansion of post-death qualification for certain trusts (sec. 14503 
                             of the house)

Present law

      Under present law, trusts other than grantor trusts, 
voting trusts, certain testamentary trusts and ``qualified 
subchapter S trusts'' may not be shareholders in an S 
corporation. A grantor trust may remain an S corporation 
shareholder for 60 days after the death of the grantor. The 60-
day period is extended to two years if the entire corpus of the 
trust is includible in the gross estate of the deemed owner. In 
addition, a trust may be an S corporation shareholder for 60 
days after the transfer of S corporation pursuant to a will.

House bill

      The House bill expands the post-death holding period to 
two years for all testamentary trusts.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

  4. financial institutions permitted to hold safe harbor debt (sec. 
                        14504 of the house bill)

Present law

      A small business corporation eligible to be an S 
corporation may not have more than one class of stock. Certain 
debt (``straight debt'') is not treated as a second class of 
stock so long as such debt is an unconditional promise to pay 
on demand or on a specified date a sum certain in money if: (1) 
the interest rate (and interest payment dates) are not 
contingent on profits, the borrower's discretion, or similar 
factors; (2) there is no convertibility (directly or 
indirectly) into stock, and (3) the creditor is an individual 
(other than a nonresident alien), an estate, or certain 
qualified trusts.

House bill

      The definition of ``straight debt'' is expanded to 
include debt held by creditors, other than individuals, that 
are actively and regularly engaged in the business of lending 
money.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

  5. rules relating to inadvertent terminations and invalid elections 
                     (sec. 14505 of the house bill)

Present law

      Under present law, if the Internal Revenue Service 
(``IRS'') determines that a corporation's Subchapter S election 
is inadvertently terminated, the IRS can waive the effect of 
the terminating event for any period if the corporation timely 
corrects the event and if the corporation and shareholders 
agree to be treated as if the election had been in effect for 
that period. Such waivers generally are obtained through the 
issuance of a private letter ruling. Present law does not grant 
the IRS the ability to waive the effect of an inadvertent 
invalid Subchapter S election.
      In addition, under present law, a small business 
corporation must elect to be an S corporation no later than the 
15th day of the third month of the taxable year for which the 
election is effective. The IRS may not validate a late 
election.

House bill

      Under the House bill, the authority of the IRS to waive 
the effect of an inadvertent termination is extended to allow 
the Service to waive the effect of an invalid election caused 
by an inadvertent failure to qualify as a small business 
corporation or to obtain the required shareholder consents 
(including elections regarding qualified subchapter S trusts), 
or both. The House bill also allows the IRS to treat a late 
Subchapter S election as timely where the Service determines 
that there was reasonable cause for the failure to make the 
election timely. It is intended that the IRS be reasonable in 
exercising this authority and apply standards that are similar 
to those applied under present law to inadvertent subchapter S 
terminations and other late or invalid elections.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1982.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill. The 
conferees wish to clarify that the IRS may exercise its 
authority to treat a late election as timely in cases where the 
taxpayer never filed an election and the Service determines 
that there was reasonable cause for the failure to make the 
election.

     6. agreement to terminate year (sec. 14506 of the house bill)

Present law

      In general, each item of S corporation income, deduction 
and loss is allocated to shareholders on a per-share, per-day 
basis. However, if any shareholder terminates his or her 
interest in an S corporation during a taxable year, the S 
corporation, with the consent of all its shareholders, may 
elect to allocate S corporation items by closing its books as 
of the date of such termination rather than apply the per-
share, per-day rule.

House bill

      The House bill provides that, under regulations to be 
prescribed by the Secretary of the Treasury, the election to 
close the books of the S corporation upon the termination of a 
shareholder's interest is made by all affected shareholders and 
the corporation, rather than by all shareholders. The closing 
of the books applies only to the affected shareholders. For 
this purpose, ``affected shareholders'' means any shareholder 
whose interest is terminated and all shareholders to whom such 
shareholder has transferred shares during the year. If a 
shareholder transferred shares to the corporation, ``affected 
shareholders'' includes all persons who were shareholders 
during the year.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.

Senate amendment

      No provision.

Conference agreement

      The conference agreement follows the House bill.

 7. expansion of post-termination transition period (sec. 14507 of the 
                              house bill)

Present law

      Distributions made by a former S corporation during its 
post-termination period are treated in the same manner as if 
the distributions were made by an S corporation (e.g., treated 
by shareholders as nontaxable distributions to the extent of 
the accumulated adjustment account). Distributions made after 
the post-termination period are generally treated as made by a 
C corporation (i.e., treated by shareholders as taxable 
dividends to the extent of earnings and profits).
      The ``post-termination period'' is the period beginning 
on the day after the last day of the last taxable year of the S 
corporation and ending on the later of: (1) a date that is one 
year later, or (2) the due date for filing the return for the 
last taxable year and the 120-day period beginning on the date 
of a determination that the corporation's S corporation 
election had terminated for a previous taxable year.
      In addition, the audit procedures adopted by the Tax 
Equity and Fiscal Responsibility Act of 1982 (``TEFRA'') with 
respect to partnerships also apply to S corporations. Thus, the 
tax treatment of items is determined at the corporate, rather 
than individual level.

House bill

      The present-law definition of post-termination period is 
expanded to include the 120-day period beginning on the date of 
any determination pursuant to an audit of the taxpayer that 
follows the termination of the S corporation's election and 
that adjusts a subchapter S item of income, loss or deduction 
of the S corporation during the S period. In addition, the 
definition of ``determination'' is expanded to include a final 
disposition of the Secretary of the Treasury of a claim for 
refund and, under regulations, certain agreements between the 
Secretary and any person, relating to the tax liability of the 
person.
      In addition, the House bill repeals the TEFRA audit 
provisions applicable to S corporations and would provide other 
rules to require consistency between the returns of the S 
corporation and its shareholders.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  8. s corporations permitted to hold subsidiaries (sec. 14508 of the 
                              house bill)

Present law
      A small business corporation may not be a member of an 
affiliated group of corporations (other than by reason of 
ownership in certain inactive corporations). Thus, an S 
corporation may not own 80 percent or more of the stock of 
another corporation (whether an S corporation or a C 
corporation).
      In addition, a small business corporation may not have as 
a shareholder another corporation (whether an S corporation or 
a C corporation).
House bill
      An S corporation is allowed to own 80 percent or more of 
the stock of a C corporation. The C corporation subsidiary 
could elect to join in the filing of a consolidated return with 
its affiliated C corporations. An S corporation is not allowed 
to join in such election. Dividends received by an S 
corporation from a C corporation in which the S corporation has 
an 80 percent or greater ownership stake is not treated as 
passive investment income for purposes of sections 1362 and 
1375 to the extent the dividends are attributable to the 
earnings and profits of the C corporation derived from the 
active conduct of a trade or business.
      In addition, an S corporation is allowed to own a 
qualified subchapter S subsidiary. The term ``qualified 
subchapter S subsidiary'' means a domestic corporation that is 
not an ineligible corporation (i.e., a corporation that would 
be eligible to be an S corporation if the stock of the 
corporation were held directly by the shareholders of its 
parent S corporation) if (1) 100 percent of the stock of the 
subsidiary were held by its S corporation parent and (2) for 
which the parent elects to treat as a qualified subchapter S 
subsidiary. Under the election, the qualified subchapter S 
subsidiary is not treated as a separate corporation and all the 
assets, liabilities, and items of income, deduction, and credit 
of the subsidiary are treated as the assets, liabilities, and 
items of income, deduction, and credit of the parent S 
corporation.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  9. treatment of distributions during loss years (sec. 14509 of the 
                              house bill)

Present law
      Under present law, the amount of loss an S corporation 
shareholder may take into account for a taxable year cannot 
exceed the sum of the shareholder's adjusted basis in his or 
her stock of the corporation and the adjusted basis in any 
indebtedness of the corporation to the shareholder. Any excess 
loss is carried forward.
      Any distribution to a shareholder by an S corporation 
generally is tax-free to the shareholder to the extent of the 
shareholder's adjusted basis of his or her stock. The 
shareholder's adjusted basis is reduced by the tax-free amount 
of the distribution. Any distribution in excess of the 
shareholder's adjusted basis is treated as gain from the sale 
or exchange of property.
      Under present law, income (whether or not taxable) and 
expenses (whether or not deductible) serve, respectively, to 
increase and decrease an S corporation shareholder's basis in 
the stock of the corporation. These rules require that the 
adjustments to basis for items of both income and loss for any 
taxable year apply before the adjustment for distributions 
applies.
      These rules limiting losses and allowing tax-free 
distributions up to the amount of the shareholder's adjusted 
basis are similar in certain respects to the rules governing 
the treatment of losses and cash distributions by partnerships. 
Under the partnership rules (unlike the S corporation rules), 
for any taxable year, a partner's basis is first increased by 
items of income, then decreased by distributions, and finally 
is decreased by losses for that year.
      In addition, if the S corporation has accumulated 
earnings and profits, any distribution in excess of the amount 
in an ``accumulated adjustments account'' will be treated as a 
dividend (to the extent of the accumulated earnings and 
profits). A dividend distribution does not reduce the adjusted 
basis of the shareholder's stock. The ``accumulated adjustments 
account'' generally is the amount of the accumulated 
undistributed post-1982 gross income less deductions.
House bill
      The House bill provides that the adjustments for 
distributions made by an S corporation during a taxable year 
are taken into account before applying the loss limitation for 
the year. Thus, distributions during a year reduce the adjusted 
basis for purposes of determining the allowable loss for the 
year, but the loss for a year does not reduce the adjusted 
basis for purposes of determining the tax status of the 
distributions made during that year.
      The House bill also provides that in determining the 
amount in the accumulated adjustment account for purposes of 
determining the tax treatment of distributions made during a 
taxable year by an S corporation having accumulated earnings 
and profits, net negative adjustments (i.e., the excess of 
losses and deductions over income) for that taxable year are 
disregarded.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

 10. treatment of s corporations under subchapter c (sec. 14510 of the 
                              house bill)

Present law
      Present law contains several provisions relating to the 
treatment of S corporations as corporations generally for 
purposes of the Internal Revenue Code.
      First, under present law, the taxable income of an S 
corporation is computed in the same manner as in the case of an 
individual (sec. 1363(b)). Under this rule, the provisions of 
the Code governing the computation of taxable income which are 
applicable only to corporations, such as the dividends received 
deduction, do not apply to S corporations.
      Second, except as otherwise provided by the Internal 
Revenue Code and except to the extent inconsistent with 
subchapter S, subchapter C (i.e., the rules relating to 
corporate distributions and adjustments) applies to an S 
corporation and its shareholders (sec. 1371(a)(1)). Under this 
second rule, provisions such as the corporate reorganization 
provisions apply to S corporations. Thus, a C corporation may 
merge into an S corporation tax-free.
      Finally, an S corporation in its capacity as a 
shareholder of another corporation is treated as an individual 
for purposes of subchapter C (sec. 1371(a)(2)). In 1988, the 
Internal Revenue Service took the position that this rule 
prevents the tax-free liquidation of a C corporation into an S 
corporation because a C corporation cannot liquidate tax-free 
when owned by an individual shareholder.117 In 1992, the 
Internal Revenue Service reversed its position, stating that 
the prior ruling was incorrect.118
    \117\ PLR 8818049 (Feb. 10, 1988).
    \118\ PLR 9245004 (July 28, 1992).
---------------------------------------------------------------------------
House bill
      The House bill repeals the rule that treats an S 
corporation in its capacity as a shareholder of another 
corporation as an individual. Thus, the provision clarifies 
that the liquidation of a C corporation into an S corporation 
will be governed by the generally applicable subchapter C 
rules, including the provisions of sections 332 and 337 
allowing the tax-free liquidation of a corporation into its 
parent corporation. Following a tax-free liquidation, the 
built-in gains of the liquidating corporation may later be 
subject to tax under section 1374 upon a subsequent 
disposition. An S corporation also will be eligible to make a 
section 338 election (assuming all the requirements are 
otherwise met), resulting in immediate recognition of all the 
acquired C corporation's gains and losses (and the resulting 
imposition of a tax).
      The repeal of this rule does not change the general rule 
governing the computation of income of an S corporation. For 
example, it does not allow an S corporation, or its 
shareholders, to claim a dividends received deduction with 
respect to dividends received by the S corporation, or to treat 
any item of income or deduction in a manner inconsistent with 
the treatment accorded to individual taxpayers.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  11. elimination of certain earnings and profits (sec. 14511 of the 
                              house bill)

Present law
      Under present law, the accumulated earnings and profits 
of a corporation are not increased for any year in which an 
election to be treated as an S corporation is in effect. 
However, under the subchapter S rules in effect before revision 
in 1982, a corporation electing subchapter S for a taxable year 
increased its accumulated earnings and profits if its earnings 
and profits for the year exceeded both its taxable income for 
the year and its distributions out of that year's earnings and 
profits. As a result of this rule, a shareholder may later be 
required to include in his or her income the accumulated 
earnings and profits when it is distributed by the corporation. 
The 1982 revision to subchapter S repealed this rule for 
earnings attributable to taxable years beginning after 1982 but 
did not do so for previously accumulated S corporation earnings 
and profits.
House bill
      The House bill provides that if a corporation is an S 
corporation for its first taxable year beginning after December 
31, 1995, the accumulated earnings and profits of the 
corporation as of the beginning of that year is reduced by the 
accumulated earnings and profits (if any) accumulated in any 
taxable year beginning before January 1, 1983, for which the 
corporation was an electing small business corporation under 
subchapter S. Thus, such a corporation's accumulated earnings 
and profits are solely attributable to taxable years for which 
an S election was not in effect. This rule is generally 
consistent with the change adopted in 1982 limiting the S 
shareholder's taxable income attributable to S corporation 
earnings to his or her share of the taxable income of the S 
corporation.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  12. carryover of disallowed losses and deductions under the at-risk 
                  rules (sec. 14512 of the house bill)

Present law
      Under section 1366, the amount of loss an S corporation 
shareholder may take into account cannot exceed the sum of the 
shareholder's adjusted basis in his or her stock of the 
corporation and the unadjusted basis in any indebtedness of the 
corporation to the shareholder. Any disallowed loss is carried 
forward to the next taxable year. Any loss that is disallowed 
for the last taxable year of the S corporation may be carried 
forward to the post-termination period. The ``post-termination 
period'' is the period beginning on the day after the last day 
of the last taxable year of the S corporation and ending on the 
later of: (1) a date that is one year later, or (2) the due 
date for filing the return for the last taxable year and the 
120-day period beginning on the date of a determination that 
the corporation's S corporation election had terminated for a 
previous taxable year.
      In addition, under section 465, a shareholder of an S 
corporation may not deduct losses that are flowed through from 
the corporation to the extent the shareholder is not ``at-
risk'' with respect to the loss. Any loss not deductible in one 
taxable year because of the at-risk rules is carried forward to 
the next taxable year.
House bill
      Losses of an S corporation that are suspended under the 
at-risk rules of section 465 are carried forward to the S 
corporation's post-termination period.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

13. adjustments to basis of inherited S stock to reflect certain items 
                of income (sec. 14513 of the house bill)

Present law
      Income in respect to a decedent (``IRD'') generally 
consists of items of gross income that accrued during the 
decedent's lifetime but were not includible in the decedent's 
income before his or her death under his or her method of 
accounting. IRD is includible in the income of the person 
acquiring the right to receive such item. A deduction for the 
estate tax attributable to an item of IRD is allowed to such 
person (sec. 691(c)). The cost or basis of property acquired 
from a decedent is its fair market value at the date of death 
(or alternate valuation date if that date is elected for estate 
tax purposes). This basis is often referred to as a ``stepped-
up basis.'' Property that constitutes a right to receive IRD 
does not receive a stepped-up basis.
      The basis of a partnership interest or corporate stock 
acquired from a decedent generally is stepped-up at death. 
Under Treasury regulations, the basis of a partnership interest 
acquired from a decedent is reduced to the extent that its 
value is attributable to items constituting IRD (Treas. reg. 
sec. 1.742-1). This rule insures that the items of IRD held by 
a partnership are not later offset by a loss arising from a 
stepped-up basis. Although S corporation income is taxed to its 
shareholders in a manner similar to the taxation of a 
partnership and its partners, no comparable regulation requires 
a reduction in the basis of stock in an S corporation acquired 
from a decedent where the S corporation holds items of IRD.
House bill
      The House bill provides that a person acquiring stock in 
an S corporation from a decedent would treat as IRD his or her 
pro rata share of any item of income of the corporation that 
would have been IRD if that item had been acquired directly 
from the decedent. Where an item is treated as IRD, a deduction 
for the estate tax attributable to the item generally will be 
allowed under the provisions of section 691(c). The stepped-up 
basis in the stock in an S corporation acquired from a decedent 
is reduced by the extent to which the value of the stock is 
attributable to items consisting of IRD. This basis rule is 
comparable to the present-law partnership rule.
      Effective date.--The provision applies with respect to 
decedents dying after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

   14. s corporations eligible for rules applicable to real property 
subdivided for sale by noncorporate taxpayers (sec. 14514 of the house 
                                 bill)

Present law
      Under present-law section 1237, a lot or parcel of land 
held by a taxpayer other than a corporation generally is not 
treated as ordinary income property solely by reason of the 
land being subdivided if: (1) such parcel had not previously 
been held as ordinary income property and if in the year of 
sale, the taxpayer did not hold other real property; (2) no 
substantial improvement has been made on the land by the 
taxpayer, a related party, a lessee, or a government; and (3) 
the land has been held by the taxpayer for five years.
House bill
      The House bill allows the present-law capital gains 
presumption in the case of land held by an S corporation. It is 
expected that rules similar to the attribution rules for 
partnerships will apply to S corporation (Treas. reg. sec. 
1.1237-1(b)(3)).
      Effective date.--The provision is effective for sales in 
taxable years beginning after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

   15. reelecting subchapter s status (sec. 14515 of the house bill)

Present law
      A small business corporation that terminates its 
subchapter S election (whether by revocation or otherwise) may 
not make another election to be an S corporation for five 
taxable years unless the Secretary of the Treasury consents to 
such election.
House bill
      For purposes of the five-year rule, any termination of 
subchapter S status in effect immediately before the date of 
enactment of the proposal is not be taken into account. Thus, 
any small business corporation that had terminated its S 
corporation election within the five-year period before the 
date of enactment may re-elect subchapter S status upon 
enactment of the bill without the consent of the Secretary of 
the Treasury.
      Effective date.--The provision is effective upon the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

B. Provisions Relating to Regulated Investment Companies (``RICs'') and 
               Real Estate Investment Trusts (``REITS'')

1. Repeal the short-short test for regulated investment companies (sec. 
                        14521 of the House bill)

Present law
      A regulated investment company (``RIC'') generally is 
treated as a conduit for Federal income tax purposes.
      Among other requirements, to be a RIC a corporation must 
derive less than 30 percent of its gross income from the sale 
or disposition of certain investments (including stock, 
securities, options, futures, and forward contracts) held less 
than three months (the ``short-short test'').
House bill
      The House bill repeals the short-short test.
      Effective date.--Taxable years ending after the date of 
enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  2. Modifications of rules for real estate investment trusts (secs. 
                     14531-14543 of the House bill)

Present law
      In general, a real estate investment trust (``REIT'') is 
an entity that receives most of its income from passive real 
estate related investments and that receives conduit treatment 
for income that is distributed to shareholders.
            Election to be treated as a REIT
      A newly-electing entity generally cannot have earnings 
and profits accumulated from any year in which the entity was 
in existence and not treated as a real estate investment trust. 
To satisfy this requirement, the entity must distribute, during 
its first REIT taxable year, any earnings and profits that were 
accumulated in non-REIT years. For this purpose, distributions 
by the entity generally are treated as being made from the most 
recently accumulated earnings and profits.
            Taxation of REITs
      Capital gains.--A REIT that has a net capital gain for a 
taxable year generally is subject to tax on such capital gain 
under the capital gains tax regime generally applicable to 
corporations. However, a REIT may diminish or eliminate its tax 
liability attributable to such capital gain by paying a 
``capital gain dividend'' to its shareholders. Shareholders who 
receive capital gain dividends treat the amount of such 
dividends as long-term capital gain regardless of their holding 
period of the stock.
      Income from foreclosure property.--In addition to tax on 
its REIT taxable income, a REIT is subject to tax at the 
highest rate of tax paid by corporations on its net income from 
foreclosure property. Foreclosure property is any real property 
or personal property incident to such real property that is 
acquired by a REIT as a result of default or imminent default 
on a lease of such property or indebtedness secured by such 
property, provided that (unless acquired as foreclosure 
property), such property was not held by the REIT for sale to 
customers. A property generally may be treated as foreclosure 
property for a period of two years after the date the property 
is acquired by the REIT.
      Income or loss from prohibited transactions.--A 100-
percent tax is imposed on the net income of a REIT from 
``prohibited transactions.'' A prohibited transaction is the 
sale or other disposition of property described in section 
1221(1) of the Code (property held for sale in the ordinary 
course of a trade or business) other than foreclosure property. 
A safe harbor is provided for certain sales that otherwise 
might be considered prohibited transactions. The safe harbor is 
limited to seven or fewer sales a year or, alternatively, any 
number of sales provided that the aggregate adjusted basis of 
the property sold does not exceed 10 percent of the aggregate 
basis of all the REIT's assets at the beginning of the REIT's 
taxable year.
            Organizational structure requirements
      To qualify as a REIT, an entity must be for its entire 
taxable year a corporation or an unincorporated trust or 
association that would be taxable as a domestic corporation but 
for the REIT provisions, and must be managed by one or more 
trustees. Except for the first taxable year for which an entity 
elects to be a REIT, the beneficial ownership of the entity 
must be held by 100 or more persons, and the entity may not be 
so closely held by individuals that it would be treated as a 
personal holding company. A REIT is disqualified for any year 
in which it does not comply with regulations to ascertain the 
actual ownership of the REIT's outstanding shares.
            Income requirements
      In general.--In order for an entity to qualify as a REIT, 
at least 95 percent of its gross income generally must be 
derived from certain passive sources (the ``95-percent test''). 
In addition, at least 75 percent of its income generally must 
be from certain real estate sources (the ``75-percent test''), 
including rents from real property.
      In addition, less than 30 percent of the entity's gross 
income may be derived from gain from the sale or other 
disposition of stock or securities held for less than one year, 
real property held less than four years, and property that is 
sold or disposed of in a prohibited transaction.
      Definition of rents.--For purposes of the income 
requirements, rents from real property generally include rents 
from interests in real property, charges for services 
customarily rendered or furnished in connection with the rental 
of real property, whether or not such charges are separately 
stated, and rent attributable to personal property that is 
leased under or in connection with a lease of real property, 
but only if the rent attributable to such personal property 
does not exceed 15 percent of the total rent for the year under 
the lease.
      Hedging instruments.--Interest rate swaps or cap 
agreements that protect a REIT from interest rate fluctuations 
on variable rate debt incurred to acquire or carry real 
property are treated as securities under the 30-percent test 
and payments under these agreements are treated as qualifying 
under the 95-percent test.
            Asset requirements
      REIT subsidiaries.--A subsidiary of a REIT is a qualified 
REIT subsidiary if and only if 100 percent of the subsidiary's 
stock is owned by the REIT at all times that the subsidiary is 
in existence. If at any time the REIT ceases to own 100 percent 
of the stock of the subsidiary, or if the REIT ceases to 
qualify for (or revokes an election of) REIT status, such 
subsidiary is treated as a new corporation that acquired all of 
its assets in exchange for its stock (and assumption of 
liabilities) immediately before the time that the REIT ceased 
to own 100 percent of the subsidiary's stock, or ceased to be a 
REIT as the case may be.
            Distribution requirements
      To satisfy the distribution requirement, a REIT must 
distribute as dividends to its shareholders during the taxable 
year an amount equal to or exceeding (1) the sum of 95 percent 
of its REIT other than net capital gain income and 95 percent 
of the excess of its net income from foreclosure property over 
the tax imposed on that income minus (2) certain excess noncash 
income.
      Excess noncash items include: (1) the excess of the 
amounts that the REIT is required to include in income under 
section 467 with respect to certain rental agreements involving 
deferred rents, over the amounts that the REIT otherwise would 
recognize under its regular method of accounting; (2) in the 
case of a REIT using the cash method of accounting, the excess 
of the amount of original issue discount and coupon interest 
that the REIT is required to take into account with respect to 
a loan to which section 1274 applies, over the amount of money 
and fair market value of other property received with respect 
to the loan; and (3) income arising from the disposition of a 
real estate asset in certain transactions that failed to 
qualify as like-kind exchanges under section 1031.
House bill
            Election to be treated as a REIT
      The House bill changes the ordering rule for purposes of 
the requirement that newly-electing REITs distribute earnings 
and profits that were accumulated in non-REIT years. Under the 
House bill, distributions of accumulated earnings and profits 
generally would be treated as made from the entity's earliest 
accumulated earnings and profits.
            Taxation of REITs
      Capital gains.--The House bill permits a REIT to elect to 
retain and pay income tax on net long-term capital gains it 
received during the tax year.
      Income from foreclosure property.--The House bill 
lengthens the original grace period for foreclosure property 
until the last day of the third full taxable year following the 
election. The grace period also could be extended for an 
additional three years by filing a request to the IRS. Under 
the House bill, a REIT could revoke an election to treat 
property as foreclosure property for any taxable year by filing 
a revocation on or before its due date for filing its tax 
return.
      The House bill conforms the definition of independent 
contractor for purposes of the foreclosure property rule to the 
definition of independent contractor for purposes of the 
general rules.
      Income or loss from prohibited transactions.--The House 
bill excludes from the prohibited sales rules property that was 
involuntarily converted.
            Organizational structure requirements
      The House bill replaces the rule that disqualifies a REIT 
for any year in which the REIT failed to comply with 
regulations to ascertain its ownership, with an intermediate 
penalty for failing to do so. Under the House bill, the penalty 
is $25,000 ($50,000 for intentional violations) for any year in 
which the REIT did not comply with the ownership regulations.
      In addition, a REIT that complied with the regulations 
for ascertaining its ownership, and which did not know, or have 
reason to know, that it was so closely held as to be classified 
as a personal holding company, is not to be treated as a 
personal holding company.
            Income requirements
      In general.--The House bill repeals the rule that 
requires less than 30 percent of a REIT's gross income be 
derived from gain from the sale or other disposition of stock 
or securities held for less than one year, certain real 
property held less than four years, and property that is sold 
or disposed of in a prohibited transaction.
      Definition of rents.--The House bill permits a REIT to 
render a de minimis amount of impermissible services to 
tenants, or in connection with the management of property, and 
still treat amounts received with respect to that property as 
rent.
      The House bill modifies the attribution to partnerships 
for purposes of defining rent, so that attribution would occur 
only when a partner owns a 25 percent or greater interest in 
the partnership.
      Hedging instruments.--Under the House bill, income from 
all hedges that reduce the interest rate risk of REIT 
liabilities, not just from interest rate swaps and caps, is 
treated as qualifying under the 95-percent test.
            Asset requirements
      REIT subsidiaries.--The House bill permits any wholly-
owned corporation of a REIT to be treated as a qualified 
subsidiary, regardless of whether the corporation had always 
been owned by the REIT. In addition, any pre-REIT earnings and 
profits of the subsidiary must be distributed before the end of 
the REIT's taxable year.
            Distribution requirements
      The House bill (1) expands the class of excess noncash 
items to include income from the cancellation of indebtedness 
and (2) extends the treatment of original issue discount and 
coupon interest as excess noncash items to REITs that use an 
accrual method of taxation.
      Effective date.--Taxable years beginning after the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provisions.

                        C. Accounting Provisions

1. Modifications to the look-back method for long-term contracts (sec. 
                        14551 of the House bill)

Present law
      Taxpayers engaged in the production of property under a 
long-term contract generally must compute income from the 
contract under the percentage of completion method. Under the 
percentage of completion method, a taxpayer must include in 
gross income for any taxable year an amount that is based on 
the product of (1) the gross contract price and (2) the 
percentage of the contract completed as of the end of the year. 
The percentage of the contract completed as of the end of the 
year is determined by comparing costs incurred with respect to 
the contract as of the end of the year with estimated total 
contract costs.
      Because the percentage of completion method relies upon 
estimated, rather than actual, contract price and costs to 
determine gross income for any taxable year, a ``look-back 
method'' is applied in the year a contract is completed in 
order to compensate the taxpayer (or the Internal Revenue 
Service) for the acceleration (or deferral) of taxes paid over 
the contract term. The first step of the look-back method is to 
reapply the percentage of completion method using actual 
contract price and costs rather than estimated contract price 
and costs. The second step generally requires the taxpayer to 
recompute its tax liability for each year of the contract using 
gross income as reallocated under the look-back method. If 
there is any difference between the recomputed tax liability 
and the tax liability as previously determined for a year, such 
difference is treated as a hypothetical underpayment or 
overpayment of tax to which the taxpayer applies a rate of 
interest equal to the overpayment rate, compounded daily. The 
taxpayer receives (or pays) interest if the net amount of 
interest applicable to hypothetical overpayments exceeds (or is 
less than) the amount of interest applicable to hypothetical 
underpayments. The look-back method must be reapplied for any 
item of income or cost that is properly taken into account 
after the completion of the contract.
House bill
      The House bill provides that a taxpayer may elect not to 
apply the look-back method with respect to a long-term contract 
if for each prior contract year, the cumulative taxable income 
(or loss) under the contract as determined using estimated 
contract price and costs is within 10 percent of the cumulative 
taxable income (or loss) as determined using actual contract 
price and costs. The bill also provides that a taxpayer may 
elect not to reapply the look-back method with respect to a 
contract if, as of the close of any taxable year after the year 
the contract is completed, the cumulative taxable income (or 
loss) under the contract is within 10 percent of the cumulative 
look-back income (or loss) as of the close of the most recent 
year in which the look-back method was applied (or would have 
applied but for the other de minimis exception described 
above). Finally, the bill reduces the number of interest rates 
applicable under the look-back method.
      Effective date.--The provision applies to contracts 
completed in taxable years ending after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

   2. Application of mark-to-market accounting method to traders in 
               securities (sec. 14552 of the House bill)

Present law
      A dealer in securities must compute its income pursuant 
to a ``mark-to-market'' method of accounting prescribed by 
section 475. Under section 475, any security that is inventory 
in the hands of a dealer must be included in inventory at its 
fair market value and any security that is that is not 
inventory in the hands of a dealer and that is held at year end 
shall be treated as sold for its fair market value. For this 
purpose, a ``dealer in securities'' is any person who (1) 
regularly purchases securities from or sells securities to 
customers in the ordinary course of a trade or business, or (2) 
regularly offers to enter into, assume, offset, assign or 
otherwise terminate positions in securities with customers in 
the ordinary course of a trade or business.
      Traders in securities generally are taxpayers who derive 
their income principally from the active sale or exchange of 
securities on the market (rather than to customers, as in the 
case of a dealer in securities). Section 475 does not 
explicitly apply to traders in securities. In general, there 
are no specific statutory provisions that mandate the use of an 
overall method of accounting by traders. Thus, traders 
generally account for gains and losses on trading securities 
when the securities are sold, rather than marking the 
securities to market, for Federal income tax purposes.
House bill
      The House bill provides that a trader in securities may, 
with the consent of the Secretary of the Treasury, elect to 
change its method of accounting to adopt a mark-to-market 
method for its trading activities. Such method may be based on 
the provisions of present-law section 475, modified to clearly 
reflect the income of the taxpayer. The adoption of a mark-to-
market method of accounting may not change the character of the 
gain or loss with respect to the securities.
      Effective date.--The provision is effective for taxable 
years ending on or after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  3. Modification of ruling amounts for nuclear decommissioning costs 
                     (sec. 14553 of the House bill)

Present law
      Under the economic performance rules, a deduction for 
accrual basis taxpayers generally is deferred until there is 
economic performance for the item for which the deduction is 
claimed (sec. 461(h)). Present law contains an exception to the 
economic performance rules under which a taxpayer responsible 
for nuclear power plant decommissioning may elect to deduct 
contributions made to a qualified nuclear decommissioning fund 
(sec. 468A).
      A qualified decommissioning fund is a segregated fund 
established by the taxpayer that is used exclusively for the 
payment of decommissioning costs, taxes on fund income, payment 
of management costs of the fund, and investment in certain 
types of investments. Contributions to the fund are deductible 
in the year made to the extent that these amounts were 
collected as part of the cost of service to ratepayers. 
Withdrawals of funds by the taxpayer to pay for decommissioning 
expenses are included in income at that time, but the taxpayer 
also is entitled to a deduction at that time for 
decommissioning expenses as economic performance for those 
costs occurs. A 20-percent tax rate applies to the taxable 
income of the fund.
      In order to prevent accumulations of funds over the 
remaining life of the plant in excess of those required to pay 
future decommissioning costs and to ensure that contributions 
to the funds are not deducted more rapidly than level funding, 
taxpayers are required to obtain a ruling from the IRS to 
establish the maximum contribution that may be made to the 
fund. Taxpayers are required to obtain subsequent rulings to 
reflect changes in the ruling amount in certain instances.
House bill
      The House bill repeals the requirement that a taxpayer 
obtain certain rulings from the IRS in order to deduct 
contributions to a nuclear decommissioning fund. Under the 
House bill, a taxpayer is required to obtain an initial ruling 
to determine its maximum deduction for contributions to a fund, 
but is not required to obtain subsequent rulings if such 
amounts are not substantially modified. The taxpayer is 
required to notify the Secretary of the Treasury whenever the 
ruling amount is modified.
      Effective date.--The provision applies to modifications 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

    4. Election of alternative taxable years by partnerships and S 
              corporations (sec. 14554 of the House bill)

Present law
      The taxable income of a partnership or an S corporation 
(a ``flow-thru entity'') generally is reported by the 
partnership's partners or the corporation's shareholders (the 
``owners'') in the taxable year within which the taxable year 
of the flow-thru entity ends. As a result, if a flow-thru 
entity uses a taxable year that is the same as the taxable year 
of its owners, the owners will report income earned by the 
entity in the year that the income is earned. If a flow-thru 
entity uses a taxable year that is different than the taxable 
year of its owners, the owners will defer reporting a portion 
of the income earned by the entity until the year following the 
year the income was earned. In order to avoid this deferral, 
under present law, a flow-through entity generally must use a 
taxable year that corresponds to the taxable years of its 
owners (i.e., generally, the calendar year in the case of an 
entity owned by individuals).
      However, under certain circumstances, deferral through 
use of a fiscal year is permitted (sec. 444). A flow-thru 
entity may use a fiscal year that it used prior to 1987 or a 
fiscal year that provides up to a 3-month deferral so long as 
it makes a payment equal to the income attributable to the 
deferral period times the highest individual tax rate plus 1 
percentage point (currently, 40.6 percent). Such payments 
remain on deposit and may be refunded if the income of the 
entity for the deferral period diminishes or the entity 
abandons its fiscal year (sec. 7519).
House bill
      The House bill allows any flow-thru entity to use a 
fiscal year so long as the entity makes quarterly estimated tax 
payments at an applicable rate. These estimated tax payments 
are treated as estimated tax payments of the owners of the 
flow-thru entity for the owners' taxable year in which the 
fiscal year ends. Estimated tax payments are not required for a 
taxable year if the amount of aggregate payments otherwise due 
is $5,000 or less.
      In determining its quarterly estimated tax payments, the 
entity may use (1) the 100-percent method, (2) the 110-percent 
method, or (3) the annualization method. Under the 100-percent 
method, the required quarterly installment is one-quarter of 
the product of the entity's applicable income for the current 
year and the applicable rate. Under the 110-percent method, the 
required quarterly installment is one-quarter of 110 percent of 
the product of the entity's applicable income for the preceding 
year and the applicable rate. The 110-percent method is not 
available if the entity's current year applicable income 
exceeds its preceding-year applicable income by more than 
$750,000. Under the annualization method, the required 
quarterly installment is one-quarter of the product of the 
entity's annualized applicable income and the applicable rate. 
``Applicable income'' is determined by taking the entity's 
items into account under subchapter K or S, as the case may be, 
with certain adjustments. The ``applicable rate'' is 34 
percent, unless the flow-thru entity is a ``high income average 
entity,'' in which case the applicable rate is 39.6 percent. A 
``high average income entity'' is one where the average 
applicable income of the 2-percent owners for the preceding 
year was at least $250,000 or, in the case of a partnership, 
the applicable income for the preceding year was at least 
$10,000,000.
      A flow-thru entity is not allowed to make a new election 
under present-law section 444. An entity that currently has a 
section 444 election in effect may (1) retain the election or 
(2) revoke the election and receive a refund of its deposit, or 
(3) make a new section 444 election and treat its deposit as a 
payment of estimated tax under the provision.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 1996.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                     D. Tax-Exempt Bond Provisions

   1. Repeal of $100,000 limitation on unspent proceeds under 1-year 
          exception from rebate (sec. 14561 of the House bill)

Present law
      Generally, arbitrage profits from investing bond proceeds 
in investments unrelated to the governmental purpose of the 
borrowing must be rebated to the Federal Government. No rebate 
is required six months after issuance by issuers of certain 
governmental bonds and qualified 501(c)(3) bonds if (1) all 
proceeds other than an amount not exceeding the lesser of five 
percent or $100,000 are spent within six months and (2) the 
remaining proceeds are spent within one year after the bonds 
are issued.
House bill
      The House bill repeals the $100,000 limit on proceeds 
that may remain unspent after six months for certain 
governmental and qualified 501(c)(3) bonds.
      Effective date.--Bonds issued after the date of 
enactment.
Senate agreement
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

 2. Exception from rebate for earnings on bona fide debt service fund 
      under construction bond rules (sec. 14562 of the House bill)

Present law
      In general, arbitrage profits from investing bond 
proceeds in investments unrelated to the governmental purpose 
of the borrowing must be rebated to the Federal Government. An 
exception is provided for certain construction bond issues if 
the available construction proceeds of the issue are spent at 
minimum specified rates during the 24-month period after the 
bonds are issued. The exception does not apply to bond proceeds 
invested after the 24-month expenditure period as part of a 
bona fide debt service fund.
House bill
      The House bill exempts earnings on bond proceeds invested 
in bona fide debt service funds from the arbitrage rebate 
requirement and the penalty requirement of the 24-month 
exception if the spending requirements of that exception are 
otherwise satisfied.
      Effective date.--Bonds issued after the date of 
enactment.
Senate agreement
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  3. Repeal of debt service-based limitation on investment in certain 
         nonpurpose investments (sec. 14563 of the House bill)

Present law
      With certain exceptions, present law limits the amount of 
the proceeds of private activity bonds (other than qualified 
501(c)(3) bonds) that may be invested at materially higher 
yields at any time during a bond year to 150 percent of the 
debt service for that bond year. (Any profits earned from 
higher yielding investments generally must be rebated to the 
Federal government.)
House bill
      The House bill repeals the 150-percent of debt service 
yield restriction.
      Effective date.--Bonds issued after the date of 
enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  4. Repeal of expired tax-exempt bond provisions (sec. 14564 of the 
                              House bill)

Present law
      Present law includes two special exceptions to the 
arbitrage rebate and pooled financing temporary period rules 
for certain qualified student loan bonds. These exceptions 
applied only to bonds issued before January 1, 1989.
House bill
      The House bill repeals these special exceptions as 
``deadwood.''
      Effective date.--Date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                        E. Insurance Provisions

  1. Treatment of certain insurance contracts on retired lives (sec. 
    14571 of the House bill and sec. 12877 of the Senate amendment)

Present law
      Life insurance companies are allowed a deduction for any 
net increase in reserves and are required to include in income 
any net decrease in reserves. The reserve of a life insurance 
company for any contract is the greater of the net surrender 
value of the contract or the reserve determined under Federally 
prescribed rules. In no event, however, may the amount of the 
reserve for tax purposes for any contract at any time exceed 
the amount of the reserve for annual statement purposes.
      Special rules are provided in the case of a variable 
contract. Under these rules, the reserve for a variable 
contract is adjusted by (1) subtracting any amount that has 
been added to the reserve by reason of appreciation in the 
value of assets underlying such contract, and (2) adding any 
amount that has been subtracted from the reserve by reason of 
depreciation in the value of assets underlying such contract. 
In addition, the basis of each asset underlying a variable 
contract is adjusted for appreciation or depreciation to the 
extent the reserve is adjusted.
      A variable contract generally is defined as any annuity 
or life insurance contract (1) that provides for the allocation 
of all or part of the amounts received under the contract to an 
account that is segregated from the general asset accounts of 
the company, and (2) under which, in the case of an annuity 
contract, the amounts paid in, or the amounts paid out, reflect 
the investment return and the market value of the segregated 
asset account, or, in the case of a life insurance contract, 
the amount of the death benefit (or the period of coverage) is 
adjusted on the basis of the investment return and the market 
value of the segregated asset account. A pension plan contract 
that is not a life, accident, or health, property, casualty, or 
liability insurance contract is treated as an annuity contract 
for purposes of this definition.
House bill
      The House bill provides that a variable contract is to 
include a contract that provides for the funding of group term 
life or group accident and health insurance on retired lives 
if: (1) the contract provides for the allocation of all or part 
of the amounts received under the contract to an account that 
is segregated from the general asset account of the company; 
and (2) the amounts paid in, or the amounts paid out, under the 
contract reflect the investment return and the market value of 
the segregated asset account underlying the contract.
      Thus, the reserve for such a contract is to be adjusted 
by (1) subtracting any amount that has been added to the 
reserve by reason of appreciation in the value of assets 
underlying such contract, and (2) adding any amount that has 
been subtracted from the reserve by reason of depreciation in 
the value of assets underlying such contract. In addition, the 
basis of each asset underlying the contract is to be adjusted 
for appreciation or depreciation to the extent that the reserve 
is adjusted.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

2. Treatment of modified guaranteed contracts (sec. 14572 of the House 
              bill and sec. 12878 of the Senate amendment)

Present law
      Life insurance companies are allowed a deduction for any 
net increase in reserves and are required to include in income 
any net decrease in reserves. The reserve of a life insurance 
company for any contract is the greater of the net surrender 
value of the contract or the reserve determined under Federally 
prescribed rules. The net surrender value of a contract is the 
cash surrender value reduced by any surrender penalty, except 
that any market value adjustment required on surrender is not 
taken into account. In no event, however, may the amount of the 
reserve for tax purposes for any contract at any time exceed 
the amount of the reserve for annual statement purposes.
      In general, assets held for investment are treated as 
capital assets. Any gain or loss from the sale or exchange of a 
capital asset is treated as a capital gain or loss and is taken 
into account for the taxable year in which the asset is sold or 
exchanged.
House bill
      The House bill generally applies a mark-to-market regime 
to assets held as part of a segregated account under a modified 
guaranteed contract issued by a life insurance company. Gain or 
loss with respect to such assets held as of the close of any 
taxable year are taken into account for that year (even though 
the assets have not been sold or exchanged),119 and are 
treated as ordinary. If gain or loss is taken into account by 
reason of the mark-to-market requirement, then the amount of 
gain or loss subsequently realized as a result of sale, 
exchange, or other disposition of the asset, or as a result of 
the application of the mark-to-market requirement is 
appropriately adjusted to reflect such gain or loss. In 
addition, the reserve for a modified guaranteed contract is 
determined by taking into account the market value adjustment 
required on surrender of the contract.
    \119\ The wash sale rules of section 1091 of the Code are not to 
apply to any loss that is required to be taken into account solely by 
reason of the mark-to-market requirement.
---------------------------------------------------------------------------
      A modified guaranteed contract is defined as any life 
insurance contract, annuity contract or pension plan contract 
120 that is not a variable contract (within the meaning of 
Code section 817), and that satisfies the following 
requirements. All or a part of the amounts received under the 
contract must be allocated to an account which, pursuant to 
State law or regulation, is segregated from the general asset 
accounts of the company and is valued from time to time by 
reference to market values.
    \120\ The provision applies only to a pension plan contract that is 
not a life, accident or health, property, casualty, or liability 
contract.
---------------------------------------------------------------------------
      The Treasury Department is authorized to issue 
regulations or other guidance under the provision.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 1995. A taxpayer that is required 
to (1) change its calculation of reserves to take into account 
market value adjustments and (2) mark to market its segregated 
assets in order to comply with the requirements of the 
provision is treated as having initiated changes in method of 
accounting and as having received the consent of the Treasury 
Department to make such changes.
      The section 481(a) adjustments required by reason of the 
changes in method of accounting are to be combined and taken 
into account as a single net adjustment for the taxpayer's 
first taxable year beginning after December 31, 1995.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment, with clarifications.
      Under the House bill and the Senate amendment, the 
reserves for a modified guaranteed contract must be valued at 
market for annual statement purposes and the Federally 
prescribed reserve for the contract under section 807(d)(2) 
must be valued at market. The Senate Finance committee report 
provides that for this purpose, reserves are valued at market 
if they are calculated using a current market rate of interest, 
as of the reserve valuation date, that is appropriate for the 
obligations under the contract to which the reserve relates.
      The House bill and the Senate amendment also provide that 
the Treasury Department is authorized to determine the interest 
rates applicable under sections 807(c)(3), 807(d)(2)(B) and 812 
with respect to modified guaranteed contracts annually, 
calculating such rates as appropriate for modified guaranteed 
contracts. For example, it may be appropriate to take into 
account the yield on the assets underlying the contract in 
determining such rates.
      The conference agreement clarifies that the Treasury 
Department has discretion to determine an appropriate rate that 
is a current market rate, which could be determined, for 
example, either by using a rate that is appropriate for the 
obligations under the contract to which the reserve relates, or 
by taking into account the yield on the assets underlying the 
contract.
      The conferees intend that the Treasury Department may 
exercise this authority by issuing a periodic announcement of 
the appropriate market interest rates or formula for 
determining such rates.

  3. Minimum tax treatment of certain property and casualty insurance 
                companies (sec. 14573 of the House bill)

Present law
      Property and casualty insurance companies whose net 
written premiums (or if greater, direct written premiums) for 
the taxable year exceed $350,000 but do not exceed $1,200,000 
may elect to be taxed only on taxable investment income for 
regular tax purposes, without regard to underwriting income or 
expense (sec. 831(b)).
      This election does not apply for alternative minimum tax 
purposes. All corporations, including insurance companies, are 
subject to an alternative minimum tax. Alternative minimum 
taxable income is increased by 75 percent of the excess of 
adjusted current earnings over alternative minimum taxable 
income (determined without regard to this adjustment and 
without regard to net operating losses).
House bill
      The House bill provides that a property and casualty 
insurance company that elects for regular tax purposes to be 
taxed only on taxable investment income determines its adjusted 
current earnings under the alternative minimum tax without 
regard to any amount not taken into account in determining its 
gross investment income under section 834(b). Thus, adjusted 
current earnings of an electing company is determined without 
regard to underwriting income (or underwriting expense, as 
provided in sec. 56(g)(4)(B)(I)(II)).
      Effective date.--Taxable years beginning after December 
31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                          F. Other Provisions

1. Closing of partnership taxable year with respect to deceased partner 
                     (sec. 14581 of the House bill)

Present law
      The partnership taxable year closes with respect to a 
partner whose entire interest is sold, exchanged or liquidated, 
but generally not upon the death of a partner. A decedent's 
entire share of items of income, gain, loss, deduction and 
credit for the partnership taxable year in which death occurs 
is taxed to the decedent's estate or successor in interest, 
rather than to the decedent on his or her final tax return. See 
Estate of Hesse v. Commissioner, 74 T.C. 1307, 1311 (1980).
House bill
      The House bill provides that the taxable year of a 
partnership closes with respect to a partner whose entire 
interest in the partnership terminates, whether by death, 
liquidation or otherwise. The provision is not intended to 
change present law with respect to the effect upon the 
partnership taxable year of a transfer of a partnership 
interest by a debtor to the debtor's estate (under Chapters 7 
or 11 of Title 11, relating to bankruptcy).
      Effective date.--Partnership taxable years beginning 
after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

 2. Tax credit for Social Security taxes paid with respect to employee 
                cash tips (sec. 14582 of the House bill)

Present law
      Employee tip income is treated as employer-provided wages 
for purposes of the Federal Insurance Contributions Act 
(``FICA''). Employees are required to report to the employer 
the amount of tips received. The Omnibus Budget Reconciliation 
Act of 1993 (``OBRA 1993'') provided a business tax credit with 
respect to certain employer FICA taxes paid with respect to 
tips treated as paid by the employer. The credit applies to 
tips received from customers in connection with the provision 
of food or beverages for consumption on the premises of an 
establishment with respect to which the tipping of employees is 
customary. OBRA 1993 provided that the FICA tip credit is 
effective for taxes paid after December 31, 1993. Temporary 
Treasury regulations provide that the tax credit is available 
only with respect to tips reported by the employee. The 
temporary regulations also provide that the credit is effective 
for FICA taxes paid by an employer after December 31, 1993, 
with respect to tips received for services performed after 
December 31, 1993.
House bill
      The House bill clarifies the credit with respect to 
employer FICA taxes paid on tips by providing that the credit 
is available whether or not the employee reported the tips and 
that the credit is effective with respect to taxes paid after 
December 31, 1993, regardless of when the services with respect 
to which the tips are received were performed.
      Effective date.--The provision is effective as if 
included in OBRA 1993.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

    3. Due date for first quarter estimated tax payments by private 
               foundations (sec. 14583 of the House bill)

Present law
      Under section 4940, tax-exempt private foundations 
generally are required to pay an excise tax equal to two 
percent of their net investment income for the taxable year. 
Under section 6655(g)(3), private foundations are required to 
pay estimated tax with respect to their excise tax liability 
under section 4940 (as well as any unrelated business income 
tax (UBIT) liability under section 511). 121 Section 
6655(c) provides that this estimated tax is payable in 
quarterly installments and that, for calendar-year foundations, 
the first quarterly installment is due on April 15th. Under 
section 6655(I), foundations with taxable years other than the 
calendar year must make their quarterly estimated tax payments 
no later than the dates in their fiscal years that correspond 
to the dates applicable to calendar-year foundations.
    \121\ Generally, the amount of the first quarter payment must be at 
least 25 percent of the lesser of (1) the preceding year's tax 
liability, as shown on the foundation's Form 990-PF, or (2) 95 percent 
of the foundation's current-year tax liability.
---------------------------------------------------------------------------
House bill
      The House bill amends section 6655(g)(3) to provide that 
a calendar-year foundation's first-quarter estimated tax 
payment is due on May 15th (which is the same day that its 
annual return, Form 990-PF, for the preceding year is due). As 
a result of the operation of present-law section 6655(I), 
fiscal-year foundations will be required to make their first-
quarter estimated tax payment no later than the 15th day of the 
fifth month of their taxable year.
      Effective date.--Taxable years beginning after 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

 XVI. Simplification Provisions Relating to Estates, Gifts, and Trusts

               A. Estate and Trust Income Tax Provisions

 1. Certain revocable trusts treated as part of estate (sec. 14601 of 
                            the House bill)

Present law
      While both estates and revocable inter vivos trusts 
perform essentially the same function of administering the 
disposition of the decedent's property after the testator or 
grantor's death, numerous differences presently exist between 
the income tax treatment of estates and revocable trusts.
House bill
      The House bill provides an irrevocable election to treat 
a qualified revocable trust as part of the decedent's estate 
for Federal income tax purposes. This elective treatment is 
effective from the date of the decedent's death until two years 
after his or her death (if no estate tax return is required) or 
six months after the final determination of estate tax 
liability (if an estate tax return is required).
      Effective date.--Effective for decedents dying after the 
date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill, with 
technical modifications that (1) provide an election for a 
revocable trust to be treated as an estate in cases where there 
is no taxable estate; and (2) permit the election to be made in 
cases where only a portion of a revocable trust is treated as 
owned by the decedent.

 2. distributions during first 65 days of taxable year of estate (sec. 
                        14602 of the house bill)

Present law
      Under the ``65-day rule,'' a trust may elect to treat 
distributions paid within 65 days after the close of its 
taxable year as paid on the last day of its taxable year (sec. 
663(b)). The 65-day rule is not applicable to estates.
House bill
      The House bill extends application of the 65-day rule to 
distributions by estates. Thus, an executor can elect to treat 
distributions paid within 65 days after the close of the 
estate's taxable year as having been paid on the last day of 
such taxable year.
      Effective date.--Effective for taxable years beginning 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

 3. separate share rules available to estates (sec. 14603 of the house 
                                 bill)

Present law
      Trusts with more than one beneficiary must use the 
``separate share'' rule under which different tax treatment is 
accorded to distributions to different beneficiaries to reflect 
the income earned by different shares of the trust's corpus 
(sec. 663(c)). The separate share rule does not apply to 
estates.
House bill
      The House bill extends the application of the separate 
share rule to estates. There are separate shares in an estate 
when the governing instrument of the estate creates separate 
economic interests in one beneficiary or class of beneficiaries 
such that the economic interests of those beneficiaries are not 
affected by economic interests accruing to another separate 
beneficiary or class of beneficiaries.
      Effective date.--Effective for decedents dying after the 
date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

4. executor of estate and beneficiaries treated as related persons for 
      disallowance of losses, etc. (sec. 14604 of the house bill)

Present law
      Section 267 disallows a deduction for any loss on the 
sale of an asset to a person related to the taxpayer. Section 
1239 disallows capital gain treatment on the sale of 
depreciable property to a related person. Neither section 267 
or section 1239 presently treat an estate and a beneficiary of 
the estate as related persons.
House bill
      An estate and a beneficiary of that estate are treated as 
related persons for purposes of sections 267 and 1239, except 
in the case of a sale or exchange in satisfaction of a 
pecuniary bequest.
      Effective date.--Effective for taxable years beginning 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

5. limitation on taxable year of estates (sec. 14605 of the house bill)

Present law
      Trusts are required to use a calendar year and, 
consequently, income of a trust that is distributed to a 
calendar-year beneficiary in the year earned is taxed to the 
beneficiary in the year earned. In contrast, estates are 
allowed to use any fiscal year and, consequently, the taxation 
of distributions to a calendar-year beneficiary in up to the 
last 11 months of the calendar year can be deferred until the 
next taxable year depending upon the fiscal year selected.
House bill
      The House bill limits the taxable year of an estate to a 
year ending on October 31, November 30, or December 31. Thus, 
the maximum deferral allowable to a calendar-year beneficiary 
is with respect to distributions made in the last two months of 
the calendar year.
      Effective date.--Effective for decedents dying after the 
date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  6. repeal of certain throwback rules applicable to domestic trusts 
                     (sec. 14606 of the house bill)

Present law
      Nongrantor trusts are subject to a separate graduated tax 
rate structure which historically has permitted accumulated 
trust income to be taxed at lower rates than the rates 
applicable to trust beneficiaries. Under the so-called 
``throwback'' rules, the distribution of previously accumulated 
trust income to a beneficiary is subject to tax (in addition to 
any tax paid by the trust on that income) where the 
beneficiary's average top marginal rate in the previous five 
years is higher than that of the trust.
      Under section 644, if property is sold within two years 
of its contribution to a trust, the gain that would have been 
recognized had the contributor sold the property is taxed at 
the contributor's marginal tax rates. In effect, section 644 
treats such gains as if the contributor had realized the gain 
and then transferred the net after-tax proceeds from the sale 
to the trust as corpus.
House bill
      The House bill exempts from the throwback rules amounts 
distributed by a domestic trust after December 31, 1995. The 
provision also provides that precontribution gain on property 
sold by a domestic trust no longer is subject to section 644 
(i.e., taxed at the contributor's marginal tax rates).
      Effective date.--The provision with respect to the 
throwback rules is effective for distributions made in taxable 
years beginning after December 31, 1995. The modification to 
section 644 applies to sales or exchanges after December 31, 
1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

     7. treatment of funeral trusts (sec. 14607 of the house bill)

Present law
      A pre-need funeral trust is an arrangement where an 
individual purchases funeral services or merchandise in advance 
of the individual's death. The individual enters into a 
contract with the provider of such services or merchandise 
whereby the individual selects the services or merchandise to 
be provided upon his or her death, and agrees to pay for them 
in advance of his or her death. Such amounts (or a portion 
thereof) are held in trust during the individual's lifetime and 
are paid to the seller upon the individual's death.
      Under present law, pre-need funeral trusts generally are 
treated as grantor trusts, and the annual income earned by such 
trusts is taxed to the purchaser/grantor of the trust. Rev. 
Rul. 87-127. Any amount received from the trust by the seller 
(as payment for services or merchandise) is includible in the 
gross income of the seller.
House bill
      The House bill allows the trustee of a pre-need funeral 
trust to elect special tax treatment for such a trust, to the 
extent the trust would otherwise be treated as a grantor trust. 
A qualified funeral trust is defined as one which meets the 
following requirements: (1) the trust arises as the result of a 
contract between a person engaged in the trade or business of 
providing funeral or burial services or merchandise and one or 
more individuals to have such services or property provided 
upon such individuals' death; (2) the only beneficiaries of the 
trust are individuals who have entered into contracts to have 
such services or merchandise provided upon their death; (3) the 
only contributions to the trust are contributions by or for the 
benefit of the trust beneficiaries; (4) the trust's only 
purpose is to hold and invest funds that will be used to make 
payments for funeral or burial services or merchandise for the 
trust beneficiaries; and (5) the trust has not accepted 
contributions totaling more than $5,000 by or for the benefit 
of any individual.
      The trustee's election to have this provision apply to a 
qualified funeral trust is to be made separately with respect 
to each purchaser's trust. The amount of tax paid with respect 
to each purchaser's trust is determined in accordance with the 
income tax rate schedule generally applicable to estates and 
trusts (Code sec. 1(e)), but no deduction is allowed under 
section 642(b). The tax on the annual earnings of the trust is 
payable by the trustee.
      Effective date.--Effective for taxable years beginning 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill, with the 
modification that a qualified funeral trust may accept 
aggregate contributions of up to $7,000 by or for the benefit 
of any individual.

                   b. estate and gift tax provisions

1. clarification of waiver of certain rights of recovery (sec. 14611 of 
                            the house bill)

Present law
      For estate and gift tax purposes, a marital deduction is 
allowed for qualified terminable interest property (QTIP). Such 
property generally is included in the surviving spouse's gross 
estate upon his or her death. The surviving spouse's estate is 
entitled to recover the portion of the estate tax attributable 
to inclusion of QTIP from the person receiving the property, 
unless the spouse directs otherwise by will (sec. 2207A). For 
this purpose, a will provision specifying that all taxes shall 
be paid by the estate is sufficient to waive the right of 
recovery.
      A decedent's gross estate includes the value of 
previously transferred property in which the decedent retains 
enjoyment or the right to income (sec. 2036). The estate is 
entitled to recover from the person receiving the property a 
portion of the estate tax attributable to the inclusion (sec. 
2207B). This right may be waived only by a provision in the 
will (or revocable trust) specifically referring to section 
2207B.
House bill
      The House bill provides that the right of recovery with 
respect to QTIP is waived only to the extent that language in 
the decedent's will or revocable trust specifically so 
indicates (e.g., by a specific reference to QTIP, the QTIP 
trust, section 2044, or section 2207A). Thus, a general 
provision specifying that all taxes be paid by the estate is no 
longer sufficient to waive the right of recovery.
      The House bill also provides that the right of 
contribution for property over which the decedent retained 
enjoyment or the right to income is waived by a specific 
indication in the decedent's will or revocable trust, but 
specific reference to section 2207B is no longer required.
      Effective date.--Effective for decedents dying after the 
date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

2. adjustments for gifts within 3 years of decedent's death (sec. 14612 
                           of the house bill)

Present law
      A taxpayer may exclude $10,000 of gifts of present 
interests in property made to each donee during a calendar 
year. Certain transfers made from a revocable trust within 
three years of death may be included in the decedent's gross 
estate even though such transfers would qualify for the annual 
$10,000 exclusion if made by the decedent directly.
House bill
      The House bill provides that a transfer from a revocable 
trust is treated as if made directly by the grantor. Thus, an 
annual exclusion gift from such trust is not included in the 
gross estate.
      Effective date.--Effective for decedents dying after the 
date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

3. clarification of qualified terminable interest rules (sec. 14613 of 
                            the house bill)

Present law
      A marital deduction is allowed for qualified terminal 
interest property (``QTIP''). Property is QTIP only if the 
surviving spouse is entitled to all income from the property 
for life, payable at least annually. QTIP generally is 
includible in the surviving spouse's gross estate.
      The United States Tax Court has held that, in order to 
satisfy the QTIP requirements, the income accumulating between 
the last distribution date and the date of the surviving 
spouse's death (the ``accumulated income'') must be paid to the 
spouse's estate or be subject to a power of appointment held by 
the spouse. In contrast, proposed Treasury regulations 
presently provide that the QTIP requirements may be satisfied 
even if the accumulated income is not required to be 
distributed to the surviving spouse or the surviving spouse's 
estate.
House bill
      The House bill provides that property does not fail to be 
QTIP solely because the accumulated income is not required to 
be distributed to the surviving spouse. Such income is 
includible in the surviving spouse's gross estate.
      Effective date.--Effective for decedents dying, and gifts 
made, after the date of enactment. However, the bill does not 
include in the surviving spouse's gross estate property 
transferred before the date of enactment for which no marital 
deduction was claimed.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

4. transitional rule under section 2056A (sec. 14614 of the house bill)

Present law
      A ``marital deduction'' generally is allowed for estate 
and gift tax purposes for the value of property passing to a 
spouse. The marital deduction is not available for property 
passing to an alien spouse outside a qualified domestic trust 
(``QDT''). An estate tax generally is imposed on corpus 
distributions from a QDT.
      A QDT was originally defined as a trust that, among other 
things, required all trustees be U.S. citizens or domestic 
corporations. This provision was later modified to require that 
at least one trustee be a U.S. citizen or domestic corporation 
and that no corpus distribution be made unless such trustee has 
the right to withhold any estate tax imposed on the 
distribution (the ``withholding requirement'').
House bill
      A trust created before the enactment of the Omnibus 
Budget Reconciliation Act of 1990 is treated as satisfying the 
withholding requirement if its governing instrument requires 
that all trustees be U.S. citizens or domestic corporations.
      Effective date.--The provision applies as if included in 
the Omnibus Budget Reconciliation Act of 1990.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

 5. opportunity to correct certain failures under section 2032A (sec. 
                        14615 of the house bill)

Present law
      For estate tax purposes, an executor may elect to value 
certain real property used in farming or other closely held 
business operations at its current use value rather than its 
highest and best use (sec. 2032A). A written agreement signed 
by each person who has an interest in the property must be 
filed with the election.
      In 1984, section 2032A was amended to provide that if an 
executor makes a timely election that substantially complies 
with Treasury regulations, but fails to provide all required 
information or the signatures of all persons required to enter 
into the agreement, the executor may supply the missing 
information within a reasonable period of time (not exceeding 
90 days) after notification by the Treasury Department.
House bill
      The House bill extends the procedures allowing subsequent 
submission of information to any executor who makes a timely 
election and submits the recapture agreement, without regard to 
substantial compliance with the Treasury regulations. Thus, the 
bill allows a technically defective current use valuation 
election to be corrected if the executor supplies the missing 
information or signatures within a reasonable period of time 
(not exceeding 90 days) after notification by the Treasury 
Department.
      Effective date.--The provision applies to decedents dying 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill. The 
conferees believe that the Treasury Department has taken an 
unnecessarily restrictive view of the 1984 amendment to section 
2032A and intend no inference that the Treasury Department 
lacks the power, under the law in effect prior to enactment of 
the conference agreement, to correct the situation addressed by 
this provision. The conferees intend that, with respect to 
technically defective 2032A elections made prior to the date of 
enactment, prior law should be applied in a manner consistent 
with the provision.

  6. unified credit of decedent increased by unified credit of spouse 
 used on split gift included in decedent's gross estate (sec. 14616 of 
                            the house bill)

Present law
      The estate tax is imposed on all of the assets held by 
the decedent at his death, including the value of property 
previously transferred by the decedent in which the decedent 
retained certain powers or interests, e.g., sections 2036 
(transfers with retained life estate), 2037 (transfers taking 
effect at death), 2038 (revocable transfers), or 2042 (proceeds 
of life insurance). Under section 2035, the estate tax also 
would apply with respect to property in which such a retained 
power or interest is transferred within three years of death.
      Under section 2513, spouses may elect to treat a gift 
made by one spouse to a third person as made one-half by each 
spouse (i.e., ``gift-splitting'').
House bill
      With respect to any split-gift property that is 
subsequently included in the estate of the transferor spouse 
under sections 2035, 2036, 2037 or 2038, the House bill 
increases the unified credit allowable to the transferor 
spouse's estate by the amount of the unified credit previously 
allowed to the nontransferor spouse with respect to the split 
gift.
      Effective date.--The provision applies to gifts made 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

7. reformation of defective bequests, etc. to spouse of decedent (sec. 
                        14617 of the house bill)

Present law
      A marital deduction generally is allowed for estate and 
gift tax purposes for the value of property passing to a 
spouse. However, ``terminable interest'' property (i.e., an 
interest in property that will terminate or fail) transferred 
to a spouse generally will only qualify for the marital 
deduction under certain special rules designed to ensure that 
there will be an estate or gift tax to the transferee spouse on 
unspent transferred proceeds.
      One of the special terminable interest rules allows a 
marital deduction where the decedent transfers property to a 
``power of appointment trust,'' i.e., a trust that is required 
to pay income to the surviving spouse and over which the 
surviving spouse has a general power of appointment at that 
spouse's death (sec. 2056(b)(5)). Another special rule called 
the ``qualified terminable interest property'' rule (``QTIP'') 
generally permits a marital deduction for transfers by the 
decedent to a trust that is required to distribute all income 
to the surviving spouse for life at least annually and an 
election is made to subject the transferee spouse to transfer 
tax on the trust property.
      To qualify for the marital deduction, a power of 
appointment trust or QTIP trust must meet certain specific 
requirements. If there is a technical defect in meeting those 
requirements, the marital deduction may be lost.
House bill
      The House bill allows the marital deduction with respect 
to a defective power of appointment or QTIP trust if there is a 
``qualified reformation'' of the trust that changes the 
governing instrument in a manner that corrects the defect. 
Where a reformation proceeding is commenced after the due date 
for the estate tax return (including extensions), the 
reformation qualifies only if, prior to reformation, the 
governing instrument provides (1) that the surviving spouse is 
entitled to all income from the property for life, and (2) no 
person other than the surviving spouse is entitled to any 
distributions during the surviving spouse's life. With respect 
to QTIP, an election to qualify must be made by the executor on 
the estate tax return as required by section 2056(b)(7)(B)(v).
      The determination as to whether the property qualifies 
for the marital deduction is made either as of the due date for 
filing the estate or gift tax return (including any extensions) 
or the time that changes are completed pursuant to a 
reformation proceeding. The statute of limitations is extended 
with respect to the estate or gift tax attributable to the 
trust property until one year after the date the Treasury 
Department is notified that a qualified reformation has been 
completed or that the reformation proceeding has otherwise 
terminated.
      Effective date.--The provision applies to decedents dying 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

 8. gifts may not be revalued for estate tax purposes after expiration 
        of statute of limitations (sec. 14618 of the house bill)

Present law
      The Federal estate and gift taxes are unified so that a 
single progressive rate schedule is applied to an individual's 
cumulative gifts and bequests. The tax on gifts made in a 
particular year is computed by determining the tax on the sum 
of the taxable gifts made that year and all prior years and 
then subtracting the tax on the prior years' taxable gifts and 
the unified credit. Similarly, the estate tax is computed by 
determining the tax on the sum of the taxable estate and prior 
taxable gifts and then subtracting the tax on taxable gifts and 
the unified credit. Under a special rule applicable to the 
computation of the gift tax (sec. 2504(c)), the value of gifts 
made in prior years is the value that was used to determine the 
prior year's gift tax. There is no comparable rule in the case 
of the computation of the estate tax.
      Generally, any estate or gift tax must be assessed within 
three years after the filing of the return. No proceeding in a 
court for the collection of an estate or gift tax can be begun 
without an assessment within the three-year period. If no 
return is filed, the tax may be assessed, or a suit commenced 
to collect the tax without assessment, at any time. If an 
estate or gift tax return is filed, and the amount of 
unreported items exceeds 25 percent of the amount of the 
reported items, the tax may be assessed or a suit commenced to 
collect the tax without assessment, within six years after the 
return was filed (sec. 6501).
      Commencement of the statute of limitations generally does 
not require that a particular gift be disclosed. A special 
rule, however, applies to certain gifts that are valued under 
the special valuation rules of Chapter 14. The gift tax statute 
of limitations runs for such a gift only if it is disclosed on 
a gift tax return in a manner adequate to apprise the Secretary 
of the Treasury of the nature of the item.
      Most courts have permitted the Commissioner to 
redetermine the value of a gift for which the statute of 
limitations period for the gift tax has expired in order to 
determine the appropriate tax rate bracket and unified credit 
for the estate tax.
House bill
      The House bill provides that a gift for which the 
limitations period has passed cannot be revalued for purposes 
of determining the applicable estate tax bracket and available 
unified credit. For gifts made in calendar years after the date 
of enactment, the House bill also extends the special rule 
governing gifts valued under Chapter 14 to all gifts. Thus, the 
statute of limitations will not run on an inadequately 
disclosed transfer in calendar years after the date of 
enactment, regardless of whether a gift tax return was filed 
for other transfers in that same year.
      It is intended that, in order to revalue a gift that has 
been adequately disclosed on a gift tax return, the IRS must 
issue a final notice of redetermination of value (a ``final 
notice'') within the statute of limitations applicable to the 
gift for gift tax purposes (generally, three years). This rule 
is applicable even where the value of the gift as shown on the 
return does not result in any gift tax being owed (e.g., 
through use of the unified credit). It also is anticipated that 
the IRS will develop an administrative appeals process whereby 
a taxpayer can challenge a redetermination of value by the IRS 
prior to issuance of a final notice.
      A taxpayer who is mailed a final notice may challenge the 
redetermined value of the gift (as contained in the final 
notice) by filing a motion for a declaratory judgment with the 
United States Tax Court. The motion must be filed on or before 
90 days from the date that the final notice was mailed. The 
statute of limitations is tolled during the pendency of the Tax 
Court proceeding.
      Effective date.--The provision generally applies to gifts 
made after the date of enactment. The extension of the special 
rule under chapter 14 to all gifts applies to gifts made in 
calendar years after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  9. clarifications relating to disclaimers (sec. 14619 of the house 
                                 bill)

Present law
      Historically, there must be acceptance of a gift in order 
for the gift to be completed under State law and there is no 
taxable gift for Federal gift tax purposes unless there is a 
completed gift. Most States have rules that provide that, where 
there is a disclaimer of a gift, the property passes to the 
person who is entitled to the property had the disclaiming 
party died before the purported transfer.
      Under section 2518, a State law type disclaimer is 
effective for Federal transfer tax purposes if it is an 
irrevocable and unqualified refusal to accept an interest in 
property and certain other requirements are satisfied. One of 
these other requirements is that the disclaimer generally must 
be made in writing not later than nine months after the 
transfer creating the interest occurs. Section 2518 is not 
presently effective for Federal tax purposes other than 
transfer taxes.
      Certain transfers of property also can be treated as 
qualified disclaimers under section 2518. In order to qualify, 
these transfer-type disclaimers must be a written transfer of 
the disclaimant's ``entire interest in the property'' to 
persons who would have received the property had there been a 
valid disclaimer under State law (sec. 2518(c)(3)). Like other 
disclaimers, the transfer-type disclaimer generally must be 
made within nine months of the transfer creating the interest.
House bill
      The House bill allows a transfer-type disclaimer of an 
``undivided portion'' of the disclaimant transferor's interest 
in property to qualify under section 2518. The House bill also 
allows a spouse to make a qualified transfer-type disclaimer 
where the disclaimed property is transferred to a trust in 
which the disclaimant spouse has an interest (e.g., a credit 
shelter trust). Finally, the House bill provides that a 
qualified disclaimer for transfer tax purposes under section 
2518 also is effective for Federal income tax purposes (e.g., 
disclaimers of interests in annuities and income in respect of 
a decedent).
      Effective date.--The provision applies to disclaimers 
made after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

 10. Clarification of treatment of survivor annuities under qualified 
        terminable interest rules (sec. 14620 of the House bill)

Present law
      Under State community property laws, each spouse owns an 
undivided one-half interest in each community property asset. 
In community property States, a nonparticipant spouse may be 
treated as having a vested community property interest in his 
or her spouse's qualified plan, individual retirement 
arrangement, or simplified employee pension plan.
      A survivorship interest in an annuity interest arising 
out of the decedent's employment that is includible in his or 
her estate (under section 2039) that passes to the 
nonparticipant spouse is treated as a deductible marital 
transfer under the qualified terminable interest property 
(``QTIP'') rules unless the executor of the decedent's estate 
elects otherwise (sec. 2056(b)(7)(C)). Thus, in noncommunity 
property States, no estate tax generally is imposed on such 
survivor annuity interests in the nonsurviving spouse's estate. 
In contrast, an interest of the nonparticipant spouse arising 
under community property laws in an annuity derived from the 
employment of his or her spouse is includible in his or her 
estate under section 2033 and, therefore, may not qualify as a 
deductible transfer to his or her surviving spouse under the 
QTIP rules.
House bill
      The House bill clarifies that the marital deduction is 
available with respect to a nonparticipant spouse's interest in 
an annuity attributable to community property laws where he or 
she predeceases the participant spouse. Under the House bill, 
the nonparticipant spouse's interest in an annuity arising 
under the community property laws of a State that passes to the 
surviving participant spouse may qualify for treatment as QTIP 
under section 2056(b)(7).
      Effective date.--The provision applies to decedents 
dying, or waivers, transfers and disclaimers made, after the 
date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

    11. Treatment under qualified domestic trust rules of forms of 
     ownership which are not trusts (sec. 14621 of the House bill)

Present law
      A marital deduction generally is allowed for estate and 
gift tax purposes for the value of property passing to a 
spouse. The marital deduction is not available for property 
passing to an alien spouse outside a qualified domestic trust 
(``QDT''). An estate tax generally is imposed on corpus 
distributions from a QDT.
      Trusts are not permitted in some countries (e.g., many 
civil law countries). As a result, it is not possible to create 
a QDT in those countries.
House bill
      The House bill provides the Treasury Department with 
regulatory authority to treat as trusts legal arrangements that 
have substantially the same effect as a trust. It is 
anticipated that such regulations, if any, would only permit a 
marital deduction with respect to nontrust arrangements under 
which the U.S. would retain jurisdiction and adequate security 
to impose U.S. transfer tax on transfers by the surviving 
spouse of the property transferred by the decedent.
      Effective date.--The provision applies to decedents dying 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

    12. Authority to waive requirement of United States trustee for 
        qualified domestic trusts (sec. 14622 of the House bill)

Present law
      In order for a trust to be a QDT, a U.S. trustee must 
have the power to approve all corpus distributions from the 
trust. In some countries, trusts may be prohibited from having 
a U.S. trustee (e.g., some countries do not allow real property 
to be placed in trust if a U.S. trustee must approve 
distributions from the trust.) As a result, such trusts cannot 
qualify as a QDT.
House bill
      In order to permit the establishment of a QDT in those 
situations where a country prohibits a trust from having a U.S. 
trustee, the House bill provides the Treasury Department with 
regulatory authority to waive the requirement that a QDT have a 
U.S. trustee. It is anticipated that such regulations, if any, 
provide an alternative mechanism under which the U.S. would 
retain jurisdiction and adequate security to impose U.S. 
transfer tax on transfers by the surviving spouse of the 
property transferred by the decedent.
      Effective date.--The provision applies to decedents dying 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                 C. Generation-Skipping Tax Provisions

  1. Severing of trusts holding property having an inclusion ratio of 
            greater than zero (sec. 14631 of the House bill)

Present law
      A generation-skipping transfer tax (``GST'' tax) 
generally is imposed on transfers to an individual who is in 
more than one generation below that of the transferor. An 
exemption of $1 million is provided for each person making 
generation-skipping transfers. The transferor (or his or her 
executor) may allocate the exemption to transferred property. 
If the value of the transferred property exceeds the amount of 
the GST exemption allocated to that property, an ``inclusion 
ratio'' and an ``exclusion ratio'' are determined with respect 
to the property. The exclusion ratio is equal to the amount of 
the GST exemption allocated to the property divided by the 
value of the property. The inclusion ration is equal to one 
minus the exclusion ratio. For any taxable event that occurs 
with respect to the property, the amount of GST tax generally 
is determined by multiplying highest estate tax rate by the 
inclusion ratio and the value of the taxable property at the 
time of the taxable event.
House bill
      If a trust with an inclusion ratio of greater than zero 
is severed into two separate trusts, the bill allows the 
trustee to elect to treat one of the separate trusts as having 
an inclusion ratio of zero and the other separate trust as 
having an inclusion ratio of one. To qualify for this 
treatment, the separate trust with the inclusion ratio of one 
must receive an interest in each property held by the single 
trust (prior to severance) equal to the single trust's 
inclusion ratio, except to the extent otherwise provided by 
Treasury regulation. The remaining interests in each property 
will be transferred to the separate trust with the inclusion 
ratio of zero.
      Effective date.--The provision is effective for 
severances of trusts occurring after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

 2. Clarification of who is transferor where subsequent gift by reason 
         of power of appointment (sec. 14632 of the House bill)

Present law
      The exercise or release of a general power of appointment 
(e.g., a power of withdrawal) generally is treated as a 
transfer of property by the person who possesses such power 
(sec. 2514(b)). Under section 2514(e), the lapse of a general 
power of appointment also is treated as a taxable transfer 
except to the extent that the power does not exceed the greater 
of $5,000 or five percent of the fair market value of the 
property with respect to which the power could have been 
exercised.
House bill
      The House bill clarifies that an individual cannot be 
treated as a ``transferor'' with respect to any portion of 
property with respect to which another person is treated as the 
``transferor'' by reason of the exercise, release or lapse of a 
general power of appointment with respect to such property.
      Effective date.--The provision applies to the exercise, 
release or lapse of a general power of appointment occurring 
after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision, because the conferees believe that the House 
provision reflects present law.

 3. Taxable termination not to include direct skips (sec. 14633 of the 
                              House bill)

Present law
      A generation-skipping transfer tax (``GST'' tax) 
generally is imposed on transfers to an individual who is in 
more than one generation below that of the transferor. 
Transfers subject to the GST tax include direct skips, taxable 
terminations and taxable distributions. For this purpose, a 
direct skip is any transfer subject to estate or gift tax of an 
interest in property to a skip person (sec. 2612(c)(1)). A 
taxable termination is a termination (by death, lapse of time, 
release of power, or otherwise) of an interest in property held 
in trust unless, immediately after such termination, a non-skip 
person has an interest in the property, or unless at no time 
after the termination may a distribution (including a 
distribution upon termination) be made from the trust to a skip 
person (sec. 2612(a)). A taxable distribution is a distribution 
from a trust to a skip person (other than a taxable termination 
or a direct skip) (sec. 2612(b)).
      Direct skips are subject to less GST tax than taxable 
terminations and distributions since the GST tax on direct 
skips is paid by the transferor (sec. 2603(a)(3)) and, 
therefore, the tax base for a direct skip is tax exclusive 
(like the Federal gift tax), while the GST tax on taxable 
terminations and distributions is paid by the trust or 
beneficiary (secs. 2603(a) (1) & (2)) and, therefore, the tax 
base on taxable terminations and distributions is tax inclusive 
(like the Federal estate tax).
House bill
      The House bill provides that, when a transfer is 
described as both a direct skip and a taxable termination, the 
transaction will be treated as a direct skip (i.e., treatment 
as a direct skip takes precedence over treatment as a taxable 
termination).
      Effective date.--Effective for generation skipping 
transfers occurring after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

               XVII. Excise Tax Simplification Provisions

  A. Provisions Relating to Distilled Spirits, Wines, and Beer (secs. 
                     14701-14711 of the House bill)

Present law
      Credit or refund for imported distilled spirits returned 
bonded premises.--When tax-paid distilled spirits which have 
been withdrawn from bonded premises of a distilled spirits 
plant are returned for destruction or redistilling, the excise 
tax is refunded. This provision does not apply to imported 
bottled distilled spirits because they are withdrawn from 
customs custody and not from bonded premises of a distilled 
spirits plant.
      Authority to cancel or credit bonds without submission of 
records.--Bond generally must be furnished to the Treasury 
Department when distilled spirits are removed from bonded 
premises of a distilled spirits plant for exportation without 
payment of tax. These bonds are canceled or credited when 
evidence is submitted to the Treasury that the distilled 
spirits have been exported.
      Required maintenance of records on premises of distilled 
spirits plant.--Distilled spirits plant proprietors are 
required to maintain records of their production, storage, 
denaturation, and other processing activities on the premises 
where the operations covered by the records are carried out.
      Transfers from breweries to distilled spirits plants.--
Under present law, beer may be transferred without payment of 
tax from a brewery to a distilled spirits plant to be used in 
the production of distilled spirits, but only if the brewery is 
contiguous to the distilled spirits plant.
      Requirement that wholesale dealers in liquors post 
sign.--Wholesale liquor dealers (i.e., dealers, other than 
wholesale dealers in beer alone) are required to post a sign 
conspicuously on the outside of their place of business 
indicating that they are wholesale liquor dealers.
      Refund of tax on wine returned to bond.--When 
unmerchantable wine is returned to bonded production premises, 
tax that has been paid is returned or credited to the 
proprietor of the bonded wine cellar to which the wine is 
delivered.
      Use of ameliorating material in certain wines.--Tax law 
rules govern the extent to which ameliorating material (e.g., 
sugar) may be added to wines made from high acid fruits and the 
product still be labeled as a standard, natural wine.
      Domestically produced beer for use by foreign embassies, 
etc.--Distilled spirits, wine, and imported beer may be removed 
from bond, without payment of tax, for transfer to any customs 
bonded warehouse for storage pending removal for the official 
or family use of representatives of foreign governments or 
public international organizations. No such provision exists 
under present law for domestically produced beer.
      Withdrawal of beer for destruction.--Present law does not 
specifically permit beer to be removed from a brewery for 
destruction without payment of tax.
      Records of exportation of beer.--Present law provides 
that a brewer is allowed a refund of tax paid on exported beer 
upon submission to Treasury Department of certain records 
indicating that the beer has been exported.
      Transfer to brewery of beer imported in bulk.--Imported 
beer brought into the United States in bulk containers may not 
be transferred from customs custody to brewery premises without 
payment of tax. Under certain circumstances, distilled spirits 
imported into the United States in bulk containers may be 
transferred from customs custody to bonded premises of a 
distilled spirits plant where bottling will occur without 
payment of tax.
House bill
      Credit or refund for imported bottled distilled spirits 
returned to bonded premises.--The House bill conforms the 
procedures for refunds of tax collected on imported bottled 
distilled spirits returned to bonded premises to the rules for 
domestically produced and imported bulk distilled spirits.
      Authority to cancel or credit bonds without submission of 
records.--The House bill authorizes the Treasury Department to 
permit records of exportation to be maintained by the exporter, 
rather than requiring submission of proof of exportation to 
Treasury in all cases.
      Repeal of required maintenance of records on premises of 
distilled spirits plant.--The House bill permits distilled 
spirits plant proprietors to maintain records of their 
activities at locations other than the premises where the 
operations covered by the records are carried out (e.g., 
corporate headquarters) provided that the records are available 
for inspection by the Treasury Department during business 
hours.
      Fermented material from any brewery may be received at a 
distilled spirits plant.--The House bill allows beer to be 
transferred without payment of tax from a brewery to a 
distilled spirits plant to be used in the production of 
distilled spirits, regardless of whether the brewery is 
contiguous to the distilled spirits plant.
      Repeal of requirement that wholesale dealers in liquors 
post sign.--The House bill repeals the requirement that 
wholesale liquor dealers post a sign outside their place of 
business indicating that they are wholesale liquor dealers.
      Refund of tax on wine returned to bond not limited to 
unmerchantable wine.--The House bill repeals the requirement 
that wine returned to bonded premises be ``unmerchantable'' in 
order for tax to be refunded to the proprietor of the bonded 
wine cellar to which the wine is delivered.
      Use of additional ameliorating material in certain 
wines.--The House bill modifies the wine labeling restrictions 
to allow any wine made exclusively from a fruit or berry with a 
natural fixed acid of made exclusively from a fruit or berry 
with a natural fixed acid of 20 parts per thousand or more 
(before any correction of such fruit or berry) to contain a 
volume of ameliorating material not in excess of 60 percent.
      Domestically produced beer may be withdrawn free of tax 
for use by foreign embassies, etc.--The House bill extends to 
domestically produced beer the present-law rule which permits 
other alcoholic beverages to be withdrawn from the place of 
production without payment of tax for the official or family 
use of representatives of foreign governments or public 
international organizations.
      Beer may be withdrawn free of tax for destruction.--The 
House bill permits beer to be removed from a brewery without 
payment of tax for destruction, subject to Treasury Department 
regulations.
      Authority to allow drawback on exported beer without 
submission of records.--The House bill repeals the present-law 
requirement that proof of exportation be submitted to the 
Treasury Department in all cases as a condition of receiving a 
refund of tax.
      Transfer to brewery of beer imported in bulk without 
payment of tax.--The House bill extends the present-law rule 
applicable to distilled spirits imported into the United States 
in bulk containers to beer imported into the United States in 
bulk containers.
      Effective date.--Beginning 180 days after date of 
enactment. (The provision deleting the requirement that 
wholesale liquor dealers post a sign outside their place of 
business is effective on the date of the bill's enactment.)
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill, with a 
modification deleting the following provisions:
          (1) Authority for the Bureau of Alcohol, Tobacco, and 
        Firearms (``BATF'') to cancel or credit bonds without 
        submission of records;
          (2) Repeal of required maintenance of records on 
        premises of distilled spirits plant;
          (3) Repeal of requirement that wholesale dealers in 
        liquors post sign;
          (4) Relaxation of rules on use of ameliorating 
        material in certain wines;
          (5) Provision allowing domestically produced beer to 
        be withdrawn free of tax for use by foreign embassies; 
        and
          (6) Authority for BATF to allow drawback on exported 
        beer without submission of records.

B. Consolidation of Taxes on Aviation Gasoline (sec. 14721 of the House 
                                 bill)

Present law
      Gasoline used in noncommercial (not for hire) aviation is 
subject to a 19.4-cents-per-gallon excise tax. 18.4 cents per 
gallon of this tax is collected when the gasoline is removed 
from a pipeline or barge terminal. The remaining 1 cent per 
gallon is imposed at the retail level.
House bill
      The House bill consolidates imposition of the aviation 
gasoline excise tax, with the entire 19.4-cents-per-gallon rate 
being imposed when the gasoline is removed from a terminal 
facility.
      Effective date.--Sales or uses beginning on or after 
January 1, 1996.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

                     C. Other Excise Tax Provisions

     1. Authority to grant exemptions from excise tax registration 
              requirements (sec. 14731 of the House bill)

Present law
      Certain sales for exempt use of articles subject to 
Federal excise taxes may not be made without payment of tax 
unless the manufacturer, the first purchaser, and the second 
purchaser (if any), are all registered under regulations 
prescribed by the Secretary of Treasury.
House bill
      The House bill allows the IRS to provide exemptions from 
generally applicable excise tax registration requirements for 
certain classes of taxpayers (rather than only all taxpayers or 
individually identified taxpayers).
      Effective date.--Sales occurring after 180 days after 
date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

 2. Certain combinations not treated as manufacture under retail sales 
           tax on heavy trucks (sec. 14732 of the House bill)

Present law
      A 12-percent excise tax is imposed on the sale of trucks, 
tractors, and trailers having a gross vehicle weight in excess 
of specified amounts. The tax is imposed on the first retail 
sale of a taxable vehicle or addition thereto.
      Generally, repairs of used vehicles are treated as 
remanufacture (giving rise to tax on the entire vehicle) if 
certain tests are met.
      The mere addition of a fifth wheel to a taxable truck is 
not treated as remanufacture, although the fifth wheel itself 
would be taxed.
House bill
      The House bill clarifies that the following activities do 
not constitute remanufacture when performed on a used truck or 
tractor chassis:
          (1) removal of a fifth wheel and addition of a power 
        take-off, hoist, and dump body; or
          (2) simple addition of a power take-off, hoist, and 
        dump body.
    These activities will remain taxable to the extent of the 
modifications made.
    Effective date.--Date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

  3. Repeal of expired excise tax provisions (sec. 14734 of the House 
                                 bill)

Present law
            Temporary reduction in tax on piggyback trailers
      Piggyback trailers and semitrailers sold within the one-
year period beginning on July 18, 1984, were permitted a 
temporary reduction in the retail excise tax rate on trailers.
            Expiration of excise tax on deep seabed minerals
      The Deep Seabed Mineral Resources Act (Public Law 96-283) 
imposed an excise tax on certain hard minerals mined on the 
deep seabed. The tax revenues were intended to fund obligations 
of the United States under a contemplated Law of the Sea 
Convention. Because the United States did not sign the treaty, 
this excise tax never became effective and the tax expired 
after June 28, 1990.
House bill
      The House bill repeals the expired tax reduction for 
piggy back trailers and the excise tax on deep seabed hard 
minerals as ``deadwood.''
      Effective date.--Date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

            XVIII. Administrative Simplification Provisions

                         A. General Provisions

1. Repeal of authority to disclose whether a prospective juror has been 
                 audited (sec. 14801 of the House bill)

Present law
      In connection with a civil or criminal tax proceeding to 
which the United States is a party, the Secretary must 
disclose, upon the written request of either party to the 
lawsuit, whether an individual who is a prospective juror has 
or has not been the subject of an audit or other tax 
investigation by the Internal Revenue Service (sec. 
6103(h)(5)).
House bill
      The House bill repeals the requirement that the Secretary 
disclose, upon the written request of either party to the 
lawsuit, whether an individual who is a prospective juror has 
or has not been the subject of an audit or other tax 
investigation by the Internal Revenue Service.
      Effective date.--The provision is effective for judicial 
proceedings pending on, or commenced after, the date of 
enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  2. Clarification of statute of limitations (sec. 14802 of the House 
                                 bill)

Present law
      Passthrough entities (such as S corporations, 
partnerships, and certain trusts) generally are not subject to 
income tax on their taxable income. Instead, these entities 
file information returns and the entities' shareholders (or 
beneficial owners) report their pro rata share of the gross 
income and are liable for any taxes due.
      Some believe that, prior to 1993, it may have been 
unclear as to whether the statute of limitations for 
adjustments that arise from distributions from passthrough 
entities should be applied at the entity or individual level 
(i.e., whether the 3-year statute of limitations for 
assessments runs from the time that the entity files its 
information return or from the time that a shareholder timely 
files his or her income tax return). In 1993, the Supreme Court 
held that the limitations period for assessing the income tax 
liability of an S corporation shareholder runs from the date 
the shareholder's return is filed (Bufferd v. Comm., 113 S. Ct. 
927 (1993)).
House bill
      The House bill clarifies that the return that starts the 
running of the statute of limitations for a taxpayer is the 
return of the taxpayer and not the return of another person 
from whom the taxpayer has received an item of income, gain, 
loss, deduction, or credit.
      Effective date.--The provision is effective for taxable 
years beginning after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

3. Certain notices disregarded under provision increasing interest rate 
    on large corporate underpayments (sec. 14803 of the House bill)

Present law
      The interest rate on a large corporate underpayment of 
tax is the Federal short-term rate plus five percentage points. 
A large corporate underpayment is any underpayment by a 
subchapter C corporation of any tax imposed for any taxable 
period, if the amount of such underpayment for such period 
exceeds $100,000. The large corporate underpayment rate 
generally applies to periods beginning 30 days after the 
earlier of the date on which the first letter of proposed 
deficiency, a statutory notice of deficiency, or a 
nondeficiency letter or notice of assessment or proposed 
assessment is sent. For this purpose, a letter or notice is 
disregarded if the taxpayer makes a payment equal to the amount 
shown on the letter or notice within that 30-day period.
House bill
      For purposes of determining the period to which the large 
corporate underpayment rate applies, any letter or notice is 
disregarded if the amount of the deficiency, proposed 
deficiency, assessment, or proposed assessment set forth in the 
letter or notice is not greater than $100,000 (determined by 
not taking into account any interest, penalties, or additions 
to tax).
      Effective date.--The provision is effective for purposes 
of determining interest for periods after December 31, 1995.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

4. Clarification of authority to withhold Puerto Rico income taxes from 
      salaries of Federal employees (sec. 14804 of the House bill)

Present law
      If State law provides generally for the withholding of 
State income taxes from the wages of employees in a State, the 
Secretary of the Treasury shall (upon the request of the State) 
enter into an agreement with the State providing for the 
withholding of State income taxes from the wages of Federal 
employees in the State. For this purpose, a State is a State, 
territory, or possession of the United States. The Court of 
Appeals for the Federal Circuit recently held in Romero v. 
United States (38 F. 3d 1204 (1994)) that Puerto Rico was not 
encompassed within this definition; consequently, the court 
invalidated an agreement between the Secretary of the Treasury 
and Puerto Rico that provided for the withholding of Puerto 
Rico income taxes from the wages of Federal employees.
House bill
      The House bill makes any Commonwealth eligible to enter 
into an agreement with the Secretary of the Treasury that would 
provide for income tax withholding from the wages of Federal 
employees.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                        B. Tax Court Procedures

  1. Overpayment determinations of Tax Court (sec. 14811 of the House 
                                 bill)

Present law
      The Tax Court may order the refund of an overpayment 
determined by the Court, plus interest, if the IRS fails to 
refund such overpayment and interest within 120 days after the 
Court's decision becomes final. Whether such an order is 
appealable is uncertain.
      In addition, it is unclear whether the Tax Court has 
jurisdiction over the validity or merits of certain credits or 
offsets (e.g., providing for collection of student loans, child 
support, etc.) made by the IRS that reduce or eliminate the 
refund to which the taxpayer was otherwise entitled.
House bill
      The House bill clarifies that an order to refund an 
overpayment is appealable in the same manner as a decision of 
the Tax Court. The House bill also clarifies that the Tax Court 
does not have jurisdiction over the validity or merits of the 
credits or offsets that reduce or eliminate the refund to which 
the taxpayer was otherwise entitled.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

   2. Awarding of administrative costs (sec. 14812 of the House bill)

Present law
      Any person who substantially prevails in any action 
brought by or against the United States in connection with the 
determination, collection, or refund of any tax, interest, or 
penalty may be awarded reasonable administrative costs incurred 
before the IRS and reasonable litigation costs incurred in 
connection with any court proceeding.
      No time limit is specified for the taxpayer to apply to 
the IRS for an award of administrative costs. In addition, no 
time limit is specified for a taxpayer to appeal to the Tax 
Court an IRS decision denying an award of administrative costs. 
Finally, the procedural rules for adjudicating a denial of 
administrative costs are unclear.
House bill
      The House bill provides that a taxpayer who seeks an 
award of administrative costs must apply for such costs within 
90 days of the date on which the taxpayer was determined to be 
a prevailing party. The House bill also provides that a 
taxpayer who seeks to appeal an IRS denial of an administrative 
cost award must petition the Tax Court within 90 days after the 
date that the IRS mails the denial notice.
      The House bill clarifies that dispositions by the Tax 
Court of petitions relating only to administrative costs are to 
be reviewed in the same manner as other decisions of the Tax 
Court.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

 3. Redetermination of interest pursuant to motion (sec. 14813 of the 
                              House bill)

Present law
      A taxpayer may seek a redetermination of interest after 
certain decisions of the Tax Court have become final by filing 
a petition with the Tax Court.
House bill
      The House bill provides that a taxpayer must file a 
``motion'' (rather than a ``petition'') to seek a 
redetermination of interest in the Tax Court.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

4. Application of net worth requirement for awards of litigation costs 
                     (sec. 14814 of the House bill)

Present law
      Any person who substantially prevails in any action 
brought by or against the United States in connection with the 
determination, collection, or refund of any tax, interest, or 
penalty may be awarded reasonable administrative costs incurred 
before the IRS and reasonable litigation costs incurred in 
connection with any court proceeding. A person who 
substantially prevails must meet certain net worth requirements 
to be eligible for an award of administrative or litigation 
costs. In general, only an individual whose net worth does not 
exceed $2,000,000 is eligible for an award, and only a 
corporation or partnership whose net worth does not exceed 
$7,000,000 is eligible for an award. (The net worth 
determination with respect to a partnership or S corporation 
applies to all actions that are in substance partnership 
actions or S corporation actions, including unified entity-
level proceedings under sections 6226 or 6228, that are 
nominally brought in the name of a partner or a shareholder.)
House bill
      The House bill provides that the net worth limitations 
currently applicable to individuals also apply to estates and 
trusts. The House bill also provides that individuals who file 
a joint tax return shall be treated as one individual for 
purposes of computing the net worth limitations. Consequently, 
the net worths of both spouses are aggregated for purposes of 
this computation. An exception to this rule is provided in the 
case of a spouse otherwise qualifying for innocent spouse 
relief.
      Effective date.--The provision applies to proceedings 
commenced after the date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

  C. Authority for Cooperative Agreements With State Tax Authorities 
                     (sec. 14821 of the House bill)

Present law
      The IRS is generally not authorized to provide services 
to non-Federal agencies even if the cost is reimbursed (62 
Comp. Gen. 323, 335 (1983)).
House bill
      The House bill provides that the Secretary is authorized 
to enter into cooperative agreements with State tax authorities 
to enhance joint tax administration. These agreements may 
include (1) joint filing of Federal and State income tax 
returns, (2) single processing of these returns, and (3) joint 
collection of taxes (other than Federal income taxes).
      The House bill provides that these agreements may require 
reimbursement for services provided by either party to the 
agreement. Any funds appropriated for tax administration may be 
used to carry out the responsibilities of the IRS under these 
agreements, and any reimbursement received under an agreement 
would be credited to the amount appropriated.
      No agreement may be entered into that does not provide 
for the protection of confidentiality of taxpayer information 
that is required by section 6103.
      Effective date.--The provision is effective on the date 
of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                      XIX. Public Debt Provisions

 1. Public debt reduction trust fund (secs. 6341 and 6343 of H.R. 1215)

Present law
      The Presidential Election Campaign Fund (``Campaign 
Fund'') provides for public financing of a portion of qualified 
Presidential election campaign expenditures and certain 
convention costs (sec. 9001 et seq.) The Campaign Fund is 
financed through the voluntary designation by individual 
taxpayers on their Federal income tax returns of $3 of tax 
liability, which is commonly known as the Presidential election 
campaign checkoff (sec. 6096). This checkoff can be made only 
by individuals (not corporations) and does not affect the 
individual's tax liability. The Treasury Department accumulates 
revenues in the Campaign Fund over a four-year period and then 
disburses funds to eligible candidates for President, Vice 
President, and conventions during the Presidential election 
year.
      Individuals who itemize deductions (as well as 
corporations) are allowed a deduction, subject to certain 
limitations, for contributions made to qualified charitable 
organizations or to Federal, State, and local governments. 
Instructions to IRS income tax forms inform taxpayers that they 
may make a gift to the Federal Government to reduce the public 
debt by enclosing with their return a separate check made 
payable to the ``Bureau of Public Debt.'' In addition, various 
public laws provide that contributions to specific Federal 
entities or programs are regarded as gifts to the United 
States. Such contributions to the Bureau of Public Debt and to 
specific Federal entities or programs are deductible if the 
donor itemizes deductions for the year in which the 
contribution is made.
House bill
      Under the House bill, individual taxpayers will be 
allowed to designate an amount up to 10 percent of their 
Federal income tax liability for a taxable year to be earmarked 
to reduce the Federal public debt. Such a designation may be 
made only at the time the taxpayer files his or her income tax 
return for a particular taxable year. An individual's decision 
whether or not to make a designation under the provision will 
not affect his or her tax liability. If an individual has no 
Federal income tax liability for a taxable year--i.e., the 
individual owes no Federal income tax after claiming allowable 
credits (other than the EITC) and any designation to the 
Presidential Election Campaign Fund--then such individual will 
not be allowed to make a designation to reduce the Federal debt 
on his or her return for that year.
      Under the House bill, amounts earmarked by taxpayers to 
reduce the public debt will be transferred into a Public Debt 
Reduction Trust Fund, which will be used only to retire or 
purchase Federal securities (other than obligations held by the 
Social Security Trust Fund, the Civil Service Retirement and 
Disability Fund, and the Department of Defense Military 
Retirement Fund). Related provisions (contained in another 
section of the House bill) require either specific spending 
cuts or an across-the-board sequestration in Federal spending 
(with certain exceptions) to match the amounts designated by 
taxpayers for debt reduction.
      Effective date.--The provision is effective for taxable 
years ending after the date of enactment, and will remain in 
effect until the entire outstanding Federal public debt is 
retired.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

2. Increase in the public debt limit (sec. 13801 of the House bill and 
                   sec. 7471 of the Senate amendment)

Present law
      The statutory limit on the public debt currently is $4.9 
trillion.
House bill
      The House bill increases the statutory limit on the 
public debt to $5.5 trillion.
Senate amendment
      The Senate amendment is the same as the House bill.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

 XX. Adjustment to Contract With America Tax Relief Act (Sec. 19002 of 
                            the House Bill)

Present law
      No provision.
House bill
      In order to bring the budget reconciliation bill into 
compliance with the budget resolution, the House bill generally 
provides various adjustments to the provisions of the Contract 
With America Tax Relief Act of 1995. (Title VI of H.R. 1215, as 
passed by the House, with certain modifications, and 
incorporated in the House bill by reference.)
      In general, the effects of the changes in income and 
estate tax liability occurring as a result of the provisions of 
the Contract With America Tax Relief Act would be changed by 27 
percent, with the following exceptions.
      In the case of capital gains, the benefit of the 
corporate rate reduction on, and the individual deduction for, 
capital gain income would be reduced by 15 percent for 1995 and 
by 31 percent for 1996 and thereafter. In the case of the 
indexing of the basis of capital assets, the adjustment to 
basis would be reduced by 31 percent for 1996 and thereafter.
      In the case of American Dream Savings accounts, taxpayers 
would be entitled to 69 percent of the benefits of the American 
Dream Savings accounts to which they otherwise are entitled
      In the case of the alternative minimum tax, after 1994, 
depreciation would no longer be treated as a preference item in 
the case of individuals and the alternative minimum tax rate 
applicable to corporations would be zero. The effects of this 
modification would be suspended for taxable years beginning in 
1995 and 1996. Thus, for the first three taxable years 
beginning after 1996, taxpayers would be entitled to a refund 
equal to \1/3\ of the amount of minimum tax paid by 
corporations and the amount of minimum tax liability 
attributable to depreciation in the case of individual 
taxpayers for taxable years beginning in 1995 and 1996.
      The provisions relating to neutral cost recovery would be 
deleted.
      Effective date.--Date of enactment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement does not include the House bill 
provision.

                         XXI. Trade Provisions

      A. Technical Corrections and Miscellaneous Trade Provisions

Present law
      1. Section 642(c) of the Customs Modernization Act 
provides for interest accrual on entries from the date of 
deposit to the date of liquidation or reliquidation. Under this 
authority, interest is collected or refunded, as appropriate. 
Section 642 of the Customs Modernization Act does not include 
an effective date.
      2a. Section 509(a) of the Tariff Act of 1930 provides the 
U.S. Customs Service the authority to examine books and summon 
witnesses in its investigations and inquiries.
      2b. Section 7 of the Tariff Act of 1930 requires 
certificates of importation for alcoholic beverages on small 
vessels.
      2c. Section 434 of the Tariff Act of 1930 requires every 
vessel entering the U.S. to present a manifest in compliance 
with Customs regulations.
      2d. Section 484(a)(1) of the Tariff Act of 1930 provides 
requirements for the entry of merchandise.
      2e. Section 592 of the Tariff Act of 1930 provides rules 
for the imposition of penalties for fraud, negligence, and 
gross negligence.
      2f. Section 592(d) of the Tariff Act of 1930 provides for 
the restoration of lawful duties if the U.S. has been deprived 
of such in the event of a violation.
      2g. Section 401 of the Tariff Act of 1930 provides 
miscellaneous definitions and section 508 of the Tariff Act of 
1930 provides the requirements, time periods and limitations 
for recordkeeping related to importing.
      2h. Section 504 of the Tariff Act of 1930 provides for 
limitations on liquidation of entries.
      2i. Section 321(a)(2)(B) of the Tariff Act of 1930 
originally applied to returning residents arriving from foreign 
countries other than the insular possessions but, due to a 
split in tariff classification numbers, the tariff numbers 
applicable to returning residents arriving from a foreign 
country were inadvertently dropped.
      2j. Section 631(a) of the Tariff Act of 1930 provides for 
the use of private collection agencies to recover indebtedness 
arising under the customs laws and owed to the U.S.
      2k. Section 509 of the Tariff Act of 1930 provides 
Customs with the authority to examine books and summon 
witnesses in its investigations and inquiries.
      2l. Section 515 of the Tariff Act of 1930 provides for 
reviews of protests, administrative review, modifications of 
decisions, and requests for accelerated dispositions.
      3. Section 111(b) of the Customs and Trade Act of 1990 
provides that, in the case of agricultural products of the 
United States processed and packed in foreign trade zones, the 
ad valorem merchandise processing fee (MPF) shall be applied 
solely to the value of the foreign material used to make the 
container; it exempts the value of the domestic agricultural 
products from the MPF. The U.S. Customs Service has ruled that, 
for all products not covered by this provision and in the 
absence of an express provision to the contrary, the MPF would 
be assessed on both the domestic and foreign value of the 
merchandise entering from foreign trade zones.
      4. Subsection (b) of section 484H of the Customs and 
Trade Act of 1990 provides for the transportation in bond of 
Canadian lottery material.
      5. Section 213(h) of the Caribbean Basin Economic 
Recovery Act (CBERA) and section 204(c)(1) of the Andean Trade 
Preference Act (ATPA) provide for duty reductions on certain 
handbags, luggage, flat goods, work gloves, and leather wearing 
apparel.
      6. Section 13031(b)(9)(A) of the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (COBRA) authorizes the 
Customs Service to provide reimbursable services to air 
couriers operating in express consignment carrier facilities 
and in centralized hub facilities. Customs has interpreted the 
present statute to prevent Customs from providing reimbursable 
services to centralized hub facilities during daytime hours.
      7. Section 313(r) of the Tariff Act of 1930 requires that 
a drawback entry and all documents necessary to complete a 
drawback claim, including those issued by the Customs Service, 
shall be filed or applied for, as applicable, within three 
years after the date of exportation or destruction of the 
articles on which a drawback is claimed. Customs has no 
discretion to extend the deadline.
      8. Sections 514 and 520 of the Tariff Act of 1930 provide 
for protests against decisions of the Customs Service, and 
refunds and errors, respectively.
      9. Subchapter II of chapter 99 of the Harmonized Tariff 
Schedule of the United States provides for temporary reductions 
in rates of duty. Heading 9902.98.04 provides for the duty-free 
entry of the personal effects, equipment and other materials of 
participants in, officials of, or accredited members of 
delegations to world athletic events including the XXVI Summer 
Olympiad and the 1996 Atlanta Paralympic Games.
      10a. Section 313(s)(2)(B) of the Tariff Act of 1930 
provides that a drawback successor may designate imported 
merchandise or certain other merchandise for which the 
successor received, before the date of succession, from the 
person who imported and paid any duty due on the imported 
merchandise, a certificate of delivery transferring the 
merchandise to the successor.
      10b. Section 301(c)(4) of the Trade Act of 1974 provides 
the authority for the United States Trade Representative to 
carry out mandatory and discretionary trade actions under 
section 301 of the Trade Act of 1974.
      11. Section 405(b) of the Uruguay Round Agreements Act 
provides the authority for the President to impose a duty with 
respect to a special safeguard agricultural good.
      12. General Note 6 of the Harmonized Tariff Schedule of 
the United States provides guidelines for those articles 
eligible for duty-free treatment pursuant to the Agreement on 
Trade in Civil Aircraft.
      13. Section 484E(b)(2)(B) of the Customs and Trade Act of 
1990 provides for a temporary exemption from duties imposed on 
the foreign repair of vessels.
      14. Section 13031(b) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 provides for limitations on the 
collection of fees for Customs services.
      15. Subheading 2933.90.02 of the Harmonized Tariff 
Schedule of the United States provides for the entry of 
heterocyclic compounds with nitrogen hetero-atom(s) only; 
nucleic acids and their salts.
      16. Section 304 of the Tariff Act of 1930 requires that, 
with certain exceptions, every article of foreign origin 
imported into the United States, or its container, must be 
marked with the country of origin of the article.
      17. Section 514 of the Tariff Act of 1930, as amended, 
outlines rules for protest against decisions of the Customs 
Service.
      18. The Uruguay Round Agreements Act amended section 310 
of the Trade Act of 1974, as amended by the Omnibus Trade and 
Competitiveness Act of 1988, to extend a revised ``Super 301'' 
procedure to review trade expansion priorities and identify 
priority foreign practices for the year 1995.
House bill
      1. Section 12001 of the House bill amends section 505(c) 
of the Tariff Act of 1930 to provide an exemption for interest 
accrual on duty paid or owed where an entry is liquidated or 
reliquidated due to an importer's claim for preference tariff 
treatment under the NAFTA. Further, the House bill amends 
section 642 to provide that this section is effective for 
claims made on or after April 25, 1995.
      2a. Section 12002(a) amends section 509(a)(2) of the 
Tariff Act of 1930 to make a technical correction to a 
citation.
      2b. Section 12002(b) repeals section 7 of the Tariff Act 
of 1930, which is an obsolete statute.
      2c. Section 12002(c) amends section 431(c)(1) of the 
Tariff Act of 1930 to clarify that section 434 refers to vessel 
manifests and does not include any other types of manifests.
      2d. Section 12002(d) amends section 484(a)(1) of the 
Tariff Act of 1930 to delete an obsolete statutory reference 
regarding the requirements for the entry of merchandise.
      2e. Section 12002(e) amends section 592 of the Tariff Act 
of 1930 to replace references to ``lawful duties'' with 
``lawful duties, fees and taxes,'' as appropriate in order to 
recognize that Customs collects fees and taxes, as well as 
duties.
      2f. Section 12002(f) amends section 592(d) of the Tariff 
Act of 1930 to require the restoration of duties, fees, and 
taxes if the U.S. was deprived of any duties, fees, or taxes.
      2g. Section 12002(g) amends sections 401(s) and 508(c)(1) 
of the Tariff Act of 1930 to clarify that a reconciliation 
should be treated as an entry for purposes of recordkeeping 
laws. Thus, records pertaining to reconciliation should be 
retained for a period of five years from the date of filing of 
the reconciliation.
      2h. Section 12002(h) amends section 504(d) of the Tariff 
Act of 1930 to ensure that an entry whose liquidation is 
suspended is not liquidated when the suspension is removed 
where an extension of liquidation is issued.
      2i. Section 12002(i) amends section 321(a)(2)(B) of the 
Tariff Act of 1930 to allow Customs to apply administrative 
exemptions to returning residents arriving from foreign 
countries other than insular possessions.
      2j. Section 12002(j) amends section 631(a) of the Tariff 
Act of 1930 to clarify that compensation paid to debt 
collection agencies applies to debts owed to Customs.
      2k. Section 12002(k) amends section 509(b) of the Tariff 
Act of 1930 to delete ``appropriate regional commissioner'' and 
substitute ``officer designated pursuant to regulations.''
      2l. Section 12002(l) amends section 515(d) of the Tariff 
Act of 1930 to delete ``district director'' and substitute 
``port director.''
      3. Section 12003 amends section 111(b) of the Customs and 
Trade Act of 1990 and section 13031(b)(8) of the Consolidated 
Omnibus Reconciliation Act of 1985 to clarify that the MPF is 
to be applied only to the foreign value of merchandise entered 
from a foreign trade zone. Further, the House bill provides 
that the provision made by section 111(b)(2)(D)(iv) of the 
Customs and Trade Act of 1990 regarding the application of the 
MPF to processed agricultural products will also apply to all 
entries for which liquidation has not been finalized from 
foreign trade zones.
      4. Section 12004 amends subsection (b) of section 484H of 
the Customs and Trade Act of 1990 to replace the phrase 
``entered or withdrawn from warehouse for consumption'' in the 
``Effective Date'' section with ``entered for transportation in 
bond.'' This is necessary to clarify that Canadian lottery 
material is not entered into the U.S. for consumption.
      5. Section 12005 amends section 213(h)(1) of the CBERA 
and 204(c)(1) of the ATPA to clarify that, effective 15 days 
after the date of enactment, the duty reductions specified in 
these sections do not apply to such articles made of textiles 
and subject to textile agreements.
      6. Section 12006 amends section 13031(b)(9)(A) of the 
COBRA to clarify that Customs may provide daytime reimbursable 
services to centralized hub facilities during daytime hours. 
The provision also clarifies that Customs may be reimbursed for 
all services related to the determination to release cargo, and 
not just ``inspectional'' services. These services are 
reimbursable regardless of whether or not they are performed on 
site.
      7. Section 12007 amends section 313(r) of the Tariff Act 
of 1930 to permit a one-year extension for filing drawback 
claims in cases where the President has declared a major 
disaster on or after January 1, 1994, and the claimant files a 
request for such extension with the Customs Service within one 
year from the date the claim is filed.
      8. Section 12008 provides for the liquidation or 
reliquidation of certain entries in accordance with an 
administrative review by the International Trade 
Administration. The bill provides that any amounts owed by the 
United States pursuant to the liquidation or reliquidation of 
these entries shall be paid within 90 days after such 
liquidation or reliquidation.
      9. Section 12009 adds subheading 9902.98.05 to provide 
for the duty-free entry of the personal effects, equipment and 
other materials of participants in, officials of, or accredited 
members of delegations to the 1998 Goodwill Games.
      10. Section 12010 amends 313(s)(2)(B) of the Tariff Act 
of 1930 and section 301(c)(4) of the Trade Act of 1974 (19 
U.S.C. 2411(c)(4)) to make technical corrections to language in 
the provisions.
      11. Section 12011 amends section 405(b) of the Uruguay 
Round Agreements Act to make a technical correction to a 
citation.
      12. Section 12012 amends General Note 6 of the Harmonized 
Tariff Schedule of the United States to allow for the 
electronic filing of civil aircraft parts certifications.
      13. Section 12013 amends section 484E(b)(2)(B) of the 
Customs and Trade Act of 1990 to extend the temporary exemption 
for those entries made after December 31, 1992 and before 
January 1, 1995.
      14. Section 12014 amends section 13031(b) of the COBRA to 
clarify the application of section 521 of the North American 
Free Trade Agreement Implementation Act to provide for the 
collection of fees only one time in the course of a single 
voyage for a passenger aboard a commercial vessel.
      15. Section 12015 amends subheading 2933.90.02 of the 
Harmonized Tariff Schedule of the United States to strike 
Quizalofop-ethyl.
      16. Section 12016 amends section 304 of the Tariff Act of 
1930 to exempt certain metal forgings for hand tools, coffee 
products, teas and spices from country of origin marking 
requirements.
      17. Section 12017 instructs the Customs Service to treat 
the re-entry of a single entry of four warp-knitting machines 
from Venezuela as a duty-free entry, and to refund any duties, 
with interest, which the company has paid as a result of the 
improper classification.
      18. Section 12018 extends Super 301 (section 310 of the 
Trade Act of 1974), in its revised form, through the year 2000.
Senate amendment
      No provision.
Conference agreement
      The House recedes.

                  B. Generalized System of Preferences

                     1. Basic Authority (Sec. 501)

Present law
      Title V of the Trade Act of 1974, as amended, 
(Generalized System of Preferences) grants authority to the 
President to provide duty-free treatment on imports of eligible 
articles from designated beneficiary developing countries 
(BDCs), subject to certain conditions and limitations. Section 
505(a) of the Trade Act of 1974 provides that no duty-free 
treatment under Title V shall remain in effect after July 31, 
1995.
House bill
      The House bill amends section 505(a) of the Trade Act of 
1974 to authorize an extension through December 31, 1997. It 
also provides that, notwithstanding section 514 of the Tariff 
Act of 1930 or any other provision of law, the entry a) of any 
article to which duty-free treatment under title V of the Trade 
Act of 1974 would have applied if the entry had been made on 
July 31, 1995, and b) that was made after July 31, 1995, and 
before the enactment of this Act, shall be liquidated or 
reliquidated as free of duty and the Secretary of Treasury 
shall refund any duty paid, upon proper request filed with the 
appropriate customs officer, within 180 days after the date of 
enactment.
Senate amendment
      No provision.
Conference agreement
      The Senate recedes, with an amendment to authorize an 
extension of the Generalized System of Preferences (GSP) 
through December 31, 1996.

           2. Designation of Beneficiary Developing Countries

Present law
      Section 502 sets forth both the procedures for 
designating countries as Beneficiary Developing Countries 
(BDCs) and the conditions of such designation. This section 
establishes conditions for designation which are mandatory and 
others which are discretionary. With regard to mandatory 
conditions, the President is prohibited from designating any 
country for GSP benefits which is a developed country listed in 
502(b).
House bill
      The House bill amends the definition of country to 
include ``any territory'' and deletes the reference in 502(b) 
to Austria, Finland, and Sweden which are now European Union 
Member states.
Senate amendment
      No provision.
Conference agreement
      The Senate recedes.

                        3. Mandatory Conditions

Present law
      Under section 502(c) the President is prohibited from 
designating as a BDC a country which:
          (1) is a Communist country, unless (a) its products 
        receive non-discriminatory most-favored-nation (MFN) 
        treatment, (b) it is a GATT Contracting Party and a 
        member of the International Monetary Fund (IMF), and 
        (c) it is not dominated or controlled by international 
        communism;
          (2) is an OPEC member, or a party to another 
        arrangement, and participates in an action the effect 
        of which is to withhold supplies of vital commodity 
        resources from international trade or raise their price 
        to an unreasonable level and to cause disruption of the 
        world economy, subject to trade agreement exemptions 
        consistent with objectives under the Trade Act of 1974;
          (3) affords ``reverse preferences'' having or likely 
        to have a significant adverse effect on U.S. commerce, 
        unless the President receives satisfactory assurances 
        of elimination before January 1, 1976;
          (4) has nationalized or expropriated U.S. property, 
        or taken similar actions, unless compensation is made, 
        being negotiated, or in arbitration;
          (5) fails to recognize as binding or enforce arbitral 
        awards in favor of U.S. citizens;
          (6) aids or abets, by granting sanctuary from 
        prosecution to, any individual or group which has 
        committed an act of international terrorism;
          (7) has not taken or is not taking steps to afford 
        internationally recognized worker rights to its 
        workers.
House bill
      The House bill retains present law, except, with respect 
to mandatory conditions: in (1)(b), replace ``is a GATT 
contracting party'' with ``is a Member of the World Trade 
Organization.''; in (2), delete the reference to OPEC member 
and the exemption authority; in (3), delete the satisfactory 
assurances exemption for reverse preferences.
Senate amendment
      No provision.
Conference agreement
      The Senate recedes.

                       4. discretionary criteria

Present law
      Under section 502(c) the President must take into account 
a list of factors in determining whether to designate a country 
a BDC, including the extent to which the country is providing 
adequate and effective intellectual property protection.
House bill
      The House bill substitutes ``whether or not'' for ``the 
extent to which'' in the intellectual property rights 
criterion, and clarifies that such protection may not be 
provided notwithstanding compliance with the Uruguay Round 
TRIPs Agreement. The bill also adds new discretionary criteria 
for country designation. In determining whether to designate 
any country as a beneficiary developing country under this 
title, the President must take into account the extent to which 
such country fails to cooperate with the United States in 
preventing the proliferation of nuclear weapons, nuclear 
weapons components, and nuclear weapons delivery systems and in 
preventing illegal drug trafficking.
Senate amendment
      No provision.
Conference agreement
      The House recedes.

                         5. graduation of bdcs

Present law
      Countries are graduated from GSP eligibility if the per 
capita GNP of any BDC for any year exceeds a dollar limit 
($11,800 in 1994), indexed annually under a formula from $8,500 
in 1984. When the income level reaches this amount, such 
country is subject to a 25, rather than 50, percent competitive 
need import share limit on all eligible articles for up to the 
following two years. After that time, the country is no longer 
treated as a BDC.
House bill
      Under the House bill, if the President determines that a 
beneficiary developing country has become a ``high income'' 
country as designated by the World Bank (about $8,600 per 
capita GNP in 1993), the President would be required to remove 
the country from eligibility under the program. The bill would 
eliminate the 25 percent competitive need limit during the two-
year phase-out period.
Senate amendment
      No provision.
Conference agreement
      The Senate recedes.

                  6. designation of eligible articles

Present law
      Under Section 503 the President may not designate any 
article as GSP eligible within the following categories of 
import-sensitive articles:
          1. textile and apparel articles which are subject to 
        textile agreements;
          2. watches, except watches entered after June 30, 
        1989 that the President determines will not cause 
        material injury to watch or watch band, strap, or 
        bracelet manufacturing and assembly operations in the 
        United States or U.S. insular possessions;
          3. import-sensitive electronic articles;
          4. import-sensitive steel articles;
          5. footwear, handbags, luggage, flat goods, work 
        gloves, and leather wearing apparel which were not GSP 
        eligible articles on April 1, 1984;
          6. import-sensitive semi-manufactured and 
        manufactured glass products; and
          7. any other articles the President determines to be 
        import-sensitive in the context of GSP.
House bill
      The House bill retains all provisions of present law, 
except, with respect to changes in the following statutory 
exemptions: in (1), it replaces the present provision with 
exemption of textile and apparel articles which were not GSP 
eligible on January 1, 1994; in (2), it deletes statutory 
exemption for watches; in (5), it applies exemption to footwear 
and related articles which were not GSP eligible on January 1, 
1995.
      The House bill also prohibits consideration of an article 
for designation of eligibility for three years following formal 
consideration and denial of that article. Further, the House 
bill provides specific authority for the President to designate 
any article that is the growth, product, or manufacture of a 
least-developed developing country (LDDC) as an eligible 
article with respect to imports from LDDCs, if the President 
determines such an article is not import-sensitive in the 
context of imports from LDDCs. This authority does not apply to 
statutorily exempt articles. LDDC designations are to be based 
upon the overall statutory considerations and discretionary 
designation criteria.
Senate amendment
      No provision.
Conference agreement
      The Senate recedes, with an amendment to preserve the 
statutory exemption for watches in current law.

                  7. Limits on Preferential Authority

Present law
      Under Section 504 of the Trade Act of 1974, the President 
may withdraw, suspend, or limit GSP duty-free treatment with 
respect to any article or any country, after considering the 
overall GSP and discretionary BDC designation factors. The 
President shall withdraw or suspend the BDC designation of any 
country if he determines that, as a result of changed 
circumstances, the country would be barred from designation.
House bill
      The House bill adds a requirement that, except in 
exceptional circumstances, the President may not take action to 
withdraw, suspend, or terminate or limit GSP treatment with 
respect to any country without first providing a period for the 
submission of public comments.
Senate amendment
      No provision.
Conference agreement
      The House recedes.

                       8. competitive need limits

Present law
      Whenever the President determines that exports by any BDC 
to the United States of a GSP eligible article during any 
year--
          1. exceed a dollar limit ($114 million in 1994) based 
        on $25 million adjusted annually relative to changes in 
        the U.S. GNP since 1974, or
          2. equal or exceed a 50 percent share of the total 
        value of U.S. imports of the article, then, no later 
        than July 1 of the next year, such country is NOT 
        treated as a BDC with respect to such article.
      Not later than January 4, 1987, and periodically 
thereafter, the President must conduct a general review of 
eligible articles and, if he determines that a BDC has 
demonstrated a sufficient degree of competitiveness relative to 
other BDCs on any eligible article, then a lower competitive 
need dollar limit ($41.9 million in 1993, indexed annually from 
1984 base) and 25 percent total import share limit apply.
House bill
      The House bill reduces the basic competitive need limit 
to $75 million for any year beginning January 1, 1996, and 
substitutes a standard annual increase of $5 million for the 
indexing formula in current law. The House bill preserves the 
50 percent market share competitive need limit. The House bill 
deletes the general review requirements and lower limits.
Senate amendment
      No provision.
Conference agreement
      The Senate recedes.

             9. authority to waive competitive need limits

Present law
      The President may waive the dollar and import share 
competitive need limits on any eligible article of any BDC if 
he (1) receives International Trade Commission (ITC) advice on 
the likely effect of the waiver; (2) determines, based on the 
overall GSP and discretionary country designation 
considerations and the ITC advice, that the waiver is in the 
U.S. national economic interest; and (3) publishes the 
determination in the Federal Register.
      The import share competitive need limit may be 
disregarded if total U.S. imports of the eligible article 
during the preceding year do not exceed a de minimis amount of 
$5 million adjusted annually ($13.4 million in 1994) according 
to changes in U.S. GNP since 1979. The import share limit does 
not apply to any eligible article that was not produced in the 
United States as of January 3, 1985.
House bill
      The House bill retains the present waiver authority and 
updates January 3, 1985 for no U.S. production to January 1, 
1995. The House bill also retains the de minimis import 
provision, but substitutes $13 million in 1995 and a standard 
annual increase of $500,000 beginning January 1, 1996 for the 
indexing formula in current law. Further, the House bill 
provides for the refund of duties paid on buffalo leather from 
Thailand during the month of July 1995.
Senate amendment
      No provision.
Conference agreement
      The Senate recedes, with an amendment to strike the 
refund of duties paid on buffalo leather from Thailand.

                  10. other provisions of current law

Present law
      Under section 504(c)(3)(D) of the Trade Act of 1974, the 
President may not exercise the competitive need waiver 
authority in any year on imports of eligible articles 
exceeding:
          1. 30 percent of total GSP duty-free imports during 
        the preceding year, or
          2. 15 percent of total GSP duty-free imports during 
        the preceding year from BDCs which had (a) a per capita 
        GNP of $5,000 or more, or (b) exported to the United 
        States more than 10 percent of total GSP duty-free 
        imports during that year.
    The President may waive competitive need limits in certain 
cases where there has been a historical preferential trade 
relationship between the United States and that country.
      Appropriate U.S. agencies must assist BDCs to develop 
policies to assure that their agriculture sectors are not 
directed to export markets to the detriment of foodstuff 
production for their citizens.
House bill
      The House bill deletes provisions in current law 
regarding waiver trade limits, historical preferences, and 
agriculture production.
Senate amendment
      No provision.
Conference agreement
      The House recedes.

                C. trade adjustment assistance programs

              modification of trade adjustment assistance

Present Law
      Title II of the Trade Act of 1974 authorizes Trade 
Adjustment Assistance (TAA) programs for workers and firms 
adversely affected by increased imports. Eligibility of workers 
and firms is certified by the Employment and Training 
Administration (ETA) of the Department of Labor, and the 
Economic Development Administration (EDA) of the Department of 
Commerce, respectively.
      Subchapter D of chapter 2 of Title II of the Trade Act of 
1974 establishes TAA programs for workers adversely affected by 
increased imports or production relocation associated with the 
implementation of the North American Free Trade Agreement 
(NAFTA).
      Workers certified by the Secretary of Labor for approved 
training qualify for Trade Adjustment Allowance (TRA) payments, 
following their exhaustion of unemployment insurance (UI) 
benefits, equal to their weekly UI amount for up to 52 weeks of 
UI and TRA combined. Workers may receive an additional 26 weeks 
of TRA benefits to complete approved training. Workers must 
enter training unless a waiver is granted by the Secretary of 
Labor where it is not feasible or appropriate to approve a 
training program.
      Certified workers under NAFTA-related TAA receive 
training allowances in the same manner and to the same extent 
as workers under general TAA. However, certified workers must 
enroll in a training program within six weeks of certification, 
and the Secretary of Labor may not waive training requirements. 
Under both general TAA and NAFTA-related TAA, certified workers 
may receive job search and relocation allowances.
      The ``cap'' on payments for training under general worker 
TAA for any fiscal year is $80 million, except for fiscal year 
1997, during which the ``cap'' is $70 million. Under the NAFTA-
related programs, the ``cap'' on payments for training for any 
fiscal year is $30 million.
      Under TAA for firms, the Commerce Department provides 
eligible firms with technical assistance to prepare and 
implement economic adjustment plans, or for industry-wide 
assistance through twelve regional Trade Adjustment Assistance 
Centers (TAACs).
      Appropriations for TAA for workers and TAA for firms are 
authorized through fiscal year 1998. These programs and NAFTA-
related TAA programs terminate after fiscal year 1998.
House bill
      Section 12201 of the House bill amends general TAA so 
that waivers of the training requirement may be granted only 
where a training program is not available. The effective date 
for this provision is October 1, 1996. The House bill also 
eliminates relocation allowances for both general TAA and 
NAFTA-related TAA eligible workers. The effective date for this 
provision is October 1, 1996. Lastly, the House bill would 
extend authorization of appropriations for general TAA for 
workers and TAA for firms through fiscal year 2000, after which 
the programs terminate. NAFTA-related TAA is authorized through 
fiscal year 1998 as under present law. No benefits may be 
granted under either the general worker TAA programs or TAA for 
firms after September 30, 2000.
Senate amendment
      No provision.
Conference agreement
      The House recedes.

  TITLE XII--TEACHING HOSPITALS AND GRADUATE MEDICAL EDUCATION; ASSET 
                  SALES; WELFARE; AND OTHER PROVISIONS

 subtitle a--block grants to states for temporary assistance for needy 
                                families

                             1. objectives

Present law
      To provide for the general welfare by . . . enabling the 
several States to make more adequate provision for . . . 
dependent children . . . (Social Security Act, 1935).
House bill
      To restore the American family, reduce illegitimacy, 
control welfare spending and reduce welfare dependence.
Senate amendment
      To enhance support and work opportunities for families 
with children, reduce welfare dependence, and control welfare 
spending.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment as follows: To restore the American family, 
enhance support and work opportunities for families with 
children, reduce out-of-wedlock pregnancies, reduce welfare 
dependence, and control welfare spending.

                             2. short title

Present law
      Not applicable.
House bill
      The Personal Responsibility Act of 1995.
Senate amendment
      The Work Opportunity Act of 1995.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment as follows: The Personal Responsibility and 
Work Opportunity Act of 1995.

                  3. sense of the congress on families

Present law
       No provision.
House bill
      It is the sense of the Congress that marriage is the 
foundation of a successful society, and an essential social 
institution which promotes the interests of children and 
society at large. The negative consequences of an out-of-
wedlock birth on the child, the mother, and society are well 
documented. Yet the nation suffers unprecedented and growing 
levels of illegitimacy. In light of this crisis, the reduction 
of out-of-wedlock births is an important government interest 
and the policy contained in provisions of this title address 
the crisis.
Senate amendment
      Congress finds that marriage is the foundation of a 
successful society and an essential institution that promotes 
the interests of children. Promotion of responsible fatherhood 
and motherhood is integral to successful child-rearing and 
well-being of children. It is the sense of Congress that 
prevention of out-of-wedlock pregnancy and reduction in out-of-
wedlock birth are very important government interests and that 
the policy contained in provisions of this title is intended to 
address the crisis.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                 4. grants to states for needy families

                               A. Purpose

Present law
      Title IV-A, which provides grants to States for aid and 
services to needy families with children (AFDC), is designed to 
encourage care of dependent children in their own homes by 
enabling States to provide cash aid and services, maintain and 
strengthen family life, and help parents attain maximum self-
support consistent with maintaining parental care and 
protection.
House bill
      Block grants for temporary assistance for needy families 
(Title IV-A) are established to increase the flexibility of 
States in operating a program designed to:
          (1) provide assistance to needy families so that 
        children may be cared for in their homes or in the 
        homes of relatives;
          (2) end the dependence of needy parents on government 
        benefits by promoting work and marriage; and
          (3) discourage out-of-wedlock births.
Senate amendment
      Block grants for temporary assistance for needy families 
(Title IV-A) are established to increase the flexibility of 
States in operating a program designed to:
          (1) provide assistance to needy families with minor 
        children;
          (2) provide job preparation and opportunities for 
        such families; and
          (3) prevent and reduce the incidence of out-of-
        wedlock pregnancies, with a special emphasis on teen 
        pregnancies, and establish annual goals for preventing 
        and reducing these pregnancies for fiscal years 1996 
        through 2000.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                     B. Eligible States; State Plan

Present law
      A State must have an approved State plan for aid and 
services to needy families containing 43 provisions, ranging 
from single-agency administration to overpayment recovery 
rules. State plans explain the aid and services that are 
offered by the State. Aid is defined as money payments. For 
most parents without a child under age 3, States must provide 
education, work, or training under the JOBS program to help 
needy families with children avoid long-term welfare 
dependence. To receive Federal funds, States must share in 
program costs. The Federal share of costs (matching rate) 
varies among States and is inversely related to the square of 
State per capita income. For AFDC benefits and child care, the 
Medicaid matching rate is used. This rate now ranges from 50 
percent to 79 percent among States and averages about 55%. For 
JOBS activities, the rate averages 60%; for administrative 
costs, 50%. In fiscal year 1995, 20 percent of employable 
(nonexempt) adult recipients must participate in education, 
work, or training under JOBS, and at least one parent in 50 
percent of unemployed-parent families must participate at least 
16 hours weekly in an unpaid work experience or other work 
program. States must restrict disclosure of information to 
purposes directly connected to administration of the program 
and to any connected investigation, prosecution, legal 
proceeding or audit. Each State must offer family planning 
services to all ``appropriate'' cases, including minors 
considered sexually active. States may not require acceptance 
of these services. States must have in effect an approved child 
support program. States must also have an approved plan for 
foster care and adoption assistance. States must have an income 
and verification system (covering AFDC, Medicaid, unemployment 
compensation, food stamps, and--in outlying areas--adult cash 
aid) in accordance with Sec. 1137 of the Social Security Act.
House bill
      An ``eligible State'' is a State that, during the 3-year 
period immediately preceding the fiscal year, had submitted a 
plan to the Secretary of HHS for approval. The plan must 
include:
          (1) A written document describing how the State will:
                  a. conduct a program that provides cash 
                benefits to needy families with children, and 
                provides parents with help in preparing for and 
                obtaining employment and becoming self-
                sufficient;
                  b. require at least one parent in a family 
                that has received benefits for 24 months to 
                engage in work activities defined by the State;
                  c. ensure that parents engage in work 
                activities in accord with section 404;
                  d. treat interstate immigrants, if their 
                benefits differ from State residents;
                  e. take such reasonable steps as State deems 
                necessary to restrict use and disclosure of 
                information about recipients;
                  f. take actions to reduce out-of-wedlock 
                pregnancies, including helping unmarried 
                mothers and fathers avoid subsequent 
                pregnancies and provide care for their 
                children; and
                  g. reduce teen pregnancy, including through 
                the provision of education and counseling to 
                male and female teens.
          (2) Certification by the Governor that the State will 
        operate a child support enforcement program.
          (3) Certification by the Governor that the State will 
        operate a child protection program, including a foster 
        care and adoption program.
          (4) The Secretary shall determine whether the State 
        plan contains the material required.
Senate amendment
      An ``eligible State'' is a State that annually submits to 
the Secretary: an outline of its program; a 3-year strategic 
plan; various certifications on programs offered by the State; 
and an estimate of State and local expenditures. The detailed 
requirements of State plan submissions to the Secretary are:
          (1) A written document outlining how the State 
        intends to:
                  a. provide aid to needy families with at 
                least one minor child (or any expectant 
                family); and provide a parent or (other) 
                caretaker in these families with work 
                activities and support services to enable them 
                to leave the program and become self-
                sufficient;
                  b. conduct a program designed to serve all 
                political subdivisions;
                  c. provide a parent or caretaker in such 
                families with work experience, assistance in 
                finding employment, and other work preparation 
                activities and support services that the State 
                considers appropriate to enable such families 
                to leave the program and become self-
                sufficient;
                  d. require a parent or caretaker to engage in 
                work, as defined by the State, after 24 months 
                of benefits, or, if earlier, when the State 
                finds the person ready for work (see i. below 
                for community service rule after 3 months of 
                benefits);
                  e. satisfy the minimum participation rate 
                specified in section 404;
                  f. treat families with minor children moving 
                into the State; and noncitizens of the U.S.;
                  g. safeguard and restrict use and disclosure 
                of information about recipients;
                  h. establish goals and take action to prevent 
                and reduce out-of-wedlock pregnancies, with 
                emphasis on teenage pregnancies; and
                  i. unless the State opts out by notice to the 
                Secretary, require participation in community 
                service (with hours and tasks set by the 
                State), after 3 months of benefits, by a parent 
                or caretaker not exempt from work requirements 
                (effective 2 years after enactment).
          (2) A strategic plan that shall include:
                  a. a description of the goals of the 3-year 
                strategic plan, including outcome-related goals 
                of, and benchmarks for, program activities;
                  b. a description of how the above goals and 
                benchmarks will be achieved, or progress made 
                toward them, in the current year;
                  c. a description of performance indicators to 
                be used in measuring/assessing output service 
                levels and outcomes of activities;
                  d. information on external factors that could 
                significantly affect attainment of goals and 
                benchmarks;
                  e. information on a mechanism for conducting 
                program evaluation, for use in comparing 
                results with goals and benchmarks;
                  f. information on how minimum participation 
                rates specified in section 404 will be 
                satisfied; and
                  g. an estimate of the total amount of State 
                and local expenditures under the program for 
                the current fiscal year.
          (3) Certification that the State will operate a child 
        support enforcement program.
          (4) Certification that the State will operate child 
        protection programs, including foster care and adoption 
        programs, under parts B and E.
          (5) Certification by the Chief Executive Officer that 
        State will participate during the fiscal year in the 
        income and eligibility verification system (IEVS) 
        required by Section 1137 of Social Security Act.
          (6) Certification by the Chief Executive Officer 
        specifying which State agency or agencies will 
        administer and supervise the program and ensuring that 
        local governments and private sector organizations have 
        been consulted about the plan and design of welfare 
        services in the State.
          (7) Certification by the Chief Executive Officer that 
        the State shall provide the Secretary with required 
        reports.
          (8) Estimate of the total amount of State and local 
        expenditures under the State program for the fiscal 
        year.
          (9) The Chief Executive Officer must certify that the 
        State will provide Indians in each tribe that does not 
        have a tribal family assistance plan with equitable 
        access to assistance under the State block grant 
        program.
          (10) The State shall make available to the public a 
        summary of the State plan and shall provide a copy to 
        the ``approved entity'' conducting the audit of State 
        expenditures from the block grant.
Conference agreement
    An ``eligible State'' is a State that once every two years 
submits to the Secretary an outline of its program and various 
certifications on programs offered by the State. The detailed 
requirements of State plan submissions to the Secretary are:
          (1) A written document describing how the State will:
                  a. conduct a program that provides assistance 
                to needy families with children (or families 
                that include a pregnant mother) and provides 
                parents with job preparation, work and support 
                services to enable them to leave the program 
                and become self-sufficient;
                  b. conduct a program designed to serve all 
                political subdivisions;
                  c. require a parent or caretaker to engage in 
                work, as defined by the State, after 24 months 
                of benefits, or, if earlier, when the State 
                finds the person ready for work;
                  d. ensure that families engage in work 
                activities in accord with section 404;
                  e. treat families moving into the State from 
                another State, if such families are to be 
                treated differently than other families;
                  f. take such reasonable steps as State deems 
                necessary to safeguard and restrict the use and 
                disclosure of information about recipients;
                  g. establish goals and take action to prevent 
                and reduce out-of-wedlock pregnancies, with 
                emphasis on teenage pregnancies; and
                  h. treat noncitizens, if the State and local 
                benefits for which they may be eligible will be 
                different than those available to citizens.
          (2) Certification by the chief executive officer that 
        the State operate a child support enforcement program;
          (3) Certification by the chief executive officer that 
        the State will operate a child protection program and a 
        foster care and adoption program under part B;
          (4) Certification by the chief executive officer 
        specifying which State agency or agencies will 
        administer and supervise the program and ensuring that 
        local governments and private sector organizations have 
        had 60 days to submit comments about the plan and the 
        design of welfare services in the State;
          (5) Certification by the chief executive officer that 
        the State will provide Indians in each tribe that does 
        not have a tribal family assistance plan with equitable 
        access to assistance under the program; and
          (6) The State shall make available to the public a 
        summary of the State plan.
    For purposes of this section, the term ``Eligibile State'' 
means, with respect to fiscal year 1996, a State that has 
submitted to the Secretary the plan described above within 3 
months after the date of enactment.

                         C. payments to states

                              entitlements

Present law
    AFDC entitles States to Federal matching funds. Current law 
provides permanent authority for appropriations without limit 
for grants to States for AFDC benefits, administration, and 
AFDC-related child care. Over the years, because of court 
rulings, AFDC has evolved into an entitlement for individuals 
to receive cash benefits. In general, States must give AFDC to 
all persons whose income and resources are below State-set 
limits if they are in a class or category eligible under 
Federal rules.
    There is no grant increase to reward States that reduce 
out-of-wedlock births (illegitimacy ratio).
    There is no adjustment for population growth. Instead, 
current law provides unlimited matching funds. When AFDC 
enrollment climbs, Federal funding automatically rises.
    There is no adjustment for emergency assistance (EA) plan 
amendments. Current law provides unlimited matching funds for 
EA expenditures.
    There is no job placement performance bonus, performance 
bonus, or high performance bonus.
    The law imposes an aggregate ceiling on matching funds for 
AFDC, adult cash welfare (aged, blind, disabled), and foster 
care and adoption assistance in Guam, Puerto Rico, the Virgin 
Islands, and American Samoa (AFDC, foster care, and adoption 
assistance only). (Sec. 1108 (a) and (d) of the Social Security 
Act.) The Federal matching rate is 75%, except for adoption 
assistance and foster care maintenance payments, whose matching 
rate is 50%. (Note: American Samoa has not implemented AFDC). 
Separate funding ceilings apply to matching funds for AFDC 
family planning services (75% Federal) and for Medicaid (50% 
Federal) in each territory (sec. 1108(b) and (c) of the Social 
Security Act). The outlying areas listed above are entitled to 
JOBS matching funds (75% Federal), allocated on the same basis 
as States (by share of AFDC adult recipients). (Sec. 
403(l)(1)(A) of the Social Security Act.)
    Indian tribes and Alaska native organizations receive no 
special treatment regarding AFDC, and tribes and native 
organizations do not administer AFDC funds. Indian and Alaska 
families with children receive AFDC benefits on the same terms 
as other families in their States or from State or local AFDC 
agencies. More than 80 tribes and native organizations in 24 
States are JOBS grantees, having applied to conduct JOBS within 
6 months of enactment of the law establishing it. Their 
allocation of JOBS funds is based on the percentage of AFDC 
adult recipients within the State who are in the tribal service 
area. Their JOBS allocation is subtracted from that of their 
State. JOBS funds granted to Indians and Alaska natives are 
100% Federal, requiring no matching. Further, their JOBS 
programs need not meet participation rules of the regular JOBS 
program. In fiscal year 1995 the estimated allocation of JOBS 
funds for these groups totaled $8.9 million.
House bill
    Each eligible State is entitled to receive a grant from the 
Secretary for each of 5 fiscal years (1996-2000) in the amount 
equal to the State family assistance grant for the fiscal year. 
There is no individual entitlement (implicit in bill). For each 
fiscal year beginning with 1998, a State's grant amount is 
increased by 5 percent if the State illegitimacy ratio is 1 
percentage point lower in that year than its 1995 illegitimacy 
ratio; the State grant is increased 10 percent if the 
illegitimacy ratio is 2 or more percentage points lower than 
its 1995 illegitimacy ratio. In 1997, 1998, 1999, and 2000, a 
State's grant amount is increased by the State's percentage 
share of national population growth among growing States 
multiplied by $100 million. States that have negative 
population growth are omitted from the calculation. The House 
bill entitles territories to a cash block grant for temporary 
assistance to needy families (on same basis as States). It 
repeals AFDC and foster care/adoption assistance (and, 
accordingly, territorial ceilings for them and for AFDC family 
planning). (Sec. 104(e)(1) of H.R. 4.) It establishes new 
separate territorial ceilings for adult cash welfare. The bill 
retains territorial ceilings for Medicaid, but repeals ceilings 
for AFDC family planning (along with AFDC itself). As noted, 
the bill repeals JOBS. The basic cash block grant for outlying 
areas includes base-year level JOBS funds. Indian tribes and 
Alaska native organizations receive no special treatment 
regarding the cash block grant that will replace AFDC. Tribes 
and native organizations would not administer the new grants. 
The bill repeals JOBS (sec. 104(c)), and the basic cash block 
grant includes base-year level JOBS funds of each State (those 
funds include ones earmarked previously for administration by 
Indian tribes and Alaska native organizations). Tribes and 
native organizations would not administer the new grants.
Senate amendment
      The Secretary is required to pay each eligible State for 
each of 5 fiscal years (1996-2000) a grant equal to the State 
family assistance grant for the fiscal year. The amendment 
states that no person is entitled to any assistance under Title 
IV-A. For fiscal years 1998, 1999 and 2000, a State's grant 
amount is increased if the State illegitimacy ratio is at least 
1 percentage point lower than its 1995 illegitimacy ratio and 
the State rate of ``induced pregnancy terminations'' is no 
higher than in 1995. The bonus equals $25 times the number of 
children in the State in families with income below the poverty 
line, according to the most recently available Census data. The 
bonus is $50 per poor child if the illegitimacy ratio is at 
least 2 percentage points lower and the abortion rate no higher 
than in 1995. The bonus shall not be paid if the Secretary 
finds that the illegitimacy ratio declined, or the abortion 
rate held steady, because of a change in State reporting 
methods. The amendment authorizes to be appropriated, and 
appropriates, sums necessary for these grants. For each of 
fiscal years 1997, 1998, 1999, and 2000, qualifying States 
shall receive a supplemental grant amount equal to 2.5 percent 
of the block grant received in the preceding fiscal year. For 
this purpose, a qualifying State is one with an average level 
of State welfare spending per poor person in the preceding 
fiscal year below the national average and with an estimated 
rate of State population growth above the average growth rate 
for all States for the most recent fiscal year for which 
information is available. Additionally, States whose population 
rose more than 10% from April 1, 1990, to July 1, 1994, are 
deemed eligible, as are States with a fiscal year 1996 level of 
State welfare spending per poor person that is less than 35 
percent of the national average level. State welfare spending 
per poor person is defined as the State cash block grant 
divided by the number of persons in the State who had an income 
below the poverty line, according to the 1990 decennial census. 
For these grants, a total of $878 million is authorized to be 
appropriated, and is appropriated to be spent in 1997, 1998, 
1999, and 2000. The Senate amendment makes available up to a 
total of $800 million for grants for years fiscal year 1996 
through fiscal year 2000 equal to increased EA expenditures in 
fiscal year 1995 attributable to State EA plan amendments made 
during fiscal year 1994. If this amount is insufficient, State 
EA adjustment grants are to be reduced proportionately. For 
each of 2 years (fiscal years 1998 and 1999) the Secretary 
shall pay a job placement performance bonus to eligible States. 
This bonus fund shall equal 3% of the national cash block grant 
for fiscal year 1998 and 4% for fiscal year 1999. The DHHS 
Secretary shall develop a formula for allocating funds to 
States on the basis of the number of families who, during the 
previous year, lost eligibility for continued aid from the cash 
block grant program because of obtaining unsubsidized 
employment. The formula must provide a larger bonus for 
families who remain employed for longer periods or who are at 
greater risk of long-term welfare enrollment and take into 
account each State or geographic area's unemployment condition. 
For fiscal year 2000, the Secretary shall pay a performance 
bonus to each qualified State. To qualify for a performance 
bonus, a State must exceed overall average performance of all 
States in a measurement category (in the time period starting 6 
months after enactment and ending on September 30, 1999) or 
improve its own performance in a category by at least 15% over 
that of fiscal year 1994. The 5 measurement categories are: 
reduction in average length of time families receive cash aid, 
increase in the percentage of recipient families that receive 
child support payments, increase in the number of families who 
lose eligibility for continued cash aid as a result of 
unsubsidized work, increase in earnings of recipient families, 
and reduction in percentage of families that become re-eligible 
for cash aid within 18 months after leaving the program. The 
bonus fund shall equal 5% of the national cash block grant and 
is to be deducted from that grant (by reducing each State's 
fiscal year 2000 grant by 5%). For fiscal year 2000, in 
addition, ``high performance'' States shall be entitled to a 
share of a high performance bonus fund. Appropriated for the 
high performance bonus fund is an amount equal to penalties 
imposed on States (and ``collected'' by reductions in State 
grants) for fiscal years 1996-1999. High performance bonuses 
will be awarded for each of the 5 measurement categories to the 
5 States with the highest percentage of improvement over their 
fiscal year 94 baseline in the category and to the 5 States 
with the highest overall average performance in the category. 
Retains but increases aggregate ceilings in each of the 
territories for cash aid to needy families, cash aid to needy 
aged, blind or disabled adults, and foster care/adoption 
assistance. Ends requirement that territories share cost of 
cash aid for needy families. Ceilings for Puerto Rico, Guam, 
and the Virgin Islands would rise by $19.521 million 
(representing a 12.5 percent increase in the old ceilings, plus 
$8.446 million for their fiscal year 1994 JOBS funds). Retains 
territorial ceilings for Medicaid, but repeals ceilings for 
AFDC family planning (along with AFDC itself). The Senate 
amendment repeals JOBS, but increases ceilings for the outlying 
areas to include their base-year level JOBS funds. The Senate 
amendment allows block grant funds to be directly administered 
by Indian tribes and Alaska native organizations. The amount is 
the total of Federal AFDC payments to the State for fiscal year 
1994 attributable to Indian families. The Senate amendment 
requires the DHHS Secretary to continue to pay Indian tribes 
and Alaska native organizations that have been JOBS grantees an 
annual grant equal to the amount they received in fiscal year 
95 for JOBS for each of fiscal years 1996, 1997, 1998, 1999 and 
2000. For this purpose it appropriates $7,638,474 for each 
year. These funds are separate from, and in addition to, the 
national cash block grant.
Conference agreement
    The conference agreement follows the House bill and the 
Senate amendment on grants for family assistance, so that each 
eligible State is entitled to receive a grant equal to the 
State family assistance grant from the Secretary for each of 5 
fiscal years (1996-2000). With respect to the Senate 
amendment's explicit statement that no person is entitled to 
any assistance under Title IV-A of the Social Security Act, 
this provision was dropped from the Reconciliation bill because 
it violates the Byrd Rule (section 313 of Congressional Budget 
Act of 1974).
    The conference agreement follows the House bill with 
respect to the amount of grant increases to reward states that 
reduce out-of-wedlock births (namely grant increases of 5% and 
10%, based on reductions in illegitimacy). The conference 
agreement follows the Senate amendment with respect to the 
determination of how States may qualify for grant increases for 
this purpose, including the prohibition on a State's receiving 
a grant increase for this purpose if the State rate of induced 
pregnancy terminations is higher than in 1995.
      For purposes of this part, the Secretary is to disregard 
changes in rates of illegitimacy due to a change in State 
methods of reporting such data.
      The conference agreement generally follows the Senate 
amendment with regard to the Adjustment for Population Growth, 
with the modification that $800 million is authorized and 
appropriated for this purpose.
    The conference agreement follows the House bill regarding 
the adjustment for Emergency Assistance Plan Amendments.
    The conference agreement follows the House bill regarding 
the Job Placement Performance Bonus.
    The conference agreement follows the Senate amendment 
regarding the Performance Bonus, except that States that are 
most successful or most improved in moving families off welfare 
into work may reduce their 75 percent State maintenance of 
effort requirement by up to 8 percentage points.
    The conference agreement follows the House bill regarding 
the High Performance Bonus.
    The conference agreement generally follows the Senate 
amendment regarding the treatment of outlying areas, with 
certain modifications to the aggregate ceilings on cash 
benefits for the specified territories.
    The conference agreement generally follows the Senate 
amendment regarding the treatment of Indian tribes and Alaska 
native organizations, except that these groups will receive 
benefits through their State's block grant in fiscal year 1996 
and will be eligible to receive separate payments in fiscal 
year 1997 and thereafter. With regard to the specific provision 
outlining the purpose of the section providing for direct 
funding and administration by Indian tribes, this provision was 
dropped from the Reconciliation bill because it violates the 
Byrd Rule (section 313 of Congressional Budget Act of 1974).

                              definitions

Present law
    AFDC law defines ``State'' to include the 50 States, the 
District of Columbia, Puerto Rico, Virgin Islands, Guam, and 
American Samoa. However, special funding ceilings apply to 
them.
House bill
    The ``State family assistance grant'' is determined by the 
greater of (1) the average of Federal obligations to the State 
for selected programs (AFDC benefits and administration, 
Emergency Assistance, and JOBS) authorized by Title IV-A for 
fiscal years 1992-1994; or (2) the amount of Federal 
obligations for fiscal year 1994, multiplied by the total 
amount of State outlays for these programs for fiscal year 
1994, divided by the amount of Federal obligations for fiscal 
year 1994. The selected programs are all those authorized under 
Title IV-A of current law except the day care programs (the at-
risk program, AFDC/JOBS day care, and transitional day care). 
If the sum of all the State shares, as calculated here, exceeds 
(or falls short of) the national block grant amount below 
((2)(b)), each State's share will be reduced (or increased) 
proportionately.
    In each fiscal year between 1996 and 2000, the ``National 
Block Grant Amount'' available to all eligible States will be 
equal to $15,390,296,000.
    The State's ``Illegitimacy Ratio'' for a fiscal year is the 
sum of the number of out-of-wedlock births that occurred in the 
State during the most recent fiscal year for which the data are 
available and the amount, if any, by which the number of 
abortions performed in the State during the most recent year 
for which information is available exceeds the number of 
abortions performed in the State during the fiscal year that 
immediately precedes such most recent fiscal year, divided by 
the number of births that occurred in the State for the most 
recent fiscal year.
    The term ``State'' includes the 50 States, the District of 
Columbia, Puerto Rico, Virgin Islands, Guam, and American 
Samoa.
Senate amendment
    The State share of the block grant for each year equals the 
total Federal payments to the State under Title IV-A in Fiscal 
Year 1994 (for AFDC benefits and administration, Emergency 
Assistance, JOBS, and three child care programs-- AFDC/JOBS 
child care, ``transitional'' child care, and ``at-risk child 
care''); reduced by any amount set aside for tribal family 
assistance programs in the State and (fiscal year 2000 only) by 
5% (for the performance bonus fund) and increased by the 
amount, if any, of increased fiscal year 95 Emergency 
Assistance spending attributable to fiscal year 94 amendments.
    The block grant amount is $16,803,769,000.
(Note: A major reason for the difference between the House and 
Senate block grant amount is that the House removed mandatory 
child care funds currently authorized under Title IV-A and 
placed most of the money in a separate discretionary child care 
block grant, while the Senate kept IV-A child care funds in the 
cash block grant but earmarked them for child care.)
    The term ``illegitimacy ratio'' means the number of out-of-
wedlock births that occurred in the State during the most 
recent fiscal year for which the data are available, divided by 
the number of births that occurred in the State during the most 
recent fiscal year for which the data are available.
    The term ``State'' is identical to the House bill. However, 
for supplemental grants for population increases, the term 
``State'' applies only to the 50 States.
    In general, the terms ``Indian,'' ``Indian tribe,'' and 
``tribal organization'' have the meaning given by section 4 of 
the Indian Self-Determination and Education Assistance Act (25 
U.S.C. 450b). The Senate amendment provides that only 12 
specified regional non-profit corporations of Alaska natives 
can administer tribal family assistance grants.
Conference agreement
    The conference agreement follows the House bill with regard 
to the State family assistance grant, except that the State 
share of the block grant is determined by the greater of (1) 
the average of Federal payments for fiscal years 1992-94; (2) 
Federal payments in fiscal year 1994; or (3) Federal payments 
in fiscal year 1995. House conferees recede with regard to the 
proportionate reduction in State shares included in the House 
bill. For all programs except JOBS, Federal payments represent 
the Federal share of a State's total expenditures on these 
programs, as reported by the States. For JOBS, the payment 
represents the grant amount.
    The conference agreement follows the Senate amendment 
regarding the definition of a State's Illegitimacy Ratio
    The conference agreement follows the House bill and Senate 
amendment regarding the definition of ``State'', but the House 
recedes to the Senate so that, for purposes of the supplemental 
grants for population increases only, the term ``State'' 
applies only to the 50 States and the District of Columbia.
    The conference agreement follows the Senate amendment 
regarding the definition of ``Indian.''

                              use of Grant

Present law
    AFDC and JOBS funds are to be used in conformity with State 
plans. A State may replace a caretaker relative with a 
protective payee or a guardian or legal representative.
    Current law sets aside some JOBS funds (deducting them from 
State allocations) for Indian tribes and Native Alaska 
organizations. See (4)(C)(1)(f).
      Regulations permit States to receive Federal 
reimbursement funds (50% administrative cost-sharing rate) for 
operation of electronic benefit systems. To do so, States must 
receive advance approval from DHHS and must comply with 
automatic data processing rules.
House bill
      States may use funds in any manner reasonably calculated 
to accomplish the purpose of this part (except for prohibitions 
listed below under (4)(F)). No part of the grant may be used to 
provide medical services. Explicitly allowed are noncash aid to 
mothers under the age of 18 and assistance to low-income 
households for heating and cooling costs.
      The House bill has no set-aside provision.
      In the case of families that have lived in a State for 
less than 12 months, States are authorized to provide them with 
the benefit level of the State from which they moved.
      States may transfer up to 30 percent of the funds paid to 
the State under this section to any or all of the following: 
(1) child protection block grant; (2) social services block 
grant under title XX of the Social Security Act; (3) any food 
and nutrition block grant passed during the 104th Congress; and 
(4) the child care and development block grant program. Rules 
of the recipient program will apply to the transferred funds.
      States are allowed to reserve some block grant funds 
received for any fiscal year for the purpose of providing 
emergency assistance under the block grant program.
      States are encouraged to implement an electronic benefit 
transfer system for providing assistance under the State 
program funded under this part, and may use the grant for such 
purpose. In general, exempts State and local government 
electronic transfers of need-based benefits from certain rules 
issued by the Federal Reserve Board regarding electronic fund 
transfers, (i.e., Regulation E, which limits liability of 
cardholders).
Senate amendment
      States may use funds in any manner reasonably calculated 
to accomplish the purpose of this part, provided that 
administrative costs not exceed 15% of the State's grant 
(except for prohibitions listed below, under section F).
      The following rules apply to set-asides under the Senate 
amendment: (1) maintains current law set-asides for JOBS 
funding for Indian tribes and Alaska native organizations; (2) 
from the national cash block grant, the Senate amendment 
earmarks for child care annually the amount paid with Federal 
funds in fiscal year 1994 for AFDC-related child care (about 
$980 million); and (3) for the Performance fund (fiscal year 
2000 only), each State's share of the family assistance block 
grant shall be reduced by 5%. These set-aside funds are to 
finance fiscal year 2000 performance bonuses.
      With regard to the treatment of ``interstate 
immigrants'', the Senate amendment includes a similar 
provision, with slight differences in wording, in relation to 
the House bill.
      States may transfer up to 30 percent of block grant funds 
to the child care and development block grant program.
      A State may reserve amounts paid to the State for any 
fiscal year for the purpose of providing assistance under this 
part. Reserve funds can be used in any fiscal year. Any funds 
set aside for child care, if reserved, must be used only for 
child care.
      States may use a portion of the temporary assistance 
block grant to make payments (or provide job placement 
vouchers) to State-approved agencies that provide employment 
services to recipients of cash aid.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment with respect to the general uses of the grant, 
clarifying that the grant may be used in any manner reasonably 
calculated to increase the flexibility of States in operating a 
program designed to: (1) provide assistance to needy families 
so that children may be cared for in their own homes or in the 
homes of relatives; (2) end the dependence of needy parents on 
government benefits by promoting job preparation, work, and 
marriage; (3) prevent and reduce the incidence of out-of-
wedlock pregnancies and establish annual numerical goals for 
preventing and reducing the incidence of these pregnancies; and 
(4) encourage the formation and maintenance of two-parent 
families.
      The conference agreement follows the Senate amendment's 
15% cap on administrative spending. However, spending for 
information technology and computerization needed to implement 
the tracking and monitoring required by this title are excluded 
from this limitation.
      The conference agreement follows the House bill with 
regard to set-asides for child care and the performance fund, 
and follows the Senate amendment with regard to the set-aside 
for Indians.
      It is the intent of the conferees that States be 
permitted to determine the treatment of interstate immigrants, 
including whether to provide such persons with benefits 
equaling those they would have received in their former State, 
for a period of up to 12 months. A provision specifically 
authorizing such treatment was dropped from the Reconciliation 
bill because it violates the Byrd Rule (section 313 of 
Congressional Budget Act of 1974).
      The conference agreement follows the House bill with 
regard to transfer of funds.
      The conference agreement follows the Senate amendment on 
reservation of funds. The conference agreement follows the 
House bill with regard to the Electronic Benefit Transfer 
System.
      The conference agreement follows the Senate amendment on 
the authority of States to use funds to operate an employment 
placement program.

                              Cost-Sharing

Present law
      Current law requires States to share program costs. For 
administrative costs the rate is 50%. For other costs it varies 
among States (and, within limits, is inversely related to the 
square of State per capita income, compared to the square of 
national per capita income). For AFDC benefits and AFDC-related 
child care, the Medicaid Federal matching rate is used; it now 
ranges among States from a floor of 50% to 79%. For JOBS 
activities, the law provides an ``enhanced'' rate, ranging from 
60% to 79%.
House bill
      No cost-sharing required.
Senate amendment
      The Senate amendment requires State cost-sharing 
(maintenance of effort) for the temporary assistance block 
grant for 4 years, starting in fiscal year 1997. To receive the 
full grant for one of these years, States must spend in the 
preceding year from their own funds under their temporary 
assistance program at least 80% of the amount they spent in 
fiscal year 1994 on the replaced programs--AFDC benefits, AFDC-
related child care, Emergency Assistance, and JOBS. Grants are 
to be reduced one dollar for each dollar by which a State falls 
short of this requirement. Cost-sharing also is required for 
``contingency'' funds and additional child care funds. For 
contingency funds States must spend at least 100% of fiscal 
year 1994 expenditures on programs replaced by the cash block 
grant. For additional child care funds they must spend at least 
100% of fiscal year 1994 expenditures on AFDC-related child 
care.
Conference agreement
      The conference agreement follows the Senate amendment, 
with the modification that States must spend at least 75 
percent of the amount they spent in fiscal year 1995.

                           Timing of Payments

Present law
      The Secretary pays AFDC funds to the State on a quarterly 
basis.
House bill
      The Secretary shall make each grant payable to a State in 
quarterly installments.
Senate amendment
      Similar to the House provision.
Conference agreement
      The conference agreement follows the House bill.

                               Penalties

Present law
      If the Secretary finds that a State has failed to comply 
with the State plan, she is to withhold all payments from the 
State (or limit payments to categories not affected by 
noncompliance).
      There is no specific penalty for failure to submit a 
report, although the general noncompliance penalty could apply.
      The Secretary is to reduce payments by 1% for failure to 
offer and provide family planning services to all appropriate 
AFDC recipients who request them.
      Except as expressly provided, the Secretary may not 
regulate the conduct of the States or enforce any provisions of 
this paragraph.
      The penalty against a State for noncompliance with child 
support enforcement rules--loss of AFDC matching funds--shall 
be suspended if a State submits and implements a corrective 
action plan.
House bill
      The Secretary shall reduce the funds paid to a State by 
any amount found by audit to be in violation of this part, but 
the Secretary cannot reduce any quarterly payment by more than 
25 percent. If necessary, funds will be withheld from the 
State's payments during the following year.
      The Secretary must reduce by 3 percent the amount 
otherwise payable to a State for a fiscal year if the State has 
not submitted the annual report regarding the use of block 
grant funds within 6 months after the end of the immediately 
preceding fiscal year. The penalty is rescinded if the report 
has been submitted within 12 months.
      The Secretary must reduce by 1 percent the amount of a 
State's annual grant if the State fails to participate in the 
IEVS designed to reduce welfare fraud.
      With regard to failure to offer and provide family 
planning services, there is no penalty specified, but States 
are allowed to use block grant funds to pay for family planning 
services.
      Except as expressly provided, the Secretary may not 
regulate the conduct of States under Part A of Title IV or 
enforce any provision of it.
      There is no provision in the House bill regarding overdue 
repayments to the Federal rainy day loan fund, which is 
described below.
Senate amendment
      For all penalties, the Secretary may not impose any of 
the penalties if she finds the State had reasonable cause for 
its failure to comply with the relevant provision. The State 
must spend on the block grant program a sum of its own funds to 
equal the amount of withheld Federal dollars. No quarterly 
payment may be reduced more than 25%. If necessary, penalty 
funds will be withheld from the State's payment for the next 
year. Except for the first item, all penalties take effect 
October 1, 1996.
      The Secretary shall reduce funds paid to a State by any 
amount found by audit to be in violation of this part. If the 
State does not prove to the Secretary that the unlawful 
expenditure was not made intentionally, the Secretary shall 
impose an additional penalty of 5 percent of the basic block 
grant.
      If a State fails to submit the annual report required by 
sec. 409 within 6 months after the end of a fiscal year, the 
Secretary shall reduce by 5 percent the amount otherwise 
payable to the State for the next year. However, the penalty 
shall be rescinded if the State submits the report before the 
end of the year in which the report was due.
      The Secretary shall reduce by not more than 5 percent the 
annual grant of a State, if the State fails to participate in 
the IEVS designed to reduce welfare fraud.
      If the Secretary determines that a State does not enforce 
penalties requested by the Title IV-D child support enforcement 
agency against recipients of cash aid who fail to cooperate in 
establishing paternity in accordance with Part D, the Secretary 
shall reduce the cash assistance block grant by not more than 5 
percent.
      Except as expressly provided, neither the DHHS Secretary 
nor the Treasury Secretary may regulate the conduct of States 
under Part A of Title IV nor enforce any provision of it.
      If a State fails to pay any amount borrowed from the 
Federal Loan Fund for State Welfare Programs within the 
maturity period, plus any interest owed, the Secretary shall 
reduce the State's cash assistance block grant for the 
immediately succeeding fiscal year quarter by the outstanding 
loan amount, plus the interest owed on it. The Secretary may 
not forgive these overdue debts.
      The Senate amendment requires the Federal government, 
before assessing a penalty against a State under any program 
established or modified by the act, to notify the State about 
the violation and allow it to enter into a corrective 
compliance plan within 60 days after notification. The Federal 
government shall have 60 days to accept or reject the plan; if 
it accepts the plan, and if the State corrects the violation, 
no penalty shall be assessed. If the State fails to make a 
timely correction, some or all of the penalty shall be 
assessed. An alternate corrective action section requires a 
State to correct the violation pursuant to its plan within 90 
days after the Federal government accepts the plan.
Conference agreement
      The conference agreement follows the Senate amendment on 
the general conditions for setting penalties (i.e. penalties 
may not be imposed if the Secretary finds the State had 
reasonable cause for its failure to comply; the State must 
spend on the block grant program a sum of its own funds to 
equal the amount of withheld Federal dollars; no quarterly 
payment may be reduced more than 25%; if necessary, penalty 
funds will be withheld from the State's payment for the next 
year; and that, except for the first item, all penalties take 
effect October 1, 1996).
      The conference agreement follows the Senate amendment on 
penalties for use of the grant for unauthorized purposes. The 
conference agreement follows the House bill and the Senate 
amendment regarding penalties for State failure to submit the 
required report, except that the penalty is to be 4 percent. 
The conference agreement follows the House bill and the Senate 
amendment regarding penalties for State failure to participate 
in IEVS, except that the penalty is to be 2 percent.
      The conference agreement follows the Senate amendment on 
penalties for State failure to cooperate on child support 
enforcement. The conference agreement follows the House bill 
and the Senate amendment regarding penalties for failure to 
offer and provide family planning services. The conference 
agreement includes penalties for failure to satisfy minimum 
work participation rates. The conference agreement follows the 
Senate amendment regarding the limitation of Federal authority.
      The conference agreement follows the Senate amendment 
regarding the penalty for failure to timely repay the Federal 
loan fund for State welfare programs. The conference agreement 
follows the Senate amendment regarding the Corrective Action 
Plan.

                      Federal Rainy Day Loan Fund

Present law
      No provision. Instead, current law provides unlimited 
matching funds.
House bill
      The Federal government will establish a fund of $1 
billion modeled on the Federal Unemployment Account, which is 
part of the Unemployment Compensation system. The fund is to be 
administered by the Secretary of Health and Human Services, who 
must deposit into the fund any principal or interest payments 
received with respect to a loan made under this provision. 
Funds are to remain available without fiscal year limitation 
for the purpose of making loans and receiving payments of 
principal and interest. States must repay their loans, with 
interest, within 3 years. The rate of interest will equal the 
current average market yield on outstanding marketable 
obligations of the United States with remaining periods to 
maturity comparable to the period to maturity of the loan. At 
any given time, no State can borrow more from the fund than 
half its annual share of block grant funds or $100 million, 
whichever is less. States may borrow from the fund if their 
total unemployment rate for any given 3 month period is more 
than 6.5 percent and is at least 110 percent of the same 
measure in the corresponding quarter of the previous 2 years.
Senate amendment
      Establishes a $1.7 billion revolving loan fund called the 
``Federal Loan Fund for State Welfare Programs.'' The Secretary 
shall make loans, and the rate of interest will equal the 
current average market yield on outstanding marketable 
obligations of the United States with remaining periods to 
maturity comparable to the period to maturity of the loan. 
Ineligible are States that have been penalized for misspending 
block grant funds as determined by an audit. Loans are to 
mature in 3 years, at the latest, and the maximum amount loaned 
to a State cannot exceed 10 percent of its basic block grant, 
and States face penalties for failing to make timely payments 
on their loan.
Conference agreement
      The conference agreement follows the Senate amendment.

          contingency fund (for states with high unemployment)

Present law
      No provision. Current law provides unlimited matching 
funds.
House bill
      No provision.
Senate amendment
      Establishes a ``Contingency Fund for State Welfare 
Programs'' and appropriates funds of up to $1 billion for a 
total period of 7 years (fiscal year 1996-2002). The fund would 
provide matching grants (at the Medicaid matching rate) to 
States that have unemployment rates above specified levels, 
provided they first spent from their own funds a yearly sum at 
least equal to their fiscal year 1994 expenditures on AFDC, 
AFDC-related child care, Emergency Assistance, and JOBS. The 
maximum contingency grant could not exceed 20 percent of a 
State's temporary assistance block grant. Eligible would be 
States that met the maintenance of effort requirement and had 
an average rate of total unemployment, seasonally adjusted, of 
at least 6.5 percent during the most recent 3 months with 
published data and a rate at least 10 percent above that of 
either or both of the corresponding 3-month periods in the 2 
preceding calendar years.
Conference agreement
      The conference agreement follows the Senate amendment, 
with the modification that $800 million is appropriated for 
this purpose. The provision requiring the Secretary of the 
Treasury to annually report to Congress on the status of the 
fund was dropped from the Reconciliation bill because it 
violates the Byrd Rule (section 313 of Congressional Budget Act 
of 1974).

                       additional day care funds

Present law
      No provision. Current law provides unlimited matching 
funds for AFDC/JOBS child care and transitional child care (but 
a capped amount for ``at-risk'' care).
House bill
      No provision.
Senate amendment
      The Senate amendment authorizes to be appropriated, and 
appropriates, $3 billion in matching grants to States for the 
5-year period beginning in fiscal year 1996 for child care 
assistance (in addition to Federal funds set aside for child 
care in the family assistance block grant). The funds, which 
are allocated among the States on the basis of their share of 
the nation's child population, are to be used to reimburse a 
State, at the Medicaid matching rate, for child care spending 
in a fiscal year that exceeds its share of child care set-aside 
funds (100 percent Federal) plus the amount it spent from its 
own funds in fiscal year 1994 for AFDC/JOBS child care, 
transitional child care, and at-risk child care. Funds are to 
be used only for child care assistance under Part IV-A. In the 
last quarter of the fiscal year, fiscal year 2000, if any 
portion of a State allotment is not used, the Secretary shall 
make it available to applicant States. Notwithstanding section 
658T of the Child Care and Development Block Grant Act, the 
State agency administering the family assistance block grant 
shall determine eligibility for all child care assistance 
provided under Title IV-A. (For budget scoring, the Amendment 
states that the baseline shall assume that no grant will be 
made after fiscal year 2000.)
Conference agreement
      See discussion in Subtitle I of the conference agreement 
under Child Care and Development Block Grant.

                     d. contracts/client agreements

                                 terms

Present law
      After assessing the needs and skills of recipients and 
developing an employability plan, States may require JOBS 
participants to negotiate and enter into an agreement that 
specifies their obligations.
House bill
      No provision.
Senate amendment
      States must assess, through a case manager, the skills of 
each parent for use in developing and negotiating a personal 
responsibility contract (PRC). Each recipient family must enter 
into a contract developed by the State or into a limited 
benefit plan. The PRC means a binding contract outlining steps 
to be taken by the family and State to get the family ``off of 
welfare'' and specifying a negotiated time-limited period of 
eligibility for cash aid. An alternate provision requires the 
case manager to consult with the parent applicant (client) in 
developing a PRC, lists client activities that the PRC might 
require, specifies that clients must agree to accept a bona 
fide offer of an unsubsidized full-time job unless they have 
good cause not to, but does not require a time limit in the PRC 
nor make provision for a limited benefit plan. A State may 
exempt a battered person from entering into a PRC if its terms 
would endanger his/her well-being.
Conference agreement
      The conference agreement follows the House bill.

                               penalties

Present law
      No provision.
House bill
      No provision.
Senate amendment
      The PRC is to provide that if a family fails to comply 
with its terms, the family automatically will enter into a 
limited benefit plan (with a reduced benefit and later 
termination of aid, in accordance with a schedule determined by 
the State). If the State agency violates the PRC, the contract 
shall be invalid. The State is to establish a procedure, 
including the opportunity for hearing, to resolve disputes 
concerning participation in the PRC. The alternate PRC language 
provides these penalties: for the first act of noncompliance 
with the PRC, 33 percent reduction in the family's benefit for 
one month; for the second act, 66 percent reduction for 3 
months; for third and subsequent acts of noncompliance, loss of 
eligibility for 6 months. Job refusal without good cause is 
treated as a third violation. However, in no case shall the 
penalty period extend beyond the duration of noncompliance.
Conference agreement
      The conference agreement follows the House bill.

                     e. mandatory work requirements

                            work activities

Present law
      JOBS programs must include specified educational 
activities (high school or equivalent education, basic and 
remedial education, and education for those with limited 
English proficiency); job skills training, job readiness 
activities, and job development and placement. In addition, 
States must offer at least two of these four items: group and 
individual job search; on-the-job training; work 
supplementation or community work experience program (CWEP) (or 
another work experience program approved by the DHHS 
Secretary). The State also may offer postsecondary education in 
``appropriate'' cases.
House bill
      ``Work activities'' are defined as unsubsidized 
employment, subsidized employment, subsidized public sector 
employment or work experience, on-the-job training, job search, 
education and training directly related to employment, and jobs 
skills training directly related to employment. Satisfactory 
attendance at secondary school, at State option, may be 
included as a work activity for a parent under 20 who has not 
completed high school.
Senate amendment
      Establishes this list of work activities: unsubsidized 
employment, subsidized employment, on-the-job training, 
community service programs, job search (first 4 weeks only) and 
vocational educational training (12 months maximum). For work 
participation requirements, the proportion of persons counted 
as engaged in ``work'' through participation in vocational 
educational training cannot exceed 25 percent. For each tribe 
receiving a family assistance block grant, the Secretary, with 
participation of Indian tribes, shall establish minimum work 
participation rules, appropriate time limits for benefits, and 
penalties, similar to the general family assistance rules but 
consistent with the economic conditions and resources of the 
tribe.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment, with the modification that, for the work 
participation requirements, the proportion of persons counted 
as engaged in work through participation in vocational 
education cannot exceed 20 percent.

                Participation Requirements: All Families

Present law
      The following minimum percentage of non-exempt AFDC 
families must participate in JOBS:

  Fiscal year:                                        Minimum percentage
    1995 (last year)..............................................    20
    1996 and thereafter........................................... \1\ 0

\1\ No requirement.

      Exempt from JOBS are parents whose youngest child is 
under 3 (1, at State option). Other exemptions include persons 
who are ill, incapacitated or needed at home because of illness 
or incapacity of another person. Also exempt are parents of a 
child under 6, unless the State guarantees child care and 
requires no more than 20 hours weekly of JOBS activity.
      Participation rates are calculated for each month. A 
State's rate, expressed as a percentage, equals the number of 
actual JOBS participants divided by the number of AFDC 
recipients required to participate (non-exempt from JOBS).
      In calculating a State's overall JOBS participation rate, 
a standard of 20 hours per week is used. The welfare agency is 
to count as participants the largest number of persons whose 
combined and averaged hours in JOBS activities during the month 
equal 20 per week.
      The law requires States to guarantee child care when 
needed for JOBS participants and for other AFDC parents in 
approved education and training activities. Regulations require 
States to guarantee care for children under age 13 (older if 
incapable of self-care) to the extent that it is needed to 
permit the parent to work, train, or attend school. States must 
continue child care benefits for 1 year to ex-AFDC working 
families, but must charge them an income-related fee.
House bill
      The following minimum percentages of all families 
receiving cash assistance must engage in work activities:

  Fiscal year:                                        Minimum percentage
    1996..........................................................    10
    1997..........................................................    15
    1998..........................................................    20
    1999..........................................................    25
    2000..........................................................    27
    2001..........................................................    29
    2002..........................................................    40
    2003 or thereafter............................................    50

      If States achieve net caseload reductions, they receive 
credit for the number of families by which the caseload is 
reduced for purposes of meeting the overall family 
participation requirements. The minimum participation rate 
shall be reduced by the percentage by which the number of 
recipient families during the fiscal year falls below the 
number of AFDC families in fiscal year 1995, except to the 
extent that the Secretary determines that the caseload 
reduction was required by terms of Federal law.
      The fiscal year participation rates are the average of 
the rates for each month during the year. The monthly 
participation rates are measured by the number of recipient 
families in which an individual is engaged in work activities 
for the month, divided by the total number of recipient 
families that include a person who is 18 or older.
      To be counted as engaged in work activities for a month, 
the recipient must be making progress in qualified activities 
for at least the minimum average number of hours per week shown 
in the table below. Of these hours, at least 20 hours must be 
spent in unsubsidized employment, subsidized private sector 
employment, subsidized public sector employment, work 
experience, or on-the-job training. During the first 4 weeks of 
required work activity, hourly credit also is given for job 
search and job readiness assistance.

Fiscal year                                 Minimum average hours weekly
    1996..........................................................    20
    1997..........................................................    20
    1998..........................................................    20
    1999..........................................................    25
    2000..........................................................    30
    2001..........................................................    30
    2002..........................................................    35
    2003 or thereafter............................................    35

      Although a person must work at least 20 hours weekly in 
order for any hours of their training or education to count 
toward required participation, the bill does not prohibit a 
State from offering cash recipients an opportunity to 
participate in education or training before requiring them to 
work. In this case, however, participation does not count 
toward fulfillment of the State mandatory participation rate. 
Note: although the above table is in a paragraph entitled 
``requirements applicable to all families receiving 
assistance,'' another paragraph establishes a higher hourly 
requirement (35 hours weekly) in all years for 2-parent 
families. See below.
Senate amendment
      The following minimum percentages of all families 
receiving cash assistance (except those with a child under 1, 
if exempted by the State) must participate in work activities:

Fiscal year                                           Minimum percentage
    1996..........................................................    25
    1997..........................................................    30
    1998..........................................................    35
    1999..........................................................    40
    2000 or thereafter............................................    50

      The Secretary is directed to prescribe regulations for 
reducing the minimum participation rate required for a State if 
its caseload under the new program is smaller than in the final 
year of AFDC, but not if the decrease was required by Federal 
law or results from changes in eligibility criteria adopted by 
the State. With these qualifications, the regulations are to 
reduce the participation rate by the number of percentage 
points, if any, by which the caseload in a fiscal year is 
smaller than in fiscal year 1995.
      States may exempt a parent or caretaker relative of a 
child under one year old and may exclude them from the 
participation rate calculation. States may exempt a battered 
person if their well-being would be endangered by a work 
requirement.
      As in the House bill, the fiscal year participation rate 
is the average of the rates for each month of the year. 
However, overall monthly rates are measured by adding (1) the 
number of recipient families with an adult engaged in work for 
the month, (2) the number subject to a work refusal penalty in 
the month (if not subject to the penalty for more than 3 months 
out of the preceding 12), and (3) the number who worked their 
way off the program in the previous 6 months and that include 
an adult who is working for the month, and then dividing this 
total by the number of families enrolled in the program during 
the month that include an adult recipient. States have the 
option to include in the calculation of monthly participation 
rates families who receive assistance under a tribal family 
assistance plan if the Indian or Alaska Native is participating 
in work under standards comparable to those of the State for 
being engaged in work.
      To be counted as engaged in work for a month, an adult 
must be participating in work for at least the minimum average 
number of hours per week shown in the table below (of which not 
fewer than 20 hours per week are attributable to a work 
activity). See list of work activities above.
      Exception to the table: In fiscal year 1999 and 
thereafter, when required weekly hours rise above 20, a State 
may count a single parent with a child under age 6 as engaged 
in work for a month if the parent works an average of 20 hours 
weekly. Also, community service participants may be treated as 
engaged in work if they provide child care services for another 
participant for the number of hours deemed appropriate by the 
State.

Fiscal year                                 Minimum average hours weekly
    1996..........................................................    20
    1997..........................................................    20
    1998..........................................................    20
    1999..........................................................    25
    2000..........................................................    30
    2001..........................................................    30
    2002..........................................................    35
    2003 or thereafter............................................    35

      Note: Although the above table is in a paragraph entitled 
``all families,'' another paragraph establishes a higher hourly 
requirement (35 hours weekly) in all years for 2-parent 
families. See below.
      The Senate amendment states that nothing in sec. 421 
(amounts for child care) shall be construed to provide an 
entitlement to child care services to any child.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment as follows:
      The following minimum percentages of all families 
receiving cash assistance must participate in work activities:

Fiscal year                                           Minimum percentage
    1996..........................................................    15
    1997..........................................................    20
    1998..........................................................    25
    1999..........................................................    30
    2000..........................................................    35
    2001..........................................................    40
    2002 or thereafter............................................    50

      The conference agreement generally follows the Senate 
amendment regarding reduction in the participation rate, with 
the modification that regulations shall not take into account 
families diverted from the State program as a result of 
differences in eligibility criteria under the State program (in 
comparison with the AFDC program that operated prior to the 
date of enactment). The regulations shall place the burden on 
the Secretary to prove that families were diverted as a direct 
result of differences in eligibility criteria.
      The conference agreement follows the House bill regarding 
exemptions from the work requirement for battered individuals. 
The provision regarding the state option to exempt families 
with a child under 1 was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).
      The conference agreement follows the House bill and the 
Senate amendment regarding the calculation of the fiscal year 
rate. The conference agreement generally follows the Senate 
amendment regarding the calculation of monthly rates, except 
that the Senate recedes on counting people who have worked 
their way off the rolls in the previous 6 months and including 
sanctioned individuals in the numerator; conferees agree that 
sanctioned persons are to be subtracted from the denominator in 
determining monthly rates.
      The conference agreement follows the House bill with 
regard to the number counted as engaged in work, except that 
the phrase ``making progress in qualified activities'' is 
replaced with ``participating in qualified activities''.

            Participation Requirements: Two-Parent Families

Present law
      The following minimum percentages of two-parent families 
receiving cash assistance must participate in specified work 
activities:

Fiscal year                                           Minimum percentage
    1995..........................................................    50
    1996..........................................................    60
    1997..........................................................    75
    1998 (last year)..............................................    75
    1999 and thereafter (no requirement)..........................     0

      Participation rates for a month equal the number of 
parents who participate divided by the number of principal 
earners in AFDC-UP families (but excluding families who 
received aid for 2 months or less, if one parent engaged in 
intensive job search).
      One parent in the 2-parent family must participate at 
least 16 hours weekly in on-the-job training, work 
supplementation, community work experience program, or a State-
designed work program.
House bill
      The following minimum percentages of two-parent families 
receiving cash assistance must engage in work activities:

Fiscal year                                           Minimum percentage
    1996..........................................................    50
    1997..........................................................    50
    1998..........................................................    90
    1999 and thereafter...........................................    90

      Participation rates for a month are measured by the 
number of two-parent recipient families in which at least one 
adult is engaged in work activities for the month, divided by 
the total number of two-parent families that received cash aid 
during the month.
      An adult in a 2-parent family is engaged in work 
activities when making progress in them for 35 hours per week, 
at least 30 of which are in unsubsidized employment, subsidized 
private sector employment, subsidized public sector employment, 
work experience, or on-the-job training (or job search and job 
readiness assistance for the first 4 weeks only).
Senate amendment
      The following minimum percentages of two-parent families 
receiving cash assistance must participate in work:

Fiscal year                                           Minimum percentage
    1996..........................................................    60
    1997..........................................................    75
    1998..........................................................    75
    1999 and thereafter...........................................    90

      Participation rates for 2-parent families are measured 
(like those for all families) by adding (1) the number of 2-
parent recipient families with an adult engaged in work for the 
month; (2) the number of 2-parent families subject to a work 
refusal penalty in the month (if not subject to the penalty for 
more than 3 months out of the preceding 12); and (3) the number 
of 2-parent families who worked their way off the program in 
the previous 6 months and that include an adult who is working 
for the month, and then dividing this total by the number of 2-
parent families enrolled in the program during the month that 
include an adult recipient.
      An adult in a 2-parent family must participate in work 
for at least 35 hours per week during the month, and at least 
30 hours weekly must be attributable to one or more of the 6 
work activities listed above in ``4.E. Mandatory Work 
Requirements,'' above.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment so that the following minimum percentages of 
two-parent families receiving cash assistance must participate 
in specified work activities:

Fiscal year                                           Minimum percentage
    1996..........................................................    50
    1997..........................................................    75
    1998..........................................................    75
    1999 and thereafter...........................................    90

      With regard to participation rates for a month, the 
conference agreement for 2-parent families matches the 
agreement for all families described above, so that the rates 
equal the number of two-parent recipient families in which at 
least one adult is engaged in work activities for the month, 
divided by the total number of two-parent families that 
received cash assistance minus sanctioned persons.
      The conference agreement follows the House bill and the 
Senate amendment regarding creditable activities, except the 
Senate recedes so that the percentage of the caseload able to 
be counted as engaged in a work activity through vocational 
education training cannot exceed 20 percent.

                               Penalties

Present law
      For failure to meet JOBS requirements without good cause, 
AFDC benefits are denied to the offending parent and payments 
for the children are made to a third party.
      In a 2-parent family, failure of 1 parent to meet JOBS 
requirements without good cause results in denial of benefits 
for both parents (unless the other parent participates) and 
third-party payment on behalf of the children. Repeated 
failures to comply bring potentially longer penalty periods.
      If a State fails to achieve the two required 
participation rates (overall and for 2-parent families), the 
Federal reimbursement rate for its JOBS spending (which ranges 
among States from 60% to 79% for most JOBS costs) is to be 
reduced to 50%.
House bill
      If recipients refuse to participate in required work 
activities, their cash assistance is reduced by an amount to be 
determined by individual States, subject to good cause and 
other exceptions that the State may establish.
      Recipients in two-parent families who fail to work the 
required number of hours receive the proportion of their 
monthly cash grant that equals the proportion of required work 
hours they actually worked during the month, or less at State 
option.
      No officer or employee of the Federal government may 
regulate the conduct of States under this paragraph (about 
penalties against individuals) or enforce this paragraph 
against any State.
      States not meeting the required participation rates have 
their overall grant (calculated without the bonus for reducing 
out-of-wedlock births and before other penalties listed in C(5) 
above) reduced by up to 5 percent the following fiscal year; 
penalties shall be based on the degree of noncompliance as 
determined by the Secretary.
Senate amendment
      If an adult recipient refuses to engage in required work, 
the State shall reduce the amount of assistance to the family 
pro rata (or more, at State option) with respect to the period 
of work refusal, or shall discontinue aid, subject to good 
cause and other exceptions that the State may establish. A 
State may not penalize a single parent caring for a child under 
age 6 for refusal to work if the parent has a demonstrated 
inability to obtain needed child care. Penalties against 
individuals in 2-parent families follow those against 
individuals, except that the penalties may apply against 
parents of children under 6 who refuse to work due to an 
inability to obtain child care.
      No specific provision about regulation of penalties 
against individuals. However, the amendment provides that 
neither the DHHS Secretary nor the Treasury Secretary may 
regulate the conduct of States under Title IV-A or enforce any 
of its provisions, except to the extent expressly provided in 
the Act.
      If a State fails to meet minimum work participation 
rates, the Secretary is to reduce the family assistance block 
grant as follows: For the first year of failure, by 5% (applied 
in the next year); for subsequent years of failure, by an 
additional 5% (thus, by 5.25%). The Secretary shall impose 
reductions on the basis of the degree of noncompliance.
Conference agreement
      The conference agreement follows the Senate amendment 
regarding penalties against individuals, except with the 
modification that the burden of proof to demonstrate an 
inability to find needed child care rests on the parent of a 
child under age 6. The conference agreement follows the Senate 
amendment regarding penalties against individuals in two-parent 
families.
      The conference agreement follows the House bill on 
penalties against States not meeting work requirements, except 
the House recedes to the Senate on corrective action 
provisions.

       Rule of Interpretation (concerning education and training)

Present law
      JOBS programs must include specified educational 
activities and job skills training.
House bill
      This part does not prohibit a State from establishing a 
program for recipients that involves education and training.
Senate amendment
      No explicit statement. However, the amendment qualifies 
vocational educational training as a ``work activity,'' with a 
12-month maximum and a limit on the proportion of vocational 
educational trainees who can be counted in calculating work 
participation rates.
Conference agreement
      The House recedes, so no specific provision.

                     Research (about work programs)

Present law
      Authorizes States to make ``initial'' evaluations (in 
fiscal year 1991) of demographic characteristics of JOBS 
participants and requires the DHHS Secretary, in consultation 
with the Labor Secretary, to assist the States as needed.
House bill
      The Secretary is to conduct research on the costs and 
benefits of mandatory work requirements in the Act, and to 
evaluate promising State approaches in employing welfare 
recipients. See also ``Research, Evaluations, and National 
Studies'' below.
Senate amendment
      The Secretary is to conduct research on the costs, 
benefits, and effects of operating different State programs of 
temporary assistance to needy families, including their time 
limits. Research shall include studies of effects on employment 
rates. See also ``Research, Evaluations, and National Studies'' 
below.
Conference agreement
      The conference agreement generally follows the House bill 
and the Senate amendment.

    Evaluation of Innovative Approaches to Employing Recipients of 
                               Assistance

Present law
      No provision.
House bill
      The Secretary shall evaluate innovative approaches by the 
States to employ recipients of assistance.
Senate amendment
      The Secretary may assist States in developing, and shall 
evaluate innovative approaches for reducing welfare dependency 
and increasing the well-being of minor children, using random 
assignments in these evaluations ``to the maximum extent 
feasible.''
Conference agreement
      The conference agreement follows the Senate amendment.

          Annual Ranking of States and Review of Work Programs

Present law
      No provision.
House bill
      The Secretary must annually rank the States in the order 
of their success in moving recipients into long-term private 
sector jobs, and review the 3 most and 3 least successful 
programs. HHS will develop these rankings based on data 
collected under the bill.
Senate amendment
      Taking account of the number of poor children in the 
State and funds provided for them, the Secretary of HHS shall 
rank the States annually in the order of their success in 
placing recipients into long-term private sector jobs, reducing 
the overall caseload, and, when a practicable method for 
calculation becomes available, diverting persons from 
application and entry into the program. The Secretary shall 
review the 3 most and 3 least successful programs that provide 
work experience, help in finding jobs, and provide other 
support services to enable families to become independent of 
the program.
Conference agreement
      The conference agreement follows the House bill.

      Annual Ranking of States and Review of Out-of-Wedlock Births

Present law
      No provision.
House bill
      No provision.
Senate amendment
      The Secretary also is to annually rank States in the 
order of their success in reducing out-of-wedlock births and to 
review the programs of the 5 ranked highest and 5 ranked lowest 
in decreasing their absolute out-of-wedlock birth ratios 
(defined as the total number of out-of-wedlock births in 
families receiving cash assistance, divided by the total number 
of births in recipient families).
Conference agreement
      The conference agreement follows the Senate amendment.

 Sense of Congress on Work Priority for Mothers Without Young Children

Present law
      No provision.
House bill
      It is the sense of Congress that States should give 
highest priority to requiring families with older preschool 
children or school-aged children to engage in work activities.
Senate amendment
      Adds to highest priority group ``adults in 2-parent 
families and adults in single-parent families with children 
that are older than preschool age.''
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

           Work/School Requirements for Noncustodial Parents

Present law
      The Secretary shall permit up to 5 States, on a voluntary 
or mandatory basis, to provide JOBS services to unemployed 
noncustodial parents unable to pay child support.
House bill
      States must adopt procedures to ensure that persons owing 
past-due support to a child (or to a child and parent) 
receiving Title IV-A either work or have a plan for payment of 
that support. They must seek a court order requiring the parent 
to make payment, in accordance with a court-approved plan to 
work (unless incapacitated). It is the sense of Congress that 
States should require non-custodial, non-supporting parents 
under age 18 to fulfill community work obligations and attend 
appropriate parenting or money management classes after school.
Senate amendment
      States must seek a court order or administrative order 
requiring a person who owes support to a child receiving Title 
IV-D services to pay the support in accordance with a court-
approved plan or to work (unless incapacitated).
Conference agreement
      The conference agreement follows the House bill, except 
that the sense of Congress that States should require non-
custodial, non-supporting parents under age 18 to fulfill 
community work obligations and attend appropriate parenting or 
money management classes after school was dropped from the 
Reconciliation bill because it violates the Byrd Rule (section 
313 of Congressional Budget Act of 1974).

                      Delivery of Work Activities

Present law
      Current law permits States to carry out JOBS programs 
directly or through arrangement or under contracts with 
administrative entities under the Job Training Partnership Act 
(JTPA), with State and local educational agencies or with 
private organizations, including community-based organizations 
as defined in JTPA (Section 485(A) of Social Security Act).
House bill
      No provision.
Senate amendment
      Requires that work activities for recipients of the 
temporary family assistance program be delivered through the 
statewide workforce development system that was earlier 
included in the Work Opportunity Act, unless a required 
activity is not available locally through the statewide 
workforce development system. However, as passed, the amendment 
does not include the workforce development title.
Conference agreement
      The conference agreement follows the House bill.

                        Displacement of Workers

Present law
      Under JOBS law, no work assignment may displace any 
currently employed worker or position (including partial 
displacement such as a reduction in hours of non-overtime work, 
wages, or employment benefits). Nor may a JOBS participant fill 
a position vacant because of layoff or because the employer has 
reduced the workforce with the effect of creating a position to 
be subsidized.
House bill
      No provision.
Senate amendment
      Provides that no adult in a Title IV-A work activity 
shall be employed or assigned when another person is on layoff 
from the same or a substantially equivalent job, or when the 
employer has terminated the employment of a regular worker or 
otherwise caused an involuntary reduction of its workforce in 
order to fill the vacancy thus created with a subsidized 
worker. This provision does not preempt or supersede any State 
or local law providing greater protection from displacement.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                            F. Prohibitions

                     Families Without a Minor Child

Present law
      Only families with dependent children (under age 18, or 
19 at State option if the child is still in secondary school or 
in the equivalent level of vocational or technical training) 
can participate in the program.
House bill
      Only families with minor children (under 18 years of age 
or under 19 years of age for full-time students in a secondary 
school or the equivalent) can participate in the program.
Senate amendment
      Similar to House bill, but specifies that the minor 
children must live with their parent or other caretaker 
relative.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment, with the modification that a pregnant 
individual may receive assistance under the block grant.

                         Assistance for Aliens

Present law
      Illegal aliens are ineligible, but legal aliens and 
others permanently residing under color of law are eligible for 
Federal means-tested benefit programs. States must operate a 
System for Verification of Eligibility (SAVE) for determination 
of immigration or citizenship status of applicants and must 
verify the immigration status of aliens with the Immigration 
and Naturalization Service.
House bill
      Block grant funds may not be used to provide cash 
benefits to a non-citizen unless the individual is a refugee 
under section 207 of the Immigration and Nationality Act who 
has been in the U.S. for under 5 years, a legal permanent 
resident over age 75 who has lived in the U.S. at least 5 
years, a veteran (or the spouse or unmarried dependent child of 
a veteran) honorably discharged from the U.S. Armed Forces, or 
a legal permanent resident unable because of disability or 
mental impairment to comply with certain naturalization 
requirements. In addition, legal permanent residents who are 
current beneficiaries retain eligibility for the first year 
after enactment.
Senate amendment
      Aliens entering after enactment are barred from receiving 
benefits for 5 years, with exceptions similar to House bill. 
Separately, States have the option to deny non-citizens 
benefits using block grant funds. Eligibility may be affected 
by changes in the sponsor-to-alien deeming provisions. These 
changes may affect their eligibility even after aliens have 
attained citizenship.
Conference agreement
      The conference agreement generally follows the Senate 
amendment so that noncitizens arriving after the date of 
enactment may not receive benefits from the block grant during 
their first 5 years in the U.S.; the conference agreement 
modifies the Senate amendment so that there is a State option 
to provide block grant assistance to noncitizens currently 
residing in the U.S., except that noncitizens receiving AFDC 
benefits on the date of enactment would continue to be eligible 
to receive block grant benefits until January 1, 1997. The 
conference agreement makes specific exceptions to these 
restrictions for refugees, asylees, veterans and active duty 
military, and aliens who have worked at least 40 calendar 
quarters as defined under title II of the Social Security Act. 
For further details see Subtitle D: Noncitizens.
                No Cash Assistance for Out-of-Wedlock Births
Present law
       No provision forbidding eligibility. Current law permits 
a State to provide AFDC to an unwed mother under 18 and her 
child only if they live with their parent or another adult 
relative or in another adult-supervised supportive arrangement; 
exceptions are allowed (Sec. 402(A)).
       AFDC law has no provision directly comparable for 
funding second-chance homes.
      AFDC law requires States, to the extent resources permit, 
to require mothers under age 20 who failed to complete high 
school to participate in an educational activity, even if they 
otherwise would be exempt because of having a child under age 3 
(or, at State option, under age 1). However, States may exempt 
some school dropout mothers under 18 years old from this 
requirement.
House bill
      Temporary Assistance to Needy Families Block Grant funds 
may not be used to provide cash benefits to a child born out-
of-wedlock to a mother under age 18 or to the mother until the 
mother reaches age 18. States must exempt mothers to whom 
children are born as a result of rape or incest. Block grant 
funds can be used to provide non-cash (e.g. voucher) assistance 
to young mothers and their children.
Senate amendment
      Explicitly permits States to decide whether or not to 
give assistance to a child born out-of-wedlock to a mother 
under 18 years old, and to the mother until she reaches 18. 
However, if a State elects to extend assistance to these 
families, the minor mother must live with a parent, legal 
guardian or other adult relative unless they have no such 
appropriate relative or the State agency determines (1) that 
they had suffered, or might suffer, harm in the relative's home 
or (2) that the requirement should be waived for the sake of 
the child.
      The State shall provide or assist a minor mother in 
finding a suitable home, a second chance home, maternity home, 
or other appropriate adult-supervised supportive living 
arrangement. The amendment authorizes to be appropriated, and 
appropriates funding for second-chance homes for unmarried 
teenage parents ($25 million yearly for FYs 1996 and 1997 and 
$20 million yearly for FYs 1998-2000).
      Further, if a State aids these unwed minor mothers, it 
must require those who have not completed high school, or its 
equivalent, to attend school unless their child is under 12 
weeks old. If the mother fails to attend high school or an 
approved alternative training program, the State must reduce 
her benefit or end it.
Conference agreement
      The conference agreement generally follows the Senate 
amendment, except that the provision extending a state option 
to deny cash assistance for out-of-wedlock births was dropped 
from the Reconciliation bill because it violates the Byrd Rule 
(section 313 of Congressional Budget Act of 1974). With regard 
to second chance homes, the conference agreement follows the 
Senate amendment except that funding is authorized but not 
appropriated for this purpose. The conference agreement follows 
the Senate amendment regarding the school requirement for unwed 
minor mothers.

            No Additional Assistance for Additional Children

Present law
      No provision.
House bill
      Block grant funds may not be used to provide additional 
cash benefits for a child born to a recipient of cash welfare 
benefits, or an individual who received cash benefits at any 
time during the 10-month period ending with the birth of the 
child. Mothers to whom children are born as a result of rape or 
incest are exempted. Block grant funds can be used to provide 
non-cash (voucher) assistance to young mothers and their 
children.
Senate amendment
      Explicitly permits States to deny aid to child born to a 
mother already receiving aid under the program or to one who 
received benefits from the program at any time during the 10 
months ending with the baby's birth.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment, with the modification that the States may 
exempt up to 50% of their caseload from the 60-month limit.

                  No Assistance for More Than 5 Years

Present law
      No provision.
House bill
      Block grant funds may not be used to provide cash 
benefits for the family of an individual who, after attaining 
18 years of age, has received block grant funds for 60 months, 
whether or not successive; States are permitted to provide 
hardship exemptions from the 60-month time limit for up to 10 
percent of their caseload.
Senate amendment
      Block grant funds may not be used to provide cash 
benefits for the family of a person who has received block 
grant aid for 60 months (or less at State option), whether or 
not consecutive. States may give hardship exemptions to up to 
20 percent of their caseload. (Exempted from the 60-month time 
limit is a person who received aid as a minor child and who 
later applied as the head of her own household with a minor 
child.)
Conference agreement
      The conference agreement follows the Senate amendment, 
with the modification that no assistance may be provided beyond 
5 years and that States may exempt up to 15 percent of their 
caseload from this limit. Battered individuals may qualify for 
this exemption, but States are not required to exempt such 
individuals.

No Assistance for Families Not Cooperating with Paternity Establishment

Present law
      As a condition of eligibility, applicants or recipients 
must cooperate in establishing paternity of a child born out-
of-wedlock, in obtaining support payments, and in identifying 
any third party who may be liable to pay for medical care and 
services for the child.
House bill
      Block grant funds may not be used to provide cash 
benefits to persons who fail to cooperate with the State child 
support enforcement agency in establishing the paternity of any 
child of the individual; the child support agency defines 
cooperation.
Senate amendment
      Maintains current law. In addition, see ``Payments To 
States'' for penalty against a State that fails to enforce 
penalty requested by the IV-D agency against a person who does 
not cooperate in establishing paternity.
Conference agreement
      The conference agreement follows the Senate amendment 
with the modification that States must deny a parent's share of 
the family welfare benefit if the parent fails to cooperate; 
the State may deny benefits to the entire family for failure to 
cooperate.

  No Assistance for Families Not Assigning Support Rights to the State

Present law
      As a condition of AFDC eligibility, applicants must 
assign child support and spousal support rights to the State.
House bill
      Block grant funds may not be used to provide cash 
benefits to a family with an adult who has not assigned to the 
State rights to child support or spousal support.
Senate amendment
      Gives States the option to require applicants for 
temporary family assistance (and recipients) to assign child 
support and spousal support rights to the State.
Conference agreement
      The conference agreement follows the House bill.

Withholding Portion of Aid for Child Whose Paternity is Not Established

Present law
      No provision.
House bill
      If, at the time a family applies for assistance, the 
paternity of a child in the family has not been established, 
the State must impose a financial penalty ($50 or 15 percent of 
the monthly benefits of a family of that size, whichever the 
State chooses) until the paternity of the child is established. 
Once paternity is established, all the money withheld as a 
penalty must be remitted to the family if it is still eligible 
for aid. Mothers to whom children are born as a result of rape 
or incest are exempted from this penalty. Provision effective 1 
year after enactment (2 years at State option).
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill with the 
modification that States may impose a financial penalty if 
paternity is not established.

  Denial of Benefits to Persons Who Fraudulently Received Aid in Two 
                                 States

Present law
      No provision.
House bill
      Ineligible for block grant assistance for 10 years is any 
individual convicted of having fraudulently misrepresented 
residence (or found by a State to have made a fraudulent 
statement) in order to obtain benefits or services from two or 
more States from the block grant, Medicaid, Food Stamps, or 
Supplemental Security Income.
Senate amendment
      Ineligible for block grant assistance for 10 years is any 
person convicted in Federal court or State court of having 
fraudulently misrepresented residence in order to obtain 
benefits or services from two or more States from the cash 
block grant, Medicaid, Food Stamps, or Supplemental Security 
Income.
Conference agreement
      The conference agreement follows the Senate amendment.

   Denial of Aid for Fugitive Felons, Probation and Parole Violators

Present law
      No provision.
House bill
      No assistance may be provided to an individual who is 
fleeing to avoid prosecution, custody or confinement after 
conviction for a crime (or an attempt to commit a crime) that 
is a felony (or, in New Jersey, a high misdemeanor), or who 
violates probation or parole imposed under Federal or State 
law.
      Any safeguards established by the State against use or 
disclosure of information about individual recipients shall not 
prevent the agency, under certain conditions, from providing 
the address of a recipient to a law enforcement officer who is 
pursuing a fugitive felon or parole or probation violator. This 
provision applies also to a recipient sought by an officer not 
because he is a fugitive but because he has information that 
the officer says is necessary for his official duties. In both 
cases the officer must notify the State that location or 
apprehension of the recipient is within his official duties.
Senate amendment
      A State shall furnish law enforcement officers, upon 
their request, the address, social security number, and 
photograph (if available) of any recipient if the officers 
notify the agency that the recipient is a fugitive felon, or a 
violator of probation or parole, or that he has information 
needed by the officers to perform their duties, and that the 
location or apprehension of the recipient is within the 
officers' official duties.
Conference agreement
      The conference agreement follows the House bill.

No Assistance for Minor Children Who Are Absent, or Relatives who Fail 
                  to Notify Agency of Child's Absence

Present law
      Regulations allow benefits to continue for children who 
are ``temporarily absent'' from home.
House bill
      No assistance may be provided for a minor child who has 
been absent from the home for 45 consecutive days or, at State 
option, between 30 and 90 consecutive days. States may 
establish a good cause exemption as long as it is detailed in 
the State report to the Secretary. No assistance can be given 
to a parent or caretaker who fails to report a missing minor 
child within 5 days of the time it is clear that the child is 
absent.
Senate amendment
      Similar provision to House bill, with different wording.
Conference agreement
      The conference agreement follows the House bill.

   G. Income/Resource Limits, Treatment of Earnings and Other Income 
                            Resource Limits

Present law
      $1,000 per family in counted resources (excluding home 
and some of the value of an auto, funeral arrangements, burial 
plots, real property that the family is attempting to sell, 
and--for two months--refunds of the Earned Income Tax Credit 
(EITC)).
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                             Income Limits

Present law
      Gross family income limit: 185% of the State standard of 
need.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                                Earnings

Present law
      Mandatory disregard: during first 4 months of a job, $120 
and one-third, plus child care costs up to a limit; next 8 
months, $120 plus child care; after 12 months, $90 plus child 
care.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                        Earned Income Tax Credit

Present law
      Mandatory disregard: advance EITC payments must be 
disregarded.
House bill
      Repeals mandatory EITC disregard (a provision of AFDC 
law). States would set policy about treatment of EITC payments 
by block grant program.
Senate amendment
      Provision is identical to House position.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                             Child Support

Present law
      Mandatory disregard: first $50 monthly in child support 
collections is passed through to the family. In some States, 
child support payments that fill some or all of the gap between 
payment and need standard must be ignored.
House bill
      In determining a family's eligibility and payment amount 
under the block grant, a State may not disregard child support 
collected by the State and distributed to the family.
Senate amendment
      State option. Repeals required disregard of the first $50 
monthly in child support collections distributed to the family 
(a provision of AFDC law).
Conference agreement
      The conference agreement follows the Senate amendment.

                             Other Cash Aid

Present law
      AFDC benefits may not be paid to a recipient of old-age 
assistance (predecessor to Supplemental Security Income (SSI) 
and now available only in Puerto Rico, Guam, and the U.S. 
Virgin Islands), SSI, or AFDC foster care payments.
House bill
      If block grant funds are used to provide payments to a 
recipient of old-age assistance, SSI, or payments under the 
Child Protection Block grant, a State may not disregard these 
other payments in determining a family's eligibility for and 
payment amount from the block grant.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

                 H. Various Procedural and Policy Rules

                         Statewide Requirement

Present law
      AFDC must be available in all political subdivisions, 
and, if administered by them, be mandatory upon them.
House bill
      No provision.
Senate amendment
      Under the State plan, a State must outline how it intends 
to conduct a family assistance program ``designed to serve all 
political subdivisions in the State.''
Conference agreement
      The conference agreement follows the Senate amendment.

                          Single State Agency

Present law
      Single agency must administer or supervise administration 
of the plan.
House bill
      No provision.
Senate amendment
      The State's Chief Executive Officer must certify which 
State agency or agencies are responsible for administration and 
supervision of the program for the fiscal year.
Conference agreement
      The conference agreement follows the Senate amendment, 
with the modification that public and local agencies must have 
60 days to submit comments.

                           State Cost Sharing

Present law
      State must share in program costs.
House bill
      No provision.
Senate amendment
      For the basic temporary assistance block grant, for 4 
years, for ``contingency'' funds, and for additional child care 
funds (beyond those earmarked in the block grant) States must 
share in program costs.
Conference agreement
      The conference agreement generally follows the Senate 
amendment, with modifications to the amount of required State 
cost sharing.

                          Aid to All Eligibles

Present law
      State must furnish aid to eligible persons with 
reasonable promptness and give opportunity to make application 
to all wishing it.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                              Fair Hearing

Present law
      State must give fair hearing opportunity to person whose 
claim is denied or not acted upon promptly.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                         Administrative Methods

Present law
      State must adopt administrative methods found necessary 
by the Secretary.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

               Zero Benefit Below $10, Rounding Benefits

Present law
      State cannot pay AFDC below $10 monthly and must round 
down to the next lower dollar both the need standard and the 
benefit.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                    Pre-Eligibility Fraud Detection

Present law
      State must have measures to detect fraudulent 
applications for AFDC before establishment of eligibility.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                    Correction of Erroneous Payments

Present law
      State must promptly correct overpayments and 
underpayments.
House Bill
      No provision.
Senate amendment
      Requires the Treasury Secretary, upon notification from a 
State that it has overpaid a former recipient of temporary cash 
assistance and has attempted unsuccessfully to collect the 
overpayment, to collect the sum from Federal tax refunds.
Conference agreement
      The conference agreement follows the Senate amendment.

                     Appeal Procedure (for States)

Present law
      Current law (sec. 1116 of the Social Security Act) 
entitles a State to a reconsideration, which DHHS must grant 
upon request, of any disallowed reimbursement claim for an item 
or class of items. The section also provides for administrative 
and judicial review, upon petition of a State, of DHHS 
decisions about approval of State plans. At the option of a 
State, any plan amendment may be treated as the submission of a 
new plan.
House bill
      Repeals reference to Title IV-A in section 1116.
Senate amendment
      Requires the Secretary to notify the Governor of a State 
of any adverse decision or action under Title IV-A, including 
any decision about the State's plan or imposition of a penalty. 
Provides for administrative review by a Departmental Appeals 
Board within DHHS and requires a Board decision within 60 days 
after an appeal is filed. Provides for judicial review (by a 
United States district court) within 90 days after a final 
decision by the Board. The Amendment also repeals the reference 
to Title IV-A in section 1116.
Conference agreement
      The conference agreement follows the Senate amendment.

                       I. Quality Control/Audits

Present law
      The Secretary must operate a quality control system to 
determine the amount of Federal matching funds to be 
disallowed, if any, because of erroneous payments. The law also 
prescribes penalties for payment error rates above the national 
average. AFDC payments to States are subject to audits 
conducted under the Single Audit Act [Ch. 75, Title 31, U.S.C.]
House bill
      Family assistance block grants are subject to the Single 
Audit Act. If an audit conducted under this Act finds that a 
State has used block grant funds in violation of the law, its 
grant for the next year is to be reduced by that amount (but no 
quarterly payment is to be reduced by more than one-fourth).
Senate amendment
      Requires a State to offset loss of Federal funds with its 
own, maintaining the full block grant level. Also, the penalty 
shall not be imposed if the State proves to the Secretary that 
the violation was not intentional, and if the State implements 
an approved corrective action plan. Each State must audit its 
cash block grant expenditures annually and submit a copy to the 
State legislature, Treasury Secretary and DHHS Secretary. The 
audit must be conducted by an entity that is independent from 
any agency administering activities under title IV-A. Further, 
the DHHS Secretary is to develop a quality assurance system of 
data collection and reporting. Also subject to the Single Audit 
Act.
Conference agreement
      The conference agreement follows the House bill regarding 
audits to review States' use of funds. See also Penalties, e.g. 
against States misusing funds and against States failing to 
meet work requirements.

                    J. Data Collection and Reporting

                           Reporting Requirements

Present law
      States are required to report the average monthly number 
of families in each JOBS activity, their types, amounts spent 
per family, length of JOBS participation and the number of 
families aided with AFDC/JOBS child care services, the kinds of 
child care services provided, and sliding fee schedules. States 
that disallow AFDC for minor mothers in their own living 
quarters are required to report the number living in their 
parent's home or in another supervised arrangement. States also 
must report data (including numbers aided, types of families, 
how long aided, payments made) for families who receive 
transitional Medicaid benefits. DHHS collects data about 
demographic characteristics and financial circumstances of AFDC 
families from its National Integrated Quality Control System 
(NIQCS) and publishes State and national information that 
represents average monthly amounts for a fiscal year. The NIQCS 
uses monthly samples of AFDC cases.
House bill
      States are required, not later than 6 months after the 
end of each fiscal year, to transmit to the Secretary the 
following aggregate information on families receiving block 
grant benefits during the fiscal year:
          (a) the number of adults receiving assistance;
          (b) the number of children receiving assistance and 
        the average age of children;
          (c) the employment status and average earnings of 
        employed adults;
          (d) the number of one-parent families in which the 
        sole parent is a widow or widower, is divorced, is 
        separated, or is never married;
          (e) the age, race, educational attainment, and 
        employment status of parents;
          (f) the average assistance provided to families;
          (g) whether, at the time of application, the families 
        or anyone in the families receive benefits from the 
        following public programs: (1) Housing, (2) Food 
        Stamps, (3) Head Start, (4) Job Training;
          (h) the number of months the families have been on 
        welfare during their current spell;
          (i) the total number of months for which benefits 
        have been provided to the families;
          (j) data necessary to indicate whether the State is 
        in compliance with the State's plan;
          (k) the components of any employment and training 
        activities, and the average monthly number of adults in 
        each component; and
          (l) the number of part-time and full-time job 
        placements made by the program, the number of cases 
        with reduced assistance, and the number of cases closed 
        due to employment.
Senate amendment
          States are required to make quarterly reports based 
        on sample case records providing disaggregated data for 
        the quality assurance system, including:
          (a) age of adults and children (including pregnant 
        women) in each family;
          (b) marital and familial status of each family member 
        (including whether family includes 2 parents and 
        whether child is living with an adult relative other 
        than a parent);
          (c) gender, educational level, work experience, and 
        race of each family head;
          (d) health status of each family member (including 
        whether any is seriously ill, disabled, or 
        incapacitated and is being cared for by another family 
        member);
          (e) type and amount of any benefit or assistance 
        received, including amount of and reason for any 
        benefit reduction, and if help is ended, whether this 
        is because of employment, sanction, or time limit;
          (f) any benefit or assistance received by a family 
        member with respect to housing, food stamps, job 
        training, or Head Start;
          (g) number of months since the family's most recent 
        application for aid, and if application was denied, the 
        reason;
          (h) number of times a family applied for and received 
        aid from the cash block grant program and the number of 
        months were received in each ``spell'' of assistance;
          (i) employment status of adults in family (including 
        hours worked and amount earned);
          (j) date on which an adult family member began to 
        engage in work, hours worked, work activity performed, 
        amount of child care assistance, if any;
          (k) number of persons in each family receiving, and 
        the number not receiving, assistance, and the 
        relationship of each person to the youngest child in 
        the family;
          (l) citizenship status of each family member;
          (m) housing arrangement of each family member;
          (n) amount of unearned income, child support; assets 
        and other financial factors relevant to eligibility;
          (o) location in the State of each recipient family; 
        and
          (p) any other data determined by Secretary to be 
        necessary for efficient and effective administration.
      States are required to report the following aggregated 
monthly data about families who received temporary family 
assistance for each month in the calendar quarter preceding the 
one in which the data are submitted, families applying for 
assistance in the preceding quarter, and families that became 
ineligible for aid during that quarter: (1) number of families, 
(2) number of adults in each family, (3) number of children in 
each family, and (4) number of families whose assistance ended 
because of employment, sanctions, or time limits.
      The Secretary shall determine appropriate subsets of the 
data listed above that a State is required to submit regarding 
applicant and no-longer eligible families.
Conference agreement
      The conference agreement generally follows the House bill 
and the Senate amendment, except that provisions that make 
reference to ``race'' are dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                    authority of states to use estimates

Present law
      The National Integrated Quality Control System (above) 
uses monthly samples of AFDC cases. JOBS regulations require 
States to submit a sample of monthly unaggregated case record 
data.
House bill
      States may use scientifically acceptable sampling methods 
to estimate the data elements required for annual reports.
Senate amendment
      The Secretary shall provide States with case sampling 
plans and data collection procedures deemed necessary for 
statistically valid estimates.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment, and clarifies that the Secretary may, in the 
case of States that use sampling methods, challenge the 
sampling plan as scientifically invalid.

                     Other State Reporting Requirements

Present law
      Regulations require each State to submit quarterly 
estimates of the total amount (and the Federal share) of 
expenditures for AFDC benefits and administration.
      Required quarterly reports include estimates of the 
Federal share of child support collections made by the State; 
see above for transitional child care and Medicaid reporting 
requirements.
House bill
      The report submitted by the State each fiscal year must 
also include:
      (1) a statement of the percentage of the funds paid to 
the State that are used to cover administrative costs or 
overhead;
      (2) a statement of the total amount expended by the State 
during the fiscal year on programs for needy families; and
      (3) the number of noncustodial parents in the State who 
participated in work activities as defined in the bill during 
the fiscal year.
Senate amendment
      The report required by a State for a fiscal year must 
include:
      (1) a statement of the total amount and percentage of 
Federal funds paid to the State under Title IV-A that are used 
for administrative costs or overhead;
      (2) a statement of the total amount of State funds 
expended on programs for the needy;
      (3) the number of noncustodial parents who participated 
in work activities during the fiscal year;
      (4) the total amount of child support collected by the 
State IV-D agency on behalf of a family in the cash assistance 
program;
      (5) the total amount spent by the State for child care 
under Title IV-A, with a description of the types of care, 
including transitional care for families who no longer receive 
assistance because of work and ``at-risk'' care for persons who 
otherwise might become eligible for assistance; and
      (6) the total amount spent by the State for providing 
transitional services to a family that no longer receive 
assistance because of employment, along with a description of 
those services.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment as follows:
          (1) administrative funds--follow House bill;
          (2) State spending--follow House bill;
          (3) noncustodial parent--follow House bill;
          (4) child support--follow House bill;
          (5) child care--follow House bill; and
          (6) transition services--follow Senate amendment.

                 K. Reports Required by DHHS Secretary

Present law
      The law requires the DHHS Secretary to report promptly to 
Congress the results of State reevaluations of AFDC need 
standards and payment standards required at least every 3 
years. The Secretary is to annually compile and submit to 
Congress annual State reports on at-risk child care. The Family 
Support Act required the Secretary to submit recommendations 
regarding JOBS performance standards by a deadline that was 
extended.
House bill
      The DHHS Secretary must report to Congress within 6 
months on the status of automatic data processing systems in 
the States and on what would be required to produce a system 
capable of tracking participants in public programs over time 
and checking case records across States to determine whether 
some individuals are participating in public programs in more 
than one State. The report should include a plan for building 
on the current automatic data processing system to produce a 
system capable of performing these funcitions as well as an 
estimate of the time required to put the system in place and 
the cost of the system.
    The DHHS Secretary must, to the extent feasible, produce 
and publish for each State, county, and local unit of 
government for which data have been compiled in the most recent 
census of population, and for each school district, data about 
the incidence of poverty. Data shall include, for each school 
district, the number of children age 5 to 17 inclusive, in 
families below the poverty level, and, for each State and 
county for which data have been compiled by the Census Bureau, 
the number of persons aged 65 or older. Data shall be published 
for each State, county and local unit of government in 1996 and 
at least every second year thereafter; and for each school 
district, in 1998 and at least every second year thereafter. 
Data may be produced by means of sampling, estimation, or any 
other method that the Secretary determines will produce 
current, comprehensive, and reliable information. If reliable 
data could not be otherwise produced, the Secretary is given 
authority to aggregate school districts. The DHHS Secretary is 
to consult with the Secretary of Education in producing data 
about school districts. If unable to produce and publish the 
required data, the Secretary must submit a report to the 
President of the Senate and the Speaker of the House not later 
than 90 days before the start of the following year, 
enumerating each government or school district excluded and 
giving the reason for the exclusion.
Senate amendment
      The Secretary must, in cooperation with the States, study 
and analyze measures of program outcomes (as an alternative to 
minimum participation rates) for evaluating the success of 
State block grant programs in helping recipients leave welfare. 
The study must include a determination of whether outcomes 
measures should be applied on a State or national basis and a 
preliminary assessment of the job placement performance bonus 
established in the Act. The Secretary must report findings to 
the Committee on Finance and the Committee on Ways and Means 
not later than September 30, 1998.
      The Secretary is to report by Dec. 31, 1997, to the 
Committee on Ways and Means and the Committee on Economic and 
Educational Opportunities of the House and the Committee on 
Finance, the Committee on Labor and Human Resources, and the 
Special Committee on Aging of the Senate setting forth findings 
of a study on the effects of welfare changes made by the Act on 
grandparents who are primary caregivers for their 
grandchildren. The study is to identify barriers to 
participation in public programs by grandparent caregivers, 
including inconsistent policies, standards, and definitions of 
programs providing medical aid, cash, child support 
enforcement, and foster care.
      Not later than March 31, 1998, and each fiscal year 
thereafter, the Secretary shall send Congress a report 
describing:
          (1) whether States are meeting minimum participation 
        rates and whether they are meeting objectives of 
        increasing employment and earnings of needy families, 
        increasing child support collections, and decreasing 
        out-of-wedlock pregnancies and child poverty;
          (2) demographic and financial characteristics of 
        applicant families, recipient families, and those no 
        longer ineligible for temporary family assistance;
          (3) characteristics of each State program of 
        temporary family assistance; and
          (4) trends in employment and earnings of needy 
        families with minor children.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment as follows:
          (1) data processing--follow House bill;
          (2) poverty--follow Senate amendment;
          (3) alternatives--the provision in the Senate 
        amendment was dropped from the Reconciliation bill 
        because it violates the Byrd Rule (section 313 of the 
        Congressional Budget Act of 1974);
          (4) grandparents--follow House bill; and
           (5) State progress--follows Senate amendment with 
        the modification that in evaluating innovative 
        approaches to reducing welfare dependency, attention 
        should be paid to welfare recipients who suffer from 
        substance abuse or addiction..

             L. Research, Evaluations, and National Studies

Present law
      The law authorizes $5 million annually for cooperative 
research or demonstration projects, such as those relating to 
the prevention and reduction of dependency.
House bill
      The Secretary may conduct research on the effects, costs, 
benefits, and caseloads of State programs funded under this 
part. The Secretary may assist the States in developing, and 
shall evaluate (using random assignment to experimental and 
control groups to the maximum extent feasible), innovative 
approaches to employing recipients of cash aid under this part. 
The Secretary may conduct studies of the welfare caseloads of 
States operating welfare reform programs. The Secretary shall 
develop innovative methods of disseminating information on 
research, evaluations, and studies.
Senate amendment
      The Secretary may conduct research on the effects, 
benefits, and costs of operating different State programs of 
Temporary Assistance to Needy Families, including time limits 
for eligibility. The research shall include studies on the 
effects of different programs and the operation of the programs 
on welfare dependency, illegitimacy, teen pregnancy, employment 
rates, child well-being, and any other appropriate area. The 
Secretary may assist States in developing, and shall evaluate 
innovative approaches for reducing welfare dependency and 
increasing the well-being of minor children, using random 
assignments in these evaluations ``to the maximum extent 
feasible.''
      The Secretary shall develop innovative methods of 
disseminating information on research, evaluations, and 
studies, including ways to facilitate sharing of information 
via computers and other technologies. The Senate amendment 
makes a State eligible to receive funding to evaluate its 
family assistance program if it submits an evaluation design 
determined by the Secretary to be rigorous and likely to yield 
credible and useful information. The State must pay 10 percent 
of the study's cost, unless the Secretary waives this rule. For 
these State-initiated evaluation studies of the family 
assistance program (and for costs of operating and evaluating 
demonstration projects begun under the AFDC waiver process) the 
amendment authorizes to be appropriated, and appropriates, a 
total of $20 million annually for 5 years (FYs 1996-2000).
Conference agreement
      The conference agreement follows the Senate amendment 
except that $15 million is appropriated annually for this 
purpose.

                               M. Waivers

Present law
      The law authorizes DHHS Secretary to waive specified 
requirements of State AFDC plans in order to enable a State to 
carry out any experimental, pilot, or demonstration project 
that the Secretary judges likely to assist in promoting the 
program's objective. (Sec. 1115 of Social Security Act) Some 34 
States have received waivers from the Clinton Administration 
for welfare reforms of their own.
House bill
      Repeals AFDC. Also, expressly repeals authority for 
waiver of specified provisions of AFDC law (Sec. 402, State 
plan requirements, and Sec. 403, terms of payment to States) 
for demonstration projects.
Senate amendment
      Provides that terms of AFDC waivers in effect, or 
approved, as of October 1, 1995, will continue until their 
expiration, except that beginning with fiscal year 1996 a State 
operating under a waiver shall receive the block grant 
described under section 403 in lieu of any other payment 
provided for in the waiver. The amendment gives States the 
option to terminate waivers before their expiration, but 
requires that early-ended projects be summarized. The amendment 
provides that a State that submits a request to end a waiver by 
January 1, 1996, or 90 days after adjournment of the first 
regular session of the State legislature that begins after the 
date of enactment, shall be held harmless for accrued cost 
neutrality liabilities incurred under the waiver.
      The Secretary is directed to encourage any State now 
operating a waiver to continue the project and to evaluate its 
result or effect. The amendment allows a State to elect to 
continue one or more individual waivers.
Conference agreement
      The conference agreement follows the Senate amendment.

                    N. Studies by the Census Bureau

Present law
      No provision.
House bill
      The Census Bureau must expand the Survey of Income and 
Program Participation to evaluate the impact of welfare reforms 
made by this title on a random national sample of recipients 
and, as appropriate, other low-income families. The study 
should focus on the impact of welfare reform on children and 
families, and should pay particular attention to the issues of 
out-of-wedlock birth, welfare dependency, the beginning and end 
of welfare spells, and the causes of repeat welfare spells. Ten 
million dollars per year for 4 years in entitlement funds are 
authorized for this study.
Senate amendment
      Expansion of SIPP is identical to House provision.
      In addition, the Secretary of Commerce shall expand the 
Census Bureau's question (for the decennial census and mid-
decade census) concerning households with both grandparents and 
their grandchildren so as to distinguish between households in 
which a grandparent temporarily provides a home and those where 
the grandparent serves as primary caregiver.
Conference agreement
      The conference agreement follows the House bill regarding 
the expansion of SIPP to evaluate welfare programs. The 
provision in the Senate amendment regarding census data on 
grandparents as caregivers was dropped from the Reconciliation 
bill because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

    O. Services from Charitable, Religious, or Private Organizations

Present law
      The Child Care and Development Block Grant Act prohibits 
use of any financial assistance provided through any grant or 
contract for any sectarian purpose or activity. In general, it 
requires religious nondiscrimination, but it does allow a 
sectarian organization to require employees to adhere to its 
religious tenets and teachings.
House bill
      No provision.
Senate amendment
      Authorizes States to administer and provide family 
assistance services (and services under Supplemental Security 
Income and Public Housing) through contracts with charitable, 
religious, or private organizations. Authorizes States to pay 
recipients by means of certificates, vouchers, or other forms 
of disbursement that are redeemable with these private 
organizations. States that religious organizations are 
eligible, on the same basis as any other private organization, 
to provide assistance as contractors or to accept certificates 
and vouchers so long as their programs ``are implemented 
consistent with'' the Establishment Clause of the Constitution. 
Stipulates that any religious organization with a contract to 
provide welfare services shall retain independence from all 
units of government and that such a religious organization (or 
one that redeems welfare certificates) may require employees 
who render service related to the contract or certificates to 
adhere to the religious tenets and teaching of the organization 
and to its rules, if any, regarding use of drugs or alcohol. 
Provides that, except as otherwise allowed by law, a religious 
organization administering the program may not discriminate 
against beneficiaries on the basis of religious belief, or 
refusal to participate in a religious practice. Requires States 
to provide an alternative provider for a beneficiary who 
objects to the religious character of the designated 
organization. Provides that no funds provided directly to 
institutions or organizations to provide services and 
administer programs shall be spent for sectarian worship or 
instruction, but does not apply this limitation to financial 
assistance in the form of certificates or vouchers, if the 
beneficiary may choose where the aid is redeemed.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                              5. transfers

                       A. Child Support Penalties

Present law
      If a State's child support plan fails to comply 
substantially with Federal requirements, the Secretary is to 
reduce its AFDC matching funds by percentages that rise for 
successive violations (sec. 403(h) of the Social Security Act).
House bill
      The provision for child support review penalties--loss of 
Federal payments for cash assistance--now found in 403(h) of 
part A of the Social Security Act is retained in the block 
grant.
Senate amendment
      No provision. However, there is a penalty assessed 
against States for failure to enforce penalties requested by 
child support agency against recipients who do not cooperate in 
establishing paternity.
Conference agreement
      The conference agreement follows the House bill.

               B. Assistant Secretary for Family Support

Present law
      An Assistant Secretary for Family Support, appointed by 
the President by and with consent of the Senate, is to 
administer AFDC, child support enforcement, and the Jobs 
Opportunities and Basic Skills (JOBS) program.
House bill
      The provision for an Assistant Secretary for Family 
Support now found in section 417 of Part A of the Social 
Security Act is retained in the block grant (as sec. 409), but 
modified to remove the reference to JOBS (which the House bill 
repeals).
Senate amendment
      Identical provision placed in sec. 415.
Conference agreement
      The conference agreement follows the House bill.

          6. conforming amendments to the social security act

Present law
      No provision.
House bill
      This section makes a series of technical amendments that 
conform the provisions of the House bill with various titles of 
the Social Security Act and provide for the repeal of Part F of 
Title IV (the JOBS program).
Senate amendment
      This section makes a series of amendments that conform 
provisions of the Senate amendment with various titles of the 
Social Security Act.
Conference agreement
      The conference agreement generally follows the House bill 
and the Senate amendment, with changes made as appropriate.

                 7. Conforming Amendments to Other Laws

Present law
      No provision.
House bill
      This section makes a series of technical amendments to 
conform provisions of the House bill to the Internal Revenue 
Code, the Omnibus Reconciliation Act of 1987, the Housing and 
Urban-Rural Recovery Act of 1983, the Tax Equity and Fiscal 
Responsibility Act of 1982, and the Stewart B. McKinney 
Homeless Assistance Amendments Act of 1988.
Senate amendment
      Section 107 makes a series of amendments that conform 
provisions of the Senate amendment to the Food Stamp Act, the 
Agriculture and Consumer Protection Act, the National School 
Lunch Act, and the Child Nutrition Act.
      Section 108 makes a series of amendments that conform 
provisions of the Senate amendment to the Unemployment 
Compensation Amendments of 1976, the Omnibus Budget 
Reconciliation Act of 1987, the House and Urban-Rural Recovery 
Act of 1983, the Tax Equity and Fiscal Responsibility Act of 
1982, the Social Security Amendments of 1967, the Stewart B. 
McKinney Homeless Assistance Amendments Act of 1988, the Higher 
Education Act of 1965, the Carl D. Perkins Vocational and 
Applied Technology Education Act, the Elementary and Secondary 
Education Act of 1965, Public Law 99-88, the Internal Revenue 
Code of 1986, the Wagner-Peyser Act, the Job Training 
Partnership Act, the Low-Income Home Energy Assistance Act of 
1981, the Family Support Act of 1988, the Balanced Budget and 
Emergency Deficit Control Act of 1985, the Immigration and 
Nationality Act, the Head Start Act, and the School-to-Work 
Opportunities Act of 1994.
Conference agreement
      The conference agreement generally follows the House bill 
and the Senate amendment, with changes made as appropriate.

  8. Continued Application of Current Standards Under Medicaid Program

Present law
      States must continue Medicaid (or pay premiums for 
employer-provided health insurance) for 6 months to a family 
that loses AFDC eligibility because of hours of, or income 
from, work of the caretaker relative, or because of loss of the 
earned income disregard after 4 months of work. States must 
offer an additional 6 months of medical assistance, for which 
it may require a premium payment if the family's income after 
child care expenses is not above the poverty guideline. For 
extended medical aid, families must submit specified reports. 
States must continue Medicaid for 4 months to those who lose 
AFDC because of increased child or spousal support.
House bill
      Although AFDC would be repealed, its standards would 
continue to be used by the Medicaid program. States would have 
to give Medicaid to families who would have received AFDC if it 
still existed as in effect on March 7, 1995. The frozen AFDC 
rules would govern Medicaid eligibility for both recipients and 
non-recipients of the new block grant funds, including those 
categorically ineligible for cash benefits.
Senate amendment
      Same as House provision except for date at which AFDC 
rules would be ``frozen'' (June 1, 1995, rather than March 7, 
1995). If an AFDC waiver (as of June 1, 1995) affects Medicaid 
eligibility, the State has the option to continue to apply the 
waiver in regard to Medicaid after the date when the waiver 
otherwise would end.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment with the clarification that States will 
determine Medicaid eligibility for recipients of block grant 
assistance (in conformity with other pending Medicaid changes).

                           9. Effective Dates

Present law
      No provision.
House bill
      The amendments and repeals made by this title take effect 
on October 1, 1995. The authority to reduce assistance for 
certain families that include a child whose paternity is not 
established will begin 1 year after the effective date or, at 
the option of the State, 2 years after the effective date.
      Amendments made by Title I (Block Grants for Temporary 
Assistance for Needy Families) shall not apply to powers, 
duties, functions, rights, claims, penalties, or obligations 
applicable to aid, or services provided (under AFDC) before the 
effective date of the Act. Nor shall amendments of the bill 
apply to administrative actions and proceedings commenced or 
authorized before the effective date of the bill.
Senate amendment
      AFDC is repealed effective October 1, 1995. Family 
assistance block grant provisions also take effect October 1, 
1995 (except for penalties, most of which are effective October 
1, 1996), but expire on September 30, 2000. A State may 
continue to operate its AFDC program for 9 months, until June 
30, 1996. If it does so, its fiscal year 1996 cash block grant 
under the new program shall be reduced by the amount of Federal 
matching funds received for that year for AFDC expenditures.
Conference agreement
      The conference agreement follows the Senate amendment.

                           10. Miscellaneous

             A. County Authority for Demonstration Projects

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Requires the DHHS Secretary and the Agriculture Secretary 
jointly to enter into negotiations with all counties having a 
population greater than 500,000 that desire to conduct a 
demonstration project in which: (1) the county shall have the 
authority and duty to administer the operation of the family 
assistance program as if the county were considered a State; 
(2) the State shall pass through directly to the county the 
portion of the block grant that the State determines is 
attributable to the residents of the county; and (3) the 
project shall last 5 years.
      To be eligible: (1) a county already must be 
administering the Title IV-A program; (2) must represent less 
than 25 percent of the State's total welfare caseload; and (3) 
the State must have more than one county with a population of 
greater than 500,000.
      Not later than 6 months after the end of a county 
demonstration project, the two Secretaries shall send a report 
to Congress that includes a description of the project, its 
rules, and innovations (if any).
Conference agreement
      The conference agreement follows the House bill.

         B. Collection of Overpayments from Federal Tax Refunds

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Requires the Treasury Secretary, upon notification from a 
State that it has overpaid a former recipient of temporary cash 
assistance and has attempted unsuccessfully to collect the 
overpayment, to collect the sum from Federal tax refunds.
Conference agreement
      The conference agreement follows the Senate amendment.

                  C. Tamper-Proof Social Security Card

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Requires the Commissioner of Social Security to develop a 
prototype of a counterfeit-resistant social security card. The 
card must be made of a durable, tamper-resistant material such 
as plastic or polyester, employ technologies that provide 
security features, and be developed so as to provide 
individuals with reliable proof of citizenship or legal 
resident alien status. The Commissioner is to report to 
Congress on the cost of issuing a tamper-proof card for all 
persons over a 3-, 5-, and 10-year period. Copies of the 
report, along with a facsimile of the prototype card, shall be 
submitted to the Committees on Ways and Means and Judiciary of 
the House and the Committees on Finance and Judiciary of the 
Senate within one year of enactment.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

               D. Disclosure of Receipt of Federal Funds

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Requires disclosure of specified public funds received by 
501(c) organizations, which are non-profit and tax-exempt. When 
a 501(c) organization that accepts Federal funds under the Work 
Opportunity Act makes any communication that intends to promote 
public support or opposition to any governmental policy 
(Federal, State or local) through any broadcasting station, 
newspaper, magazine, outdoor advertising facility, direct 
mailing, or any other type of general public advertising, the 
communication must state: ``This was prepared and paid for by 
an organization that accepts taxpayer dollars''.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

    E. Projects to Expand Job Opportunities for Certain Low-Income 
                           Individuals (JOLI)

Present law
      The Family Support Act of 1988 (Sec. 505) directed the 
Secretary to enter into agreement with between 5 and 10 
nonprofit organizations to conduct demonstrations to create job 
opportunities for AFDC recipients and other low-income persons. 
For these projects, $6.5 million was authorized to be 
appropriated for each fiscal year, 1990-1992.
House bill
      No provision.
Senate amendment
      Strikes the word ``demonstration'' from the description 
of these projects and converts them to grant status. It 
requires the Secretary to enter into agreements with nonprofit 
organizations to conduct projects to create job opportunities 
for recipients of family assistance and other persons with 
income below the poverty guideline. It authorizes 
appropriations of $25 million annually for these projects.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

           F. Demonstration Projects to Expand Use of Schools

Present law
      The 21st Century Community Learning Centers Act 
(established by P.L. 103-382) makes available funds directly to 
rural or inner-city schools, or consortia of them, to act as 
centers for providing education and human resources services. 
Services allowed include: literacy education, parenting skills 
education, employment counseling, training and placement. The 
Elementary and Secondary Education Act includes a program 
called ``Extended Time for Learning and Longer School Year,'' 
which supports local educational agencies' efforts to lengthen 
learning time. Grantees may engage other community members in 
these efforts.
House bill
      No provision.
Senate amendment
      The Secretary of Education is required to make grants to 
not more than 5 States for demonstration grants to increase the 
number of hours when public school facilities are available for 
use. Schools selected must have a significant percentage of 
students receiving family assistance benefits. The longer hours 
are intended to enable volunteers and parents or professionals 
paid from other sources to teach, tutor, coach, organize, 
advise, or monitor students. Grants are intended also to make 
school facilities available for clubs, civic associations, Boy 
and Girl Scouts and other groups. The amendment authorizes $10 
million annually (FYs 1996-2000) for grants plus $1 million 
annually for administration by the Secretary.
Conference agreement
      The conference agreement follows the House bill.

  G. Secretarial Submission of Legislative Proposal for Technical and 
                         Conforming Amendments

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Not later than 90 days after enactment of this Act, the 
Secretary must submit to the appropriate committees of Congress 
a legislative proposal providing for technical and conforming 
amendments.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                Subtitle B--Supplemental Security Income

                  Chapter 1--Eligibility Restrictions

    1. Denial of Supplemental Security Income Benefits by Reason of 
               Disability to Drug Addicts and Alcoholics

                             A. In General

Present law
      Individuals whose drug addiction or alcoholism is a 
contributing factor material to their disability are eligible 
to receive SSI cash benefits for up to three years if they meet 
SSI income and resource requirements. These recipients must 
have a representative payee, must participate in an approved 
treatment program when available and appropriate, and must 
allow their participation in a treatment program to be 
monitored. Medicaid benefits continue beyond the 3-year limit, 
as long as the individual remains disabled, unless the 
individual was expelled from SSI for failure to participate in 
a treatment program.
House bill
      Under the House provision, an individual is not 
considered disabled if drug addiction or alcoholism is a 
contributing factor material to his or her disability. 
Individuals with drug addiction and/or alcoholism who cannot 
qualify based on another disabling condition will not be 
eligible for SSI benefits.
Senate amendment
      Identical to House bill.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                  B. Representative Payee Requirements

Present law
      SSI law requires that the SSI payments of individuals 
whose drug addiction or alcoholism is a contributing factor 
material to their disability must be made to another 
individual, or an appropriate public or private organization 
(i.e., the individual's ``representative payee'') for the use 
and benefit of the individual or eligible spouse.
House bill
      No provision.
Senate amendment
      Under the Senate amendment, if a disabled person also has 
an alcoholism or drug addiction condition (as determined by the 
Commissioner of Social Security), their SSI checks must be sent 
to a representative payee.
Conference agreement
      The conference agreement generally follows the Senate 
amendment with modification to require that a representative 
payee be appointed only in those cases in which the 
Commissioner determines that payment to a representative payee 
would serve the interest of the beneficiary because such 
individual also has an alcoholism or drug addiction condition 
that prevents such individual from managing his or her own 
benefits.

   C. Treatment Referrals For Individuals With an Alcoholism or Drug 
                          Addiction Condition

Present law
      Federal law requires SSI recipients whose drug addiction 
or alcoholism is a contributing factor material to their 
disability to undergo appropriate treatment, if it is 
available.
House bill
      No provision.
Senate amendment
      The Senate amendment requires the Commissioner of Social 
Security to refer to the appropriate State agency administering 
the State plan for substance abuse services any disabled SSI 
recipient who is identified as having an alcoholism or drug 
addiction condition. Any individual who refuses to accept the 
referred services without good cause is no longer eligible for 
SSI benefits.
Conference agreement
      The conference agreement follows the Senate amendment 
with modification to require that only those SSI disability 
recipients who are unable to manage their own benefits as a 
result of an alcoholism or drug addiction condition be referred 
to the State agencies administering such treatment. While 
additional treatment funds are being provided to States in a 
separate provision, it is not the intent of the conferees that 
States are required to provide treatment.
      Although this legislation eliminates drug addiction and 
alcoholism as the basis for awarding disability benefits to an 
SSI claimant, the conferees believe it is important that SSI 
recipients with severe drug or alcohol abuse continue to be 
referred to treatment sources. While the conferees do not 
expect that the Commissioner will routinely inquire in all 
representative payee cases whether drug addiction or alcoholism 
causes an individual's inability to manage his or her own 
affairs, it is expected that whenever there is any indication 
that this may be the case, the Commissioner will investigate to 
determine whether referral is appropriate.

                        D. Conforming Amendments

     E. Funding of Certain Programs for Drug Addicts and Alcoholics

Present law
      SSI cash benefits are limited to 3 years for recipients 
whose drug addiction or alcoholism is a contributing factor 
material to their disability. These individuals must undergo 
``appropriate substance abuse treatment.'' While the Social 
Security Administration currently contracts with agencies for 
referral, monitoring and reporting of compliance with 
treatment, it does not pay for treatment. Medicaid benefits are 
to continue beyond the 3-year limit, as long as the individual 
remains disabled, unless the individual was expelled from SSI 
for noncompliance with treatment.
House bill
      For four years beginning with fiscal year 1997, $100 
million of the savings realized from denying cash SSI payments 
and Medicaid coverage to individuals whose drug addiction or 
alcoholism is a contributing factor material to their 
disability will be targeted to drug treatment and drug abuse 
research. Each year, $95 million will be expended through the 
Federal Capacity Expansion Program (CEP) to expand drug 
treatment availability and $5 million will be allocated to the 
National Institute on Drug Abuse to be expended solely on the 
medication development project to improve drug abuse and drug 
treatment research.
Senate amendment
      For two years beginning with fiscal year 1997, $50 
million will be spent to fund additional drug (including 
alcohol) treatment programs and services through Substance 
Abuse Prevention and Treatment Block Grant. The conferees 
expect that States will use funds made available under this 
provision to provide treatment to current and former SSI 
recipients as their first priority.
Conference agreement
      The conference agreement follows the Senate amendment.

                           F. Effective Date

Present law
      Not applicable.
House bill
      This section of the bill becomes effective on October 1, 
1995, and applies with respect to months beginning on or after 
that date.
Senate amendment
      Generally, changes apply to applicants for benefits for 
months beginning on or after the date of enactment. An 
individual receiving benefits on the date of enactment whose 
eligibility would end would continue to be eligible for 
benefits until January 1, 1997. The Commissioner of Social 
Security shall notify individuals losing eligibility within 
three months of the date of enactment.
      In addition, in the case of an individual with an 
alcoholism or drug addiction condition who is receiving SSI 
benefits on the date of enactment, the representative payee 
requirement will apply on or after the first continuing 
disability review occurring after enactment. For recipients 
with an addiction who are over the age of 65, the Commissioner 
will determine appropriate representative payee requirements.
Conference agreement
      The conference agreement follows the Senate amendment 
with modification that the referral to treatment requirement 
for an individual with an alcoholism or drug addiction 
condition receiving benefits on the date of enactment will 
apply on or after the first continuing disability review 
occurring after enactment.

                             Reapplication

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      Individuals receiving SSI benefits on the date of 
enactment who are notified of their termination of eligibility 
and who desire to reapply for benefits must do so within four 
months after the date of enactment. The Commissioner of Social 
Security will determine within one year after the date of 
enactment the eligibility of individuals who reapply.
Conference agreement
      The conference agreement generally follows the Senate 
amendment with technical modification.

  2. denial of ssi benefits for 10 years to individuals found to have 
   fraudulently misrepresented residence in order to obtain benefits 
                   simultaneously in 2 or more states

      Refer to Title I.

3. denial of ssi benefits for fugitive felons and probation and parole 
                               violations

      Refer to Title I.

               chapter 2--benefits for disabled children

                  1. definition and eligibility rules

                 a. definition of childhood disability

                      Comparable Severity Repealed

Present law
      A needy individual under age 18 is determined eligible 
for SSI ``if he suffers from any medically determinable 
physical or mental impairment of comparable severity'' with 
that of an adult considered work disabled and otherwise 
eligible for SSI benefits.
House bill
      The ``comparable severity'' test in statute for 
determining disability of children (defined as individuals 
under 18) is repealed.
Senate amendment
      Similar to the House bill.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                         disability definition

Present law
      There is no definition of childhood disability in the 
statute. Under current disability evaluation procedures, to be 
found disabled, a child must have a medically determinable 
physical or mental impairment that substantially reduces his or 
her ability to independently and effectively engage in age-
appropriate activities. This impairment must be expected to 
result in death or to last for a continuous period of not less 
than 12 months.
House bill
      Eligibility, as determined by the Commissioner of Social 
Security, for cash benefits or new medical or non-medical 
services described below will be based solely on: (1) meeting 
the non-disability-related requirement for eligibility; (2) 
meeting or equalling the current Listing of Impairments set 
forth in the Code of Federal Regulations (i.e., the Listing 
which is currently in regulations is to be codified in 
statute); and (3) being a disabled SSI recipient in the month 
prior to this provision's effective date or being in a 
hospital, skilled nursing facility, residential treatment 
facility, intermediate care facility for the mentally retarded, 
or otherwise would be placed in such a facility if the child 
were not receiving personal assistance necessitated by the 
impairment. Personal assistance refers to assistance with 
activities of daily living such as eating and toileting.
Senate amendment
      Adds a new statutory definition of childhood disability. 
An individual under the age of 18 is considered disabled for 
the purposes of this section if the individual has a medically 
determinable physical or mental impairment, which results in 
marked and severe functional limitations, and which can be 
expected to result in death or which has lasted or can be 
expected to last for a continuous period of not less than 12 
months.
Conference agreement
      The conference agreement follows the Senate amendment 
with technical modification and provides that the Commissioner 
of Social Security shall submit for review to the committees of 
jurisdiction in the Congress any final regulation with 
supporting documentation pertaining to the eligibility of 
individuals under age 18 for SSI benefits at least 45 days 
before the effective date of such regulation.
      By this definition, the conferees intend that only needy 
children with severe disabilities be eligible for children's 
SSI and that the Listing and other disability determination 
regulations as modified by the conference agreement properly 
reflect the severity of disability contemplated by the 
statutory definition. In those areas of the Listing that 
involve domains of functioning, the conferees expect no less 
than two marked limitations in no fewer than two domains or 
extreme limitations in at least one domain as the standard for 
qualification. The conferees are also aware that the Social 
Security Administration uses the term ``severe'' to often mean 
``other than minor'' in an initial screening procedure for 
disability determination and in other places. The conferees, 
however, use the term ``severe'' in its common sense meaning.
      The conferees do not intend to suggest by this definition 
of childhood disability that every child need be especially 
evaluated for functional limitations, or that this definition 
creates a supposition for any such examination. Under current 
procedures for writing individual listings, level of 
functioning is an explicit consideration in deciding which 
impairment, with what medical or other findings, are of 
sufficient severity to be included in the Listing. Nonetheless, 
the conferees do not intend to limit the use of functional 
assessments and functional information, if reflecting 
sufficient severity and are otherwise appropriate.

                b. changes to childhood ssi regulations

                 Reliance on ``Listing of Impairments''

Present law
      Under the disability determination process for children, 
individuals whose impairments do not meet or equal the 
``Listing of Impairments'' in Federal regulations are subject 
to an ``Individualized Functional Assessment (IFA)''. This 
assessment examines whether the child can engage in age-
appropriate activities effectively. If the child cannot, he or 
she is determined disabled.
House bill
      The Commissioner of Social Security must annually report 
to Congress on the Listings and recommend any needed revisions. 
Individualized functional assessments are no longer grounds for 
determination of disability.
Senate amendment
      The Commissioner of Social Security shall discontinue the 
individualized functional assessment for children set forth in 
the Code of Federal Regulations.
Conference agreement
      The conference agreement follows the Senate amendment. 
The conferees agree that a significant amount of the growth of 
the children's SSI program resulted from regulations issued in 
1991 by the Social Security Administration establishing the 
individualized functional assessment which liberalized program 
eligibility criteria beyond Congressional intent. Children with 
modest conditions or impairments were made eligible for SSI due 
to the individualized functional assessment, and therefore 
should not be eligible for SSI benefits.

         Multiple References to ``Maladaptive Behavior'' Eliminated

Present law
      Under the disability determination process for children, 
the Social Security Administration first determines if a child 
meets or equals the Listings of Impairments. Under the Listings 
that relate to mental disorders, maladaptive behavior may be 
scored twice, in domains of social functioning and of personal/
behavior functioning.
House bill
      No provision.
Senate amendment
      Requires the Commissioner of Social Security to eliminate 
references in the Listing to maladaptive behavior among medical 
criteria for evaluation of mental and emotional disorders in 
the domain of personal/behavioral function.
Conference agreement
      The conference agreement follows the Senate amendment.

                         c. amount of benefits

Present law
      A child who is determined to be disabled and who is 
eligible on the basis of his income and resources shall be paid 
benefits. If the child lives at home, the parents' financial 
resources are deemed available to the child. If the same child 
is institutionalized, after the first month away from home only 
the child's own financial resources are deemed to be available 
for the child's care. The child may then qualify for a reduced 
(``personal needs allowance'') SSI benefit and for Medicaid 
coverage. Because of these ``deeming'' rules, some children who 
could have been cared for at home might remain in institutions 
because, if they were to return home, they would lose Medicaid 
benefits. Medicaid ``waivers'' allow States to disregard the 
deeming rule, provide Medicaid coverage, and pay for support 
services to help families keep children at home.
House bill
      Children may be eligible for cash SSI payments in one of 
three circumstances:
          (1) if a child who is currently (defined as during 
        the month prior to the first month for which this 
        provision takes effect) receiving cash SSI payments by 
        reason of disability will continue to be eligible for 
        cash SSI benefits if the child has an impairment that 
        meets or equals an impairment specified in the Listing 
        of Impairments. Children receiving cash benefits under 
        the grandfather provision whose financial eligibility 
        is suspended would continue to receive cash benefits if 
        financial eligibility is restored;
          (2) for all other children, a child may only receive 
        cash SSI payments if the child has an impairment which 
        meets or equals an impairment specified in the Listings 
        of Impairments cited above, and is either in a 
        hospital, skilled nursing facility, residential 
        treatment facility, intermediate care facility for the 
        mentally retarded, or otherwise would be placed in such 
        a facility if the child were not receiving personal 
        assistance necessitated by the impairment. Personal 
        assistance refers to assistance with activities of 
        daily living such as eating and toileting; and
          (3) if a child who is overseas as a dependent of a 
        member of the U.S. Armed Forces and who is eligible for 
        block grant services but not eligible for cash benefits 
        under the new criteria shall be eligible for cash 
        benefits. Cash benefits cease when the child returns to 
        the United States.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows a modified version of 
the House bill. Once an eligible child is determined to meet 
the definition of disability, the amount of the individual's 
cash benefit will be based on whether the child meets the newly 
developed criteria for needing personal assistance enabling the 
child to remain with their family at home. This criteria is as 
follows:
      For a child under age 6--such individual has a medical 
impairment that severely limits the individual's ability to 
function in a manner appropriate to individuals of the same age 
and who without special personal assistance would require 
specialized care outside the individual's home; or
      For a child age 6 or over--such individual requires 
personal care assistance with: (a) at least two activities of 
daily living, (b) continual 24-hour supervision or monitoring 
to avoid causing injury or harm to self or others, or (c) the 
administration of medical treatment; and who without such 
assistance would require full-time or part-time specialized 
care outside the individual's home.
      The conferees have provided a different definition of the 
eligibility for children under age 6 and over age 6 because of 
the differing expectations of age appropriate behavior for 
children above and below this age. As described below, the 
conferees have requested the Commissioner of Social Security to 
undertake a study on ways to improve these definitions and the 
disability determination process.
      Children with disabilities meeting this criteria will 
receive 100 percent of the benefit amount provided by current 
law. Disabled children who do not meet this criteria will 
receive seventy-five percent of the benefit amount provided by 
current law. The conferees note that the SSI benefit under 
either tier is very generous. In 1995, the average SSI benefit 
for a child recipient is $5,040. Seventy-five percent of that 
benefit would be $3,780. Both the maximum children's SSI 
benefit or seventy-five percent of the maximum benefit is 
greater than the maximum 1995 AFDC benefit for a family of 
three in many States.
      The conferees acknowledge that many families of disabled 
children incur expenses beyond those by families of nondisabled 
children. However, the conferees agree that the extra expenses 
related to a child's disability vary widely depending on the 
nature and degree of disability and the availability of 
Federal, State, and local health care and/or disability 
programs. In order to reduce the inequity of the current system 
which provides one benefit level to all families without regard 
to additional disability-related financial needs, the conferees 
agree to establish a two-tiered benefit system. The higher tier 
is intended for families of children with the most severe 
disabilities who require full or part-time personal assistance 
which would prevent a parent from working full-time or which 
would require the presence of a personal assistance provider.
      The conferees also believe that Congress should 
investigate whether the unmet needs of families of disabled 
children could be better and more efficiently met through 
services, such as mental health treatment or purchase of items 
of assistive technology, rather than cash payments. In the 
twenty three years since the SSI program was created, 
substantial new Federal programs have been authorized to assist 
children with disabilities, including Federal, State and local 
funding of special education and expansion of Medicaid. The 
impact of these programs on cash needs of children with 
disabilities merits further investigation by Congress. In order 
to have better data on the cost incurred by a family with a 
disabled child, the conferees request that the General 
Accounting Office undertake a study of the extra expenses 
incurred by such families with a child receiving SSI benefits, 
including what expenses are covered by other benefits such 
children receive through Federal, State, and local programs, 
and the lost income to families because of care they provide 
their child.
      Lastly, the conferees remain concerned about the adequacy 
of the Listing of Impairments. The conferees strongly urge the 
Social Security Administration to contract with the National 
Academy of Sciences, or another independent entity, to conduct 
a study aimed at improving both the process of disability 
determination and the validity of the Listing of Impairments in 
light of current scientific knowledge.

                           d. effective date

Present law
      Not applicable.
House bill
      Changes apply to benefits for months beginning ninety or 
more days after enactment, without regard to whether 
regulations have been issued. Recipients of SSI cash benefits 
during the month of enactment who would lose eligibility under 
the House bill may continue to receive SSI benefits for up to 6 
months.
Senate amendment
      The Senate amendment changes apply to applicants for 
months beginning on or after the date of enactment, without 
regard to whether regulations have been issued. However, the 
Commissioner must issue necessary regulations within two months 
of enactment. For child SSI recipients who were eligible for 
SSI on the date of enactment but who would lose eligibility 
under the Senate amendment, the changes would not take effect 
until January 1, 1997. The Commissioner is to redetermine the 
eligibility of these persons within one year of enactment.
Conference agreement
      The conference agreement follows the Senate amendment 
with modification that the effective date for the two-tiered 
benefit system is January 1, 1997, for current recipients and 
new applications. The conferees agreed to require the 
Commissioner to report to Congress within 180 days regarding 
the progress made in implementing the SSI children's 
provisions, however this provision was dropped from the 
Reconciliation bill because it violates the Byrd Rule (section 
313 of Congressional Budget Act of 1974).

                                 notice

Present law
      Not applicable.
House bill
      Not later than one month after the date of enactment, the 
Commissioner must notify individuals whose eligibility for SSI 
benefits will terminate.
Senate amendment
      Within three months of enactment, the Commissioner must 
notify individuals whose eligibility for SSI benefits will 
terminate.
Conference agreement
      The conference agreement follows the Senate amendment.

    new provision for administrative funds for the social security 
                             administration

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      No provision.
Conference agreement
      The conferees recognize that implementation of the SSI 
provisions by the Social Security Administration is a big job 
and have provided $300 million to assist the agency meeting 
their obligations. The conferees are very mindful of the 
problems encountered by the Social Security Administration in 
the early 1980s in conducting a large number of 
redeterminations and continuing disability reviews, and 
strongly urge the Commissioner to conduct the redeterminations 
and continuing disability reviews required in this bill in an 
orderly and careful manner.

         block grants to states for children with disabilities

                         entitlement to grants

Present law
      Not applicable.
House bill
      Each State that meets the requirements listed below for 
fiscal year 1997 or later years shall be entitled to receive a 
grant equal to the State's allotment for that fiscal year. The 
Commissioner of Social Security will make block grants to 
States for the purpose of providing specified medical and non-
medical benefits for children who have an impairment which 
meets or equals an impairment specified in the Listing of 
Impairments. Grants are an entitlement to eligible States on 
behalf of qualifying children, not an entitlement to any such 
child.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision).

                              requirements

Present law
      Not applicable.
House bill
      Each State must establish a program to provide block 
grant services. The State will submit to the Commissioner an 
application for the grant. In the application, the State agrees 
it must spend grant funds to provide authorized services 
designed to meet the unique needs of qualifying children. The 
application must also contain information, agreements, and 
assurances required by the Commissioner. In providing 
authorized services, States will make every reasonable effort 
to obtain payment for the services from other Federal or State 
programs that provide such services. States will expend the 
grant only to the extent that payments from other programs are 
not available.
      In order to receive a block grant under this section, the 
State must agree to maintain non-Federal spending for any 
purposes designed to meet the needs of qualifying children with 
physical or mental impairments. States have discretion to 
select the purposes for which the State expends non-Federal 
amounts, within the purposes of providing for the needs of 
qualifying children. The Consumer Price Index will be used to 
adjust for inflation in judging whether the State meets the 
maintenance of effort requirements in future years.
      No child who has an impairment which meets or equals an 
impairment specified in the Listing of Impairments will be 
denied the opportunity to apply for services and to have his or 
her case assessed to determine the child's service needs.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision).

                           authority of state

Present law
      Not applicable.
House bill
      The following decisions are in the discretion of a State:
              (1) which authorized services to provide;
              (2) who among qualifying children receives 
        services; and
              (3) the number of services provided a qualifying 
        child and their duration.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision).

                          authorized services

Present law
      Not applicable.
House bill
      The Commissioner shall issue regulations designating the 
purposes for which grants may be spent by States. The 
Commissioner must ensure that services on the list are designed 
to meet the unique needs of qualifying children that arise from 
their physical and mental impairments, that both medical and 
non-medical services are included, and that cash assistance is 
not available through the block grant.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision).

                           general provisions

Present law
      Not applicable.
House bill
      Necessary regulations are to be issued, but payments 
under the block grant must begin not later than January 1, 
1997, regardless of whether final rules have been issued.
      The value of the authorized services provided through the 
block grant cannot be taken into account in determining 
eligibility for, or the amount of, benefits or services under 
any Federal or Federally-assisted program. For the purposes of 
Medicaid, each qualifying child shall be considered to be a 
recipient of Supplemental Security Income benefits under this 
title.
      States are encouraged to use an existing delivery system 
to administer block grant services.
      States that do not participate in offering block grant 
services are not permitted to use social security numbers in 
the administration of any tax, public assistance, driver's 
license or motor vehicle registration law. (Because of the 
extreme duress this would impose on States, this is regarded as 
effectively a ``requirement.'')
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision).

                              definitions

Present law
      Not applicable.
House bill
      A State's ``Allotment'' of block grant funds equals the 
product of 75 percent of the average cash SSI benefit in the 
State and the number of children in the State receiving non-
cash SSI benefits under this section.
      ``Authorized Service'' means each service authorized by 
the Commissioner.
      A ``Qualifying Child'' means an individual under 18 years 
of age who is eligible for cash benefits under this title by 
reason of disability; or an individual under 18 years of age 
who is eligible for SSI non-cash benefits as described above. 
The Commissioner will determine whether individuals meet the 
criteria to be eligible for block grant services.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision).

                             effective date

Present law
      Not applicable.
House bill
      Block grants are available to eligible States beginning 
in fiscal year 1997.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision).

   2. Eligibility Redeterminations and Continuing Disability Reviews

         A. Continuing Disability Reviews for Certain Children

Present law
      Federal law requires that SSI recipients be subject to a 
Continuing Disability Review (CDR) at least once every 3 years, 
except for recipients whose impairments are judged to be 
permanent. The Commissioner is required to conduct periodic 
CDRs of at least 100,000 disabled SSI recipients per year for a 
period of 3 years (i.e., fiscal year 1996-1998) and report to 
Congress on CDRs for disabled SSI recipients no later than 
October 1, 1998.
House bill
      In addition to the provisions of current law, at least 
once every 3 years the Commissioner must conduct CDRs for SSI 
benefits of children receiving benefits. For children who are 
eligible for benefits and whose medical condition is not 
expected to improve, the requirement to perform such reviews 
does not apply.
Senate amendment
      Same as the House bill, with minor differences in 
wording. At the time of review the parent or guardian must 
present evidence demonstrating that the recipient is and has 
been receiving appropriate treatment for his or her disability.
Conference agreement
      The conference agreement generally follows the Senate 
amendment with modification requiring evidence of needed 
treatment for continued representative payee status.

b. disability review required for ssi recipients who attain 18 years of 
                                  age

Present law
      Current law also specifies that the Commissioner must 
reevaluate under adult disability criteria the eligibility of 
at least one-third of SSI children who turn age 18 in each of 
the fiscal years 1996, 1997, and 1998 (the CDR must be 
completed before these children reach age 19) and report to 
Congress no later than October 1, 1998, on CDRs for disabled 
children.
House bill
      The eligibility for all children qualifying for SSI 
benefits must be redetermined using the adult criteria within 
one year after turning 18 years of age. The review will be 
considered a substitute for any other review required under the 
changes made in this section.
      Not later than October 1, 1998, the Commissioner of 
Social Security must submit to the House Committee on Ways and 
Means and the Senate Committee on Finance a report on 
disability reviews for children enrolled in SSI.
      The ``minimum number of reviews'' and the ``sunset'' 
provisions of section 207 of the Social Security Independence 
and Program Improvements Act of 1994 are eliminated.
Senate amendment
      Same as the House bill with differences in wording. Like 
the House bill, the Senate amendment repeals section 207 of the 
Social Security Independence and Program Improvements Act of 
1994.
Conference agreement
      The conference agreement generally follows the House bill 
with modification that the Commissioner does not have to submit 
a report to Congress on disability reviews for SSI children.

  c. disability review required for low birth weight babies who have 
                  received ssi benefits for 12 months

Present law
      Not applicable.
House bill
      A review for continuing disability must be performed for 
all children qualifying for SSI due to low birth weight when 
the child has received benefits for 12 months.
Senate amendment
      A review must be conducted 12 months after the birth of a 
child whose low birth weight is a contributing factor to the 
child's disability. At the time of review, the parent or 
guardian must present evidence demonstrating that the recipient 
is and has been receiving appropriate treatment for his or her 
disability.
Conference agreement
      The conference agreement follows the Senate amendment 
with modification requiring evidence of needed treatment for 
continued representative payee status.

                           d. effective date

Present law
      Not applicable.
House bill
      This section applies to benefits for months beginning 
ninety or more days after enactment, regardless of whether 
regulations have been issued.
Senate amendment
      Applies to benefits for months beginning on or after the 
date of enactment, regardless of whether regulations have been 
issued.
Conference agreement
      The conference agreement follows the Senate amendment.

               3. Additional Accountability Requirements

                         a. disposal of assets

Present law
      No provision. There is a transfer of assets provision in 
Medicaid law that is similar to H.R. 4 provision (Sec. 1917(c) 
of the Social Security Act).
House bill
      The House bill delays eligibility for any child applicant 
whose parents or guardians, in order to qualify a child for 
benefits, dispose of assets for less than fair market value 
within 36 months of the date of application. The provision 
stipulates that any assets in a trust in which the child (i.e., 
parent or representative payee) has control shall be considered 
assets of the child and subject to the 36-month ``look-back'' 
rule. The delay (in months) is equal to the amount of assets 
divided by the SSI standard benefit.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill with 
technical modifications.

                    requirement to establish account

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      At the request of the representative payee (i.e., the 
parent), the Commissioner of Social Security may pay any lump 
sum payment for the benefit of a child into a dedicated savings 
account for the purpose of covering the costs of needs related 
to the child's disability and/or increasing the child's 
independence. The dedicated savings account could only be used 
to purchase education and job skills training, special 
equipment or housing modifications related to the child's 
disability, and appropriate therapy and rehabilitation. The 
funds in these accounts would not be counted as resources in 
determining SSI eligibility. This provision would take effect 
upon enactment.
Conference agreement
      The conference agreement generally follows the Senate 
amendment with modification requiring the dedicated savings 
account (instead of it being optional at the request of the 
representative payee), expanding the list of allowable 
expenses, and requiring the Commissioner to establish a system 
for accountability monitoring.

                         Conforming Amendments

Present law
      Not applicable.
House bill
      The House bill makes a number of conforming amendments, 
reflecting the addition of non-cash SSI benefits as described 
above.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate Amendment 
(i.e., no provision).

          Improvements to Disability Evaluations for Children

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Senate amendment directs the Commissioner of Social 
Security, within sixty days of enactment, to issue a request 
for comments in the Federal Register regarding improvements in 
the disability evaluation and determination procedures for 
children under age 18. The Commissioner must review the 
comments and issue regulations implementing changes within 18 
months after enactment.
Conference agreement
      The conference agreement follows the House bill (i.e., no 
provision).

  Temporary Eligibility for Cash Benefits for Poor Disabled Children 
 Residing in States Applying Alternative Income Eligibility Standards 
                             Under Medicaid

Present law
      States generally are required to provide Medicaid 
coverage for recipients of SSI. However, States may use more 
restrictive eligibility standards for Medicaid than those for 
SSI if they were using those standards on January 1, 1972 
(before implementation of SSI). States that have chosen to 
apply at least one more restrictive standard are known as 
``section 209(b)'' States, after the section of the Social 
Security Amendments of 1972 (P.L. 92-603) that established the 
option. These States may vary in their definition of 
disability, or in their standards related to income or 
resources. There are 12 section 209(b) States: Connecticut, 
Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, 
North Carolina, North Dakota, Ohio, Oklahoma, and Virginia.
House bill
      The House bill provides for temporary eligibility for 
cash SSI benefits (through the end of fiscal year 1996) for 
children who live in States that apply alternative income 
eligibility standards under Medicaid (also known as ``209(b)'' 
States).
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision).

  4. Reduction of Cash Benefits Payable to Institutionalized Children 
          Whose Medical Costs Are Covered by Private Insurance

Present law
      Federal law stipulates that when an individual enters a 
hospital or other medical institution in which more than half 
of the bill is paid by the Medicaid program, his or her monthly 
SSI benefit standard is reduced to $30 per month. This personal 
needs allowance is intended to pay for small personal expenses, 
with the cost of maintenance and medical care provided by the 
Medicaid program.
House bill
      Cash SSI payments to institutionalized children would be 
reduced for those whose medical costs are covered by private 
insurance.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

    Additional Accountability Requirements for Parents or Guardians

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Senate amendment requires a disabled child's 
representative payee (usually the parent) to document 
expenditures. These expenditures would be subject to increased 
review by the Social Security Administration. Effective for 
benefits paid after enactment.
Conference agreement
      The conference agreement follows the House bill (i.e., no 
provision).

                             5. Regulations

Present law
      Not applicable.
House bill
      The Commissioner of Social Security and the Secretary of 
HHS will prescribe necessary regulations within three months 
after enactment of this Act.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

    Examination of Mental Listings Used to Determine Eligibility of 
           Children for SSI Benefits by Reason of Disability

Present law
      Section 202 of the Social Security Independence and 
Program Improvements Act of 1994 established a Childhood 
Disability Commission to study the desirability and methods of 
increasing the extent to which benefits are used in the effort 
to assist disabled children in achieving independence and 
engaging in substantial gainful activity. The Commission was 
also charged with examining the effects of the SSI program on 
disabled children and their families.
House bill
      The Childhood Disability Commission must review the 
mental listings used by the Social Security Administration to 
determine child SSI eligibility. The Commission should conduct 
this investigation to ensure that the criteria in these 
listings are appropriate and that SSI eligibility is limited to 
children with serious disabilities for whom Federal assistance 
is necessary to improve the child's condition or quality of 
life.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the Senate amendment 
(i.e., no provision) due to the Childhood Disability Commission 
having completed their final report.

Limitation on Payments to Puerto Rico, the U.S. Virgin Islands and Guam 
         Under Programs of Aid to the Aged, Blind, or Disabled

      Refer to Title I.

  Repeal of Maintenance of Effort Requirement Applicable to Optional 
           State Programs for Supplementation of SSI Benefits

Present law
      Since the beginning of the SSI program, States have had 
the option to supplement (with State funds) the Federal SSI 
payment. The purpose of section 1618 was to encourage States to 
pass along to SSI recipients the amount of any Federal SSI 
benefit increase. Under section 1618, a State that is found to 
be not in compliance with the ``pass along/maintenance of 
effort provision'' is subject to loss of its Medicaid 
reimbursements. Section 1618 allows States to comply with the 
``pass along/ maintenance of effort'' provision by either 
maintaining their State supplementary payment levels at or 
above 1983 levels or by maintaining total annual expenditures 
for supplementary payments (including any Federal cost-of-
living adjustment) at a level at least equal to the prior 12-
month period, provided the State was in compliance for that 
period. In effect, section 1618 requires that once a State 
elects to provide supplementary payments it must continue to do 
so. [Sec. 1618 of the Social Security Act]
House bill
      The House bill repeals the maintenance of effort 
requirements (Sec. 1618) applicable to optional State programs 
for supplementation of SSI benefits effective date of 
enactment.
Senate amendment
      Similar to the House bill.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

          Limited Eligibility of Noncitizens for SSI Benefits

      Refer to Title IV.

                          Annual Report on SSI

Present law
      To date, the Department of Health and Human Services and 
now the Social Security Administration have collected, 
compiled, and published annual and monthly SSI data, but 
Federal law does not require an annual report on the SSI 
program.
House bill
      No provision.
Senate amendment
      The Senate amendment requires the Commissioner of Social 
Security to prepare and provide to the President and the 
Congress an annual report on the SSI program, which includes 
specified information and data. The report is due May 30 of 
each year.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

               Study of Disability Determination Process

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      Within 90 days of enactment, the Commissioner must 
contract with the National Academy of Sciences or another 
independent entity to conduct a comprehensive study of the 
disability determination process for SSI and SSDI. The study 
must examine the validity, reliability and consistency with 
current scientific standards of the Listings of Impairments 
cited above.
      The study must also examine the appropriateness of the 
definitions of disability (and possible alternatives) used in 
connection with SSI and SSDI; and the operation of the 
disability determination process, including the appropriate 
method of performing comprehensive assessments of individuals 
under age 18 with physical or mental impairments.
      The Commissioner must issue interim and final reports of 
the findings and recommendations of the study within 18 months 
and 24 months, respectively, from the date of contract for the 
study.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                    General Accounting Office Study

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Senate amendment requires the General Accounting 
Office to study and report on the impact of title II of the 
Senate amendment on the SSI program by January 1, 1998.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

            National Commission on the Future of Disability

                            A. Establishment

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Commission is established and expenses are to be paid 
from funds appropriated to the Social Security Administration.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                               B. Duties

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Commission must study all matters related to the 
nature, purpose and adequacy of all Federal programs for the 
disabled, and especially SSI and SSDI.
      The Commission must examine: projected growth in the 
number of individuals with disabilities and the implications 
for program planning; possible performance standards for 
disability programs; the adequacy of Federal rehabilitation 
research and training; and the adequacy of policy research 
available to the Federal government and possible improvements.
      The Commission must submit to the President and the 
proper Congressional committees recommendations and possible 
legislative proposals effecting needed program changes.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                             C. Membership

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Commission is to be composed of 15 members, appointed 
by the President and Congressional leadership. Members are to 
be chosen based on their education, training or experience, 
with consideration for representing the diversity of 
individuals with disabilities in the U.S.
      The Comptroller General must serve as an ex officio 
member of the Commission to advise on the methodology of the 
study. With the exception of the Comptroller General, no 
officer or employee of any government may serve on the 
Commission.
      Members are to be appointed not later than 60 days after 
enactment. Members serve for the life of the Commission, which 
will be headquartered in D.C. and meet at least quarterly.
      The Senate amendment includes a number of specific 
requirements on the Commission regarding quorums, the naming of 
chairpersons, member replacement, and benefits.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                     D. Staff and Support Services

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Commission will have a director, appointed by the 
Chair, and appropriate staff, resources, and facilities.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                               E. Powers

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Commission may conduct public hearings and obtain 
information from Federal agencies necessary to perform its 
duties.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                               f. reports

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Commission must issue an interim report to Congress 
and the President not later than 1 year prior to terminating. A 
final public report must be submitted prior to termination.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                             g. termination

Present law
      Not applicable.
House bill
      No provision.
Senate amendment
      The Commission will terminate 2 years after first having 
met and named a chair and vice chair.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                 chapter 6--retirement age eligibility

 13. eligibility for ssi benefits based on social security retirement 
                                  age

Present law
      The SSI program guarantees a minimum level of cash income 
to all aged, blind, or disabled persons with limited resources. 
The SSI program defines ``aged'' as persons age 65 and older.
House bill
      No provision.
Senate amendment
      The Senate amendment deletes references to age 65 and 
instead defines as ``aged'' those persons who reach 
``retirement age'' as defined by the Social Security program. 
The Social Security ``retirement age''--the age at which 
retired workers receive benefits that are not reduced for 
``early retirement''--gradually will rise from 65 to 67. It 
will do so in two steps. First, the retirement age will 
increase by 2 months for each year that a person was born after 
1937, until it reaches age 66 for those born in 1943 (i.e., 
those who attain age 66 in 2009). Second, it will again 
increase by 2 months for each year that a person was born after 
1954 until it reaches age 67 for those born after 1959.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                 Subtitle C--Child Support Enforcement

     Chapter 1--Eligibility for Services; Distribution of Payments

                             1. references

Present law
      No provision.
House bill
      Any reference in this title expressed in terms of an 
amendment to or repeal of a section or other provision is made 
to the Social Security Act.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

   2. state obligation to provide child support enforcement services

Present law
      States are required to establish paternity for children 
born out of wedlock if they are recipients of AFDC or Medicaid, 
and to obtain child and spousal support payments from 
noncustodial parents of children receiving AFDC, Medicaid 
benefits, or foster care maintenance payments. States must 
provide child support collection or paternity determination 
services to persons not otherwise eligible if the person 
applies for services. Federal law requires States to cooperate 
with other States in establishing paternity (if necessary), 
locating absent parents, collecting child support payments, and 
carrying out other child support enforcement functions.
House bill
      States must provide services, including paternity 
establishment and establishment, modification, or enforcement 
of support obligations, for children receiving benefits under 
part A (Temporary Assistance for Needy Families block grant-
TANF), part B (child protection block grant), Medicaid, and any 
child of an individual who applies for services. States must 
enforce support obligations with respect to children in their 
caseload and the custodial parents of such children. States 
must also make child support enforcement services available to 
nonresidents on the same terms as to residents. The provision 
also makes minor technical amendments to SSA section 454.
Senate amendment
      Similar to House provision with one exception: instead of 
reference to part B as in House bill, reference is to part E-
foster care and adoption assistance.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment except the House recedes by agreeing States be 
required to provide child support services only to children 
actually receiving foster care payments.

              3. distribution of child support collections

                  a. distribution of collected support

Present law
      To receive AFDC benefits, a custodial parent must assign 
to the State her right to collect child support payments. This 
assignment covers current support and any arrearages, and lasts 
as long as the family receives AFDC. Federal law requires that 
child support collections be distributed as follows: First, up 
to the first $50 in current support is paid to the AFDC family 
(a ``disregard'' that does not affect the family's AFDC benefit 
or eligibility status). Second, the Federal and State 
governments are reimbursed for the AFDC benefit paid to the 
family in that month. Third, if there is money left, the family 
receives it up to the amount of the current month's child 
support obligation. Fourth, if there is still money left, the 
State keeps it to reimburse itself for any arrearages owed to 
it under the AFDC assignment (with appropriate reimbursement of 
the Federal share of the collection to the Federal government). 
If no arrearages are owed the State, the money is used to pay 
arrearages to the family; such moneys are considered income 
under the AFDC program and would reduce the family's AFDC 
benefit.
House bill
      To receive funds from the Temporary Assistance for Needy 
Families (TANF) block grant, a custodial parents must assign to 
the State their right to child support payments. (p. 39) The 
bill ends the $50 child support disregard to (TANF) families. 
Families receiving cash assistance--States are given the option 
of passing the entire child support payment through to 
families. If States elect this option, they must pay the 
Federal share of the collection to the Federal government. 
Families that formerly received cash assistance--Current child 
support payments go to the family. Payments on arrearages that 
accrued before or after the custodial parent received cash 
assistance are paid to the family first if the family leaves 
welfare. Only after all arrearages owed to the custodial parent 
and children have been repaid are arrearages owed to the State 
and Federal government repaid. Payments on arrearages that 
accrued while the family received assistance must be retained 
by the State. The State is required to keep the State share of 
the collected amount, and pay to the Federal government the 
Federal share of the amount collected (to the extent necessary 
to reimburse amounts paid to the family as cash assistance). As 
a general rule, States must pay to the Federal government the 
Federal share of child support collections for parents on the 
Temporary Family Assistance program. This share is calculated 
using the State's Medicaid match rate in effect in 1995 or in 
subsequent years, whichever is greater. Families that never 
received cash assistance--All child support payments go 
directly to the family.
Senate amendment
      Any rights to child support that were assigned to the 
State before the effective date of the amendment are to remain 
so assigned. Gives States the option of requiring TANF 
applicants and recipients to assign to the State their rights 
to child support payments. The amendment eliminates references 
(in both the TANF block grant title of the amendment and the 
CSE title) to the $50 child support disregard, but does not 
explicitly eliminate the $50 child support disregard. Families 
receiving cash assistance--States are given the option of 
passing the entire child support payment through to families. 
If States elect this option, they must pay the Federal share of 
the collection to the Federal government. Families that 
formerly received cash assistance--Current child support 
payments go to the family. Payments on arrearages that accrued 
after the custodial parent left welfare are paid to the family. 
With respect to payments on arrearages that accrued before or 
while the family received assistance, the State may retain all 
or part of the State share, and if the State does so, it must 
retain and pay to the Federal Government the Federal share (to 
the extent the amount retained does not exceed the cash 
assistance paid to the family). The Federal share is calculated 
using the State's Medicaid match rate in effect in 1995 or in 
subsequent years, whichever is greater. Families that never 
received cash assistance--All child support payments go 
directly to the family. In addition, in the case of a family 
receiving cash assistance from an Indian tribe, the child 
support collection is to be distributed according to the 
agreement specified in the State plan.
Conference agreement
      The conference agreement modifies the House bill and 
Senate amendment as follows: (1) the $50 passthrough is ended; 
(2) beginning October 1, 1997, arrearages that accumulate 
during the period after the family leaves welfare and that are 
paid through the tax intercept are paid to the State; payments 
made by any other method are paid to the family; and (3) 
beginning October 1, 2000, arrearages that accumulated during 
the period before the mother went on welfare and that are paid 
through the tax intercept are paid to the State; arrearage 
payments made by any other method are paid to the family. 
Conferees also agree that if the amount of pre-welfare 
arrearages paid to the family exceeds the amount saved by a 
given State by ending the $50 passthrough and by other methods 
of improving collections contained in this legislation, the 
Federal government will pay that State an amount equal to the 
difference between pre-welfare arrearage payments to the family 
and State savings caused by this legislation. Finally, child 
support assignment rules are modified to conform to the changes 
described above in distribution rules.

 B. Continuation of Services for Families Ceasing to Receive Assistance

Present law
      Federal law requires States to continue providing child 
support enforcement services to AFDC, Medicaid, and foster care 
families who no longer qualify for AFDC benefits on the same 
basis as in the case of those who receive benefits or services, 
except that no application or request for services is required.
House bill
      When families leave the TANF program, States are required 
to continue providing child support enforcement services to 
them subject to the same conditions and on the same basis as in 
the case of individuals who receive assistance.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                           C. Effective Date

Present law
      No provision.
House bill
      The effective date for provisions relating to 
distribution of support collected for families who formerly 
received cash assistance is October 1, 1995. For all others it 
is October 1, 1999.
Senate amendment
      The effective date for distribution of support collected 
for families receiving cash assistance is October 1, 1999. The 
effective date for the clerical amendments and provisions 
relating to the distribution of child support collected for 
families who formerly received cash assistance or who never 
received cash assistance is October 1, 1995.
Conference agreement
      The effective date for ending the $50 passthrough is 
October 1, 1996 or sooner at State option. The effective date 
for implementing the new distribution rules applying to post-
welfare arrearages is October 1, 1997; for pre-welfare 
arrearages, the effective date is October 1, 2000.

                         4. Privacy Safeguards

Present law
      Federal law limits the use or disclosure of information 
concerning recipients of Child Support Enforcement Services to 
purposes connected with administering specified Federal welfare 
programs.
House bill
      States must implement safeguards against unauthorized use 
or disclosure of information related to proceedings or actions 
to establish paternity or to enforce child support. These 
safeguards must include prohibitions on release of information 
where there is a protective order or where the State has reason 
to believe a party is at risk of physical or emotional harm 
from the other party. This provision is effective October 1, 
1997.
Senate amendment
      Identical provision.
Conference Agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                 5. Rights to Notification and Hearing

Present law
      Most States have procedural due process requirements with 
respect to wage withholding. Federal law requires States to 
carry out withholding in full compliance with all procedural 
due process requirements of the State.
House bill
      No provision.
Senate amendment
      Parties to child support cases under Title IV-D must 
receive notice of proceedings in which child support is 
established or modified and must receive a copy of orders 
establishing or modifying child support within 14 days of 
issuance. Individuals served by the child support program must 
also have access to a fair hearing or other complaint 
procedures. These rules and procedures become effective on 
October 1, 1997.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                  Chapter 2--Locate and Case Tracking

                         6. State Case Registry

                              A. Contents

Present law
      No provision.
House bill
      The automated State Case Registry must contain a record 
on each case in which services are being provided by the State 
agency, as well as each support order established or modified 
in the State on or after October 1, 1998.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                     B. Linking of Local Registries

Present law
      No provision.
House bill
      The Registry may be established by linking local case 
registries of support orders through an automated information 
network.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                  C. Use of Standardized Data Elements

Present law
      No provision.
House bill
      The registry record will contain data elements on both 
parents, such as names, Social Security numbers and other 
uniform identification numbers, dates of birth, case 
identification numbers, and any other data the Secretary may 
require.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                           D. Payment Records

Present law
      Federal law, with respect to wage withholding, requires 
that wage withholding be administered by a public agency 
capable of documenting payments of support and tracking and 
monitoring such payments.
House bill
      Each case record will contain the amount of support owed 
under the order and other amounts due or overdue, any amounts 
that have been collected and distributed, the birth date of any 
child for whom the order requires the provision of support, and 
the amount of any lien imposed by the State.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                       E. Updating and Monitoring

Present law
      Federal law requires that child support orders be 
reviewed and adjusted, as appropriate, at least once every 3 
years.
House bill
      The State agency operating the registry will promptly 
establish and maintain and regularly update case records in the 
registry with respect to which services are being provided 
under the State plan. Updating will be based on administrative 
actions and administrative and judicial proceedings and orders 
relating to paternity and support, as well as information 
obtained from comparison with Federal, State, and local sources 
of information, information on support collections and 
distributions, and any other relevant information.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

            F. Information Comparisons and Other Disclosures

Present law
      No provision.
House bill
      The State automated system will be used to extract data 
for purposes of sharing and matching with Federal and State 
data bases and locator services, including the Federal Case 
Registry of Child Support Orders, the Federal Parent Locator 
Service, Temporary Assistance for Needy Families and Medicaid 
agencies, and intra- and interstate information comparisons.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

           7. Collection and Disbursement of Support Payments

                       A. State Disbursement Unit

Present law
      No provision. But States may provide that, at the request 
of either parent, child support payments be made through the 
child support enforcement agency or the agency that administers 
the State's income withholding system regardless of whether 
there is an arrearage. States must charge the parent who 
requests child support services a fee equal to the cost 
incurred by the State for these services, up to a maximum of 
$25 per year.
House bill
      By October 1, 1998, State child support agencies are 
required to operate a centralized, automated unit for 
collection and disbursement of payments on child support orders 
enforced by the child support agency. The specifics of how 
States will establish and operate their State Disbursement Unit 
must be outlined in the State plan.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                              B. Operation

Present law
      No provision.
House bill
      The State Disbursement Unit must be operated directly by 
the State agency, by two or more State agencies under a 
regional cooperative agreement, or by a contractor responsible 
directly to the State agency.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                 C. Linking of Local Disbursement Units

Present law
      No provision.
House bill
      The State Disbursement Unit may be established by linking 
local disbursement units through an automated information 
network. The Secretary must agree that the system will not cost 
more nor take more time to establish than a centralized system. 
In addition, employers shall be given one location per State to 
which income withholding is sent.
Senate amendment
      Similar provision except that whereas the House requires 
only that the system not cost more or take more time to 
establish, the Senate adds the condition that the system also 
cannot take more time to operate.
Conference agreement
      The House recedes to the Senate provision allowing States 
to establish their State Disbursement Unit by linking local 
disbursement units only if linking units does not cost more 
money nor take more time to establish and to operate.

                         D. Required Procedures

Present law
      No provision.
House bill
      The Disbursement Unit will be used to collect and 
disburse support payments, to generate orders and notices of 
withholding to employers, to keep an accurate identification of 
payments, to promptly distribute money to custodial parents or 
other States, and to furnish parents with a record of the 
current status of support payments. The Unit shall use 
automated procedures, electronic processes, and computer-driven 
technology to the maximum extent feasible, efficient, and 
economical.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                       E. Timing of Disbursements

Present law
      No provision.
House bill
      The Disbursement Unit must distribute all amounts payable 
within 2 business days after receiving money and identifying 
information from the employer or other source of periodic 
income, if sufficient information identifying the payee is 
provided.
Senate amendment
      Similar to House provision, except permits the retention 
of arrearages in the case of appeals until they are resolved.
Conference agreement
      The Conference agreement follows the House bill and 
Senate amendment except that the House recedes to the Senate 
requirement that States be allowed to retain arrearages in the 
case of appeals until they are resolved.

                       F. Use of Automated System

Present law
      No provision.
House bill
      States must use their automated system to facilitate 
collection and disbursement including at least:
            (1) transmission of orders and notices to employers 
        within 2 days after receipt of the withholding notice;
            (2) monitoring to identify missed payments of 
        support; and
            (3) automatic use of enforcement procedures when 
        payments are missed.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                           G. Effective Date

Present law
      No provision.
House bill
      This section of the bill will go into effect on October 
1, 1998.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                    8. State Directory of New Hires

                       A. State Plan Requirement

Present law
      No provision.
House bill
      State plans must include the provision that by October 1, 
1997 States will operate a Directory of New Hires (as outlined 
below).
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                            B. Establishment

Present law
      No provision.
House bill
      States are required to establish a State Directory of New 
Hires to which employers and labor organizations in the State 
must furnish a report for each newly hired employee, unless 
reporting could endanger the safety of the employee or 
compromise an ongoing investigation or intelligence mission as 
determined by the head of an agency.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment with the clarification that States that 
already have new hire reporting laws may continue to follow the 
provisions of their own law until October 1, 1996, at which 
time States must conform to Federal law.

                        C. Employer Information

Present law
      No provision.
House bill
      Employers must furnish to the State Directory of New 
Hires the name, address, and Social Security number of every 
new employee and the name and identification number of the 
employer. Multistate employers may report to the State in which 
they have the most employees.
Senate amendment
      Similar to House provision, but allows multistate 
employers to report to the State they designate. The employer 
must notify the DHHS Secretary as to the name of the designated 
State.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment except that the House recedes to the Senate 
provision allowing multistate employers to report to the State 
of their choice. Employers must notify the Secretary of the 
name of the designated State.

                          D. Timing of Report

Present law
      No provision.
House bill
      Employers must report new hire information within 15 days 
of the hire or on the date the employee first receives wages.
Senate amendment
      Employers must report new hire information within 30 days 
of the hire or if the employer reports by magnetic or 
electronic means, the employer can report by the first business 
day of the week following the date on which the employee first 
receives wages.
Conference agreement
      Conferees agree on two general rules for timing of new 
hire reports. First, except as noted below, employers must 
report new hire information within 20 days of the date of hire.

                     E. Reporting Format and Method

Present law
      No provision.
House bill
      The report required in this section will be made on a W-4 
form or the equivalent, and can be transmitted magnetically, 
electronically, or by first class mail.
Senate amendment
      Similar to House provision, but only allows the report to 
be filed on a W-4 form, not the equivalent.
Conference agreement
      The conferees agreed to follow both the House and Senate 
provisions except that the Senate would recede to the House 
provision allowing employers, at their option, to use an 
equivalent form. The decision of which reporting method to use 
is entirely up to employers.

           F. Civil Money Penalties on Noncomplying Employers

Present law
      In general, no provision.
      Section 1128 of the Social Security Act is an antifraud 
provision which excludes individuals and entities that have 
committed fraud from participation in Medicare and State health 
care programs. Section 1128A pertains to civil monetary 
penalties and describes the appropriate procedures and 
proceedings for such penalties.
House bill
      An employer failing to make a timely report is subject to 
a $25 fine for each unreported employee. There is also a $500 
penalty on employers for every employee for whom they do not 
transmit a W-4 form if, under the laws of the State, there is 
shown to be a conspiracy between the employer and the employee 
to prevent the proper information from being filed.
      The House bill makes several but not all provisions of 
section 1128 applicable to employers that violate reporting 
requirements.
Senate amendment
      States have the option of setting a civil money penalty 
which shall be not less than $25 or $500 if, under State law, 
the failure is the result of a conspiracy between the employer 
and employee. The Senate amendment does not make any provisions 
of section 1128 applicable to employers.
Conference agreement
      The conference agreement follows both the House and 
Senate provisions except that the House recedes to the Senate 
provision of making the penalties a State option.

                    G. Entry of New Hire Information

Present law
      No provision.
House bill
      No provision.
Senate amendment
      New hire information must be entered into the State data 
base within 5 business days of receipt from employer.
Conference agreement
      The House recedes to the Senate requirement of requiring 
States to enter New Hire information in their data base within 
5 business days.

                       H. Information Comparisons

Present law
      No provision.
House bill
      By October 1, 1997, each State Directory of New Hires 
must conduct automated matches of the Social Security numbers 
of reported employees against the Social Security numbers of 
records in the State Case Registry being enforced by the State 
agency and report the name, Social Security number, and 
employer identification number on matches to the State child 
support agency.
Senate amendment
      Similar to House provision, except requires comparisons 
to begin by October 1, 1998 rather than 1997.
Conference agreement
      Conferees agreed to follow the House and Senate 
provisions but to compromise on the date by which comparisons 
must begin by adopting a May 1, 1998 effective date.

                     I. Transmission of Information

Present law
      No provision.
House bill
      Within two business days of the entry of data in the 
registry, the State must transmit a withholding order directing 
the employer to withhold wages in accord with the child support 
order. Within four days, the State Directory of New Hires must 
furnish employee information to the National Directory of New 
Hires for matching with the records of other State case 
registries. The State Directory of New Hires must also report 
quarterly to the National Directory of New Hires information on 
wages and unemployment compensation taken from the quarterly 
report to the Secretary of Labor now required by Title III of 
the Social Security Act.
Senate amendment
      Similar to House provision, except requires State 
Directory to report to the National Directory within two, 
rather than four, days.
Conference agreement
      The conference agreement is to follow the House and 
Senate provisions and to compromise on the reporting date by 
allowing States three days to report to the National Directory 
of New Hires.

                 J. Other Uses of New Hire Information

Present law
      No provision.
House bill
      The State child support agency must use the new hire 
information for purposes of establishing paternity as well as 
establishing, modifying, and enforcing child support 
obligations. New hire information (pursuant to section 1137 of 
the Social Security Act) must also be disclosed to the State 
agency administering the Temporary Assistance for Needy 
Families, Medicaid, Unemployment Compensation, Food Stamp, SSI, 
and territorial cash assistance programs for income eligibility 
verification, and to State agencies administering unemployment 
and workers' compensation programs to assist determinations of 
the allowability of claims.
Senate amendment
      Similar to House provision, except requires State and 
local government agencies to be included in quarterly wage 
reporting unless the agency performs intelligence or 
counterintelligence functions and it is determined that wage 
reporting could endanger the safety of the employee or 
compromise the investigation or intelligence mission.
Conference agreement
      The conference agreement follows the House and Senate 
provisions except that the House recedes to the Senate 
provision allowing State and local government agencies to 
exempt employees doing intelligence or counterintelligence work 
whose safety might be compromised by the reporting.

              9. Amendments Concerning Income Withholding

Present law
      Since November 1, 1990, all new or modified child support 
orders that were being enforced by the State's child support 
enforcement agency have been subject to immediate income 
withholding. If the noncustodial parent's wages are not subject 
to income withholding (pursuant to the November 1, 1990 
provision), such parent's wages would become subject to 
withholding on the date when support payments are 30 days past 
due. Since January 1, 1994, the law has required States to use 
immediate income withholding for all new support orders, 
regardless of whether a parent has applied for child support 
enforcement services. There are two circumstances in which 
income withholding does not apply: 1) one of the parents 
demonstrates and the court or administrative agency finds that 
there is good cause not to do so, or 2) a written agreement is 
reached between both parents which provides for an alternative 
arrangement. States must implement procedures under which 
income withholding for child support can occur without the need 
for any amendment to the support order or for any further 
action by the court or administrative entity that issued the 
order. States are also required to implement income withholding 
in full compliance with all procedural due process requirements 
of the State, and States must send advance notice to each 
nonresident parent to whom income withholding applies (with an 
exception for some States that had income withholding before 
enactment of this provision that met State due process 
requirements). States must extend their income withholding 
systems to include out-of-State support orders.
House bill
      States must have laws providing that all child support 
orders issued or modified before October 1, 1996, which are not 
otherwise subject to income withholding, will become subject to 
income withholding immediately if arrearages occur, without the 
need for judicial or administrative hearing. State law must 
also allow the child support agency to execute a withholding 
order through electronic means and without advance notice to 
the obligor. Employers must remit to the State disbursement 
unit income withheld within 2 working days after the date such 
amount would have been paid or credited to the employee.
Senate amendment
      Similar to House provision, but requires all child 
support orders which are not part of the State IV-D program to 
be processed through the State disbursement unit. In addition, 
States must notify noncustodial parents that income withholding 
has commenced and inform them of procedures for contesting 
income withholding.
Conference agreement
      The conference agreement follows the House and Senate 
provisions except that the House recedes to the Senate 
provision requiring all child support orders which are not part 
of the State IV-D program to be processed through the State 
disbursement unit. In addition, States must notify noncustodial 
parents that income withholding has commenced and inform them 
of procedures for contesting income withholding.

            10. Locator Information from Interstate Networks

Present law
      No provision.
House bill
      All State and the Federal Child Support Enforcement 
agencies must have access to the motor vehicle and law 
enforcement locator systems of all States.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

          11. Expansion of the Federal Parent Locator Service

         A. Expanded Authority to Locate Individuals and Assets

Present law
      The law requires that the Federal Parent Locator Service 
(FPLS) be used to obtain and transmit information about the 
location of any absent parent when that information is to be 
used for the purpose of enforcing child support.
House bill
      The purposes of the Federal Parent Locator Service are 
expanded. For the purposes of establishing parentage, 
establishing support orders or modifying them, or enforcing 
support orders, the Federal Parent Locator Service will provide 
information to locate individuals who owe child support or 
against whom an obligation is sought or to whom such an 
obligation is owed. Information in the FPLS includes Social 
Security number, address, name and address of employer, and 
wages and employee benefits (including information about health 
care coverage).
Senate amendment
      Similar to House provision, except clarifies current law 
by stating that information from the Federal Parent Locator 
Service can be used to enforce visitation orders. Senate also 
allows FPLS to contain and provide information on assets and 
debts.
Conference agreement
      The conference agreement is similar to both the House 
bill and the Senate amendment. The agreement clarifies the 
statute so that nonresident parents are given access to 
information from the FPLS if these requests are made through a 
court or through the State child support agency.

                           B. Reimbursements

Present law
      Federal law requires that any department or agency of the 
United States must be reimbursed for costs incurred for 
providing requested information to the FPLS.
House bill
      The Secretary is authorized to set reasonable rates for 
reimbursing Federal and State agencies for the costs of 
providing information to the FPLS and to set reimbursement 
rates that State and Federal agencies that use information from 
the FPLS must pay to the Secretary.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                       C. New Components of FPLS

           (1) Federal Case Registry of Child Support Orders

Present law
      No provision.
House bill
      The House bill establishes within the FPLS an automated 
registry known as the Federal Case Registry of Child Support 
Orders. The Federal Case Registry contains abstracts of child 
support orders and other information specified by the Secretary 
(such as names, Social Security numbers or other uniform 
identification numbers, State case identification numbers, 
wages or other income, and rights to health care coverage) to 
identify individuals who owe or are owed support (or for or 
against whom support is sought to be established), and the 
State which has the case. States must begin reporting this 
information in accord with regulations issued by the Secretary, 
by October 1, 1998.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                  (2) National Directory of New Hires

Present law
      No provision.
House bill
      The House bill establishes within the FPLS a National 
Directory of New Hires containing information supplied by State 
Directories of New Hires, beginning October 1, 1996. When fully 
implemented, the Federal Directory of New Hires will contain 
identifying information on virtually every person who is hired 
in the United States. In addition, the FPLS will contain 
quarterly data supplied by the State Directory of New Hires on 
wages and Unemployment Compensation paid. The Secretary of the 
Treasury must have access to information in the Federal 
Directory of New Hires for the purpose of administering section 
32 of the Internal Revenue Code and the Earned Income Tax 
Credit.
Senate amendment
      The Senate provision is similar to the House provision 
with two exceptions: 1) the Senate amendment includes the 
requirement that the information for the National Directory of 
New Hires must be entered within 2 days of receipt; and 2) the 
Senate amendment requires the DHHS Secretary to maintain within 
the National Directory of New Hires a list of multistate 
employers who choose a State to send their report to and the 
name of the State so designated.
Conference agreement
      Conferees agree to follow both the House bill and Senate 
amendment except that the House recedes on the points of 
difference. Thus, the National Directory must enter new 
information within 2 days and the Secretary must maintain a 
list of the States to which multistate employers send their new 
hire information.

            D. Information Comparisons and Other Disclosures

Present law
      Upon request, the Secretary must provide to an 
``authorized person'' (i.e., an employee or attorney of a child 
support agency, a court with jurisdiction over the parties 
involved, the custodial parent, legal guardian, or attorney of 
the child) the most recent address and place of employment of 
any absent parent if the information is contained in the 
records of the Department of Health and Human Services, or can 
be obtained from any other department or agency of the United 
States or of any State. The FPLS also can be used in connection 
with the enforcement or determination of child custody and in 
cases of parental kidnapping. Federal law requires the 
Secretary of Labor and the Secretary of Health and Human 
Services to enter into an agreement to give the FPLS prompt 
access to wage and unemployment compensation claims information 
useful in locating a noncustodial parent or his employer.
House bill
      The Secretary must verify the accuracy of the name, 
Social Security number, birth date, and employer identification 
number of individuals in the Federal Parent Locator Service 
with the Social Security Administration. The Secretary is 
required to match data in the National Directory of New Hires 
against the child support order abstracts in the Federal Case 
Registry at least every 2 working days and to report 
information obtained from matches to the State child support 
agency responsible for the case within 2 days. The information 
is to be used for purposes of locating individuals to establish 
paternity, and to establish, modify, or enforce child support 
orders. The Secretary may also compare information across all 
components of the FPLS to the extent and with the frequency 
that the Secretary determines will be effective. The Secretary 
will share information from the FPLS with several potential 
users including State agencies administering the Temporary 
Assistance for Needy Families program, the Commissioner of 
Social Security (to determine the accuracy of Social Security 
and Supplemental Security Income), and researchers under some 
circumstances.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                                E. Fees

Present law
      ``Authorized persons'' who request information from FPLS 
must be charged a fee.
House bill
      The Secretary must reimburse the Commissioner of Social 
Security for costs incurred in performing verification of 
Social Security information and to States for submitting 
information on New Hires. States or Federal agencies that use 
information from FPLS must pay fees established by the 
Secretary.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                  F. Restriction on Disclosure and Use

Present law
    Federal law stipulates that no information shall be 
disclosed if the disclosure would contravene the national 
policy or security interests of the United States or the 
confidentiality of Census data.
House bill
    Information from the FPLS cannot be used for purposes other 
than those provided in this section, subject to section 6103 of 
the Internal Revenue Code.
Senate amendment
    Identical provision.
Conference agreement
    The conference agreement follows the House bill and Senate 
amendment.

                 G. Information Integrity and Security

Present law
    No provision.
House bill
    The Secretary must establish and use safeguards to ensure 
the accuracy and completeness of information from the FPLS and 
restrict access to confidential information in the FPLS to 
authorized persons and purposes.
Senate amendment
    Identical provision.
Conference agreement
    The conference agreement follows the House bill and the 
Senate amendment.

                      H. Quarterly Wage Reporting

Present law
    Requires the Secretary of Labor to provide prompt access 
for the DHHS Secretary to wage and unemployment compensation 
claims information and data maintained by the Labor Department 
or State employment security agencies.
House bill
    No provision.
Senate amendment
    Each department in U.S. shall submit name, Social Security 
number and wages paid the employee, on a quarterly basis to the 
FPLS. Quarterly wage reporting shall not be filed for a Federal 
or State employee performing intelligence or counter-
intelligence functions, if it is determined that filing such a 
report could endanger the employee or compromise an ongoing 
investigation.
Conference agreement
    The conference agreement follows the Senate amendment.

                        I. Conforming Amendments

Present law
    No provision.
House bill
    This section makes several conforming amendments to Titles 
III and IV of the Social Security Act and the Federal 
Unemployment Tax Act.
Senate amendment
    Similar to House provision, except amends section 303(h) to 
require State unemployment insurance agencies to report 
quarterly wage information to the Secretary of HHS or suffer 
financial penalties, while the House bill amends section 303(a) 
and simply requires quarterly reports to the Secretary of HHS.
Conference agreement
    Conferees agreed to follow both the House and Senate 
provisions but to follow the Senate amendment by requiring 
State unemployment insurance agencies to file quarterly wage 
reports with the Secretary or pay penalties.

    J. Authorized Person for Information Regarding Visitation Rights

Present law
    FPLS can also be used to provide information to authorized 
individuals and agencies making or entering a child custody 
order (see Sec. 463 of Social Security Act).
House bill
    No provision.
Senate amendment
    Expands functions of FPLS by requiring that information be 
made available to non-custodial parents for purposes of seeking 
or enforcing child visitation orders.
Conference agreement
    The House recedes to the Senate amendment on this provision 
but with the agreement that nonresident parents cannot obtain 
information directly from the FPLS but must present their 
request through the courts or through the State child support 
agency. In addition, the agreement requires State child support 
agencies to treat requests for information from nonresident 
parents on the same basis and with the same priority as 
requests from resident parents.

  12. collection and use of social security numbers for use in child 
                          support enforcement

Present law
    Federal law requires that in the administration of any law 
involving the issuance of a birth certificate, States must 
require each parent to furnish their Social Security number for 
the birth records. The State is required to make such numbers 
available to child support agencies in accordance with Federal 
or State law. States may not place Social Security numbers 
directly on birth certificates.
House bill
    States must have laws requiring that Social Security 
numbers be placed on applications for professional licenses, 
commercial drivers licenses, and occupational licenses, 
marriage licenses, and in the records for divorce decrees, 
child support orders, and paternity determination or 
acknowledgment orders. Individuals who die will have their 
Social Security number placed in the records relating to the 
death and recorded on the death certificate. There are several 
conforming amendments.
Senate amendment
    Similar to House provision, except gives States the option 
of not including Social Security numbers on applications for 
licenses and bars the placement of Social Security numbers on 
marriage licenses.
Conference agreement
    The conference agreement generally follows the House bill 
and the Senate amendment except that the House recedes to the 
Senate requirements that States have the option of not 
including Social Security numbers on applications and that 
States be barred from placing Social Security numbers on 
marriage licenses.

          Chapter 3--Streamlining and Uniformity of Procedures

                   13. adoption of uniform state laws

Present law
    States have several options available for pursuing 
interstate child support cases including direct income 
withholding, interstate income withholding, and long-arm 
statutes which require the use of the court system in the State 
of the custodial parent. In addition, States use the Uniform 
Reciprocal Enforcement of Support Act (URESA) and the Revised 
Uniform Reciprocal Enforcement of Support Act (RURESA) to 
conduct interstate cases. Moreover, Federal law imposes a 
Federal criminal penalty for the willful failure to pay past-
due child support to a child who resides in a State other than 
the State of the obligor. In 1992, the National Conference of 
Commissioners on State Uniform Laws approved a new model State 
law for handling interstate CSE cases. The new Uniform 
Interstate Family Support Act (UIFSA) is designed to deal with 
desertion and nonsupport by instituting uniform laws in all 50 
States that limit control of a child support case to a single 
State. This approach ensures that only one child support order 
from one court or child support agency will be in effect at any 
given time. It also helps to eliminate jurisdictional disputes 
between States that are impediments to locating parents and 
enforcing child support orders across State lines. As of March, 
1995, 23 States had enacted UIFSA, 15 verbatim and 8 with minor 
changes.
House bill
    By January 1, 1997, all States must have enacted the 
Uniform Interstate Family Support Act (UIFSA) and have the 
procedures required for its implementation in effect. States 
are required to apply UIFSA to any case involving an order 
established or modified in one State that is sought to be 
modified in another State. States must also have a new 
provision on long-arm statutes and petitioning for 
modifications of orders, and are required to recognize as valid 
any method of service of process used in another State that is 
valid in that State.
Senate amendment
     Similar to House provision, except permits but does not 
require States to apply UIFSA to all interstate cases.
Conference agreement
    The conference agreement is that States must adopt UIFSA by 
January 1, 1998. The House recedes to the Senate on when UIFSA 
is used.

   14. improvements to full faith and credit for child support orders

Present law
    Federal law requires States to treat past-due support 
obligations as final judgments that are entitled to full faith 
and credit in every State. This means that a person who has a 
support order in one State does not have to obtain a second 
order in another State to obtain support due should the debtor 
parent move from the issuing court's jurisdiction. P.L. 103-383 
restricts a State court's ability to modify a support order 
issued by another State unless the child and the custodial 
parent have moved to the State where the modification is sought 
or have agreed to the modification.
House bill
    The provision clarifies the definition of a child's home 
State, makes several revisions to ensure that full faith and 
credit laws can be applied consistently with UIFSA, and 
clarifies the rules regarding which child support orders States 
must honor when there is more than one order.
Senate amendment
    Similar to House provision.
Conference agreement
    The conference agreement follows both the House and Senate 
provisions but the House recedes on ``more than 1 court''.

           15. administrative enforcement in interstate cases

Present law
    No provision.
House bill
    States are required to have laws that permit them to send 
orders to and receive orders from other States without 
registering the underlying order unless the enforcement action 
is contested by the obligor on the grounds of mistake of fact 
or invalid order. The transmission of the order itself serves 
as certification to the responding State of the arrears amount 
and of the fact that the initiating State met all procedural 
due process requirements. No court action is required or 
permitted by the responding State. In addition, each responding 
State must, without requiring the case to be transferred to 
their State, match the case against its data bases, take 
appropriate action if a match occurs, and send the collections, 
if any, to the initiating State. States must keep records of 
the number of requests they receive, the number of cases that 
result in a collection, and the amount collected. States must 
respond to interstate requests within 5 days.
Senate amendment
    Identical provision.
Conference agreement
    The conference agreement follows the House bill and the 
Senate amendment.

               16. use of forms in interstate enforcement

Present law
      No provision.
House bill
      The Secretary must issue forms that States must use for 
income withholding, for imposing liens, and for issuing 
administrative subpoenas in interstate cases. The forms must be 
issued by June 30, 1996 and States must be using the forms by 
October 1, 1996.
Senate amendment
      Requires the DHHS Secretary to establish an advisory 
committee which must include State child support directors, and 
not later than June 30, 1996, after consultation with the 
advisory committee to issue forms that States must use for 
income withholding, for imposing liens, and for issuing 
administrative subpoenas in interstate cases. The forms must be 
issued by June 30, 1996 and States must be using the forms by 
October 1, 1996.
Conference agreement
      Conferees agree to follow both the House and Senate 
provisions with a compromise on requiring the Secretary to 
consult with States. Rather than forming an advisory committee, 
the conference agreement requires the Secretary to consult with 
States before issuing the interstate forms. It is the intention 
of conferees to facilitate timely issuance of the forms but 
also to mandate that the Secretary work closely with State 
child support directors in developing the forms.

             17. state laws providing expedited procedures

                A. Administrative Action by State Agency

Present law
      States must have procedures under which expedited 
processes are in effect under the State judicial system or 
under State administrative processes for obtaining and 
enforcing support orders and for establishing paternity.
House Bill
      States must adopt a series of procedures to expedite both 
the establishment of paternity and the establishment, 
enforcement, and modification of support. These procedures 
provide for: (1) ordering genetic testing in appropriate cases; 
(2) entering a default order upon a showing of service of 
process and any other showing required by State law to 
establish paternity if the putative father refuses to submit to 
genetic testing and to establish or modify a support order when 
a parent fails to appear for a hearing; (3) issuing subpoenas 
to obtain information necessary to establish, modify or enforce 
an order, with appropriate sanctions for failure to respond to 
the subpoena; (4) obtaining access to records including: 
records of other State and local government agencies, law 
enforcement records, and corrections records, including 
automated access to records maintained in automated data bases; 
(5) directing the parties to pay support to the appropriate 
government entity; (6) ordering income withholding; (7) 
securing assets to satisfy arrearages by intercepting or 
seizing periodic or lump sum payments from States or local 
agencies; these payments include Unemployment Compensation, 
workers' compensation, judgements, settlements, lottery 
winnings, assets held by financial institutions, and public and 
private retirement funds; and (8) increasing automatically the 
monthly support due to include amounts to offset arrears.
Senate amendment
      Similar to House provision, except requires States to 
include the following additional procedures: (1) requiring all 
entities in the State (including for-profit, nonprofit, and 
governmental employers) to provide information on employment, 
compensation and benefits of any employee or contractor in 
response to a request from the State IV-D agency; (2) obtaining 
access to a variety of public and private records including: 
vital statistics, State and local tax records, real and 
personal property, occupational and professional licenses and 
records concerning ownership and control of corporations, 
partnerships and other business entities, employment security 
records, public assistance records, motor vehicle records, 
corrections records, customer records of public utilities and 
cable TV companies, and records of financial institutions; (3) 
imposing liens to force the sale of property and distribution 
of proceeds; (4) requiring financial institutions (subject to 
the limitation on liabilities arising from affording such 
access) to provide information held by them on individuals who 
owe or are owed child support (or against or with respect to 
whom a support obligation is sought) to State child support 
agencies; and (5) requiring that due process safeguards be 
followed.
      The amendment does not include the House provision 
regarding default orders in paternity cases upon a showing of 
service of process.
Conference agreement
      The House recedes to the Senate on the five additional 
expedited procedures and includes the House provision regarding 
default orders in paternity cases upon a showing of service of 
process.

                  B. Substantive and Procedural Rules

Present law
      Federal regulations provide a number of safeguards, such 
as requiring that the due process rights of the parties 
involved be protected.
House bill
      States must follow a series of procedural rules that 
apply to all of the expedited procedures outlined in the 
preceding section:
      (1) Locator Information and Notice--requires parties in 
paternity and child support actions to file and update 
information about identity, address, and employer with the 
tribunal and with the State Case Registry upon entry of the 
order. The tribunal can deem due process requirements for 
notice and service of process to be met in any subsequent 
action upon delivery of written notice to the most recent 
residential or employer address filed with the tribunal.
      (2) Statewide Jurisdiction--grants the child support 
agency and any administrative or judicial tribunal with 
authority to hear child support and paternity cases, to exert 
Statewide jurisdiction over the parties, and to grant orders 
that have Statewide effect; also permits transfer of cases 
between administrative areas without additional filing or 
service of process.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment except House recede to Senate language by 
replacing the term ``administrative areas'' with the term 
``local jurisdictions'' in the section on Statewide 
jurisdiction.

                C. Automation of State Agency Functions

Present law
      No provision.
House bill
      The automated systems being developed by States are to be 
used, to the maximum extent possible, to implement the 
expedited procedures.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                   Chapter 4--Paternity Establishment

           18. state laws concerning paternity establishment

       A. Establishment Process Available From Birth Until Age 18

Present law
      Federal law requires States to strengthen their paternity 
establishment laws by requiring that paternity may be 
established until the child reaches age 18. As of August 16, 
1984, these procedures would apply to a child for whom 
paternity has not been established or for whom a paternity 
action was brought but dismissed because of statute of 
limitations of less than 18 years was then in effect in the 
State.
House bill
      Same as current law.
Senate amendment
      Similar to House provision, except requires that 
paternity may be established until age 21 rather than 18.
Conference agreement
      The Senate recedes so that States are required to have 
laws that permit paternity establishment until at least age 18 
(or a higher limit at State option).

                B. Procedures Concerning Genetic Testing

Present law
      Federal law requires States to implement laws under which 
the child and all other parties must undergo genetic testing 
upon the request of a party in contested cases.
House bill
      The child and all other parties must undergo genetic 
testing upon the request of a party, where the request is 
supported by a sworn statement establishing a reasonable 
possibility of parentage or nonparentage. When the tests are 
ordered by the State agency, States must pay for the costs, 
subject to recoupment at State option from the father if 
paternity is established.
Senate amendment
      Similar provision. House mandates genetic tests in 
certain cases while Senate allows States with laws against 
genetic testing in some cases to follow State law.
Conference agreement
      The conference agreement follows both House and Senate 
provisions but the House recedes on the provision allowing 
States to exempt certain cases from the requirement for 
mandatory genetic testing. No State exemption, however, can 
permit a putative father to avoid paternity establishment 
procedures.

                 C. Voluntary Paternity Acknowledgment

Present law
      Federal law requires States to implement procedures for a 
simple civil process for voluntary paternity acknowledgment, 
including hospital-based programs.
House bill
      (1) Simple Civil Process. States must have procedures 
that create a simple civil process for voluntary acknowledging 
paternity under which benefits, rights and responsibilities of 
acknowledgement are explained to unwed parents;
      (2) Hospital Program. States must have procedures that 
establish a paternity acknowledgement program through hospitals 
and birth record agencies (and other agencies as designated by 
the Secretary).
      (3) Paternity Services. States must have procedures that 
require the agency responsible for maintaining birth records to 
offer voluntary paternity establishment services. The Secretary 
must issue regulations, including regulations on other State 
agencies that may offer voluntary paternity acknowledgement 
services and the conditions such agencies must meet.
      (4) Affidavit. States must have procedures that require 
agencies to use a uniform affidavit developed by the Secretary 
that is entitled to full faith and credit in any other State.
Senate amendment
      (1) Simple Civil Process. Similar to House provision; 
Senate does not include language requiring that the explanation 
of alternatives, legal consequences, and rights and 
responsibilities be ``in a language that each can understand''.
      (2) Hospital Program. Similar to House provision, except 
States must also establish good cause exceptions for not trying 
to establish paternity.
      (3) Paternity Services. Identical to House provision.
      (4) Affidavit. Similar provision but Senate amendment 
allows States to develop their own voluntary paternity 
acknowledgement form as long as they follow all the basic 
elements of a form developed by the Secretary.
Conference agreement
      (1) Simple Civil Process. The conference agreement 
follows the House and Senate provisions except the House agrees 
to drop its requirement that the explanation be ``in a language 
that each [parent] can understand''.
      (2) Hospital Program. Conferees agree to follow the House 
and Senate provisions but with a modification of the Senate 
language on ``good cause'' exceptions so that such exceptions 
become a State option.
      (3) Paternity Services. The conference agreement follows 
the House bill and the Senate amendment.
      (4) Affidavit. The House recedes to allow States to 
develop their own voluntary acknowledgment form as long as the 
form contains all the basic elements of a form developed by the 
Secretary.

              D. Status of Signed Paternity Acknowledgment

Present law
      Federal law requires States to implement procedures under 
which the voluntary acknowledgment of paternity creates a 
rebuttable presumption, or at State option, a conclusive 
presumption of paternity.
House bill
      (1) Legal Finding. States must have procedures under 
which a signed acknowledgement of paternity is considered a 
legal finding of paternity unless rescinded within 60 days.
      (2) Contest. States must have procedures under which a 
paternity acknowledgment can be challenged in court only on the 
basis of fraud, duress, or material mistake of fact.
      (3) Rescission. States must have procedures under which 
minors who sign a voluntary paternity acknowledgement are 
allowed to rescind it until age 18 or the date of the first 
proceeding to establish a support order, visitation, or custody 
rights.
Senate amendment
      (1) Legal Finding. Adds the requirement that the name of 
the father appear in the birth records only if there is a 
paternity acknowledgement signed by both parents or paternity 
has been established by court order.
      (2) Contest. Identical to House provision.
      (3) Rescission. No provision.
Conference agreement
      (1) Legal Finding. The House recedes to the Senate 
requirement that the father's name appear in the birth records 
only if certain conditions are met;
      (2) Contest. The conference agreement follows the House 
bill and the Senate amendment.
      (3) Rescission. The House agrees to drop the rescission 
requirement, thereby leaving this decision up to States.

           E. Bar on Acknowledgment Ratification Proceedings

Present law
      Federal law requires States to implement procedures under 
which such voluntary acknowledgment is admissible as evidence 
of paternity and the voluntary acknowledgment of paternity must 
be recognized as a basis for seeking a support order without 
requiring any further proceedings to establish paternity.
House bill
      No judicial or administrative proceedings are required or 
permitted to ratify a paternity acknowledgement which is not 
challenged by the parents.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

              f. Admissibility of Genetic Testing Results

Present law
      Federal law requires States to implement procedures which 
provide that any objection to genetic testing results must be 
made in writing within a specified number of days before any 
hearing at which such results may be introduced into evidence. 
If no objection is made, the test results must be admissible as 
evidence of paternity without the need for foundation testimony 
or other proof of authenticity or accuracy.
House bill
      States must have procedures for admitting into evidence 
accredited genetic tests, unless any objection is made within a 
specified number of days, and if no objection is made, 
clarifying that test results are admissible without the need 
for foundation or other testimony.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

              G. Presumption of Paternity in Certain Cases

Present law
      Federal law requires States to implement procedures which 
create a rebuttable or, at State option, conclusive presumption 
of paternity based on genetic testing results indicating a 
threshold probability that the alleged father is the father of 
the child.
House bill
      States must have laws that create a rebuttable or, at 
State option, conclusive presumption of paternity when results 
from genetic testing indicate a threshold probability that the 
alleged father is the father of the child.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                           H. Default Orders

Present law
      Federal law requires States to implement procedures that 
require a default order to be entered in a paternity case upon 
a showing of service of process on the defendant and any 
additional showing required by State law.
House bill
      A default order must be entered in a paternity case upon 
a showing of service of process on the defendant and any 
additional showing required by the State law.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                       I. No Right to Jury Trial

Present law
      No provision.
House bill
      State laws must state that parties in a contested 
paternity action are not entitled to a jury trial.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

            J. Temporary Support Based on Probable Paternity

Present law
      No provision.
House bill
      Upon motion of a party, State law must require issuance 
of a temporary support order pending an administrative or 
judicial determination of parentage if paternity is indicated 
by genetic testing or other clear and convincing evidence.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

     K. Proof of Certain Support and Paternity Establishment Costs

Present law
      No provision.
House bill
      Bills for pregnancy, childbirth, and genetic testing must 
be admissible in judicial proceedings without foundation 
testimony.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                    L. Standing of Putative Fathers

Present law
      No provision.
House bill
      Putative fathers must have a reasonable opportunity to 
initiate paternity action.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

    M. Filing of Acknowledgments and Adjudications in State Registry

Present law
      No provision.
House bill
      Both voluntary acknowledgements and adjudications of 
paternity must be filed with the State registry of birth 
records for data matches with the central Case Registry of 
Child Support Orders established by the State.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

             N. National Paternity Acknowledgment Affidavit

Present law
      No provision.
House bill
      The Secretary is required to develop an affidavit to be 
used for voluntary acknowledgement of paternity which includes 
the Social Security number of each parent.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House and Senate 
provisions but includes a clarification that the Secretary, 
after consulting with the State child support directors, should 
list the common elements that States must include on their 
forms.

           19. Outreach for Voluntary Paternity Establishment

Present law
      States are required to regularly and frequently 
publicize, through public service announcements, the 
availability of child support enforcement services.
House bill
      States must publicize the availability and encourage the 
use of procedures for voluntary establishment of paternity and 
child support.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

     20. Cooperation by Applicants For and Recipients of Temporary 
                     Assistance for Needy Families

Present law
      AFDC applicants and recipients are required to cooperate 
with the State in establishing the paternity of a child and in 
obtaining child support payments unless the applicant or 
recipient is found to have good cause for refusing to 
cooperate. Under the ``good cause'' regulations, the child 
support agency may determine that it is against the best 
interests of the child to seek to establish paternity in cases 
involving incest, rape, or pending procedures for adoption. 
Moreover, the agency may determine that it is against the best 
interest of the child to require the mother to cooperate if it 
is anticipated that such cooperation will result in the 
physical or emotional harm of the child, parent, or caretaker 
relative.
House bill
      Individuals who apply for or receive public assistance 
under the Temporary Assistance for Needy Families program must 
cooperate with child support enforcement efforts (establishing 
paternity, establishing, modifying or enforcing a support 
order) by providing specific identifying information about the 
other parent, unless the applicant or recipient is found to 
have good cause for refusing to cooperate. ``Good cause'' is 
defined by States. States may also require the applicant and 
child to submit to genetic testing. (See also Prohibitions in 
Title I, Section 101 of the House bill.)
Senate amendment
      The Senate provision is similar to the House provision 
except the Senate amendment places additional specific 
requirements on State procedures. These include requiring the 
custodial parent to appear at interviews, hearings, and legal 
proceedings; requiring the State child support agency to notify 
the custodial parent and the IV-A and Medicaid agencies of 
whether she is cooperating and if not what she must do to 
cooperate; and requiring that when determining the custodial 
parent's cooperation States take into account the best 
interests of the child. Also requires the individual and the 
child to submit to genetic tests pursuant to a judicial or 
administrative order. Responsibility for determining failure to 
cooperate is shifted from the agency that administers the 
Temporary Assistance program to the agency that administers the 
child support program.
Conference agreement
      The House recedes to the Senate's additional requirements 
for cooperation by adults applying for or receiving IV-A 
benefits.

             Chapter 5--Program Administration and Funding

                     21. Federal Matching Payments

Present law
      The Federal Government currently reimburses each State at 
the rate of 66 percent for the cost of administering its child 
support enforcement program. The Federal Government also 
reimburses States 90 percent of the laboratory costs of 
establishing paternity, and through fiscal year 1995, 90 
percent of the costs of developing comprehensive Statewide 
automated systems. (There is no maintenance of effort provision 
in current law.)
House bill
      The Federal matching payment for child support activities 
is maintained at 66 percent. The bill also adds a maintenance 
of effort requirement that the non-Federal share of IV-D 
funding for fiscal year 1997 and succeeding years not be less 
than such funding for fiscal year 1996.
Senate amendment
      No provision. Maintains present law with respect to the 
Federal match rate of 66 percent.
Conference agreement
      The conference agreement follows the Senate amendment.

             22. Performance-Based Incentives and Penalties

           A. Incentive Adjustments to Federal Matching Rate

Present law
      The Federal government reimburses approved administrative 
expenditures of States at a rate of 66%. In addition, the 
Federal government pays States an incentive amount ranging from 
6 percent to 10 percent of both AFDC and non-AFDC collections.
House bill
      Beginning in 1999, a new incentive system will reward 
good State performance by increasing the State's basic matching 
rate by up to 12 percentage points for outstanding performance 
in establishing paternity and by up to an additional 12 
percentage points for overall performance (as measured by the 
percentage of cases that have support orders, the percentage of 
cases in which support is being paid, the ratio of child 
support collected to child support due, and cost-
effectiveness). The Secretary will design the specific features 
of the system. In doing so, she will maintain overall Federal 
reimbursement of State programs through the combined matching 
rate and incentives at the level projected for the current 
combined matching and incentive payments to States. The effect 
of this provision is to change Federal financing so that 
relatively more Federal dollars will be awarded to States for 
good performance. The State must spend the money from incentive 
payments on their child support enforcement program.
Senate amendment
      As under current law, the Senate amendment provides for 
an incentive payment to States, the funds for which come from 
the reimbursement of cash welfare payments to the Federal 
Government that is the Federal share of child support 
collections paid on behalf of families. Not later than 60 days 
after enactment, the DHHS Secretary is required to establish a 
committee, which must include State child support directors, 
which must develop for the Secretary's approval a formula for 
the distribution of incentive payments to the States. The 
State's incentive payment is based on its comparative 
performance as measured by five criteria and seven factors that 
are stipulated in the amendment.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                        B. Conforming Amendments

Present law
      No provision.
House bill
      Two conforming amendments are made in Section 454 of the 
Social Security Act.
Senate amendment
      No provision.
Conference agreement
      The Senate recedes to the two conforming amendments in 
the House bill.

       C. Calculation of IV-D Paternity Establishment Percentage

Present law
      States are required to meet Federal standards for the 
establishment of paternity. The standard relates to the 
percentage obtained by dividing the number of children in the 
State who are born out of wedlock, are receiving AFDC or child 
support enforcement services, and for whom paternity has been 
established by the number of children who are born out of 
wedlock and are receiving AFDC or child support enforcement 
services. To meet Federal requirements, this percentage in a 
State must be at least 75 percent or meet the following 
standards of improvement from the preceding year: 1) if the 
State paternity establishment ratio is between 50 and 75 
percent, the State ratio must increase by 3 or more percentage 
points from the ratio of the preceding year; 2) if the State 
ratio is between 45 and 50, the ratio must increase at least 4 
percentage points; 3) if the State ratio is between 40 and 45 
percent, it must increase at least 5 percentage points; and 4) 
if the State ratio is below 40 percent, it must increase at 
least 6 percentage points. If an audit finds that the State's 
child support enforcement program has not substantially 
complied with the requirements of its State plan, the State is 
subject to a penalty. In accord with this penalty, the 
Secretary must reduce a State's AFDC benefit payment by not 
less than 1 percent nor more than 2 percent for the first 
failure to comply; by not less than 2 percent nor more than 3 
percent for the second consecutive failure to comply; and by 
not less than 3 percent nor more than 5 percent for third or 
subsequent consecutive failure to comply.
House bill
      The IV-D paternity establishment percentage for a fiscal 
year is equal to: (1) the total number of children in the State 
who were born out-of-wedlock, who have not reached age 1 and 
for whom paternity is acknowledged or established during the 
fiscal year, divided by (2) the total number of children born 
out-of-wedlock in the State during the fiscal year. The 
requirements for meeting the standard are the same as current 
law except the 75 percent rule is increased to 90 percent. The 
noncompliance provisions of the child support program are 
modified so that the Secretary must take overall program 
performance into account and the minimum paternity 
establishment percentage is raised from 75 to 90.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                           D. Effective Dates

Present law
      No provision.
House bill
      The new incentive payments go into effect on October 1, 
1997, but procedures for computing the State incentive payments 
are not actually based on the new system until fiscal year 
1999; the changes in penalty procedure become effective upon 
enactment.
Senate amendment
      Effective upon enactment, except present law applies for 
purposes of incentive payments for fiscal years before fiscal 
year 2000.
Conference agreement
      Effective upon enactment.

                23. Federal and State Reviews and Audits

                       A. State Agency Activities

Present law
      States are required to maintain a full record of child 
support collections and disbursements and to maintain an 
adequate reporting system.
House bill
      States are required to annually review and report to the 
Secretary, using data from their automatic data processing 
system, both information adequate to determine the State's 
compliance with Federal requirements for expedited procedures 
and timely case processing as well as the information necessary 
to calculate their levels of accomplishment and rates of 
improvement on the performance indicators in the bill.
Senate amendment
      Similar to House provision, except does not include 
requirement that States submit process information on State 
compliance with Federal mandates on timely case processing.
Conference agreement
      The conference agreement follows both the House and 
Senate provisions but the House recedes on its requirement that 
States submit information on timely case processing.

                         B. Federal Activities

Present law
      The Secretary must collect and maintain, on a fiscal year 
basis, up-to-date State-by-State statistics on each of the 
services provided under the child support enforcement program. 
The Secretary is also required to evaluate the implementation 
of State child support enforcement programs and conduct audits 
of these programs as necessary, but not less often than once 
every 3 years (or annually if a State has been found to be out 
of compliance with program rules).
House bill
      The Secretary is required to determine the amount (if 
any) of incentives or penalties. The Secretary must also review 
State reports on compliance with Federal requirements and 
provide States with recommendations for corrective action. 
Audits must be conducted at least once every 3 years, or more 
often in the case of States that fail to meet Federal 
requirements. The purpose of the audits is to assess the 
completeness, reliability, accuracy, and security of data 
reported for use in calculating the performance indicators and 
to assess the adequacy of financial management of the State 
program.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                           C. Effective Date

Present law
      No provision.
House bill
      These provisions take effect beginning with the calendar 
quarter that begins 12 months after enactment.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                   24. Required Reporting Procedures

Present law
      The Secretary is required to assist States in 
establishing adequate reporting procedures and must maintain 
records of child support enforcement operations and of amounts 
collected and disbursed, including costs incurred in collecting 
support payments.
House bill
      The Secretary is required to establish procedures and 
uniform definitions for State collection and reporting of 
information necessary to measure State compliance with 
expedited processes and timely case processing.
Senate amendment
      Similar to House provision, except does not mention 
timely case processing.
Conference agreement
      The conference agreement follows both the House and 
Senate provisions except, as in the State Agency Activities 
provision (see #23A above), the House recedes by dropping State 
reports on timely case processing.

               25. Automated Data Processing Requirements

                             A. In General

Present law
      Federal law (P.L. 104-35) requires that by October 1, 
1997, States have an operational automated data processing and 
information retrieval system designed to control, account for, 
and monitor all factors in the support enforcement and 
paternity determination process, the collection and 
distribution of support payments, and the costs of all services 
rendered.
House bill
      States are required to have a single Statewide automated 
data processing and information retrieval system which has the 
capacity to perform the necessary functions, as described in 
this section.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                         B. Program Management

Present law
      Federal law requires that the automated data processing 
system be capable of providing management information on all 
IV-D cases from initial referral or application through 
collection and enforcement.
House bill
      The State data system must be used to perform functions 
the Secretary specifies, including controlling and accounting 
for the use of Federal, State, and local funds and maintaining 
the data necessary to meet Federal reporting requirements in 
carrying out the program.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                C. Calculation of Performance Indicators

Present law
      No provision.
House bill
      The automated system must maintain the requisite data for 
Federal reporting, calculate the State's performance for 
purposes of the incentive and penalty provisions, and have in 
place systems controls to ensure the completeness, reliability, 
and accuracy of the data.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                 D. Information Integrity and Security

Present law
      Federal law requires that the automated data processing 
system be capable of providing security against unauthorized 
access to, or use of, the data in such system.
House bill
      The State agency must have safeguards to protect the 
integrity, accuracy, and completeness of, and access to, data 
in the automated systems (including restricting access to 
passwords, monitoring of access to and use of the system, 
training, and imposing penalties).
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                             E. Regulations

Present law
      No provision.
House bill
      The Secretary shall prescribe final regulations for 
implementation of this section no later than 2 years after the 
date of the enactment of this Act.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment.

                      F. Implementation Timetable

Present law
      No provision.
House bill
      The statutory provisions for State implementation of 
Federal automatic data processing requirements are revised to 
provide that, first, all requirements enacted on or before the 
date of enactment of the Family Support Act of 1988 are to be 
met by October 1, 1995. The requirements enacted on or before 
the date of enactment of this bill must be met by October 1, 
1999. The October 1, 1999 deadline will be extended by one day 
for each day by which the Secretary fails to meet the 2-year 
deadline for regulations.
Senate amendment
      Similar to House provision, except allows States to meet 
requirements of the Family Support Act by October 1, 1997 
rather than 1995.
Conference agreement
      The conference agreement follows both House and Senate 
provisions but the completion date for data requirements 
imposed on States by the Family Support Act follows the Senate 
provision of October 1, 1997.

  G. Special Federal Matching Rate for Development Costs of Automated 
                                Systems

Present law
      The Federal Government, through FY 1995, reimburses 
States at a 90 percent matching rate for the costs of 
developing comprehensive Statewide automated systems.
House bill
      The Federal government will provide 90 percent matching 
funds for fiscal year 1996 that will be applied to all State 
activities related to developing a comprehensive Statewide 
automated system. For fiscal years 1997 through 2001, the 
matching rate for the provisions of this bill and other 
authorized provisions will be the higher of 80 percent or the 
matching rate generally applicable to the State IV-D program, 
including incentive payments (which could be as high as 90 
percent).
Senate amendment
      Similar provision except Senate amendment continues the 
90 percent matching rate for 1996 and 1997 in the case of 
provisions outlined in advanced planning documents submitted 
before May 1, 1995.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment but the House recedes on the provision to 
continue 90 percent reimbursement of data processing activities 
that were included in any advanced planning document submitted 
by States and approved by the Secretary before May 1, 1995. The 
90 percent funding, which continues through October 1, 1997, 
includes approved expenditures by States that were made between 
October 1, 1995 and the date of passage of this legislation.

H. Temporary Limitation on Payments Under Special Federal Matching Rate

Present law
      No provision.
House bill
      The Secretary must create procedures to cap these 
payments at $260,000,000 over 5 years (fiscal year 1996-2000) 
to be distributed among States by a formula set in regulations 
which takes into account the relative size of State caseloads 
and the level of automation needed to meet applicable automatic 
data processing requirements.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and 
Senate amendment, except the limitation on payments is 
increased from $260,000,000 to $400,000,000.

                        26. Technical Assistance

Present law
      Annual appropriations are made to cover the expenses of 
the Administration for Children and Families, which includes 
the Federal Office of Child Support Enforcement (OCSE). Among 
OCSE's administrative expenses are the costs of providing 
technical assistance to the States.
House bill
      The Secretary can use 1 percent of the Federal share of 
child support collections on behalf of families in the 
Temporary Assistance for Needy Families program the preceding 
year to provide technical assistance to the States. Technical 
assistance can include training of State and Federal staff, 
research and demonstration programs, and special projects of 
regional or national significance. The Secretary must use up to 
2 percent of the Federal share of collections for operation of 
the Federal Parent Locator Service to the extent that costs of 
the Parent Locator Service are not recovered by user fees.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

            27. Reports and Data Collection by the Secretary

Present law
      The Secretary is required to submit to Congress, not 
later than 3 months after the end of the fiscal year, a 
complete report on all child support enforcement activities.
House bill
      In addition to current reporting requirements, the 
Secretary is required to report the following data to Congress 
in her annual report each fiscal year:
            (1) the total amount of child support payments 
        collected;
            (2) the cost to the State and Federal governments 
        of furnishing child support services;
            (3) the number of cases involving families that 
        became ineligible for aid under part A with respect to 
        whom a child support payment was received:
            (4) the total amount of current support collected 
        and distributed;
            (5) the total amount of past due support collected 
        and distributed as arrearages; and
            (6) the total amount of support due and unpaid for 
        all fiscal years.

These requirements apply to fiscal year 1996 and succeeding 
fiscal years.
Senate amendment
      Similar to House provision, except requires the Secretary 
to include information on the degree to which States met 
Federal statutory time limits in responding to interstate 
requests and in distributing child support collections.
Conference agreement
      Conferees agree to follow the provisions in both bills 
except that the House recedes on the additional requirements 
the Senate included in the Secretary's report to Congress.

      Chapter 6--Establishment and Modification of Support Orders

            28. National Child Support Guidelines Commission

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Establishes a National Child Support Guidelines 
Commission that is responsible for deciding whether it is 
appropriate to develop national child support guidelines for 
consideration by the Congress or for adoption by individual 
States and the benefits and deficiencies of such models. 
Several matters the Commission must consider, such as the 
feasibility of adapting uniform terms in all child support 
orders, are outlined. The Commission is to be comprised of 12 
individuals, 2 each appointed by the Chairman of Finance and 
Ways and Means, 1 each by the ranking member of Finance and 
Ways and Means, and 6 by the Secretary. The Commission report 
must be issued within 2 years.
Conference agreement
      The Senate recedes to the House provision of no National 
Guidelines Commission.

   29. Simplified Process for Review and Adjustment of Child Support 
                                 Orders

Present law
      A child support order legally obligates noncustodial 
parents to provide financial support for their child and 
stipulates the amount of the obligation and how it is to be 
paid. In 1984, P.L. 98-378 required States to establish 
guidelines for establishing child support orders. In 1988, P.L. 
100-485 made the guidelines binding on judges and other 
officials who had authority to establish support orders. P.L. 
100-485 also required States to review and adjust individual 
child support orders once every 3 years under some 
circumstances. States are required to notify both resident and 
nonresident parents of their right to a review.
House bill
      States must review and, as appropriate, adjust the 
support order every 3 years. States may adjust child support 
orders by either applying the State guidelines and updating the 
reward amount or by applying a cost of living increase to the 
order. Both parties must be given 30 days after notice of 
adjustment to contest the results. States may use automated 
methods to identify orders eligible for review, conduct the 
review, identify orders eligible for adjustment, and apply the 
appropriate adjustment to the orders based on the threshold 
established by the State. States must also review and, upon a 
showing of a change in circumstances, adjust orders pursuant to 
the child support guidelines upon request of a party. States 
are required to give parties one notice of their right to 
request review and adjustment, which may be included in the 
order establishing the support amount.
Senate amendment
      Similar to House provision, except adds that review and 
adjustment must be done ``upon the request of either parent or 
the State.'' If neither parent requests a review, States have 
the option of avoiding the 3-year review requirement.
Conference agreement
      Conferees agree to follow the House and Senate provisions 
with one exception. The House recedes to the Senate provision 
that States are not required to conduct reviews unless 
requested by either parent but with the additional requirement 
that States inform mothers at least once every 3 years in 
writing of their right to a review.

30. Furnishing Consumer Reports for Certain Purposes Relating to Child 
                                Support

Present law
      P.L. 102-537 amends the Fair Credit Act to require 
consumer reporting agencies to include in any consumer report 
information on child support delinquencies provided by or 
verified by a child support enforcement agency, which antedates 
the report by 7 years.
House bill
      This section amends the Fair Credit Reporting Act. In 
response to a request by the head of a State or local child 
support agency (or a State or local government official 
authorized by the head of such an agency), consumer credit 
agencies must release information if the person making the 
request: certifies that the consumer report is needed to 
establish an individual's capacity to make child support 
payments or determine the level of payments; gives the consumer 
credit agency 10 days notice that the report is being 
requested; and provides assurances that the consumer report 
will be kept confidential, will be used solely for child 
support purposes, and will not be used in connection with any 
other civil, administrative, or criminal proceeding or for any 
other purpose. Consumer reporting agencies must also give 
reports to a child support agency for use to set an initial or 
modified award.
Senate amendment
      Similar to House provision, except requires that the 
consumer must have been shown to be the father (i.e., paternity 
must be established).
Conference agreement
      The conference agreement follows both the House and 
Senate provisions except that the House receded to the Senate 
requirement that the consumer must have been shown to be the 
father.

   31. Nonliability for Depository Institutions Providing Financial 
                                Records

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Depository institutions are not liable for information 
provided to child support agencies. Child support agencies can 
disclose information obtained from depository institutions only 
for child support purposes. Individuals who knowingly disclose 
information from financial records can have civil actions 
brought against them in Federal district court; the maximum 
penalty is $1,000 for each disclosure or actual damages plus, 
in the case of ``willful disclosure'' resulting from ``gross 
negligence,'' punitive damages, plus the costs of the action.
Conference agreement
      The House recedes to the Senate requirement that Sates 
have laws protecting depository institutions when information 
is provided to child support agencies.

                Chapter 7--Enforcement of Support Orders

                  32. Federal Income Tax Refund Offset

  A. Changed Order of Refund Distribution Under Internal Revenue Code

Present law
      Since 1981 in AFDC cases, and 1984 in non-AFDC cases, 
Federal law has required States to implement procedures under 
which child support agencies can collect child support 
arrearages through the interception of Federal income tax 
refunds.
      Child support arrearages obtained through Federal income 
tax refunds are distributed to the State and are retained by 
the State for arrearages owed to it under the AFDC assignment. 
States must reimburse the Federal government for their share of 
these arrearage payments. If no arrearages are owed the State, 
the money is used to pay arrearages to the family.
House bill
      The Internal Revenue Code is amended so that offsets of 
child support arrears owed to individuals take priority over 
most debts owed Federal agencies. Proceeds from tax intercepts 
will be distributed as follows:
      (1) for Federal education debts and debts to the 
Department of Health and Human Services;
      (2) for child support owed to individuals;
      (3) for child support arrearages owed to State 
governments; and
      (4) for other Federal debts.
      The provision also amends the Internal Revenue Code so 
that the order of priority for distribution of tax offsets 
follows the distribution rules for child support payments 
specified in subtitle A of this bill.
Senate amendment
      No provision.
Conference agreement
      The House recedes to the Senate so that the order of 
payments from tax intercepts remains unchanged. This provision 
was dropped from the Reconciliation bill because it violates 
the Byrd Rule (section 313 of Congressional Budget Act of 
1974).

B. Elimination of Disparities in Treatment of Assigned and Non-Assigned 
                               Arrearages

Present law
      Federal rules set different criteria for AFDC and non-
AFDC cases. For example, in AFDC cases arrearages may be 
collected through the income tax offset program regardless of 
the child's age. In non-AFDC cases, the tax offset program can 
be used only if the postminor child is disabled (pursuant to 
the meaning of disability under titles II or XVI of the SSA). 
Moreover, the arrearage in AFDC cases must be only $150 or 
more, whereas the arrearage in non-AFDC cases must be at least 
$500.
House bill
      The bill eliminates disparate treatment of families not 
receiving public assistance by repealing provisions applicable 
only to support arrears not assigned to the State. The 
Secretary of the Treasury is given access to information in the 
National Directory of New Hires for tax purposes.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

         33. Internal Revenue Service Collection of Arrearages

Present law
      If the amount of overdue child support is at least $750, 
the Internal Revenue Service can enforce the child support 
obligation through its regular collection process, which may 
include seizure of property, freezing accounts, or use of other 
procedures if the child support enforcement agencies request 
assistance according to prescribed rules (e.g., certifying that 
the delinquency is at least $750, etc.)
House bill
      No provision.
Senate amendment
      Amends the Internal Revenue Code so that no additional 
fees can be assessed for adjustment to previously certified 
amounts for the same obligor, effective October 1, 1997.
Conference agreement
      The House recedes to the Senate requirement that IRS 
cannot charge additional fees in the case of a previously 
certified amount for the same obligor.

        34. Authority to Collect Support from Federal Employees

            A. Consolidation and Streamlining of Authorities

Present law
      Federal law allows the wages of Federal employees to be 
garnished to enforce legal obligations for child support or 
alimony. Federal law provides that moneys payable by the United 
States to any individual are subject to being garnished in 
order to meet an individual's legal obligation to provide child 
support or make alimony payments. An executive order issued 2/
27/95 establishes the Federal government as a model employer in 
promoting and facilitating the establishment and enforcement of 
child support.
      By Executive Order on 2/27/95, all Federal agencies, 
including the Uniformed Services, are required to cooperate 
fully in efforts to establish paternity and child support and 
to enforce the collection of child and medical support. All 
Federal agencies are to review their wage withholding 
procedures to ensure that they are in full compliance.
      Beginning no later than July 1, 1995, the Director of the 
Office of Personal Management must publish annually in the 
Federal Register the list of agents (and their addresses) 
designated to receive service of withholding notices for 
Federal employees.
      Federal law states that neither the United States nor any 
disbursing officer or government entity shall be liable with 
respect to any payment made from moneys due or payable from the 
United States pursuant to the legal process.
      Federal law provides that money that may be garnished 
includes compensation for personal services, whether such 
compensation is denominated as wages, salary, commission, 
bonus, pay, or otherwise, and includes but is not limited to, 
severance pay, sick pay, incentive payments, and periodic 
payments.
      Includes definitions of ``United States'', ``child 
support'', ``alimony'', ``private person'', and ``legal 
process''.
House bill
      Federal Employees are subject to wage withholding and 
other actions taken against them by State Child Support 
Enforcement Agencies.
      Federal agencies are responsible for wage withholding and 
other child support actions taken by the State as if they were 
a private employer.
      The head of each Federal agency must designate an agent 
and place the agent's name, title, address, and telephone 
number in the Federal Register annually. The agent must, upon 
receipt of process, send written notice to the individual 
involved as soon as possible, but no later than 15 days, and to 
comply with any notice of wage withholding or respond to other 
process within 30 days.
      Amends existing law governing allocation of moneys owed 
by a Federal employee to give priority to child support, to 
require allocation of available funds, up to the amount owed, 
among child support claimants, and to allocate remaining funds 
to other claimants on a first-come, first-served basis.
      A government entity served with notice of process for 
enforcement of child support is not required to change its 
normal pay and disbursement cycle to comply with the legal 
process.
      Similar to current law, the U.S., the government of the 
District of Columbia, and disbursing officers are not liable 
for child support payments made in accord with this section; 
nor is any Federal employee subject to disciplinary action or 
civil or criminal liability for disclosing information while 
carrying out the provisions of this section.
      The President has the authority to promulgate regulations 
to implement this section as it applies to Federal employees of 
the Administrative branch of government; the President Pro 
Tempore of the Senate and Speaker of the House can issue 
regulations governing their employees; and the Chief Justice 
can issue regulations applicable to the Judicial branch.
      This section broadens the definition of income to include 
funds such as insurance benefits, retirement and pension pay, 
survivor's benefits, compensation for death and black lung 
disease, veteran's benefits, and workers' compensation; but to 
exclude from income funds paid to defray expenses incurred in 
carrying out job duties, owed to the U.S., used to pay Federal 
employment taxes and fines and forfeitures ordered by court 
martial, withheld for tax purposes, used for health insurance 
or life insurance premiums, normal retirement contributions, or 
life insurance premiums.
      This section includes definitions of ``United States'', 
``child support'', ``alimony'', ``private person'', and ``legal 
process''.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                        B. Conforming Amendments

Present law
      No provision.
House bill
      This section includes conforming amendments to Title IV 
of the Social Security Act and Title 5 of the United States 
Code.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                  C. Military Retired and Retainer Pay

Present law
      No provision.
House bill
      This section expands the definition of court to include 
an administrative or judicial tribunal which includes the child 
support enforcement agency.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                           D. Effective Date

Present law
      No provision.
House bill
      This section goes into effect 6 months after the date of 
enactment.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

 35. Enforcement of Child Support Obligations of Members of the Armed 
                                 Forces

                 A. Availability of Locator Information

Present law
      The Executive Order issued 2/27/95 requires a study which 
would include recommendations related to how to improve service 
of process for civilian employees and members of the Uniformed 
Services stationed outside of the United States.
House bill
      The Secretary of Defense must establish a central 
personnel locator service that contains residential or, in 
specified instances, duty addresses of every member of the 
Armed Services (including retirees, the National Guard, and the 
Reserves). The locator service must be updated within 30 days 
of the time an individual establishes a new address. 
Information from the locator service must be made available to 
the Federal Parent Locator Service.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

      B. Facilitating Granting of Leave for Attendance at Hearings

Present law
      No provision.
House bill
      The Secretary of Defense must issue regulations to 
facilitate granting of leave for members of the Armed Services 
to attend hearings to establish paternity or to establish child 
support orders.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

  C. Payment of Military Retired Pay in Compliance With Child Support 
                                 Orders

Present law
      Federal law requires allotments from the pay and 
allowances of any member of the uniformed service when the 
member fails to pay child (or child and spousal) support 
payments.
House bill
      The Secretary of each branch of the Armed Forces 
(including retirees, the Coast Guard, the National Guard, and 
the Reserves) is required to make child support payments 
directly to any State to which a custodial parent has assigned 
support rights as a condition of receiving public assistance. 
The Secretary of Defense must also ensure that payments to 
satisfy current support or child support arrears are made from 
disposable retirement pay. Payroll deductions must begin within 
30 days or the first pay period after 30 days of receiving a 
wage withholding order.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                  36. Voiding of Fraudulent Transfers

Present law
      No provision.
House bill
      States must have in effect the Uniform Fraudulent 
Conveyance Act of 1981, the Uniform Fraudulent Transfer Act of 
1984, or an equivalent law providing for voiding transfers of 
income or property in order to avoid payment of child support.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

    37. Sense of the Congress that States Should Suspend Drivers', 
  Business, and Occupational Licenses of Persons Owing Past-Due Child 
                                Support

Present law
      No provision.
House bill
      It is the sense of Congress that each State should 
suspend any driver's license, business license, or occupational 
license issued to any person who owes past-due child support.
Senate amendment
      No provision.
Conference agreement
      House recedes (no provision).

     38. Work Requirement for Persons Owing Past-Due Child Support

Present law
      P.L. 100-485 required the Secretary to grant waivers to 
up to 5 States allowing them to provide JOBS services on a 
voluntary or mandatory basis to noncustodial parents who are 
unemployed and unable to meet their child support obligations. 
(In their report the conferees noted that the demonstrations 
would not grant any new powers to the States to require 
participation by noncustodial parents. The demonstrations were 
to be evaluated.
House bill
      States must have laws that direct courts to order 
individuals owing past-due child support for a child receiving 
assistance under the Temporary Family Assistance program either 
to pay the support due or to participate in work activities. 
``Past-due support'' is defined.
Senate amendment
      Similar to House provision, except refers to ``support'' 
rather than ``past-due support.''
Conference agreement
      Conferees agree to follow the House and Senate provisions 
except that the Senate recedes to the House provision that work 
apply only to nonresident parents owing past-due support.

                    39. Definition of Support Order

Present law
      No provision.
House bill
      A support order is defined as an order issued by a court 
or an administrative process established under State law that 
requires support of a child or of a child and the parent with 
whom the child lives.
Senate amendment
      A support order is defined as a judgement, decree, or 
order (whether temporary, final, or subject to modification) 
issued by a court or an administrative agency for the support 
(monetary support, health care, arrearages, or reimbursement) 
of a child (including a child who has reached the age of 
majority under State law) or of a child and the parent with 
whom the child lives.
Conference agreement
      The House recedes to the Senate definition of a support 
order.

               40. reporting arrearage to credit bureaus

Present law
      Federal law requires States to implement procedures which 
require them to periodically report to consumer reporting 
agencies the name of debtor parents owing at least 2 months of 
overdue child support and the amount of child support overdue. 
However, if the amount overdue is less than $1,000, information 
regarding it shall be made available only at the option of the 
State. Moreover, any information may only be made available 
after the noncustodial parent has been notified of the proposed 
action and has been given reasonable opportunity to contest the 
accuracy of the information. States are permitted to charge 
consumer reporting agencies that request child support 
arrearage information for a fee, not to exceed the actual cost.
House bill
      No provision.
Senate amendment
      States are required to have procedures to periodically 
report to consumer credit reporting agencies the name of any 
noncustodial parent who is delinquent in the payment of support 
and the amount of overdue support owed by the parent.
Conference agreement
      The House recedes to the Senate requirement that States 
periodically report to consumer credit reporting agencies.

                               41. Liens

Present law
      Federal law requires States to implement procedures under 
which liens are imposed against real and personal property for 
amounts of overdue support owed by a noncustodial parent who 
resides or owns property in the State.
House bill
      States are required to have procedures to accord full 
faith and credit and to enforce in accordance with State law a 
lien from another State. The lien must be accompanied by a 
certification from the State issuing the lien of the amount of 
overdue support and a certification that due process 
requirements have been met. The second State is not required to 
register the underlying order, unless contested on the grounds 
of mistake of fact.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

            42. state law authorizing suspension of licenses

Present law
      No provision.
House bill
      States have the authority to withhold, suspend, or 
restrict the use of drivers' licenses, professional and 
occupational licenses, and recreational licenses of individuals 
owing past-due support or failing, after receiving appropriate 
notice, to comply with subpoenas or warrants relating to 
paternity or child support proceedings.
Senate amendment
       Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

        43. denial of passports for nonpayment of child support

Present law
       No provision.
House bill
      No provision.
Senate amendment
      If an individual owes arrearages in excess of $5,000 of 
child support, the Secretary of HHS must request that the State 
Department deny, revoke, or limit the individual's passport. 
State child support agencies must have procedures for 
certifying arrearages in excess of $5,000 and for notifying 
individuals who are in arrears.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

              44. international child support enforcement

Present law
      The United States has not signed any of the major 
treaties regarding international support enforcement. Pursuant 
to the Uniform Reciprocal Enforcement of Support Act (URESA), 
most States have reciprocal agreements with at least one 
foreign country regarding reciprocal enforcement of support 
orders. States do not have the power to enter into treaties.
House bill
      No provision.
Senate amendment
      The Secretary of State is authorized to negotiate 
reciprocal agreements with foreign nations on behalf of the 
States, territories, and possessions of the United States 
regarding the international enforcement of child support 
obligations.
Conference agreement
      The conference agreement follows the Senate amendment 
with substantial modification. The Secretary of State, with 
concurrence of the Secretary of HHS, is authorized to declare 
reciprocity with foreign countries having requisite procedures 
for establishing and enforcing support orders. The Secretary 
may revoke reciprocity if she determines that the enforcement 
procedures do not continue to meet the requisite criteria.
      The requirements for reciprocity include procedures in 
the foreign country for U.S. residents--available at no cost--
to establish parentage, to establish and enforce support orders 
for children and custodial parents, and to distribute payments.
      The Secretary of HHS is required to facilitate 
enforcement services in international cases involving residents 
of the U.S. and of foreign reciprocating countries, including 
developing uniform forms and procedures, and providing 
information from the FPLS on the State of residence of the 
obligor.
      Where there is no Federal reciprocity agreement, States 
are permitted to enter into reciprocal agreements with foreign 
countries.
      The State plan must provide that request for services in 
international cases be treated the same as interstate cases, 
except that no application will be required and no costs will 
be assessed against the foreign country or the obligee (costs 
may be assessed at State option against the obligor).

45. denial of means-tested federal benefits to noncustodial parents who 
                 are delinquent in paying child support

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Noncustodial parents who are more than 2 months 
delinquent in paying child support are not eligible to receive 
means-tested Federal benefits.
Conference agreement
      Senate recede (no provision).

            46. child support enforcement for indian tribes

Present law
      There are about 340 Federally recognized Indian tribes in 
the 48 contiguous States. Among these tribes there are 
approximately 130 tribal courts and 17 Courts of Indian 
Offenses. Most tribal codes authorize their courts to hear 
parentage and child support matters that involve at least one 
member of the tribe or person living on the reservation. This 
jurisdiction may be exclusive or concurrent with State court 
jurisdiction, depending on specified circumstances.
House bill
       No provision.
Senate amendment
      Requires States to make reasonable efforts to enter into 
cooperative agreements with an Indian tribe or organization if 
the tribe or organization has an established tribal court 
system to establish paternity, establish and enforce support 
orders, and enter support orders in accordance with guidelines 
established by the tribe or organization. Such agreements shall 
provide for the cooperative delivery of child support 
enforcement services in Indian country and for the forwarding 
of all funds collected by the tribe or organization to the 
State agency, or conversely, by the State agency to the tribe 
or organization, which shall distribute the funds according to 
the agreement. The DHHS Secretary in appropriate cases is 
authorized to send Federal funds directly to the tribe or 
organization.
Conference agreement
       Senate recede (no provision).

                 47. financial institution data matches

Present law
       No provision.
House bill
       No provision.
Senate amendment
       States are required to implement procedures under which 
the State child support agency shall enter into agreements with 
financial institutions doing business within the State to 
develop and operate a data match system, using automated data 
exchanges to the maximum extent feasible, in which such 
financial institutions are required to provide for each 
calendar quarter the name, address, Social Security number, and 
other identifying information for each noncustodial parent 
identified by the State who has an account at the institution 
and, in response to a notice of lien or levy, to encumber or 
surrender assets held by the institution on behalf of the 
noncustodial parent who is subject to the child support lien. 
Includes definition of the term ``financial institution.''
Conference agreement
       Conferees agree that the House recede to the Senate 
requirement that States perform data matches on information 
supplied by financial institutions in the case of parents who 
owe past-due child support and have liens against them.

  48. enforcement of orders against paternal grandparents in cases of 
                             minor parents

Present law
       No provision. However, Wisconsin and Hawaii have State 
laws that make grandparents financially responsible for their 
minor children's dependents.
House bill
       No provision.
Senate amendment
       States would be required to implement procedures under 
which any child support order enforced by a child support 
enforcement agency would be enforceable against the paternal 
grandparents of a minor father if the child's minor mother were 
receiving benefits from the Temporary Assistance for Needy 
Families block grant program.
Conference agreement
       The House recedes to the Senate requirement that 
paternal grandparents be held accountable for paying child 
support in the case of minor mother with children being 
supported by benefits from the Temporary Assistance for Needy 
Families block grant, or that the maternal grandparents be held 
accountable for paying child support in the case of a minor 
father raising children who receive benefits from the Temporary 
Assistance for Needy Families block grant.

                       Chapter 8--Medical Support

 49. technical correction to erisa definition of medical child support 
                                 order

Present law
       P.L. 103-66 requires States to adopt laws to require 
health insurers and employers to enforce orders for medical and 
child support and forbids health insurers from denying coverage 
to children who are not living with the covered individual or 
who were born outside of marriage. Under P.L. 103-66, group 
health plans are required to honor ``qualified medical child 
support orders.''
House bill
       This provision expands the definition of medical child 
support order in ERISA to clarify that any judgement, decree, 
or order that is issued by a court of competent jurisdiction or 
by an administrative adjudication has the force and effect of 
law.
Senate amendment
      Identical provision.
Conference agreement
       The conference agreement follows the House bill and the 
Senate amendment.

           50. enforcement of orders for health care coverage

Present law
      Federal law requires the Secretary to require IV-D 
agencies to petition for the inclusion of medical support as 
part of child support whenever health care coverage is 
available to the noncustodial parent at reasonable cost.
House bill
      No provision.
Senate amendment
      All orders enforced under this part must include a 
provision for health care coverage. If the noncustodial parent 
changes jobs and the new employer provides health coverage, the 
State must send notice of coverage, which shall operate to 
enroll the child in the health plan, to the new employer.
Conference agreement
      The House recedes to the Senate provision on medical care 
coverage provided to children by nonresident parents changing 
jobs.

Chapter 9--Enhancing Responsibility and Opportunity for Nonresidential 
                                Parents

        51. grants to states for access and visitation programs

                             a. in general

Present law
      In 1988, Congress authorized the Secretary to fund for 
fiscal year 1990 and fiscal year 1991 demonstration projects by 
States to help divorcing or never-married parents cooperate 
with each other, especially in arranging for visits between the 
child and the nonresident parent.
House bill
      The bill authorizes grants to States for access and 
visitation programs including mediation, counseling, education, 
development of parenting plans, and visitation enforcement. 
Visitation enforcement can include monitoring, supervision, 
neutral drop-off and pick-up, and development of guidelines for 
visitation and alternative custody agreements. States are 
required to monitor and evaluate their programs and are given 
the authority to subcontract the program to courts, local 
public agencies, or private non-profit agencies. Programs 
operating under the grant do not have to be Statewide. Funding 
is authorized as capped spending under section IV-D of the 
Social Security Act. Projects are required to supplement rather 
than supplant State funds.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                           b. amount of grant

Present law
      No provision.
House bill
      The amount of the grant to a State is equal to either 90 
percent of the State expenditures during the year for access 
and visitation programs or the allotment for the State for the 
fiscal year.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                         c. Allotment to States

Present law
      No provision.
House bill
      The allotment to the State bears the same ratio to the 
amount appropriated for the fiscal year as the number of 
children living in the State with one biological parent divided 
by the national number of children living with one biological 
parent. The Administration for Children and Families must 
adjust allotments to ensure that no State is allotted less than 
$50,000 for fiscal years 1996 or 1997 or less than $100,000 for 
any year after 1997.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                        d. state administration

Present law
      No provision.
House bill
      States may use the money to create their own programs or 
to fund grant programs with courts, local public agencies, or 
non-profit organizations. The programs do not need to be 
Statewide. States must monitor, evaluate, and report on their 
programs in accord with the regulations issued by the 
Secretary.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                    Chapter 10--Effect of Enactment

                          52. effective dates

Present law
      No provision.
House bill
      Except as noted in the text of the bill for specific 
provisions, the general effective date for provisions in the 
bill is October 1, 1996. However, given that many of the 
changes required by this bill must be approved by State 
Legislatures, the bill contains a grace period tied to the 
meeting schedule of State Legislatures. In any given State, the 
bill becomes effective either on October 1, 1996 or on the 
first day of the first calendar quarter after the close of the 
first regular session of the State Legislature that begins 
after the date of enactment of the bill. In the case of States 
that require a constitutional amendment to comply with the 
requirements of the bill, the grace period is extended either 1 
year after the effective date of the necessary State 
constitutional amendment or 5 years after the date of enactment 
of the bill.
Senate amendment
      Identical provision.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens

  1. statements of national policy concerning welfare and immigration

Present law
      No provision.
House bill
      The Congress makes the following statements concerning 
national policy with respect to welfare and immigration:
            (i) Self-sufficiency has been a basic principle of 
        U.S. immigration law since this country's earliest 
        immigration statutes;
            (ii) It continues to be the immigration policy of 
        the U.S. that aliens within the nation's borders depend 
        not on public resources, but rely on their own 
        capabilities and the resources of their families and 
        sponsors and that the availability of public benefits 
        not constitute an incentive for immigration;
            (iii) Aliens have been applying for and receiving 
        public benefits at increasing rates;
            (iv) Current eligibility rules and unenforceable 
        financial support agreements have proved incapable of 
        assuring that individual aliens not burden the public 
        benefits system;
            (v) It is a compelling government interest to enact 
        new rules for eligibility and sponsorship agreements to 
        assure that aliens become self-reliant; and
            (vi) It is a compelling government interest to 
        remove the incentive for illegal immigration provided 
        by the availability of public benefits.
Senate amendment
      No provision.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

          Chapter 1--Eligibility for Federal Benefits Programs

    2. Ineligibility of Illegal Aliens for Certain Federal Benefits 
                                Programs

Present law
      Current law limits alien eligibility for most major 
Federal assistance programs, including restrictions on, among 
other programs, Supplemental Security Income, Aid to Families 
with Dependent Children, housing assistance, and Food Stamps 
Programs. Current law is silent on alienage under, among other 
programs, school lunch and nutrition, Special Supplemental Food 
Program for Women, Infants, and Children (WIC), Head Start, 
migrant health centers, and the earned income tax credit.
      Under the programs with restrictions, benefits are 
generally allowed for permanent resident aliens (also referred 
to as immigrants and green card holders), refugees, asylees, 
and parolees, but benefits (other than emergency Medicaid) are 
denied to nonimmigrants (or aliens lawfully admitted as, e.g., 
tourists, students, or temporary workers) and illegal aliens. 
Benefits are permitted under AFDC, SSI, unemployment 
compensation, and nonemergency Medicaid to other aliens 
permanently residing in the U.S. under color of law (PRUCOL).
House bill
      Any alien who is not lawfully present in the U.S. shall 
not be eligible for any Federal means-tested public benefits 
program, with the exception of non-cash, in-kind emergency 
assistance, including emergency medical services. Housing-
related assistance, which allows limited assistance for 
households containing both eligible and ineligible individuals, 
remains prohibited as under current law.
      The Attorney General is to decide which aliens are 
lawfully present for purposes of benefit eligibility. In doing 
so, the Attorney General is not required to consider an alien 
to be lawfully present solely because the alien is considered 
to be permanently residing under color of law (PRUCOL) under 
current standards.
Senate amendment
      Any individual who is not lawfully present in the U.S. is 
ineligible for any Federal benefit other than: emergency 
medical services under Medicaid; short-term emergency disaster 
relief; assistance under the National School Lunch Act or the 
Child Nutrition Act of 1966; and public health assistance for 
immunizations and, if found necessary by HHS, testing for and 
treatment of communicable diseases. Similarly, States which 
administer a Federally-funded benefit program (or provide 
benefits pursuant to such a program) are not required to assist 
aliens who are not lawfully present.
      An individual is lawfully present for purposes of 
qualifying for benefits if the individual is a citizen, non-
citizen national (i.e. American Samoan), permanent resident 
alien, refugee, asylee (including an alien who has had his/her 
deportation stayed because it would return the alien to a 
country which would persecute him/her), or an alien who has 
been paroled into the U.S. by the Attorney General for at least 
1 year.
      Noncitizens are not lawfully present for the purposes of 
the SSI program merely because they are considered to be 
permanently residing under color of law (PRUCOL).
Conference agreement
      The conference agreement generally follows the House bill 
and the Senate amendment, except that aliens who are not 
lawfully present in the U.S. and nonimmigrants and aliens 
paroled into the U.S. for a period of less than 1 year as 
described below are grouped together and defined as classes 
``not qualified'' to receive most mandatory Federal public 
benefits. However, even these ``non-qualified'' aliens may 
continue to receive: short-term, in-kind, emergency disaster 
relief; emergency medical services under Medicaid; public 
health assistance for immunizations and testing and treatment 
to prevent the spread of communicable diseases; and programs 
specified by the Attorney General as necessary to protect life 
and safety, such as soup kitchens and crisis counseling. With 
regard to public housing assistance, non-qualified aliens 
receiving benefits on the date of enactment will continue to be 
treated as they are under current law.
      The conference agreement follows the Senate amendment 
regarding the definition of Federal public benefits for this 
and subsequent sections, namely: any mandatory grant, contract, 
loan, professional license, or commercial license provided by 
an agency of the United States or by directly appropriated 
funds of the United States; and any mandatory retirement, 
welfare, health, disability, public or assisted housing, post-
secondary education, food assistance, unemployment benefit, or 
any other similar benefit for which payments or assistance are 
provided to an individual, household, or family by an agency of 
the U.S. or by directly appropriated funds of the U.S.
      The allowance for treatment of communicable diseases is 
very narrow. The conferees intend that it only apply where 
absolutely necessary to prevent the spread of such diseases. 
This is only a stop-gap measure until the deportation of a 
person or persons unlawfully here. It is not intended to 
provide authority for continued treatment of such diseases for 
a long term.
      The allowance for emergency medical services under 
Medicaid is very narrow. The conferees intend that it only 
apply to medical care that is strictly of an emergency nature, 
such as medical treatment administered in an emergency room, 
critical care unit, or intensive care unit. The conferees do 
not intend that emergency medical services include pre-natal or 
delivery care assistance that is not strictly of an emergency 
nature as specified herein.
      The intent of the conferees is that title I, part A of 
the Elementary and Secondary Education Act would not be 
affected by section 12401 because the benefit is not provided 
to an individual, household, or family eligibility unit.
      The conferees believe that, as a matter of national 
immigration policy regarding immigration and welfare, self-
sufficiency has been a basic principle of United States 
immigration law since this country's earliest immigration 
statutes.
      It continues to be the immigration policy of the United 
States that aliens within the nation's borders not depend on 
taxpayer-funded public resources to meet their needs, but 
rather rely on their own capabilities and the resources of 
their families, their sponsors, and private organizations. The 
availability of taxpayer-funded public benefits should not 
constitute an incentive for immigration to the United States.
      Despite the principle of self-sufficiency, aliens have 
been applying for and receiving public benefits from Federal, 
State, and local governments at increasing rates. Current 
eligibility rules for public benefits and unenforceable 
financial support agreements have proved wholly incapable of 
assuring that individual aliens not burden the public benefits 
system.
      The conferees further believe that it is a compelling 
government interest to enact new rules for eligibility and 
sponsorship agreements in order to assure that aliens be self-
reliant in accordance with national immigration policy. It is 
also a compelling government interest to remove the incentive 
for illegal immigration provided by the availability of public 
benefits. Finally, with respect to the State authority to make 
determinations concerning alien eligibility for public benefits 
in this subtitle, a State that chooses to follow the Federal 
classifications in determining the eligibility of aliens for 
public benefits shall be considered to have chosen the least 
restrictive means available for achieving the compelling 
government interest of assuring that aliens be self-reliant in 
accordance with national immigration policy.

 3. ineligibility of nonimmigrants, asylees, and parolees for certain 
                       federal benefits programs

                             a. in general

Present law
      The Immigration and Nationality Act lists 19 categories 
of nonimmigrant aliens, including tourists, business visitors, 
foreign students, exchange visitors, temporary workers, and 
diplomats. Aliens granted political asylum and aliens allowed 
into the U.S. under the Attorney General's discretionary parole 
power are not among the nonimmigrant categories. Nonimmigrants 
generally are denied benefits under public benefits programs 
that have alienage restrictions. By contrast, asylees and 
parolees are not disqualified.
House bill
      Aliens who are lawfully in the U.S. as nonimmigrants are 
ineligible for means-tested Federal benefits, other than the 
programs excepted below. Nonimmigrants admitted as temporary 
agricultural workers are not to be treated as nonimmigrants for 
public benefits purposes, but rather are to be treated as 
immigrants. Other aliens who also are not to be treated as 
nonimmigrants include aliens granted asylum and aliens paroled 
into the U.S. for 1 year or longer. However, aliens paroled 
into the U.S. for a period briefer than 1 year are subject to 
the nonimmigrant restrictions.
Senate amendment
       Nonimmigrant aliens are not considered lawfully present 
for Federal benefits purposes, and are thus ineligible for any 
Federal benefit other than the programs specifically excepted 
below.
Conference agreement
      The conference agreement generally follows the Senate 
amendment, as described in section 2 above.
      The conferees believe that, as a matter of national 
immigration policy regarding immigration and welfare, self-
sufficiency has been a basic principle of United States 
immigration law since this country's earliest immigration 
statutes.
      It continues to be the immigration policy of the United 
States that aliens within the nation's borders not depend on 
mandatory taxpayer-funded public resources to meet their needs, 
but rather rely on their own capabilities and the resources of 
their families, their sponsors, and private organizations. The 
availability of taxpayer-funded public benefits should not 
constitute an incentive for immigration to the United States.
      Despite the principle of self-sufficiency, aliens have 
been applying for and receiving public benefits from Federal, 
State, and local governments at increasing rates. Current 
eligibility rules for public benefits and unenforceable 
financial support agreements have proved wholly incapable of 
assuring that individual aliens not burden the public benefits 
system.
      The conferees further believe that it is a compelling 
government interest to enact new rules for eligibility and 
sponsorship agreements in order to assure that aliens be self-
reliant in accordance with national immigration policy. It is 
also a compelling government interest to remove the incentive 
for illegal immigration provided by the availability of public 
benefits. Finally, with respect to the State authority to make 
determinations concerning alien eligibility for public benefits 
in this subtitle, a State that chooses to follow the Federal 
classifications in determining the eligibility of aliens for 
public benefits shall be considered to have chosen the least 
restrictive means available for achieving the compelling 
government interest of assuring that aliens be self-reliant in 
accordance with national immigration policy.

                          B. Excepted Programs

Present law
      Of Federal programs with alien eligibility restrictions, 
nonimmigrants are eligible for emergency services under 
Medicaid. Temporary agricultural workers may receive legal 
services funded through the Legal Services Corporation with 
respect to their wages, housing, and other employment rights 
covered by their employment contract. Those nonimmigrants whose 
wages are not exempt from unemployment taxes (FUTA) may qualify 
for unemployment compensation under certain circumstances.
House bill
      Exception to the bill's blanket denial of Federal means-
tested assistance to nonimmigrants is made for Emergency 
Assistance, including non-cash emergency medical services. 
Housing-related assistance is not covered by the bill's general 
rule, but rather existing restrictions under housing programs 
are to continue to apply. These restrictions deny assisted 
housing to nonimmigrants except as they may incidentally 
benefit as members of mixed families. However, all aliens 
granted parole are eligible for housing assistance.
Senate amendment
      Permits nonimmigrants (and all others who are not 
lawfully present) to receive: emergency medical services under 
Medicaid; short-term emergency disaster relief; school lunch 
and child nutrition assistance; and public health assistance 
for immunizations and, if found necessary by HHS, testing for 
and treatment of communicable diseases.
Conference agreement
      The conference agreement generally follows the Senate 
amendment, as described in section 2 above.
      The allowance for treatment of communicable diseases is 
very narrow. The conferees intend that it only apply where 
absolutely necessary to prevent the spread of such diseases. 
This is only a stop-gap measure until the deportation of a 
person or persons unlawfully here. It is not intended to 
provide authority for continued treatment of such diseases for 
a long term.
      The allowance for emergency medical services under 
Medicaid is very narrow. The conferees intend that it only 
apply to medical care that is strictly of an emergency nature, 
such as medical treatment administered in an emergency room, 
critical care unit, or intensive care unit. The conferees do 
not intend that emergency medical services include pre-natal or 
delivery care assistance that is not strictly of an emergency 
nature as specified herein.

              C. Treatment of Aliens Paroled Into the U.S.

Present law
      In some cases, aliens paroled into the U.S. are entitled 
to public benefits while they remain in parole status.
House bill
      Aliens paroled into the U.S. for less than 1 year are 
treated as nonimmigrants for benefits purposes (i.e., general 
ineligibility) but aliens paroled into the U.S. for longer than 
1 year are treated as immigrants (i.e. somewhat broader, but 
still limited, eligibility).
Senate amendment
      Aliens who have been paroled into the U.S. for a period 
of less than 1 year are not considered to be lawfully present 
for benefits purposes and therefore are generally ineligible 
for benefits. (Aliens who have been paroled into the U.S. for a 
period of 1 year or longer are considered to be lawfully 
present.)
Conference agreement
      The conference agreement generally follows the Senate 
amendment, as described in section 2 above.

     4. Limited Eligibility of Lawfully Present Aliens (Other than 
                  Nonimmigrants) for Federal Benefits

                             A. In General

Present law
      With the exception of certain buy-in rights under 
Medicare, immigrants (or aliens lawfully admitted for permanent 
residence) are eligible for major Federal benefits, but the 
ability of some immigrants to meet the needs tests for SSI, 
AFDC, and food stamps may be affected by the sponsor-to-alien 
deeming provisions discussed below. Refugees, asylees, and 
parolees also generally are eligible. Benefits are permitted 
under AFDC, SSI, unemployment compensation, and nonemergency 
Medicaid to other aliens permanently residing in the U.S. under 
color of law (PRUCOL).
House bill
      With certain specific exceptions noted below, any alien 
who is lawfully present in the U.S. shall not be eligible for 
any of the following Federal means-tested public benefits 
programs (except as they provide non-cash, in-kind emergency 
services): Supplemental Security Income, Temporary Assistance 
for Needy Families, Social Services Block Grant (Title XX), 
Medicaid, and Food Stamps.
      Under programs other than the foregoing 5 major benefits 
programs, the eligibility of lawfully present aliens (other 
than nonimmigrants) for benefits would continue to be governed 
by current law as modified by the sponsor-to-alien deeming 
provisions discussed below. The Attorney General is to 
determine which aliens are ``lawfully present'' and is not 
bound in doing so by current interpretations of ``PRUCOL'', or 
``permanently residing under color of law.''
Senate amendment
      Except for specific classes noted below, all aliens are 
to be denied SSI.
      Except for specific classes and programs noted below, all 
aliens arriving after enactment are ineligible for all Federal 
needs-based assistance for 5 years after entry.
      Except for specific classes and programs noted below, 
States may deny noncitizens need-based assistance funded by the 
Federal Government (e.g., Temporary Assistance for Needy 
Families and similar block grants).
      For lawfully present aliens who are in the U.S. on the 
date of enactment and who have been here 5 years, current rules 
will continue to apply to programs other than SSI, except as 
eligibility may be affected by the State option to deny 
noncitizens needs-based assistance funded by Federal funds.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment with the following modifications:
            (1) current resident aliens and those arriving 
        after enactment (with the exception of the specific 
        classes described below) may not receive SSI or food 
        stamps until attaining citizenship or working long 
        enough (that is, at least 10 years) to qualify for 
        Social Security retirement benefits;
            (2) aliens have no entitlement to benefits;
            (3) States have the option of providing benefits to 
        lawfully present aliens under the TANF, Medicaid, or 
        Title XX programs; and
            (4) new entrants are denied benefits under all 
        mandatory Federal means-tested programs for five years 
        after their entry into the U.S. with the exception of 
        those programs described in section (4)(B) below.

                          B. Excepted Programs

Present law
      Not applicable. (See above.)
House bill
      Only exception is for non-cash, in-kind emergency 
services, as described above.
Senate amendment
      The 5-year bar on Federally-funded assistance to new 
arrivals does not apply to:
            (1) emergency medical services under Medicaid;
            (2) short-term emergency disaster relief;
            (3) assistance under the National School Lunch Act 
        or the Child Nutrition Act of 1966;
            (4) the Head Start program;
            (5) foster care and adoption assistance (but foster 
        parents or adoptive parents cannot be aliens who are 
        ineligible for benefits due to this provision);
            (6) public health assistance for immunizations and, 
        if found necessary by HHS, testing for and treatment of 
        communicable diseases; and
            (7) programs specified by the Attorney General that 
        (i) deliver services at the community level, (ii) do 
        not condition assistance on the recipient's income or 
        resources, and (iii) are necessary to protect life, 
        safety, or public health (e.g. soup kitchens).
      States may deny needs-based assistance funded by the 
Federal government to all noncitizens except (1) programs 
described above in 1, 2, 3, 4, 6, or 7; or (2) assistance to 
noncitizens in the classes described below.
Conference agreement
      The conference agreement follows the Senate amendment, 
with the modification that the following programs are also 
excepted: (1) programs of student assistance under titles IV, 
V, IX, and X of the Higher Education Act of 1965, and (2) 
means-tested programs under the Elementary and Secondary 
Education Act of 1965.

                          C. Excepted Classes

Present law
      Not applicable. (See above.)
House bill
      Excepted are: (i) refugees during their first 5 years in 
the U.S. (ii) aliens who have been lawfully admitted to the 
U.S. for permanent residence, are over 75 years of age, and 
have resided in U.S. for at least 5 years; (iii) honorably 
discharged veterans and active duty personnel or their spouses 
and unmarried dependent children lawfully residing in any State 
or territory or possession of the U.S.; (iv) aliens lawfully 
residing in any State or Territory or Possession of the U.S. 
during the first year of enactment; and (v) immigrants who are 
unable to comply with naturalization requirements because of 
disability or mental impairment.
Senate amendment
      Excepted are: (i) refugees during their first 5 years in 
the U.S.; (ii) honorably discharged veterans (if determined by 
the Attorney General to be lawfully present), and their spouses 
and unmarried dependent children; (iii) aliens receiving SSI 
benefits on the date of enactment (whose eligibility would end) 
will remain eligible for SSI until January 1, 1997; (iv) 
asylees (including those who have had deportation stayed 
because it would return them to a country which would persecute 
them) during their first 5 years in the U.S.; (v) noncitizens 
who have worked long enough to be fully insured for Social 
Security or disability insurance benefits are exempt from the 
ban on SSI and the prospective 5 year ban; and (vi) agencies 
may exempt individuals who have been battered or subjected to 
extreme cruelty from the denial of State-administered Federal 
benefits (and the sponsor-alien ``deeming'' provision discussed 
below) if the resulting denial of assistance will endanger 
their well-being.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment so that the following classes are excepted:
            (1) refugees (during their first 5 years in the 
        U.S.), asylees (for 5 years after being adjudicated as 
        an asylee), and aliens whose deportation has been 
        withheld (during their first 5 years after their 
        deportation has been withheld);
            (2) aliens who have been lawfully admitted to the 
        U.S. for permanent residence and have worked at least 
        40 quarters (that is, at least 10 years which is 
        currently the criteria for eligibility for Social 
        Security retirement benefits), when a worker reaches 
        retirement age;
            (3) honorably discharged veterans and active duty 
        personnel or their spouses and unmarried dependent 
        children lawfully residing in any State, territory, or 
        possession of the U.S.; and
            (4) lawfully present aliens receiving SSI or food 
        stamps on the date of enactment, whose eligibility 
        would end January 1, 1997.

                          D. Effective Date(s)

Present law
      Not applicable.
House bill
      In general, applies to applicants for benefits after the 
date of enactment. For current residents of the U.S. on the 
date of enactment, restriction on eligibility does not apply 
until 1 year after enactment.
Senate amendment
      In general, applies to benefits on or after the date of 
enactment. Current SSI recipients lose eligibility after 
January 1, 1997. The Attorney General must adopt regulations to 
verify the eligibility of applicants for Federal benefits no 
later than 18 months after enactment. States must have a 
verification system that complies with these regulations within 
24 months of their adoption.
Conference agreement
      The conference agreement follows the Senate amendment, 
with the modification that the eligibility of current resident 
noncitizens receiving SSI and food stamps on the date of 
enactment ends for months beginning on or after January 1, 
1997.

                            E. Reapplication

Present law
      An individual who is eligible for SSI but who thereafter 
becomes ineligible for a period of 12 consecutive months must 
reapply for benefits.
House bill
      No provision.
Senate amendment
      Individuals receiving SSI benefits on the date of 
enactment who are notified of their termination of eligibility 
may reapply for benefits within 4 months after the date of 
enactment. The Commissioner of Social Security shall determine 
within 1 year of enactment the eligibility of individuals who 
reapply within 1 year after enactment.
Conference agreement
      The conference agreement follows the Senate amendment, 
with the modification that similar reapplication procedures are 
established with regard to food stamps.

                            5. Notification

Present law
      Under regulation, individual advance written notice must 
be given of an intent to suspend, reduce, or terminate SSI 
benefits.
House bill
      Each Federal Agency that administers an affected program 
shall post information and provide general notification to the 
public and to program recipients of changes regarding 
eligibility.
Senate amendment
      The Commissioner of Social Security shall notify 
noncitizens made ineligible for SSI benefits within 3 months 
after the date of enactment.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                6. Verification and Information Sharing

Present law
      State agencies that administer most major Federal 
programs with alienage restrictions generally use the SAVE 
(Systematic Alien Verification for Entitlements) system to 
verify the immigration status of aliens applying for benefits.
      AFDC and SSI require safeguards that restrict the use or 
disclosure of information concerning applicants or recipients 
to purposes connected to the administration of needs-based 
Federal programs.
House bill
      No provision.
Senate amendment
      The Attorney General must adopt regulations to verify the 
lawful presence of applicants for Federal benefits no later 
than 18 months after enactment. States must have a verification 
system that complies with these regulations within 24 months of 
their adoption.
      The agencies which administer SSI, housing assistance 
programs under the United States Housing Act of 1937, or block 
grants for temporary assistance for needy families (the 
successor program to AFDC) are required to furnish information 
to the Immigration and Naturalization Service (INS) about 
aliens they know to be unlawfully in the United States at least 
4 times annually and upon INS request.
Conference agreement
      The conference agreement follows the Senate amendment, 
except with regard to agencies required to furnish information 
to the INS, which was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

  Chapter 2--Eligibility for State and Local Public Benefits Programs

7. Ineligibility of Illegal Aliens for State and Local Public Benefits 
                                Programs

Present law
      Under Plyler v. Doe (457 U.S. 202 (1982)), States may not 
deny illegal alien children access to a public elementary 
education. However, the narrow 5-4 Supreme Court decision may 
imply that illegal aliens may be denied at least some State 
benefits and that Congress may influence the eligibility of 
illegal aliens for State benefits. Many, but not all, State 
general assistance laws currently deny illegal aliens means-
tested general assistance.
House bill
      No alien who is not lawfully present in the U.S. shall be 
eligible for any State and local means-tested public benefits 
programs (see definitions below). The only exception is 
emergency medical services.
Senate amendment
      No provision affects programs wholly administered and 
funded by State or local governments. Aliens who are not 
lawfully present are ineligible for benefits paid with Federal 
funds under State-administered programs (or paid with State 
funds pursuant to such programs).
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

 8. Ineligibility of Nonimmigrants for State and Local Public Benefits 
                                Programs

Present law
      Currently, there is no Federal law barring nonimmigrants 
from State and local needs-based programs. In general, States 
are restricted in denying assistance to nonimmigrants where the 
denial is inconsistent with the terms under which the 
nonimmigrants were admitted. Where a denial of benefits is not 
inconsistent with Federal immigration law, however, States have 
broader authority to deny benefits and States often do deny 
certain benefits to nonimmigrants. Also, aliens in most 
nonimmigrant categories generally may have difficulty 
qualifying for many State and local benefits because of 
requirements that they be State ``residents.''
House bill
      No alien who is lawfully present in the U.S. as a non-
immigrant shall be eligible for any State and local means-
tested public benefit programs. Exceptions for: non-cash 
emergency assistance (including emergency medical services) 
aliens granted asylum, and certain temporary agricultural 
workers who are treated as immigrants for purposes of 
application for State and local means-tested benefits (see 
below). Aliens paroled into the U.S. for a period of less than 
1 year are considered to be nonimmigrants under this part.
Senate amendment
      No provision affects programs wholly administered and 
funded by State or local governments. Nonimmigrants are not 
considered to be lawfully present for Federal benefits purposes 
and are thus ineligible for benefits paid with Federal funds 
under State-administered programs (or paid with State funds 
pursuant to such programs).
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

  9. State Authority to Limit Eligibility of Immigrants for State and 
              Local Means-Tested Public Benefits Programs

Present law
      Under Graham v. Richardson (403 U.S. 365 (1971)), States 
are barred from denying legal permanent residents from State-
funded assistance that is provided to equally needy citizens.
House bill
      States are authorized to determine eligibility 
requirements for aliens who are lawfully present in the U.S. 
for any State and local means-tested public benefit program 
(other than non-cash emergency assistance, including emergency 
medical services), with exception of:
            (i) refugees during their first 5 years in the 
        U.S.;
            (ii) Aliens who have been lawfully admitted to the 
        U.S. for permanent residence, are over 75 years of age, 
        and have resided in U.S. for five years;
            (iii) Honorably discharged veterans and active duty 
        personnel or their spouses and unmarried dependent 
        children lawfully residing in any State or territory or 
        possession of the U.S.; and
            (iv) Aliens lawfully residing in any State or 
        Territory or possession of the U.S. during the first 
        year after the date of enactment. Aliens lawfully 
        present would remain eligible for emergency medical 
        services.
      In addition to enhancing State discretion to impose 
alienage restrictions, eligibility for State and local needs-
based benefits also would be restricted by application of new 
sponsor-to-alien deeming requirements discussed below.
Senate amendment
      No provision restricts benefits wholly funded by State or 
local governments, but States may use the sponsor-alien deeming 
provisions, described below, to determine whether a sponsored 
individual qualifies for assistance under such a program.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

       Chapter 3--Attribution of Income and Affidavits of Support

               10. Requirements for Affidavits of Support

                  A. When Required and Enforceability

Present law
      Administrative authorities may request an affidavit of 
support on behalf of an alien seeking permanent residency. 
Requirements for affidavits of support are not specified under 
current law.
      Under the Immigration and Nationality Act, an alien who 
is likely to become a public charge may be excluded from entry 
unless this restriction is waived, as is the case for refugees. 
By regulation and administrative practice, the State Department 
and the Immigration and Naturalization Service permit a 
prospective permanent resident alien (also immigrant or green 
card holder) who otherwise would be excluded as a public charge 
(i.e., insufficient means or prospective income) to overcome 
exclusion through an affidavit of support or similar document 
executed by an individual in the U.S. Individuals who execute 
affidavits of support commonly are called sponsors, even though 
that term also is used under immigration practice to refer to 
individuals and other entities who undertake various other acts 
(e.g., file a visa preference petition for a relative or 
prospective employee or undertake to resettle individuals who 
enter in refugee status) and who may or may not also execute 
affidavits of support. About one-half of the aliens who obtain 
legal permanent resident status have had affidavits of support 
filed on their behalf.
      Various State court decisions and decisions by 
immigration courts have held that these affidavits, as 
currently constituted, do not impose a binding obligation on 
the sponsor to reimburse State agencies providing aid to the 
sponsored alien.
House bill
      When affidavits of support are required, they must comply 
with the following:
            (A) no affidavit of support may be accepted to 
        overcome a public charge exclusion unless the affidavit 
        is executed as a contract that is legally enforceable 
        against the sponsor by the Federal Government and by 
        any State or local government with respect to any 
        means-tested benefits paid to the sponsored alien 
        before the alien becomes a citizen. However, affidavits 
        of support are not to be construed to provide any right 
        to sponsored aliens;
            (B) any Federal, State or local means-tested 
        benefits paid to sponsored alien;
            (C) to qualify to execute an affidavit of support, 
        an individual must be within the definition of sponsor 
        set out in item G(1), below;
            (D) governmental entities that provide benefits may 
        seek reimbursement up to 10 years after a sponsored 
        alien last receives benefits. In the affidavit of 
        support, the sponsor must agree to submit to the 
        jurisdiction of any Federal or State court regarding 
        reimbursement of the cost of benefits received by the 
        alien; and
            (E) sponsorship extends until alien becomes a 
        citizen.
Senate amendment
      When affidavits of support are required, they must comply 
with the following:
            (A) no affidavit of support may be relied upon to 
        overcome a public charge exclusion unless the affidavit 
        is executed as a contract that is legally enforceable 
        against the sponsor by the sponsored alien and by 
        Federal, State, and local governmental entities that 
        provide the sponsored alien with means-tested 
        assistance during the support period described below;
            (B) programs for which reimbursement shall be 
        requested are: (1) AFDC or its successor; (2) Medicaid; 
        (3) Food Stamps; (4) SSI; (5) any State general 
        assistance program; and (6) any other Federal, State, 
        or local need-based program. However, governmental 
        entities cannot seek reimbursement with respect to (1) 
        emergency medical services under Medicaid; (2) short-
        term emergency disaster relief; (3) assistance provided 
        under the National School Lunch Act or the Child 
        Nutrition Act of 1966; (4) the Head Start program; (5) 
        public health assistance for immunizations and, if 
        determined necessary by HHS, testing for or treatment 
        of communicable diseases; and (6) programs specified by 
        the Attorney General that (i) deliver services at the 
        community level, (ii) do not condition assistance on 
        the recipient's income or resources, and (iii) are 
        necessary to protect life, safety, or public health 
        (e.g., soup kitchens);
            (C) to qualify to execute an affidavit of support, 
        an individual must be within the definition of sponsor 
        set out in item G(1), below;
            (D) governmental entities may seek reimbursement of 
        other means-tested assistance up to 10 years after a 
        sponsored alien last receives benefits. In the 
        affidavit of support, the sponsor must agree to submit 
        to the jurisdiction of any Federal or State court 
        regarding reimbursement of the cost of benefits 
        received by the alien; and
            (E) sponsor must agree in the affidavit of support 
        to provide sufficient financial support so that the 
        sponsored individual will not become a public charge 
        until the individual has worked in the U.S. for 40 
        qualifying quarters, regardless of whether the 
        individual chooses to naturalize or not. A qualifying 
        quarter is a 3-month period (1) which counts as a 
        quarter for the purposes of social security coverage, 
        (2) during which the individual did not receive needs-
        based assistance, and (3) which occurs in a tax year 
        for which the individual had income tax liability.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment as follows:
      When affidavits of support are required, they must comply 
with the following:
            (A) no affidavit of support may be accepted to 
        overcome a public charge exclusion unless the affidavit 
        is executed as a contract that is legally enforceable 
        against the sponsor by the Federal Government with 
        respect to any mandatory means-tested benefits paid to 
        the sponsored alien before the alien becomes a citizen. 
        However, affidavits of support are not to be construed 
        to provide any right to sponsored aliens;
            (B) programs for which reimbursement shall be 
        requested are: (1) AFDC or its successor; (2) Medicaid; 
        (3) Food Stamps; (4) SSI; and (5) other mandatory 
        Federal need-based programs. However, governmental 
        entities cannot seek reimbursement with respect to (1) 
        emergency medical services under Medicaid; (2) short-
        term emergency disaster relief; (3) assistance provided 
        under the National School Lunch Act or the Child 
        Nutrition Act of 1966; (4) the Head Start program; (5) 
        public health assistance for immunizations and, if 
        determined necessary by HHS, testing for or treatment 
        of communicable diseases; (6) programs specified by the 
        Attorney General that (i) deliver services at the 
        community level, (ii) do not condition assistance on 
        the recipient's income or resources, and (iii) are 
        necessary to protect life, safety, or public health 
        (e.g., soup kitchens); and (7) postsecondary education 
        benefits (however, in the event a permanent resident 
        alien applies for Federal student loans, the sponsor or 
        citizen must cosign the loan);
            (C) to qualify to execute an affidavit of support, 
        an individual must be within the definition of sponsor 
        set out in item G(1), below;
            (D) governmental entities that provide benefits may 
        seek reimbursement up to 10 years after a sponsored 
        alien last receives benefits. In the affidavit of 
        support, the sponsor must agree to submit to the 
        jurisdiction of any Federal or State court regarding 
        reimbursement of the cost of benefits received by the 
        alien; and
            (E) sponsorship extends until alien becomes a 
        citizen.
      The allowance for treatment of communicable diseases is 
very narrow. The conferees intend that it only apply where 
absolutely necessary to prevent the spread of such diseases. 
This is only a stopgap measure until the deportation of a 
person or persons unlawfully here. It is not intended to 
provide authority for continued treatment of such diseases for 
a long term.
      The allowance for emergency medical services under 
Medicaid is very narrow. The conferees intend that it only 
apply to medical care that is strictly of an emergency nature, 
such as medical treatment administered in an emergency room, 
critical care unit, or intensive care unit. The conferees do 
not intend that emergency medical services include pre-natal or 
delivery care assistance that is not strictly of an emergency 
nature as specified herein.

                                b. forms

Present law
      No statutory provision. The Department of Justice issues 
a form (Form I-134) that complies with current sponsorship 
guidelines.
House bill
      The Attorney General, in consultation with the Secretary 
of State and the Secretary of HHS, shall formulate an affidavit 
of support within 90 days after enactment, consistent with this 
section.
Senate amendment
      The Attorney General, the Secretary of State, and the 
Secretary of HHS shall jointly formulate an affidavit of 
support within 90 days after enactment, consistent with this 
section.
Conference agreement
      The conference agreement follows the House bill.

                       c. statutory construction

Present law
      No provision.
House bill
      Nothing in this section shall be construed to grant third 
party beneficiary rights to any sponsored alien under an 
affidavit of support.
Senate amendment
      The Senate amendment expressly requires that affidavits 
of support permit sponsored individuals to enforce support 
obligations of their sponsors as contained in the affidavits.
Conference agreement
      The conference agreement follows the Senate amendment.

                  d. notification of change of address

Present law
      There is no express requirement under current 
administrative practice that sponsors inform welfare agencies 
of a change in address. However, a sponsored alien who applies 
for benefits for which deeming is required must provide various 
information regarding the alien's sponsor.
House bill
      Until they no longer are potentially liable for 
reimbursement of benefits paid to sponsored aliens, sponsors 
must notify welfare agencies of any change of their address 
within 30 days of moving. Failure to notify may result in a 
civil penalty of up to $2,000 or, if the failure occurs after 
knowledge that the sponsored alien has received a reimbursable 
benefit, of up to $5,000.
Senate amendment
      Until they no longer are potentially liable for 
reimbursement of benefits paid to sponsored individuals, 
sponsors must notify the Attorney General and the State, 
district, territory or possession in which the sponsored 
individual resides of any change of their address within 30 
days of moving. Failure to notify may result in a civil penalty 
of up to $2,000 or, if the failure occurs after knowledge that 
the sponsored individual has received a reimbursable benefit, 
of up to $5,000.
Conference agreement
      The conference agreement follows the Senate amendment.

                      e. reimbursement procedures

Present law
      Various State court decisions and decisions by 
immigration courts have held that these affidavits, as 
currently constituted, do not impose a binding obligation on 
the sponsor to reimburse State agencies providing aid to the 
sponsored alien.
House bill
      If a sponsored alien receives any benefit under any 
means-tested public assistance program, the appropriate 
Federal, State, or local official shall request reimbursement 
by the sponsor in the amount of such assistance. Thereafter the 
official may seek reimbursement in court if the sponsor fails 
to respond within 45 days of the request that the sponsor is 
willing to begin repayments. The official also may seek 
reimbursement through the courts within 60 days after a sponsor 
fails to comply with the terms of repayment. The Attorney 
General in consultation with the Secretary of HHS, shall 
prescribe regulations on requesting reimbursement. No action 
may be brought later than 10 years after the alien last 
received benefits.
Senate amendment
      Upon notification that a sponsored individual has 
received a reimbursable need-based benefit (see above), the 
appropriate government official shall request reimbursement in 
accordance with the same procedures and limitations that are in 
the House bill. The Commissioner of Social Security is to 
prescribe regulations for requesting reimbursement from 
sponsors, and such regulations must include the notification of 
sponsors (at their last known address) by certified mail.
Conference agreement
      The conference agreement follows the House bill.

                            f. jurisdiction

Present law
      State law sets forth which types of cases its courts will 
hear, subject to due process requirements on minimal 
connections between activities, people, or property within the 
State and the matter being litigated.
House bill
      No provision.
Senate amendment
      No State court shall decline for lack of jurisdiction to 
hear any action brought against a sponsor for reimbursement for 
the cost of any benefit if the sponsored individual received 
public assistance while residing in the State.
Conference agreement
      The conference agreement follows the Senate amendment. 
The conferees intend that both Federal and State courts have 
jurisdiction over reimbursement actions against a sponsor.

                             g. definitions

Present law
      No provision.
House bill
      A ``Sponsor'' is an individual who (1) is a citizen or 
national of the U.S. or an alien who is lawfully admitted to 
the U.S. for permanent residence; (2) is at least 18 years of 
age; and (3) resides in any State.
      A ``Means-Tested Public Benefits Program'' is a program 
of public benefits of the Federal, State or local government in 
which eligibility or the amount of benefits or both are 
determined on the basis of income, resources, or financial 
need.
Senate amendment
      A ``Sponsor'' is an individual who (1) is a citizen or 
national of the U.S. or an alien who is lawfully admitted to 
the U.S. for permanent residence; (2) is at least 18 years of 
age; (3) resides in any State or U.S. territory; and (4) is 
able to demonstrate (through evidence which includes attested 
copies of tax returns for the 2 most recent tax years) the 
means to maintain an income equal to 200% of the Federal 
poverty line for the individual and the individual's family, 
including the person sponsored.
      ``Federal Poverty Line'' has the same meaning as in 
section 673(2) of the Community Services Block Grant Act.
      A ``Qualifying Quarter'' is a 3-month period (1) in which 
the sponsored individual earned at least the minimum necessary 
for the period to count as one of 40 calendar quarters required 
to qualify for Social Security retirement benefits; (2) during 
which the sponsored individual did not receive need-based 
public assistance; and (3) which falls within a tax year for 
which the sponsored individual had income tax liability.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment, except that the sponsor is not required to 
demonstrate the means to maintain an income equal to 200% of 
the poverty level and the Senate recedes on the conditions that 
a qualifying quarter is (1) one in which the sponsored 
individual did not receive need-based public assistance, and 
(2) which falls within a tax year for which the sponsored 
individual has tax liability. The sponsor must also be the 
person petitioning for the alien's admission.

                         h. clerical amendment

Present law
      Not applicable.
House bill
      A minor clerical amendment.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

                           i. effective date

Present law
      Not applicable.
House bill
      The changes regarding affidavits of support shall apply 
to affidavits of support executed no earlier than 60 days or 
later than 90 days after the Attorney General promulgates the 
form.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

    11. Attribution of Sponsor's Income and Resources to Sponsored 
                               Immigrants

                          a. federal benefits

Present law
      In determining whether an alien meets the means test for 
Aid to Families with Dependent Children (AFDC), Supplemental 
Security Income (SSI), and Food Stamps, the resources and 
income of an individual who filed an affidavit of support for 
the alien (and the income and resources of the individual's 
spouse) are taken into account during a designated period after 
entry.
House bill
      During the applicable deeming period, the income and 
resources of an individual who files a binding affidavit of 
support (as required above) for an alien (and the income and 
resources of the individual's spouse) are taken into account 
under all Federal means-tested programs (with the exception of 
housing-related assistance) in determining a sponsored alien's 
neediness. Current law remains effective for aliens whose 
sponsors filed affidavits before the new affidavit requirements 
become effective (60-90 days after enactment).
Senate amendment
      During the applicable deeming period, the income and 
resources of an individual who filed an affidavit of support 
for an alien (and the income and resources of the individual's 
spouse) are to be taken into account under all Federally-funded 
means-tested programs (with the exception of the programs 
below) in determining the sponsored individual's neediness.
      Excepted programs are (1) emergency Medicaid services; 
(2) short-term emergency disaster relief; (3) assistance 
provided under the National School Lunch Act or the Child 
Nutrition Act of 1966; (4) the Head Start program; (5) public 
health assistance for immunizations and, if determined by HHS, 
testing for or treatment of communicable diseases; and (6) 
programs specified by the Attorney General that (i) deliver 
services at the community level, (ii) do not condition 
assistance on the recipient's income or resources, and (iii) 
are necessary to protect life, safety, or public health (e.g. 
soup kitchens).
      Individuals who are exempt from deeming include (1) 
honorably discharged legal alien veterans and their spouses and 
unmarried children; (2) refugees; (3) asylees (including aliens 
who have had their deportation stayed because it would return 
them to a country which will persecute them); and (4) 
individuals who have been battered or subjected to extreme 
cruelty, if application of deeming would endanger their well-
being.
Conference agreement
      The conference agreement follows the Senate amendment, 
except that post-secondary education is included as an excepted 
program and battered individuals are not included as an 
excepted class.
      The allowance for treatment of communicable diseases is 
very narrow. The conferees intend that it only apply where 
absolutely necessary to prevent the spread of such diseases. 
This is only a stop-gap measure until the deportation of a 
person or persons unlawfully here. It is not intended to 
provide authority for continued treatment of such diseases for 
a long term.
      The allowance for emergency medical services under 
Medicaid is very narrow. The conferees intend that it only 
apply to medical care that is strictly of an emergency nature, 
such as medical treatment administered in an emergency room, 
critical care unit, or intensive care unit. The conferees do 
not intend that emergency medical services include pre-natal or 
delivery care assistance that is not strictly of an emergency 
nature as specified herein.

                b. amount of income and resources deemed

Present law
      While the offset formulas vary among the programs, the 
amount of income and resources deemed under AFDC, SSI, and Food 
Stamps is reduced by certain offsets to provide for some of the 
sponsor's own needs.
House bill
      The full income and resources of the sponsor and the 
sponsor's spouse are deemed to be that of the sponsored alien.
Senate amendment
      If an agency determines that a sponsored individual would 
not be able to obtain food and shelter without the agency's 
assistance (taking into account the income and resources 
actually provided to the individual by the sponsor and others), 
then deeming will not apply for a period of 12 months and the 
agency need take into account during this period only the 
amount of support the sponsor actually provides.
      If the address of the sponsor is unknown to the sponsored 
individual, then assistance is provided until 12 months after 
the sponsor is located.
Conference agreement
      The conference agreement follows the House bill.

                      C. length of deeming period

Present law
      For AFDC and Food Stamps, sponsor-to-alien deeming 
applies to a sponsored alien seeking assistance within 3 years 
of entry. Until September 1996, sponsor-to-alien deeming 
applies to a sponsored alien seeking SSI within 5 years of 
entry.
House bill
      For aliens whose sponsors have filed binding affidavits 
of support as required above, the sponsors' income and 
resources are deemed to the alien until the alien becomes a 
citizen. Current law remains effective for aliens whose 
sponsors filed affidavits before the new affidavit requirements 
become effective (60-90 days after enactment).
Senate amendment
      Deeming applies until the immigrant has worked 40 
qualifying quarters (the period of time future sponsors must 
agree to support the immigrant) or for 5 years from the alien's 
arrival in the U.S. (for current noncitizens), whichever is 
longer. Deeming continues until the above requirements are met, 
regardless of whether the immigrant naturalizes or not. [A 
qualifying quarter is a 3-month period (1) in which the 
sponsored individual earned at least the minimum necessary for 
the period to count as one of 40 calendar quarters required to 
qualify for Social Security retirement benefits; (2) during 
which the sponsored individual did not receive need-based 
public assistance; and (3) which falls within a tax year for 
which the sponsored individual had income tax liability.]
Conference agreement
      The conference agreement follows the House bill.

                      d. state and local benefits

Present law
      The highest courts of at least 2 States have held that 
the Supreme Court decision barring State discrimination against 
legal aliens in providing State benefits (Graham v. Richardson, 
403 U.S. 365 (1971)) prohibits State sponsor-to-alien deeming 
requirements for State benefits.
House bill
      In determining the eligibility and amount of benefits of 
an alien for any State or local means-tested public benefit 
program, the income and resources of the alien shall be deemed 
to include the income and resources of their sponsor (and their 
sponsor's spouse). Housing related assistance continues to be 
treated as under current law.
Senate amendment
      With the exception of those programs exempted from all 
benefit restrictions (see above) and those aliens exempt from 
deeming requirements, States and local governments may deem a 
sponsor's income and resources (and those of the sponsor's 
spouse) to a sponsored individual in determining eligibility 
for and the amount of needs-based benefits. State deeming 
provisions must also provide for temporary assistance if the 
sponsor is not assisting the sponsored individual or cannot be 
located.
Conference agreement
      The conference agreement follows the Senate amendment. 
This provision was dropped from the Reconciliation bill because 
it violates the Byrd Rule (section 313 of the Congressional 
Budget Act of 1974).

                     Chapter 4--General Provisions

                            12. definitions

                             a. in general

Present law
      Federal assistance programs that have alien eligibility 
restrictions generally reference specific classes defined in 
the Immigration and Nationality Act.
House bill
      Unless otherwise provided, the terms used in this title 
have the same meaning as defined in Section 101(a) of the 
Immigration and Nationality Act.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

                           b. lawful presence

Present law
      Some programs allow benefits for otherwise eligible 
aliens who are ``permanently residing under color of law 
(PRUCOL).'' This term is not defined under the Immigration and 
Nationality Act, and there has been some inconsistency in 
determining which classes of aliens fit within the PRUCOL 
standard.
House bill
      For purposes of this Title, the determination of whether 
an alien is lawfully present in the U.S. shall be made in 
accordance with regulations issued by the Attorney General. An 
alien shall not be considered to be lawfully present in the 
U.S. merely because the alien may be considered to be 
permanently residing in the U.S. under color of law 
(``PRUCOL'') for purposes of any particular program.
Senate amendment
      An individual is lawfully present if the individual is a 
citizen, non-citizen national (i.e. American Samoan), permanent 
resident alien, refugee, asylee (including an alien who has had 
his/her deportation stayed because it would return him/her to a 
country which would persecute him/her), or an alien who has 
been paroled into the U.S. by the Attorney General for at least 
1 year. Individuals who are not lawfully present are ineligible 
for any Federal benefit.
Conference agreement
      The conference agreement follows the Senate amendment 
with a modification that eligibility is determined by specific 
classes of aliens, not whether noncitizens are ``lawfully 
present.''

                                c. state

Present law
      There is no single definition of ``State'' for purposes 
of alien eligibility under Federal assistance programs. The 
Immigration and Nationality Act defines ``State'' to include 
the District of Columbia, Puerto Rico, Guam, and the Virgin 
Islands of the United States.
House bill
      The term ``State'' includes the District of Columbia, 
Puerto Rico, the U.S. Virgin Islands, Guam, the Northern 
Mariana Islands, and American Samoa.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

                      d. public benefits programs

Present law
      No provision.
House bill
      A ``Means-Tested Program'' is a program of public 
benefits of the Federal government in which eligibility for 
benefits under the program, or the amount of benefits, or both, 
are determined on basis of income, resources or financial need.
      A ``Federal Means-Tested Public Benefits Program'' is a 
means-tested public benefit program of (or contributed to by) 
the Federal Government under which the Federal Government 
establishes standards for eligibility.
      A ``State Means-Tested Public Benefits Program'' is a 
means-tested program of a State or political subdivision under 
which the State or political subdivision specifies the 
standards of eligibility, and does not include any Federal 
means-tested public benefits program.
Senate amendment
      ``Federal Benefit'' means any grant, contract loan, 
professional or commercial license, retirement benefit, health 
or disability benefit, public housing, food stamps, higher 
education benefits, unemployment benefit, or any similar 
benefit provided by a Federal agency or with appropriated 
Federal funds. (Individuals who are not lawfully present are 
ineligible for Federal benefits.)
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

                            13. construction

Present law
      Not applicable.
House bill
      Nothing in this title shall be construed as addressing 
alien eligibility for governmental programs that are not means-
tested public benefits programs.
Senate amendment
      The Senate amendment's bar to Federal benefits for 
individuals who are not lawfully present covers a wide range of 
contracts, grants, licenses, and other assistance that is not 
means-tested.
Conference agreement
      The conference agreement follows the House bill with a 
clarification that the subtitle is silent on alien eligibility 
for a basic public elementary education as determined by the 
U.S. Supreme Court in Plyler v. Doe, 457 U.S. 202 (1982).

                   Subtitle E--Conforming Amendments

         14. conforming amendments relating to assisted housing

Present law
      No provision.
House bill
      A series of technical and conforming amendments.
Senate amendment
      A series of technical and conforming amendments.
Conference agreement
      The conference agreement follows the House bill and the 
Senate amendment.

         Subtitle E--Reduction in Federal Government Positions

      This Subtitle was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                          Subtitle F--Housing

      This Subtitle was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                 Subtitle F--National Defense Stockpile

  Disposal of Certain Materials in the National Defense Stockpile for 
                           Deficit Reduction

House bill
      Section 8021 of the House bill contained a provision that 
would authorize disposal of certain materials from the National 
Defense Stockpile.
Senate amendment
      Section 2001 of the Senate amendment contained a similar 
provision.
Conference agreement
      The conferees agree to a provision that would require 
disposal of certain materials, to result in receipts to the 
general fund of the Treasury equal to $649.0 million by the 
year 2002. The disposal authority of this provision would be 
considered new disposal authority, meaning that it is in 
addition to any other disposal authority provided by law, and 
the authority would expire after achieving the $649.0 million 
revenue target. The provision would require the President to 
dispose of materials previously authorized for disposal under 
the Strategic and Critical Materials Stock Piling Act (50 
U.S.C. 98h).
      The conferees are confident that the Department of 
Defense process for conducting such disposals, to include 
review by the Market Impact Committee, will continue to ensure 
an orderly and successful disposal of Stockpile materials.

 Subtitle G--Child Protection Block Grant Program and Foster Care and 
                          Adoption Assistance

                      1. Establishment of Program

                               a. purpose

Present law
      Child Welfare Services, now provided for in Title IV-B of 
the Social Security Act, are designed to help States provide 
child welfare services, family preservation and community-based 
family support services, and improve State court procedures 
related to child welfare.
      Title IV-E Foster Care and Title IV-E Adoption Assistance 
are intended to help States finance foster care and adoption 
assistance maintenance payments, administration, child 
placement services, and training related to foster care and 
adoption assistance.
      The purpose of the Title IV-E Independent Living program 
is to help older foster children make the transition to 
independent living.
House bill
      The House provision replaces Title IV-B and Title IV-E of 
the Social Security Act and several additional programs (see 
below) by establishing a block grant to enable eligible States 
to carry out child protection programs to:
            (1) identify and assist families at risk of abusing 
        or neglecting their children;
            (2) operate a system for receiving reports of abuse 
        or neglect of children;
            (3) investigate families reported to abuse or 
        neglect their children;
            (4) provide support, treatment, and family 
        preservation services to families which are, or are at 
        risk of, abusing or neglecting their children;
            (5) support children who must be removed from or 
        who cannot live with their families;
            (6) make timely decisions about permanent living 
        arrangements for children who must be removed from or 
        who cannot live with their families; and
            (7) provide for continuing evaluation and 
        improvement of child protection laws, regulations, and 
        services.
      Additional programs to be replaced are: the Child Abuse 
Prevention and Treatment Act; the Abandoned Infants Assistance 
Act; adoption opportunities under the Child Abuse Prevention 
and Treatment and Adoption Reform Act; family support centers 
under the McKinney Homeless Assistance Act; grants to improve 
investigation and prosecution of child abuse cases, and 
children's advocacy centers under the Victims of Child Abuse 
Act; crisis nurseries under the Temporary Child Care and Crisis 
Nurseries Act; and Family Unification under Section 8 of the 
Housing Act.
Senate amendment
      The Senate amendment would leave intact child welfare 
services, foster care, adoption assistance and independent 
living, which are permanently authorized under Titles IV-B and 
IV-E of the Social Security Act. The Senate amendment would 
reauthorize the Child Abuse Prevention and Treatment Act; 
adoption opportunities; abandoned infants assistance; missing 
children's assistance; investigation and prosecution grants, 
and children's advocacy centers under the Victims of Child 
Abuse Act. The amendment would repeal both the Temporary Child 
Care and Crisis Nurseries Act and the Family Support Centers 
under the McKinney Homeless Assistance Act.
      The Senate amendment gives the Secretary authority under 
CAPTA to make grants to the States for purposes of assisting 
the States in improving the child protective service system of 
each State in:
            (1) screening intake, assessing, and investigating 
        of reports of abuse and neglect;
            (2) creating and improving the use of 
        multidisciplinary teams and interagency protocols to 
        enhance investigations;
            (3) improving case management and delivery of 
        services;
            (4) enhancing the general child protection system 
        by improving risk and safety assessment tools and 
        protocols and automation systems;
            (5) developing, strengthening, and facilitating 
        training opportunities and requirements for individuals 
        overseeing and providing services to children and their 
        families;
            (6) developing and facilitating training protocols 
        for individuals mandated to report child abuse or 
        neglect;
            (7) developing, strengthening, and supporting child 
        abuse and neglect prevention, treatment, and research 
        programs in the public and private sectors;
            (8) developing, implementing, or operating 
        information and education programs or training programs 
        designed to improve the provision of services to 
        disabled infants with life-threatening conditions; and
            (9) developing and enhancing the capacity of 
        community-based programs to integrate shared leadership 
        strategies between parents and professionals to prevent 
        and treat child abuse and neglect at the neighborhood 
        level.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                           b. eligible states

                             eligible state

Present law
      To be eligible for funding under Title IV-B and IV-E, 
States must have State plans (developed jointly with the 
Secretary under Title IV-B, and approved by the Secretary under 
Title IV-E).
House bill
      An ``Eligible State'' is one that, during the 3-year 
period that ends on October 1 of the fiscal year, has submitted 
to the Secretary a plan that describes how the State intends to 
pursue the purposes described above.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. See Item 6.I., below, for 
summary of State eligibility under CAPTA.
Conference agreement
      An ``Eligible State'' is one that has submitted to the 
Secretary, not later than October 1, 1996 and every three years 
thereafter, a plan (as described below) which has been signed 
by the Chief Executive officer of the State.

                  outline of child protection program

Present law
      States must have a child welfare services plan developed 
jointly by the Secretary and the relevant State agency which 
provides for single agency administration and describe services 
to be provided and geographic areas where services will be 
available, among numerous other requirements. To receive their 
full allotment of incentive funds under Title IV-B, States also 
must comply with extensive Federal Section 427 protections. The 
State plan also must meet many other requirements, such as 
setting forth a 5-year statement of goals for family 
preservation and family support and assuring the review of 
progress toward those goals. For foster care and adoption 
assistance, States must submit for approval a Title IV-E plan 
providing for a foster care and adoption assistance program and 
satisfying numerous requirements. The Child Abuse Prevention 
and Treatment Act requires States to have in effect a law for 
reporting known and suspected child abuse and neglect as well 
as providing for prompt investigation of child abuse and 
neglect reports, among many other requirements.
House bill
      A State plan must include the following outline of Child 
Protection Program including procedures to be used for:
            a. receiving reports of child abuse or neglect;
            b. investigating such reports;
            c. protecting children in families in which child 
        abuse or neglect is found to have occurred;
            d. removing children from dangerous settings;
            e. protecting children in foster care;
            f. promoting timely adoptions;
            g. protecting the rights of families, using adult 
        relatives as the preferred placement for children 
        separated from their parents if such relatives meet all 
        relevant standards;
            h. preventing child abuse and neglect; and
            i. establishing and responding to citizen review 
        panels.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. CAPTA requires a 5-year plan 
that is coordinated with the State plan for child welfare 
services and family preservation. For amendments to CAPTA 
requirements, see Section 6 of this document, below.
Conference agreement
      A State plan must include information on the Child 
Protection Program including procedures to be used for:
            a. receiving and assessing reports of child abuse 
        or neglect;
            b. investigating such reports;
            c. with respect to families in which abuse or 
        neglect has been confirmed, providing services or 
        referral for services for families and children where 
        the State makes a determination that the child may 
        safely remain.
            d. protecting children by removing them from 
        dangerous settings and ensuring their placement in a 
        safe environment;
            e. providing training for individuals mandated to 
        report suspected cases of child abuse or neglect;
            f. protecting children in foster care;
            g. promoting timely adoptions;
            h. protecting the rights of families, using adult 
        relatives as the preferred placement for children 
        separated from their parents if such relatives meet all 
        relevant standards;
            h. providing services aimed at preventing child 
        abuse and neglect; and
            i. establishing and responding to citizen review 
        panels.
                Certifications
Present law
      To receive funds under the Child Abuse Prevention and 
Treatment Act, States must have a law in effect that provides 
for reporting of known and suspected instances of child abuse 
and neglect and provides immunity from prosecution for 
reporters of abuse or neglect. States also must have a program 
to investigate allegations of abuse or neglect, must preserve 
confidentiality of records, provide that every abused or 
neglected child involved in a court proceeding is represented 
by a guardian ad litem. To receive funding under Title IV-B and 
IV-E of the Social Security Act, States must comply with 
certain procedures for removal of children from their families 
when necessary, and must develop case plans for each child that 
are reviewed at least every six months and contain specified 
information.
House bill
      Also included in the submitted plan must be the following 
certifications:
            a. certification of State law requiring reporting 
        of child abuse and neglect;
            b. certification of State program to investigate 
        child abuse and neglect cases;
            c. certification of State procedures for removal 
        and placement of abused or neglected children;
            d. certification of State procedures for developing 
        and reviewing written plans for permanent placement of 
        each child removed from the family that:
                    (1) specifies the goal for achieving a 
                permanent placement for the child in a timely 
                fashion;
                    (2) ensures that the plan is reviewed every 
                6 months; and
                    (3) ensures that information about the 
                child is gathered regularly and placed in the 
                case record;
            e. certification that when the State begins 
        operating under the block grant on or after October 1, 
        1995, families receiving adoption assistance payments 
        at that time continue to receive adoption assistance 
        payments;
            f. certification of State program to provide 
        Independent Living services to 16-19 year old youths 
        (at State option to age 21) who are in the foster care 
        system but have no family to turn to for support;
            g. certification of State procedures to respond to 
        reporting of medical neglect of disabled infants; and
            h. a declaration of State child welfare goals; 
        States must, within 3 years of the date of passage, 
        report quantifiable information on whether they are 
        making progress toward achieving their self-defined 
        child protection goals. (See Data Collection and 
        Reporting, item G. below).
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. CAPTA requires several 
certifications, many of which are identical to those outlined 
for the House bill. For amendments to CAPTA requirements, see 
Section 6 of this document, below.
Conference agreement
      The following certifications must be included in the 
State plan:
            (1) certification of State law requiring reporting 
        of child abuse and neglect;
            (2) certification of State procedures for the 
        immediate screening, safety assessment, and prompt 
        investigation of such reports;
            (3) certification of State procedures for the 
        removal and placement of abused or neglected children;
            (4) certification of State laws requiring immunity 
        from prosecution under State and local laws for 
        individuals making good faith reports of suspected or 
        known cases of child abuse or neglect;
            (5) certification of State law and procedures for 
        expungement of any public records on false or 
        unsubstantiated cases;
            (6) certification of State laws and procedures 
        affording individuals an opportunity to appeal an 
        official finding of abuse or neglect;
            (7) certification of State procedures for 
        developing and reviewing written plans for permanent 
        placement of each child removed from the family that:
                    (A) specifies the goal for achieving a 
                permanent placement for the child in a timely 
                fashion;
                    (B) ensures that the plan is reviewed every 
                6 months; and
                    (C) ensures that information about the 
                child is gathered regularly and placed in the 
                case record;
            (8) certification of State program to provide 
        Independent Living services to 16-19 year old youths 
        (at State option to age 21) who are in the foster care 
        system but have no family to turn to for support;
            (9) certification of State procedures to respond to 
        reporting of medical neglect of disabled infants;
            (10) a declaration of quantifiable State child 
        welfare goals;
            (11) with respect to fiscal years beginning on or 
        after April 1, 1996, certification that--
                    (A) the State has completed an inventory of 
                all children who, before the inventory, had 
                been in foster care under the responsibility of 
                the State for 6 months or more, which 
                determined--
                            (i) the appropriateness of, and 
                        necessity for, the foster care 
                        placement;
                            (ii) whether the child could or 
                        should be returned to the parents of 
                        the child or should be freed for 
                        adoption or other permanent placement; 
                        and
                            (iii) the services necessary to 
                        facilitate the return of the child or 
                        the placement of the child for adoption 
                        or legal guardianship;
                    (B) is operating to the satisfaction of the 
                Secretary--
                            (i) a statewide information system 
                        on children who are or have been in 
                        foster care in the last year;
                            (ii) a case review system for each 
                        child receiving foster care under the 
                        supervision of the State;
                            (iii) a service program designed to 
                        help children--
                                    (I) return to families from 
                                which they have been removed; 
                                or
                                    (II) be placed for adoption
                            (iv) a preplacement preventive 
                        service program; and
                    (C) has reviewed (or, will review by 
                October 1, 1997) State policies and procedures 
                in effect for children abandoned at birth; and 
                is implementing (or, will implement by October 
                1, 1997) such policies or procedures to enable 
                permanent decisions to be made expeditiously 
                with respect to the placement of such children.
            (12) certification of reasonable efforts to prevent 
        placement of children in foster care; and
            (13) certification of cooperative efforts to secure 
        an assignment to the State of any rights to support on 
        behalf of each child receiving foster care maintenance 
        payments.

                             determinations

Present law
      State Title IV-B plans are developed jointly with the 
Secretary. State Title IV-E plans must be approved by the 
Secretary. The Secretary must approve any plan that complies 
with statutory provisions.
House bill
      The Secretary of HHS must determine whether the State 
plan includes all of the elements required above but cannot add 
new elements or review the adequacy of State procedures. The 
Secretary may not require a State to alter its child protection 
law regarding determination of the adequacy, type and timing of 
health care.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. See item 6.N., below for 
description of similar CAPTA provision on medical care.
Conference agreement
      The Secretary of HHS must determine whether the State 
plan includes the required materials and certifications (except 
material related to the certification of State procedures to 
respond to reporting of medical neglect of disabled infants). 
The Secretary cannot add new elements beyond those listed 
above.

                c. grants to states for child protection

                                entitlement

Present law
      Titles IV-B and IV-E of the Social Security Act contain 
several types of funding, including substantial entitlement 
funding, for helping States provide assistance to troubled 
families and their children.
House bill
      The block grant money is guaranteed funding to States. 
Each eligible State is entitled to receive from the Secretary 
an amount equal to the State share of the Child Protection 
Grant amount for fiscal years 1996 through 2000.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. See item 6, below for 
description of similar CAPTA provision.
Conference agreement
      As explained above, the Child Protection Block Grant 
includes a capped entitlement component for States. Each 
eligible State is entitled to receive from the Secretary an 
amount equal to the State share of the Child Protection Grant 
amount which increases from $1.938 billion in 1996 to $2.593 in 
2002. In addition, each eligible State is entitled to receive 
reimbursements, on an open-ended basis, for the State share of 
allowable expenditures on eligible children placed in qualified 
foster care and adoption.

                       child protection grant amount

Present law
      Federal funds for child welfare and child protection 
activities consist both of direct spending under Titles IV-B 
and IV-E of the Social Security Act, and appropriated funds 
under Title IV-B of the Social Security Act and selected 
additional programs, including the Child Abuse Prevention and 
Treatment Act. (For additional programs, see Item 1.A. of this 
document, above.)
House bill
      The Child Protection Grant amount is composed of both a 
direct spending component and an appropriated component as 
follows: $3.930 billion in 1996, $4.195 billion in 1997, $4.507 
billion in 1998, $4.767 billion in 1999, and $5.071 billion in 
2000 in direct spending; and $486 million in each year 1996-
2000 in appropriated spending.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. The amendment authorizes a 
total of $263 million for fiscal year 1996 and such sums as 
necessary for fiscal year 1997 through fiscal year 2000 for 
State grants, State demonstration projects, discretionary 
activities and community-based family resource and support 
grants under CAPTA; adoption opportunities grants; and 
abandoned infants assistance grants.
Conference agreement
      The conference agreement generally follows the House 
bill, with the modification that the discretionary component of 
the block grant was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                                state share

Present law
      No specific allocation formula governs the allocation of 
foster care and adoption assistance funds to States; States are 
reimbursed on an open-ended entitlement basis for eligible 
expenditures on behalf of eligible children. Independent living 
allocations to States are based on each State's share of Title 
IV-E foster children in fiscal year 1984. Family violence 
grants are awarded on the basis of State population. [Note: The 
family violence program would not be repealed by H.R. 4.] Child 
abuse State grants and community-based family resource grants 
are awarded on the basis of population under the age of 18. 
State allocations for child welfare services under Title IV-B 
are based on per capita income and population age 21 and under.
House bill
      ``State Share'' means each State receives the same 
proportion of the block grant each year as it received of 
payments to States by the Federal government for the following 
selected child welfare programs in either the average of years 
1992 through 1994 or in 1994, whichever is greater:
            a. foster care maintenance, administration, and 
        training;
            b. adoption assistance maintenance, administration, 
        and training;
            c. title IV-E independent living awards;
            d. family violence and prevention services;
            e. child abuse State grants;
            f. child abuse community-based prevention grants; 
        and
            g. child welfare services.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. See Item 6, below, for 
description of similar CAPTA provision.
Conference agreement
      The conference agreement follows the House bill, except 
the selected child welfare programs on which the State share is 
to be based are:
            (1) foster care administration and training;
            (2) adoption assistance administration and 
        training;
            (3) child welfare services;
            (4) family preservation and family support; and
            (5) independent living services.

                            definition of state

Present law
      Under Titles IV-B and IV-E of the Social Security Act, 
``State'' means the 50 States and the District of Columbia. The 
Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, and 
American Samoa receive funds through set-asides and under 
special rules.
House bill
      ``State'' includes the several States, the District of 
Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin 
Islands, Guam, and American Samoa.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact.
Conference agreement
      ``State'' includes the several States and the District of 
Columbia. The territories will carry out a child protection 
program in accordance with this part; entitlement funding is 
provided under section 1108 of the Social Security Act.

                                use of grant

Present law
      Funds must be used for: ``protecting and promoting the 
welfare of children . . . preventing unnecessary separation of 
children from their families . . . restoring children to their 
families if they have been removed . . . family preservation 
services . . . community-based family support services to 
promote the well-being of children and families and to increase 
parents' confidence and competence.'' Foster care maintenance 
and adoption assistance payments are an open-ended entitlement 
to individuals.
House bill
      A State to which funds are paid under this section may 
use such funds in any manner that the State deems appropriate 
to accomplish the purposes of this part. Permissible spending 
includes, but is not limited to: abuse and neglect reporting 
systems, abuse and neglect prevention, family preservation, 
foster care, adoption, program administration, and training.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. CAPTA grants can be used for 
improving child protective services, investigation and 
reporting of abuse and neglect, case management and delivery of 
services to children and families, training for service 
providers and abuse reporters, demonstration projects, kinship 
care arrangements, abuse and neglect prevention, and similar 
activities.
Conference agreement
      The conference agreement follows the House bill. A State 
to which funds are paid under this section may use such funds 
in any manner that the State deems appropriate to accomplish 
the purposes of this part.

                             transfer of funds

Present law
      No provision.
House bill
      In fiscal year 1998 and succeeding years, States may 
transfer up to 30% of funds paid under this section for 
activities under any or all of the following: the temporary 
assistance for needy families block grant; the social services 
block grant under Title XX of the Social Security Act; the 
child care and development block grant; and any food and 
nutrition or employment and training grants enacted during the 
104th Congress. Rules of the recipient program will apply to 
the transferred funds. Funds may be transferred into the Child 
Protection Block Grant from other block grants and are then 
subject to the rules of this part.
Senate amendment
      No provision.
Conference agreement
      Conferees agree that no funds can be transferred out of 
the block grant.

                           timing of expenditures

Present law
      Provisions vary under programs to be replaced. Under 
Title IV-E, States have up to two fiscal years in which to 
claim reimbursement for expenditures.
House bill
      A State to which funds are paid under this section for a 
fiscal year shall expend such funds not later than the end of 
the immediately succeeding fiscal year.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact.
Conference agreement
      The conference agreement follows the House bill.

                           rule of interpretation

Present law
      For-profit foster care providers are not eligible for 
Federal funding under Title IV-E.
House bill
      Nothing in this act shall preclude for-profit short- and 
long-term foster care facilities from being eligible to receive 
funds from this block grant.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

                             timing of payments

Present law
      Under Title IV-B, the Secretary makes payments to States 
periodically. Under Title IV-E, the Secretary reimburses States 
for expenditures on a quarterly basis.
House bill
      The Secretary must make payments on a quarterly basis.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact.
Conference agreement
      The conference agreement follows the House bill.

                                 penalties

Present law
      States that do not comply with Section 427 child 
protections may not receive their share of Title IV-B 
appropriations above $141 million. However, effective April 1, 
1996, these protections are to become State plan requirements 
and the incentive funding mechanism will no longer be in 
effect. Section 1123 of the Social Security Act requires the 
Secretary to establish by regulation a new Federal review 
system for child welfare, which would allow penalties for 
misuse of funds.
House bill
      The Secretary must reduce amounts otherwise payable to a 
State by any amount which an audit conducted under the Single 
Audit Act finds has been used in violation of this part. The 
Secretary, however, shall not reduce any quarterly payment by 
more than 25 percent. The amount of misspent funds will be 
withheld from the State's payments during the following year, 
if necessary, to recover the full amount of the penalty.
      If an audit conducted pursuant to the Single Audit Act 
finds that a State has reduced its level of expenditures in 
fiscal year 1996 or 1997 below its level of non-Federal 
expenditures in fiscal year 1995 under Title IV-B or Title IV-
E, the Secretary must reduce subsequent amounts otherwise 
payable to the State by an amount equal to the difference 
between State spending in fiscal year 1995 and the current 
year.
      The Secretary must reduce by 3 percent the amount 
otherwise payable to a State for a fiscal year if the State has 
not submitted a report required (see item 7 below) for the 
immediately preceding fiscal year within 6 months after the end 
of the year. The penalty may be rescinded if the report is 
submitted within 12 months after the end of the year.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact.
Conference agreement
      The conference agreement follows the House bill, except 
that an additional penalty equal to 5% of a State's block grant 
amount will be imposed in cases where the Secretary finds that 
funds have been spent in violation of the part, or where a 
State has failed to meet its maintenance-of-effort requirement. 
States will be required to maintain 100% of their fiscal year 
1995 non-Federal expenditure level in fiscal year 1996 and 
1997, and 75% of such expenditures in subsequent years.
      The agreement provides that the Secretary may not impose 
a penalty if she determines that the State has reasonable cause 
for failing to comply with the requirement. Further, a State 
must be informed before any penalty is imposed and be given an 
opportunity to enter into a corrective compliance plan. The 
agreement provides a series of deadlines for submission of such 
corrective compliance plans, and review by the Federal 
government.

                      limitation on federal authority

Present law
      See above.
House bill
      Except as expressly provided in this part, the Secretary 
may not regulate the conduct of States under this part or 
enforce any provision of this part.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact.
Conference agreement
      The conference agreement follows the House bill.

                     d. child protection standards

Present law
      In order to receive its full share of appropriations for 
child welfare services under subpart 1 of Title IV-B, each 
State must meet section 427 protections, including requirements 
that it: conduct an inventory of children in foster care; 
operate a tracking system for all children in foster care; 
operate a case review system for all children in foster care; 
and conduct a service program to reunite foster children with 
their families if appropriate, or be placed for adoption or 
another permanent placement. In addition, if Federal 
appropriations for the program reach $325 million for two 
consecutive years, States also must implement a preplacement 
preventive services program to help children remain with their 
families. [This funding level has never been reached.] 
Effective April 1, 1996, these provisions are scheduled to 
become mandatory State plan requirements, rather than funding 
incentives, under legislation enacted on Oct. 31, 1994 (P.L. 
103-432). States also will be required to review their policies 
and procedures regarding abandoned children and to implement 
policies and procedures considered necessary to enable 
permanent decisions to be made expeditiously with regard to 
placement of such children.
House bill
      The following standards are included in the bill to 
indicate what States must do to assure the protection of 
children and to provide guidance to the Citizen Review Panels:
            a. the primary standard by which child welfare 
        system shall be judged is the protection of children;
            b. each State shall investigate reports of abuse 
        and neglect promptly;
            c. children removed from their homes shall have a 
        permanency plan and a dispositional hearing within 3 
        months after a fact-finding hearing; and
            d. all child protection cases with an out-of-home 
        placement shall be reviewed every 6 months unless the 
        child is already in a long-term placement.
      A State receiving funds from this block grant may 
consider: establishing a new type of permanent foster care 
placement referred to as ``kinship care'' in which adult 
relatives would be the preferred placement option if they met 
all relevant standards, and could receive needs-based payments 
and supportive services; and, in placing children for adoption, 
giving preference to adult relatives who meet applicable 
standards.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. CAPTA requires a number of 
certifications by the State, including several that are similar 
to standards in the House block grant. For details see Item 
6.I., below.
      No directly comparable provision in Titles IV-B or IV-E. 
Under CAPTA, the Secretary may award grants to public entities 
to develop or implement procedures using adult relatives as the 
preferred placement for children removed from their home; see 
item 6.H. below.
Conference agreement
      In order for a State to receive foster care maintenance 
payments such State must certify that it has conducted an 
inventory of children in foster care; is operating a tracking 
system for all children in foster care; is operating a case 
review system for all children in foster care; and conducting a 
service program to reunite foster children with their families 
if appropriate, or be placed for adoption or another permanent 
placement.
      Effective April 1, 1996, these provisions are scheduled 
to become mandatory State plan requirements, rather than 
funding incentives, under legislation enacted on Oct. 31, 1994 
(P.L. 103-432). States also will be required to review their 
policies and procedures regarding abandoned children and to 
implement policies and procedures considered necessary to 
enable permanent decisions to be made expeditiously with regard 
to placement of such children.

                        E. Citizen Review Panels

Present law
      No provision.
House bill
      Each State to which funds are paid under this part must 
have at least three Citizen Review Panels. Each Panel is to be 
broadly representative of the community from which it is drawn.
      The Panels, which must meet at least quarterly, are 
charged with the responsibility of reviewing cases from the 
child welfare system to determine whether State and local 
agencies receiving funds under this program are carrying out 
activities in accord with the State plan, are achieving the 
child protection standards, and are meeting any other child 
welfare criteria that the Panels consider important.
      The members and staff of any Panel must not disclose to 
any person or government agency any information about specific 
cases. States must afford a Panel access to any information on 
any case that the Panel desires to review, and shall provide 
the Panels with staff assistance in performing their duties.
      Panels must produce a public report after each meeting 
and States must include information in their annual report 
detailing their responses to the panel report and 
recommendations. (See Data Collection and Reporting, item G. 
below.)
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill.

     F. Clearinghouse and Hotline for Missing and Runaway Children

Present law
      The Missing Children's Assistance Act, authorized as part 
of the Juvenile Justice and Delinquency Prevention Act, 
authorizes a toll-free hotline and national clearinghouse to 
collect and disseminate information about missing children.
House bill
      The Attorney General of the United States shall have the 
authority to establish and operate a national information 
clearinghouse, including a 24-hour toll free telephone hotline, 
for information on missing children cases. An appropriation not 
to exceed $7 million per fiscal year is authorized for this 
purpose.
Senate amendment
      Reauthorizes the Missing Children's Assistance Act 
through FY 1997 (see Item 12.A. of this document, below).
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                    G. Data Collection and Reporting

Present law
      States are not required to report specific child welfare 
data. Section 479 requires the Secretary to publish regulations 
that implement a system for the collection of adoption and 
foster care data. These regulations were published as final on 
Dec. 22, 1993, and are mandatory for all States. In addition, 
section 13713 of the Omnibus Budget Reconciliation Act of 1993 
(P.L. 103-66) makes available enhanced Federal matching funds 
(75 percent Federal match instead of 50 percent) for planning, 
design, development and installation of statewide automated 
child welfare information systems. Regulations governing these 
systems were published on Dec. 22, 1993, and May 19, 1995. The 
enhanced match expires after Sept. 30, 1996.
House bill
      Three years after the effective date and annually 
thereafter, each State to which funds are paid under this part 
must submit to the Secretary a report containing quantitative 
information on the extent to which the State is making progress 
toward its child protection program goals (as described above).
      Each State to which funds are paid under this part must 
annually submit to the Secretary of Health and Human Services a 
report that includes the following annual statistics:
            (1) the number of children reported to the State 
        during the year as abused or neglected;
            (2) of the number of reported cases of abuse or 
        neglect, the number that were substantiated;
            (3) of the number of reported cases that were 
        substantiated, (a) the number that received no services 
        under the State program funded under this part; (b) the 
        number that received services under the State program 
        funded under this part; and (c) the number removed from 
        their families;
            (4) the number of families that received preventive 
        services from the State;
            (5) the number of children who entered foster care 
        under the responsibility of the State;
            (6) the number of children who exited foster care 
        under the responsibility of the State;
            (7) types of foster care placements made by State 
        and the number of children in each type of care;
            (8) average length of foster care placements made 
        by State;
            (9) the age, ethnicity, gender, and family income 
        of children placed in foster care under the 
        responsibility of the State;
            (10) the number of children in foster care for whom 
        the State has the goal of adoption;
            (11) the number of children in foster care under 
        the responsibility of the State who were freed for 
        adoption;
            (12) the number of children in foster care under 
        the responsibility of the State whose adoptions were 
        finalized;
            (13) the number of disrupted adoptions in the 
        State;
            (14) quantitative measurements showing whether the 
        State is making progress toward the child protection 
        goals identified by the State;
            (15) the number of infants abandoned during the 
        year, the number of these infants who were adopted, and 
        the length of time between abandonment and legal 
        adoption;
            (16) the number of deaths of children occurring 
        while said children were in custody of the State;
            (17) the number of deaths of children resulting 
        from child abuse or neglect;
            (18) the number of children served by the State 
        Independent Living program;
            (19) other information which the Secretary and a 
        majority of the States agree is appropriate to collect 
        for purposes of this part; and
            (20) the response of the State to findings and 
        recommendations of the citizen review panels.
      States may fulfill the data collection and reporting 
requirements by collecting the required information on either 
individual children and families receiving child protection 
services or by using scientific statistical sampling methods.
      Within 6 months after the end of each fiscal year, the 
Secretary must prepare an annual report on State data for 
Congress and the public.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law would remain intact. States receiving CAPTA grants 
must submit annual data reports to the Secretary (see Item 6.I, 
below). CAPTA requires States to report 10 data elements, many 
of which are substantially similar to the House reporting 
requirements.
      Requires the Secretary, in administering CAPTA, to 
prepare annual reports, based on State data, for Congress and 
the national information clearinghouse on child abuse and 
neglect. (See Item 6.I, below.) Requires Secretary in 6 months 
after receiving State reports to prepare and submit annual 
report to Congress.
Conference agreement
      The conference agreement follows the House bill with 
regard to annual State reports containing quantitative 
information showing progress toward achieving State child 
protection goals.
      Of all children receiving publicly-supported child 
welfare services, the following information shall be reported 
every 6 months:
            (1) whether the child received services under the 
        programs funded under this part:
            (2) the age, gender, and family income of the 
        parents and child;
            (3) county of residence;
            (4) whether the child was removed from the family;
            (5) whether the child entered foster care under the 
        responsibility of the State:
            (6) the type of out-of-home care in which the child 
        was placed (institution, group home, family foster 
        care, or relative placement);
            (7) the child's permanency planning goal, such as 
        family reunification, adoption, or independent living;
            (8) whether the child was freed for adoption;
            (9) whether the child exited from foster care, and, 
        if so, the reason for the exit, such as return to 
        family, placement with relatives, adoption, independent 
        living, or death.
      References to race in the information that is reported 
annually by States was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).
      States may be required to report other information 
approved by the Secretary and agreed to by a majority of 
States, including information necessary to assure a smooth 
transition from AFCARS and NCANDS to the data reporting system 
required by this legislation.
      States must also submit the following aggregate data 
annually:
            (1) the number of children reported to the State 
        during the year as alleged victims of abuse or neglect;
            (2) the number of children for whom an 
        investigation of alleged maltreatment resulted in a 
        determination of substantiated abuse or neglect, the 
        number for whom maltreatment was unsubstantiated, 
        determined to be false;
            (3) the number of families that received preventive 
        services;
            (4) the number of infants abandoned during the 
        year, the number of these infants who were adopted, and 
        the length of time between abandonment and adoption;
            (5) the number of deaths resulting from child abuse 
        or neglect;
            (6) the number of deaths of children occurring 
        while children were in custody of the State;
            (7) the number of children served by the State 
        Independent Living Program
            (8) quantitative measurements showing whether the 
        State is making progress toward the child protection 
        goals identified by the State;
            (9) types of maltreatment suffered by victims of 
        abuse and neglect;
            (10) number of abused and neglected children 
        receiving services;
            (11) average length of stay in out-of-home care;
            (12) the response of the State to findings and 
        recommendations of the citizen review panels; and
            (13) other information which the Secretary and a 
        majority of States agree is appropriated to collect for 
        purposes of this part.
      States may fulfill the data collection and reporting 
requirements by collecting the required information on either 
individual children and families receiving child protection 
services or by using scientific statistical sampling methods. 
If States use sampling, the Secretary must review and approve 
their methods.
      The requirement that the Secretary prepare an annual 
report on State data for Congress and the public was dropped 
from the Reconciliation bill because it violates the Byrd Rule 
(section 313 of Congressional Budget Act of 1974).

                        H. Research and Training

Present law
      Current law authorizes appropriations for research under 
Title IV-B of the Social Security Act and the Child Abuse 
Prevention and Treatment Act. In FY 1995, $6 million is 
appropriated under Title IV-B and $9 million under CAPTA.
House bill
      An appropriation of $10 million per year is authorized 
for the Secretary to spend at her discretion on research and 
training in child welfare.
Senate amendment
      No directly comparable provision in Titles IV-B or IV-E. 
Current law under Title IV-B would remain intact, and CAPTA 
would be reauthorized. Although CAPTA has no separate 
authorization for research and training, the Secretary has 
discretionary authority to conduct research and training. For 
details see Item 6.G., below.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

            I. National Random Sample Study of Child Welfare

Present law
      No provision.
House bill
      The Secretary is provided with $6 million per year for 
fiscal years 1996-2000 to conduct a national random-sample 
study of child welfare. The study will have a longitudinal 
component, yield data reliable at the State level for as many 
States as the Secretary determines is feasible, and should 
alternate data collection in small States from year-to-year to 
yield an occasional picture of child welfare in small States. 
The Secretary has discretion in drawing the sample and in 
selecting measures, but should carefully consider selecting the 
sample from all cases of confirmed abuse and neglect and then 
following each case over several years while obtaining such 
measures as type of abuse or neglect involved, frequency of 
contact with agencies, whether the child was separated from the 
family, types and characteristics of out-of-home placements, 
number of placements, and average length of placement. The 
Secretary must prepare occasional reports on this study and 
make them available to the public. The reports should summarize 
and compare the results of this study with the data reported by 
States. Written reports or tapes of the raw data from the study 
should be made available to the public at a fee the Secretary 
thinks appropriate.
Senate amendment
      No provision.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

             J. Removal of Barriers to Interethnic Adoption

Present law
      State law governs adoption and foster care placement. 
Forty three States permit race matching either in regulation, 
statute, policy or practice. The Metzenbaum Multiethnic 
Placement Act of 1994 permits States to consider race and 
ethnicity in selecting a foster care or adoptive home, but 
States cannot delay or deny the placement of the child solely 
on the basis of race, color or national origin.
      Noncompliance with the Metzenbaum Act is deemed a 
violation of title VI of the Civil Rights Act.
House bill
      Section 553 of the Howard M. Metzenbaum Multiethnic 
Placement Act of 1994 is repealed. (See conforming amendments, 
item 2 below.) In addition, a State or other entity that 
receives Federal assistance may not deny to any person the 
opportunity to become an adoptive or a foster parent on the 
basis of the race, color, or national origin of the person or 
of the child involved. Similarly, no State or other entity 
receiving Federal funds can delay or deny the placement of a 
child for adoption or foster care, or otherwise discriminate in 
making a placement decision, on the basis of the race, color, 
or national origin of the adoptive or foster parent or the 
child involved.
      A State or other entity that violates this provision 
during a period shall remit to the Secretary all funds that 
were paid to the State or entity during the period.
      An action under this paragraph may not be brought more 
than 2 years after the date the alleged violation occurred.
Senate amendment
      No provision.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                        2. conforming amendments

Present law
      No provision.
House bill
      This section contains technical amendments that conform 
provisions of the bill to Titles IV-D and XVI of the Social 
Security Act, and to the Omnibus Budget Reconciliation Act of 
1986, and provide for the repeal of Section 553 of the Howard 
M. Metzenbaum Multiethnic Placement Act of 1994, Title IV-E of 
the Social Security Act, section 13712 of the Omnibus Budget 
Reconciliation Act of 1993, and subtitle C of Title 17 of the 
Violent Crime Control and Law Enforcement Act of 1994. (Under 
section 371 of Title III-C of the House bill, the following 
additional programs are repealed related to the Child 
Protection Block Grant: abandoned infants assistance, the Child 
Abuse Prevention and Treatment Act, adoption opportunities, 
crisis nurseries, missing children's assistance, family support 
centers, certain activities under the Victims of Child Abuse 
Act, and Family Unification under the Housing Act.)
Senate amendment
      No provision.
Conference agreement
      The provision requiring the Secretary of HHS to submit, 
within 90 days of enactment, a legislative proposal providing 
necessary technical and conforming amendments was dropped from 
the Reconciliation bill because it violates the Byrd Rule 
(section 313 of Congressional Budget Act of 1974).
      The agreement also repeals Title IV-E of the Social 
Security Act and section 13712 of the Omnibus Budget 
Reconciliation Act of 1993, and makes a conforming amendment to 
section 9442(4) of the Omnibus Budget Reconciliation Act of 
1986. Additional repeals and technical amendments are described 
below.

  3. continued application of current standards under medicaid program

Present law
       Children for whom Federal foster care payments are made 
are deemed to be ``dependent children'' for purposes of 
Medicaid eligibility.
House bill
      Conforms Medicaid coverage of this title with title I of 
the House bill. In general, the Medicaid provision is designed 
to ensure that individuals who receive Medicaid coverage under 
current law will continue to be covered after passage of H.R.4. 
Here is a summary of Medicaid provision from title I: ``An 
individual who on enactment was receiving AFDC, was eligible 
for medical assistance under the State plan under this title, 
and would be eligible to receive aid or assistance under a 
State plan approved under part A of title IV but for the 
prohibition on grant funds being used to provide assistance to 
noncitizens, minor unwed mothers or their children, or children 
born to families already on welfare, would continue to be 
eligible for Medicaid. Families leaving welfare for work would 
also continue to receive the 1-year Medicaid transition 
benefit.''
Senate amendment
      No provision.
Conference agreement
      See Medicaid Section.

                           4. effective date

Present law
      No provision.
House bill
      Unless otherwise indicated in particular sections of the 
bill, the amendments and repeals made by this title take effect 
on October 1, 1995. The amendments shall not apply with respect 
to powers, duties, functions, rights, claims, penalties, or 
obligations applicable to aid or services provided before the 
effective date, or to administrative actions and proceedings 
commenced, or authorized to be commenced, before the effective 
date.
Senate amendment
      No provision.
Conference agreement
      The conference agreement follows the House bill, and also 
provides a transition rule that allows States to continue 
current programs under Titles IV-B and IV-E of the Social 
Security Act until June 30, 1996, and provides for a 
corresponding reduction in the payment made to such States from 
the new program created by this legislation. The agreement also 
contains provisions related to the closing out of accounts for 
programs that are ended or substantially modified.

     5. sense of the congress regarding timely adoption of children

Present law
      No provision.
House bill
      It is the sense of the Congress that:
            (1) too many adoptable children are spending too 
        much time in foster care;
            (2) States must increase the number of waiting 
        children being adopted in a timely manner;
            (3) Studies have shown that States would save 
        significant amounts of money if they offered incentives 
        to families to adopt special needs children who would 
        otherwise require foster care;
            (4) States should allocate sufficient funds for 
        adoption and medical assistance to encourage families 
        to adopt children who are languishing in foster care;
            (5) States should offer incentives for families 
        that adopt special needs children to make adoption more 
        affordable for middle-income families;
            (6) States should strive to provide children 
        removed from their biological parents with a single 
        foster care placement and case team and to conclude an 
        adoption of the child, when adoption is the goal, 
        within one year of the child's placement in foster 
        care; and
            (7) States should participate in programs to enable 
        maximum visibility of waiting children to potential 
        parents, including a nationwide computer network to 
        disseminate information on children eligible for 
        adoption.
Senate amendment
      Title VIII of the Senate amendment addresses adoption 
issues. See Section 13, below.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

        6. child abuse prevention and treatment; general program

                              A. reference

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Provides that, unless otherwise indicated, any amendments 
or repeals should be considered to apply to the Child Abuse 
Prevention and Treatment Act (CAPTA).
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                              B. Findings

Present law
      Section 2 of CAPTA contains findings with regard to the 
scope of child abuse and neglect, the need for a comprehensive 
approach to address child abuse and neglect, various goals with 
regard to national policy, and the appropriate Federal role in 
this area.
House bill
      No provision.
Senate amendment
      Amends section 2 to update findings with regard to the 
scope of child abuse and neglect and to make minor changes, 
including change of references from ``child protection'' to 
``child and family protection.''
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                  C. office of child abuse and neglect

Present law
      Section 101 of CAPTA requires the Secretary of HHS to 
establish a National Center on Child Abuse and Neglect.
House bill
      No provision.
Senate amendment
      Amends section 101 to allow the Secretary of HHS to 
establish an Office on Child Abuse and Neglect which would be 
responsible for executing and coordinating the functions and 
activities authorized by CAPTA. Repeals current mandate for a 
National Center on Child Abuse and Neglect.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

              D. advisory board on child abuse and neglect

Present law
      Section 102 of CAPTA requires the Secretary to appoint a 
U.S. Advisory Board on Child Abuse and Neglect, and specifies 
the composition and duties of the board.
House bill
      No provision.
Senate amendment
      Amends section 102 by repealing current mandate for a 
U.S. Advisory Board on Child Abuse and Neglect, and instead 
allows the Secretary of HHS to appoint an advisory board to 
make recommendations concerning child abuse and neglect issues. 
Duties of the new board would include making recommendations on 
coordination of Federal, State and local child abuse and 
neglect activities with similar activities regarding family 
violence at those levels; specific modifications needed in 
Federal and State laws to reduce the number of unfounded or 
unsubstantiated cases of child maltreatment; and modifications 
needed to facilitate coordinated data collection with respect 
to child protection and child welfare.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                  E. Repeal of Interagency Task Force

Present law
      Section 103 of CAPTA requires the Secretary to establish 
an Interagency Task Force on Child Abuse and Neglect.
House bill
      No provision.
Senate amendment
      Repeals section 103 of CAPTA.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

 F. National Clearinghouse for Information Relating to Child Abuse and 
                                Neglect

Present law
      Section 104 of CAPTA requires the Secretary to establish 
a national clearinghouse for information relating to child 
abuse and neglect.
House bill
      No provision.
Senate amendment
      Amends section 104 to retain authorization for a national 
information clearinghouse on child abuse and neglect, and 
expands the duties of the clearinghouse to include collecting 
data on false and unsubstantiated reports and deaths resulting 
from child abuse and neglect, and, through a national data 
collection and analysis program, to collect and make available 
State child abuse and neglect reporting information which, to 
the extent practical, is universal and case specific, and 
integrated with other case-based foster care and adoption data 
collected by HHS.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

           G. Research, Evaluation and Assistance Activities

Present law
      Section 105 of CAPTA authorizes the Secretary, through 
the National Center, to conduct research and technical 
assistance related to child abuse and neglect.
House bill
      Authorizes appropriations of $10 million annually for the 
Secretary to conduct research and training related to child 
welfare. (See Item 1.H., above).
Senate amendment
      Amends section 105 to restructure the research activities 
function of the Secretary of HHS by deleting references to the 
National Center and by requiring research on additional issues, 
including substantiated and unsubstantiated reported child 
abuse cases. Authorizes technical assistance to include 
evaluation or identification of: various methods for 
investigation, assessment, and prosecution of child physical 
and sexual abuse cases; ways to mitigate psychological trauma 
to child victims; and effective programs carried out under 
CAPTA. Allows the Secretary of HHS to provide for dissemination 
of information related to various training resources available 
at the State and local levels. Continues authorization for a 
formal peer review process which utilizes scientifically valid 
review criteria.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                  H. Grants for Demonstration Programs

Present law
      Section 106 of CAPTA authorizes the Secretary to make 
grants to public agencies and private nonprofit organizations 
for demonstration or service programs or projects, that must 
include an evaluation component; resource centers; and 
discretionary grants that may be used for a variety of 
purposes.
House bill
      No provision.
Senate amendment
      Amends section 106 to retain authority for the 
demonstration grants program and to change the criteria for 
awarding grants. Authorizes the following purposes for 
demonstration programs and projects: training programs, mutual 
support and self-help programs for parents, innovative programs 
that use collaborative partnerships between various agencies to 
allow for establishment of a triage system in responding to 
child abuse and neglect reports; kinship care programs, and 
supervised visitation centers for families where there has been 
child abuse or domestic violence. All demonstration projects 
will be evaluated for their effectiveness.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

         I. State Grants for Prevention and Treatment Programs

Present law
      Section 107 of CAPTA authorizes the Secretary to make 
development and operation grants to States to assist them in 
improving their child protective service systems. States must 
meet certain eligibility requirements, which include having a 
State law in effect providing for reporting of child abuse or 
neglect allegations and providing immunity from prosecution for 
reporters of abuse or neglect.
      Requires that States have in place procedures for 
responding to reports of medical neglect, including instances 
of withholding medically indicated treatment from disabled 
infants with life-threatening conditions.
House bill
      States would receive Child Protection Block Grants, which 
would be used for child protective service systems, among other 
related activities. To receive block grants, States must 
certify that they have in effect a State law for reporting of 
child abuse or neglect, a program to investigate child abuse 
and neglect reports, and procedures to respond to reporting of 
medical neglect of disabled infants among other requirements. 
(See Item 1.B. (2) and (3), above.)
      Requires States participating in the Child Protection 
Block Grant to submit detailed annual data reports to the 
Secretary. (See Item 1.G.2., above.) The Secretary would 
prepare annual reports for Congress. (See Item 1.G.4., above.)
Senate amendment
      Revises section 107. Under revised eligibility 
requirements, States would provide an assurance or 
certification, signed by the chief executive officer of the 
State, that the State has a law or statewide program relating 
to procedures for: reporting of known and suspected instances 
of child abuse and neglect; immediate screening, safety 
assessment, and prompt investigation of such reports; 
procedures for immediate steps to be taken to protect the 
safety of children; provisions for immunity from prosecution 
for individuals making good faith reports of child abuse; 
methods for preserving confidentiality of records; requirements 
for the prompt disclosure of relevant information to 
appropriate entities working to protect children; the 
cooperation of law enforcement officials, court personnel and 
human services agencies; provision for the appointment of a 
guardian ad litem to represent the child in any judicial 
proceedings; and provisions that facilitate the prompt 
expungement of unsubstantiated or false child abuse reports.
      Requires that States have in place procedures for 
responding to reports of medical neglect, including instances 
of withholding medically indicated treatment from disabled 
infants with life-threatening conditions.
      States must have in place, within two years of enactment, 
provisions by which individuals who disagree with an official 
finding of abuse or neglect can appeal such a finding.
      States would submit a plan every 5 years, instead of 4, 
demonstrating their eligibility and specifics about how their 
grant money will be used.
      States would be required to work annually with the 
Secretary to provide, to the maximum extent practicable, a 
report containing specified data on their child protective 
service systems, including the number of children reported as 
abused or neglected, data on substantiation of reports, 
services provided to reported children, preventive services 
provided to families, the number of child deaths resulting from 
abuse or neglect including the number of children who died 
while in foster care, number of caseworkers responsible for 
intake and screening, agency response time to abuse or neglect 
reports, response time with respect to provision of services to 
families where abuse or neglect has been alleged, and the 
number of caseworkers relative to the number of reports 
investigated in the previous year. The Secretary would prepare 
a report based on State data, to be submitted to Congress and 
the national information clearinghouse on child abuse and 
neglect.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                               J. Repeal

Present law
      Section 108 of CAPTA authorizes the Secretary to provide 
training and technical assistance to States.
House bill
      No provision.
Senate amendment
      Repeals section 108.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                     K. Miscellaneous Requirements

Present law
      Section 110(c) of CAPTA requires the Secretary to ensure 
that a majority share of assistance under CAPTA is available 
for discretionary research and demonstration grants.
House bill
      No provision.
Senate amendment
      Strikes section 110(c).
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                             L. Definitions

Present law
      Section 113 of CAPTA contains definitions.
House bill
      No provision.
Senate amendment
      Amends section 113 to change some definitions. Strikes 
definitions of ``Board'' and ``Center,'' and changes the 
definition of ``child abuse and neglect'' to mean, at a 
minimum, ``any recent act or failure to act on the part of a 
parent or caretaker, which results in death, serious physical 
or emotional harm, sexual abuse or exploitation, or an act or 
failure to act which presents an imminent risk of serious 
harm.''
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                   M. Authorization of Appropriations

Present law
      Section 114(a) authorizes appropriations for Title I of 
CAPTA, and specifies how funds are to be allocated among 
authorized activities. The authorization of appropriations 
expires at the end of fiscal year 1995.
House bill
      The House bill has no funding for CAPTA but includes 
funding for the Child Protection Block Grant; see sections C.1. 
and C.2., above.
Senate amendment
      Amends section 114(a) to authorize $100 million in fiscal 
year 1996, and ``such sums as necessary'' in fiscal years 1997-
2000, for Title I of CAPTA. Requires that one-third of funds be 
spent on discretionary activities and, that of funds reserved 
for discretionary activities, no more than 40 percent shall be 
for demonstration projects under section 106.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                        N. Rule of Construction

Present law
      No provision.
House bill
      No directly comparable provision, but see section 1.B.4., 
above.
Senate amendment
      Establishes a new section of CAPTA that addresses the 
issue of spiritual treatment of children. The section does not 
require a parent or legal guardian to provide a child with 
medical service or treatment, against his or her religious 
beliefs, nor does it require a State to find, or prohibit a 
State from finding, abuse or neglect in cases where the parent 
or guardian relied solely or partially on spiritual means 
rather than medical treatment, in accordance with their 
religious beliefs. The section requires a State to have in 
place authority under State law to pursue any legal remedies 
necessary to provide medical care or treatment when such care 
or treatment is necessary to prevent or remedy serious harm to 
the child, or to prevent the withholding of medically indicated 
treatment from children with life-threatening conditions. Each 
State has sole discretion over its case-by-case determinations 
relating to medical neglect.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                         O. Technical Amendment

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Makes a technical amendment to section 1404A of the 
Victims of Crime Act.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

         7. Community-Based Family Resource and Support Grants

Present law
      Title II of CAPTA authorizes the Secretary to make grants 
to States for Community-Based Family Resource Programs.
House bill
      No provision.
Senate amendment
      Replaces current law with a new Title II to establish 
Community-Based Family Resource and Support Grants.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                        A. Purpose and Authority

Present law
      No provision.
House bill
      States could use Child Protection Block Grant allotments 
for family resource and support services. (See Item 1.C.(5), 
above.)
Senate amendment
      Establishes the purpose of Title II as: to support State 
efforts to develop, operate, expand and enhance a network of 
community-based, prevention-focused, family resource and 
support programs. Authorizes the Secretary of HHS to make 
grants on a formula basis to entities designated by States as 
``lead entities.''
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                             B. Eligibility

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Establishes eligibility requirements for States to 
receive grants. States are eligible if:
            (1) the chief executive officer has designated a 
        lead entity that is an existing public, quasi-public or 
        nonprofit private entity, with priority for the State 
        trust fund advisory board or an existing entity that 
        leverages funds for a broad range of child abuse and 
        neglect prevention activities and family resource 
        programs;
            (2) the chief executive officer assures that the 
        lead entity will provide or be responsible for 
        providing a network of community-based family resource 
        and support programs and providing direction and 
        oversight to the network; and
            (3) the chief executive officer assures that the 
        lead entity has a demonstrated commitment to parental 
        participation, a demonstrated ability to work with 
        State and community-based public and private nonprofit 
        organizations, the capacity to provide operational 
        support and training and technical assistance to the 
        statewide network of community-based family resource 
        and support programs, and will integrate its efforts 
        with experienced individuals and organizations.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                           C. Amount of Grant

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Reserves 1 percent of appropriations for Title II of 
CAPTA for allotments to Indian tribes and tribal organizations 
and migrant programs. Remaining funds are allotted to States 
equally according to the State ``minor child amount'' and the 
State ``matchable amount.'' The State minor child amount is 
based on the State's relative population of children under 18, 
except that no State can receive less than $250,000. The State 
matching amount is based each State's relative amount of funds 
(including foundation, corporate and other private funding, 
State revenues and Federal funds) that have been dedicated 
toward the purposes of this program.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                  D. Existing and Continuation Grants

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Provides that any State or entity that has a grant, 
contract, or cooperative agreement in effective on the date of 
enactment, under the Family Resource and Support Program, the 
Community-Based Family Resource Program, the Family Support 
Center Program, the Emergency Child Abuse Prevention Grant 
Program, or the Temporary Child Care and Crisis Nurseries 
Program, shall continue to be funded under the original terms 
through the end of the applicable grant cycle. Also allows the 
Secretary to continue grants for Family Resource and Support 
Program grantees and other programs funded under CAPTA on a 
non-competitive basis, subject to available appropriations, 
grantee performance, and receipt of required reports.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                             E. Application

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Provides that, to receive grants under Title II, States 
must submit an application to the Secretary containing 
information requested by the Secretary, including:
            (1) a description of the lead entity;
            (2) a description of how the network of community-
        based, prevention-focused, family resource and support 
        programs will operate, and how family resource and 
        support services will be integrated into a continuum of 
        preventive services for children and families;
            (3) an assurance that an inventory of current 
        family resource programs, respite, child abuse and 
        neglect prevention activities, and other family 
        resource programs in the State, and a description of 
        current unmet needs, will be provided;
            (4) a budget for the State's network of community-
        based, prevention-focused, family resource and support 
        programs that verifies that the State will spend an 
        amount equal to no less than 20 percent of the amount 
        received under this program (in cash, not in-kind);
            (5) an assurance that funds received under this 
        Title will supplement and not supplant other State and 
        local public funds designated for the statewide network 
        of family resource and support programs;
            (6) an assurance that the statewide network of 
        family resource and support programs will maintain 
        cultural diversity, and be culturally competent and 
        socially sensitive and responsive to the needs of 
        families with children with disabilities;
            (7) an assurance that the State has the capacity to 
        ensure meaningful involvement of parents;
            (8) a description of the criteria to be used to 
        develop, or select and fund, individual programs to be 
        part of the statewide network;
            (9) a description of outreach activities that will 
        be used to maximize the participation of racial and 
        ethnic minorities, new immigrant populations, children 
        and adults with disabilities, homeless families and 
        those at risk of homelessness, and members of other 
        under-served or under-represented groups;
            (10) a plan for providing operational support, 
        training and technical assistance to family resource 
        and support programs;
            (11) a description of how activities will be 
        evaluated;
            (12) a description of actions that will be taken to 
        advocate changes in State policies, practices, 
        procedures, and regulations to improve the delivery of 
        family resource and support program services to all 
        children and families; and
            (13) an assurance that reports will be submitted to 
        the Secretary on time and containing requested 
        information.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                     F. Local Program Requirements

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Grants will be used for family resource and support 
programs that:
            (1) assess community assets and needs through a 
        planning process that includes parents, local agencies, 
        and private sector representatives;
            (2) develop a strategy to provide a continuum of 
        preventive, holistic, family-centered services to 
        children and families;
            (3) provide ``core'' services, such as parent 
        education, support and self-help, and leadership 
        services, developmental screening of children, 
        outreach, referral and follow-up services; ``other 
        core'' services, which can be provided directly or 
        through contracts, including respite services; and 
        access to ``optional'' services, including child care, 
        early childhood development and intervention, services 
        for families with children with disabilities, job 
        readiness, educational services, self-sufficiency and 
        life management skills training, community referral 
        services, and peer counseling
            (4) develop leadership roles for the meaningful 
        involvement of parents;
            (5) provide leadership in mobilizing local 
        resources to support family resource and support 
        programs; and
            (6) participate with other community-based, 
        prevention-focused family resource and support programs 
        in developing and operating the statewide network.
      Priority for local grants shall be given to community-
based programs serving low-income communities and those serving 
young parents or parents with young children, and to family 
resource and support programs previously funded under the 
programs consolidated by this Title.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                        G. Performance Measures

Present law
      No provision.
House bill
      No provision.
Senate amendment
      States receiving grants must submit reports to the 
Secretary that:
            (1) demonstrate effective development of a 
        statewide network of family resource and support 
        programs;
            (2) supply an inventory and description of services 
        provided to families, including ``core'' and 
        ``optional'' services;
            (3) demonstrate the establishment of new respite 
        and other new family services, and expansion of 
        existing services, to meet identified unmet needs;
            (4) describe number of families served (including 
        families with children with disabilities), and the 
        involvement of a diverse representation of families in 
        designing, operating and evaluating the statewide 
        network of family resource and support programs;
            (5) demonstrate a high level of satisfaction among 
        families that have used family resource and support 
        program services;
            (6) demonstrate innovative funding mechanisms that 
        blend Federal, State, local and private funds, and 
        innovative and interdisciplinary service delivery 
        mechanisms;
            (7) describe the results of a peer review process 
        conducted under the State program; and
            (8) demonstrate an implementation plan to ensure 
        continued leadership of parents in family resource and 
        support programs.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

    H. National Network for Community-Based Family Resource Programs

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Authorizes the Secretary to allocate such sums as 
necessary from the amount provided under the State allotment to 
support State activities related to a peer review process, an 
information clearinghouse, a yearly symposium, a computerized 
communication system between State lead entities, and State-to-
State technical assistance through biannual conferences.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                             I. Definitions

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Defines the following terms: ``children with 
disabilities,'' ``community referral services,'' ``culturally 
competent,'' ``family resource and support program,'' 
``national network for community-based family resource 
programs,'' ``outreach services,'' and ``respite services.''
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                   J. Authorization of Appropriations

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Authorizes $108 million for Title II for each of fiscal 
year 1996-fiscal year 2000.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                               8. Repeals

Present law
      No provision.
House bill
      Repeals the crisis nurseries portion of Temporary Child 
Care and Crisis Nurseries; and family support centers under the 
Stewart B. McKinney Homeless Assistance Act. (See Item 2, 
above.)
Senate amendment
      Repeals the Temporary Child Care for Children with 
Disabilities and Crisis Nurseries Act. Also repeals family 
support centers under Subtitle F of Title VII of the Stewart B. 
McKinney Homeless Assistance Act.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

               9. Family Violence Prevention and Services

                     A. State Demonstration Grants

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Amends section 303(e) of the Family Violence Prevention 
and Services Act, relating to non-Federal matching 
requirements.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                             B. Allotments

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Amends section 304(a)(1) of Family Violence Prevention 
and Services Act.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                   C. Authorization of Appropriations

Present law
      Section 310 of the Family Violence Prevention and 
Services Act authorizes appropriations for the program and 
specifies how funds are to be allocated among activities.
House bill
      No provision.
Senate amendment
      Amends section 310 of Family Violence Prevention and 
Services Act to reduce from 80% to 70% the minimum amount of 
funds to be used for making grants to States for family 
violence activities. Also requires the Secretary to use not 
less than 10% of appropriations for grants for State family 
violence coalitions, and provides that Federal funds made 
available under this program must be used to supplement and not 
supplant other Federal, State or local public funds expended 
for similar activities.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                 10. Adoption Opportunities; Reference

                        A. Findings and Purpose

Present law
      Section 201 of the adoption opportunities program 
establishes congressional findings with regard to the child 
welfare population, and declares the program's purpose to 
facilitate the elimination of barriers to adoption and to 
provide permanent homes for children who would benefit from 
adoption, particularly children with special needs.
House bill
    Repeals the Adoption Opportunities Program. (See Item 2, 
above.)
Senate amendment
      Amends section 201 of the adoption opportunities program 
to update congressional findings, and delete references to the 
promotion of model adoption legislation and procedures.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                      b. information and services

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Amends section 203 of the adoption opportunities program, 
to require the Secretary of HHS to conduct studies related to 
kinship care, recruitment of foster and adoptive parents; and 
to provide technical assistance and resource and referral 
information related to termination of parental rights, 
recruitment and retention of adoptive placements, placement of 
special needs children, provision of pre- and post-placement 
services, and other assistance to help State and local 
governments replicate successful adoption-related projects.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                   c. authorization of appropriations

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Authorizes $20 million for fiscal year 1996, and such 
sums as necessary for each of fiscal year 1997-FY2000, for the 
adoption opportunities program.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                  11. abandoned infants assistance act

Present law
      No provision.
House bill
      Repeals abandoned infants assistance.
Senate amendment
      Authorizes $35 million for each of fiscal year 1995-
FY1996, and such sums as necessary for each of fiscal year 
1997-FY2000, for abandoned infants assistance.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                12. reauthorization of various programs

                  a. missing children's assistance act

Present law
      The Missing Children's Assistance Act is authorized 
through fiscal year 1996.
House bill
      Repeals the Missing Children's Assistance Act (see Item 
2, above; however, authorizes appropriations of $7 million for 
the Attorney General to operate an information clearinghouse 
and telephone hotline for information on missing children (see 
Item 1.F, above).
Senate amendment
      Extends the authorization for the Missing Children's 
Assistance Act through fiscal year 1997; such sums as necessary 
are authorized. Provides that the Department of Justice shall 
use no more than 5 percent of appropriations in a fiscal year 
to evaluate the program.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                 b. victims of child abuse act of 1990

Present law
      Appropriations are authorized through fiscal year 1996 
for grants to improve investigation and prosecution of child 
abuse cases, and for children's advocacy centers, under the 
Victims of Child Abuse Act.
House bill
      Repeals grants to improve investigation and prosecution 
of child abuse and neglect cases, and children's advocacy 
centers, under the Victims of Child Abuse Act. (See Item 2, 
above.)
Senate amendment
      Extends the authorization through fiscal year 1997, at 
such sums as necessary, for these two programs under the 
Victims of Child Abuse Act.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                         13. adoption expenses

               a. refundable credit for adoption expenses

Present law
      No provision.
House bill
      No provision in H.R. 4, but similar provision in the 
House-passed H.R. 1215.
Senate amendment
      Amends subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986, to insert a new section 
35, adoption expenses, that would provide a tax credit for 
expenditures for adoption fees, court costs, attorney fees, and 
other expenses directly related to a legal and finalized 
adoption. This dollar-for-dollar tax credit of up to $5,000 per 
child is reduced for taxpayers with adjusted gross income above 
$60,000 and is fully phased out at incomes of $100,000. Married 
couples must file a joint return and the credit is not 
available for expenditures that contradict State or Federal 
law. The amendment prohibits double benefits. The amendment 
will apply to taxable years beginning after Dec. 31, 1995.
Conference agreement
      [This provision has been moved to the tax portion of the 
Reconciliation Act of 1995 and will provide a tax credit for 
expenditures for adoption fees, court costs, attorney fees, and 
other expenses directly related to a legal and finalized 
adoption. This dollar-for-dollar tax credit of up to $5,000 per 
child is reduced for taxpayers with adjusted gross income above 
$75,000 and is fully phased out at incomes of $115,000. The 
credit is not available for expenditures that contradict State 
or Federal law. The amendment prohibits double benefits with 
respect to State and local credits, except in cases of 
``special children''. The amendment will apply to taxable years 
beginning after Dec. 31, 1995 and allow for carry over of up to 
five years in the event tax liability does not cover the entire 
credit during a single year.]

                  b. exclusion of adoption assistance

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Amends part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 by inserting a new section 137, 
which treats as a tax-free fringe benefit employer-provided 
adoption assistance benefits, or reimbursement by the employer 
of qualified adoption expenses, provided the adoptee is 
physically or mentally incapable of self-care (a ``special 
needs'' child). Military adoption assistance benefits for these 
children also would be free of tax. The amendment will apply to 
taxable years beginning after Dec. 31, 1995.
Conference agreement
      [This provision has been moved to the tax portion of the 
Reconciliation Act of 1995. This provision treats as a tax-free 
fringe benefit employer-provided adoption assistance benefits 
of up to $5,000, or reimbursement by the employer of qualified 
adoption expenses. The amendment will apply to taxable years 
beginning after Dec. 31, 1995. This benefit is not available if 
the credit (above) is chosen.]

              c. withdrawal from ira for adoption expenses

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Amends subsection (d) of section 408 of the Internal 
Revenue Code of 1986 to permit tax-free withdrawals from an 
individual retirement account (IRA) for qualified adoption 
expenses.
Conference agreement
      The Senate recedes.

                         Subtitle H--Child Care

                                1. goals

Present law
      No provision.
House bill
      Adds the following goals:
            (1) to allow each State maximum flexibility in 
        developing child care programs and policies that best 
        suit the needs of children and parents within such 
        State;
            (2) to promote parental choice to empower working 
        parents to make their own decisions on the child care 
        that best suits their family's needs;
            (3) to encourage States to provide consumer 
        education information to help parents make informed 
        choices about child care;
            (4) to assist States to provide child care to 
        parents trying to achieve independence from public 
        assistance; and
            (5) to assist States in implementing the health, 
        safety, licensing and registration standards 
        established in State regulation.
Senate amendment
      No provision.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                   2. authorization of appropriations

Present law
      The authorization of appropriations expires at the end of 
fiscal year 1995. Appropriations in fiscal year 1995 are $935 
million; such sums as necessary are authorized. [Sec. 658B of 
the CCDBG Act]
      [Note: In addition, entitlement funds are available for 
child care under the AFDC Child Care, Transitional Child Care, 
and At-Risk Child Care programs authorized by Title IV-A of the 
Social Security Act.]
House bill
      Authorizes appropriations of $2,093 million for each of 
fiscal year 1996-2000.
      [Note: Title I of the House bill repeals the AFDC Child 
Care, Transitional Child Care, and At-Risk Child Care 
programs.]
Senate amendment
      Authorizes appropriations as follows: $1 billion for 
fiscal year 1996, and such sums as may be necessary for each of 
fiscal year 1997-2000.
      [Note: Additional funds are provided for child care under 
Title I of the Senate amendment, to replace the current AFDC 
Child Care, Transitional Child Care, and At-Risk Child Care 
programs--$8 billion over 5 years in direct spending.]
Conference agreement
      The conference agreement establishes a single child care 
block grant and State administrative system by adding mandatory 
funds to the existing Child Care and Development Block Grant 
(CCDBG). Specifically, one discretionary and two mandatory 
streams of funding will be consolidated in a reconstituted 
CCDBG.
      The child care funds made available in the Child Care 
Block Grant total $17 billion over 7 years; $10 billion in 
mandatory funds ($1.17 billion in fiscal year 1996, $1.24 
billion in fiscal year 1997, $1.32 billion in fiscal year 1998, 
$1.4 billion fiscal year 1999, $1.5 billion in fiscal year 
2000, $1.625 billion in fiscal year 2001, and $1.745 in fiscal 
year 2002) combined with $1 billion each year (fiscal year 
1996-2002) in discretionary funds.
      Each State will receive the amount of funds it received 
for child care under all of the entitlement programs currently 
under title IV of the Social Security Act (AFDC Child Care, 
transitional Child Care, and At-Risk Child Care) in the 1994 
fiscal year, or the average amount of funds received for those 
programs from fiscal year 1992 through fiscal year 1994, which 
ever is greater. These programs, combined, provide 
approximately $990 million in mandatory child care funding for 
the States.
      The mandatory funds remaining after the State allocations 
based on previous years child care allotments will be 
distributed among the States based on the formula currently 
used in the title IV-A At-Risk Child Care grant. Specifically, 
funds will be distributed based on the proportion of the number 
of children under the age of 13 residing in the State to the 
number of all of the nation's children under the age of 13. 
States must provide matching funds in the amount of the fiscal 
year 1995 State Medicaid rate to receive these funds.
      Discretionary funds appropriated for the Child Care Block 
Grant will be distributed to States based on the current 
formula for the Child Care and Development Block Grant. This 
formula utilizes the number of children in low income families 
and the State per capita income as criteria for the 
distribution of funds to States. As in current law governing 
the CCDBG, there is no requirement for the State to provide 
matching funds to receive an allotment from the discretionary 
funds appropriated for the Child Care Block Grant.
      If a State does not use their full portion of funds, the 
remaining portion will be redistributed to the states according 
to section 402(i) (as such section was in effect before October 
1, 1995).
      For the first year of enactment, States will receive 
their total allotment (mandatory and discretionary) for child 
care less any amount States had already spent on Title IV of 
Social Security child care programs in fiscal year 1996 on the 
day before enactment.

                             3. Lead Agency

Present law
      Requires the chief executive officer of a State to 
designate an appropriate State agency to act as the lead agency 
in administering financial assistance under the Act. [Sec. 658D 
of the CCDBG Act]
House bill
      Changes the term ``agency'' to ``entity.''
Senate amendment
      Allows the State lead agency to administer financial 
assistance received under the Act through other ``governmental 
or nongovernmental'' agencies (instead of other ``State'' 
agencies); requires that ``sufficient time and Statewide 
distribution of the notice'' be given of the public hearing on 
development of the State plan; and strikes language on issues 
that may be considered during consultation with local 
governments on development of the State plan.
Conference agreement
      The House recedes.

                        4. Application and Plan

Present law
      Requires States to prepare and submit to the Secretary an 
application that includes a State plan. The initial plan must 
cover a 3-year period, and subsequent plans must cover a 2-year 
period. Required contents of the plan include designation of a 
lead agency; policies and procedures regarding parental choice 
of providers, unlimited parental access, parental complaints, 
consumer education, compliance with State and local regulatory 
requirements, establishment of and compliance with health and 
safety requirements, review of State licensing and regulatory 
requirements, and supplementation.
      In addition, the State plan must provide that funds will 
be used for child care services, and that 25% of funds will be 
reserved for activities to improve the quality of child care 
and to increase the availability of early childhood development 
and before- and after-school child care. [Sec. 658E of the 
CCDBG Act]
      Further, State plans must assure that payment rates will 
be adequate to provide eligible children equal access to child 
care as compared with children whose families are not eligible 
for subsidies, and must assure that the State will establish 
and periodically revise a sliding fee scale that provides for 
cost sharing by families that receive child care subsidies.
House bill
      Requires the State plan to cover a 2-year period. 
Requires States to provide a detailed description of procedures 
to be used to assure parental choice of providers. Changes 
``provide assurances'' to ``certify'' that procedures are in 
effect within the State to ensure unlimited parental access to 
children and parental choice; also requires that the State plan 
provide a detailed description of such procedures. Changes 
``provide assurances'' to ``certify'' that the State maintains 
a record of parental complaints, and requires the State to 
provide a detailed description of how such a record is 
maintained and made available. Changes the consumer education 
part of the State plan to require assurances that the State 
will collect and disseminate consumer education information. 
Requires that the State certify that providers comply with 
State and local health, safety and licensing or regulatory 
requirements and provide a detailed description of such 
requirements and how they are enforced. Eliminates current law 
provisions requiring establishment of and compliance with 
health and safety requirements, review of State licensing and 
regulatory requirements, notification to HHS when standards are 
reduced, and supplementation. Eliminates the requirement that 
unlicensed providers be registered.
      Adds a requirement that a summary of the facts relied 
upon by the State to determine that payment rates are 
sufficient to ensure equal access to child care is included in 
the State plan. Eliminates the assurance that the State will 
establish a sliding fee scale. Also provides that funds, other 
than amounts transferred under section 658T (see Item 14, 
below), will be used for child care services, activities to 
improve the quality and availability of such services, and any 
other activity that the State deems appropriate to realize the 
goals specified above (see Item 1). Deletes the current law 
requirement that States reserve 25% of funds for activities to 
improve the quality of child care and to increase availability 
of early childhood development and before- and after-school 
care.
      Requires States to spend no more than 5% on 
administrative costs.
Senate amendment
      Requires the State plan to cover a 2-year period. 
Replaces the requirement that providers not subject to 
licensing or regulation be registered with the State, with a 
requirement that the State implement mechanisms to ensure 
proper payment to providers. Requires the Secretary to develop 
minimum standards for Indian tribes and tribal organizations 
receiving assistance under the Act, in lieu of State or local 
licensing or regulatory requirements. Eliminates provisions 
related to reduction in standards and reviews of State 
licensing and regulatory requirements.
      Requires the State plan to describe the manner in which 
services will be provided to the working poor. Reserves 15% of 
each State's allotment for activities to improve quality of 
child care, instead of 25% for both quality improvement and 
before- and after-school child care services.
      Requires States to spend no more than 5% on 
administrative costs, not including direct service costs. 
Administrative costs shall not include direct service costs.
Conference agreement
      The Senate recedes, with a modification that the States 
must certify that they have licensing standards for child care 
which are applied uniformly without regard to whether a child 
care provider is receiving Federal funds. Nothing in this Act 
shall either require or prohibit the application of State 
licensing standards, regulations, or laws to a particular type 
of child care or child care provider. The Secretary must 
develop minimum standards for Indian tribes and tribal 
organizations receiving assistance under this Act, in lieu of 
State or local licensing or regulatory requirements. at least 
70% of the mandatory funding must be used to provide child care 
for children in families who are receiving welfare, working 
their way off welfare, or at risk of becoming welfare 
dependent. A substantial portion of the discretionary funding 
for child care authorized under this Act is intended to be used 
for low-income working families who are not working their way 
off welfare or at risk of becoming welfare dependent. The State 
plan must demonstrate how the State is meeting the specific 
needs of each of these populations.

                   5. Limitation on State Allotments

Present law
      Prohibits the use of funds for purchase or improvement of 
land or buildings, except in the case of sectarian agencies or 
organizations that need to make renovations or repairs in order 
to comply with specific health and safety requirements that 
States are required to establish. [Sec. 658F of the CCDBG Act]
House bill
      Amends section 658F to make a conforming amendment 
referring to the elimination of specific health and safety 
requirements.
Senate amendment
      No provision (maintains current law).
Conference agreement
      The Senate recedes, with a modification that this Act 
prohibit the use of funds for purchase or improvement of land 
or buildings except for Indian tribes or tribal organizations. 
Indian tribes and tribal organizations may use funds for 
construction or renovation of facilities, upon the request by 
the tribe or tribal organization and subject to the approval by 
the Secretary.

           6. Activities to Improve the Quality of Child Care

Present law
      As stated above, 25% of State allotments must be reserved 
for activities to improve child care quality and to increase 
the availability of early childhood development and before- and 
after-school child care (see Item 1.D, above). Section 658G 
specifies how these funds are to be used. Of reserved funds, 
requires States to use no less than 20% for activities to 
improve the quality of care, including resource and referral 
programs, grants or loans to assist providers in meeting State 
and local standards, monitoring of compliance with licensing 
and regulatory requirements, training of child care personnel, 
and improving compensation for child care personnel. [Sec. 658G 
of the CCDBG Act]
House bill
      Repeals the requirement that 25% of funds be set aside 
for quality improvement activities (see Item 5, above). Repeals 
section 658G regarding the use of these set-aside funds.
Senate amendment
      As stated above, reduces quality improvement set-aside to 
15% (see Item 5, above). Amends section 658G to require States 
to use their quality improvement set-aside for resource and 
referral activities, including ``providing comprehensive 
consumer education to parents and the public, referrals that 
honor parental choice, and activities designed to improve the 
quality and availability of child care,'' and for one or more 
``other activities,'' which include those listed in the current 
section 658G, plus activities to increase the availability of 
before- and after-school care, infant care, and child care 
between the hours of 5:00 p.m. and 8:00 a.m.
      Adds new language to prohibit States from discriminating 
against providers that wish to participate in resource and 
referral systems, that are operating legally within the State 
but that are exempt from State licensing requirements.
Conference agreement
      The Senate recedes, with a modification that States 
retain at least a 3% set-aside of the total mandatory and 
discretionary funding received for child care under this Act 
for activities designed to provide comprehensive consumer 
education to parents and the public, activities that increase 
parental choice, and activities designed to improve the quality 
and availability of child care, such as resource and referral 
services.
      The House recedes, with a modification to limit the 
amount of total child care funds made available under this Act 
for administrative costs to 3%. Administrative cost shall not 
include direct service costs.

    7. Early Childhood Development and Before- and After-School Care

Present law
      Requires States to use no less than 75% of funds reserved 
for quality improvement for activities to expand and conduct 
early childhood development programs and before- and after-
school child care. [Sec. 658H of the CCDBG Act]
House bill
      Repeals section 658H.
Senate amendment
      Repeals section 658H.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                   8. Administration and Enforcement

Present law
      Requires the Secretary of Health and Human Services (HHS) 
to coordinate HHS and other Federal child care activities, to 
collect and publish a list of State child care standards every 
3 years, and to provide technical assistance to States. 
Requires the Secretary to review, monitor, and enforce 
compliance with the Act and the State plan by withholding 
payments and imposing additional sanctions in certain cases. 
[Sec. 658I of the CCDBG Act]
House bill
      Deletes the requirement that the Secretary of HHS collect 
and publish a list of child care standards every 3 years. 
Maintains current law for repayment.
Senate amendment
      Strikes the current law requirement that the Secretary 
withhold further payments to a State in case of a finding of 
noncompliance until the noncompliance is corrected. Instead, 
authorizes the Secretary, in such cases, to impose additional 
program requirements on the State, such as a requirement that 
the State reimburse the Secretary for any improperly spent 
funds, or the Secretary may deduct from the administrative 
portion of the State's subsequent allotment an amount equal to 
or less than the misspent funds, or a combination of such 
options. The amendment also strikes sections related to 
additional sanctions and notice of such additional sanctions.
Conference agreement
      The House recedes, with a modification that the Secretary 
may not impose additional program requirements on the State for 
an improperly spent funds.

                              9. Payments

Present law
      Provides that payments received by a State for a fiscal 
year may be expended in that fiscal year or in the succeeding 3 
fiscal years. [Sec. 658J of the CCDBG Act]
House bill
      Provides that payments received by a State for a fiscal 
year may be obligated in the fiscal year received or the 
succeeding fiscal year, instead of expended in the fiscal year 
received or the succeeding 3 fiscal years.
Senate amendment
      No provision (maintains current law).
Conference agreement
      The Senate recedes.

                      10. Annual Report and Audits

Present law
      Requires each State to prepare and submit to the 
Secretary every year a report: specifying how funds are used; 
containing data on the manner in which the child care needs of 
families in the State are being fulfilled, including 
information on the number of children served, child care 
programs in the State, compensation provided to child care 
staff, and activities to encourage public-private partnerships 
in child care; describing the extent to which affordability and 
availability of child care has increased; summarizing findings 
from a review of State licensing and regulatory requirements, 
if applicable; explaining any action taken by the State to 
reduce standards, if applicable; and describing standards and 
health and safety requirements applied to child care providers 
in the State, including a description of efforts to improve the 
quality of child care. [Sec. 658K of the CCDBG Act]
House bill
      Changes the title of the section from ``Annual Report and 
Audits'' to ``Annual Report, Evaluation Plans, and Audits.'' 
Changes required data elements in annual reports to include:
      (1) the number and ages of children being assisted with 
funds provided under this subchapter;
      (2) with respect to the families of such children:
            the number of other children in such families;
            the number of such families that include only 1 
        parent;
            the number of such families that include both 
        parents;
            the ages of the mothers of such children;
            the ages of the fathers of such children;
            the sources of the economic resources of such 
        families, including the amount of such resources 
        obtained from (and separately identified as being from)
            a. employment, including self-employment;
            b. assistance received under part A of title IV of 
        the Social Security Act (SSA);
            c. part B of title IV of the SSA;
            d. the Child Nutrition Act of 1966;
            e. the National School Lunch Act;
            f. assistance received under title XVI of the SSA;
            g. assistance received under title XIV of the SSA;
            h. assistance received under title XIX of the SSA;
            i. assistance received under title XX of the SSA; 
        and
            j. any other source of economic resources the 
        Secretary determines to be appropriate;
      (3) the number of such providers separately identified 
with respect to each type of child care provider specified in 
section 658P(5) that provided child care services obtained with 
assistance provided under this subchapter;
      (4) the cost of child care services and the portion of 
such cost paid with assistance from this Act;
      (5) the manner in which consumer education information 
was provided to parents and the number of parents to whom such 
information was provided;
      (6) the number of parental complaints about child care 
that were found to have merit and a description of corrective 
actions taken by the State; and
      (7) information on programs to which funds were 
transferred under section 658T (see item 15, below).
      States are also required to present evidence 
demonstrating that they have State requirements designed to 
protect the health and safety of children.
      Deletes current report requirements on: 1) increasing the 
affordability and availability of child care; 2) reviewing 
findings on State licensing and regulatory requirements; and 3) 
reducing standards.
      Requires States to include an evaluation plan in their 
first annual report due after enactment and every 2 years 
thereafter, and to include the results of such evaluation in 
the second annual report due after enactment and every 2 years 
thereafter. The plan must include an evaluation regarding the 
extent to which the State has realized the following goals:
            (1) promoting parental choice to make their own 
        decisions on the child care that best suits their 
        family's needs;
            (2) providing consumer education information to 
        help parents make informed choices about child care;
            (3) providing child care to parents trying to 
        achieve independence from public assistance; and
            (4) implementing the health, safety, licensing, and 
        registration standards established in State 
        regulations.
Senate amendment
      Requires States to submit reports every 2 years, rather 
than every year, with the first report due no later than 
December 31, 1996. Requires that States include information on 
the type of Federal child care and preschool programs serving 
children in the State, and requires that States describe the 
extent and manner to which resource and referral activities are 
being carried out by the State. Strikes the current requirement 
for information on the type and number of child care programs, 
providers, caregivers and support personnel in the State, and 
strikes the provision related to review findings of State 
licensing and regulatory requirements.
Conference agreement
      The Senate recedes, with a modification that the State 
prepare and submit a data report to the Secretary every six 
months, and that the report include: (1) family income; (2) 
county of residence; (3) the sex, age of children receiving 
benefits; (4) whether the family includes only one parent; (5) 
the sources of family income, including the amount obtained 
from (and separately identified as being from): a) employment, 
including self-employment; b) Part A cash assistance or other 
assistance; c) housing assistance; d) food stamps; and e) 
other; (6) the number of months the family has received 
benefits; (7) the type of care in which the child was enrolled 
(family day care, center, own home); (8) whether the provider 
was a relative; (9) the cost of care; and (10) the average 
hours per week of care. Annually, the State must submit the 
following aggregate data: (1) the number of providers 
separately identified in accord with each type of provider 
specified in section 658P(5) that received funding under this 
subchapter; (2) the monthly cost of child care services and the 
portion of such cost paid with assistance from this Act by type 
of care; (3) the number and total amount of payments by the 
State in vouchers, contracts, cash, and disregards from public 
benefit programs by type of care; (4) the manner in which 
consumer education information was provided; (5) information on 
programs from which funds were transferred under 658T; and (6) 
total number (unduplicated) of children and families served.
      States are required to present evidence demonstrating 
that they have State requirements designed to protect the 
health and safety of children.
      The House recedes on the requirement that States include 
an evaluation plan in their reports to the Secretary.
      Deletes current report requirements on: (1) increasing 
the affordability and availability of child care; (2) reviewing 
findings on State licensing and regulatry reauirements; and (3) 
reducing standards.

                      11. Report by the Secretary

Present law
      Requires the Secretary to prepare and submit an annual 
report, summarizing and analyzing information provided by 
States, to the House Education and Labor Committee and the 
Senate Labor and Human Resources Committee. This report must 
contain an assessment and, where appropriate, recommendations 
to Congress regarding efforts that should be taken to improve 
access of the public to quality and affordable child care. 
[Sec. 658L of the CCDBG Act]
House bill
      Revises the Secretary's report to become a biennial 
report to the Speaker and the President pro tempore.
Senate amendment
      Requires the Secretary to prepare and submit biennial 
reports, rather than annual, with the first report due no later 
than July 31, 1997; and replaces the reference to the House 
Education and Labor Committee with the House Economic and 
Educational Opportunities Committee.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                             12. Allotments

Present law
      Requires the Secretary to reserve one-half of 1% of 
appropriations for payment to Guam, American Samoa, the Virgin 
Islands, the Northern Marianas and the Trust Territory of the 
Pacific Islands. The Secretary also must reserve no more than 
3% for payment to Indian tribes and tribal organizations with 
approved applications. Remaining funds are allocated to the 
States based on the States' proportion of children under age 5 
and the number of children receiving free or reduced-price 
school lunches, as well as the States' per capita income. Any 
portion of a State's reallotment that the Secretary determines 
is not needed by the State to carry out its plan for the 
allotment period, must be reallotted by the Secretary to the 
other States in the same proportion as the original allotments. 
[Sec. 658O of the CCDBG Act]
House bill
      Maintains the current law set-asides for the Territories 
and Indian tribes and tribal organizations, except that the 
Trust Territory of the Pacific Islands is deleted from the set-
aside for Territories. Allots remaining funds to States as 
follows: each State will receive an amount based on its 
relative share of the aggregate amount of Federal funds 
received by the State in fiscal year 1994 under the Child Care 
and Development Block Grant Act, and under child care programs 
for AFDC recipients and former AFDC recipients and the At-Risk 
Child Care program under Title IV-A of the Social Security Act. 
Eliminates reallotment provisions.
Senate amendment
      Maintains current law allotment procedures. Amends 
section 658O(c), related to payments for the benefit of Indian 
children, to add new provisions allowing the use of funds by 
Indian tribes or tribal organizations for construction or 
renovation of facilities, upon request by the tribe or tribal 
organization and subject to approval by the Secretary. The 
Secretary may not permit a tribe or tribal organization to use 
funds for construction or renovation if such use will result in 
a decrease in the level of child care services. The Secretary 
is also allowed to reallot to other tribes any tribal 
allotments that are not expended, which is similar to what 
happens with unused State allotments.
Conference agreement
      The Senate recedes, with a modification that the set-
aside for Indian tribes and tribal organizations and Native 
Hawaiian Organizations is 1% of the total funds for child care 
made available under this Act. Any portion of a State's 
allotment that the Secretary determines is not needed by the 
State to carry out its plan for the allotment period must be 
reallotted by the Secretary to the other States in the same 
proportion as the original allotments. The Secretary is also 
allowed to reallot to other tribes any tribal allotments that 
are expended, which is similar to the process for reallotment 
to States.

                            13. Definitions

Present law
      Provides definitions of the following terms: caregiver, 
child care certificate, elementary school, eligible child, 
eligible child care provider, family child care provider, 
Indian tribe, lead agency, parent, secondary school, Secretary, 
sliding fee scale, State, and tribal organization. [Sec. 658P 
of the CCDBG Act]
House bill
      Includes definitions for lead entity and child care 
services, and strikes definitions for elementary school, 
secondary school, and sliding fee scale.
Senate amendment
      Revises the definition of eligible child to one whose 
family income does not exceed 100% of the State median, instead 
of 75%.
      Adds the following as an allowable use of a child care 
certificate: ``as a deposit for child care services if such a 
deposit is required of other children being cared for by the 
provider.''
      Revise the definition of relative child care provider by 
adding great grandchild and sibling (if the provider lives in a 
separate residence) to the list of eligible children; by 
striking the requirement that such providers be registered; and 
by requiring such providers to comply with any ``applicable'' 
requirements governing child care provided by a relative.
Conference agreement
      The House recedes, with a modification that strikes the 
definition for elementary and secondary school and revises the 
definition of eligible child to one whose family income does 
not exceed 85% of the State median income.

                         14. Transfer of Funds

Present law
      No provision.
House bill
      Adds a new section 658T to the CCDBG Act, allowing a 
State to transfer no more than 20% of CCDBG funds to one or 
more of the following programs:
            1. Part A of Title IV of the Social Security Act;
            2. Part B of Title IV of the Social Security Act;
            3. Child Nutrition Act of 1966;
            4. National School Lunch Act; and
            5. Title XX of the Social Security Act.
      Transferred funds would be subject to the rules of the 
program to which they are transferred.
Senate amendment
      States can transfer up to 30% of their cash assistance 
block grant (title IV-A) into the CCDBG.
Conference agreement
      The House recedes, no funds can be transfered out of the 
Child Care and Development Block Grant.

                   15. Application to Other Programs

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Adds a new section 658T to the CCDBG Act, that requires 
States that use any Federal funds for child care services to 
ensure that such services meet the requirements, standards and 
criteria, with the exception of the 15% quality set-aside, of 
the CCDBG and any regulations issued under the CCDBG. These 
funds must be administered through a uniform State plan and, to 
the maximum extent practicable, shall be transferred to the 
lead agency and integrated into the CCDBG program.
Conference agreement
      The Senate recedes.

          16. Repeals and Technical and Conforming Amendments

Present law
      Not applicable.
House bill
      Repeals the following programs:
            (1) Child Development Associate (CDA) Scholarship 
        Assistance;
            (2) State Dependent Care Development Grants;
            (3) Programs of National Significance under Title X 
        of the Elementary and Secondary Education Assistance 
        Act of 1965 (child care related to Cultural 
        Partnerships for At-Risk Children and Youth, and Urban 
        and Rural Education Assistance); and
            (4) Native-Hawaiian Family-Based Education Centers.
      [Note: Title I of the House bill also repeals child care 
assistance provided under current law by Title IV-A of the 
Social Security Act. This assistance is provided under 3 
programs known as AFDC Child Care, Transitional Child Care, and 
At-Risk Child Care.]
Senate amendment
      Repeals CDA Scholarship Assistance and State Dependent 
Care Development Grants.
      Requires the Secretary of HHS, after consultation with 
the appropriate committees of Congress and the Director of the 
Office of Management and Budget, to prepare and submit to 
Congress, within 6 months after enactment, a legislative 
proposal containing technical and conforming amendments that 
reflect the amendments and repeals made by this Act.
      [Note: Title I of the Senate amendment also earmarks and 
provides additional funds for child care, to replace the AFDC 
Child Care, Transitional Child Care, and At-Risk Child Care 
programs.]
Conference agreement
      These repeals were dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                      Subtitle I--Child Nutrition

                     1. Child Nutrition Act of 1966

Present law
      Authorizes the Special Supplemental Nutrition Program for 
Women, Infants, and Children (WIC), the School Breakfast 
program, the Special Milk program, assistance to States for 
child nutrition administrative expenses and nutrition education 
and training, and school breakfast assistance for Defense 
Department overseas dependents' schools.
      The WIC program provides specific nutritious foods to 
lower-income pregnant, postpartum, and breastfeeding women, and 
infants and children (up to age 5). Recipients' family income 
must be below 185% of Federal poverty guidelines, and they must 
be judged at nutritional risk. Federal funds, set by 
appropriation levels, are made available to State health 
agencies under a formula. States then provide funds to local 
health agencies, which are responsible for day-to-day 
operations. Funds also are used for food, nutrition assessments 
and counselling, referrals to other programs, breastfeeding 
promotion, and a farmers' market program. [Sec. 17 and 21 of 
the Child Nutrition Act]
      Under the School Breakfast program, schools choosing to 
participate in the program receive per-meal Federal cash 
subsidies for all breakfasts they serve that meet Federal 
nutrition standards. Subsidies are indexed annually for 
inflation and differ depending on whether the meal is served 
free (to children from families with income below 130% of 
poverty), at a reduced price (to children with family income 
between 130% and 185% of poverty), or at ``full price'' (so-
called ``paid'' meals for those with family income above 185% 
of poverty or who do not apply for free or reduced-price 
meals). Schools with high proportions of lower-income students 
get larger per-meal subsidies, and special grants are provided 
to assist in paying start-up and expansion costs. [Sec. 4 of 
the Child Nutrition Act]
      Under the Special Milk program, schools and institutions 
not otherwise participating in a meal service program (and 
schools with split sessions for kindergartners) provide milk to 
all children at a low price or free, and each half-pint served 
is federally subsidized at a different rate--depending on 
whether it is served free or not. Provision of free milk is not 
required. [Sec. 3 of the Child Nutrition Act]
      Under the State administrative expense assistance 
program, grants are made to States to help cover administrative 
costs associated with child nutrition programs. The amount 
available each year is 1.5% of Federal cash payments for School 
Lunch, School Breakfast, Child and Adult Care Food, and Special 
Milk programs. [Sec. 7 of the Child Nutrition Act]
      For nutrition education and training, States are provided 
with Federal funds for training school food service personnel 
in food service management, instructing teachers in nutrition 
education, and teaching children about nutrition. [Sec. 19 of 
the Child Nutrition Act]
      Special provisions are made for Federal assistance for 
school breakfast programs in Defense Department overseas 
dependents' schools. [Sec. 20 of the Child Nutrition Act]
House bill
      Retains the designation of the Act as the Child Nutrition 
Act of 1966 and replaces the Act's current provisions with 
authorization for a Family Nutrition Block Grant Program.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment to:
      A. Create an optional State block grant entitled, ``CHILD 
CARE AND SUMMER FOOD SERVICE OPTIONAL BLOCK GRANT.''
            OPTIONAL BLOCK GRANT--Under the terms of the 
        optional block grant, all States have the option of 
        receiving funds for the Child Care Food and Summer Food 
        Programs through a block grant. For fiscal year 1996, 
        22 States will have the option to participate. In 
        fiscal year 1997, all States will have the option to 
        participate.
            DECISION TO PARTICIPATE--States opting to 
        participate in the block grant may reverse a decision 
        to participate in the block grant once prior to the 
        termination date and only after a two-year period of 
        participation. If a State opts out, such State may 
        resume participation under the summer food service 
        program and the child care food program.
            STATE PLAN--States are required to submit a State 
        plan to the Secretary in order to participate in the 
        block grant.
            USE OF FUNDS--States must insure that the funds 
        will only be used to provide assistance in providing 
        meals and meal supplements in summer food service 
        facilities and nonresidential child care institutions 
        that are licensed or approved by the Federal 
        Government, the State, or a local government (State 
        option to make payments to sponsoring organizations).
            ADMINISTRATIVE EXPENSES--None of the funds under 
        the block grant are to be used for State administrative 
        expenses (States will continue to receive such funds 
        under current SAE provisions).
            NUTRITIONAL REQUIREMENTS--States are to provide 
        minimum nutritional requirements for meals and meal 
        supplements based on the most recent tested nutritional 
        research available. Such requirements shall, to the 
        extent practicable, be consistent with the goals of the 
        most recent Dietary Guidelines for Americans. Meals 
        shall provide, on the average over a week, at least \1/
        3\ of the recommended dietary allowance for lunches and 
        dinners and \1/4\ of the recommended dietary allowance 
        for breakfasts. The Secretary may not impose any 
        additional nutritional requirements beyond those 
        specified in this section.
            STATE REVIEW--States will review the meal 
        operations in each participating summer food service 
        facility and nonresidential child care institution no 
        later than two years after implementation of the block 
        grant and at the end of each 5-year period thereafter.
            INCOME ELIGIBILITY--The State plan will describe 
        how the block grant will serve specific groups of 
        children in the State. The plan will further describe 
        the income eligibility limitations established for meal 
        and meal supplements. Only children who are members of 
        families with incomes below 185 percent of the poverty 
        line are eligible to participate.
            SUMMER FOOD ELIGIBILITY--A summer food service 
        facility may only receive funds if it operates in an 
        area where at least 50 percent of the children are 
        eligible for free or reduce price school meals--or be a 
        residential public or nonprofit private summer camp. 
        Existing summer food service sponsors must be given an 
        opportunity to continue participation.
            DOD PARTICIPATION--Nonresidential child care 
        institutions on military installations are eligible to 
        participate on an equitable basis with all other 
        nonresidential child care institutions in the State 
        participating in the block grant. If such facility is 
        licensed or approved by DOD, the State may not require 
        them to be licensed or approved under State or local 
        law.
            PRIVACY--States shall provide for safeguarding and 
        restricting the use and disclosure of information about 
        children receiving assistance under this Act. Physical 
        segregation and overt identification of children 
        participating in the block grant is prohibited.
            REQUIRED REPORT--In order to participate, States 
        must agree to submit a report to the Secretary each 
        fiscal year describing (a) the number of children 
        receiving assistance; (b) the different types of 
        assistance provided; (c) the extent to which assistance 
        was effective in achieving program goals; (d) the 
        standards and methods used to ensure the nutritional 
        quality of meals and meal supplements and (e) other 
        information the Secretary may reasonably require. 
        Failure to submit the required report will reduce the 
        amounts otherwise payable to a State.
            COMPLIANCE--The Secretary is required to review and 
        monitor State compliance and withhold funds to the 
        State with respect to the program or activity for which 
        noncompliance is found, until the Secretary determines 
        the problem has been corrected. The Secretary may seek 
        financial restitution for misused funds.
            PAYMENTS TO STATES--Payments to States under the 
        block grant shall be on a quarterly basis and may be 
        expended by the State for the current fiscal year or 
        the succeeding fiscal year.
            AUDITS--A yearly audit is required.
            ALLOTMENT--In the first year of participation, the 
        Secretary is required to allot to each participating 
        State an amount that is equal to the amount the 
        Secretary projects will be made available to the State 
        to carry out the current law summer food service 
        program and the child care food program for the current 
        fiscal year. In the succeeding years such amount will 
        be adjusted to reflect changes in the Consumer Price 
        Index, series for food away from home and changes in 
        each State's child population.
            ALTERNATIVE ASSISTANCE--The Secretary is to arrange 
        for the provision of such assistance and reduce the 
        State allotment accordingly in cases where a State 
        prohibited by law from providing assistance to an 
        eligible sponsoring organization or a DOD domestic 
        dependents' school, as well as States that have 
        substantially failed or are unwilling to provide such 
        assistance.
            EVALUATION--No later than three years after the 
        establishment of the block grant the Secretary is to 
        conduct an evaluation and submit a report to Congress, 
        including the comments of the Comptroller General. The 
        report is to include information on the effects of the 
        block grant on the nutritional quality of meals; the 
        income distribution of children served, the difference 
        between implementation of the block grant and 
        implementation of the existing Summer Food program and 
        Child Care Food program.
            AUTHORIZATION PERIOD--the block grant option is 
        authorized through September 30, 2002.
      B. Streamlining provisions in the Child Nutrition Act of 
1966. The following changes are intended to streamline the 
operation of programs under the Child Nutrition Act.
      56. Revise Sec. 19(f)(1)(A), striking clauses (ix)-(xix), 
eliminating unnecessary stipulations on uses of funds.
      57. Strike Sec. 19(f)(1)(B) to eliminate ``language 
appropriate'' information provision.
      58. Strike Sec. 19(f)(2) and 19(f)(4). Technical and 
conforming.
      63. Revise Sec. 19(i), making discretionary and 
authorizing appropriations of $10 million per year.

           2. Authorization for Family Nutrition Block Grant

                       A. Requirement for Grants

Present law
      The Child Nutrition Act (see item 1) and the National 
School Lunch Act (see item 11) require that the Secretary of 
Agriculture provide Federal assistance to States for the WIC, 
Child and Adult Care Food, Summer Food Service, and Special 
Milk programs, as well as other support (e.g., for State 
administrative expenses and nutrition education and training), 
under terms of agreements with States meeting Federal 
standards.
House bill
      Directs the Secretary of Agriculture to provide to each 
State that submits an annual application in accordance with the 
revised Child Nutrition Act's requirements (see item 4) an 
annual family nutrition grant for the purpose of achieving the 
goals of the Family Nutrition Block Grant Program (see item 2B 
for the program's goals and item 3 for State allotments).
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
State block grant and making changes to Child Nutrition Act 
(see Item #1).

                                B. Goals

Present law
      The Child Nutrition Act declares it the policy of 
Congress to extend, expand, and strengthen child nutrition 
programs as a measure to safeguard the health and well-being of 
the Nation's children and to encourage the domestic consumption 
of agricultural commodities by assisting States through grants 
and other means to more effectively meet children's nutritional 
needs. [Sec. 2 of the Child Nutrition Act]
House bill
      Establishes the goals of the Family Nutrition Block Grant 
Program:
            (1) to provide nutritional risk assessments, food 
        assistance based on the assessments, and nutrition 
        education and counseling to economically disadvantaged 
        pregnant, postpartum, and breastfeeding women, as well 
        as infants and young children, determined to be at 
        nutritional risk (see item 10 for definitions);
            (2) to provide nutritional risk assessments of 
        participating women so that food assistance and 
        nutrition education is provided that meets their 
        specific needs;
            (3) to provide nutrition education to participating 
        women to increase their awareness of the foods needed 
        for good health;
            (4) to provide food assistance, including 
        nutritious supplements, to participating women in order 
        to reduce the incidence of low-birthweight babies and 
        babies born with birth defects because of nutritional 
        deficiencies;
            (5) to provide food assistance, including 
        nutritious supplements, to participating women, 
        infants, and children to ensure their future good 
        health;
            (6) to ensure that participating women, infants, 
        and children are referred to other health services, 
        including routine pediatric/obstetric care;
            (7) to ensure that children from economically 
        disadvantaged families in day care facilities, family 
        day care homes, homeless shelters, settlement houses, 
        recreational centers, Head Start centers, Even Start 
        programs, and facilities for disabled children receive 
        nutritious meals, supplements, and low-cost milk; (see 
        item 10B for definition of ``economically 
        disadvantaged''); and
            (8) to provide summer food service programs for 
        children from economically disadvantaged families when 
        school is not in session (see item 10B for definition 
        of ``economically disadvantaged'').
Senate amendment
      No provision.
Conference agreement
      Senate recedes, deleting all references to the Special 
Supplemental Food Program for Women, Infants and Children.

                         C. Timing of Payments

Present law
      No provision.
House bill
      Directs that the Secretary of Agriculture make family 
nutrition grant payments to the States on a quarterly basis.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to the Child Nutrition Act (see 
Item #1).

              3. Allotment of Family Nutrition Block Grant

Present law
      Current activities that may be funded under the House 
bill's Family Nutrition Block Grant include those now supported 
by the WIC program, the Homeless Children Nutrition program 
(authorized under section 17B of the National School Lunch 
Act), the Child and Adult Care Food program (authorized under 
section 17 of the National School Lunch Act), the Summer Food 
Service program (authorized under section 13 of the National 
School Lunch Act), and the Special Milk program.
      Under the WIC program, Federal funds, determined by 
appropriations levels, are made available to States under a 
formula that reflects State caseloads, food cost inflation, 
need (as evidenced by poverty and health indices), and a 
specified national average per participant grant; in effect, 
funds are allotted so that each State can maintain its caseload 
from year to year, and extra money is shared so as to support 
expanded enrollment in States with greater need.
      Under the Homeless Children Nutrition program, Federal 
funds are made available to existing projects to continue 
operations and, from any additional amounts, money is provided 
for new projects or to expand existing projects.
      Under the Child and Adult Care Food program, child and 
adult care centers and family day care homes receive Federal 
reimbursements for each meal or supplement served at 
legislatively established, inflation indexed rates.
      Under the Summer Food Service program, sponsors receive 
Federal reimbursements for each meal or supplement served, at 
legislatively established, inflation indexed rates.
      Under the Special Milk program, schools and other 
participating institutions receive specified, inflation indexed 
Federal reimbursements for each half-pint of milk served.
House bill
      As set forth below, provides for the Secretary of 
Agriculture to make State allotments of funds appropriated for 
the Family Nutrition Block Grant.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to child Nutrition Act (see Item 
#1).

                     A. First Year State Allotments

Present law
      No provisions.
House bill
      For the first fiscal year in which grants are made, 
provides that the Secretary make allotments to States based on 
the projections of funds each State would receive under current 
law for the upcoming fiscal year.
      Base-Year State Shares: Each State's allotment would be 
its prior-year share of funds received under the WIC and 
Homeless Children Nutrition programs, plus its prior-year share 
of 87.5% of the amounts received under the Child and Adult Care 
Food, Summer Food Service, and Special Milk programs.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                    B. Second Year State Allotments

Present law
      No provision.
House bill
      For the second fiscal year in which grants are made, 
provides that (1) 95% of the amount appropriated be allotted 
according to each State's share of the amount allotted in the 
first year and (2) 5% of the amount allotted be based on each 
State's share of the number of individuals receiving assistance 
under the grant during the 1-year period ending the preceding 
June 30.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

               C. Third and Fourth Year State Allotments

Present law
      No provision.
House bill
      For the third and fourth fiscal years in which grants are 
made, provides that (1) 90% of the amount appropriated be 
allotted according to each State's share of the amount allotted 
in the preceding year and (2) 10% of the amount allotted be 
based on each State's share of the number of individuals 
receiving assistance under the grant during the 1-year period 
ending the preceding June 30.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment allowing an optional 
family nutrition block grant for summer food and child care 
food programs only and making changes to the Child Nutrition 
Act (see Item #1).

                     D. Fifth Year State Allotments

Present law
      No provision.
House bill
      For the fifth fiscal year in which grants are made, 
provides that (1) 85% of the amount appropriated be allotted 
according to each State's share of the amount allotted in the 
fourth year and (2) 15% of the amount allotted be based on each 
State's share of the number of individuals receiving assistance 
under the grant during the 1-year period ending the preceding 
June 30.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment allowing an optional 
family nutrition block grant for summer food and child care 
food programs only (see Item #1).

               4. Application for Family Nutrition Grants

Present law
      Nutrition requirements for food assistance provided under 
the current WIC, Child and Adult Care Food, and Summer Food 
Service programs are established by the Secretary of 
Agriculture, as are the general standards for determining 
nutritional risk in women, infants, and children, on the basis 
of tested nutritional research. [Sec. 17(b)(8) & (14) and 
(f)(12) of the Child Nutrition Act; Sec. 17(g)(1) and Sec. 
13(f) of the National School Lunch Act]
      The use/disclosure of information obtained from 
applications for free/reduced-price meals is limited to those 
administering/enforcing child nutrition programs, 
administrators of other health or education programs (with 
restrictions), and the General Accounting Office and law 
enforcement officials. [Sec. 9(b)(2) of the National School 
Lunch Act]
House bill
      Provides that the Secretary make a family nutrition grant 
to a State if it submits an application containing only the 
following:
            (1) an agreement that the State will use the grant 
        in accordance with Family Nutrition Block Grant program 
        requirements (see item 5);
            (2) an agreement that the State will set minimum 
        nutrition requirements for food assistance provided 
        under the grant based on the most recent tested 
        nutrition research available (but the requirements may 
        not prohibit the substitution of foods to accommodate 
        medical or other special dietary needs, and would have 
        to be based, at a minimum, on the weekly average 
        nutrient content of school lunches or other standards 
        set by the State);
            (3) an agreement that, with respect to assistance 
        to pregnant, postpartum, and breastfeeding women, and 
        infants and children, the State will implement minimum 
        nutrition requirements based on the most recent tested 
        nutritional research available or the model nutrition 
        standards developed by the National Academy of Sciences 
        (see item 8B);
            (4) an agreement that the State will take 
        reasonable steps it deems necessary to restrict the use 
        and disclosure of information about those receiving 
        assistance under the grant;
            (5) an agreement that the State will not use more 
        than 5% of its grant for administrative costs incurred 
        to provide assistance (costs associated with 
        nutritional risk assessments of pregnant, postpartum, 
        and breastfeeding women, and infants and children, as 
        well as those associated with nutrition education and 
        counseling for these individuals, would not be 
        considered administrative costs subject to the 5% 
        limit); and
            (6) an agreement that the State will submit an 
        annual report to the Secretary (see item 6).
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

   5. Use of Amounts Provided Under the Family Nutrition Block Grant

                        A. Activities Supported

Present law
      The WIC program provides nutritional risk assessment, 
specific nutritious foods (under Federal guidelines), nutrition 
education/counseling, breastfeeding support, and a farmers' 
market program for lower-income pregnant, postpartum, and 
breastfeeding women, as well as infants and children (up to age 
5). Recipients' family income must be below 185% of poverty, 
and they must be judged at nutritional risk. [Sec. 17 of the 
Child Nutrition Act]
      The Special Milk program provides Federal reimbursement 
for each half-pint of milk served in schools and other child 
care institutions not participating in a meal service program 
(and schools with split sessions for kindergartners). Milk is 
served at a low price or for free and each half-pint is 
subsidized at a different rate depending on whether it served 
free or not. Provision of free milk is not required. [Sec. 3 of 
the Child Nutrition Act]
      The Child and Adult Care Food program provides Federal 
per-meal/supplement reimbursements for all meals and 
supplements served in public and private nonprofit child care 
centers, public and private nonprofit adult day care centers, 
certain for-profit child and adult day care centers, and family 
day care homes. Reimbursements for meals/supplements served in 
child/adult care centers differ according to whether they are 
served free (to children from families with income below 130% 
of Federal poverty guidelines), at a reduced price (to children 
with family income between 130% and 185% of the poverty 
guidelines), or at ``full price'' (so-called ``paid'' meals and 
supplements for those with family income above 185% of poverty 
or who do not apply for free or reduced price meals/
supplements). Reimbursements for meals and supplements served 
in family day care homes do not vary by the family income of 
the child, and sponsors of family day care homes receive 
monthly payments for administrative costs. [Sec. 17 of the 
National School Lunch Act]
      The Summer Food Service program provides Federal per 
meal/supplement reimbursements for all summer meals and 
supplements served through public and private nonprofit 
sponsors (including schools and local governments) to children 
in areas where 50% or more have family income below 185% of the 
Federal poverty guidelines (are eligible for free or reduced-
price school meals). Summer food service subsidies also are 
provided to public and private nonprofit summer camps and 
higher education institutions in the National Youth Sports 
program. [Sec. 13 of the National School Lunch Act]
      The Homeless Children Nutrition program grants funds to 
public and private nonprofit sponsors providing food service 
(meals and supplements), similar to that provided under the 
Child and Adult Care Food program, to homeless children under 
age 6 in shelters. [Sec. 17B of the National School Lunch Act] 
[General Note: In addition to cash reimbursements, Federal 
commodity assistance is available for the Child and Adult Care 
Food and Summer Food Service programs.]
House bill
      Provides that the Secretary of Agriculture make family 
nutrition grants to States if they agree to use their grant to:
            (1) provide nutritional risk assessment, food 
        assistance based on the assessment, and nutrition 
        education and counseling to economically disadvantaged 
        pregnant, postpartum, and breastfeeding women, and 
        infants and young children, who are determined to be at 
        nutritional risk (see item 10 for definitions);
            (2) provide milk in nonprofit nursery schools, 
        child care centers, settlement houses, summer camps, 
        and similar child care settings to children from 
        economically disadvantaged families (see item 10 for 
        definitions) [Note: Under the School-Based Nutrition 
        Block Grant Program, support could be provided for milk 
        served in schools.];
            (3) provide food service in institutions and family 
        day care homes providing child care to children from 
        economically disadvantaged families (see item 10 for 
        definitions) [Note: Under the School-Based Nutrition 
        Block Grant Program, support could be provided for 
        child care food service provided through schools. 
        Further Note: Adult-care food service would not be 
        funded under the Family Nutrition Block Grant 
        program.];
            (4) provide summer food service to economically 
        disadvantaged children through programs carried out by 
        nonprofit food authorities, local governments, higher 
        education institutions in the National Youth Sports 
        program, and nonprofit summer camps (see item 10 for 
        definitions) [Note: Under the School-Based Nutrition 
        Block Grant Program, support could be provided for 
        summer food service by schools.]; and
            (5) provide nutritious meals to pre-school-age 
        homeless children in shelters and other facilities 
        serving the homeless.
      [General Note: Federal commodity assistance would not be 
available for child care food and summer food service 
activities under the family nutrition grant.]
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

   B. Additional Requirements for Assistance for Women, Infants, and 
                                Children

Present law
      Under the WIC program, States must carry out cost 
containment measures in procuring infant formula (and, where 
practicable, other foods). Cost containment must be by 
competitive bidding (selection of a single source offering the 
lowest price) or another method that yields equal or greater 
savings. Cost savings (e.g., through manufacturer rebates) may 
be used by the State for WIC program purposes. The Secretary of 
Agriculture must provide technical assistance for cost-
containment bids and offer to solicit multi-State bids for 
infant formula and infant cereal. In addition, certain rules 
against bid-rigging and anti-competitive practices are 
established. [Sec. 17(b) (17)-(20) and (h) (8) & (9) of the 
Child Nutrition Act, and Sec. 25 of the National School Lunch 
Act]
House bill
      Requires that each State ensure that not less than 80% of 
its family nutrition grant is used to provide nutrition risk 
assessment, food assistance based on the assessment, and 
nutrition education and counseling to economically 
disadvantaged pregnant women, postpartum women, breastfeeding 
women, infants, and young children.
      With respect to assistance provided to women, infants, 
and young children, requires States to establish and carry out 
a cost containment system for procuring infant formula. 
Requires States to use cost containment savings for any of the 
activities supported under their family nutrition grant. 
Requires States to submit annual reports to the Secretary (1) 
describing their infant formula cost containment system and (2) 
estimating the cost savings from the system for the report year 
compared to savings from the preceding year, where appropriate.
      Requires States to ensure that equitable assistance for 
economically disadvantaged pregnant women, postpartum women, 
breastfeeding women, infants, and young children is provided to 
members of the Armed Forces and their dependents, regardless of 
their State of residence (see item 10 for definitions).
Senate amendment
      Includes findings on the success of the WIC program in 
improving the health status of women, infants, and children and 
saving Medicaid expenditures, as well as the importance of 
manufacturer rebates in helping to fund the WIC program. 
Provides that it is the sense of the Senate that any 
legislation not eliminate or in any way weaken present 
competitive bidding requirements for the purchase of infant 
formula in programs supported with Federal funds.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

        C. Child Care Food Assistance on Military Installations

Present law
      Assisted child care facilities must be licensed under 
Federal, State, or local rules. [Sec. 17(a)(1) of the National 
School Lunch Act]
House bill
      Requires States to provide equitable assistance under its 
program for child care facilities to Defense Department child 
care programs on military installations--to the extent 
consistent with the number of children in the programs and 
after consultation with the programs' representatives.
      In carrying out programs for child care facilities, bars 
States from requiring that those on military installations be 
licensed under State law if they are licensed by the Defense 
Department.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant (see Item #1).

  D. Authority to Use Family Nutrition Block Grant Amounts for Other 
                                Purposes

Present law
      No provision.
House bill
      Allows States to use not more than 20% of amounts 
received from a family nutrition block grant for any fiscal 
year to carry out State programs under other block grants 
authorized by:
            (1) part A of title IV of the Social Security Act 
        (relating to welfare for families with children);
            (2) part B of title IV of the Social Security Act 
        (relating to provision of child welfare services);
            (3) title XX of the Social Security Act (relating 
        to provision of social services);
            (4) the National School Lunch Act (relating to 
        school-based nutrition block grants); and
            (5) the Child Care and Development Block Grant.
      Provides that States may not transfer funds to other 
block grants unless the appropriate State agency makes a 
determination that sufficient amounts will remain available for 
the fiscal year to carry out activities under the Family 
Nutrition Block Grant program.
      Provides that family nutrition grant amounts States 
transfer to other block grants (noted above) will not be 
subject to the requirements of the Family Nutrition Block Grant 
program under the revised Child Nutrition Act, but will be 
subject to the requirements that apply to Federal funds 
provided directly to the block grant to which they are 
transferred.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant (see Item #1).

                               6. Reports

Present law
      No comparable provision.
House bill
      Requires that States, as a condition of receiving a 
family nutrition grant, agree to submit an annual report to the 
Secretary of Agriculture describing:
            (1) the number of individuals receiving assistance 
        under the grant for the reporting (fiscal) year;
            (2) the different types of assistance provided;
            (3) the extent to which the assistance provided was 
        effective in achieving the goals of the Family 
        Nutrition Block Grant program (see item 2B);
            (4) the standards and methods the State is using to 
        ensure the nutritional quality of assistance under the 
        grant;
            (5) the number of low-birthweight births in the 
        State in the reporting (fiscal) year compared to the 
        number of low-birthweight births in the previous year; 
        and
            (6) any other information that can be reasonably 
        required by the Secretary.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to the Child Nutrition Act (see 
Item #1).

                              7. Penalties

                       A. Penalty for Violations

Present law
      The Child Nutrition and National School Lunch Acts 
provide penalties for fraud in relation to assistance provided 
under either Act, grant the Secretary of Agriculture authority 
to establish and adjust claims against States, and establish a 
compliance and accountability program to monitor the use of 
Federal funds. [Sec. 12(g) and Sec. 22 of the National School 
Lunch Act, and Sec. 16 of the Child Nutrition Act]
House bill
      Requires the Secretary of Agriculture to reduce family 
nutrition grant amounts otherwise payable to a State by any 
amount paid under the grant that an audit made under the 
``Single Audit Act'' (chapter 75 of title 31 of the United 
States Code) finds has been used in violation of the revised 
Child Nutrition Act. However, the Secretary is barred from 
reducing any quarterly payment to the State by more than 25%.
Senate amendment
      No comparable provision.
    Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

           B. Penalty for Failure to Submit a Required Report

Present law
      No specific provision.
House bill
      Requires the Secretary to reduce by 3% the family 
nutrition grant amount otherwise payable to a State for any 
fiscal year if the Secretary determines that the State has not 
submitted the required annual report (see item 6) for the 
immediately preceding fiscal year within 6 months after the end 
of that fiscal year.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

 8. Model Nutrition Standards for Food Assistance for Women, Infants, 
                              and Children

                             A. Requirement

Present law
      No comparable provisions. [Note: The Secretary 
establishes nutrition standards for and foods to be made 
available under the WIC program; Sec. 17(b)(14) and 17(f)(12) 
of the Child Nutrition Act.]
House bill
      Not later than April 1, 1996, requires the National 
Academy of Sciences to develop model nutrition standards for 
food assistance provided to economically disadvantaged pregnant 
women, postpartum women, breastfeeding women, infants, and 
young children under the Family Nutrition Block Grant program 
(see Item #10 for definitions). The standards are to be 
developed by the Food and Nutrition Board of the Academy's 
Institute of Medicine, in cooperation with pediatricians, 
obstetricians, nutritionists, and directors of programs 
providing food assistance, nutrition education and counseling 
to these women, infants, and children.
      The model standards must require that food assistance 
provided to these women, infants, and children contain 
nutrients that are lacking in their diets, as determined by 
nutritional research.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                         B. Report to Congress

Present law
      No provision.
House bill
      Not later than one year after the model nutrition 
standards (noted above) are developed, requires the National 
Academy of Sciences to report to Congress regarding efforts of 
States to implement them.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                   9. Authorization of Appropriations

                            A. Authorization

Present law
      Federal appropriations for activities under current law 
replaced by the House bill's Family Nutrition Block Grant 
program are authorized at such sums as are necessary, except 
for the Homeless Children Nutrition program (provided specific 
amounts). [Sec. 13(r), 17(b), and 17B of the National School 
Lunch Act; Sec. 3(a) and 4(a) of the Child Nutrition Act]
House bill
      Authorizes appropriations for the Family Nutrition Block 
Grant program under the revised Child Nutrition Act at: $4.606 
billion for fiscal year 1996, $4.777 billion for fiscal year 
1997, $4.936 billion for fiscal year 1998, $5.120 billion for 
fiscal year 1999, and $5.308 billion for fiscal year 2000.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                            B. Availability

Present law
      With the exception of funding for the WIC program, 
appropriations for the activities under current law to be 
replaced by the Family Nutrition Block Grant program generally 
cannot be carried over to the next fiscal year.
House bill
      Authorizes amounts for the Family Nutrition Block Grant 
program to remain available until the end of the fiscal year 
subsequent to the year they were appropriated for.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                            10. Definitions

A. Breastfeeding Women, Infants, Postpartum Women, Pregnant Women, and 
                             Young Children

Present law
      For purposes of the WIC program: (1) breastfeeding women 
are defined as women up to 1 year postpartum who are 
breastfeeding their infants; (2) infants are defined as persons 
under 1 year of age; (3) postpartum women are defined as women 
up to 6 months after termination of pregnancy; (4) pregnant 
women are defined as those who have 1 or more fetuses in utero; 
and (5) young children are persons who have had their first 
birthday but not attained their fifth birthday. [Sec. 17(b) of 
the Child Nutrition Act]
House bill
      For purposes of State family nutrition grant programs, 
adopts present-law definitions of breastfeeding women, infants, 
postpartum women, pregnant women, and young children.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                     B. Economically Disadvantaged

Present law
      No directly comparable provisions. [Note: Under present 
law, means tests for assistance apply as follows: (1) for the 
WIC program, recipients must have family income below 185% of 
the Federal poverty guidelines (but States may not set 
standards below poverty); and (2) for those in child and adult 
care centers under the Child and Adult Care Food program, 
persons with family income below 130% of poverty are eligible 
for free meals/supplements, those with family income between 
130% and 185% of poverty are eligible for reduced-price meals 
and supplements, and those with family income above 185% of 
poverty (or who do not apply for free or reduced-price 
treatment) are eligible for ``paid'' (but still subsidized) 
meals and supplements. No individual income test is applied in 
the family day care home component of the Child and Adult Care 
Food program, the Summer Food Service program, the Special Milk 
program, and the Homeless Children Nutrition program.
House bill
      The term ``economically disadvantaged'' is defined to 
apply to individuals or families with annual income below 185% 
of the Federal poverty guidelines. [Note: No assistance under a 
family nutrition grant (other than aid to homeless children) 
could be given to those with family income above 185% of 
poverty.]
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                        C. School and Secretary

Present law
      ``Schools'' are defined as public or private nonprofit 
elementary, intermediate, or secondary schools. The 
``Secretary'' is defined as the Secretary of Agriculture.
House bill
      ``Schools'' and the ``Secretary'' would, under the Family 
Nutrition Block Grant program, have the same meaning as in 
present law.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                                D. State

Present law
      In general, ``State'' is defined as the 50 States, the 
District of Columbia, Puerto Rico, the Northern Marianas, 
American Samoa, Guam, and the Virgin Islands. In the WIC 
program, it includes an Indian tribe, band, or group recognized 
by the Interior Department, an intertribal council or group 
recognized by the Interior Department, or the Indian Health 
Service.
House bill
      ``State'' would, under the Family Nutrition Block Grant 
program have the same meaning as in present law. In addition, 
Indian tribal organizations (as defined under section 4(l) of 
the Indian Self-Determination and Education Assistance Act) 
would be included as States and could apply for grants.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to Child Nutrition Act (see Item 
#1).

                     11. National School Lunch Act

Present law
      Authorizes the School Lunch, Summer Food Service, Child 
and Adult Care Food, and Homeless Children Nutrition programs. 
Also authorizes commodity assistance for child nutrition 
programs and school lunch assistance for Defense Department 
overseas dependents' schools.
       Under the School Lunch program, schools choosing to 
participate receive per-meal Federal subsidies for all lunches 
they serve that meet Federal nutrition standards. Subsidies are 
indexed annually and differ depending on whether the meal is 
served free (to children from families with income below 130% 
of Federal poverty guidelines), at a reduced price (to children 
with family income between 130% and 185% of poverty), or at 
``full price'' (so-called ``paid'' lunches for those with 
family income above 185% of poverty or who do not apply for 
free or reduced-price meals). Schools with high proportions of 
free or reduced-price participants receive an additional per-
meal subsidy. [Sec. 4 & 11 of the National School Lunch Act]
      The Summer Food Service program provides Federal per-
meal/supplement reimbursements for all summer meals and 
supplements served through public and private nonprofit 
sponsors (including schools and local governments) to children 
in areas where 50% or more have family income below 185% of the 
Federal poverty guidelines (are eligible for free or reduced-
price school meals). Summer food service subsidies also are 
provided to public and private nonprofit summer camps and 
higher education institutions in the National Youth Sports 
program. [Sec. 13 of the National School Lunch Act]
      The Child and Adult Care Food program provides Federal 
per-meal reimbursements for all meals and supplements served in 
public and private nonprofit child care centers, public and 
private nonprofit adult day care centers, certain for-profit 
child and adult day care centers, and family day care homes. 
Reimbursements for meals/supplements in centers vary by the 
recipient's income, but not in family day care homes. Certain 
schools with after-school care programs also may receive 
assistance. [Sec. 17 & 17A of the National School Lunch Act] 
The Homeless Children Nutrition program grants funds to public 
and private nonprofit sponsors providing food service (meals 
and supplements), similar to that provided under the Child and 
Adult Care Food program, to homeless children under age 6 in 
shelters.
      The Agriculture Department is required to provide 
commodity support for meals served by institutions in the 
School Lunch, Child and Adult Care Food, and Summer Food 
Service programs. Schools and other institutions are 
``entitled'' to a specific dollar value of commodities based on 
the number of meals served. Schools and other institutions also 
receive ``bonus'' commodities donated from Federal stocks at 
the Agriculture Department's discretion. [Sec. 6 & 14 of the 
National School Lunch Act]
       The Secretary of Agriculture is required to make funds 
available for school lunch programs in Defense Department 
overseas dependent's schools to the same degree as for other 
schools (authority for school breakfast programs in these 
schools is contained in Sec. 20 of the Child Nutrition Act). 
[Sec. 17A of the National School Lunch Act]
House bill
      Retains the designation of the Act as the National School 
Lunch Act and replaces the Act's current provisions with 
authority for a School-Based Nutrition Block Grant Program.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment to:

 A. Create an optional State block grant entitled, ``SCHOOL NUTRITION 
                        OPTIONAL BLOCK GRANT.''

      OPTIONAL BLOCK GRANT--Under the terms of the optional 
block grant, not more than 22 States in fiscal year 1996 and, 
in succeeding years, all States have the option of receiving 
funds to carry out programs offering school breakfasts and 
lunches for all school children under a block grant.
      DECISION TO PARTICIPATE--States opting to participate in 
the block grant may reverse a decision to participate in the 
block grant once prior to the termination date and only after a 
two-year period of participation. If a State opts out, such 
State may resume participation under the school lunch and 
school breakfast programs and the commodity distribution 
program.
      STATE PLAN--States are required to submit a State plan to 
the Secretary in order to participate in the block grant.
      USE OF FUNDS--Allows States to use funds only for school 
lunches, breakfasts, and supplements and for the purchase of 
equipment or improvement of facilities needed to improve school 
food services.
      NONPROFIT OPERATION--School lunch and breakfast programs 
are to be operated on a nonprofit basis.
       ADMINISTRATIVE EXPENSES--None of the funds under the 
block grant are to be used for State administrative expenses. 
(States will continue to receive such funds under current SAE 
provisions).
      NUTRITIONAL REQUIREMENTS--States are to provide minimum 
nutritional requirements for meals based on the most recent 
tested nutritional research available. Such requirements shall, 
to the extent practicable, be consistent with the goals of the 
most recent Dietary Guidelines for Americans. Meals shall 
provide, on the average over a week, at least \1/3\ of the 
recommended dietary allowance for lunches and \1/4\ of the 
recommended dietary allowance for breakfasts. The Secretary may 
not impose any additional nutritional requirements beyond those 
specified in this section.
      STATE REVIEW--States will review the meal operations in 
each school food authority participating in the block grant no 
later than two years after implementation of the block grant 
and at the end of each 5-year period thereafter.
      INCOME ELIGIBILITY--The State plan will describe how the 
block grant will serve specific groups of children in the 
State. The plan will further describe the income eligibility 
limitations established for free meals and, if available, for 
low-cost meals.
      FREE MEALS--State's plan are required to offer access to 
free meals to students who are members of families with incomes 
at or below 130 percent of poverty and who attend a school 
participating in the block grant.
      CONTINUED PARTICIPATION--Each school participating in the 
current school lunch and breakfast program in a State opting 
for a block grant is to be given opportunity to participate in 
State program under the block grant.
      CASH/CLOC--States are required to permit a school 
district, nonprofit private school or DOD domestic dependents' 
school to receive commodity assistance in the same form they 
received such assistance as of January 1, 1987.
      PRIVACY--States shall provide for safeguarding and 
restricting the use and disclosure of information about 
children receiving assistance under this Act. Physical 
segregation and overt identification of children participating 
in the block grant is prohibited.
      REQUIRED REPORT--In order to participate, States must 
agree to submit a report to the Secretary each fiscal year 
describing (a) the number of children receiving assistance; (b) 
the different types of assistance provided; (c) the extent to 
which assistance was effective in achieving program goals; (d) 
the standards and methods used to ensure the nutritional 
quality of meals and meal supplements and (e) other information 
the Secretary can reasonably require. Failure to submit the 
required report will cause a 3 percent reduction in amounts 
otherwise payable to a State.
      COMPLIANCE--The Secretary is required to review and 
monitor State compliance and withhold funds to the State with 
respect to the program or activity for which noncompliance is 
found, until the Secretary determines the problem has been 
corrected. The Secretary may seek financial restitution for 
misused funds.
      PAYMENTS TO STATES--Payments to States under the block 
grant shall be on a quarterly basis and may be expended by the 
State for the current fiscal year or the succeeding fiscal 
year.
      AUDITS--A yearly audit is required.
      ALLOTMENT--In the first year of participation, the 
Secretary is required to allot to each participating State an 
amount that is equal to the amount the Secretary projects will 
be made available to the State to carry out the school lunch 
and breakfast programs (including commodities) for the current 
fiscal year. In succeeding years, the amount will equal the 
amount provided in the preceding fiscal year, adjusted to 
reflect changes in the consumer price index, services for food 
away from home, and changes in each State's student enrollment.
      COMMODITIES--Not less than 8 percent and not more than 10 
percent of the amount of a State's allotment will be in the 
form of commodities.
      ALTERNATIVE ASSISTANCE--Requires the Secretary to arrange 
for the provision of assistance and reduce State allotments 
accordingly, in cases where a State is prohibited by law from 
providing assistance to a nonprofit private school or a DOD 
domestic dependents' school or if a State has substantially 
failed or is unwilling to provide such assistance to a 
nonprofit private school, a DOD domestic dependents' school or 
a public school.
      TRANSITION--A State taking the block grant option may use 
funds and commodities from the preceding fiscal year under the 
school lunch and breakfast program to transition into the block 
grant and may use block grant funds to transition out of the 
block grant if the State decides to end participation before 
the end of the fiscal year.
      EVALUATION--No later than three years after the 
establishment of the block grant the Secretary is to conduct an 
evaluation and submit a report to Congress, including the 
comments of the Comptroller General. The report is to include 
information on the effects of the block grant on the 
nutritional quality of meals; the degree to which children, 
particularly low income children participated in the block 
grant, the income distribution of children served and the 
amount of assistance such children received; the types of meals 
offered under the block grant; how the implementation of the 
block grant differs from the implementation of the school lunch 
and breakfast programs; the effect of the block grant on state 
and school administrative costs, the effect of the block grant 
on paperwork.
      AUTHORIZATION PERIOD--the block grant option is 
authorized through September 30, 2002.

   B. Streamline provisions of the National School Lunch Act of 1966

      1. Revise Sec. 6(a)(3), striking provision that allows 
schools to refuse up to 20% of commodities and the related 
language and conforming reference to fruit and vegetable 
refusals not counted towards the 20% maximum.
      2. Revise Sec. 6(e)(1(E) to eliminate provisions 
requiring that not less than 75% of assistance be provided in 
the form of commodities donated to school lunch programs.
      3. Revise Sec. 6(e)(2), substituting the first sentence 
with ``Each State agency shall offer and equitably distribute 
commodities among schools participating in the school lunch 
program.''
      4. Strike Sec. 6(f) allowing commodities to be offered to 
school breakfasts on a per meal basis.
      15. Revise Sec. 11(b), striking references to ``maximum 
per lunch amounts.''
      30. Revise Sec. 13(a)(1) to eliminate reference to 
expansion.
      34. Revise Sec. 13(b)(2) to provide that service 
institutions that operate as camps or serve meals primarily to 
migrant children may serve three meals or two meals and one 
supplement.
      35. In Sec. 13, references to the National Youth Sports 
Program are amended by (1) striking non summer months payments; 
(2) striking severe needs reimbursements; and (3) requiring 
that participants be from low-income areas.
      36. Revise Sec. 13(f) by permitting children attending a 
site on school premises operated directly by the authority to 
refuse not more than one item of a meal without affecting the 
amount of payments made to the school.
      39. Revise Sec. 13(g)(1)(B) by striking second sentence 
to eliminate technical assistance for those with difficulty 
maintaining compliance.
      56. Revise Sec. 17 by, in the title of the section, 
striking ``and Adult.''
      57. Revise Sec. 17(a) to eliminate reference to 
authorization to ``expand'' programs.
      70. Repeal Section 26.
      72. Strike Sec. 18(d)(3)(A),(B),(C) to eliminate the 
universal free pilot.
      73. Revise Sec. 18(e) to make the demonstration project 
for outside school hours discretionary.

        12. Authorization for School-Based Nutrition Block Grant

                             A. Entitlement

Present law
      States are entitled to ``performance-based'' funding 
according to the number and type of meals and supplements 
served under school-based programs authorized by the National 
School Lunch and Child Nutrition Acts.
House bill
      ``Entitles'' each State that submits an annual 
application (see item 14) to receive an annual school-based 
nutrition grant for the purpose of achieving the goals of the 
School-Based Nutrition Block Grant Program (see item 12D for 
the program's goals and item 13 for State entitlement 
allotments).
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                 B. Requirement to Provide Commodities

Present law
      The Secretary of Agriculture is required to ensure that 
no less than 12% of the total amount of ``entitlement'' 
commodity and cash assistance for the School Lunch program is 
in the form of commodity support (including cash in lieu of 
commodities in the limited instances where available and 
administrative costs for procuring commodities). [Sec. 6(g) of 
the National School Lunch Act]
House bill
      Requires that 9% of the amount of assistance available 
under the school-based block grant be in the form of 
commodities.
Senate amendment
      No directly comparable provision. [Note: See item 26]
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

               C. The School-Based Nutrition Block Grant

Present law
      Federal funds for activities under existing law replaced 
by the House bill's school-based grant are authorized at such 
sums as are necessary and provided based on the number of 
meals, supplements, and half-pints of milk served.
      The Secretary is required to make school lunch and school 
breakfast funding and commodities available to Defense 
Department overseas dependents' schools to the same degree as 
other schools. [Sec. 20 of the National School Lunch Act and 
Sec. 20 of the Child Nutrition Act]
House bill
      Provides that the annual total school-based block grant 
provided States as their ``entitlement'' will be: $6.681 
billion for fiscal year 1996, $6.956 billion (fiscal year 
1997), $7.237 billion (fiscal year 1998), $7.538 billion 
(fiscal year 1999), and $7.849 billion (fiscal year 2000).
      For each fiscal year, requires the Secretary to reserve 
from the total entitlement an amount determined necessary, in 
consultation with the Secretary of Defense, to establish and 
carry out nutritious food service programs at Defense 
Department overseas dependents' schools.
      Permits States to obligate payments under a school-based 
nutrition grant in the succeeding fiscal year.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                                D. Goals

Present law
      The National School Lunch Act declares it the policy of 
Congress, as a measure of national security, to safeguard the 
health and well-being of the Nation's children and to encourage 
the domestic consumption of agricultural commodities by 
assisting States through grants and other means in providing 
support for the establishment, maintenance, operation, and 
expansion of nonprofit school lunch programs. [Sec. 2 of the 
National School Lunch Act]
House bill
      Establishes the goals of the School-Based Block Grant 
Program:
            (1) to safeguard the health and well-being of 
        children through the provision of nutritious, well-
        balanced meals and food supplements;
            (2) to provide economically disadvantaged children 
        (see item 21B for definition) access to nutritious free 
        or low-cost meals, food supplements, and low-cost milk;
            (3) to ensure that children served under the 
        School-Based Block Grant program are receiving the 
        nutrition they require to take advantage of educational 
        opportunities;
            (4) to emphasize foods that are naturally good 
        sources of vitamins and minerals over enriched foods 
        and those high in fat or sodium content;
            (5) to provide a comprehensive school nutrition 
        program for children; and
            (6) to minimize paperwork burdens and 
        administrative expenses for participating schools.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                         E. Timing of Payments

Present law
      No provision.
House bill
      Directs that the Secretary of Agriculture make school-
based nutrition grant payments to the States on a quarterly 
basis.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

          13. Allotment of School-Based Nutrition Block Grant

Present law
      Current activities that may be funded under the House 
bill's School-Based Nutrition Block Grant program include those 
now supported by the School Lunch and Breakfast programs, and 
school-sponsored programs under the Child and Adult Care Food 
program, the Summer Food Service program, and the Special Milk 
program.
      In all cases, ``performance funding'' is provided for 
each meal, supplement, or half-pint of milk served by 
participating schools, at legislatively established, inflation 
indexed rates.
House bill
      As set forth below, provides for the Secretary of 
Agriculture to make State allotments of the School-Based 
Nutrition Block Grant entitlement.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with and amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                     A. First Year State Allotments

Present law
      No provisions.
House bill
      For the first fiscal year in which grants are made, 
provides that the Secretary make allotments to States based on 
the proportion of funds each State received under prior law for 
the preceding fiscal year.
      Base-year State Shares: Each State's allotment would be 
its prior-year share of funds received under the School Lunch 
and Breakfast programs, plus 12.5% of the amounts received 
under the Child and Adult Care Food, Summer Food Service, and 
Special Milk programs.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                    B. Second Year State Allotments

Present law
      No provision.
House bill
      For the second fiscal year in which grants are made, 
provides that (1) 95% of the total entitlement amount be 
allotted according to each State's share of the amount allotted 
in the first year and (2) 5% of the entitlement amount allotted 
be based on each State's share of the number of meals served 
under the grant during the 1-year period ending the preceding 
June 30.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

               C. Third and Fourth Year State Allotments

Present law
      No provision.
House bill
      For the third and fourth fiscal years in which grants are 
made, provides that (1) 90% of the total entitlement amount be 
allotted according to each State's share of the amount allotted 
in the preceding year and (2) 10% of the entitlement amount 
allotted be based on each State's share of the number of meals 
served under the grant during the 1-year period ending the 
preceding June 30.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch (see 
Item #11).

                     D. Fifth Year State Allotments

Present law
      No provision.
House bill
      For the fifth fiscal year in which grants are made, 
provides that (1) 85% of the total entitlement amount be 
allotted according to each State's share of the amount allotted 
in the fourth year and (2) 15% of the entitlement amount 
allotted be based on each State's share of the number of meals 
served under the grant during the 1-year period ending the 
preceding June 30.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

           14. Application for School-Based Nutrition Grants

Present law
      Nutrition requirements for school-provided meals are 
established by the Secretary of Agriculture on the basis of 
tested nutritional research, are not to be construed to 
prohibit substitution of foods to accommodate medical or other 
special dietary needs, must, at a minimum, be based on the 
weekly average nutrient content of school lunches, and may, 
with certain limits on how schools may be required to implement 
them, be based on the Federal ``Dietary Guidelines for 
Americans.'' [Sec. 9(a) and Sec. 12(k) of the National School 
Lunch Act, and Sec. 4(e) of the Child Nutrition Act]
      The use/disclosure of information obtained from 
applications for free/reduced-price meals is limited to those 
administering/enforcing child nutrition programs, 
administrators of other health or education programs (with 
restrictions), and the General Accounting Office and law 
enforcement officials. [Sec. 9(b) of the National School Lunch 
Act]
House bill
      Provides that the Secretary make a school-based nutrition 
grant to a State if it submits an application containing only 
the following:
            (1) an agreement that the State will use the grant 
        in accordance with the School-Based Block Grant program 
        requirements (see item 15);
            (2) an agreement that the State will set minimum 
        nutrition requirements for meals provided under the 
        grant based on the most recent tested nutrition 
        research available (but the requirements could not be 
        construed to prohibit the substitution of foods to 
        accommodate medical or other special dietary needs and 
        would have to be based, at a minimum, on the weekly 
        average nutrient content of school lunches or other 
        standards set by the State);
            (3) an agreement that, with respect to provision of 
        meals to students, the State will implement minimum 
        nutrition requirements based on the most recent tested 
        nutrition research available or the model nutrition 
        standards developed by the National Academy of Sciences 
        (see item 20);
            (4) an agreement that the State will take 
        reasonable steps it deems necessary to restrict the use 
        and disclosure of information about those receiving 
        assistance under the grant;
            (5) an agreement that the State will not use more 
        than 2% of its grant for administrative costs incurred 
        to provide assistance; and
            (6) an agreement that the State will submit an 
        annual report to the Secretary (see item 16).
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

  15. Use of Amounts Provided Under the School-Based Nutrition Block 
                                 Grant

                        A. Activities Supported

Present law
      The School Lunch and Breakfast programs provide Federal 
support to schools for nonprofit meal services to 
schoolchildren. In addition, to a more limited degree, schools 
offer (and receive Federal subsidies for) after-school food 
assistance, milk service, and summer food service programs.
House bill
      Provides that the Secretary of Agriculture make school-
based nutrition grants to States if they agree to use their 
grant to provide assistance to schools for nutritious food 
service programs that provide affordable meals and supplements 
to students, including nonprofit:
            (1) school breakfast programs;
            (2) school lunch programs;
            (3) before and after school supplement programs;
            (4) low-cost milk services; and
            (5) summer meal programs.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                       B. Additional Requirements

Present law
      Under the School Lunch and Breakfast programs, and after-
school assistance, milk service, and summer food service 
programs, schools are provided with specific Federal 
reimbursements for free and reduced-price meals, supplements, 
and milk for lower-income children (with family income below 
185% of poverty) that are higher than those granted for 
``paid'' meals, supplements, and milk provided those with 
higher income.
House bill
      Requires that each State ensure that not less than 80% of 
its school-based grant is used to provide free or low-cost 
meals to economically disadvantaged children (see item 21 for 
definitions).
      Requires that each State ensure that nutritious food 
service programs are established and carried out in private 
nonprofit and Defense Department domestic dependents' schools 
on an equitable basis with programs in public schools in the 
State--to the extent consistent with the number of children in 
these schools and after consultation with representatives of 
the schools (see item 18).
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

  C. Authority to Use School-Based Nutrition Block Grant Amounts for 
                             Other Purposes

Present law
      No provision.
            (2) Sufficient funding
      No provision.
            (3) Amounts used for other purposes
      No provision.
House bill
      Allows States to use not more than 20% of amounts 
received from a school-based nutrition grant for any fiscal 
year to carry out State programs under other block grants 
authorized by:
            (1) part A of title IV of the Social Security Act 
        (relating to welfare for families with children);
            (2) part B of title IV of the Social Security Act 
        (relating to provision of child welfare services);
            (3) title XX of the Social Security Act (relating 
        to provision of social services);
            (4) the Child Nutrition Act of 1966 (relating to 
        family nutrition block grants); and
            (5) the Child Care and Development Block Grant.
      Provides that States may not transfer funds to other 
block grants unless the appropriate State agency makes a 
determination that sufficient funds will remain available for 
the fiscal year to carry out activities under the School-Based 
Block Nutrition Block Grant Program.
      Provides that school-based nutrition block grant amounts 
States transfer to other block grants (noted above) will not be 
subject to the requirements of the School-Based Nutrition Block 
Grant program under the revised National School Lunch Act, but 
will be subject to the requirements that apply to Federal funds 
provided directly to the block grant to which they are 
transferred.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

               D. Limitation on Provision of Commodities

Present law
      Certain schools receive cash or commodity letters of 
credit in lieu of entitlement commodities (so-called ``Cash/
CLOC'' schools). [Sec. 18(b) of the National School Lunch Act]
House bill
      Provides that States may not require current Cash/CLOC 
schools to accept commodities in lieu of cash or commodity 
letters of credit.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

E. Segregation/Identification of Children Eligible for Free or Low-Cost 
                          Meals or Supplements

Present law
      Schools may not physically segregate, overtly identify, 
or otherwise discriminate against any child eligible for free 
or reduced-price lunches. [Sec. 9(b)(4) of the National School 
Lunch Act]
House bill
      Requires States to ensure that schools receiving school-
based nutrition grant assistance do not physically segregate, 
overtly identify, or otherwise discriminate against children 
eligible for free or low-cost meals or supplements.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                              16. Reports

Present law
      No comparable provision.
House bill
      Requires that States, as a condition of receiving a 
school-based nutrition grant, agree to submit an annual report 
to the Secretary of Agriculture describing:
            (1) the number of individuals receiving assistance 
        under the grant for the reporting (fiscal) year;
            (2) the different types of assistance provided;
            (3) the total number of meals served to students 
        under the grant, including the percentage served to 
        economically disadvantaged students;
            (4) the extent to which the assistance provided was 
        effective in achieving the goals of the School-Based 
        Nutrition Block Grant program (see Item #12D);
            (5) the standards and methods the State is using to 
        ensure the nutritional quality of assistance under the 
        grant; and
            (6) any other information that can be reasonably 
        required by the Secretary.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                             17. Penalties

                       A. Penalty for Violations

Present law
      [Note: See Item #7.]
House bill
      Requires the Secretary of Agriculture to reduce the 
school-based nutrition grant amount otherwise payable to a 
State by any amount paid under the grant that an audit made 
under the ``Single Audit Act'' (chapter 75 of title 31 of the 
United States Code) finds has been used in violation of the 
revised National School Lunch Act. However, the Secretary is 
barred from reducing any quarterly payment to the State by more 
than 25%.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

           B. Penalty for Failure to Submit a Required Report

Present law
      No specific provision.
House bill
      Requires the Secretary to reduce by 3% the school-based 
nutrition grant amount otherwise payable to a State for any 
fiscal year if the Secretary determines that the State has not 
submitted the required annual report (see item 16) for the 
immediately preceding fiscal year within 6 months after the end 
of the fiscal year.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

 18. Federal Assistance for Children in Private Nonprofit Schools and 
            Defense Department Domestic Dependents' Schools

Present law
      Where States are by law precluded from providing child 
nutrition assistance to certain types of schools (e.g. private 
nonprofit schools), the Secretary is authorized to provide 
assistance directly.
House bill
      If a State is precluded by law from providing assistance 
under the school-based nutrition grant to nonprofit private 
schools or Defense Department domestic dependents' schools, or 
the Secretary has determined that the State has substantially 
failed or is unwilling to provide assistance to the schools, 
requires the Secretary to arrange for provision of school-based 
nutrition assistance to the schools, after consultation with 
appropriate school representatives. In the case that the 
Secretary provides assistance to private nonprofit schools or 
Defense Department domestic dependents' schools, the State's 
school-based nutrition grant would be reduced to reflect the 
assistance provided.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

 19. Food Service Programs for Defense Department Overseas Dependents' 
                                Schools

                             A. Assistance

Present law
      [Note: See Item #12C(2)]
House bill
      Requires the Secretary to make available to the Secretary 
of Defense funds and commodities (as determined by the 
Secretary in consultation with the Secretary of Defense, and 
reserved from the total school-based grant) for establishing 
and carrying out nutritious food service programs providing 
affordable meals and supplements to students in Defense 
Department overseas dependents' schools.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                            B. Requirements

Present law
      Federally subsidized school meal programs in Defense 
Department overseas dependents' schools must meet the same 
requirements as programs in domestic schools.
House bill
      In carrying out food service programs in Defense 
Department overseas dependents' schools, requires the Secretary 
of Defense to (1) ensure that not less than 80% of the 
assistance is used to provide free or low-cost meals and 
supplements to economically disadvantaged children (see Item 
#21B for definition) and (2) the schools will implement minimum 
nutrition requirements in the same way domestic schools 
receiving assistance under the school-based nutrition grant are 
required to (including optional use of model nutrition 
standards).
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

            20. Model Nutrition Standards for Student Meals

                             A. Requirement

Present law
      No comparable provisions. [Note: The Secretary 
establishes nutrition standards for school meals.]
House bill
      Not later than April 1, 1996, requires the National 
Academy of Sciences to develop model nutrition standards for 
meals provided to students under the School-Based Block Grant 
Program. The standards are to be developed by the Food and 
Nutrition Board of the Academy's Institute of Medicine, in 
cooperation with nutritionists and directors of school meal 
programs.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                         B. Report to Congress

Present law
      No provision.
House bill
      Not later than one year after the model nutrition 
standards (noted above) are developed, requires the National 
Academy of Sciences to report to Congress regarding the efforts 
of States to implement them.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see Item #11).

                            21. Definitions

                        A. Schools and Secretary

Present law
      In general, ``schools'' are defined as public or private 
nonprofit elementary, intermediate, or secondary schools. The 
``Secretary'' is defined as the Secretary of Agriculture.
House bill
      ``Schools'' and ``Secretary'' would be defined as having 
the same meaning as in existing law. In addition, parallel 
definitions are added for Defense Department domestic and 
overseas dependents' schools.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see item #11).

                     B. Economically Disadvantaged

Present law
      No directly comparable provision. [Note: Subsidies are 
provided for free and reduced-price meals served to children 
with family income under 185% of the Federal poverty 
guidelines. However, Federal school food service subsidies are 
not limited to these lower-income children.]
House bill
      The term ``economically disadvantaged'' is defined to 
apply to individuals or families with annual income below 185% 
of the Federal poverty guidelines. [Note: Assistance under the 
School-Based Nutrition Grant could be given to children with 
family income above 185% of poverty.]
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see item #11).

                                C. State

Present law
      In general, for school food programs, ``State'' is 
defined as the 50 States, the District of Columbia, Puerto 
Rico, the Northern Marianas, American Samoa, and the Virgin 
Islands.
House bill
      ``State,'' under the School-Based Nutrition Grant, would 
have the same meaning as in present law, except that Indian 
tribal organizations (as defined under section 4(l) of the 
Indian Self-Determination and Education Assistance Act) would 
be included as States and could apply for grants.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see item #11).

                             22. Repealers

Present law
      Not applicable.
House bill
      Makes conforming technical amendments repealing the 
Commodity Distribution Reform Act and WIC Amendments of 1987 
and the Child Nutrition and WIC Reauthorization Act of 1989.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see item #11).

                           23. Effective Date

Present law
      Not applicable.
House bill
      Makes amendments replacing Child Nutrition and National 
School Lunch Act provisions with Family Nutrition and School-
Based Nutrition Block Grants effective October 1, 1995.
Senate amendment
      No comparable provision.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see item #11).

              24. Application of Amendments and Repealers

Present law
      Not applicable.
House bill
      Provides that amendments and repealers associated with 
replacing Child Nutrition and National School Lunch Act 
provisions with Family Nutrition and School-Based Nutrition 
Block Grants not apply with respect to (1) financial assistance 
provided under prior law and (2) administrative actions or 
proceedings commenced or authorized to be commenced before the 
effective date.
Senate amendment
      No comparable provisions.
Conference agreement
      Senate recedes with an amendment creating an optional 
block grant and making changes to National School Lunch Act 
(see item #11).

25. Termination of Additional Payments for Lunches Served in High Free 
                and Reduced Price Participation Schools

Present law
      Lunches served by school food authorities where 60 
percent or more of the lunches are served free or at a reduced 
price (to children with family income below 185 percent of the 
Federal poverty income guidelines) are reimbursed at a rate 2 
cents a meal higher than regular subsidy rates. [Sec. 4(b) of 
the National School Lunch Act]
House bill
      No comparable provision.
Senate amendment
      Effective July 1, 1996 (the 1996-1997 school year), the 
extra 2 cent per lunch reimbursement to schools with high rates 
of free and reduced-price participation.
Conference agreement
      House recedes with an amendment to drop by 1 cent the 
extra 2 cent per lunch reimbursement to schools with high rates 
of free and reduced price participation effective July 1, 1998, 
the extra 1 cent reimbursement is eliminated.

                      26. Value of Food Assistance

Present law
      Schools and certain other child nutrition sponsors are 
``entitled'' to commodities valued at a legislatively set, 
inflation-indexed amount per meal served. The per-meal 
reimbursement rate is indexed annually to reflect the annual 
percentage change in a 3-month average value of the Price Index 
for Food Used in Schools and Institutions, and rounded to the 
nearest \1/4\ cent. [Sec. 6(e) of the National School Lunch 
Act]
House bill
      No directly comparable provision. [Note: See item 12B.]
Senate amendment
      Freezes (for one year) the guaranteed per-meal 
reimbursement rate for entitlement commodity assistance and 
revises (by changing rounding rules) the method of calculating 
this reimbursement rate.
      On January 1, 1996, the entitlement commodity 
reimbursement rate set under current law for the 1995-1996 
school year (as rounded to the nearest \1/4\ cent) would be 
rounded down to the nearest lower cent. For the 1996-1997 
school year, the rate would be frozen at the rate for the 1995-
1996 school year (as rounded down to the nearest lower cent). 
For the 1997-1998 school year, the rate would be the unrounded 
rate for the 1995-1996 school year, adjusted for inflation over 
the most recent 12-month period and rounded down to the nearest 
lower cent. For following school years, the rate would be the 
unrounded rate for the preceding year, adjusted for inflation 
over the most recent 12-month period and rounded down to the 
nearest lower cent. (p. 348)
      [Note: Current-law rules as to the inflation-adjustment 
factor to be used (i.e., the Price Index for Food Used in 
Schools and Institutions) are not changed.]
Conference agreement
      House recedes with an amendment providing that for the 
1996-1997 and 1997-1998 school years the entitlement commodity 
reimbursement rate is frozen at the rate for the 95-96 school 
year (as rounded down to the nearest lower cent).

                27. Lunches, Breakfasts, and Supplements

Present law
      ``Paid'' lunches, breakfasts, and supplements are served 
to those with family income above 185 percent of the Federal 
poverty guidelines. Guaranteed Federal reimbursement rates for 
each paid lunch, breakfast, and supplement are indexed annually 
to reflect changes in the food away from home series of the 
Consumer Price Index. When indexed, all reimbursement rates 
(i.e., for paid, free, and reduced-price meals and supplements) 
are rounded to the nearest \1/4\ cent. Present law establishes 
reduced price lunch reimbursement rates set at 40 cents less 
than the free lunch rates, and sets a maximum meal charge of 40 
cents for these lunches. [Sec. 11(a) of the National School 
Lunch Act]
House bill
      No comparable provisions.
Senate amendment
      Freezes (for two years) reimbursement rates for paid 
lunches, breakfasts, and supplements. Revises (by changing 
rounding rules) the method for calculating reimbursement rates 
for paid, free, and reduced-price lunches, breakfasts, and 
supplements. [Note: Reimbursement rates for meals and 
supplements served in family day care homes and the Summer Food 
Service program are and would be governed by separate 
provisions of law (see below).]
      On January 1, 1996, reimbursement rates for paid, free, 
and reduced-price lunches, breakfasts, and supplements set 
under current law for the 1995-1996 school year (as rounded to 
the nearest \1/4\ cent) would be rounded down to the nearest 
lower cent. For the 1996-1997 and 1997-1998 school years, the 
reimbursement rates for paid lunches, breakfasts, and 
supplements would be frozen at the rates for the 1995-1996 
school year (as rounded down to the nearest lower cent). For 
the 1998-1999 school year, the reimbursement rates for paid 
lunches, breakfasts, and supplements would be the unrounded 
rates for the 1995-1996 school year adjusted for inflation over 
the most recent 12-month period for which data are available, 
and rounded down to the nearest lower cent. For following 
school years, the reimbursement rates for paid lunches, 
breakfasts, and supplements would be the unrounded rates for 
the preceding year adjusted for inflation over the most recent 
12-month period, and rounded down to the nearest lower cent.
      Reimbursement rates for free and reduced-price lunches, 
breakfasts, and supplements would continue to be indexed 
annually for inflation each school year (i.e., no two-year 
freeze), but would be rounded down to the nearest lower cent. 
[Note: Current-law rules as to the inflation-adjustment factor 
to be used (i.e., the food away from home series of the 
Consumer Price Index) are not changed.]
Conference agreement
       Freezes (for two years) reimbursement rates for paid 
lunches, breakfasts, and supplements. Revises (by changing 
rounding rules) the method for calculating reimbursement rates 
for paid, free, and reduced-price lunches, breakfasts, and 
supplements. [Note: Reimbursement rates for meals and 
supplements served in family day care homes and the Summer Food 
Service program are and would be governed by separate 
provisions of law (see below).]
      On January 1, 1996, reimbursement rates for paid, free, 
and reduced-price breakfasts and supplements set under current 
law for the 1995-1996 school year would be rounded down to the 
nearest one cent. On July 1, 1996, reimbursement rates for 
paid, free and reduced price lunches would be rounded down to 
the nearest one cent. For the 1996-1997 and 1997-1998 school 
years, the reimbursement rates for paid lunches, breakfasts, 
and supplements would be frozen at the rates for the 1995-1996 
school year (as rounded down to the nearest lower cent). For 
the 1998-1999 school year, the reimbursement rates for paid 
lunches, breakfasts, and supplements would be the unrounded 
rates for the 1995-1996 school year adjusted for inflation over 
the most recent 12-month period for which data are available, 
and rounded down to the nearest lower cent. For following 
school years, the reimbursement rates for paid lunches, 
breakfasts, and supplements would be the unrounded rates for 
the preceding year adjusted for inflation over the most recent 
12-month period, and rounded down to the nearest lower cent.
      Reimbursement rates for free and reduced-price lunches, 
breakfasts, and supplements would continue to be indexed 
annually for inflation each school year (i.e., no two-year 
freeze), but would be rounded down to the nearest lower cent. 
[Note: Current-law rules as to the inflation-adjustment factor 
to be used (i.e., the food away from home series of the 
Consumer Price Index) are not changed.]
      The differential between free and reduced price lunch 
reimbursements would be lowered by 5 cents (to 45 cents) 
effective July 1, 2000, and by an additional 5 cents (to 50 
cents) effective July 1, 2001, and corresponding changes would 
be made to the reduced price meal charge limits.

              28. Summer Food Service Program for Children

Present law
      Under the Summer Food Service program, all meals and 
supplements served are federally subsidized at legislatively 
set, inflation-indexed rates that, for the 1995 summer (set in 
January 1995), were $2.12 for each lunch/supper, $1.18 for each 
breakfast, and 55.5 cents for each supplement. In addition, 
sponsors receive payments for administrative costs based on the 
number of meals/supplements served. Basic Federal payments for 
lunches, breakfasts, and supplements are indexed for inflation 
annually based on the food away from home series of the 
Consumer Price Index, and rounded to the nearest \1/4\ cent. 
[Sec. 13(b) of the National School Lunch Act]
House bill
      No comparable provisions.
Senate amendment
      Establishes new, lower reimbursement rates for meals and 
supplements served in the Summer Food Service program as 
follows: $2 for lunches/suppers, $1.20 for breakfasts, and 50 
cents for supplements. The new rates would become effective 
January 1, 1996 (for the 1996 summer program), and be adjusted 
each January thereafter to reflect changes in the food away 
from home series of the Consumer Price Index (as under current 
law). However, while each adjustment would be based on the 
unrounded rates for the prior 12-month period, it would be 
rounded down to the nearest cent. [Note: Additional 
administrative-cost payment rates to sponsors are not 
affected.]
Conference agreement
      House recedes with an amendment establishing new, lower 
rates for meals and supplements served in the Summer Food 
service program as follows: $1.82 for lunches served; $1.13 
each breakfast served and $.46 for each meal supplement served.

                        29. Special Milk Program

Present law
      Under the Special Milk program, the minimum per-half-pint 
reimbursement rate is indexed annually to reflect changes in 
the Producer Price Index for Fresh Processed Milk, and rounded 
to the nearest \1/4\ cent. [Sec. 3(a) of the Child Nutrition 
Act]
 House bill
      No comparable provisions.
Senate amendment
      Freezes (for one year) the minimum per-half-pint 
reimbursement rate and revises (by changing rounding rules) the 
method of calculating the reimbursement rate.
      On Jan. 1, 1996, the minimum reimbursement rate set under 
current law for the 1995-1996 school year (as rounded to the 
nearest \1/4\ cent) would be rounded down to the nearest cent. 
For the 1996-1997 school year, the minimum reimbursement rate 
would be frozen at the rate for the 1995-1996 school year (as 
rounded down to the nearest cent). For the 1997-1998 school 
year, the minimum reimbursement rate would be the unrounded 
rate for the 1995-1996 school year adjusted for inflation over 
the most recent 12-month period for which data are available, 
and rounded down to the nearest lower cent. For following 
school years, the minimum reimbursement rate would be the 
unrounded rate for the preceding year adjusted annually for 
inflation, and rounded down to the nearest lower cent. [Note: 
Current-law rules as to the inflation adjustment factor to be 
used (i.e., the Producer Price Index for Fresh Processed Milk) 
are not changed.]
Conference agreement
      House recedes with an amendment providing that for the 
1996-1997 and 1997-1998 school years, the minimum reimbursement 
rate is frozen at the rate for the 1995-1996 school year (as 
rounded down to the nearest lower cent).

                 30. Free and Reduced Price Breakfasts

Present law
      Reimbursement rates for free and reduced-price breakfasts 
are indexed annually for inflation and rounded to the nearest 
\1/4\ cent. [Sec. 4(b) of the Child Nutrition Act]
House bill
      No comparable provision.
Senate amendment
      Requires that annual adjustments to reimbursement rates 
for free and reduced-price breakfasts be based on the previous 
year's unrounded rates and, after adjustment for inflation, 
rounded down to the nearest lower cent.
Conference agreement
      House recedes.

      31. Conforming Reimbursement for Paid Breakfasts and Lunches

Present law
      The per-meal reimbursement for paid breakfasts (paid 
meals are those served to children with family income above 185 
percent of the Federal poverty income guidelines) is higher 
than the reimbursement rate for paid lunches--by about 2 cents 
a meal for the 1995-1996 school year. [Sec. 4(b) of the Child 
Nutrition Act]
      [Note: The paid breakfast reimbursement rate is roughly 
the same as the current-law paid lunch rate for schools with 
free and reduced-price participation of 60 percent or more. 
This special lunch rate would be eliminated under Sec. 401 of 
the Senate amendment (see item 25).]
House bill
      No comparable provision.
Senate amendment
      Requires that the reimbursement rate for paid breakfasts 
be the same as the rate for paid lunches.
Conference agreement
      House recedes.

                  32. School Breakfast Startup Grants

Present law
      The Secretary is required to make competitive grants to 
help defray costs associated with starting or expanding school 
breakfast and summer food service programs. Funding of $5 
million a year is provided through fiscal year 1997; $6 million 
is provided for fiscal year 1998; and $7 million a year is 
provided for fiscal year 1999 and each subsequent year. [Sec. 
4(g) of the Child Nutrition Act]
House bill
      No comparable provision.
Senate amendment
      Repeals the startup/expansion competitive grant program.
Conference agreement
      House recedes.

             33. Nutrition Education and Training Programs

Present law
      The Secretary is required to make funding available to 
States for child nutrition program nutrition education and 
training activities. Funding of $10 million a year is provided. 
[Sec. 19(i) of the Child Nutrition Act]
House bill
      No comparable provision.
Senate amendment
      Reduces the amount that must be provided for nutrition 
education and training to $7 million a year.
Conference agreement
      House recedes with an amendment eliminating mandatory 
status. Authorizes appropriations of $10 million per year.

                           34. Effective Date

Present law
      Not applicable.
House bill
      No comparable provision.
Senate amendment
      Establishes Oct. 1, 1996 as the effective date for repeal 
of the startup/expansion competitive grant program and 
reduction of funding for nutrition education and training.
Conference agreement
      House recedes.

              36. Summer Food Service Program for Children

                     Permitting Offer versus Serve

Present law
      No provision. [Note: The ``offer versus serve'' option is 
permitted in school meal programs.]
House bill
      No comparable provision.
Senate amendment
      Allows schools operating summer food service programs to 
permit children attending a site on school premises to refuse 
one item of a meal without affecting the Federal reimbursement 
for the meal.
Conference agreement
      House recedes.

                 37. Child and Adult Care Food Program

                    A. Payments to Sponsor Employees

Present law
      No provision.
House bill
      No comparable provision.
Senate amendment
      Bars Child and Adult Care Food program sponsoring 
organizations with more than one employee from basing payments 
to employees on the number of family/group day care homes 
recruited, managed, or monitored.
Conference agreement
      House recedes.

         B. Improved Targeting of Day Care Home Reimbursements

Present law
      Federal reimbursement rates for meals and supplements 
served in family/group day care homes are standard for all 
homes, established separately from those for day care centers, 
not differentiated by the participating children's family 
income (as is the case for day care centers), and set 
approximately half-way between reimbursements for free and 
reduced-price meals/supplements in day care centers. They are 
indexed for inflation each July 1 (see item 36B(2)), and, for 
the period July 1995-June 1996, they are: $1.5375 for all 
lunches/suppers, 84.5 cents for all breakfasts, and 45.75 cents 
for all supplements. Family/group day care home sponsors also 
receive separate administrative cost reimbursements based on 
the number of homes sponsored. [Sec. 17(f) of the National 
School Lunch Act]
      Meal and supplement reimbursements for family/group day 
care homes are indexed annually to reflect changes in the 
Consumer Price Index for food away from home and rounded to the 
nearest \1/4\ cent. [Sec. 17(f) of the National School Lunch 
Act]
House bill
      No comparable provisions.
Senate amendment
      Restructures reimbursements for meals and supplements 
served in family/group day care homes. In general, homes would 
be divided into two ``tiers,'' one of which would receive 
current-law reimbursements (with indexing adjustments, see item 
37B(2) for changes in inflation indexing rules) and the other 
of which would receive lower reimbursements as set out under 
the Senate amendment. [Note: Separate payments to sponsors 
based on the number of homes sponsored are not changed, and 
current rules barring certain documentation requirements and 
reimbursements for meals/supplements served to providers' 
children are retained.]
      Tier I homes would be paid the meal/supplement 
reimbursements for family/group homes in effect on the date of 
enactment, adjusted on August 1, 1996, and each July 1 
thereafter, to reflect inflation for the most recent 12-month 
period for which data are available.
      Tier I homes would be those (1) located in areas, as 
defined by the Secretary based on Census data, in which at 
least half of the children are members of households with 
income below 185 percent of the Federal poverty income 
guidelines, (2) located in an area served by a school enrolling 
elementary students in which at least 50 percent of those 
enrolled are certified eligible for free or reduced-price 
school meals (i.e., have family income below 185 percent of the 
Federal poverty guidelines), or (3) operated by a provider 
whose family income is verified by its sponsoring organization 
to be below 185 percent of the poverty guidelines.
      In general, tier II homes would be paid reimbursements of 
$1 for each lunch/supper, 30 cents for each breakfast, and 15 
cents for each supplement (all substantially below tier I 
rates), adjusted on July 1, 1997, and each July 1 thereafter, 
to reflect inflation for the most recent 12-month period for 
which data are available.
      Tier II homes would be homes that do not meet the tier I 
low-income area/provider standards.
      Tier II homes could, at their option, claim higher tier I 
reimbursement rates under certain conditions: Tier II homes 
could elect to receive tier I reimbursements for meals/
supplements served to children in households with income below 
185 percent of the poverty guidelines, if the sponsoring 
organization collects the necessary income information and 
makes the appropriate eligibility determinations (in accordance 
with the Secretary's rules). Tier II homes also could receive 
tier I reimbursements for children in or subsidized under (or 
children of parents in or subsidized under) federally or State 
supported child care or other benefit programs with an income 
limit that does not exceed 185 percent of the poverty 
guidelines, and could restrict their claim for tier I 
reimbursements to these children if they opt not to have income 
statements collected from parents/caretakers.
      The Secretary would be required to prescribe 
``simplified'' meal counting/reporting procedures for use by 
tier II homes (and their sponsors) that elect to claim tier I 
reimbursements for children meeting the income or program 
participation requirements noted above. These procedures could 
include: (1) setting an annual percentage of meals/supplements 
to be reimbursed at tier I rates based on the family income of 
children enrolled during a specific month or other period, (2) 
placing a home in a reimbursement category based on the 
percentage of children with household income below 185 percent 
of poverty, or (3) other procedures determined by the 
Secretary.
      The Secretary also would be permitted to establish 
minimum requirements for verifying income and program 
participation for children in tier II homes opting to claim 
tier I reimbursement rates.
      Requires that reimbursements for family/group day care 
homes be indexed annually to reflect changes in the Consumer 
Price Index for food at home, based on the unrounded rates for 
the preceding 12-month period, and then rounded down to the 
nearest lower cent.
      Requires the Secretary to reserve, from amounts available 
for the Child and Adult Care Food program in fiscal year 1996, 
$5 million--to provide grants for (1) training, materials, 
computer and other assistance to sponsoring organization staff 
and (2) training and other aid to family/group day care homes 
in implementing the new reimbursement-rate structure directed 
by the Senate amendment. The funds would be allocated among the 
States based on their proportion of participating homes, with a 
minimum of $30,000 as a State's base funding share, and States 
would not be allowed to retain more than 30 percent of their 
grant at the State level (passing the remainder to sponsors and 
providers).
      Requires (1) the Secretary to provide State agencies with 
Census data necessary for determining homes' tier I status and 
(2) State agencies to provide the data to day care home 
sponsoring organizations.
      Requires State agencies administering school meal 
programs to provide approved day care home sponsoring 
organizations a list of schools serving elementary school 
children in which at least half those enrolled are certified to 
receive free or reduced-price meals (one test for an area 
eligible for tier I reimbursements). The data for the list must 
be collected annually and provided on a timely basis to any 
requesting approved sponsoring organization.
      Provides that, in determining homes' tier I status, State 
agencies and sponsoring organizations must use the most current 
data available.
      Provides that a determination that a home is located in 
an area that qualifies it as a tier I home be in effect for 
three years, unless the State agency determine the area no 
longer qualifies the home. In the case of a determination made 
on the basis of Census data, the determination is to be in 
effect until more recent data are available.
      Makes conforming technical amendments recognizing the new 
structure of family/group day care home reimbursement rates.
Conference agreement
      House recedes with an amendment to establish new lower 
reimbursement rates for tier II homes for meals and supplements 
as follows: $.90 for each lunch and supper; $.25 for each 
breakfast; and $.10 for supplements.

                       C. Disallowing Meal Claims

Present law
      No specific provision.
House bill
      No comparable provision.
Senate amendment
      Makes clear that States and sponsoring organizations may 
recoup reimbursements to day care home providers for improperly 
claimed meals/supplements.
Conference agreement
      House recedes.

         D. Elimination of State Paperwork and Outreach Burden

Present law
      Provisions of the National School Lunch Act require (1) 
States to take affirmative action to expand availability of the 
Child and Adult Care Food program's benefits (including annual 
notification of all nonparticipating family/group day care home 
providers), (2) the Secretary to conduct demonstration projects 
to test approaches to removing or reducing barriers to 
participation by homes that operate in low-income areas or 
primarily serve low-income children, (3) the Secretary and 
States to provide training and technical assistance to 
sponsoring organizations in reaching low-income children, and 
(4) the Secretary to instruct States to provide information/
training about child health and development through sponsoring 
organizations. [Sec. 17(k) of the National School Lunch Act]
House bill
      No comparable provision.
Senate amendment
      Repeals existing ``outreach'' requirements noted under 
present law and requires that (1) States provide sufficient 
training, technical assistance, and monitoring to facilitate 
effective operation of the Child and Adult Care Food program 
and (2) the Secretary assist States in carrying out this 
obligation.
Conference agreement
      House recedes.

 E. Study of Impact of Amendments on Program Participation and Family 
                           Day Care Licensing

Present law
      No provision.
House bill
      No comparable provision.
Senate amendment
      Not later than two years after the date of enactment, 
requires the Secretary of Agriculture, in conjunction with the 
Secretary of Health and Human Services, to study the impact of 
the revisions to the Child and Adult Care Food program under 
the Senate amendment on:
          (1) the number of participating family day care 
        homes, day care home sponsoring organizations, and day 
        care homes that are licensed, certified, registered, or 
        approved by each State;
          (2) the rate of growth in the number of participating 
        homes, sponsors, and licensed, certified, registered, 
        or approved homes;
          (3) the nutritional adequacy/quality of meals served 
        in family day care homes that no longer receive 
        reimbursements or no longer receive ``full'' 
        reimbursements; and
          (4) the proportion of low-income children 
        participating in the program. (p. 377)
      Requires each State agency to submit data on (1) the 
number of participating family day care homes on July 31, 1996, 
and July 31, 1997, (2) the number of licensed, certified, 
registered, or approved family day care homes on July 31, 1996, 
and July 31, 1997, and (3) other matters needed to carry out 
the study as required by the Secretary.
Conference agreement
      House recedes.

                   F. Effective Date and Regulations

Present law
      Not applicable.
House bill
      No comparable provisions.
Senate amendment
      Establishes the effective date for changes in the family/
group day care home reimbursement structure--August 1, 1996. 
Other changes affecting the Child and Adult Care Food program 
would be effective on enactment (e.g., grants to assist in 
implementation of the changes, limits on payments to sponsors' 
employees).
      Requires that, by February 1, 1996, the Secretary issue 
interim regulations to implement (1) the changes in the family/
group day care home reimbursement structure and (2) existing 
provisions of law for the use of sponsoring organizations' 
administrative expense payments for startup/expansion and 
outreach and recruitment activities. Final regulations would be 
required by August 1, 1996.
Conference agreement
      House recedes.

           Subtitle J--Food Stamps and Commodity Distribution

                           Food stamp reform

                        1. Declaration of Policy

Present law
      The Food Stamp Act's declared policy is to safeguard the 
health and well-being of the Nation's population by raising 
levels of nutrition among low-income households. To alleviate 
hunger and malnutrition among low-income households with 
limited food purchasing power, the Act authorizes the food 
stamp program to permit low-income households to obtain a more 
nutritious diet through normal channels of trade by increasing 
the food purchasing power of all eligible households who apply. 
[Sec. 2]
House bill
      No comparable provision.
Senate amendment
      Adds to the existing Food Stamp Act declaration of policy 
a statement that Congress intends that the food stamp program 
support the employment focus and family strengthening mission 
of public welfare and welfare replacement programs by 
facilitating transition to economic self-sufficiency through 
work, promoting employment as the primary means of income 
support and reducing barriers to employment, and maintaining 
and strengthening healthy family functioning and family life.
Conference agreement
      The Conference agreement follows the House bill.

                             2. Short Title

Present law
      No provision.
House bill
      Cites this subtitle as ``The Food Stamp Simplification 
and Reform Act of 1995.''
Senate amendment
      No comparable provision.
Conference agreement
      The Conference agreement follows the House bill.

           3. Establishment of Simplified Food Stamp Program

Present law
      The Secretary is directed to establish uniform national 
standards of eligibility for food stamps (with certain 
variations allowed for Alaska, Hawaii, Guam, the Virgin 
Islands, and certain administrative rules). States may not 
impose any other standards of eligibility as a condition for 
participation in the program. [Sec. 5(b)]
House bill
      Permits States to operate a ``simplified food stamp 
program,'' either statewide or in any political subdivision. 
Under this program, households receiving regular cash benefits 
under the Temporary Assistance for Needy Families (TANF) block 
grant established by title I of the Personal Responsibility Act 
(replacing the current Aid to Families with Dependent Children 
(AFDC) program) could be provided food stamp benefits using the 
rules and procedures established by the State for its TANF 
block grant program, as an alternative to using regular food 
stamp rules.
Senate amendment
      Explicitly permits non-uniform standards of eligibility. 
[Note: Also see item 38]
Conference agreement
      The Conference agreement follows the Senate amendment.

                    4. Simplified Food Stamp Program

                         A. Basic State Option

Present law
      Households composed entirely of AFDC recipients are 
automatically eligible for food stamps, with few exceptions 
(e.g., aliens who do not meet the Food Stamp program's more 
stringent rules barring illegal aliens). [Sec. 5(a)]
      As with other households, food stamp benefits for AFDC 
households are determined under Food Stamp program rules 
governing counting of income, expense deductions, and 
procedural requirements.
House bill
       [Note: Sec. 542(a) of the House bill adds a new section 
24 to the Food Stamp Act containing rules for the Simplified 
Food Stamp Program.]
      If a State elects to exercise its option to use its TANF 
block grant rules and procedures for food stamp benefits, 
requires that (1) households in which all members receive 
regular cash benefits under a TANF block grant program be 
automatically eligible for food stamps and (2) food stamp 
benefits for them be determined under rules and procedures 
established by the State or locality under the State's TANF 
block grant program or the regular food stamp program.
Senate amendment
       [Note: Sec. 342(a) of the Senate amendment adds a new 
section 24 to the Food Stamp Act containing rules for the 
Simplified Food Stamp Program]
      Permits a State to exercise an option to use rules and 
procedures established for its family assistance block grant 
(under title I of the Senate amendment) to determine food stamp 
benefits for households in which all members receive family 
assistance block grant aid: (1) households in which all members 
receive aid under a family assistance block grant program would 
be automatically eligible for food stamps; and (2) their food 
stamp benefits could be determined by using rules and 
procedures established by the State for its family assistance 
block grant program, regular food stamp program rules and 
procedures, or a combination of the two. States also would be 
allowed to apply a single ``shelter standard'' to households 
that receive a housing subsidy and another to households that 
do not.
Conference agreement
       The Conference agreement follows the Senate amendment 
with an amendment deleting the specific reference to use of a 
single shelter standard.

                        B. Federal Cost Control

Present law
       No comparable provisions.
House bill
      Requires that, when approving a State's plan to exercise 
its option for a simplified food stamp program, the Secretary 
certify that the average per-household food stamp benefit 
received by participating TANF households is not expected to 
exceed the average food stamp benefit level for AFDC or TANF 
recipients in the preceding fiscal year--adjusted for any 
changes in the ``Thrifty Food Plan'' (the basis for food stamp 
benefit levels). The Secretary also is required to compute the 
``permissible'' average per-household benefit for each State or 
locality exercising the simplified program option.
      Requires that, if average food stamp benefits under the 
simplified program exceed the permissible level (the Thrifty-
Food-Plan-adjusted prior year amount), the State must pay the 
Federal Government the benefit cost of the excess within 90 
days of notification.
Senate amendment
      Provides that a State may not operate a simplified food 
stamp program unless it has an approved plan and requires the 
Secretary to approve any State plan if the Secretary determines 
it complies with the provisions of law governing the simplified 
food stamp program option and would not increase Federal costs 
under the Food Stamp Act. Federal costs for this purpose are 
defined to exclude research, demonstration, and evaluation 
costs.
      Requires the Secretary to determine whether a State's 
simplified food stamp program is increasing Federal costs under 
the Food Stamp Act. In making the determination, the Secretary 
(1) could not require States to collect or report any 
information on households not included in the simplified food 
stamp program and (2) could approve State requests to use 
alternative accounting periods. If the Secretary determines 
that a simplified food stamp program has increased Federal 
costs, the State must be notified by January 1 of the 
succeeding fiscal year.
      If the Secretary determines that a simplified program has 
increased Federal costs for a two-year period, the State must 
pay the Federal Government the amount of any increased costs 
within 90 days of the determination (or have amounts due it for 
administrative costs reduced).
Conference agreement
      The Conference agreement follows the Senate amendment 
with an amendment. The Secretary must, for each fiscal year, 
determine whether a simplified program is increasing Federal 
costs above those incurred under the food stamp program in the 
fiscal year prior to implementation of the simplified program, 
adjusted for changes in participation, the non-public-
assistance income of participants, and the cost of the Thrifty 
Food Plan. The Secretary must notify the State of a 
determination of increased Federal costs, and the State must 
submit for approval a corrective action plan designed to 
prevent increased Federal costs. If a State fails to submit a 
plan or carry out an approved plan, the Secretary must 
terminate approval of the State's simplified program, and the 
State is ineligible for future participation under simplified 
program rules.

                          C. Disqualification

Present law
      Households penalized for an intentional failure to comply 
with a Federal, State, or local welfare program may not, for 
the duration of the penalty, receive an increased food stamp 
allotment because their welfare income has been reduced. [Sec. 
8(d)]
      [Note: This has been interpreted by regulation to apply 
only to reductions in welfare income due to repayment of 
overpayments resulting from a welfare violation, although a 
revision of the regulation is scheduled.]
House bill
       Provides that (1) households receiving food stamps under 
the simplified program option who are sanctioned (disqualified 
or have their benefits reduced) under a State's TANF program 
may have the same penalty applied for food stamp purposes and 
(2) food stamp benefits to households participating under the 
simplified program option may not be increased as the result of 
a reduction in their TANF benefits caused by a sanction. Any 
household disqualified from food stamps as the result of a TANF 
program sanction would be eligible to apply for food stamps (as 
a new applicant) after the disqualification period has expired.
Senate amendment
       [Note: See items 10 and 43.]
Conference agreement
       The Conference agreement follows the Senate amendment.

               D. Extending Rules to ``Mixed'' Households

Present law
       No comparable provisions.
House bill
       Allows States the further option of applying their TANF 
rules and procedures to food stamp households in which some, 
but not all, members receive TANF benefits. These households 
would not be automatically eligible for food stamps (they would 
have to meet normal food stamp eligibility rules), but their 
benefits could be determined under the State's TANF rules and 
procedures, so long as the Secretary ensures that the State's 
plan provides for an ``equitable'' distribution of benefits 
among all household members.
Senate amendment
       No comparable provisions.
Conference agreement
       The Conference agreement follows the Senate amendment. 
The conferees encourage the Secretary to work with States to 
test methods for applying a single set of rules and procedures 
to households in which some, but not all, members receive cash 
welfare benefits under State rules.

                           E. Cash Assistance

Present law
       No comparable provisions.
House bill
       Allows States exercising the simplified program option 
to pay food stamp benefits in cash to some participating 
households. Cash benefits could be paid to households with 3 or 
more consecutive months' earned income of at least $350 a month 
from a private sector employer.
      Provides that: (1) cash assistance in lieu of food stamps 
be considered the food stamp benefit of the earner's household, 
(2) the value of food stamp benefits provided in cash be 
treated as food stamp coupons for taxation and other purposes 
(i.e., disregarded), and (3) the State opting for cash payments 
increase the payments (at State expense) to offset the effect 
of any food sales taxes, unless the Secretary determines it 
unnecessary because of the limited nature of items taxed (sales 
taxes on food purchases with food stamp benefits are barred by 
existing law).
      Requires States electing the cash benefit option to 
submit a written evaluation of the effect of cash assistance 
after 2 years' operation.
Senate amendment
       [Note: See item 55.]
Conference agreement
      The Conference agreement follows the Senate amendment.

                      F. Federal Food Stamp Rules

Present law
      The Federal Government shares 50% of any State food stamp 
administrative costs (except that certain States with very low 
rates of erroneous benefit and eligibility determinations can 
receive up to 60%). States also may retain certain proportions 
of any overissued benefits they recoup. Special Federal cost-
sharing rules apply in the case of employment and training 
programs for food stamp recipients. States are subject to a 
quality control system under which the extent of erroneous 
benefit and eligibility decisions is measured. Those with high 
rates of erroneous benefit and eligibility decisions are 
subject to fiscal sanctions. [Sec. 16]
House bill
      Requires States exercising the simplified program option 
to, at a minimum, comply with certain rules mandated under the 
Food Stamp Act:
            (1) requirements governing issuance procedures for 
        food stamp benefits;
            (2) the requirement that benefits be calculated by 
        subtracting 30% of a household's income (as determined 
        by State-established, not Federal, rules under the 
        simplified program option) from the maximum food stamp 
        benefit;
            (3) the bar against counting food stamp benefits as 
        income or resources in other programs;
            (4) the requirements that State agencies assume 
        responsibility for eligibility certification and 
        issuance of benefits and keep records for inspection 
        and audit;
            (5) the bar against discrimination by reason of 
        race, sex, religious creed, national origin, or 
        political beliefs;
            (6) requirements related to submission and approval 
        of plans of operation and administration of the food 
        stamp program on Indian reservations;
            (7) limits on the use and disclosure of information 
        about food stamp households;
            (8) requirements for notice to and fair hearings 
        for aggrieved households (or comparable requirements 
        established by the State under its TANF program);
            (9) requirements for submission of reports and 
        other information required by the Secretary;
            (10) the requirement to report illegal aliens to 
        the Immigration and Naturalization Service;
            (11) requirements for use of certain Federal and 
        State data sources in verifying recipients' 
        eligibility;
            (12) requirements to take measures to ensure that 
        households are not receiving duplicate benefits; and
            (13) requirements for the provision of social 
        security numbers as a condition of eligibility and for 
        their use by State agencies.
      States electing the simplified program option would be 
subject to normal food stamp program cost-sharing rules.
      States electing the simplified option would be subject to 
the food stamp quality control system (including fiscal 
sanctions).
Senate amendment
      Permits States exercising the option for a simplified 
food stamp program to apply rules and procedures under their 
family assistance block grant, the rules/procedures of the 
regular food stamp program, or the rules/procedures of one 
program to certain matters and those of the other in remaining 
matters. Permits States to standardize food stamp expense 
``deductions,'' but, in doing so, States would be required to 
give consideration to the work expenses, dependent care costs, 
and shelter costs of participating households.
      Otherwise, the Senate amendment is the same as the House 
bill, except that it also would (1) require that States follow 
the revised rule in the Senate amendment (see item 43) as to 
not increasing food stamp benefits when other public assistance 
benefits are decreased (see item 4C in the House bill), (2) 
require that eligible households be certified and receive 
benefits not later than 30 days after application (as now 
required under the regular food stamp program), and (3) require 
that States issue ``expedited'' benefits to very low-income 
households (as required under the regular food stamp program).
      Same as House bill.
Conference agreement
      The Conference agreement follows the House bill with an 
amendment (1) allowing States to standardize deductions and (2) 
requiring States to follow the revised rule in the Senate 
amendment as to not increasing food stamp benefits when other 
public assistance benefits are decreased.

                             g. state plans

Present law
      No comparable provision.
House bill
      Requires that State plans for those States electing to 
exercise the simplified program option include the rules and 
procedures to be followed in determining benefits under the 
option, whether the program will include households in which 
not all members receive TANF grant benefits, and the method by 
which the State or political subdivision participating in the 
simplified program will carry out its quality control 
obligations.
Senate amendment
      Requires that State plans for those States electing to 
exercise the simplified program option include the rules and 
procedures to be followed in determining benefits under the 
option, how the States will address the needs of households 
with high shelter costs, and a description of the method by 
which the State will carry out its quality control obligations.
Conference agreement
      The Conference agreement follows the Senate amendment.

        5. conforming amendments: simplified food stamp program

Present law
      Allows the Secretary to operate pilot projects similar to 
the simplified food stamp program State option proposed in the 
House bill. [Sec. 8(e) and Sec. 17(i)]
House bill
      Deletes provisions for pilot projects similar to the 
simplified food stamp program State option.
Senate amendment
      Same as the House bill.
Conference agreement
      The Conference agreement follows the House bill with an 
amendment to add necessary conforming amendments.

                          6. thrifty food plan

Present law
      Maximum monthly food stamp benefits are defined as 103% 
of the cost of the Agriculture Department's ``Thrifty Food 
Plan,'' adjusted for food-price inflation each October 
according to the plan's cost in the immediately preceding June 
and rounded down to the nearest dollar by household size. [Sec. 
3(o)]
House bill
      Provides that current maximum monthly food stamp benefits 
(103% of the cost of the Thrifty Food Plan in June 1994) be 
increased by 2% a year, beginning with the October 1995 
adjustment, and rounded down to the nearest dollar by household 
size.
Senate amendment
      Sets maximum monthly food stamp benefits at 100% of the 
cost of the Thrifty Food Plan, effective October 1, 1995, 
adjusted annually, as under existing law and rounded down to 
the nearest dollar by household size. Requires that the October 
1, 1995, adjustment not reduce maximum benefit levels.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment making it effective October 1, 1996.

               7. income deductions and energy assistance

                          a. energy assistance

Present law
       Payments or allowances for energy assistance provided by 
State or local law are, under rules set by the Secretary, 
disregarded (``excluded'') as income. [Sec. 5(d)(11) and 5(k)]
       Payments or allowances for weatherization assistance are 
disregarded as energy assistance. [Sec. 5(d)(11) and 5(k)] 
[Note: Weatherization payments could otherwise be disregarded 
as lump-sum payments, vendor payments, or reimbursements.]
       Federal Low-Income Home Energy Assistance Program 
(LIHEAP) benefits are disregarded as income. [Sec. 5(d)(11) and 
5(k) of the Food Stamp Act and sec. 2605(f) of the Low-Income 
Home Energy Assistance Act]
       Certain utility allowances under Department of Housing 
and Urban Development (HUD) programs are disregarded. [Sec. 
5(d)(11) and 5(k)]
       Shelter expense deductions may be claimed for utility 
costs covered by LIHEAP benefits, but not in the case of other 
disregarded energy assistance unless the household has 
additional out-of-pocket expenses. [Sec. 5(e) of the Food Stamp 
Act and Sec. 2605(f) of the Low-Income Home Energy Assistance 
Act]
House bill
       Requires that State/local energy assistance be counted 
as income.
       Continues to disregard as income payments or allowances 
for weatherization assistance under a Federal energy assistance 
program. Other weatherization assistance could be disregarded 
as lump-sum payments, vendor payments, or reimbursements.
       Bars claiming shelter expense deductions for utility 
costs covered either directly or indirectly by the LIHEAP and 
other disregarded energy assistance.
Senate amendment
       Requires that State/local energy assistance be counted 
as income..
       Requires an income disregard for one-time payments/
allowances under a Federal or State law for the costs of 
weatherization or emergency repair/replacement of unsafe/
inoperative furnaces or other heating/cooling devices.
       Counts Federal LIHEAP benefits as income.
       Counts HUD utility allowances as income.
       Allows claiming shelter expense deductions for utility 
costs covered directly or indirectly by the LIHEAP and other 
counted energy assistance.
Conference agreement
      The Conference agreement follows the Senate amendment.

                         b. standard deductions

Present law
      For purposes of determining food stamp benefits and 
eligibility, applicant/recipient households may claim standard 
deductions from their otherwise countable income. Standard 
deductions are indexed annually (each October 1) for inflation 
based on the Consumer Price Index for items other than food and 
rounded down to the nearest dollar. For fiscal year 1995, 
standard deductions are set at: $134 a month for the 48 States 
and the District of Columbia, $229 for Alaska, $189 for Hawaii, 
$269 for Guam, and $118 for the Virgin Islands. For fiscal year 
1996, they were ``scheduled'' to rise to: $138, $236, $195, 
$277, and $122, respectively, but this was barred by the fiscal 
year 1996 agriculture appropriations act. [Sec. 5(e)]
House bill
      Sets standard deductions at their fiscal year 1995 
levels, effective October 1, 1995.
Senate amendment
       Reduces standard deductions:
             (1) for fiscal year 1996, they would be $132, 
        $225, $186, $265, and $116; and
             (2) for fiscal year 1997-2002, they would be $124, 
        $211, $174, $248, and $109.
       Inflation indexing of standard deductions would resume 
October 1, 2002 (using existing indexing rules).
Conference agreement
      The Conference agreement follows the House bill and 
continues to set standard deductions at their fiscal year 1995 
levels.

                       c. earned income deduction

Present law
      Households may claim a deduction for 20% of any earned 
income. This deduction is not allowed with respect to any 
income that a household willfully or fraudulently fails to 
report in a timely manner (as proven in a fraud hearing 
proceeding)--i.e., it is not allowed when determining the 
amount of a benefit overissuance. [Sec. 5(e)]
House bill
      Denies an earned income deduction for the food stamp 
benefit portion of income earned under a work supplementation/
support program. [Note: See item 15.]
Senate amendment
      Disallows an earned income deduction for any income not 
reported in a timely manner--i.e., the deduction would not be 
allowed in determining the amount of any overissued benefits.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment denying an earned income deduction for the 
public assistance portion of income earned under a work 
supplementation/support program.

                  d. excess shelter expense deduction

Present law
      For purposes of determining food stamp benefits and 
eligibility, applicant/recipient households may claim excess 
shelter expense deductions from their otherwise countable 
income--in the amount of any shelter expenses (including 
utility costs) above 50% of their countable income after all 
other deductions have been applied. For households with elderly 
or disabled members, these deductions are unlimited. For other 
households, they are limited by law through December 1996; 
limits are lifted as of January 1, 1997. For fiscal year 1995, 
excess shelter expense deductions were capped at: $231 a month 
for the 48 States and the District of Columbia, $402 for 
Alaska, $330 for Hawaii, $280 for Guam, and $171 for the Virgin 
Islands. For October 1995 through December 1996, the caps rose 
to $247, $429, $353, $300, and $182, respectively. [Sec. 5(e)]
      States may use ``standard utility allowances'' (as 
approved by the Secretary) in calculating households' shelter 
expenses. However, households may claim actual expenses instead 
of the allowance and may switch between an actual expense claim 
and the standard allowance at the end of any certification 
period and one additional time during any 12-month period. 
[Sec. 5(e)]
House bill
      Sets the limits on excess shelter expense deductions at 
fiscal year 1995 levels.
Senate amendment
       Permits States to make the use of standard utility 
allowances mandatory for all households if (1) the State has 
developed separate standards that include the cost of heating 
and cooling and do not include these costs and (2) the 
Secretary finds that the standards will not result in increased 
Federal costs.
       Removes the option for households to switch between a 
standard utility allowance and actual costs once during every 
12-month period.
Conference agreement
       The Conference agreement follows the Senate amendment 
with an amendment that establishes excess shelter expense 
deduction limits at the October 1995/December 1996 levels.

                     e. homeless shelter deduction

Present law
      For homeless households not receiving free shelter 
throughout the month, States may develop a homeless shelter 
expense estimate (a standard amount) to be used in calculating 
an excess shelter expense deduction. States must use this 
amount unless the household verifies higher expenses. The 
Secretary may prohibit the use of the deduction for households 
with extremely low shelter costs. The amount is inflation 
indexed, and, for fiscal year 1995, it is limited to $139 a 
month; effective October 1, 1995, it is scheduled to rise to 
$143. [Sec. 11(e)(3)]
House bill
      Sets the homeless shelter deduction at the fiscal year 
1995 $139 a month amount and requires that it be used in 
establishing homeless households' excess shelter expense 
deductions when they do not receive free shelter throughout the 
month.
Senate amendment
      Same as the House bill, except that States may prohibit 
the use of the deduction for households with extremely low 
shelter costs.
Conference agreement
       The Conference agreement follows the Senate amendment.

                          8. vehicle allowance

              a. threshold for counting a vehicle's value

Present law
      In determining a household's liquid assets for food stamp 
eligibility purposes, a vehicle's fair market value in excess 
of $4,550 is counted. This threshold rose to $4,600 in October 
1995 and is scheduled to be annually indexed for inflation 
beginning in fiscal year 1997. [Sec. 5(g)(2)] [Note: Eligible 
households may have liquid assets of no more than $2,000 
($3,000 for households with elderly members).]
House bill
      Sets the threshold above which the fair market value of a 
vehicle is counted as an asset at $4,550.
Senate amendment
      Eliminates the October 1, 1995 increase in the threshold 
to $4,600 and requires that the $4,550 threshold begin to be 
inflation adjusted on October 1, 1996.
 Conference agreement
      The Conference agreement follows the House bill, with an 
amendment setting the threshold at $4,600.

                   B. Vehicles Carrying Fuel or Water

Present law
      In determining a household's liquid assets for food stamp 
eligibility purposes, the value of a vehicle that the household 
depends on to carry fuel for heating or water for home use is 
excluded. [Sec. 5(g)(2)]
House bill
      Deletes the asset exclusion for vehicles used to carry 
fuel or water.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the House bill.

                          9. Work Requirements

      Non-exempt recipients between 16 and 60 are ineligible 
for food stamps if they refuse to register for employment, 
refuse to participate in an employment/training program when 
required to do so by the State, or refuse a job offer meeting 
minimum standards. [Sec. 6(d)]
      Exempt individuals are: (1) those who are not physically 
or mentally fit, (2) those subject to and complying with a 
work/training requirement under the AFDC program or the 
unemployment compensation system (although failure to comply 
with an AFDC/unemployment system requirement is treated as a 
failure to comply with food stamp rules, if the requirement is 
``comparable''), (3) parents and other household members with 
the responsibility for care of a dependent child under age 6 or 
an incapacitated person, (4) postsecondary students enrolled at 
least half-time (separate rules bar eligibility for most 
postsecondary students who are not working or do not have 
dependents), (5) regular participants in drug addiction or 
alcoholic treatment programs, (6) persons employed at least 30 
hours a week or receiving the minimum wage equivalent, and (7) 
persons between 16 and 18 who are not head of household and are 
in school at least half time. [Sec. 6(d)(1) and (2)]
      In addition, if a non-exempt head of household fails to 
comply with one of the above-noted requirements or voluntarily 
quits a job without good cause, or if any non-exempt household 
member is on strike, the entire household is ineligible for 
food stamps. [Sec. 6(d)(1) & (3)]

                             A. Job Search

Present law
      As noted above, non-exempt individuals refusing to 
participate in an employment/training program when required to 
do so by the State are ineligible for food stamps (if they are 
head of household, the entire household is ineligible). State-
designed employment and training programs may include a 
requirement to perform job search activities. [Sec. 6(d)(1) & 
(2)]
House bill
      Makes ineligible non-exempt individuals (and their 
households if they are head of household) who refuse to 
participate in a State-established job search program. [Note: 
Able-bodied non-elderly adults without dependents would be 
subject to new work requirements, see below.]
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                    B. Comparable Work Requirements

Present law
      As noted above, individuals are exempt from food stamp 
employment/training requirements if they are subject to and 
complying with an AFDC or unemployment compensation work/
training requirement, and failure to comply with such an AFDC 
or unemployment compensation requirement is treated as failure 
to comply with food stamp employment/ training requirements, if 
the requirement is ``comparable.'' [Sec. 6(d)(2)]
House bill
      Requires that failure to comply with an TANF or 
unemployment compensation system work/training requirement be 
treated as failure to comply with a food stamp employment/
training requirement, whether or not the requirement is 
``comparable.''
Senate amendment
      Same as the House bill.
Conference agreement
      The Conference agreement follows the House bill.

                        C. New Work Requirement

Present law
      As noted above, non-exempt individuals are ineligible for 
food stamps if they refuse to participate in an employment/
training program when required to do so by the State. [Sec. 
6(d)(1)]
House bill
      Deletes provisions of law barring eligibility to those 
refusing to participate in State-established employment/
training programs.
      In their place, adds a new work requirement: non-exempt 
recipients (see below) would be disqualified if they are not 
employed a minimum of 20 hours a week or are not participating 
in the work program newly established under the House bill (see 
below) within 90 days of certification of eligibility.
      Allows individuals who have been disqualified under the 
new work requirement to re-establish food stamp eligibility if 
they become exempt (under the rules noted immediately below), 
become employed at least 20 hours a week during any consecutive 
30-day period, or participate in a work program (see below).
      Exempt from the new requirement would be: (1) those under 
18 or over 50, (2) those medically certified as physically or 
mentally unfit for employment, (3) parents or other household 
members responsible for the care of a dependent child, and (4) 
those who are otherwise exempt from work registration and job 
search rules (see present law description above).
      Upon a State's request, allows the Secretary to waive 
application of the new work requirement for some or all 
individuals in all or part of a State if the Secretary 
determines that the area (1) has an unemployment rate over 10% 
or (2) does not have sufficient jobs to provide employment for 
those subject to the new requirement. The Secretary would be 
required to report to the Agriculture Committees the basis for 
any waiver based on lack of sufficient jobs.
 Senate amendment
      Adds a new work requirement: non-exempt persons (see 
below) would be ineligible if, during the preceding 12-month 
period, they received food stamps for 6 months or more while 
not working 20 hours or more a week (averaged monthly) or 
participating in and complying with a work/training program 
(see note regarding exemptions below) for at least 20 hours a 
week.
      Exempt from the new requirement would be: (1) those under 
18 or over 50, (2) those certified by a physician as physically 
or mentally unfit for employment, (3) parents or other 
household members responsible for the care of a dependent, (4) 
those participating a minimum of 20 hours a week in (and 
complying with the requirements of) a Job Training Partnership 
Act (JTPA) program, a Trade Adjustment Assistance Act training 
program, or a State or local government employment or training 
program meeting Governor-approved standards, and (5) those 
otherwise exempt from work registration and job search rules 
(see present law description above.) [Note: The new work 
requirement could be met by those participating in and 
complying with (for 20 hours a week or more) a JTPA program, a 
Trade Adjustment Assistance training program, or a State/local 
employment or training program meeting Governor-approved 
standards (including a food stamp program employment/training 
activity other than job search or job search training).]
      As in the House bill, waivers are allowed, except that 
the unemployment rate threshold is 8% and the Secretary must 
report the basis for any waiver.
      Provides for a transition to the new work requirement. 
Prior to October 1, 1996, administrators would not ``look 
back'' a full 12 months in determining whether a recipient had 
been receiving food stamps and not meeting the new requirement; 
they would look back only to October 1, 1995.
Conference agreement
      The Conference agreement follows the House bill, with an 
amendment. Non-exempt persons (see below) are ineligible if, 
during the preceding 12-month period, they received food stamps 
for 4 months or more while not working 20 hours or more a week 
(averaged monthly), participating in and complying with a work 
program (see below) for at least 20 hours a week, or 
participating in a workfare program.
      Exempt from the new requirement are: (1) those under 18 
or over 50, (2) those medically certified as physically or 
mentally unfit for employment, (3) parents or other household 
members responsible for the care of a dependent child, (4) 
those otherwise exempt from work registration or job search 
rules (e.g., those caring for incapacitated persons), and (5) 
pregnant women.
      Work programs allowing an exemption are programs under 
the JTPA or the Trade Adjustment Assistance Act, or employment/
training programs operated or supervised by a State or locality 
meeting standards approved by the Governor (including a food 
stamp employment/training program)--except for job search or 
job search training programs.
      Waiver reports are required for any waiver based on 
unemployment rates (over 10%) or lack of sufficient jobs.
      The disqualification imposed by the new work requirement 
ceases to apply if, during a 30-day period, an individual works 
80 hours or more, participates in and complies with a work 
program for at least 80 hours, or participates in a workfare 
program. In the subsequent 12-month period, an individual is 
eligible for food stamps for up to 4 months while not working 
for at least 20 hours a week, participating in a work program 
for at least 20 hours a week, or participating in a workfare 
program.
      As in the Senate amendment, a transition to the new work 
requirement is provided.

                          D. Disqualification

Present law
      [Note: See present law description above. In addition, 
disqualification periods for failure to fulfill work 
requirements are (1) 2 months or until compliance (whichever is 
first) for most failures and (2) 90 days in case of a voluntary 
quit.]
House bill
      No comparable provisions. [Note: The House bill creates 
new disqualification penalties for those covered by its new 
work requirement.]
Senate amendment
      Rewrites and adds to rules governing disqualification for 
violation of work and employment/training requirements (other 
than those for the new work requirement noted above).
      In addition to existing provisions for disqualification 
(e.g., job refusal, failure to participate in an employment/
training program), makes ineligible (1) individuals who refuse 
without good cause to provide sufficient information to allow a 
determination of their employment status or job availability, 
(2) all individuals (in addition to heads of household) who 
voluntarily and without good cause quit a job, and (3) 
individuals who voluntarily and without good cause reduce their 
work effort (and, after the reduction, are working less than 30 
hours a week).
      Establishes a new household ineligibility rule: if any 
individual who is head of household is disqualified under a 
work rule, the entire household would, at State option, be 
ineligible for the lesser of the duration of the individual's 
ineligibility or 180 days--as determined by the State.
      Establishes new mandatory minimum work-rule 
disqualification periods for individuals. For the first 
violation, individuals would be ineligible until the later of 
the date they fulfill work rules, for 1 month, or a period 
(determined by the State) not to exceed 3 months. For the 
second violation, individuals would be ineligible until the 
later of the date they fulfill work rules, for 3 months, or a 
period (determined by the State) not to exceed 6 months. For a 
third or subsequent violation, individuals would be ineligible 
until the later of the date they fulfill work rules, 6 months, 
a date determined by the State, or (at State option) 
permanently. These disqualification periods also would apply to 
those failing to meet any workfare requirements.
      In establishing good cause, voluntary quits, and 
reduction of work effort, the Secretary would determine the 
meaning of the terms. States would determine the meaning of 
other terms and the procedures for making compliance decisions, 
but could not make a determination that would be less 
restrictive than a comparable one under the State's family 
assistance block grant program.
      States would be required to include the standards and 
procedures they use in making work-rule disqualification/
compliance decisions in their State plan.
Conference agreement
      The Conference agreement follows the Senate amendment.

                         E. Caretaker Exemption

Present law
      Parents or other household members with responsibility 
for the care of a dependent child under age 6 or of an 
incapacitated person are exempt from food stamp work rules. 
[Sec. 6(d)(2)]
House bill
      No provision.
Senate amendment
      Permits States to lower the age at which a child 
``exempts'' a parent/caretaker from 6 to not under the age of 
1.
Conference agreement
      The Conference agreement follows the Senate amendment.

                F. Work and Employment/Training Programs

Present law
      States must operate employment and training programs for 
non-exempt food stamp recipients and place at least 15% of 
those covered in a program component. Exempt are those listed 
above and those States opt to exempt under Federal rules. 
Program components can range from job search or education 
activities to work experience/training and ``workfare'' 
assignments. [Sec. 6(d)(4)]
      Work experience/training program components must limit 
assignments to projects serving a useful public purpose, use 
the prior training/experience of assignees, not provide work 
that has the effect of replacing others, and provide the same 
benefits and working conditions provided to other comparable 
employees. [Sec. 6(d)(4)(B)]
      States and political subdivisions also may operate 
workfare programs under which non-exempt recipients may be 
required to perform work in return for the minimum wage 
equivalent of their household's monthly food stamp allotment. 
In general, those exempt are those listed above (p. 16). [Sec. 
20]
      Workfare assignments may not have the effect of replacing 
or preventing the employment of others and must provide the 
same benefits and working conditions provided to other 
comparable employees. [Sec. 20(d)]
      The total hours of work required of a household under an 
employment/training program (including workfare) cannot in any 
month exceed the minimum wage equivalent of the household's 
monthly food stamp benefit. The total hours of participation in 
an employment and training program required of any household 
member cannot in any month exceed 120 hours (when added to 
other work). And, workfare hours (when added to other work) 
cannot exceed 30 hours a week for a household member. [Sec. 
6(d)(4)(F) and Sec. 20(c)]
      Under employment and training programs for food stamp 
recipients, States must provide or pay for transportation and 
other costs directly related to participation (up to $25 a 
month for each participant) and necessary dependent care 
expenses (in general, up to $175 or $200 a month for each 
dependent, depending on the dependent's age). Under workfare 
programs, States must reimburse participants for transportation 
and other costs directly related to participation (up to $25 a 
month for each participant). [Sec. 6(d)(4)(I) and Sec. 20 
(d)(3)]
House bill
      Deletes the requirement for States to operate employment 
and training programs and current provisions for work 
experience/training and workfare programs.
      Instead, requires the Secretary to permit any State that 
applies and submits a plan in compliance with the Secretary's 
guidelines to operate a work program for food stamp recipients 
subject to the new work requirement (see above) in the State or 
any political subdivision. A State's work program would require 
those accepting an offer of a work position in order to 
maintain food stamp eligibility to perform work on the State or 
local jurisdiction's behalf, or on behalf of a private 
nonprofit entity. The Secretary's guidelines would be required 
to allow States and localities to operate a work program that 
is consistent and compatible with similar programs they might 
operate.
      Requires that, in order to be approved, a State's work 
program provide that participants work no more than the minimum 
wage equivalent of their household's monthly food stamp benefit 
(i.e., the number of hours equivalent to their household's 
monthly benefit divided by the minimum wage).
      Limits the degree to which a State or locality can assign 
participants to replace other workers. No State/locality could 
replace an employed worker with a work program participant, but 
participants could be placed in (1) new positions, (2) 
positions that became available during the normal course of 
business, (3) positions that involve performing work that would 
otherwise be performed on an overtime basis, or (4) positions 
that became available by shifting current employees to an 
alternate position. [Note: States would receive Federal cost 
sharing for work program participant expenses (see below).]
Senate amendment
      Revises the existing requirements for State-operated 
employment/training programs for food stamp recipients: (1) 
makes clear the work experience is a purpose of employment/
training programs; (2) requires that each component of an 
employment/training program be delivered through a ``statewide 
workforce development system,'' unless the component is not 
available locally; (3) expands the existing State option to 
apply work rules to applicants at application to all work 
requirements, not only job search; (4) removes specific rules 
governing job search components (i.e., tied to those for the 
AFDC program); (5) removes provisions for employment/training 
components related to work experience requiring that they be in 
public service work and use (to the extent possible) 
recipients' prior training and experience; (6) removes specific 
Federal rules as to States' authority to exempt categories and 
individuals from employment/training requirements; (7) removes 
the requirement to serve volunteers in employment/training 
programs; (8) removes the requirement for ``conciliation 
procedures'' for resolution of disputes involving participation 
in an employment or training program; (9) limits employment/
training funding provided by the food stamp program for 
services to AFDC or family assistance block grant funding 
recipients to the amount used by the State for AFDC recipients 
in fiscal year 1995; and (10) removes Federal performance 
standards on States for employment/training programs for food 
stamp recipients.
Conference agreement
      The Conference agreement follows the Senate amendment.

            G. Funding Work and Employment/Training Programs

Present law
      To support employment and training programs for food 
stamp recipients, States receive a formula share of $75 million 
a year (based partially on their share of food stamp recipients 
not exempt from work registration and employment/training 
requirements and partially on their share of those placed in 
employment/training program components). Minimum State annual 
allocations are $50,000.
      In addition to its portion of the $75 million annual 
grant, each State is entitled to (1) 50% of any additional 
costs incurred, (2) 50% of any transportation or other 
participant costs paid or incurred up to half of $25 a month 
for each participant, and (3) 50% of any dependent care costs 
paid or incurred up to half of certain limits (generally, $175/
$200 a month for each dependent, depending on the dependent's 
age). [Sec. 16(h)]
House bill
      To support work programs for food stamp recipients, 
requires the Secretary to allocate among States and localities 
operating them $75 million a year, based on their share of 
recipients subject to the new work requirement (see above). 
Minimum State allocations would be $50,000.
      Requires States to notify the Secretary as to their 
intention to operate a work program, and requires the Secretary 
to reallocate unclaimed portions of the $75 million annual 
grant to other States, as the Secretary deems appropriate and 
equitable.
      Requires that, in addition to its portion of the $75 
million annual grant, the Secretary pay each State (1) 50% of 
any additional costs incurred and (2) 50% of any transportation 
or other participant costs paid or incurred up to half of $25 a 
month for each participant.
      Allows the Secretary to suspend or cancel some or all 
payments made to States for the work program, or withdraw 
approval, on a finding of noncompliance.
Senate amendment
      To support employment/training programs for food stamp 
recipients, requires the Secretary to ``reserve for 
allocation'' to States: $77 million for fiscal year 1996, $80 
million for fiscal year 1997, $83 million for fiscal year 1998, 
$86 million for fiscal year 1999, $89 million for fiscal year 
2000, $92 million for fiscal year 2001, and $95 million for 
fiscal year 2002. Allocations would be based on a ``reasonable 
formula'' (determined by the Secretary) that gives 
consideration to States' shares of the population affected by 
the new work requirement (see above). Minimum State allocations 
would be $50,000.
      Requires reallocations as in the House bill.
      Continues existing provisions for payments for additional 
costs, but adds explicit permission for a 50% Federal share of 
State case management costs.
Conference agreement
      The Conference agreement follows the Senate amendment.

                        H. Conforming Amendment

Present law
      There is authorized a demonstration project similar to 
the new work requirement in the House bill; it has not been 
implemented. [Sec. 17(d)]
House bill
      Deletes authorization for a demonstration project similar 
to the new work requirement in the House bill.
Senate amendment
      Makes several technical and conforming amendments to 
employment and training provisions.
Conference agreement
      The Conference agreement follows the House bill and makes 
technical and conforming amendments.

          10. Comparable Treatment of Disqualified Individuals

Present law
      [Note: See item 4C.]
House bill
      Requires that individuals who have been disqualified for 
noncompliance with requirements under a TANF program not be 
eligible to participate for food stamps during the 
disqualification period.
Senate amendment
      If an individual is disqualified for failure to perform 
an action required under a Federal, State, or local welfare/
public assistance program, permits States to impose the same 
disqualification for food stamps.
      If a disqualification is imposed under the family 
assistance block grant, permits States to use the family 
assistance block grant's rules and procedures to impose the 
same disqualification for food stamps.
      Permits individuals disqualified from food stamps because 
of failure to perform a required action under another welfare/
public assistance program to apply for food stamps as new 
applicants after the disqualification period has expired--
except that a prior disqualification under food stamp work 
requirements must be considered in determining eligibility.
      Requires States to include the guidelines they use in 
carrying out food stamp disqualification for failure to perform 
a required action in another welfare/public assistance program 
in their State plans.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment changing references to welfare or public 
assistance programs to references to needs-tested public 
assistance programs.

           11. Encourage Electronic Benefit Transfer Systems

                            A. Regulation E

Present law
      The Federal Reserve Board has ruled that, as of March 
1997 and with some minor modifications, its ``Regulation E'' 
will apply to electronic benefit transfer systems. Regulation E 
provides certain protections for consumers using cards to 
access their accounts. It limits the liability of cardholders 
for unauthorized withdrawals (to $50, if notification is made) 
and requires periodic account statements and certain error 
resolution procedures. [Federal Register of Mar. 7, 1994]
House bill
      [Note: See item 56 for optional block grants for States 
fully implementing electronic benefit transfer systems.]
      Provides that Regulation E not apply to any electronic 
benefit transfer program (distributing needs-tested benefits) 
established or administered by States or localities.
Senate amendment
      Provides that Regulation E not apply to food stamp 
benefits delivered through any electronic benefit transfer 
system.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

      B. Charging for Electronic Benefit Transfer Card Replacement

Present law
      No specific provision.
House bill
      No provision.
Senate amendment
      Provides that States may charge recipients for the cost 
of replacing a lost or stolen electronic benefit transfer card 
and may collect the charge by reducing the recipient's food 
stamp benefit.
Conference agreement
      The Conference agreement follows Senate amendment.

                     C. Photographic Identification

Present law
      No provision.
House bill
      Requires that each electronic benefit transfer card bear 
a photograph of the members of the household to which the card 
is issued.
Senate amendment
      Permits States to require that electronic benefit 
transfer cards contain a photograph of 1 or more household 
members and requires that, if a State requires a photograph, it 
shall establish procedures to ensure that other appropriate 
members of the household and authorized representatives may use 
the card.
Conference agreement
      The Conference agreement follows the Senate amendment.

            D. Rules for Electronic Benefit Transfer Systems

Present law
      State agencies, with the Secretary's approval, may 
implement on-line electronic benefit transfer systems for 
delivering food stamp benefits, in lieu of coupons. No State 
may implement or expand an electronic benefit transfer system 
without prior approval from the Secretary. States are 
responsible for 50% of any electronic benefit transfer system 
costs (as with any benefit issuance system), including 
equipment and electronic benefit transfer cards. [Sec. 7(i)]
      The Secretary's regulations for approval must (1) include 
standards that require that, in any one year, the operational 
cost of an electronic benefit transfer system does not exceed 
costs of prior issuance systems and (2) include system security 
standards. [Sec. 7(i)]
House bill
      Deletes requirements for the Secretary's prior approval, 
``encourages'' State agencies to implement on-line electronic 
benefit transfer systems for delivering food stamp benefits, 
and authorizes States to procure and implement these systems 
(under terms, conditions and designs that the State deems 
appropriate).
      Allows the Secretary to waive, on a State's request, any 
provision of the Food Stamp Act that prohibits effective 
implementation of an electronic benefit transfer system for 
food stamp benefits.
      Requires re-issuance and revision of regulations 
governing food stamp electronic benefit transfer systems 
(current regulations for approval of these systems were issued 
in April 1992).
      Deletes the requirement that the Secretary's regulations 
for electronic benefit transfer systems require that costs of 
the electronic benefit transfer system in any one year not 
exceed costs of prior issuance systems.
      Adds requirements that the Secretary's standards for 
electronic benefit transfer systems include (1) measures to 
maximize system security using the most recent technology the 
State considers appropriate (including personal identification 
numbers, photographic identification on electronic benefit 
transfer cards, and other measures to protect against fraud and 
abuse) and (2) effective not later than 2 years after 
enactment, measures that permit electronic benefit transfer 
systems to differentiate food items that may be acquired with 
food stamp benefits from those that may not.
Senate amendment
      Permits States to implement EBT systems under rules 
separate from those in existing law as amended, if a State 
notifies the Secretary of its intent to convert to a statewide 
system within 3 years of enactment. The Secretary may not 
provide coupons to a State beginning 3 years after the chief 
executive gives notification of intent to convert under the EBT 
option--but the State may extend this deadline by 2 years and 
the Secretary may grant a waiver of up to 6 months for good 
cause. [Note: The Secretary is authorized to provide coupons 
for disaster relief.]
      Places requirements on the Secretary under the EBT 
option. The Secretary must:
          (1) assist States in converting to an EBT system and 
        (in consultation with the Inspector General and the 
        Secret Service) inform States about proper security 
        features, management techniques, and counterfeit 
        deterrence;
          (2) reimburse States for purchasing and issuing EBT 
        cards [Note: The Secretary may charge recipients 
        (through allotment reduction or otherwise) for the cost 
        of replacing lost or stolen cards, unless stolen by 
        force or threat of force];
          (3) assign additional employees to investigate and 
        monitor compliance with EBT and retailer participation 
        rules;
          (4) establish a Transition Conversion Account (TCA) 
        to be funded with transaction fees of no more than 2 
        cents a transaction (maximum of 16 cents a month) taken 
        from each EBT household's benefits [Note: Fees would be 
        imposed during the 10-year period beginning on 
        enactment and placed in the TCA at the beginning of 
        each year during the 10-year period beginning with the 
        first full fiscal year after enactment. They would be 
        imposed to the extent necessary to not increase the 
        Secretary's costs under the EBT option and could not be 
        greater than needed for the purposes of the TCA (see 
        below). Fees could be reduced for households receiving 
        maximum benefits.]
          (5) from the TCA and, to the extent necessary, from 
        food stamp appropriations, provide funds to States 
        choosing the EBT option for (1) reasonable purchase and 
        installation costs (including reimbursements to 
        retailers) of single-function point-of-sale equipment 
        to be used only for Federal/State assistance programs, 
        (2) reasonable start-up purchase and installation costs 
        for telephone equipment and connections to the point-
        of-sale equipment, and (3) modification of existing EBT 
        systems to the extent necessary to operate Statewide or 
        interstate;
          (6) from the TCA, provide funds to implement the EBT 
        option and for (1) start-up training, (2) reasonable 
        one-time costs of converting to a system capable of 
        interstate and law enforcement functions, (3) 
        liabilities assumed by the Secretary under the EBT 
        option (e.g., for replaced benefits), and (4) 
        implementing and expanding a nationwide program for 
        compliance with EBT and retailer rules; and
          (7) consult with government, food industry, financial 
        services, and food advocacy representatives in the 
        conversion to EBT as to (1) integrating EBT systems 
        into commercial networks, (2) EBT system security, (3) 
        use of laser scanner technology to ensure that only 
        eligible items are purchased, (4) use of EBT system 
        data to identify fraud, (5) means of ensuring 
        confidentiality, (6) using existing terminals and 
        systems to reduce costs, and (7) using EBT systems for 
        multiple benefits.
      Places requirements and conditions on States under the 
EBT option. States:
          (1) must take into account generally accepted 
        operating rules based on commercial technology and the 
        need to permit interstate operations and law 
        enforcement monitoring and investigations;
          (2) may use paper-based and other benefit transfer 
        approaches for special-need retailers (located in very 
        rural areas, without access to dependable electricity 
        or regular telephone service, farmers' markets, and 
        house-to-house trade routes);
          (3) must purchase and install (or reimburse for) 
        single-function point-of-sale (and related telephone) 
        equipment, usable only for Federal/State assistance, 
        for retailers that do not have point-of-sale EBT 
        equipment and do not intend to obtain it in the near 
        future [Note: Equipment must be capable of interstate 
        operations (based on commercial operating principles) 
        that permit law enforcement monitoring and be capable 
        of giving recipients access to multiple benefits.];
          (4) must purchase (or reimburse for) point-of-sale 
        paper-based or alternative benefit transfer equipment 
        for special-need retailers without this equipment who 
        do not intend to obtain it in the near future 
        (equipment would be usable only for Federal/State 
        assistance);
          (5) must use competitive bidding systems in 
        purchasing EBT equipment and cards [Note: States may 
        not have purchase agreements conditioned on buying 
        additional services or equipment, the Secretary must 
        monitor prices paid, and the Inspector General must 
        investigate possible wrongdoing,];
          (6) must advise recipients how to promptly report 
        lost, stolen, damaged, improperly manufactured, 
        dysfunctional, or destroyed EBT cards;
          (7) must not (following the Secretary's regulations) 
        replace benefits lost due to unauthorized use of an EBT 
        card, but recipients would receive replacement benefits 
        for losses caused by (1) force or threat of force, (2) 
        unauthorized use after the State gets notice a card was 
        lost/stolen, or (3) problems with the EBT system [Note: 
        Except for losses caused by force or threat of force, 
        States must reimburse the Secretary for benefit 
        replacements, and States may obtain reimbursement from 
        service providers for losses caused by system 
        problems.];
          (8) may require an explanation from recipients on 
        occasions where they report lost or stolen cards or 
        cards are used for an unauthorized transaction;
          (9) must, in appropriate circumstances, investigate 
        and act on (through administrative disqualification or 
        court referral) cases of lost or stolen cards or 
        unauthorized use;
          (10) must (1) take into account the needs of law 
        enforcement personnel and the need to permit and 
        encourage technological/scientific advances, (2) ensure 
        security is protected, (3) provide for recipient 
        privacy, ease of EBT card use, and access to and 
        service by retailers, (4) provide for financial 
        accountability and system capability for interstate 
        operations and law enforcement monitoring, (5) prohibit 
        retailer participation unless appropriate equipment is 
        operational and reasonably available to recipients, and 
        (6) provide for monitoring and investigation by law 
        enforcement agencies;
          (11) must, on a recipient's request, provide, once a 
        month, a statement of benefit transfers and balances 
        for the preceding month; and
          (12) must design systems to timely resolve disputes 
        over errors. [Note: Recipients able to obtain error 
        corrections under the system would not be entitled to a 
        fair hearing.].
      Provides that retailers may return equipment provided by 
the State and obtain equipment with their own funds and that 
the cost of documents or systems under the EBT option may not 
be imposed on retailers.
      Provides that EBT retailer fraud and related activities 
be governed by the Food Stamp Act and 18 U.S.C. 1029.
      Makes technical and conforming amendments and defines 
electronic benefit transfer system, retail food store, special-
need retail food store, and electronic benefit transfer card.
Conference agreement
      The Conference agreement follows the House bill, with an 
amendment. States are required to implement an electronic 
benefit transfer system ('on-line' or 'off-line') before 
October 1, 2002, unless the Secretary waives the requirement 
because a State agency faces unusual barriers to 
implementation, and State are encouraged to implement an 
electronic benefit transfer system as soon as practicable. 
Subject to Federal standards, States are allowed to procure and 
implement an electronic benefit transfer system under terms, 
conditions, and design that they consider appropriate, and a 
new requirement for Federal procurement standards is added. A 
requirement is added for electronic benefit transfer standards 
following generally accepted standard operating rules based on 
commercial technology, the need to permit interstate operation 
and law enforcement, and the need to permit monitoring and 
investigations by authorized law enforcement officials. A 
requirement that regulations regarding replacement of benefits 
under an electronic benefit transfer system be similar to those 
in effect for a paper food stamp issuance system is added. 
Provisions in the House bill that are retained are: a provision 
deleting the requirement that electronic benefit transfer 
systems be cost-neutral in any one year, requirements as to 
measures to maximize security, and a provision requiring 
measures to permit electronic benefit systems to differentiate 
among food items (to the extent practicable). The House bill 
provision allowing the Secretary to waive Food Stamp Act 
provisions that prohibit effective implementation of electronic 
benefit transfer systems is deleted.

                     12. Value of Minimum Allotment

Present law
      The minimum monthly allotment for 1- and 2-person 
households is set at $10. It is scheduled to rise to $15 in 
fiscal year 1997 or 1998 (depending on food-price inflation). 
[Sec. 8(a)]
House bill
      Sets the minimum monthly allotment for 1- and 2-person 
households at $10.
Senate amendment
      Same as the House bill.
Conference agreement
      The Conference agreement follows the House bill.

                13. Initial Month Benefit Determination

Present law
      Recipient households not fulfilling eligibility 
recertification requirements in the last month of their 
certification period are allowed a 1-month ``grace period'' in 
which to fulfill the requirements before their benefits are 
pro-rated (reduced) to reflect the delay in meeting 
recertification requirements. [Sec. 8(c)(2)(B)]
House bill
      For those who do not complete all eligibility 
recertification requirements in the last month of their 
certification period, but are then determined eligible after 
their certification period has expired, requires that they 
receive reduced benefits in the first month of their new 
certification period (i.e., their benefits would be pro-rated 
to the date they met the requirements and were judged 
eligible).
Senate amendment
      Same as the House bill.
Conference agreement
      The Conference agreement follows the Senate amendment.

                  14. Improving Food Stamp Management

                  A. Quality Control Fiscal Sanctions

Present law
      States are assessed fiscal sanctions if their ``quality 
control'' combined (overpayment and underpayment) error rate 
for a given fiscal year is higher than the national average for 
that year. The amount of each State's sanction is determined by 
using a ``sliding scale'' so that its penalty assessment 
reflects the degree to which its combined error rate exceeds 
the national average tolerance level. In effect, the current 
system requires that States be sanctioned for a portion of 
every benefit dollar that exceeds the tolerance level. For 
example, if the tolerance level were 10% and the State's 
combined error rate were 12%, or 2 percentage points (20%) 
above the tolerance level, the State would be assessed a 
penalty of .2% of benefits issued in the State that year (i.e., 
20% of the excess above the threshold). [Sec. 16(c)]
House bill
      Requires the assessment of fiscal sanctions if a State's 
combined error rate is above a tolerance level set at the 
lowest national average combined error rate ever achieved, plus 
1 percentage point. States would be assessed a dollar penalty 
for each dollar in error above the tolerance level. For 
example, if a State's combined error rate were 2 percentage 
points above the lowest ever national average tolerance level, 
plus 1 percentage point, it would be assessed a penalty of 2% 
of benefits issued in the State that year.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                B. Quality Control Administrative Rules

Present law
      Errors resulting from the application of new regulations 
are not included in a State's error rate for assessing 
sanctions during the first 120 days from required 
implementation of the regulations. [Sec. 16(c)(3)(A)]
      Specific time frames are set out for completion of 
quality control reviews, determining final error rates, and 
various steps of the appeals process. Administrative law judges 
are required to consider all grounds for denying a sanction 
claim against a State, including contentions that a claim 
should be waived for good cause. [Sec. 16(c)(8)]
      For judging to what degree a State should be sanctioned, 
``good cause'' is defined as including: (1) a natural disaster 
or civil disorder that adversely affects food stamp operations, 
(2) a strike by State employees who are necessary for food 
stamp operations, (3) a significant growth in food stamp 
caseload, (4) a change in the Food Stamp program (or other 
Federal or State program) that has a substantial adverse impact 
on the management of the Food Stamp program, and (5) a 
significant circumstance beyond the control of a State agency. 
[Sec. 16(c)(9)]
      If a State appeals a quality control sanction claim, 
interest on any unpaid portion of the claim accrues from the 
date of the decision on the administrative appeal or from a 
date that is 1 year after the date a bill for the sanction is 
received, whichever is earlier. [Sec. 13(a)(1)]
House bill
      Bars inclusion of errors resulting from the application 
of new regulations for 60 days (or 90 days at the Secretary's 
discretion).
      Deletes specific time frames for reviews, error rates, 
and the appeals process. Deletes the directive that 
administrative law judges consider all grounds for denying a 
sanction claim against a State.
      Deletes the Act's definition of good cause for the 
quality control system.
      Requires that interest on sanction claims begin to accrue 
from the date of the administrative appeal decision or 2 years 
after the sanction bill is received, whichever is earlier.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

              15. Work Supplementation or Support Program

Present law
      No provisions.
House bill
      Permits States having a work supplementation or support 
program (under which public assistance benefits are provided to 
employers who hire public assistance recipients and then used 
to pay part of their wages) to include the cash value of a 
recipient's household food stamp benefits in the amount paid 
the employer to subsidize wages paid. Work supplementation/
support programs would be required to meet standards set by the 
Secretary in order to avail themselves of the option to include 
food stamp benefits. The food stamp benefit value of the 
supplement could not be considered income for other purposes, 
and the household of the participating member would not receive 
regular food stamp allotments while the member was in a work 
supplementation/support program. States would be required to 
include any plans for including food stamp recipients in work 
supplementation or support programs in their State plans.
Senate amendment
      Same as the House bill, except (1) a qualified work 
supplementation/support program may not allow participation of 
any individual for longer than one year (unless the Secretary 
approves a longer period), and (2) a qualified work 
supplementation/support program must be used for hiring and 
employing new employees.
Conference agreement
      The Conference agreement follows the House bill, with an 
amendment to provide that (1) States must provide a description 
of how recipients in the program will, within a specific period 
of time, be moved to employment that is not supplemented or 
supported and (2) programs not displace employment of those who 
are not supplemented or supported.

                     16. Obligations and Allotments

Present law
      The Food Stamp Act authorizes to be appropriated such 
sums as are necessary for each fiscal year 1991-1995. [Sec. 
18(a)]
House bill
      Provides that the amount obligated under the Act will not 
be in excess of the cost estimate of the Congressional Budget 
Office for fiscal year 1996, with adjustments for additional 
fiscal years--in both cases reflecting amendments made by the 
Personal Responsibility Act.
      Requires the Secretary to file reports (each February, 
April, and July) stating whether there is a need for additional 
obligational authority and authorizes the Secretary to provide 
recommendations as to how to equitably achieve spending 
reductions if allotments must be limited in any fiscal year.
Senate amendment
      Authorizes such sums as are necessary through fiscal year 
2002.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

    17. Reauthorization of Puerto Rico Nutrition Assistance Program

Present law
      The Food Stamp Act requires the Secretary to pay specific 
sums for Puerto Rico's nutrition assistance block grant for 
fiscal year 1991-1995. The fiscal year 1995 amount is $1.143 
billion. [Sec. 19(a)]
House bill
      No provision.
Senate amendment
      Requires the following payments for Puerto Rico's 
nutrition assistance block grant: $1.143 billion for each of 
fiscal year 1995 and fiscal year 1996, $1.182 billion for 
fiscal year 1997, $1.223 billion for fiscal year 1998, $1.266 
billion for fiscal year 1999, $1.310 billion for fiscal year 
2000, $1.343 billion for fiscal year 2001, and $1.376 billion 
for fiscal year 2002.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment to require the following payments for Puerto 
Rico's block grant: $1.143 billion for fiscal year 1996, $1.182 
billion for fiscal year 1997, $1.223 billion for fiscal year 
1998, $1.266 billion for fiscal year 1999, $1.310 billion for 
fiscal year 2000, $1.357 billion for fiscal year 2001, and 
$1.404 billion for fiscal year 2002.

            18. Authority to Establish Authorization Periods

Present law
      No provision.
House bill
      Requires the Secretary to establish specific time periods 
during which retail food stores' and wholesale food concerns' 
authorization to accept and redeem food stamp coupons (or 
redeem food stamp benefits through an electronic benefit 
transfer system) will be valid.
Senate amendment
      Permits the Secretary to issue regulations establishing 
specific time periods during which authorization to accept and 
redeem food stamp coupons will be valid.
Conference agreement
      The Conference agreement follows the House bill.

    19. Condition Precedent for Approval of Retail Food Stores And 
                        Wholesale Food Concerns

Present law
      No provision.
House bill
      Provides that no retail food stores or wholesale food 
concerns be approved for participation in the Food Stamp 
program unless an Agriculture Department employee (or, whenever 
possible, a State or local government official designated by 
the Department) has visited it.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the House bill, with an 
amendment limiting stores and food concerns that must be 
visited to those of a type, determined by the Secretary, based 
on factors that include size, location, and type of items sold.

 20. Waiting Period for Retail Food Stores and Wholesale Food Concerns 
               that are Denied Approval to Accept Coupons

Present law
      No provision.
House bill
      Provides that retail food stores and wholesale food 
concerns that have failed to be approved for participation in 
the Food Stamp program may not submit a new application for 
approval for 6 months from the date they receive a notice of 
denial. Current law provisions granting denied retailers and 
wholesalers a hearing on a refusal are retained.
Senate amendment
      Same as the House bill, except that stores and concerns 
may not submit a new application for 6 months from the date of 
the denial.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment providing that stores and concerns denied 
approval because they do not meet the Secretary's approval 
criteria may not, for at least 6 months, submit a new 
application. The Secretary is allowed to establish longer 
waiting periods, including permanent disqualification, that 
reflect the severity of the basis for denial.

 21. Disqualification of Retail Food Stores and Wholesale Food Concerns

Present law
      No provision.
House bill
      Requires that a retail food store or wholesale food 
concern that is disqualified from participation in the Special 
Supplemental Nutrition Program for Women, Infants, and Children 
(WIC) also be disqualified from participating in the Food Stamp 
program for the period of time it is disqualified from the WIC 
program.
Senate amendment
      Requires the Secretary to issue regulations providing 
criteria for disqualifying from food stamps retail food stores 
and wholesale food concerns disqualified from the WIC program. 
Disqualification must be for the same period as under the WIC 
program, may begin at a later date, and would not be subject to 
food stamp administrative/judicial review procedures.
Conference agreement
      The Conference agreement follows the Senate amendment 
with a technical amendment.

22. Authority to Suspend Stores Violating Program Requirements Pending 
                   Administrative and Judicial Review

Present law
      No provision.
House bill
      Requires that, where a retail food store or wholesale 
food concern has been permanently disqualified (for its third 
offense or for certain instances of trafficking), the 
disqualification period will be effective from the date it 
receives notice of disqualification, pending administrative and 
judicial review.
Senate amendment
      Permits regulations establishing criteria under which 
authorization of a retail food store or wholesale food concern 
may be suspended at the time the store/concern is initially 
found to have committed a violation that would result in 
permanent disqualification; the suspension may coincide with 
the period of administrative/judicial review. The Secretary 
would not be liable for the value of any lost sales during any 
suspension/ disqualification period.
      Requires notice in suspension cases. Stipulates that a 
suspension period remains in effect pending administrative/
judicial review and that the suspension period be part of any 
disqualification imposed.
      Removes provisions for courts temporarily staying 
administrative actions against stores, concerns, and States 
pending judicial appeal.
Conference agreement
      The Conference agreement follows the Senate amendment 
with an amendment providing that any permanent disqualification 
of a store or concern be effective from the date the notice of 
disqualification is received. If the disqualification is 
reversed through administrative or judicial review, the 
Secretary is not liable for the value of lost sales during the 
disqualification period.

                        23. Criminal Forfeiture

Present law
      ``Administrative forfeiture'' rules allow the Secretary 
to subject property involved in a program violation to 
forfeiture to the United States. [Sec. 15(g)]
House bill
      Establishes ``criminal forfeiture'' rules. Requires 
courts, in imposing sentence on those convicted of trafficking 
in food stamp benefits, to order that the person forfeit 
property to the United States (in addition to any other 
sentence imposed). Property subject to forfeiture would include 
all property (real and personal) used in a transaction (or 
attempted transaction) to commit (or facilitate the commission 
of) a trafficking violation (other than a misdemeanor); 
proceeds traceable to the violation also would be subject to 
forfeiture. An owner's property interest would not be subject 
to forfeiture if the owner establishes that the violation was 
committed without the owner's knowledge or consent. (p. 246)
      Requires that the proceeds from any sale of forfeited 
properties, and any money forfeited, be used (1) to reimburse 
the Justice Department for costs incurred in initiating and 
completing forfeiture proceedings, (2) to reimburse the 
Agriculture Department's Office of Inspector General for costs 
incurred in the law enforcement effort that led to the 
forfeiture, (3) to reimburse Federal or State law enforcement 
agencies for costs incurred in the law enforcement effort that 
led to the forfeiture, and (4) by the Secretary to carry out 
store approval, reauthorization, and compliance activities.
Senate amendment
      Removes provisions for administrative forfeiture for 
property ``intended to be furnished'' in trafficking cases.
      Establishes ``criminal forfeiture'' rules similar to 
those in the House bill, but applied only in trafficking cases 
involving benefits of $5,000 or more. Property subject to 
forfeiture would include: (1) food stamp benefits, and any 
property constituting, derived from, or traceable to any 
proceeds obtained directly or indirectly as the result of the 
violation and (2) food stamp benefits, and any property used or 
intended to be used to commit or facilitate the violation.
      Food stamp benefits and property subject to criminal 
forfeiture, any seizure or disposition of the benefits/
property, and any administrative/ judicial proceeding relating 
to the benefits/property would be subject to forfeiture 
provisions of the Drug Abuse Prevention and Control Act of 1970 
(where consistent with Food Stamp Act provisions). [Note: No 
specific Food Stamp Act provisions for use of the proceeds from 
forfeited property are included]
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                 24. Expanded Definition of ``Coupon''

Present law
      The Act defines ``coupon'' to mean any coupon, stamp, or 
type of certificate issued under the provisions of the Food 
Stamp Act. [Sec. 3(d)]
House bill
      In order to expand the types of items to which 
trafficking penalties apply, revises the current definition of 
``coupon'' to include authorization cards, cash or checks 
issued in lieu of coupons, and ``access devices'' for 
electronic benefit transfer systems (including electronic 
benefit transfer cards and personal identification numbers).
Senate amendment
      Same as the House bill.
Conference agreement
      The Conference agreement follows the Senate amendment.

      25. Doubled Penalties for Violating Food Stamp Requirements

Present law
      The disqualification penalty for the first intentional 
violation of program requirements is 6 months. The penalty for 
a second intentional violation (and the first violation 
involving trading of a controlled substance) is 1 year. [Sec. 
6(b)(1)]
House bill
      Increases the disqualification penalty for a first 
intentional violation to 1 year. Increases the disqualification 
penalty for a second intentional violation (and the first 
violation involving a controlled substance) to 2 years.
Senate amendment
      Same as the House bill.
Conference agreement
      The Conference agreement follows the Senate amendment.

             26. Disqualification of Convicted Individuals

Present law
      Permanent disqualification is required for the third 
intentional violation of program requirements, the second 
violation involving trading of a controlled substance, and the 
first violation involving trading of firearms, ammunition, or 
explosives. [Sec. 6(b)(1)]
House bill
      Adds a requirement for permanent disqualification of 
persons convicted of trafficking in food stamp benefits where 
the benefits trafficked have a value of $500 or more.
Senate amendment
      No comparable provision.
Conference agreement
      The Conference agreement follows the House bill, with a 
technical amendment.

                         27. Claims Collection

                     A. Federal Income Tax Refunds

Present law
      Otherwise uncollected overissued benefits may, except for 
claims arising out of State agency error, may be recovered from 
Federal pay or pensions. [Sec. 13(d) and Sec. 11(e)(8)]
House bill
      Requires collection of otherwise uncollected overissued 
benefits, other than those arising out of State agency error, 
from Federal pay or pensions and from Federal income tax 
refunds.
Senate amendment
      Permits collection of all otherwise uncollected 
overissued benefits from Federal pay or pensions and from 
Federal income tax refunds.
Conference agreement
      The Conference agreement follows the Senate amendment.

                 B. Authority to Collect Overissuances

Present law
      State collection of overissued benefits is limited in 
certain circumstances. In the case of overissuances due to an 
intentional program violation, households must agree to 
repayment by either a reduction in future benefits or cash 
repayment; States also are required to collect overissuances to 
these households through other means, such as tax refund or 
unemployment compensation collections (if a cash repayment or 
reduction is not forthcoming), unless they demonstrate that the 
other means are not cost effective. In cases of overissuance 
because of inadvertent household ``error,'' States must collect 
the overissuance through a reduction in future benefits--except 
that households must be given 10 days' notice to elect another 
means, and collections are limited to 10% of the monthly 
allotment or $10 a month (whichever would result in faster 
collection)--and may use other means of collection. In cases of 
overissuances because of State agency error, States may request 
repayment or use other means of collection (not including 
reduction in future benefits). [Sec. 13(b)] States may retain 
25% of ``non-fraud'' collections not caused by State error and 
50% of ``fraud'' collections (increased from 10% and 25% on 
October 1, 1995). [Sec. 16(a))
House bill
      No provisions.
Senate amendment
      Replaces existing overissuance collection rules with 
provisions requiring States to collect any overissuance of 
benefits by reducing future benefits, withholding unemployment 
compensation, recovering from Federal pay or income tax 
refunds, or any other means--unless the State demonstrates that 
all of the means are not cost effective. Bars the use of future 
benefit reductions as a claims collection mechanism if it would 
cause a hardship on the household (as determined by the State) 
and limits benefit reductions (absent intentional program 
violations) to the greater of 10% of the monthly benefit or $10 
a month. Provides that States must collect overissued benefits 
in accordance with State-established requirements for notice, 
electing a means of payment, and setting a schedule for 
payment.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment (1) deleting the specific bar against 
collections in hardship cases and (2) setting the percentage of 
collections (other than in cases of State agency error) that a 
State may retain at a uniform 25%.

28. Denial of Food Stamp Benefits For 10 Years to Individuals Found to 
Have Fraudulently Misrepresented Residence In Order To Obtain Benefits 
                   Simultaneously in 2 or More States

Present law
      Disqualification periods ranging from 6 months to 
permanent disqualification are prescribed for intentional 
violations of Food Stamp program requirements. [Sec. 6(b)]
House bill
      Disqualifies from food stamps for 10 years an individual 
found to have fraudulently misrepresented the individual's 
place of residence in order to receive food stamp, Medicaid, 
TANF, or Supplemental Security Income (SSI) benefits in two or 
more States.
Senate amendment
      Disqualifies from food stamps permanently an individual 
found to have fraudulently misrepresented the individual's 
place of residence in order to receive food stamps in two or 
more States.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment disqualifying from food stamps for 10 years 
an individual found by a State agency or court to have made a 
fraudulent misrepresentation of identity or residence in order 
to receive multiple benefits. The conferees note that State 
agency hearing processes have sufficient recipient protections 
to warrant a decision to impose a 10-year disqualification in 
these cases.

         29. Disqualification Relating to Child Support Arrears

Present law
      No provision.
House bill
      Disqualifies individuals during any period the individual 
has an unpaid liability that is under a court child support 
order, unless the court is allowing delayed payments.
Senate amendment
      Same as the House bill, except that States are permitted 
to apply a child support arrears disqualification and 
compliance with a child support agency payment plan also 
exempts individuals from disqualification.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment that requires disqualification.

30. Elimination of Food Stamp Benefits with Respect to Fugitive Felons 
                   and Probation and Parole Violators

                 A. Disqualification of Fleeing Felons

Present law
      No provision.
House bill
      Disqualifies individuals while they are (1) fleeing to 
avoid prosecution or custody after conviction for a crime (or 
crime attempt) which is a felony or (2) violating a condition 
of parole under Federal or State law.
Senate amendment
      Same as the House bill.
Conference agreement
      The Conference agreement follows the Senate amendment 
with a technical amendment.

                       B. Exchange of Information

Present law
      Requires State agencies to immediately report to the 
Immigration and Naturalization Service a determination that a 
food stamp household member is ineligible for food stamps 
because the individual is present in the United States in 
violation of the Immigration and Nationality Act. [Sec. 
11(e)(17)]
House bill
      Requires State food stamp agencies to make available to 
law enforcement officers the address of a food stamp recipient 
if the officer furnishes the recipient's name and notifies the 
agency that (1) the individual is fleeing to avoid prosecution 
or custody for a felony crime (or attempt) or the individual 
has information necessary for the officer to conduct official 
duties, (2) the location or apprehension of the individual is 
within the officer's official duties, and (3) the request is 
made in the proper exercise of official duties.
Senate amendment
      Similar to the House bill, requires State food stamp 
agencies to make available to law enforcement officers the 
address, social security number, and (when available) 
photograph of a food stamp recipient if the officer furnishes 
the recipient's name and notifies the agency as stipulated in 
the House bill.
      Requires State agencies to furnish the Immigration and 
Naturalization Service with the name of, address of, and 
identifying information on any individual the agency knows is 
unlawfully in the United States.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                          31. Effective Dates

Present law
      No provision.
House bill
      Except for amendments dealing with the Food Stamp 
program's quality control system (effective October 1, 1994), 
the food stamp and commodity distribution program amendments 
made by the Personal Responsibility Act would be effective 
October 1, 1995.
Senate amendment
      Provides that Food Stamp Act amendments would be 
effective October 1, 1995.
Conference agreement
      The Conference agreement provides that (1) provisions 
affecting deduction levels are effective October 1, 1996, and 
(2) all other provisions are effective on enactment.

                         32. Sense of Congress

Present law
      No provision.
House bill
      Provides that it is the sense of Congress that States 
operating electronic benefit transfer systems to provide food 
stamp benefits should operate systems that are compatible with 
each other.
Senate amendment
      No provision.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                         33. Deficit Reduction

Present law
      No provision.
House bill
      Provides that it is the sense of the House Committee on 
Agriculture that reductions in outlays resulting from Food 
Stamp Act (and commodity distribution program) provisions of 
the Personal Responsibility Act not be taken into account for 
purposes of Section 252 of the Balanced Budget and Emergency 
Deficit Control Act (relating to enforcement of ``pay-as-you-
go'' provisions of the Budget Act).
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                        34. Certification Period

Present law
      For households subject to periodic (monthly) reporting of 
their circumstances, eligibility certification periods must be 
6-12 months, except that the Secretary may waive this rule to 
improve program administration. For households receiving 
federally aided public assistance or general assistance, 
certification periods must coincide with the certification 
periods for the other public assistance. For other households, 
certification periods generally must be not less than 3 
months--but they can be (1) up to 12 months for those 
consisting entirely of unemployable, elderly, or primarily 
self-employed persons or (2) as short as circumstances require 
for those with a substantial likelihood of frequent changes in 
income or other household circumstances and for any household 
on initial eligibility determination (as judged by the 
Secretary). The Secretary may waive the maximum 12-month limit 
to improve program administration. [Sec. 3(c)]
House bill
      No provision.
Senate amendment
      Replaces existing provisions as to certification periods 
with a requirement that certification periods not exceed 12 
months--but can be up to 24 months if all adult household 
members are elderly, disabled, or primarily self-employed.
      Requires State agencies to have at least 1 personal 
contact with each certified household every 12 months.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment allowing certification periods of up to 24 
months for households whose adult members are all elderly or 
disabled and deleting the reference to a ``personal'' contact.

                35. Treatment of Children Living at Home

Present law
      Parents and their children 21 years of age or younger who 
live together must apply for food stamps as a single household 
(thereby reducing aggregate household benefits)--except for 
children who are themselves parents living with their children 
and children who are married and living with their spouses. 
[Sec. 3(i)]
House bill
      No provision.
Senate amendment
      Removes the existing exception for children who are 
themselves parents living with their children and children who 
are married and living with their spouses.
Conference agreement
      The Conference agreement follows the Senate amendment.

 36. Optional Additional Criteria for Separate Household Determinations

Present law
      Certain persons who live together may apply for food 
stamps as separate households (thereby increasing aggregate 
household benefits) if they (1) are unrelated and purchase food 
and prepare meals separately or (2) are related but are not 
spouses or children living with their parents (See item 35). In 
addition, elderly persons who live with others and cannot 
purchase food and prepare meals separately because of a 
substantial disability may apply a separate households as long 
as their co-residents' income is below prescribed limits (165% 
of the Federal poverty income guidelines). [Sec. 3(i)]
House bill
      No provision.
Senate amendment
      Permits States to establish criteria that prescribe when 
individuals living together, and would otherwise be allowed to 
apply as separate households, must apply as a single household 
(without regard to common purchase of food and preparation of 
meals).
Conference agreement
      The Conference agreement follows the Senate amendment.

                 37. Definition of Homeless Individual

Present law
      For food stamp eligibility and benefit determination 
purposes, a ``homeless individual'' is a person lacking a 
fixed/regular nighttime residence or one whose primary 
nighttime residence is a shelter, a residence intended for 
those to be institutionalized, a temporary accommodation in the 
residence of another, or a public or private place not designed 
to be a regular sleeping accommodation for humans. [Sec. 3(s)]
House bill
      No provision.
Senate amendment
      Provides that persons whose primary nighttime residence 
is a temporary accommodation in the home of another may only be 
considered homeless if the accommodation is for no more than 90 
days.
Conference agreement
      The Conference agreement follows the Senate amendment.

                    38. State Options in Regulations

Present law
      The Secretary is directed to establish uniform national 
standards of eligibility for food stamps (with certain 
variations allowed for Alaska, Hawaii, Guam, and the Virgin 
Islands) and in other cases (e.g., imposition of monthly 
reporting requirements). States may not impose any other 
standards of eligibility as a condition of participation in the 
program. [Sec. 5(b)]
House bill
      No directly comparable provision. [Note: See item 3.]
Senate amendment
      Explicitly permits non-uniform standards of eligibility.
Conference agreement
      The Conference agreement follows the Senate amendment.

                        39. Earnings of Students

Present law
      The earnings of an elementary/secondary student are 
disregarded as income until the student's 22nd birthday. [Sec. 
5(d)(7)]
House bill
      No provision.
Senate amendment
      Requires that earnings of an elementary/secondary student 
be counted as income once the student turns age 20.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment requiring that earnings be counted for 
students who are 19 or younger.

                        40. Benefits for Aliens

               A. Deeming Sponsors' Income and Resources

Present law
      A portion of the income and resources of the sponsor of a 
lawfully admitted alien must be deemed as available to the 
sponsored alien for 3 years after the alien's entry. Income is 
deemed to the extent it exceeds the appropriate food stamp 
income eligibility limit (130% of the Federal income poverty 
guidelines); liquid resources are deemed to the extent they 
exceed $1,500. [Sec. 5(i)]
House bill
      No directly comparable provision.
Senate amendment
      Extends the deeming period for sponsored legal aliens to 
5 years from lawful admittance or the period of time agreed to 
in the sponsor's affidavit, whichever is longer. [Note: See 
conference comparison for title IV in the House bill and title 
V in the Senate amendment.]
Conference agreement
      The Conference agreement follows the House bill.

                B. Counting Aliens' Income and Resources

Present law
      The income (less a pro rata share) and all resources of 
aliens who are ineligible for food stamps under provisions of 
the Food Stamp Act are counted as income/resources to the rest 
of the household living with the alien. [Sec. 6(f)]
House bill
      No provision.
Senate amendment
      Permits States to count all of the income and resources 
of aliens ineligible for food stamps under the provisions of 
the Food Stamp Act as income/resources to the rest of the 
household.
Conference agreement
      The Conference agreement follows the Senate amendment.

              41. Cooperation with Child Support Agencies

                          A. Custodial Parents

Present law
      No provisions.
House bill
      No provisions.
Senate amendment
      Permits States to disqualify custodial parents of 
children under the age of 18 who have an absent parent unless 
the custodial parent cooperates with the State child support 
agency in establishing the child's paternity and obtaining 
support for the child and the custodial parent. Cooperation 
would not be required if the State finds there is good cause 
(in accordance with Federal standards taking into account the 
child's best interest). Fees or other costs for services could 
not be charged.
Conference agreement
      The Conference agreement follows the Senate amendment.

                        B. Non-custodial Parents

Present law
      No provisions.
House bill
      No provisions.
Senate amendment
      Permits States to disqualify putative or identified non-
custodial parents of children under 18 if they refuse to 
cooperate with the State child support agency in establishing 
the child's paternity and providing support for the child. The 
Secretary and the Secretary of Health and Human Services would 
develop guidelines for what constitutes a refusal to cooperate, 
and States would develop procedures (using these guidelines) 
for determining whether there has been a refusal to cooperate. 
Fees or other costs for services could not be charged. States 
would be required to provide safeguards to restrict the use of 
information collected by the child support agency to the 
purposes for which it was collected.
Conference agreement
      The Conference agreement follows the Senate amendment.

        42. Optional Combined Allotment for Expedited Households

Present law
      For households applying after the 15th day of the month, 
States may provide an allotment that is the aggregate of the 
initial (pro-rated) allotment and the first regular allotment--
but combined allotments must be provided to households applying 
after 15th of the month who are entitled to expedited service. 
[Sec. 8(c)(3)]
House bill
      No provision.
Senate amendment
      Makes provision of combined allotments a State option 
both for regular and expedited service applicants.
Conference agreement
      The Conference agreement follows the Senate amendment.

43. Failure to Comply with Other Welfare and Public Assistance Programs

Present law
      Households penalized for an intentional failure to comply 
with a Federal, State, or local welfare program may not, for 
the duration of the penalty, receive an increased food stamp 
allotment because their welfare income has been reduced. [Sec. 
8(d)]
      [Note: This has been interpreted by regulation to apply 
only to reductions in welfare income due to repayment of 
overpayments resulting from a welfare violation, although a 
revision of the regulation is scheduled.]
House bill
      [Note: See item 4C.]
Senate amendment
      Bars increased food stamp allotments because the benefits 
of a household are reduced under a Federal, State, or local 
welfare or public assistance program for failure to perform a 
required action. In carrying out this requirement, States may, 
in determining food stamp allotments for the duration of the 
public assistance reduction, use the household's pre-reduction 
welfare benefits.
      Permits States also to reduce the household's food stamp 
allotment by up to 25%. If the allotment is reduced for failure 
to perform an action required under a family assistance block 
grant program, the State may use the rules and procedures of 
that program to reduce the food stamp allotment.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment changing references to welfare or public 
assistance programs to references to mean-tested public 
assistance programs.

         44. Allotments for Households Residing in Institutions

Present law
      Homeless shelters and residential drug or alcoholic 
treatment centers may be designated as recipients' authorized 
representatives. [Note: In the case of residential treatment 
centers, benefits generally are provided to the center.]
House bill
      No provision.
Senate amendment
      Permits States to divide a month's food stamp benefits 
between the shelter/center and an individual who leaves the 
shelter/center.
      Permits States to require residents of shelters/centers 
to designate the shelter/center as authorized representative.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment deleting homeless shelters from those 
institutions covered by the amendment.

                  45. Operation of Food Stamp Offices

                       A. State Plan Requirements

Present law
      States must:
            (1) allow households contacting the food stamp 
        office in person during office hours to make an oral/
        written request for aid and receive and file an 
        application on the same day;
            (2) use a simplified, uniform federally designed 
        application, unless a waiver is approved;
            (3) include certain, specific information in 
        applications;
            (4) waive in-person interviews under certain 
        circumstances (they may use telephone interviews or 
        home visits instead);
            (5) provide for telephone contact and mail 
        application by households with transportation or 
        similar difficulties;
            (6) require an adult representative of the 
        household to certify as to household members' 
        citizenship/alien status;
            (6) provide a method of certifying and issuing 
        benefits to homeless households;
            (7) assist households in obtaining verification and 
        completing applications;
            (8) not require additional verification of 
        currently verified information (unless there is reason 
        to believe that the information is inaccurate, 
        incomplete, or inconsistent);
            (9) not deny an application solely because a non-
        household member fails to cooperate;
            (10) process applications if the household meets 
        cooperation requirements;
            (11) provide households (at certification and 
        recertification) with a statement of reporting 
        responsibilities;
            (12) provide a toll-free or local telephone number 
        at which households may reach State personnel;
            (13) display and make available nutrition 
        information; and
            (14) use mail issuance in rural areas where low-
        income households face substantial difficulties in 
        obtaining transportation (with exceptions for high mail 
        losses). [Sec. 11(e)(2), (3), (14), & (25)]
House bill
      No provisions.
Senate amendment
      Replaces noted existing State plan requirements with 
requirements that the State:
            (1) establish procedures governing the operation of 
        food stamp offices that it determines best serve 
        households in the State, including those with special 
        needs (such as households with elderly or disabled 
        members, those in rural areas, the homeless, households 
        residing on reservations, and households speaking a 
        language other than English);
            (2) provide timely, accurate, and fair service to 
        applicants and participants;
            (3) permit applicants to apply and participate on 
        the same day they first contact the food stamp office 
        during office hours; and
            (4) consider an application filed on the date the 
        applicant submits an application that contains the 
        applicant's name, address, and signature.
      Permits States to establish operating procedures that 
vary for local food stamp offices to reflect regional and local 
differences.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                  B. Application and Denial Procedures

Present law
      A single interview for determining AFDC and food stamp 
benefits is required. Food stamp applications generally are 
required to be contained in public assistance applications, and 
applications and information on how to apply for food stamps 
must be provided local general assistance applicants. 
Applicants (including those who have recently lost or been 
denied public assistance) must be certified eligible for food 
stamps based on the information in their public assistance 
casefile (to the extent it is reasonably verified).
      No household may be terminated from or denied food stamps 
solely on the basis that it has been terminated from or denied 
other public assistance and without a separate food stamp 
eligibility determination.
House bill
      No provisions.
Senate amendment
      Deletes noted existing requirements for single 
interviews, applications, and food stamp determinations based 
on public assistance information.
      Permits disqualification for food stamps based on another 
public assistance program's disqualification for failure to 
comply with its rules or regulations.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

               46. State Employee and Training Standards

Present law
      States must employ agency personnel doing food stamp 
certifications in accordance with current Federal ``merit 
system'' standards. States must provide continuing, 
comprehensive training for all certification personnel. States 
may undertake intensive training of certification personnel to 
ensure they are qualified for certifying farming households. 
States may provide or contract for the provision of training/
assistance to persons working with volunteer or nonprofit 
organizations that provide outreach and eligibility screening 
activities. [Sec. 11(e)(6)]
House bill
      No provision.
Senate amendment
      Deletes noted existing provisions for merit system 
standards and training.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                      47. Expedited Coupon Service

Present law
      States must provide expedited benefits to applicant 
households that (1) have gross income under $150 a month (or 
are ``destitute'' migrant or seasonal farmworker households) 
and have liquid resources of no more than $100, (2) homeless 
households, and (3) households that have combined gross income 
and liquid resources less than the household's monthly shelter 
expenses.
      Expedited service means providing an allotment no later 
than 5 days after application. [Sec. 11(e)(9)]
House bill
      No provision.
Senate amendment
      Deletes noted existing requirements to provide expedited 
service to the homeless and households with shelter expenses in 
excess of their income/resources.
      Lengthens the period in which expedited benefits must be 
provided to 7 business days.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment providing that expedited benefits must be 
provided in 7 calendar days.

                           48. Fair Hearings

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Permits households to withdraw fair hearing requests 
orally or in writing. If it is an oral request, the State must 
provide a written notice to the household confirming the 
request and providing the household with another chance to 
request a hearing.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment providing that permission for households to 
withdraw fair hearing requests orally or in writing is a State 
option.

             49. Income and Eligibility Verification System

Present law
      States must use the ``income and eligibility verification 
systems'' established under Sec. 1137 of the Social Security 
Act to assist in verifying household circumstances; this 
includes a system for verifying financial circumstances (IEVS) 
and a system for verifying alien status (SAVE). [Sec. 11(e)(19) 
of the Food Stamp Act and Sec. 1137 of the Social Security 
Act.]
House bill
      No provision.
Senate amendment
      Makes use of IEVS and SAVE optional with the States.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

  50. Termination of Federal Match for Optional Information Activities

Present law
      If a State opts to conduct informational (``outreach'') 
activities for the food stamp program, the Federal Government 
shares half the cost. [Sec. 11(e)(1) & Sec. 16(a)]
House bill
      No provision.
Senate amendment
      Terminates the Federal share of optional State outreach 
activities. [Note: Sec. 333(b) makes a technical amendment to 
Sec. 16(g) of the Food Stamp Act.]
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment that does not terminate the Federal share of 
optional State outreach activities but bar a Federal share for 
``recruitment activities.''

                    51. Standards for Administration

Present law
      The Secretary is required to (1) establish standards for 
efficient and effective administration of the program, 
including standards for review of food stamp office hours to 
ensure that employed individuals are adequately served, and (2) 
instruct States to submit reports on administrative actions 
taken to meet the standards. [Sec. 16(b)]
House bill
      No provision.
Senate amendment
      Deletes provisions on standards for administration.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                          52. Waiver Authority

Present law
      The Secretary may waive Food Stamp Act requirements to 
the degree necessary to conduct pilot/demonstration projects, 
but no project may be implemented that would lower or further 
restrict food stamp income/resource eligibility standards or 
benefit levels (other than certain projects involving the 
payment of the average value of allotments in cash and certain 
work program demonstrations). [Sec. 17(b)(1)]
House bill
      No provision.
Senate amendment
      Replaces existing waiver authority with authority for the 
Secretary to waive Food Stamp Act requirements to the extent 
necessary to conduct pilot/experimental projects, including 
those designed to test innovative welfare reform, promote work, 
and allow conformity with other assistance programs.
      Requires that any project involving the payment of 
benefits in the form of cash maintain the average value of 
allotments for affected households.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                  53. Authorization of Pilot Projects

Present law
      Existing pilot projects for the payment of food stamp 
benefits in the form of cash to households composed of elderly 
persons or SSI recipients are authorized to continue through 
October 1, 1995, if a State requests. [Sec. 17(b)(1)]
House bill
      No provision.
Senate amendment
      Extends the authorization for elderly/SSI cash-out 
projects through October 1, 2002.
Conference agreement
      The Conference agreement follows the Senate amendment.

                        54. Response to Waivers

Present law
      No provisions.
House bill
      No provisions.
Senate amendment
      Requires that, not later than 60 days after receiving a 
demonstration project waiver request, the Secretary (1) approve 
the request, (2) deny the request and explain any modifications 
needed for approval, (3) deny the request and explain the 
grounds for denial, or (4) ask for clarification of the 
request. If a response is not forthcoming in 60 days, the 
waiver would be considered approved. If a waiver request is 
denied, the Secretary must provide a copy of the waiver request 
and the grounds for denial to the House and Senate Agriculture 
Committees.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

               55. Private Sector Employment Initiatives

Present law
      No provisions.
House bill
      [Note: See item 4E.]
Senate amendment
      Allows certain States to operate ``private sector 
employment initiatives'' under which food stamp benefits could 
be paid in cash to some participating households. States would 
be eligible to operate private sector employment initiatives if 
not less than 50% of the households that received food stamp 
benefits in the summer of 1993 also received AFDC benefits. 
Households would be eligible to receive cash payments if an 
adult member so elects and (1) has worked in unsubsidized 
private sector employment for not less than the 90 preceding 
days, (2) has earned not less than $350 a month from that 
employment, (3) is eligible to receive family assistance block 
grant benefits (or was eligible when cash payments were first 
received and is no longer eligible because of earned income), 
and (4) is continuing to earn not less than $350 a month from 
private sector employment. States operating a private sector 
employment initiative for 2 years must provide a written 
evaluation of the impact of cash assistance (the content of the 
evaluation would be determined by the State).
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment requiring States that select this option to 
increase benefits to compensate for State or local sales taxes 
on food purchases.

                       56. Optional Block Grants

Present law
      No provisions.
House bill
      [Note: Sec. 556 (b) of the House bill adds a new section 
25 to the Food Stamp Act containing provisions for an optional 
block grant.]
      Allows States that have fully implemented an electronic 
benefit transfer system to elect an annual block grant to 
operate a low-income nutrition assistance program in lieu of 
the food stamp program.
      Grants funds to States electing a block grant--States 
would receive (1) the greater of: the total fiscal year 1994 
amount they received as food stamp benefits; or the fiscal 
years 1992-1994 average they received as food stamp benefits 
and (2) the greater of: the fiscal year 1994 Federal share of 
administrative costs; or the fiscal years 1992-1994 average 
they received as the Federal share of administrative costs. 
Grant payments would be made at times and in a manner 
determined by the Secretary.
      Requires annual submission of a State plan specifying the 
manner in which the block grant nutrition assistance program 
will be conducted. The plan must:
          (1) certify that the State has implemented a State-
        wide electronic benefit transfer system under Food 
        Stamp Act conditions;
          (2) designate a single State agency responsible for 
        administration;
          (3) assess the food and nutrition needs of needy 
        persons in the State;
          (4) limit assistance to the purchase of food;
          (5) describe the persons to whom aid will be 
        provided;
          (6) assure that assistance will be provided to the 
        most needy;
          (7) assure that applicants for assistance have 
        adequate notice and fair hearing rights comparable to 
        those under the regular food stamp program;
          (8) provide that there be no discrimination on the 
        basis of race, sex, religion, national origin, or 
        political beliefs; and
          (9) include other information as required by the 
        Secretary.
      In general, permits block grant payments to be expended 
only in the fiscal year in which they are distributed to a 
State. States may reserve up to 5% of a fiscal year's grant to 
provide assistance in subsequent years, but reserved funds may 
not total more than 20% of the total grant received for a 
fiscal year.
      Requires States to keep records concerning block grant 
program operations and make them available to the Secretary and 
the Comptroller General.
      If the Secretary finds there is substantial failure by a 
State to comply, requires the Secretary to (1) suspend all or 
part of a grant payment until the State is determined in 
substantial compliance, (2) withhold all/part of a grant 
payment until the Secretary determines that there is no long a 
failure to comply, or (3) terminate the State's authority to 
operate a nutrition assistance block grant program.
      Requires States to provide for biennial audits of block 
grant expenditures, provide the Secretary with the audit, and 
make it available for public inspection.
      Requires an annual ``activities report'' comparing actual 
spending for nutrition assistance in each fiscal year with the 
spending predicted in the State plan; the report must be made 
available for public inspection.
      Requires that whoever knowingly and willfully embezzles, 
misapplies, steals, or obtains by fraud, false statement, or 
forgery any funds or property provided or financed under a 
nutrition assistance block grant be fined not more than 
$10,000, imprisoned for not more than 5 years, or both.
      Requires that the State plan provide that there will be 
no discrimination on the basis of race, sex, religion, national 
origin, or political beliefs.
      Requires that all assistance provided under the block 
grant be limited to the purchase of food. [Note: Because the 
State would have fully implemented an electronic benefit 
transfer system, benefits would be provided through these 
systems.]
Senate amendment
      [Note: Sec. 343(a) of the Senate amendment adds a new 
section 25 to the Food Stamp Act containing provisions for an 
optional block grant]
      Requires the Secretary to establish a program to make 
grants to States, in lieu of the food stamp program, to provide 
food assistance to needy individuals and families, wage 
subsidies and payments in return for work for needy 
individuals, funds to operate an employment and training 
program for needy individuals, and funds for administrative 
costs incurred in providing assistance.
      Grants funds to States electing a block grant--States 
would receive (1) the greater of: the total fiscal year 1994 
amount they received as food stamp benefits; or the fiscal 
years 1992-1994 average they received as food stamp benefits 
and (2) the greater of: the fiscal year 1994 Federal share of 
administrative costs and employment/ training program costs; or 
the fiscal years 1992-1994 average they received as the Federal 
share of administrative costs and employment/training program 
costs. If total allotments for a fiscal year would exceed the 
amount of funds made available to provide them, the Secretary 
is required to reduce allotments on a pro rata basis to the 
extent necessary. Grant payments would be made by issuing 1 or 
more letters of credit, with necessary adjustments for 
overpayments and underpayments.
      Requires annual submission of a State plan containing 
information as required by the Secretary. The plan:
          (1) must have an assurance that the State will comply 
        with block grant requirements;
          (2) must identify a ``lead agency'' responsible for 
        administration, development of the plan, and 
        coordination with other programs;
          (3) must provide that the State will use grant funds 
        as follows:
                  (a) to give food assistance to needy persons 
                (other than certain residents of institutions);
                  (b) at State option, to provide wage 
                subsidies and workfare for needy persons;
                  (c) to administer an employment and training 
                program for needy persons (and provide 
                reimbursement for support services); and
                  (d) to pay administrative costs incurred in 
                providing assistance;
          (4) must describe how the program will serve specific 
        groups of persons (and how that treatment will differ 
        from the regular food stamp program) including the 
        elderly, migrants or seasonal farmworkers, the 
        homeless, those under the supervision of institutions, 
        those with earnings, and Indians;
          (5) must provide that benefits be available 
        statewide;
          (6) must provide that applicants and recipients are 
        provided with notice and fair hearing rights;
          (7) may coordinate block grant assistance with aid 
        under the family assistance block grant;
          (8) may reduce food assistance or otherwise penalize 
        persons or families penalized for violating family 
        assistance block grant rules;
          (9) must assess the food and nutrition needs of needy 
        persons in the State;
          (10) must describe the income and resource 
        eligibility limits established under the block grant;
          (11) must establish a system to ensure that no 
        persons receive block grant benefits in more than 1 
        jurisdiction;
          (12) must provide for safeguarding and restricting 
        the use and disclosure of information about recipients; 
        and
          (13) must contain other information as required by 
        the Secretary.
      Same as the House bill, except that States may reserve up 
to 10% a year and reserved funds may not total more than 30% of 
the total grant received.
      Requires the Secretary to review and monitor State 
compliance with block grant rules and State plans. If the 
Secretary (after notice and opportunity for a hearing) finds 
that there has been a failure to substantially comply with the 
State's plan or the provisions of the block grant, the 
Secretary must notify the State and no further payments would 
be made until the Secretary is satisfied that there is no 
longer a failure to comply or that noncompliance will be 
promptly corrected.
      Allows the Secretary (in cases of noncompliance) to 
impose other appropriate sanctions on States in addition to, or 
in lieu of, withholding block grant payments; these sanctions 
may include recoupment of money improperly spent and 
disqualification from receipt of a block grant. The Secretary 
also is required to establish procedures for (1) receiving, 
processing, and determining the validity of complaints about 
States' failure to comply with block grant obligations and (2) 
imposing sanctions. In addition, the Secretary is permitted to 
withhold not more than 5% of a State's annual allotment if the 
State does not use an ``income and eligibility verification 
system'' established under Sec. 1137 of the Social Security 
Act.
      Requires States to arrange for annual independent audits 
of block grant expenditures. Each annual audit must include an 
audit of payment accuracy based on a statistically valid sample 
and be submitted to the State legislature and the Secretary. 
States must repay any amounts the audit determines have not 
been expended in accordance with the State plan, or the 
Secretary can offset amounts against any other amount paid the 
State under the block grant.
      Provides that a State that elects a food assistance block 
grant option may subsequently reverse that choice only once.
      Finds that the Senate has adopted a resolution that 
Congress should not enact/adopt any legislation that will 
increase the number of hungry children, that it is not its 
intent to cause more children to be hungry, that the food stamp 
program serves to prevent child hunger, and that a State's 
election for a food assistance block grant should not serve to 
increase the number hungry children in the State.
      Provides that a State's election for a food assistance 
block grant be permanently revoked 180 days after the Secretary 
of Health and Human Services has made 2 successive findings 
(over a 6-year period) that the ``hunger rate'' among children 
is significantly higher in a food assistance block grant State 
than it would have been if the State had not made the choice.
      Specifies procedures for a finding that a State's child 
hunger rate has risen significantly. Every 3 years, the 
Secretary must develop data and report with respect to any 
significant increase in child hunger in States that have 
elected a food assistance block grant. The Secretary must 
provide the report to States that have elected a block grant 
and must provide States with a higher child hunger rate with an 
opportunity to respond. If the State's response does not result 
in a reversal of the Secretary's determination that the child 
hunger rate is significantly higher than it would have been 
without the State's block grant election, the Secretary must 
publish a determination that the State's block grant choice is 
revoked.
      Requires States to designate a lead administrative 
agency. The agency must administer (either directly or through 
other agencies) the food assistance block grant aid, develop 
the State plan, hold at least 1 hearing for public comment on 
the plan, and coordinate food assistance block grant aid with 
other government assistance. In developing the State plan, the 
lead agency must consult with local governments and private 
sector organizations so that services are provided in a manner 
appropriate to local populations.
      Provides that nothing in the new food assistance block 
grant section of the Food Stamp Act entitles anyone to 
assistance or limits the right of States to impose additional 
limits or conditions.
      Requires that no funds under the food assistance block 
grant be spent for the purchase or improvement of land, or for 
the purchase, construction, or permanent improvement of any 
building/facility.
      Requires that no alien otherwise ineligible to 
participate in the regular food stamp program be eligible to 
participate in a food assistance block grant program, and that 
the income of the sponsor of an alien be counted as in the 
regular food stamp program.
      Requires that (1) no person be eligible to receive food 
assistance block grant benefits if they do not meet regular 
food stamp program work requirements and (2) that each State 
operating a food assistance block grant implement an employment 
and training program under regular food stamp program rules.
      Bars the Secretary from providing assistance for any 
program, project, or activity under a food assistance block 
grant if any person with operational responsibilities 
discriminates because of race, religion, color, national 
origin, sex, or disability. Also provides for enforcement 
through title VI of the Civil Rights Act.
      Requires that, in each fiscal year, at least 80% of 
Federal funds expended under a State's block grant be for food 
assistance and not more than 6% be for administrative expenses. 
A State could provide food assistance to meet the 80% 
requirement in any manner it determines appropriate (such as 
electronic benefit transfers, coupons, or direct provision of 
commodities), but ``food assistance'' would be limited to 
assistance that may only be used to obtain food (as defined in 
the Food Stamp Act).
      Provides that the Secretary may conduct research on the 
effects and costs of a State food assistance block grant 
program.
Conference agreement
      The Conference agreement follows the House bill with and 
amendment. States that meet one of three conditions may elect 
to receive an annual block grant to operate a food assistance 
program for needy persons in lieu of the food stamp program. 
Eligible States may opts for a block grant at any time, but, if 
the State chooses to withdraw from the block grant or is 
disqualfied, it may not again opt for a block grant. Eligible 
States include: (1) those that have fully implemented a 
statewide electronic benefit transfer system, (2) those for 
which the dollar value of erroneous benefit and eligibility 
determinations (overpayments, payments to ineligibles, and 
underpayments) in the food stamp program or their food 
assistance block grant program is 6% of benefits issued or less 
(a 'payment error rate' of 6% or less), and (3) those with a 
payment error rate higher than 6% that agree to contribute, 
from non-Federal sources, a dollar amount equal to the 
difference between their payment error rate and a 6% rate to 
pay for benefits and administration of their food assistance 
block grant program. A States's payment error rate for block 
grant purposes is the most recent rate available, as determined 
by the Secretary.
      States electing a block grant would be provided an annual 
grant equal to: (1) the greater of the fiscal year 1994 amount 
they received as food stamp benefits, or the 1992-1994 average 
they received as food stamp benefits and (2) the greater of the 
fiscal year 1994 Federal share of administrative costs, or the 
1992-1994 average they received as the Federal share of 
administrative costs. However, grants to States with payment 
error rates above 6 % would be reduced by the amount they are 
required to contribute (i.e., the dollar amount equal to the 
difference between their payment error rate and a 6% rate). In 
general, block grant payments must be expended in the fiscal 
year for which they were distributed; but States may reserve up 
to 10% a year, up to a total of 30% of the block grant. If 
total allotments for a fiscal year would exceed the amount of 
funds made available to provide them, the Secretary is required 
to reduce allotments or a pro rata basis to the extent 
necessary. Grant payments would be made by issuing letters of 
credit.
      Block grant funding may only be used for food assistance 
and administrative costs related to its provision, and, in each 
fiscal year, not more than 6% of total funds expended 
(including State funds required to be spent) may be used for 
administrative costs.
      Each participating block grant State is required to 
maintain a food stamp quality control program to measure 
erroneous benefit and eligibility determinations, and block 
grant States would continue to be subject to the food stamp 
program's quality control system (including eligibility for 
incentive payments and imposition of fiscal sanction for very 
high payment error rates). Each participating State is required 
to implement an employment and training program under Food 
Stamp Act terms and conditions and is eligible to receive 
Federal funding for employment and training activities (in 
addition to the food stamp block grant amount).
      In order to receive a block grant, a State must annually 
submit a State plan for approval by the Secretary. The State 
plan must: (1) identify a lead administering agency, (2) 
describe how and to what extent the State's program serves 
specific groups (e.g., the elderly, migrant and seasonal 
farmworkers, the homeless, those with earnings, Indians) and 
how the treatment differs from their treatment under the food 
stamp program, (3) provide that benefits are available 
statewide, (4) provide for notice and an opportunity for a 
hearing to those adversely affected, (5) assess the food and 
nutrition needs of needy persons in the State, (6) describe the 
State's eligibility standards for assistance under the block 
grant program, (7) establish a system for exchanging 
information with other States to verify recipients' identity 
and the possible receipt of benefits in another State, (8) 
provide for safeguarding and restricting the use and disclosure 
of information about recipients, and (9) other information 
required by the Secretary.
      Eligibility for assistance under the block grant is 
determined by the State, and there is no individual entitlement 
to assistance. However, certain Federal rules apply: (1) aliens 
who would not be eligible under the food stamp program are not 
eligible for block grant aid; and (2) persons and households 
who would be ineligible under the food stamp program's work 
rules are not eligible for block grant aid.
      If the Secretary finds that there has been a failure to 
comply with provisions of the block grant or the State's 
approved plan or finds that, in the operation of any program or 
activity for which assistance is provided, there is a State 
failure to comply substantially with block grant provisions--
the Secretary must withhold funding, as appropriate, until 
satisfied there is no longer a failure to comply or that the 
noncompliance will be promptly corrected. In addition, the 
Secretary may impose other appropriate penalities, including 
recoupment of improperly spent money and disqualification from 
the block grant. States must be provided notice and an 
opportunity for a hearing in this process.
      The Secretary is authorized to conduct research on the 
effects and costs of a State food assistance block grant.

 57. Specific Period for Prohibiting Participation of Stores Based on 
                       Lack of Business Integrity

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Authorizes the Secretary to issue regulations 
establishing specific time periods during which retailers/
wholesalers that have been denied approval or had approval 
withdrawn on the basis of ``business integrity and reputation'' 
may not submit a new application for approval. The periods 
established would be required to reflect the severity of the 
business integrity infractions on which the denial/withdrawal 
was based.
Conference agreement
      See Item #20 above.

      58. Information for Verifying Eligibility for Authorization

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Permits the Secretary to require that retailers and 
wholesalers seeking approval submit relevant income and sales 
tax filing documents. Permits regulations requiring retailers 
and wholesalers to provide written authorization for the 
Secretary to verify all relevant tax filings and to obtain 
corroborating documentation from other sources in order to 
verify the accuracy of information provided by retailers and 
wholesalers.
Conference agreement
      The Conference agreement follows the Senate amendment.

            59. Bases for Suspensions and Disqualifications

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Requires criteria for finding violations by retailers and 
wholesalers (and their suspension or disqualification) on the 
basis of evidence including on-site investigations, 
inconsistent redemption data, or electronic benefit transfer 
system transaction reports.
Conference agreement
      The Conference agreement follows the House bill. The 
Conferees note that the Secretary currently has the authority 
contained in the Senate amendment.

60. Permanent Debarment of Retailers Who Intentionally Submit Falsified 
                              Applications

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Requires regulations permanently disqualifying retailers 
and wholesalers that knowingly submit an application for 
approval that contains false information about a substantive 
matter. A permanent disqualification for a knowingly false 
application would be subject to administrative and judicial 
review, but the disqualification would remain in effect pending 
the review.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment permitting the Secretary to disqualify a 
store or concern, including permanently, upon knowing 
submission of false information on an application.

                      61. Categorical Eligibility

Present law
      Households in which all members are recipients of AFDC 
are categorically eligible for food stamps. [Sec. 5(a)]
      Child support payments received by a household and 
excluded under the AFDC program may be disregarded for food 
stamps, at State option and expense. [Sec. 5(d)(13)]
      Household members who are AFDC recipients are considered 
to have met food stamp resource (asset) eligibility standards. 
[Sec. 5(j)]
      Persons who are AFDC recipients are exempt from food 
stamp rules barring eligibility to most postsecondary students. 
[Sec. 6(e)]
      In general, food stamp eligibility is barred to those 
with total (gross) household income above 130% of the Federal 
income poverty guidelines. [Sec. 5(c)]
      Political subdivisions electing to operate workfare 
programs for food stamp recipients may comply with food stamp 
requirements by operating a workfare program under title IV of 
the Social Security Act. [Sec. 20(a)]
      Households exempt from food stamp work rules because of 
participation in an AFDC community work experience program are 
subject to a limit on the number of hours of work--their cash 
assistance plus food stamps, divided by the minimum wage (but 
no person can be required to work more than 120 hours a month). 
[Sec. 20(a)]
House bill
      No provision. [Note: TANF households would presumably be 
categorically eligible for food stamps under existing 
provisions of law.]
      No provision. [Note: TANF recipients would presumably be 
considered to have met food stamp resource standards under 
existing provisions of law.]
      No provision. [Note: TANF recipients would presumably not 
be exempt from food stamp postsecondary student rules under 
existing provisions of law.]
Senate amendment
      Provides that households in which all members are 
recipients of benefits under a State's family assistance block 
grant program be categorically eligible for food stamps, if the 
Secretary determines that the program complies with Secretarial 
standards that ensure that State program standards are 
comparable to or more restrictive than those in effect June 1, 
1995.
      Deletes the existing provision for a State-option child 
support disregard. [Note: A separate provision (Sec. 5(m) of 
the Food Stamp Act) providing for State funding of the 
disregard is not deleted.]
      Provides that persons receiving benefits under a State's 
family assistance block grant program will be considered to 
have met food stamp resource eligibility standards, if the 
Secretary determines that the program complies with Secretarial 
standards that ensure that State program standards are 
comparable to or more restrictive than those in effect June 1, 
1995.
      Provides that persons receiving benefits under a State's 
family assistance block grant program are exempt from food 
stamp rules barring eligibility to most postsecondary students, 
if the Secretary determines that the program complies with 
Secretarial standards that ensure that State program standards 
are comparable to or more restrictive than those in effect June 
1, 1995.
      Provides that households may not receive food stamp 
benefits as the result of eligibility under a State's family 
assistance block grant program unless the Secretary determines 
that households with income above 130% of the poverty 
guidelines are not eligible for the State's program--
notwithstanding any other provision of the Food Stamp Act.
      Deletes the existing provision allowing compliance with 
food stamp workfare rules by operating a workfare program under 
title IV of the Social Security Act.
      Deletes the existing rule placing limits on hours worked 
for food stamp recipients in community work experience 
programs.
      Makes various technical amendments to the Food Stamp Act 
conforming its existing references to the AFDC program to cite 
the new family assistance block grant program.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment deleting references to standards comparable 
to June 1, 1995, and revising various amendments conforming 
Food Stamp Act references to the AFDC program to the new family 
assistance block grant program.

                 62. Protection of Battered Individuals

Present law
      No provision. [Note: Certain work rules contain a ``good 
cause'' exemption.]
House bill
      No provision.
Senate amendment
      In the case of individuals who were battered or subjected 
to extreme cruelty, permits States to exempt them from the 
following provisions of food stamp law (or modify their 
application) if their physical, mental, or emotional well-being 
would be endangered:
            (1) the requirement that the income and resources 
        of a sponsor of an alien be deemed to the sponsored 
        alien;
            (2) the requirement that custodial parents 
        cooperate with child support agencies (as added by the 
        Senate amendment); and
            (3) all work requirements (including the new work 
        requirement added by the Senate amendment).
Conference agreement
      The Conference agreement follows the House bill. The 
conferees note that the Food Stamp Act already provides 
protection to battered individuals in the application of child 
support enforcement and work rules.

                     63. Reconciliation Provisions

                        A. Transitional Housing

Present law
      Payments form regular welfare benefits made on behalf of 
households in transitional housing are disregarded as income. 
[Sec. 5(k)]
House bill
      No provision.
Senate amendment
      Deletes disregard of transitional housing payments.
Conference agreement
      The Conference agreement follows the Senate amendment.

                           B. American Samoa

Present law
      No provision. [Note: A food assistance program for 
American Samoa is supported under provisions of law granting 
Secretarial discretion to extend Agriculture Department 
programs to American Samoa.]
House bill
      No provision.
Senate amendment
      Provides for funding of not more than $5.3 million a year 
through fiscal year 2002 for a nutrition assistance program in 
American Samoa.
Conference agreement
      The Conference agreement follows the Senate amendment.

               C. Assistance for Community Food Projects

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Authorizes $2.5 million a year for community food project 
grants to meet the food needs of low-income people, increase 
the self-reliance of communities in providing for their own 
food needs, and promote comprehensive responses to local food, 
farm, and nutrition issues.
Conference agreement
      The Conference agreement follows the Senate amendment, 
with an amendment making the funding for community food 
projects mandatory.

                         Commodity Distribution

                             1. Short Title

Present law
      The Emergency Food Assistance Act (EFAA), The Hunger 
Prevention Act of 1988, The Commodity Distribution Reform Act 
and WIC Amendments, The Charitable Assistance and Food Bank Act 
of 1987, The Food Security Act of 1985, The Agriculture and 
Consumer Protection Act of 1973, and The Food, Agriculture, 
Conservation, and Trade Act of 1990.
House bill
      Combines several existing commodity donation programs and 
authorities under one title, the Commodity Distribution Act of 
1995. 
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the House bill with an 
amendment striking the House provision and replacing it with a 
provision combining the emergency food assistance program 
(TEFAP) with the soup kitchen/food bank program into one 
program to be known as the TEFAP. The revised TEFAP is 
reauthorized through 2002, and the Secretary is required to 
purchase $300 million of commodities each year through 2002 for 
distribution through the TEFAP. The requirement to purchase 
$300 million of commodities is included in the Food Stamp Act 
authorization for appropriations.

                     2. Availability of Commodities

Present law
      Requires the Secretary to purchase a variety of 
nutritious and useful commodities using the resources of the 
CCC or Section 32 to supplement commodities acquired from the 
excess inventories of CCC for distribution to emergency feeding 
organizations. [Sec. 214(c) of Emergency Food Assistance Act 
(EFAA)]
      In addition to commodities donated from excess CCC 
holdings, authorizes the Secretary to donate Section 32 
commodities to eligible recipient agencies participating in 
TEFAP. [Sec. 202(c)]
      Requires the Secretary to make available to eligible 
recipient agencies, CCC commodities in excess of those needed 
to meet domestic and international obligations and market 
development and food aid commitments and to carry out farm 
price and income stabilization features of the AAA of 1938, the 
AA of 1949, and the CCC Charter. [Sec. 202(a), EFAA]
House bill
      For fiscal years 1996-2000, authorizes the Secretary of 
Agriculture to purchase a variety of nutritious and useful 
commodities to distribute to the States for purposes laid out 
in the subtitle.
      Similar to current law, but also authorizes the use of 
Section 32 funds not otherwise used or needed, to purchase, 
process, and distribute commodities for purposes under the new 
program.
      Leaves current general authority untouched; maintains 
EFAA requirement but adds language stipulating that donations 
are to be in addition to authorized Section 32 donations.
Senate amendment
      Extends existing law purchasing authorities through 
fiscal year 2002.
Conference agreement
      See Item #1 above.

                    3. Basis for Commodity Purchases

Present law
      Requires that commodities made available under the EFAA 
include a variety of items most useful to eligible recipient 
agencies, including diary products, wheat and wheat products, 
rice, honey, and cornmeal. [Sec. 202(d), EFAA]
House bill
      Requires the Secretary to determine the types, varieties, 
and amounts of commodities purchased under this subtitle, and 
to make such purchases, to the maximum extent practicable and 
appropriate, on the basis of agricultural market conditions, 
State and distributing agency preferences and needs, and the 
preferences of recipients.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

           4. State and Local Supplementation of Commodities

Present law
      Requires the Secretary to establish procedures by which 
State and local agencies, charitable institutions, or other 
person may supplement the commodities distributed under TEFAP 
for use by emergency feeding organizations with donations of 
nutritious and wholesome commodities. [Sec. 203D(a), EFAA]
      Allows States and emergency feeding organizations to use 
TEFAP funds, equipment, structures, vehicles, and all other 
facilities and personnel involved in the storage, handling, and 
distribution of TEFAP commodities to store, handle, or 
distribute commodities donated to supplement TEFAP commodities. 
[Sec. 203D(b), EFAA]
      Requires States and emergency feeding organizations to 
continue to use volunteer workers and commodities and foods 
donated by charitable and other organizations, to the maximum 
extent practical, in operating TEFAP.
House bill
      Similar to current law except that supplementation 
applies to all programs eligible to receive commodities under 
the new program, not just TEFAP.
      Similar to current law except it allows use of these 
sources to all programs eligible to participate in the new 
program (not just TEFAP), and explicitly identifies the funds 
that States and eligible agencies may use to help with 
supplemental commodities as those appropriated for 
administrative costs under the new Section 519(b).
      Same as current law, except substitutes recipient 
agencies for emergency feeding organizations to reflect 
expansion of provisions to cover other commodity donation 
programs as well as TEFAP.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                             5. State Plan

Present law
      Requires Secretary to expedite the distribution of 
commodities to agencies designated by the Governor, or directly 
distribute commodities to eligible recipient agencies engaged 
in national commodity processing; allows States to give 
priority to donations to existing food bank networks serving 
low-income households. Requires States to expeditiously 
distribute commodities to eligible recipient agencies, and to 
encourage distribution to rural areas. Also requires States to 
distribute commodities only to agencies that serve needy 
persons and to set their own need criteria, with the approval 
of the Secretary. [Sec. 203B(a) and (c) of EFAA]
House bill
      Requires that States seeking commodities under this 
program submit a plan of operation and administration every 
four years for approval by the Secretary and allows amendment 
of the plan at any time.
      Requires that, at a minimum, the State receiving 
commodities include in its plan:
            designation of the State agency responsible for 
        distributing commodities;
            the plan of operation and administration to 
        expeditiously distribute commodities in amounts 
        requested by eligible recipient agencies;
            the standards of eligibility for recipient 
        agencies; and
            the individual or household eligibility standards 
        for commodity recipients, which shall require that they 
        be needy, and residing in the geographic location 
        served by the recipient agency.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the House bill.

                           6. Advisory Board

Present law
      No provision.
House bill
      Requires the Secretary to encourage States to establish 
advisory boards consisting of representatives of all interested 
entities, public and private, in the distribution of 
commodities.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the House bill.

                  7. Cooperative Agreements/Transfers

Present law
      Permits States receiving TEFAP commodities to enter into 
cooperative agreements with agencies of other States to jointly 
provide commodities serving eligible recipients from each State 
in a single area, or to transfer commodities. [Sec. 203B(d)]
House bill
      Similar to current law, except adds language specifying 
that the State may advise the Secretary of such agreements and 
transfers. Note: Because the new commodity distribution program 
covers more than TEFAP agencies, this represents a new 
provision for other recipient agencies now receiving 
commodities (e.g. CSFP, charitable institutions).
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                 8. Allocation of Commodities to States

Present law
      Requires Secretary to allocate commodities purchased for 
TEFAP to States in the following proportions:
            60% of the value of commodities available based on 
        each State's proportion of the national total of 
        persons with incomes below the poverty line; and
            40% based on each State's proportion of the 
        national total of the average monthly number of 
        unemployed persons.
House bill
      Similar to current law as relates to allocation of TEFAP 
commodities. CSFP commodities are exempted from the allocation 
method, however, other recipient agencies currently receiving 
commodities under authority other than the EFAA (e.g. 
charitable institutions) are covered by the allocation formula.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                            9. Notification

Present law
      Requires the Secretary to notify each State of the amount 
of commodities it is allotted to receive. Requires each State 
to notify the Secretary promptly if it will not accept 
commodities available to it, and requires the Secretary to 
reallocate and distribute such commodities as he deems 
appropriate and equitable. Further requires the Secretary to 
establish procedures to permit State to decline portions of 
commodity allocations during each fiscal year and to reallocate 
and distribute such commodities, as deemed appropriate and 
equitable. [Sec. 214(g), EFAA]
House bill
      Same as current law, except applies to all eligible 
agencies receiving commodities, not just TEFAP agencies.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                             10. Disasters

Present law
      Permits the Secretary to request that States consider 
assisting other States where substantial numbers of persons 
have been affected by drought, flood, hurricane or other 
natural disasters by allowing the Secretary to reallocate 
commodities to those States affected by such disasters. [Sec. 
214(g), EFAA]
House bill
      Same as current law.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                   11. National Commodity Processing

Present law
      Requires through fiscal year 1995 that the Secretary 
encourage agreements with private companies for reprocessing 
into end-use products those commodities donated at no charge to 
nutrition programs. [Sec. 1114(a)(2)(A) of Agriculture and Food 
Act of 1981]
House bill
      No provision.
Senate amendment
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).
Conference agreement
      The Conference agreement follows the Senate amendment.

                        12. Purchases and Timing

Present law
      Requires that in each fiscal year, the Secretary purchase 
commodities at times and under conditions determined 
appropriate; deliver such commodities at reasonable intervals 
to States (but no later than the end of the fiscal year), based 
on the allocation formula, and entitles each State to the 
additional commodities purchased for TEFAP in amounts based on 
the allocation formula. [Sec. 214(h), EFAA]
House bill
      Similar to current law except for reference to CSFP, 
deletion of language relating to ``additional'' commodities, 
and requirement that commodities be delivered by December 31 of 
the following fiscal year.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

       13. Priority System for State Distribution of Commodities

                   A. Emergency Feeding Organizations

Present law
      Requires States to give priority for commodities to 
emergency feeding organizations if sufficient commodities are 
not available to meet requests of all eligible agencies, and 
encourages States to distribute commodities to rural areas. 
[Sec. 203B(b), EFAA]
House bill
      Requires that in distributing commodities allocated under 
this section for other than CSFP, the State agency offer its 
full allocation of commodities to emergency feeding 
organizations.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                       B. Charitable Institutions

Present law
      No provision.
House bill
      Permits States agencies to distribute commodities that 
are not able to be used by emergency feeding organizations to 
charitable institutions (excluding penal institutions) that do 
not receive commodities as emergency feeding organizations.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                       C. Other Eligible Agencies

Present law
      No provision.
House bill
      Permits the State agency to distribute commodities that 
are not able to be used by emergency feeding organizations or 
other charitable institutions to other eligible recipient 
agencies not receiving commodities under the previous 
distributions.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                      14. Initial Processing Costs

Present law
      Permits the Secretary to use CCC funds to pay the cost of 
initial processing and packaging of commodities distributed 
under this Act into forms and quantities the Secretary 
determines are suitable for use by individual households or 
institutional use. Permits payment in the form of commodities 
equal in value to the cost, and requires the Secretary to 
ensure that such payments in kind do not displace commercial 
sales. [Sec. 203A, EFAA]
House bill
      Similar to present law, except substitutes term 
``eligible recipient agencies'' for ``institutional use.''
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                    15. Assurances; Anticipated Use

Present law
      Requires the Secretary to take precautions to assure that 
eligible recipient agencies and persons receiving commodities 
do not diminish their normal expenditures for food because of 
receipt of commodities, and to ensure that commodities made 
available under the Act do not displace commercial sales. 
Prohibits Secretary from donating commodities in a quantity or 
manner that will substitute for agricultural produce that 
otherwise would be purchased in the market. Requires Secretary 
to submit a report to the Congress each year on whether and to 
what extent displacement or substitution is occurring. [Sec. 
203C(a)]
House bill
      Similar to current law but does not refer to individual 
displacement or substitutions or prohibit donation in a 
quantity or manner that might interfere with market sales. Also 
sets December 1997, and at least every two years thereafter as 
the dates for displacement reports.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                               16. Waste

Present law
      Requires that the Secretary purchase and distribute 
commodities in quantities that can be consumed without waste, 
and prohibits eligible recipient agencies receiving commodities 
under this Act from receiving commodities in excess of 
anticipated use (based on inventory records and controls), or 
in excess of their ability to accept and store. [Sec. 203C(b)]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                  17. Authorization of Appropriations

                         A. Commodity Purchases

Present law
      Authorizes $175 million for fiscal year 1991, $190 
million for fiscal year 1992, and $220 million for each of 
fiscal year 1993-1995 to purchase, process and distribute 
additional commodities to TEFAP agencies. [Sec. 214(e)]
House bill
      Authorizes $260 million annually for each of fiscal years 
1996 through 2000 to purchase, process, and distribute 
commodities to States for distribution to eligible recipient 
agencies, which include charitable institutions and CSFP 
agencies, as well as TEFAP agencies.
Senate amendment
      Extends funding authority for commodity purchases at $220 
million annually through fiscal year 2002.
Conference agreement
      See Item #1 above.

                       B. Administrative Funding

Present law
      Authorizes $50 million for fiscal year 1991-95 for the 
Secretary to make available to States for State and local 
payments of costs associated with the distribution of 
commodities by eligible recipient agencies. Requires Secretary 
to allocate funds to States on advance basis in the same 
proportion as the proportion each State receives of allocated 
commodities, and requires the Secretary to reallocate funds not 
able to be used by a State to other States in an appropriate 
and equitable manner. Permits States to use funds for costs 
associated with the distribution of additional commodities 
purchased for the program and for soup kitchens and food banks. 
[Sec. 204(a)(1)]
House bill
      Authorizes $40 million annually for each of fiscal years 
1996 through 2000 for payments to States and local agencies 
(except for the CSFP) for the costs associated with 
transporting storing, and handling commodities other than those 
distributed to CSFP agencies. Same as current law with respect 
to allocations and reallocations, and advanced funding. No 
specific reference to soup kitchens and food banks, which are 
included as eligible recipient agencies.
Senate amendment
      Extends authority for administrative funding at $50 
million annually through fiscal year 2002.
Conference agreement
      The Conference agreement follows the Senate amendment 
with an amendment providing that administrative funds may be 
used for processing, transporting, or distributing commodities 
other than TEFAP commodities.

                   18. Local Administrative Payments

Present law
      Requires each State to make available not less than 40% 
of the funds it receives for administrative costs in each 
fiscal year to pay for, or provide advance payments to eligible 
recipient agencies, for allowable expenses incurred by such 
agencies in distributing commodities to needy persons. Defines 
``allowable expenses'' to include the costs of transporting, 
storing, handling, repackaging and distributing commodities 
after receipt by the eligible recipient agency; costs 
associated with eligibility, verification, and documentation of 
eligibility; costs of providing information to commodity 
recipients on appropriate storage and preparation of 
commodities; and costs of recordkeeping, auditing, and other 
required administrative procedures. [Sec. 204(a)(2), EFAA]
House bill
      Same as current law except also applies to non-TEFAP 
agencies.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                   19. State Coverage of Local Costs

Present law
      Requires that amounts of funding that States use to cover 
the allowable expenses of eligible recipient agencies be 
counted toward the amount a State must make available from 
administrative funding provided under this Act for eligible 
recipient agencies. [Sec. 204(a)(2), EFAA]
House bill
      Same as present law except that it references the CSFP, 
which is excluded from this rule.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                         20. Financial Reports

Present law
      Requires States receiving funds to submit financial 
reports on a regular basis to the Secretary on the use of such 
funds and prohibits any such funds from being used by States 
for costs other than those used to the distribution of 
commodities by eligible recipient agencies. [Sec. 204(a)(3), 
EFAA]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                     21. Non-Federal Matching Funds

Present law
      Requires that each State receiving administrative funds 
under this subsection provide cash or in-kind contributions 
from non-Federal sources in an amount equal to the amount of 
Federal administrative funds it receives that are not 
distributed to eligible recipient agencies or used to cover the 
expenses of such agencies. Permits States to receive 
administrative funding prior to satisfying the matching 
requirement, based on their estimated contribution, and 
requires the Secretary to periodically reconcile estimated and 
actual contributions to correct for overpayments and 
underpayments. [Sec. 204(a)(4), EFAA]
House bill
      Same as present law, except excludes administrative funds 
distributed for the CSFP from the non-Federal matching 
requirements and rules.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                          22. Federal Charges

Present law
      Prohibits any charge against the appropriations 
authorized by this section for the value of commodities donated 
for the purposes of this Act, or for the funds used by the CCC 
for the costs of initial processing, packaging, and delivery of 
program commodities to the States. [Sec. 204(b), EFAA]
House bill
      Similar to present law except it applies the prohibition 
to bonus donations of Section 32 and CCC commodities, as well 
as those bought for the program.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

                           23. State Charges

Present law
      Prohibits States from charging for commodities made 
available to eligible recipient agencies and from passing along 
the cost of matching requirements. [Sec. 204(a)(5), EFAA]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      See Item #1 above.

        24. Mandatory Funding for Nutrition Program Commodities

Present law
      For each of fiscal years 1994-1996, requires $230,000 of 
Treasury funds not otherwise appropriated to be provided to the 
Secretary to purchase, process and distribute commodities that 
are low in saturated fats, sodium, and sugar, and a good source 
of calcium, protein, and other nutrients to 2 States, selected 
by the Secretary, to carry out a three year project to improve 
the health of low-income participants of TEFAP. Requires that 
commodities be easy for low-income families to store, use, and 
handle, and include low-sodium peanut butter, low-fat and low 
sodium cheeses and canned meats, fruits, and vegetables. Also 
requires that $5000 of the amount provided be given to each of 
the participating States to help with administrative costs. 
[Sec. 13962 of OBRA, 1993]
House bill
      No provision.
Senate amendment
      Extends this requirement through fiscal year 2002.
Conference agreement
      The Conference agreement follows the House bill.

     25. commodity supplemental food program (csfp)--authorization

Present law
      For each of fiscal years 1991-1995, authorizes the 
Secretary to purchase and distribute sufficient agricultural 
commodities with appropriated funds to maintain the traditional 
level of assistance for food programs including the 
supplemental food programs for women, infants, children, and 
the elderly. [Sec. 4(a), Agriculture and Consumer Protection 
Act of 1973]
House bill
      Requires that $94.5 million of the amount appropriated 
for programs under this subtitle for the period fiscal year 
1996-2000 be used each fiscal year to purchase and distribute 
commodities to supplemental feeding programs for women, 
infants, and children, or elderly individuals participating in 
the commodity supplemental food program.
Senate amendment
      Extends appropriations authority through fiscal year 
2002.
Conference agreement
      This provision was dropped from the Reconcilation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                    26. csfp administrative funding

Present law
      Requires the Secretary to provide administrative funds to 
State and local agencies administering the CSFP for each of 
fiscal years 1991-1995. Authorizes appropriations in an amount 
equal to not more than 20% of the value of commodities 
purchased for the program. [Sec. 5(a), Agriculture and Consumer 
Protection Act of 1973]
      Defines administrative costs to include expenses for 
information and referral, operation, monitoring, nutrition 
education, start-up costs, and general administration 
(including staff, warehouse, and transportation personnel, 
insurance and administration of the State or local office. 
[Sec. 5(c), Agriculture and Consumer Protection Act of 1973]
House bill
      Requires that not more than 20% of the funds made 
available for commodity purchase and distribution for the CSFP 
be made available to States for the State and local payments of 
costs associated with the distribution of commodities by CSFP 
agencies.
Senate amendment
      Extends present law authority through fiscal year 2002.
Conference agreement
      The Conference agreement follows the Senate amendment.

           27. csfp--commodity purchases and advance warning

Present law
      Permits the Secretary to determine the types, varieties, 
and amounts of commodities purchased for the CSFP, but requires 
the Secretary to report to the House and Senate Agriculture 
Committees plans for significant changes from commodities 
available or planned at the beginning of the fiscal year before 
implementing such changes.
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                     28. cheese and nonfat dry milk

Present law
      In each of fiscal years 1991-1995, the CCC is required to 
provide at least 9 million pounds of cheese and 4 million 
pounds of nonfat dry milk (to the extent inventory levels 
permit), for the Secretary to use, before the end of each 
fiscal year, to carry out the CSFP. [Sec. 5(d)(2), Agriculture 
and Consumer Protection Act of 1973]
House bill
      Implements this present law provision for fiscal years 
1996-2000, otherwise it is exactly the same as present law.
Senate amendment
      Extends present law provision through fiscal year 2002.
Conference agreement
      The Conference agreement follows the Senate amendment.

                       29. additional csfp sites

Present law
      Requires the Secretary to approve additional sites each 
fiscal year, including sites serving the elderly, in areas 
where the program does not operate to the full extent that 
applications can be approved within the funding available, and 
without reducing participation levels (including the elderly) 
in areas where the program is in effect. [Sec. 5(f), 
Agriculture and Consumer Protection Act of 1973]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                       30. additional recipients

Present law
      Permits a local agency to serve low-income elderly 
persons, with the approval of the Secretary, if it determines 
that the amount of assistance it receives is more than is 
needed to provide assistance to women, infants and children. 
[Sec. 5(g), Agriculture and Consumer Protection Act of 1973]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                     31. commodity price increases

Present law
      Requires the Secretary to determine the decline in the 
number of persons able to be served by the CSFP if the price of 
one or more commodities purchased for the program is 
significantly higher than expected; to promptly notify State 
agencies operating programs of the decline; and ensure that 
State agencies notify local agencies of the decline. [Sec. 5(j) 
(1) and (2), Agriculture and Consumer Protection Act of 1973]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

       32. affect of csfp commodities on other recipient agencies

Present law
      No provision.
House bill
      Stipulates that commodities distributed to CSFP agencies 
under this section not be considered when determining commodity 
allocations to States for other eligible recipient agencies 
receiving commodities under this Act, or in following the 
priority for distribution of commodities to such agencies.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                       33. commodities not income

Present law
      Specifies that commodities distributed under this Act not 
be considered income or resources for any purposes under 
Federal, State, or local law. [Sec. 206, EFAA]
House bill
      Similar to present law, but narrower. Specifies that 
receipt of commodities cannot be considered in ``determining 
eligibility for any Federal, State, or local ``means-tested 
program,'' instead of the broader ``any purposes'' outlined in 
present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                    34. prohibition on state charges

Present law
      Prohibits States from charging eligible recipient 
agencies any amount that exceeds the difference between the 
State's direct costs of storing and transporting commodities to 
recipient agencies and the amount of funds provided for this 
purpose by the Secretary. [Sec. 208, EFAA]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                            35. definitions

            a. average monthly number of unemployed persons

Present law
      The average monthly number of unemployed persons within a 
State in the most recent fiscal year for which information is 
available, as determined by the Bureau of Labor Statistics of 
the Department of Labor. [Sec. 2143(b), EFAA]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the House bill with an 
amendment providing that all definitions included in the TEFAP 
and soup kitchen/food bank program will be included in the 
revised TEFAP.

                           b. elderly persons

Present law
      No provision.
House bill
      Defines ``elderly persons'' to mean persons 60 years or 
older.
Senate amendment
      No provision.
Conference agreement
      See Item 35A above.

    c. eligible recipient agencies; emergency feeding organizations

Present law
      Combines definition of ``eligible recipient agencies'' 
and ``emergency feeding organizations, as follows: ``Eligible 
recipient agency'' means public or non-profit organizations 
that administer activities or projects providing nutrition 
assistance to relieve situations of emergency and distress 
through the provision of food to needy persons (including those 
in charitable institutions, food banks, hunger centers, soup 
kitchens, and similar non-profit recipient agencies 
(hereinafter referred to as ``emergency feeding 
organizations''); and school lunch, summer camps, and child 
nutrition meal service, elderly feeding programs, CSFP, 
charitable institutions for the needy, and disaster relief. 
[Sec. 201A, EFAA]
House bill
      Similar to present law, but separates into two separate 
definitions, as follows: Defines ``eligible recipient agency'' 
to mean a public or non-profit organization that administers:
            an institution operating a CSFP;
            an emergency feeding organization (EFO);
            a charitable institution (including a hospital and 
        a retirement home, but excluding a penal institution) 
        serving needy persons;
            a summer camp for children or a child nutrition 
        food service program;
            an elderly feeding program; or
            a disaster relief program.
      Defines ``emergency feeding organization'' to mean public 
or private organizations that administer activities and 
projects (including charitable institutions, food banks and 
pantries, hunger relief centers, soup kitchens, or similar non-
profit eligible agencies) providing nutrition assistance to 
relieve situations of emergency and distress by providing food 
to needy persons, including low-income and unemployed persons.
Senate amendment
      No provision.
Conference agreement
      See Item 35A above.

                              d. food bank

Present law
      The term ``food bank'' means a public and charitable 
institution that maintains an established operation providing 
food to food pantries, soup kitchens, hunger relief centers, or 
other feeding centers that provide meals or food to feed needy 
persons on a regular basis as an integral part of their normal 
activity. [Sec. 110, Hunger Prevention Act of 1988]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      See Item 35A above.

                             e. food pantry

Present law
      Defines ``food pantry'' to mean a public or private 
nonprofit organization distributing food (including other than 
USDA food) to low-income and unemployed households to relieve 
situations of emergency and distress. [Sec. 110, Hunger 
Prevention Act of 1988]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      See Item 35A above.

                            f. needy persons

Present law
      No provision.
House bill
      Defines ``needy persons'' to mean individuals who have 
low incomes or are unemployed as determined by the State, as 
long as this is not higher than 185% of the poverty line; 
households certified as food stamp participants or individuals 
participating in other Federally-supported means-tested 
programs.
Senate amendment
      No provision.
Conference agreement
      See Item 35A above.

                            g. poverty line

Present law
      The term ``poverty line'' is the same as the term used in 
Section 673(2) of the Community Services Block Grant Act (42 
U.S.C.9902(2)). [Sec. 110, Hunger Prevention Act]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      See Item 35A above.

                            h. soup kitchen

Present law
      The term ``soup kitchen'' means a public and charitable 
institution that, as an integral part of its normal activities, 
maintains an established feeding operation for needy homeless 
persons on a regular basis. [Sec. 110, Hunger Prevention Act]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      See Item 35A above.

                            36. Regulations

Present law
      Requires the Secretary to issue regulations within 30 
days to implement this subtitle; to minimize to the extent 
practicable the regulatory, recordkeeping and paperwork 
requirements imposed on eligible recipient agencies, to publish 
in the Federal Register as early as feasible, but not later 
than the beginning of each fiscal year, an estimate of the 
types and quantities of commodities anticipated to be 
available; and to include in regulations provisions that set 
standards relating to liability for commodity losses when there 
is no evidence of negligence or fraud, and establish conditions 
for payment to cover such losses, taking into account the 
special needs and circumstances of the recipient agencies. 
[Sec. 210, EFAA]
House bill
      Similar to present law except provides 120 days for 
Secretary to issue regulations and includes reference to ``non-
binding'' nature of Secretary's estimates of donations.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                     37. Finality of Determinations

Present law
      Specifies that determinations made by the Secretary 
concerning the types and quantities of commodities donated 
under this subtitle, when in conformance with applicable 
regulations, be final and conclusive and not reviewable by any 
other officer or agency of the Government. [Sec. 211, EFAA]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                 38. Prohibition on Sale of Commodities

Present law
      Prohibits the sale or disposal of commodities in 
commercial channels in any form, except as permitted under 
Section 517 for in-kind payment of initial processing costs by 
the CCC. [Sec. 205(b), EFAA]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                        39. Settlement of Claims

Present law
      Gives the Secretary or designee authority to determine 
the amount of, settle and adjust any claim arising under this 
subtitle, and waive any claim when the Secretary determines it 
will serve the purposes of this Act. Specifies that nothing in 
this Act diminishes the authority of the Attorney General to 
conduct litigation on behalf of the United States. [Sec. 215, 
EFAA]
House bill
      Same as present law.
Senate amendment
      No provision.
Conference agreement
      The Conference agreement follows the Senate amendment.

                      40. Repealers and Amendments

Present law
      No provision.
House bill
      Repeals the Emergency Food Assistance Act of 1983.
      In the Hunger Prevention Act of 1988, strikes Section 110 
(soup kitchens and food banks); Subtitle C of Title II (Food 
processing and distribution); and Section 502 (food bank 
demonstration project).
      Strikes Section 4 of the Commodity Distribution Reform 
Act of 1987 (Food bank demonstration).
      Strikes Section 3 of the Charitable Assistance and Food 
Bank Act of 1987.
      Amends the Food Security Act of 1985 by striking Section 
1571, and striking Section 4 of the Agriculture and Consumer 
Protection Act (CSFP) and inserting Section 110 of the 
Commodity Distribution Act of 1995.
      In the Agriculture and Consumer Protection Act of 1973: 
In Section 4(a) strikes ``institutions (including hospitals and 
facilities caring for needy infants and children) supplemental 
feeding programs serving women, infants, and children, and 
elderly, or both, wherever located, disaster areas, summer 
camps for children'' and inserting ``disaster areas;'' In 
subsection 4(c) strikes ``the Emergency Food Assistance Act of 
1983'' and inserts ``The Commodity Distribution Act of 1995''; 
and strikes Section 5.
      In the Food Agriculture, Conservation, and Trade Act of 
1990, strikes Section 1773(f).
Senate amendment
      No provision.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of the 
Congressional Budget Act of 1974).

                       Subtitle K--Miscellaneous

1. Expenditure of Federal Funds in Accordance with Laws and Procedures 
                Applicable to Expenditure of State Funds

Present law
      According to the National Conference of State 
Legislatures, there currently are six States in which Federal 
funds go to the Governor rather than the State legislature. 
Those States are Arizona, Colorado, Connecticut, Delaware, New 
Mexico, and Oklahoma.
House bill
      No provision.
Senate amendment
      Stipulates that funds from certain Federal block grants 
to the States are to be expended in accordance with the laws 
and procedures applicable to the expenditure of the State's own 
resources (i.e., appropriated through the State legislature in 
all States). This provision applies to the following block 
grants: temporary assistance to needy families block grant 
under title I, the optional State food assistance block grant 
under title III, and the child care block grant under title VI 
of the Senate amendment. Thus, in the States in which the 
Governor previously had control over Federal funds, the State 
legislatures now would have control.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

 2. Elimination of Housing Assistance with Respect to Fugitive Felons 
                   and Probation and Parole Violators

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Ends eligibility for public housing and Section 8 housing 
assistance of a person who is fleeing to avoid prosecution 
after conviction for a crime, or attempt to commit a crime, 
that is a felony where committed (or, in the case of New 
Jersey, is a high misdemeanor), or who is violating a condition 
of probation or parole. The amendment states that the person's 
flight shall be cause for immediate termination of their 
housing aid.
      Requires specified public housing agencies to furnish any 
Federal, State, or local law enforcement officer, upon the 
request of the officer, with the current address, social 
security number, and photograph (if applicable) of any SSI 
recipient, if the officer furnishes the public housing agency 
with the person's name and notifies the agency that the 
recipient is a fugitive felon (or in the case of New Jersey a 
person fleeing because of a high misdemeanor) or a probation or 
parole violator or that the person has information that is 
necessary for the officer to conduct his official duties, and 
the location or apprehension of the recipient is within the 
officer's official duties.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

           3. Sense of the Senate Regarding Enterprise Zones

Present law
      No specific provision. However, as stated, the provisions 
outlined in the Sense of the Senate language already can be 
done under present law.
House bill
      No provision.
Senate amendment
      Outlines findings related to urban centers and 
empowerment zones and includes sense of the Senate language 
that urges the 104th Congress to pass an enterprise zone bill 
that provides Federal tax incentives to increase the formation 
and expansion of small businesses and to promote commercial 
revitalization; allows localities to request waivers to 
accomplish the objectives of the enterprise zones; encourages 
resident management of public housing and home ownership of 
public housing; and authorizes pilot projects in designated 
enterprise zones to expand the educational opportunities for 
elementary and secondary school children.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

  4. Sense of the Senate Regarding the Inability of the Non-Custodial 
                      Parent to Pay Child Support

Present law
      No provision.
House bill
      No provision.
Senate amendment
      It is the Sense of the Senate that States should pursue 
child support payments under all circumstances even if the 
noncustodial parent is unemployed or his or her whereabouts are 
unknown; and that States are encouraged to pursue pilot 
programs in which the parents of a minor non-custodial parent 
who refuses or is unable to pay child support contribute to the 
child support owed.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                       5. Food Stamp Eligibility

Present law
      For purposes of determining eligibility and benefits 
under the Food Stamp program, the income--less a pro rata 
share--and financial resources of an ineligible alien are 
included in the income and resources of the household of which 
the alien is a member. [Sec. 6(f) of the Food Stamp Act]
House bill
      No provision.
Senate amendment
      Permits States to include all of an ineligible alien's 
income and resource in the income and resources of the 
household of which the alien is a member. (Note: This provision 
applies only to those aliens made ineligible under present food 
stamp law, not to those who might be made ineligible for food 
stamps under new provisions in the Senate amendment.)
Conference agreement
      The conference agreement follows the Senate amendment.

   6. Sense of the Senate on Legislative Accountability for Unfunded 
                 Mandates in Welfare Reform Legislation

Present law
      P.L. 104-4, the Unfunded Mandates Reform Act of 1995, 
enacted March 22, 1995, responds to the concern of many State 
and local officials regarding costs placed upon them by 
``unfunded mandates.'' The Act addresses this issue by 
requiring the Congressional Budget Office (CBO) to estimate the 
costs to State, local, and tribal governments and the private 
sector of unfunded intergovernmental mandates that exceed a 
specified amount and to make the information available to the 
Congress before a final vote on a given piece of legislation is 
taken.
House bill
      No provision.
Senate amendment
      Includes the ``purposes'' section of P.L. 104-4 as 
findings and states that it is the Sense of the Senate that 
before the Senate acts on the conference agreement on H.R. 4 
(or any other welfare reform legislation), CBO include in its 
7-year estimates the costs to States of meeting all work 
requirements (and other requirements) in the conference 
agreement, including those for single-parent families, two-
parent families, and those who have received cash assistance 
for 2 years; the resources available to the State to meet these 
work requirements and what States are projected to spend under 
current welfare law; and the amount of additional revenue 
needed by the States to meet the work requirements. In 
addition, the Senate would like CBO to estimate how many States 
would pay a penalty rather than raise the additional revenue 
needed to comply with the specified work requirements.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

7. Sense of the Senate Regarding Competitive Bidding for Infant Formula

Present law
      Under the Special Supplemental Nutrition Program for 
Women, Infants, and Children (WIC), States must carry out cost 
containment measures in procuring infant formula (and, where 
practicable, other foods). Cost containment must be by 
competitive bidding or another method that yields equal or 
greater savings. Any cost savings may be used by the State for 
WIC program purposes. [Sec. 17(b) and (h) of the Child 
Nutrition Act]
House bill
      With respect to assistance provided to women, infants, 
and young children under the Family Nutrition Block Grant, 
States are required to establish and carry out a cost 
containment system for procuring infant formula. States must 
use cost containment savings for any of the activities 
supported under the Family Nutrition Block Grant and must 
report on their system and the estimated cost savings compared 
to the previous year.
Senate amendment
      Includes findings on the success of the WIC program in: 
improving the health status of women, infants, and children, 
saving Medicaid expenditures, and establishing the importance 
of infant formula manufacture rebates in helping to fund the 
WIC program. The amendment states that it is the sense of the 
Senate that any legislation enacted by Congress must not 
eliminate or in any way weaken present competitive bidding 
requirements for the purchase of infant formula in programs 
supported with Federal funds.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

     8. Establishing National Goals to Prevent Teenage Pregnancies

                                A. Goals

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Requires the Secretary of HHS to establish and implement 
by January 1, 1997, a strategy for:
            (1) preventing an additional 2% of out-of-wedlock 
        teenage pregnancies a year; and
            (2) assuring that at least 25% of U.S. communities 
        have teenage pregnancy programs in place.
      HHS is required to report to Congress by June 30, 1998, 
on progress made toward meeting these 2 goals.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                         B. Prevention Programs

Present law
      The Social Services block grant (SSBG) (sec. 2002 of SSA, 
42 USC 1397a) entitles States to an allotment for services not 
limited to, but including: child day care; protective services 
for children and adults; services for children and adults in 
foster care; home management services; adult day care; 
transportation; family planning services; training and related 
services; employment services; information, referral and 
counseling; meal preparation and delivery; health support 
services; and, combinations of services to meet the special 
needs of children, the aged, the mentally retarded, the blind, 
the emotionally disturbed, the physically handicapped, 
alcoholics, and drug addicts. Also, Title XX of the Public 
Health Service Act establishes the Adolescent Family Life (AFL) 
program to encourage adolescents to delay sexual activity and 
to provide services to alleviate the problems surrounding 
adolescent parenthood. One-third of all funding for AFL program 
services go to projects that provide ``prevention services.'' 
The purpose of the prevention component is to find effective 
means within the context of the family of reaching adolescents, 
both male and female, before they become sexually active to 
maximize the guidance and support of parents and other family 
members in promoting abstinence from adolescent premarital 
sexual relations. (The fiscal year 1995 appropriation for AFL 
was $6.7 million.)
House bill
      No provision.
Senate amendment
      Amends the Social Services block grant (SSBG) (sec. 2002 
of the Social Security Act) to require the Secretary to conduct 
a study of the relative effectiveness of different State 
programs to prevent out-of-wedlock and teenage pregnancies and 
to require States conducting programs under this provision to 
provide data required by the Secretary to evaluate these 
programs.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

  9. Sense of the Senate Regarding Enforcement of Statutory Rape Laws

Present law
      No provision.
House bill
      No provision.
Senate amendment
      Includes Sense of the Senate that States and local 
jurisdictions should aggressively enforce statutory rape laws.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

     10. Sanctioning for Testing Positive for Controlled Substances

Present law
      Eligibility and benefit status for most of the Federal 
welfare programs are not affected by a recipient's use of 
illegal drugs. Even under the SSI program, as long as a 
recipient who is classified as a drug addict or alcoholic 
participates in an approved treatment plan when so directed and 
allows his or her treatment to be monitored, he or she is in 
compliance with the SSI rules, and in most cases the SSI 
benefit would continue without interruption.
House bill
      No provision.
Senate amendment
      Stipulates that States shall not be prohibited by the 
Federal Government from sanctioning welfare recipients who test 
positive for use of controlled substances.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                        11. Abstinence Education

Present law
      The Maternal and Child Health (MCH) block grants (title V 
of the SSA, 42 USC 701) provides grants to States and insular 
areas to fund a broad range of preventive health and primary 
care activities to improve the health status of mothers and 
children, with a special emphasis on those with low income or 
with limited availability of health services. Sec. 502 includes 
a set-aside program for projects of national or regional 
significance. (The fiscal year 1995 appropriation for MCH was 
$684 million.) See also: Title XX of the Public Health Service 
Act establishes the Adolescent Family Life (AFL) program to 
encourage adolescents to delay sexual activity and to provide 
services to alleviate the problems surrounding adolescent 
parenthood. One-third of all funding for AFL program services 
go to projects that provide ``prevention services.'' The 
purpose of the prevention component is to find effective means 
within the context of the family of reaching adolescents, both 
male and female, before they become sexually active to maximize 
the guidance and support of parents and other family members in 
promoting abstinence from adolescent premarital sexual 
relations. (The fiscal year 1995 appropriation for AFL was $6.7 
million.)
House bill
      No provision.
Senate amendment
      Amends the Maternal and Child Health (MCH) block grants 
(title V of the SSA) to set aside $75 million to provide 
abstinence education--defined as an educational or motivational 
program that has abstaining from sexual activity as its 
exclusive purpose--and to provide at the option of the State 
mentoring, counseling and adult supervision to promote 
abstinence with a focus on those groups most likely to bear 
children out-of-wedlock. Also increases the authorization level 
of MCH to $761 million.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                              12. Scoring

Present law
      In 1985, Congress passed legislation aimed at bringing 
the Federal budget into balance by the early 1990's. That 
legislation, the Balanced Budget and Emergency Deficit Control 
Act of 1985, commonly referred to as Gramm-Rudman-Hollings Act 
after its primary sponsors, establishes a series of declining 
annual deficit targets and creates a process (known as 
sequestration) intended to insure that the deficit targets are 
adhered to even if Congress and the President fail to reduce 
the deficit sufficiently through legislative action. Under the 
sequestration process, across-the-board reductions in spending 
for many Federal programs are made automatically toward the 
start of the fiscal year if the deficit for that year is 
estimated to exceed the statutory target.
House bill
      The House bill specifies that the discretionary spending 
limits in the Balanced Budget and Emergency Deficit Control Act 
of 1985 are to be adjusted each year based on actual 
appropriations compared to the level appropriated for fiscal 
year 1995. Thus, if appropriations equaled the authorized 
amounts, the discretionary spending limits would be increased 
by the difference between the authorization level under H.R. 4 
and the 1995 appropriation. (Under the House bill AFDC-related 
child care expenditures would change from mandatory spending to 
discretionary spending.)
Senate amendment
      No provision.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

    13. Provisions to Encourage Electronic Benefit Transfer Systems

Present law
      In 1978, Congress passed the Electronic Fund Transfer Act 
to provide a basic framework establishing the rights, 
liabilities, and responsibilities of participants in electronic 
fund transfer systems and required the Federal Reserve Board to 
develop implementing regulations, which generally are referred 
to as Regulation E.
House bill
      The House bill exempts from Regulation E requirements any 
electronic benefit transfer program (distributing needs-tested 
benefits) established under State or local law or administered 
by a State or local government.
 Senate amendment
      See Sec. 320 in Senate amendment, which exempts from 
Regulation E any food stamp electronic benefit transfers.
Conference agreement
      This provision was dropped from the Reconciliation bill 
because it violates the Byrd Rule (section 313 of Congressional 
Budget Act of 1974).

                    13. Social Services Block Grant

Present law
      The Social Services Block Grant (Title XX) provides funds 
to States in order to provide a wide variety of social 
services, including:
            (1) Child care;
            (2) Family planning;
            (3) Protective services for children and adults;
            (4) Services for children and adults on foster 
        care; and
            (5) Employment services.
      States have wide discretion over how they use Social 
Services Block Grant funds. States set their own eligibility 
requirements and are allowed to transfer up to 10 percent of 
their allotment to certain Federal health block grants, and for 
low-income home energy assistance (LIHEAP).
      States can also use their block grant funds for staff 
training in the field of social services. This includes 
training at workshops, conferences, seminars, and educational 
institutions.
      Funding for the Social Services Block Grant is capped at 
$2.8 billion a year. Funds are allocated among States according 
to the State's share of its total population. No State matching 
funds are required to receive Social Services Block Grant 
money.
House bill
      No provision.
Senate amendment
      Beginning in fiscal year 1997, the Social Services Block 
Grant will be reduced by 20 percent.
Conference agreement
      The House recedes.

 Subtitle L--Reform of the Earned Income Credit (Secs. 13701-13703 of 
      the House Bill and Secs. 7460-7466 of the Senate Amendment)

Present law
            In general
      Certain eligible low-income workers are entitled to claim 
a refundable credit on their income tax return. The amount of 
the credit an eligible individual may claim depends upon 
whether the individual has one, more than one, or no qualifying 
children and is determined by multiplying the credit rate by 
the individual's earned income up to an earned income 
threshold. The maximum amount of the credit is the product of 
the credit rate and the earned income threshold. For 
individuals with earned income (or adjusted gross income (AGI), 
if greater) in excess of the phaseout threshold, the maximum 
credit amount is reduced by the phaseout rate multiplied by the 
amount of earned income (or AGI, if greater) in excess of the 
phaseout threshold. For individuals with earned income (or AGI, 
if greater) in excess of the phaseout limit, no credit is 
allowed.
      For taxable years beginning after December 31, 1995, an 
individual is not eligible for the credit if the aggregate 
amount of ``disqualified income'' of the individual for the 
taxable year exceeds $2,350. Disqualified income is the sum of:
          (1) interest (taxable and tax-exempt),
          (2) dividends, and
          (3) net rent and royalty income (if greater than 
        zero).
      The parameters for the credit depend upon the number of 
qualifying children the individual claims. For 1996, the 
parameters are given in the following table (dollar amounts are 
projections expressed in 1996 dollars):

------------------------------------------------------------------------
                                        Two or                          
                                         more         One         No    
                                      qualifying  qualifying  qualifying
                                       children      child     children 
------------------------------------------------------------------------
Credit rate (percent)...............       40.00       34.00        7.65
Phaseout rate (percent).............       21.06       15.98        7.65
Earned income threshold.............      $8,910      $6,340      $4,230
Maximum credit......................       3,564       2,156         324
Phaseout threshold..................      11,630      11,630       5,290
Phaseout limit......................      28,553      25,119       9,520
------------------------------------------------------------------------

      For years after 1996, the credit rates and the phaseout 
rates will be the same as in the preceding table. The earned 
income threshold and the phaseout threshold are indexed for 
inflation; because the phaseout limit depends on those amounts 
as well as the phaseout rate and the credit rate, the phaseout 
limit will also increase if there is inflation.
      In order to claim the credit, an individual must either 
have a qualifying child or meet other requirements. A 
qualifying child must meet a relationship test, an age test, an 
identification test, and a residence test. In order to claim 
the credit without a qualifying child, an individual must not 
be a dependent and must be over age 24 and under age 65.
      To satisfy the identification test, individuals must 
include on their tax return the name and age of each qualifying 
child. For returns filed with respect to tax year 1996, 
individuals must provide a taxpayer identification number (TIN) 
for all qualifying children born on or before November 30, 
1996. For returns filed with respect to tax year 1997 and all 
subsequent years, individuals must provide TINs for all 
qualifying children, regardless of their age. An individual's 
TIN is generally that individual's social security number.
            Mathematical errors
      The IRS may summarily assess additional tax due as a 
result of a mathematical error without sending the taxpayer a 
notice of deficiency and giving the taxpayer an opportunity to 
petition the Tax Court. Where the IRS uses the summary 
assessment procedure for mathematical or clerical errors, the 
taxpayer must be given an explanation of the asserted error and 
a period of 60 days to request that the IRS abate its 
assessment. The IRS may not proceed to collect the amount of 
the assessment until the taxpayer has agreed to it or has 
allowed the 60-day period for objecting to expire. If the 
taxpayer files a request for abatement of the assessment 
specified in the notice, the IRS must abate the assessment. Any 
reassessment of the abated amount is subject to the ordinary 
deficiency procedures. The request for abatement of the 
assessment is the only procedure a taxpayer may use prior to 
paying the assessed amount in order to contest an assessment 
arising out of a mathematical or clerical error. Once the 
assessment is satisfied, however, the taxpayer may file a claim 
for refund if the taxpayer believes the assessment was made in 
error.
            Return preparer penalties
      An income tax return preparer is subject to a penalty of 
$250 if any part of an understatement of tax on a return or 
refund claim is due to the return preparer taking a position 
for which there was not a realistic possibility of the position 
being sustained. The return preparer must have known (or 
reasonably should have known) of the unrealistic position and 
not disclosed that position. In addition, an income tax return 
preparer is subject to a penalty of $1,000 if any part of an 
understatement of tax on a return or refund claim is due to the 
return preparer's willful attempt in any manner to understate 
tax or to the return preparer's negligent or intentional 
disregard of rules and regulations. An income tax return 
preparer is also subject to a penalty of $50 for each failure 
to (1) furnish a copy of a return or refund claim to the 
taxpayer, (2) sign the return or refund claim, (3) furnish his 
or her identifying number, (4) furnish certain copies or lists 
of returns or refund claims, or (5) file certain information 
returns regarding his or her employees. In addition, tax return 
preparers who endorse or negotiate checks made to taxpayers pay 
a penalty of $500 for each check endorsed or cashed.
House bill
            Deny eligibility for individuals without qualifying 
                    children
      In order to claim the credit, an individual must have a 
qualifying child.
            Modify definition of adjusted gross income used for phasing 
                    out the credit
      The House bill modifies the definition of AGI used for 
phasing out the credit by including the following items:
          (1) Social Security benefits not subject to income 
        tax, and
          (2) nontaxable distributions from pensions, 
        annuities, and individual retirement arrangements (but 
        only if not rolled over into similar vehicles during 
        the applicable rollover period).
            Credit rate for individuals with two or more qualifying 
                    children
      No provision.
            Phaseout of the credit
      The phaseout rate of the credit is increased to 23 
percent for individuals with two or more qualifying children 
and to 18 percent for individuals with one qualifying child. 
With these changes, the parameters of the credit for 1996 will 
be as follows:

------------------------------------------------------------------------
                                                    Two or              
                                                     more         One   
                                                  qualifying  qualifying
                                                   children      child  
------------------------------------------------------------------------
Credit rate (percent)...........................       40.00       34.00
Phaseout rate (percent).........................       23.00       18.00
Earned income threshold.........................      $8,910      $6,340
Maximum credit..................................       3,564       2,156
Phaseout threshold..............................      11,630      11,630
Phaseout limit..................................      27,126      23,608
------------------------------------------------------------------------

      For years after 1996, the credit rates and the phaseout 
rates will be the same as in the preceding table. The dollar 
values will continue to be indexed, as under present law.
            Expand definition of disqualified income
      No provision.
            Deny credit to individuals not authorized to be employed in 
                    the United States
      Under the House bill, individuals are not eligible for 
the credit if they do not include their taxpayer identification 
number (and, if married, their spouse's taxpayer identification 
number) on their tax return. Solely for these purposes and for 
purposes of the present-law identification test for a 
qualifying child, a taxpayer identification number is defined 
as a social security number issued to an individual by the 
Social Security Administration other than a number issued under 
section 205(c)(2)(B)(i)(II) (or that portion of sec. 
205(c)(2)(B)(i)(III) relating to it) of the Social Security Act 
(regarding the issuance of a number to an individual applying 
for or receiving Federally funded benefits).
            Use mathematical error procedures for certain omissions
      If an individual fails to provide a correct taxpayer 
identification number, such omission will be treated as a 
mathematical or clerical error. If an individual who claims the 
credit with respect to net earnings from self-employment fails 
to pay the proper amount of self-employment tax on such net 
earnings, the failure will be treated as a mathematical or 
clerical error.
            Increase return preparer penalties
      No provision.
            Effective date
      The provision is effective for taxable years beginning 
after December 31, 1995.
Senate amendment
            Deny eligibility for individuals without qualifying 
                    children
      The Senate amendment is the same as the House bill.
            Modify definition of adjusted gross income used for phasing 
                    out the credit
      The Senate amendment modifies the definition of AGI used 
for phasing out the credit by including certain nontaxable 
income and by disregarding certain losses. The nontaxable items 
included are:
          (1) tax-exempt interest,
          (2) Social Security benefits not subject to income 
        tax,
          (3) nontaxable distributions from pensions, 
        annuities, and individual retirement arrangements (but 
        only if not rolled over into similar vehicles during 
        the applicable rollover period), and
          (4) child support payments received pursuant to a 
        divorce or separation instrument, but only in excess of 
        $6,000.
      The losses disregarded are:
          (1) net capital losses (if greater than zero),
          (2) net losses from sole proprietorships (other than 
        in farming),
          (3) net losses from sole proprietorships in farming,
          (4) net losses from other trades and businesses,
          (5) net losses from nonbusiness rents and royalties,
          (6) net losses from trusts and estates, and
          (7) net operating losses.
            Credit rate for individuals with two or more qualifying 
                    children
      The increase in the credit rate for individuals with two 
or more qualifying children that was supposed to take effect 
for 1996 is repealed. Thus, for 1996 and following years the 
credit rate for individuals with two or more qualifying 
children is 36 percent.
            Phaseout of the credit
      The Senate amendment changes the method of phasing out 
the credit. Rather than specifying a phaseout rate (which, 
given a maximum credit that is indexed for inflation, results 
in a phaseout range that increases with inflation), the size of 
the phaseout range is fixed in nominal dollars. The maximum 
amount of credit that may be claimed by an individual is 
reduced by a certain percentage for each $100 (or portion 
thereof) by which the individual's earned income (or modified 
AGI, if greater) exceeds the applicable phaseout threshold. For 
individuals with one qualifying child, the applicable 
percentage is 0.86 percent, meaning that the credit is phased 
out over a $11,600 range. For individuals with two or more 
qualifying children, the applicable percentage is 0.66 percent, 
meaning that the credit is phased out over a $15,100 range. The 
size of these phaseout ranges is not indexed for inflation, 
although the phaseout thresholds continue to be indexed for 
inflation.
       With these changes, the parameters of the credit for 
1996 are as follows:

------------------------------------------------------------------------
                                                     Two or             
                                                     more         One   
                                                  qualifying  qualifying
                                                   children      child  
------------------------------------------------------------------------
Credit rate (percent)...........................          36          34
Earned income threshold.........................      $8,910      $6,340
Maximum credit..................................       3,208       2,156
Phaseout threshold..............................      11,630      11,630
Phaseout limit..................................      26,730      23,230
------------------------------------------------------------------------

       For years after 1996, the credit rates will be the same 
as in the preceding table. The dollar values for the earned 
income threshold and the phaseout threshold will continue to be 
indexed, as under present law. The phaseout limit will always 
be $15,100 greater than the phaseout threshold for individuals 
with two or more qualifying children and will always be $11,600 
greater than the phaseout threshold for individuals with one 
qualifying child.
            Expand definition of disqualified income
       For purposes of the disqualified income test for taxable 
years beginning after December 31, 1995, the following items 
would be added to the definition of disqualified income: net 
capital gain income (if greater than zero) and net passive 
income (if greater than zero).
            Deny credit to individuals not authorized to be employed in 
                    the United States
       The Senate amendment is the same as the House bill.
            Use mathematical error procedures for certain omissions
       The Senate amendment is the same as the House bill.
            Increase return preparer penalties
       The Senate amendment doubles the civil penalties 
applicable to income tax return preparers. Also, the Secretary 
of the Treasury is encouraged to use the maximum feasible 
review process to insure that originators of electronic income 
tax returns involving the credit comply with the law.
            Effective date
       The effective date is the same as the House bill.
 Conference agreement
            Deny eligibility for individuals without qualifying 
                    children
       The conference agreement follows the House bill and the 
Senate amendment.
            Modify definition of adjusted gross income used for phasing 
                    out the credit
       The conference agreement follows the Senate amendment.
            Credit rate for individuals with two or more qualifying 
                    children
       The conference agreement provides that the credit rate 
for individuals with two or more qualifying children is 
maintained at 36 percent for 1996 and future years. The base to 
which this rate is applied, however, is changed for some 
individuals. In general, the maximum amount of the credit an 
eligible individual with two or more qualifying children may 
claim is determined by multiplying an enhancement factor times 
the credit rate times the individual's earned income up to the 
earned income threshold.
       For married couples filing joint returns for whom earned 
income (or modified AGI, if greater) is less than or equal to 
$17,000, the enhancement factor is 10/9ths. For married couples 
filing joint returns for whom earned income (or modified AGI, 
if greater) is greater than $21,000, the enhancement factor is 
1. For married couples filing joint returns for whom earned 
income (or modified AGI, if greater) is greater than $17,000 
but less than or equal to $21,000, the enhancement factor is 
ratably reduced from 10/9ths to 1. For example, a married 
couple filing a joint return with an earned income (and 
modified AGI) of $18,000 has an income one-fourth [= 
($18,000-$17,000)/($21,000-$17,000)] of the way into the 
ratable reduction. Thus, the enhancement factor for this couple 
is 13/12ths [= (10/9)-(1/4)((10/9)-1)]. The $17,000 and $21,000 
amounts are indexed for inflation after 1996.
       For unmarried individuals for whom earned income (or 
modified AGI, if greater) is less than or equal to $14,000, the 
enhancement factor is 10/9ths. For unmarried individuals for 
whom earned income (or modified AGI, if greater) is greater 
than $18,000, the enhancement factor is 1. For unmarried 
individuals for whom earned income (or modified AGI, if 
greater) is greater than $14,000 but less than or equal to 
$18,000, the enhancement factor is ratably reduced from 10/9ths 
to 1. For example, an unmarried individual with an earned 
income (and modified AGI) of $16,500 has an income five-eighths 
[= ($16,500-$14,000)/($18,000-$14,000)] of the way into the 
ratable reduction. Thus, the enhancement factor for this 
individual is 25/24ths [= (10/9)-(5/8)((10/9)-1)]. The $14,000 
and $18,000 amounts are indexed for inflation after 1996.
       The conferees do not intend that individuals will have 
to do the above calculations to determine enhancement factors; 
these rules will be reflected in the credit tables provided 
with the tax return materials.
            Phaseout of the credit
       The conference agreement increases the phaseout rate of 
the credit for individuals with earned income (or modified AGI, 
if greater) in excess of a second-tier phaseout threshold. For 
individuals with two or more qualifying children, the second-
tier phaseout threshold is $17,750 and the phaseout rate for 
income in excess of that threshold is 25 percent. For 
individuals with one qualifying child, the second-tier phaseout 
threshold is $14,850 and the phaseout rate for income in excess 
of that threshold is 20 percent. These second-tier phaseout 
threshold are indexed for inflation after 1996. The phaseout 
rate applied to income between the present-law phaseout 
threshold and the new, second-tier phaseout threshold is the 
same as would apply under present law for 1996 and future 
years. With these changes, the parameters of the credit for 
1996 will be as follows:

------------------------------------------------------------------------
                                                    Two or              
                                                     more         One   
                                                  qualifying  qualifying
                                                   children      child  
------------------------------------------------------------------------
Credit rate (percent) \1\.......................       36.00       34.00
Earned income threshold.........................      $8,910      $6,340
Maximum credit..................................      $3,564      $2,156
First-tier phaseout threshold...................     $11,630     $11,630
 First-tier phaseout rate (percent).............       21.06       15.98
Second-tier phaseout threshold..................     $17,750     $14,850
Second-tier phaseout rate (percent).............       25.00       20.00
Phaseout limit..................................     $25,425     $23,055
------------------------------------------------------------------------
\1\ Subject to enhancement factor for individuals with two or more      
  qualifying children.                                                  

       For years after 1996, the credit rates and the phaseout 
rates will be the same as in the preceding table. The dollar 
values will continue to be indexed, as under present law.
            Expand definition of disqualified income
       The conference agreement follows the Senate amendment, 
except that net capital gain income would not be added to the 
definition of disqualified income.
            Deny credit to individuals not authorized to be employed in 
                    the United States
       The conference agreement follows the House bill and the 
Senate amendment.
            Use mathematical error procedures for certain omissions
       The conference agreement follows the House bill and the 
Senate amendment.
            Increase return preparer penalties
      The conference agreement doubles the civil penalties 
applicable to income tax return preparers. The conferees 
encourage the Secretary of the Treasury to use the maximum 
feasible review process to insure that originators of 
electronic income tax returns involving the credit comply with 
the law.
            Effective date
       The conference agreement follows the House bill and the 
Senate amendment.

                        Miscellaneous Provisions

                 foreign affairs and related provisions

                 Foreign Affairs Agencies Consolidation

House bill
      Section 6002 of the House bill would have enacted into 
law division A of H.R. 1561, the Foreign Affairs Agencies 
Consolidation Act of 1995. The Act reforms the foreign affairs 
institutions that have grown up over the last forty years and 
adapts them to the requirements of the post-Cold Ware era.
Senate amendment
      The Senate amendment contained no comparable provision.
Conference agreement
      The conferences concluded that the application of the 
Byrd Rule (section 313 of the Congressional Budget Act) against 
the relevant provision of the House bill could not be avoided 
if reported as part of the conference agreement and, 
accordingly, agreed to omit the provision from the conference 
agreement.

     Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1995

            House bill
       The House bill would have enacted legislation identical 
to H.R. 927, as passed by the House of Representatives. H.R. 
927 would reaffirm the U.S. policy continuing the economic and 
political isolation of the Castro regime and would protect the 
property interests of U.S. citizens whose property was 
confiscated by that regime. The bill would also have required 
immediate planning for U.S. support for a democratic transition 
in Cuba.
            Senate amendment
       Senate amendment contained no comparable provision.
            Conference agreement
       The conferences concluded that the application of the 
Byrd Rule (section 313 of the Congressional Budget Act) against 
the relevant provision of the House bill could not be avoided 
if reported as part of the conference agreement and, 
accordingly, agreed to omit the provision from the conference 
agreement.

                             Lease-purchase

House bill
      The House bill contained no comparable provision.
Senate amendment
      The Senate amendment would authorize the Department of 
State to acquire housing and other facilities overseas through 
lease-purchase arrangements. Authority is granted only within 
appropriated amounts and upon certification that the 
arrangement will result in less cost than direct purchase or 
construction.
Conference agreement
      The conferences concluded that this provision would 
likely be subject to the application of the Byrd Rule (section 
313 of the Congressional Budget Act) and, accordingly, agreed 
to omit the provision from the conference agreement.

                           Budget Enforcement

                     Discretionary Spending Limits

House bill
      Reduces the discretionary spending limits from current 
law levels for fiscal years 1996, 1997, and 1998. Extends 
spending limits through fiscal year 2002. Further reduces 
spending limits by $12 billion for 1997-2002 levels in budget 
resolution conference report.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

                    Crime Trust Fund Spending Levels

House bill
      Reduces spending limits for programs authorized by last 
year's crime bill, P.L. 103-322, in fiscal years 1996, 1997, 
1998. The bill also extends enforcement of the spending limit 
on these programs through fiscal year 2000.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

                           Special Adjustment

House bill
      Eliminates special adjustment in the discretionary 
spending limits for changes in inflation.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

                            PAYGO Extension

House bill
      Permanently extends PAY-AS-YOU-GO requirements for 
entitlement and legislation. Specifies that PAYGO requirements 
for any bill extend for four years after the date of enactment.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

              Discretionary Spending Adjustment for H.R. 4

House bill
      Provides adjustment in the discretionary spending limits 
to accommodate funding for two categorical grants that would be 
subject to appropriations in the House-passed welfare reform 
bill, H.R. 4, but were previously funded as entitlement 
(outside the discretionary spending limits). Adjustment 
provides the Appropriations Committee with the necessary 
resources to fund the program while guaranteeing that the funds 
will actually be used for the specified welfare programs.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

                    CHAMPUS Sequestration Exemption

House bill
      Allows President to effectively exempt from sequestration 
personnel accounts used to fund CHAMPUS (the account would be 
subject to sequestration, but could be replenished with funds 
from other DoD accounts).
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

                     Sequestration of DoD Accounts

House bill
      Specifies that any sequester effecting DoD accounts be 
across the accounts identified in the DoD appropriations bill.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

                      Direct Student Loan Scoring

House bill
      Puts direct student loans and loan guarantees on an 
equivalent budgetary basis by stipulating that the 
administrative costs of direct student loan must be included in 
the cost estimates used to enforce PAYGO and the discretionary 
spending limits.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

            Relationship of Discretionary Spending and PAYGO

House bill
      Provides that in the 104th Congress any reduction in the 
discretionary spending limits shall be treated as a reduction 
in the deficit under PAYGO procedures. Effectively allows the 
revenue loss from tax cuts to be offset, in part, by a 
reduction in discretionary spending.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to Senate. Language would violate the Byrd 
Rule.

                 Medicare Savings Precluded from Paygo

House bill
      Provides that none of the savings from Medicare reforms 
can be counted for PAYGO purposes. Effectively precludes using 
the deficit reduction resulting from Medicare changes to offset 
the revenue loss from the tax cuts.
Senate amendment
      There is no comparable provision in the Senate amendment.
Conference agreement
      House recedes to the Senate. Language would violate the 
Byrd Rule.

                        Generational Accounting

House bill
      There is no comparable provision in the House bill.
Senate amendment
      Requires the President's Budget to include an analysis of 
the generational accounting consequences of the budget.
Conference agreement
      Senate recedes to the House. Language would violate the 
Byrd Rule.
                For consideration of the House bill and the 
                Senate amendment, and modifications committed 
                to conference:
                                   John R. Kasich,
                                   Robert S. Walker,
                                   Dick Armey,
                                   Tom DeLay,
                                   John Boehner,
                As additional conferees from the Committee on 
                the Budget, for consideration of title XX of 
                the House bill, and modifications committed to 
                conference:
                                   Jim Kolbe,
                                   Christopher Shays,
                                   Dave Hobson,
                As additional conferees from the Committee on 
                Agriculture, for consideration of title I of 
                the House bill, and subtitles A-C of title I of 
                the Senate amendment, and modifications 
                committed to conference:
                                   Pat Roberts,
                                   Bill Emerson,
                As additional conferees from the Committee on 
                Banking and Financial Services, for 
                consideration of title II of the House bill, 
                and title III of the Senate amendment, and 
                modifications committed to conference:
                                   James A. Leach,
                                   Bill McCollum,
                                   Marge Roukema,
                As additional conferees from the Committee on 
                Commerce, for consideration of title III of the 
                House bill, and subtitle A of title IV, 
                subtitles A and G of title V, and section 6004 
                of the Senate amendment, and modifications 
                committed to conference:
                                   Tom Bliley,
                                   Dan Schaefer,
                As additional conferees from the Committee on 
                Commerce, for consideration of title XV of the 
                House bill, and subtitle A of title VII of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Tom Bliley,
                                   Michael Bilirakis,
                                   J. Dennis Hastert,
                                   James Greenwood,
                As additional conferees from the Committee on 
                Commerce, for consideration of title XVI of the 
                House bill, and subtitle B of title VII of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Tom Bliley,
                                   Michael Bilirakis,
                                   Billy Tauzin,
                                   Joe Barton,
                                   Bill Paxon,
                                   J. Dennis Hastert,
                                   James Greenwood,
                                   Ralph M. Hall,
                As additional conferees from the Committee on 
                Economic and Educational Opportunities, for 
                consideration of title IV of the House bill, 
                and title X of the Senate amendment, and 
                modifications committed to conference:
                                   William F. Goodling,
                                   Buck McKeon,
                As additional conferees from the Committee on 
                Government Reform and Oversight, for 
                consideration of title V of the House bill, and 
                title VIII and sections 13001 and 13003 of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Bill Clinger,
                                   Steven Schiff,
                As additional conferees from the Committee on 
                International Relations, for consideration of 
                title VI of the House bill, and section 13002 
                of the Senate amendment, and modifications 
                committed to conference:
                                   Ben Gilman,
                                   Dan Burton,
                As additional conferees from the Committee on 
                the Judiciary, for consideration of title VII 
                of the House bill, and title IX and section 
                12944 of the Senate amendment, and 
                modifications committed to conference:
                                   Henry Hyde,
                                   Carlos J. Moorhead,
                As additional conferees from the Committee on 
                National Security, for consideration of title 
                VIII of the House bill, and title II of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Floyd Spence,
                                   Duncan Hunter,
                As additional conferees from the Committee on 
                Resources, for consideration of title IX of the 
                House bill, and title V (except subtitles A and 
                G) of the Senate amendment, and modifications 
                committed to conference:
                                   Don Young,
                                   Billy Tauzin,
                As additional conferees from the Committee on 
                Transportation and Infrastructure, for 
                consideration of title X of the House bill, and 
                subtitles B and C of title IV and title VI 
                (except section 6004) of the Senate amendment, 
                and modifications committed to conference:
                                   Bud Shuster,
                                   Bill Clinger,
                As additional conferees from the Committee on 
                Veterans' Affairs, for consideration of title 
                XI of the House bill, and title XI of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Robert Stump,
                                   Tim Hutchinson,
                                   G.V. Montgomery,
                As additional conferees from the Committee on 
                Ways and Means, for consideration of titles 
                XII, XIII, XIV, and XIX of the House bill, and 
                subtitles H and I of title VII and title XII 
                (except section 12944) of the Senate amendment, 
                and modifications committed to conference:
                                   Bill Archer,
                                   Phil Crane,
                                   Wm. Thomas,
                                   E. Clay Shaw, Jr.,
                                   Jim Bunning,
                As additional conferees from the Committee on 
                Ways and Means, for consideration of title XV 
                of the House bill, and subtitle A of title VII 
                of the Senate amendment, and modifications 
                committed to conference:
                                   Bill Archer,
                                   Wm. Thomas,
                                   Nancy L. Johnson,
                                   Jim McCrery,
                                 Managers on the Part of the House.

                From the Committee on the Budget for 
                consideration of all titles:
                                   Pete V. Domenici,
                                   Chuck Grassley,
                From the Committee on Agriculture, Nutrition, 
                and Forestry:
                                   Dick Lugar
                                           (for consideration of all of 
                                               title I),
                                   Bob Dole
                                           (for consideration of all of 
                                               title I),
                                   Jesse Helms
                                           (for consideration of 
                                               section 113 and subtitle 
                                               D),
                                   Thad Cochran
                                           (for consideration of title 
                                               I, except sections 1106, 
                                               1108, 1113, and subtitle 
                                               D),
                                   Larry E. Craig
                                           (for consideration of 
                                               sections 1106 and 1108),
                From the Committee on Armed Services:
                                   Strom Thurmond,
                                   John McCain,
                From the Committee on Banking, Housing and 
                Urban Affairs:
                                   Alfonse M. D'Amato,
                                   Phil Gramm,
                From the Committee on Commerce, Science, and 
                Transportation:
                                   Larry Pressler,
                                   Ted Stevens,
                                   John McCain,
                From the Committee on Energy and Natural 
                Resources:
                                   Frank H. Murkowski,
                                   Mark O. Hatfield,
                                   Don Nickles,
                From the Committee on Environment and Public 
                Works:
                                   John H. Chafee,
                                   John Warner,
                                   Bob Smith,
                From the Committee on Finance:
                                   William V. Roth, Jr.,
                                   Bob Dole,
                From the Committee on Governmental Affairs (and 
                for consideration of the title of the House 
                bill relating solely to abolishing the 
                Department of Commerce):
                                   Ted Stevens,
                                   Fred Thompson,
                From the Committee on the Judiciary:
                                   Orrin Hatch,
                                   Chuck Grassley,
                From the Committee on Labor and Human 
                Resources:
                                   Nancy Landon Kassebaum,
                                   Dan Coats,
                                   Bill Frist,
                From the Committee on Veterans Affairs:
                                   Alan K. Simpson,
                                   Frank H. Murkowski,
                                Managers on the Part of the Senate.

