STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
(Senate - March 19, 2003)

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[Pages S3996-S4020]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. BINGAMAN (for himself and Mr. Dorgan).
  S. 658. A bill to extend the authority for Energy Savings Performance 
Contracts and for other purposes; to the Committee on Energy and 
Natural Resources.
  Mr. BINGAMAN. Mr. President, I rise today to introduce legislation 
that will ensure the continuation of a program that has provided a 
flexible and cost-effective way to reduce the Federal Government's 
energy bills.
  Since the 1970's Federal Government agencies have been required by 
law or Executive Order to steadily improve the energy efficiency of 
Federal buildings. For example, the Energy Policy Act of 1992 set a 
goal of reducing energy use per square foot by 20 percent in FY 2000 
compared to FY 1985. Preliminary data from the Department of Energy 
indicates that agencies exceeded this goal by 2.7 percent and spent 
$2.3 billion less for energy in FY 2000 than in FY 1985.
  One of the reasons the Federal Government was successful was the 
availability of an innovative financing method for energy efficiency 
improvements. In the 1992 Energy Policy Act, Congress created Energy 
Savings Performance Contracting ESPC, which offered a way to invest in 
energy savings improvements at no capital cost to the government by 
leveraging private sector capital.
  Under the ESPC authority, private sector companies enter into 
contracts with Federal agencies to install energy savings equipment and 
make operational or maintenance changes to improve building efficiency. 
The companies pay the up-front costs of the energy efficiency 
improvements and guarantee the agency a fixed amount of cost savings 
through the life of the contract. The energy service company recoups 
its investment over time from the energy cost savings. Since 1992, 
nearly $1.1 billion in private sector capital has been invested in 
Federal energy improvement projects under ESPCs resulting in hundreds 
of millions of dollars in permanent savings to the US taxpayer.
  Unfortunately the authority for this successful program expires at 
the end of September 2003. Congress must act quickly to continue ESPC 
authority.
  Our legislation would extend the authority for the ESPC program 
permanently. The bill also makes several changes designed to improve 
and expand the program. It adds ``water cost savings'' as an allowable 
measure for Energy Savings Performance Contracting for civilian 
agencies, as they have been for Department of Defense facilities for 
several years.
  The legislation also addresses the problem of improving energy 
efficiency in a building that has long since passed its useful life and 
is in constant need of maintenance and repair. To prevent this waste of 
funds, the legislation

[[Page S3997]]

would allow Energy Savings Performance Contracting to include the 
savings anticipated from operation and maintenance efficiencies of a 
replacement facility. The Department of Energy conducted a feasibility 
study for replacing a complex of 50 year old army barracks in my 
State--now used as DOE's Albuquerque operations office. The study 
demonstrated that the costs savings created by energy, operations and 
maintenance efficiencies of a new replacement building can pay for the 
new facility.
  These provisions were agreed to last fall by the House and Senate 
conference committee on the Energy Policy Act of 2002. They are good 
policy for energy efficiency and for the Federal taxpayer.
  In addition, our bill would authorize a pilot program to determine 
whether the ESPC concept can be applied to non-building projects. About 
60 percent of the Federal Government's energy consumption occurs in 
government vehicles, cars, trucks, ships and air craft. Another 7 
percent occurs in energy intensive operations such as irrigation, 
manufacturing and research activities. Increased efficiency for these 
activities could yield tremendous savings. This program was discussed 
favorably at the Energy Committee's March 11 hearing on energy 
efficiency.
  I look forward to working with my cosponsor Senator Dorgan, and other 
interested Senators to enact this legislation as soon as possible.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 658

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Energy Savings Performance 
     Contracts Amendments Act of 2003''.

     SEC. 2. PERMANENT EXTENSION.

       Section 801(c) of the National Energy Conservation Policy 
     Act (42 U.S.C. 8287(c)) is repealed.

     SEC. 3. COST SAVINGS FROM REPLACEMENT FACILITIES.

       Section 801(a) of the National Energy Conservation Policy 
     Act (42 U.S.C. 8287(a)) is amended by adding at the end the 
     following new paragraph:
       ``(3)(A) In the case of an energy savings contract or 
     energy savings performance contract providing for energy 
     savings through the construction and operation of one or more 
     buildings or facilities to replace one or more existing 
     buildings or facilities, benefits ancillary to the purpose of 
     such contract under paragraph (1) may include savings 
     resulting from reduced costs of operation and maintenance at 
     such replacement buildings or facilities when compared with 
     costs of operation and maintenance at the buildings or 
     facilities being replaced.
       ``(B) Notwithstanding paragraph (2)(B), aggregate annual 
     payments by an agency under an energy savings contract or 
     energy savings performance contract referred to in 
     subparagraph (A) may take into account (through the 
     procedures developed pursuant to this section) savings 
     resulting from reduced costs of operation and maintenance as 
     described in subparagraph (A).''.

     SEC. 4. ENERGY SAVINGS.

       Section 804(2) of the National Energy Conservation Policy 
     Act (42 U.S.C. 8287c(2)) is amended to read as follows:
       ``(2) The term `energy savings' means--
       ``(A) a reduction in the cost of energy or water, from a 
     base cost established through a methodology set forth in the 
     contract, used in an existing federally owned building or 
     buildings or other federally owned facilities as a result 
     of--
       ``(i) the lease or purchase of operating equipment, 
     improvements, altered operation and maintenance, or technical 
     services;
       ``(ii) the increased efficient use of existing energy 
     sources by cogeneration or heat recovery, excluding any 
     cogeneration process for other than a federally owned 
     building or buildings or other federally owned facilities; or
       ``(iii) the increased efficient use of existing water 
     sources; or
       ``(B) in the case of a replacement building or facility 
     described in section 801(a)(3), a reduction in the cost of 
     energy, from a base cost established through a methodology 
     set forth in the contract, that would otherwise be utilized 
     in one or more existing federally owned buildings or other 
     federally owned buildings by reason of the construction and 
     operation of the replacement building or facility.''.

     SEC. 5. ENERGY SAVINGS CONTRACT.

       Section 804(3) of the National Energy Conservation Policy 
     Act (42 U.S.C. 8287c(3)) is amended to read as follows:
       ``(3) The terms `energy savings contract' and `energy 
     savings performance contract' means a contract which provides 
     for--
       ``(A) the performance of services for the design, 
     acquisition, installation, testing, operation, and, where 
     appropriate, maintenance and repair, of an identified energy 
     or water conservation measure or series of measures at one or 
     more locations; or
       ``(B) energy savings through the construction and operation 
     of one or more buildings or facilities to replace one or more 
     existing buildings or facilities.''.

     SEC. 6. ENERGY OR WATER CONSERVATION MEASURE.

       Section 804(4) of the National Energy Conservation Policy 
     Act (42 U.S.C. 8287c(4)) is amended to read as follows:
       ``(4) The term `energy or water conservation measure' 
     means--
       ``(A) an energy conservation measure, as defined in section 
     551(4)(42 U.S.C. 8259(4)); or
       ``(B) a water conservation measure that improves water 
     efficiency, is life cycle cost effective, and involves water 
     conservation, water recycling or reuse, improvements in 
     operation or maintenance efficiencies, retrofit activities or 
     other related activities, not at a Federal hydroelectric 
     facility.''.

     SEC. 7. REVIEW.

       Within 180 days after the date of the enactment of this 
     Act, the secretary of Energy shall complete a review of the 
     Energy Savings Performance Contract program to identify 
     statutory, regulation, and administration obstacles that 
     prevent Federal agencies from fully utilizing the program. In 
     addition, this review shall identify all areas for increasing 
     program flexibility and effectiveness, including audit and 
     measurement verification requirements, accounting for energy 
     use in determining savings, contracting requirements, and 
     energy efficient services covered. The Secretary shall report 
     these findings to the Committee on Energy and Commerce of the 
     House of Representatives and the Committee on Energy and 
     Natural Resources of the Senate, and shall implement 
     identified administrative and regulatory changes to 
     increase program flexibility and effectiveness to the 
     extent that such changes are consistent with statutory 
     authority.

     SEC. 8. PILOT PROGRAM TO EXPAND ENERGY SAVINGS PERFORMANCE 
                   CONTRACTS TO NON-BUILDING PROJECTS.

       Title VIII of the National Energy Conservation Policy Act 
     (42 U.S.C. 8287-8287c) is amended by adding at the end the 
     following:

     ``SEC. 805. PILOT PROGRAM FOR ENERGY SAVINGS PERFORMANCE 
                   CONTRACT INVESTMENTS IN NON-BUILDING ENERGY 
                   SAVINGS PROJECTS.

       ``(a) Authorization.--The Secretary of Defense and the 
     heads of other interested Federal agencies are authorized, on 
     a pilot basis, to enter into up to ten energy savings 
     performance contracts under this Title for the purpose of 
     achieving savings, secondary savings, and benefits incidental 
     to those purpose, in non-building energy efficiency 
     improvement projects.
       ``(b) Selection of Projects.--The Secretary of Energy, in 
     consultation with the Secretary of Defense and the heads of 
     other interested Federal agencies, shall select up to ten 
     contract projects for this pilot program. The projects shall 
     be selected to demonstrate the applicability and benefit of 
     energy savings performance contracting to a range of non-
     building energy efficiency improvement projects.
       ``(c) Definitions.--For the purposes of this section:
       ``(1) The term `non-building' means any vehicle, device, or 
     equipment that is transportable under its own power by land, 
     sea, or air and consumes energy from any fuel source for the 
     purpose of such transportability, or to maintain a controlled 
     environment within such vehicle, device or equipment; or any 
     Federally owned equipment used to generate electricity or 
     transport water.
       ``(2) The term `secondary savings', means additional energy 
     or cost savings that are a direct consequence of the energy 
     savings that result from the energy efficiency improvements 
     that were financed and implemented pursuant to the energy 
     savings performance contract. Such `secondary savings' may 
     include, but are not limited to, energy and cost savings that 
     result from a reduction in the need for fuel delivery and 
     logistical support. In the case of electric generation 
     equipment, secondary savings may include the benefits of 
     increased efficiency in the production of electricity.
       ``(d) Report.--No later than three years after the 
     enactment of this section, the Secretary of Energy shall 
     report to the Congress on the progress and results of this 
     program. Such report shall include: a description of all 
     projects undertaken; the energy and cost savings, secondary 
     savings, other benefits and problems resulting from such 
     projects; and the overall cost-benefit of such projects. The 
     report shall also include recommendations, developed in 
     consultation with those agencies that undertook projects 
     under the program, as to whether the authorization to enter 
     into energy savings performance contract for non-building 
     projects should be extended, expanded, or otherwise 
     modified.''

     SEC. 9. UTILITY INCENTIVE PROGRAMS.

       Section 546(c)(3) of the National Energy Conservation 
     Policy Act (42 U.S.C. 8256(c)(3)) is amended by striking 
     ``facilities'' and inserting ``facilities, equipment and 
     vehicles''.
                                 ______
                                 
      By Mr. CRAIG (for himself, Mr. Baucus, Mr. Alexander, Mr. Allard, 
        Mr. Allen, Mr. Bennett, Mr. Bond, Mr. Breaux,

[[Page S3998]]

        Mr. Brownback, Mr. Bunning, Mr. Burns, Mr. Campbell, Mr. 
        Chambliss, Mr. Cochran, Mr. Coleman, Ms. Collins, Mr. Cornyn, 
        Mr. Crapo, Mrs. Dole, Mr. Domenici, Mr. Dorgan, Mr. Ensign, Mr. 
        Enzi, Mr. Frist, Mr. Graham of South Carolina, Mr. Grassley, 
        Mr. Gregg, Mr. Hagel, Mr. Hatch, Mrs. Hutchison, Mr. Inhofe, 
        Mr. Johnson, Mr. Kyl, Ms. Landrieu, Mrs. Lincoln, Mr. Lott, Mr. 
        McConnell, Mr. Miller, Ms. Murkowski, Mr. Nelson of Nebraska, 
        Mr. Nickles, Mr. Reid, Mr. Roberts, Mr. Santorum, Mr. Sessions, 
        Mr. Shelby, Mr. Smith, Mr. Specter, Mr. Stevens, Mr. Sununu, 
        Mr. Talent, and Mr. Thomas):
  S. 659. A bill to prohibit civil liability actions from being brought 
or continued against manufacturers, distributors, dealers, or importers 
of firearms or ammunition for damages resulting from the misuse of 
their products by others; to the Committee on the Judiciary.
  Mr. CRAIG. Mr. President, I am pleased to join with Senator Baucus in 
introducing the Protection of Lawful Commerce in Arms Act, on behalf of 
ourselves and more than half of our colleagues in the United States 
Senate: Senators Alexander, Allard, Allen, Bennett, Bond, Breaux, 
Brownback, Bunning, Burns, Campbell, Chambliss, Cochran, Coleman, 
Collins, Cornyn, Crapo, Dole, Domenici, Dorgan, Ensign, Enzi, Frist, 
Graham of South Carolina, Grassley, Gregg, Hagel, Hatch, Hutchison, 
Inhofe, Johnson, Kyl, Landrieu, Lincoln, Lott, McConnell, Miller, 
Murkowski, Nelson of Nebraska, Nickles, Reid, Roberts, Santorum, 
Sessions, Shelby, Smith, Specter, Stevens, Sununu, Talent, and Thomas.
  This is an extraordinary showing of support for a bill, and I believe 
it is a testament to the gravity of the threat addressed by the 
legislation: the abuse of our courts through lawsuits filed to force 
law-abiding businesses to pay for criminal acts by individuals beyond 
their control.
  The businesses I am talking about are collectively known as the U.S. 
firearms industry. The lawsuits in question claim that even though 
these businesses comply with all laws and sell a legitimate product, 
they should be responsible for the misuse or illegal use of the firearm 
by a criminal. These actions are pursued with the intent of driving 
this industry out of business, regardless of the thousands of jobs that 
would be lost in the process and the impact on citizens across the 
Nation who would never contemplate committing a crime with a gun.
  Let me be clear about this. These lawsuits are not brought by 
individuals seeking relief for injuries done to them by anyone in the 
industry. Instead, this is a politically-inspired initiative trying to 
force social goals through an end-run around the Congress and state 
legislatures.
  The theory on which these lawsuits are based would be laughable, if 
it weren't so dangerous: to pin the responsibility for a criminal act 
on an innocent party who wasn't there and had nothing to do with it. 
They argue that merely by virtue of the fact that a gun was present, 
those who were part of the commercial distribution chain should be held 
responsible for the gun's misuse.
  This isn't a legal theory--it's just the latest twist in the gun 
controllers' notion that it's the gun, and not the criminal, that 
causes crime.
  The truth of the matter is that there are millions of firearms in 
this country today, yet only a tiny fraction of them have ever been 
used in the commission of a crime. The truth of the matter is that 
again and again, law-abiding firearm owners are using their guns, often 
without even firing a shot, to defend life and property. The truth of 
the matter is that the intent of the user, not the gun, is what 
determines whether that gun will be used in a crime. The trend of 
abusive litigation targeting the firearms industry not only defies 
common sense and concepts of fundamental fairness, but it would do 
nothing to curb criminal gun violence. Furthermore, the burdens it 
seeks to impose would jeopardize Americans' constitutionally-protected 
access to firearms for self defense and other lawful uses.
  The bill that more than half of the United States Senate has already 
endorsed is a measured response that would put a stop to this abusive 
trend without endangering legitimate claims for relief. Let me 
emphasize that it does not insulate the firearms industry from all 
lawsuits or deprive legitimate victims of their day in court, as some 
critics have charged. Indeed, it specifically provides that actions 
based on the wrongful conduct of those involved in the business of 
manufacturing and selling firearms--breaches of contract, defects in 
firearms, negligent entrustment, criminal behavior--would not be 
affected by this legislation. It is solely directed at stopping 
frivolous, politically-driven litigation against law-abiding 
individuals for the misbehavior of criminals over whom they had no 
control.
  The courts of our Nation are supposed to be forums for resolving 
controversies between citizens and providing relief where warranted, 
not a mechanism for achieving political ends that are rejected by the 
people's representatives in Congress and the state legislatures. I hope 
all our colleagues will join us in taking a measured, principled stand 
against this abusive litigation by supporting the Protection of Lawful 
Commerce In Arms Act.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 659

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

     SECTION 1. SHORT TITLE.

        This Act may be cited as the ``Protection of Lawful 
     Commerce in Arms Act''.

     SEC. 2. FINDINGS; PURPOSES.

       (a) Findings.--The Congress finds the following:
       (1) Citizens have a right, protected by the Second 
     Amendment to the United States Constitution, to keep and bear 
     arms.
       (2) Lawsuits have been commenced against manufacturers, 
     distributors, dealers, and importers of firearms that operate 
     as designed and intended, which seek money damages and other 
     relief for the harm caused by the misuse of firearms by third 
     parties, including criminals.
       (3) The manufacture, importation, possession, sale, and use 
     of firearms and ammunition in the United States are heavily 
     regulated by Federal, State, and local laws. Such Federal 
     laws include the Gun Control Act of 1968, the National 
     Firearms Act, and the Arms Export Control Act.
       (4) Businesses in the United States that are engaged in 
     interstate and foreign commerce through the lawful design, 
     manufacture, marketing, distribution, importation, or sale to 
     the public of firearms or ammunition that has been shipped or 
     transported in interstate or foreign commerce are not, and 
     should not, be liable for the harm caused by those who 
     criminally or unlawfully misuse firearm products or 
     ammunition products that function as designed and intended.
       (5) The possibility of imposing liability on an entire 
     industry for harm that is solely caused by others is an abuse 
     of the legal system, erodes public confidence in our Nation's 
     laws, threatens the diminution of a basic constitutional 
     right and civil liberty, invites the disassembly and 
     destabilization of other industries and economic sectors 
     lawfully competing in the free enterprise system of the 
     United States, and constitutes an unreasonable burden on 
     interstate and foreign commerce of the United States.
       (6) The liability actions commenced or contemplated by the 
     Federal Government, States, municipalities, and private 
     interest groups are based on theories without foundation in 
     hundreds of years of the common law and jurisprudence of the 
     United States and do not represent a bona fide expansion of 
     the common law. The possible sustaining of these actions by a 
     maverick judicial officer or petit jury would expand civil 
     liability in a manner never contemplated by the framers of 
     the Constitution, by Congress, or by the legislatures of the 
     several States. Such an expansion of liability would 
     constitute a deprivation of the rights, privileges, and 
     immunities guaranteed to a citizen of the United States under 
     the Fourteenth Amendment to the United States Constitution.
       (b) Purposes.--The purposes of this Act are as follows:
       (1) To prohibit causes of action against manufacturers, 
     distributors, dealers, and importers of firearms or 
     ammunition products for the harm caused by the criminal or 
     unlawful misuse of firearm products or ammunition products by 
     others when the product functioned as designed and intended.
       (2) To preserve a citizen's access to a supply of firearms 
     and ammunition for all lawful purposes, including hunting, 
     self-defense, collecting, and competitive or recreational 
     shooting.
       (3) To guarantee a citizen's rights, privileges, and 
     immunities, as applied to the States, under the Fourteenth 
     Amendment to the United States Constitution, pursuant to 
     section 5 of that Amendment.

[[Page S3999]]

       (4) To prevent the use of such lawsuits to impose 
     unreasonable burdens on interstate and foreign commerce.
       (5) To protect the right, under the First Amendment to the 
     Constitution, of manufacturers, distributors, dealers, and 
     importers of firearms or ammunition products, and trade 
     associations, to speak freely, to assemble peaceably, and to 
     petition the Government for a redress of their grievances.

     SEC. 3. PROHIBITION ON BRINGING OF QUALIFIED CIVIL LIABILITY 
                   ACTIONS IN FEDERAL OR STATE COURT.

       (a) In General.--A qualified civil liability action may not 
     be brought in any Federal or State court.
       (b) Dismissal of Pending Actions.--A qualified civil 
     liability action that is pending on the date of enactment of 
     this Act shall be immediately dismissed by the court in which 
     the action was brought.

     SEC. 4. DEFINITIONS.

        In this Act, the following definitions shall apply:
       (1) Engaged in the business.--The term ``engaged in the 
     business'' has the meaning given that term in section 
     921(a)(21) of title 18, United States Code, and, as applied 
     to a seller of ammunition, means a person who devotes, time, 
     attention, and labor to the sale of ammunition as a regular 
     course of trade or business with the principal objective of 
     livelihood and profit through the sale or distribution of 
     ammunition.
       (2) Manufacturer.--The term ``manufacturer'' means, with 
     respect to a qualified product, a person who is engaged in 
     the business of manufacturing the product in interstate or 
     foreign commerce and who is licensed to engage in business as 
     such a manufacturer under chapter 44 of title 18, United 
     States Code.
       (3) Person.--The term ``person'' means any individual, 
     corporation, company, association, firm, partnership, 
     society, joint stock company, or any other entity, including 
     any governmental entity.
       (4) Qualified product.--The term ``qualified product'' 
     means a firearm (as defined in subparagraph (A) or (B) of 
     section 921(a)(3) of title 18, United States Code), including 
     any antique firearm (as defined in section 921(a)(16) of such 
     title), or ammunition (as defined in section 921(a)(17) of 
     such title), or a component part of a firearm or ammunition, 
     that has been shipped or transported in interstate or foreign 
     commerce.
       (5) Qualified civil liability action.--
       (A) In general.--The term ``qualified civil liability 
     action'' means a civil action brought by any person against a 
     manufacturer or seller of a qualified product, or a trade 
     association, for damages resulting from the criminal or 
     unlawful misuse of a qualified product by the person or a 
     third party, but shall not include--
       (i) an action brought against a transferor convicted under 
     section 924(h) of title 18, United States Code, or a 
     comparable or identical State felony law, by a party directly 
     harmed by the conduct of which the transferee is so 
     convicted;
       (ii) an action brought against a seller for negligent 
     entrustment or negligence per se;
       (iii) an action in which a manufacturer or seller of a 
     qualified product knowingly and willfully violated a State or 
     Federal statute applicable to the sale or marketing of the 
     product, and the violation was a proximate cause of the harm 
     for which relief is sought;
       (iv) an action for breach of contract or warranty in 
     connection with the purchase of the product; or
       (v) an action for physical injuries or property damage 
     resulting directly from a defect in design or manufacture of 
     the product, when used as intended.
       (B) Negligent entrustment.--In subparagraph (A)(ii), the 
     term ``negligent entrustment'' means the supplying of a 
     qualified product by a seller for use by another person when 
     the seller knows, or should know, the person to whom the 
     product is supplied is likely to, and does, use the product 
     in a manner involving unreasonable risk of physical injury to 
     the person and others.
       (6) Seller.--The term ``seller'' means, with respect to a 
     qualified product--
       (A) an importer (as defined in section 921(a)(9) of title 
     18, United States Code) who is engaged in the business as 
     such an importer in interstate or foreign commerce and who is 
     licensed to engage in business as such an importer under 
     chapter 44 of title 18, United States Code;
       (B) a dealer (as defined in section 921(a)(11) of title 18, 
     United States Code) who is engaged in the business as such a 
     dealer in interstate or foreign commerce and who is licensed 
     to engage in business as such a dealer under chapter 44 of 
     title 18, United States Code; or
       (C) a person engaged in the business of selling ammunition 
     (as defined in section 921(a)(17) of title 18, United States 
     Code) in interstate or foreign commerce at the wholesale or 
     retail level, consistent with Federal, State, and local law.
       (7) State.--The term ``State'' includes each of the several 
     States of the United States, the District of Columbia, the 
     Commonwealth of Puerto Rico, the Virgin Islands, Guam, 
     American Samoa, and the Commonwealth of the Northern Mariana 
     Islands, and any other territory or possession of the United 
     States, and any political subdivision of any such place.
       (8) Trade association.--The term ``trade association'' 
     means any association or business organization (whether or 
     not incorporated under Federal or State law) that is not 
     operated for profit, and 2 or more members of which are 
     manufacturers or sellers of a qualified product.
                                 ______
                                 
      By Mr. SCHUMER (for himself, Mr. Warner, Mr. Sarbanes, Mr. 
        Kennedy, and Mrs. Clinton):
  S. 661. A bill to amend the Internal Revenue Code of 1986 to equalize 
the exclusion from gross income of parking and transportation fringe 
benefits and to provide for a common cost-of-living adjustment, and for 
other purposes; to the Committee on Finance.
  Mr. SCHUMER. Mr. President, I ask unanimous consent that the text of 
the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 661

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Commuter Benefits Equity Act 
     of 2003''.

     SEC. 2. UNIFORM DOLLAR LIMITATION FOR ALL TYPES OF 
                   TRANSPORTATION FRINGE BENEFITS.

       (a) In General.--Section 132(f)(2) of the Internal Revenue 
     Code of 1986 (relating to limitation on exclusion) is 
     amended--
       (1) by striking ``$100'' in subparagraph (A) and inserting 
     ``$190'', and
       (2) by striking ``$175'' in subparagraph (B) and inserting 
     ``$190''.
       (b) Inflation Adjustment Conforming Amendments.--
     Subparagraph (A) of section 132(f)(6) of the Internal Revenue 
     Code of 1986 (relating to inflation adjustment) is amended--
       (1) by striking the last sentence,
       (2) by striking ``1999'' and inserting ``2003'', and
       (3) by striking ``1998'' and inserting ``2002''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2003.

     SEC. 3. CLARIFICATION OF FEDERAL EMPLOYEE BENEFITS.

       Section 7905 of title 5, United States Code, is amended--
       (1) in subsection (a)--
       (A) in paragraph (2)(C) by inserting ``and'' after the 
     semicolon;
       (B) in paragraph (3) by striking ``; and'' and inserting a 
     period; and
       (C) by striking paragraph (4); and
       (2) in subsection (b)(2)(A) by amending subparagraph (A) to 
     read as follows:
       ``(A) a qualified transportation fringe as defined in 
     section 132(f)(1) of the Internal Revenue Code of 1986;''.

  Mr. SARBANES. Mr. President, I am pleased to join with my colleagues 
in introducing the Commuter Benefits Equity Act of 2003. This measure 
is another important step forward in our efforts to make transit 
services more accessible and improve the quality of life for commuters 
throughout the Nation.
  All across the Nation, congestion and gridlock are taking their toll 
in terms of economic loss, environmental impacts, and personal 
frustration. According to the Texas Transportation Institute, in 2000, 
Americans in 75 urban areas spent 3.6 billion hours stuck in traffic, 
with an estimated cost to the Nation of $67.5 billion in lost time and 
wasted fuel, and the problem is growing. One way in which Federal, 
State, and local governments are responding to this problem is by 
promoting greater use of transit as a commuting option. The American 
Public Transportation Association estimates that last year, Americans 
took over 9.5 billion trips on transit, the highest level in more than 
40 years. But we need to do more to encourage people to get out of 
their cars and onto public transportation.
  The Internal Revenue Code currently allows employers to provide a 
tax-free transit benefit to their employees. Under this ``Commuter 
Choice'' program, employers can set aside up to $100 per month of an 
employee's pre-tax income to pay for the cost of commuting by public 
transportation or vanpool. Alternatively, an employer can choose to 
offer the same amount as a tax-free benefit in addition to an 
employee's salary. This program is designed to encourage Americans to 
leave their cars behind when commuting to work.
  By all accounts, this program is working. In the Washington area, for 
example, the Washington Metropolitan Area Transit Authority estimates 
that over 200,000 commuters take advantage of transit pass programs 
offered by their employers. That means fewer cars on our congested 
streets and highways.
  Employees of the federal government account for a large percentage of 
those benefitting from this program in the

[[Page S4000]]

Washington area. Under an Executive Order, all Federal agencies in the 
National Capital Region, which includes Montgomery, Prince George's, 
and Frederick Counties, Maryland, as well as several counties in 
Northern Virginia, are required to offer this transit benefit to their 
employees. The Commuter Choice program is now being used by an 
estimated 130,000 Washington-area Federal employees who are choosing to 
take transit to work.
  However, despite the success of the Commuter Choice program, our tax 
laws still reflect a bias toward driving. The Internal Revenue Code 
allows employers to offer a tax-free parking benefit to their employees 
of up to $190 per month. The striking disparity between the amount 
allowed for parking--$190 per month--and the amount allowed for 
transit--$100 per month--undermines our commitment to supporting public 
transportation use.
  The Commuter Benefits Equity Act would address this discrepancy by 
raising the maximum monthly transit benefit to $190, equal to the 
parking benefit, and providing that the benefits will be adjusted 
upward together in future years. The Federal Government should not 
reward those who drive to work more richly than those who take public 
transportation. Indeed, since the passage of the Intermodal Surface 
Transportation Efficiency Act of 1991, Federal transportation policy 
has endeavored to create a level playing field between highways and 
transit, favoring neither mode above the other. The Commuter Benefits 
Equity Act would ensure that our tax laws reflect this balanced 
approach.
  In addition, the Commuter Benefits Equity Act would remedy another 
inconsistency in current law. Private-sector employers can offer their 
employees the transit benefit in tandem with the parking benefit, to 
help employees pay for the costs of parking at transit facilities, 
commuter rail stations, or other locations which serve public 
transportation or vanpool commuters. However, under current law, 
Federal agencies cannot offer a parking benefit to their employees who 
use park-and-ride lots or other remote parking locations. The Commuter 
Benefits Equity Act would remove this restriction, allowing Federal 
employees access to the same benefits enjoyed by their private-sector 
counterparts.
  The Washington Metropolitan Region is home to thousands of Federal 
employees. It is also one of the Nation's most highly congested areas, 
ranking fourth in per capita congestion. This area has the third 
longest average commute time in the country. It is clearly in our 
interest to support programs which encourage Federal employees to make 
greater use of public transportation for their commuting needs.
  The simple change made by the Commuter Benefits Equity Act would 
provide a significant benefit to those Federal employees whose commute 
to work includes parking at a transit facility. For example, a commuter 
who rides the Metrorail to work and parks at the Rockville park-and-
ride lot pays about $45 monthly for parking, on top of the cost of 
riding the train. A private-sector employee whose employer provides the 
parking benefit in addition to salary could receive $540 a year tax 
free to help pay these parking costs. Federal government employees 
should be allowed the same benefit.
  I support the Commuter Benefits Equity Act because it creates 
parity--parity in the tax code between the parking and transit 
benefits, and parity for Federal employees with their private-sector 
counterparts. Both of these improvements will aid our efforts to fight 
congestion and pollution by supporting public transportation. I 
encourage my colleagues to join me in supporting the Commuter Benefits 
Equity Act.
                                 ______
                                 
      By Mrs. FEINSTEIN:
  S. 662. A bill to extend to Nepal certain preferential treatment with 
respect to apparel articles; to the Committee on Finance.
  Mrs. FEINSTEIN. Mr. President, I rise today to introduce legislation 
to grant garment imports from Nepal duty free status in the United 
States for two years. We have an opportunity the help one of the 
world's most impoverished countries sustain a vital export industry and 
promote political and economic stability after years of conflict.
  My interest in Nepal goes back over 25 years and I have had the 
pleasure to travel there and visit with friends on many occasions. The 
warmth and friendliness of the people and the vitality and richness of 
the culture are only matched by the beauty of the breathtaking 
landscape.
  Nevertheless, Nepal faces some serious challenges in the years ahead 
as it attempt to build a prosperous economy and raise the living 
standards of its people.
  It ranks as the 12th poorest country in the world, with a per capita 
income of $240. Approximately 42 percent of the 24 million people live 
in poverty. Unemployment stands at 47 percent.
  On top of this, Nepal has had to confront a Maoist insurgency which 
has claimed the lives of more than 7,200 people since 1996 with two 
thirds of the deaths occurring since November 2001. Estimated to 
include between 5,000 and 10,000 armed soldiers, the Maoists control 
between one-quarter and one-half of the country.
  As a result of the political instability, for the first time in 
twenty years Nepal's economy contracted in 2002 by 0.6 percent and 
tourism, one of the main sources of income, fell by 27 percent. The 
situation became so dire last year that one advisor to Nepal's king 
noted that ``Nepal is on the verge of becoming a failed state.''
  Yet there is reason for hope. On January 29, 2003 the Government of 
Nepal and the Maoist rebels reached a cease-fire agreement, opening the 
door for negotiations for a permanent end to the conflict. I am hopeful 
they will be successful. We now have the opportunity to build on the 
hopes of a peaceful solution to conflict and really make a difference 
in the lives of the Nepalese people.
  Humanitarian and development assistance should be an important part 
of that effort. But we should also help the Nepalese help themselves 
and open the U.S. market to a critical export industry. In the end, 
economic growth and prosperity can best be achieved when Nepal is given 
the chance to compete and grow in a free and open global marketplace.
  Success in that marketplace will lead to a lesser dependence on 
foreign aid and encourage Nepal to develop other viable export 
industries.
  Since the mid-1980s, garments have emerged as a key part of Nepal's 
manufacturing sector. The garment industry in Nepal is entirely export 
oriented and accounts for 40 percent of the foreign exchange earnings. 
It employs over 100,000 workers half of them women and sustains the 
livelihood of over 350,000 people. The United States is the largest 
market for Nepalese garments and accounts for 80-90 percent of Nepal's 
total exports every year.
  Yet, despite Nepal's poverty and the importance of the garment 
industry and the U.S. market, Nepalese garments are subject to U.S. 
tariffs of 17-35 percent. This is simply not acceptable and does harm 
to a country that can least afford it.
  I might point out that this tariff rate is in contrast to the 
European Union, Canada, and Australia which allow or will soon allow 
Nepalese garments into their markets duty free.
  The United States can make a real difference now to sustain the 
garment industry in Nepal and promote economic growth and higher living 
standards. My bill is simple and straightforward. It grants duty free 
status to imports of Nepalese garments and textiles for a two year 
period. This is the same status granted to participating lesser 
developed countries under the African Growth and Opportunity Act.
  For those of my colleagues who are concerned about the impact that 
duty free status for Nepalese garments and textiles would have on the 
domestic industry, it is worth noting that Nepalese garments, at their 
highest level, accounted for 0.1 percent of all garment and textile 
imports in the United States generating $29.5 million in revenue.
  Nepal is, and will continue to be, a small player in the U.S. garment 
market, but the importance of the garment industry in Nepal compels us 
to action.
  Let us not miss this chance to help Nepal build a better future for 
its people and demonstrate to them and the rest of the world the desire 
of the United States to see developing nations rise from poverty to 
economic prosperity. I urge my colleagues to support this legislation.

[[Page S4001]]

  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 662

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

     SECTION 1. TREATMENT OF CERTAIN TEXTILES AND APPAREL.

       Notwithstanding any other provision of law, the 
     preferential treatment extended to apparel articles under 
     section 112(b)(3)(B) of the African Growth and Opportunity 
     Act (19 U.S.C. 3721(b)(3)(B)) shall also apply to apparel 
     articles that are imported directly into the customs 
     territory of the United States from Nepal in accordance with 
     the provisions set forth in such section as if such articles 
     were articles of a lesser developed beneficiary sub-Saharan 
     African country, if Nepal has satisfied the requirements set 
     forth in section 113 of such Act (19 U.S.C. 3722), except 
     that--
       (1) any reference in section 112(b) or section 113 of the 
     African Growth and Opportunity Act to a lesser developed 
     beneficiary sub-Saharan African country or countries) shall 
     be treated as a reference to Nepal; and
       (2) such preferential treatment shall apply to apparel 
     articles imported into the customs territory of the United 
     States during the period beginning on October 1, 2003, and 
     ending on September 30, 2005.
                                 ______
                                 
      By Mr. INOUYE:
  S. 663. A bill for the relief of the Pottawatomi Nation in Canada for 
settlement of certain claims against the United States; to the 
Committee on the Judiciary.
  Mr. INOUYE. Mr. President, almost eight years ago, I stood before you 
to introduce a bill ``to provide an opportunity for the Pottawatomi 
Nation in Canada to have the merits of their claims against the United 
States determined by the United States Court of Federal Claims.''
  That bill was introduced as Senate Resolution 223, which referred the 
Pottawatomi's claim to the Chief Judge of the U.S. Court of Federal 
Claims and required the Chief Judge to report back to the Senate and 
provide sufficient findings of fact and conclusions of law to enable 
the Congress to determine whether the claim of the Pottawatomi Nation 
in Canada is legal or equitable in nature, and the amount of damages, 
if any, which may be legally or equitably due from the United States.
  Last year, the Chief Judge of the Court of Federal Claims reported 
back that the Pottawatomi Nation in Canada has a legitimate and 
credible legal claim. Thereafter, by settlement stipulation, the United 
States has taken the position that it would be ``fair, just and 
equitable'' to settle the claims of the Pottawatomi Nation in Canada 
for the sum of $1,830,000. This settlement amount was reached by the 
parties after seven years of extensive, fact-intensive litigation. 
Independently, the court concluded that the settlement amount is ``not 
a gratuity'' and that the ``settlement was predicated on a credible 
legal claim.'' Pottawatomi Nation in Canada, et al. v. United States, 
Cong. Ref. 94-1037X at 28 (Ct. Fed. Cl., September 15, 2000) (Report of 
Hearing Officer).
  The bill I introduce today is to authorize the appropriation of those 
funds that the United States has concluded would be ``fair, just 
and equitable'' to satisfy this legal claim. If enacted, this bill will 
finally achieve a measure of justice for a tribal nation that has for 
far too long been denied.

  For the information of our colleagues, this is the historical 
background that informs the underlying legal claim of the Canadian 
Pottawatomi.
  The members of the Pottawatomi Nation in Canada are one of the 
descendant groups--successors-in-interest--of the historical 
Pottawatomi Nation and their claim originates in the latter part of the 
18th Century. The historical Pottawatomi Nation was aboriginal to the 
United States. They occupied and possessed a vast expanse in what is 
now the States of Ohio, Michigan, Indiana, Illinois, and Wisconsin. 
From 1795 to 1833, the United States annexed most of the traditional 
land of the Pottawatomi Nation through a series of treaties of 
cession--many of these cessions were made under extreme duress and the 
threat of military action. In exchange, the Pottawatomis were 
repeatedly made promises that the remainder of their lands would be 
secure and, in addition, that the United States would pay certain 
annuities to the Pottawatomi.
  In 1829, the United States formally adopted a Federal policy of 
removal--an effort to remove all Indian tribes from their traditional 
lands east of the Mississippi River to the west. As part of that 
effort, the government increasingly pressured the Pottawatomis to cede 
the remainder of their traditional lands--some five million acres in 
and around the city of Chicago and remove themselves west. For years, 
the Pottawatomis steadfastly refused to cede the remainder of their 
tribal territory. Then in 1833, the United States, pressed by settlers 
seeking more land, sent a Treaty Commission to the Pottawatomi with 
orders to extract a cession of the remaining lands. The Treaty 
Commissioners spent two weeks using extraordinarily coercive tactics--
including threats of war--in an attempt to get the Pottawatomis to 
agree to cede their territory. Finally, those Pottawatomis who were 
present relented and on September 26, 1933, they ceded their remaining 
tribal estate through what would be known as the Treaty of Chicago. 
Seventy-seven members of the Pottawatomi Nation signed the Treaty of 
Chicago. Members of the ``Wisconsin Band'' were not present and did not 
assent to the cession.
  In exchange for their land, the Treaty of Chicago provided that the 
United States would give to the Pottawatomis five million acres of 
comparable land in what is now Missouri. The Pottawatomi were familiar 
with the Missouri land, aware that it was similar to their homeland. 
But the Senate refused to ratify that negotiated agreement and 
unilaterally switched the land to five million acres in Iowa. The 
Treaty Commissioners were sent back to acquire Pottawatomi assent to 
the Iowa land. All but seven of the original 77 signatories refused to 
accept the change even with promises that if they were dissatisfied 
``justice would be done.'' Treaty of Chicago, as amended, Article 4. 
Nevertheless, the Treaty of Chicago was ratified as amended by the 
Senate in 1834. Subsequently, the Pottawatomis sent a delegation to 
evaluate the land in Iowa. The delegation reported back that the land 
was ``not fit for snakes to live on.''

  While some Pottawatomis removed westward, many of the Pottawatomis--
particularly the Wisconsin Bank, whose leaders never agreed to the 
Treaty--refused to do so. By 1836, the United States began to 
forcefully remove Pottawatomis who remained in the east--with 
devastating consequences. As is true with many other American Indian 
tribes, the forced removal westward came at great human cost. Many of 
the Pottawatomi were forcefully removed by mercenaries who were paid on 
a per capita basis government contract. Over one-half of the Indians 
removed by these means died en route. Those who reached Iowa were 
almost immediately removed further to inhospitable parts of Kansas 
against their will and without their consent.
  Knowing of these conditions, many of the Pottawatomis including most 
of those in the Wisconsin Bank vigorously resisted forced removal. To 
avoid Federal troops and mercenaries, much of the Wisconsin Bank 
ultimately found it necessary to flee to Canada. They were often 
pursued to the border by government troops, government-paid mercenaries 
or both. Official files of the Canadian and United States governments 
disclose that many Pottawatomis were forced to leave their homes 
without their horses or any of their possessions other than the clothes 
on their backs.
  By the late 1830s, the government refused payment of annuities to any 
Pottawatomi groups that had not removed west. In the 1860s, members of 
the Wisconsin Band--those still in their traditional territory and 
those forced to flee to Canada--petitioned Congress for the payment of 
their treaty annuities promised under the Treaty of Chicago and all 
other cession treaties. By the Act of June 25, 1864, 13 Stat. 172, the 
Congress declared that the Wisconsin Band did not forfeit their 
annuities by not removing and directed that the share of the 
Pottawatomi Indians who had refused to relocate to the west should be 
retained for their use in the United States Treasury. H.R. Rep. No. 
470, 64th Cong., p. 5, as quoted on page 3 of

[[Page S4002]]

memo dated October 7, 1949. Nevertheless, much of the money was never 
paid to the Wisconsin Band.

  In 1903, the Wisconsin Band--most of whom now resided in three areas, 
the States of Michigan and Wisconsin and the Province of Ontario--
petitioned the Senate once again to pay them their fair portion of 
annuities as required by the law and treaties. Sen. Doc. No. 185, 57th 
Cong., 2d Sess. By the Act of June 21, 1906, 34 Stat. 380, the Congress 
directed the Secretary of the Interior to investigate claims made by 
the Wisconsin Band and establish a roll of the Wisconsin Band 
Pottawatomis that still remained in the East. In addition, the Congress 
ordered the Secretary to determine ``the[] [Wisconsin Bands] 
proportionate shares of the annuities, trust funds, and other moneys 
paid to or expended for the tribe to which they belong in which the 
claimant Indians have not shared, [and] the amount of such monies 
retained in the Treasury of the United States to the credit of the 
clamant Indians as directed the provisions of the Act of June 25, 
1864.''
  In order to carry out the 1906 Act, the Secretary of Interior 
directed Dr. W.M. Wooster to conduct an enumeration of Wisconsin Band 
Pottawatomi in both the United States and Canada. Dr. Wooster 
documented 2007 Wisconsin Pottawatomis: 457 in Wisconsin and Michigan 
and 1550 in Canada. He also concluded that the proportionate share of 
annuities for the Pottawatomis in Wisconsin and Michigan was $477,339 
and the proportionate share of annuities due the Pottawatomi Nation in 
Canada was $1,517,226. The Congress thereafter enacted a series of 
appropriation Acts from June 30, 1913 to May 29, 1928 to satisfy most 
of money owed to those Wisconsin Band Pottawatomis residing in the 
United States. However, the Wisconsin Band Pottawatomis who resided in 
Canada were never paid their share of the tribal funds.
  Since that time, the Pottawatomi Nation in Canada has diligently and 
continuously sought to enforce their treaty rights, although until this 
congressional reference, they had never been provided their day in 
court. In 1910, the United States and Great Britian entered into an 
agreement for the purpose of dealing with claims between both 
countries, including claims of Indian tribes within their respective 
jurisdictions, by creating the Pecuniary Claims Tribunal. From 1910 to 
1938, the Pottawatomi Nation in Canada diligently sought to have their 
claim heard in this international forum. Overlooked for more pressing 
international matters of the period, including the intervention of 
World War I, the Pottawatomis then came to the U.S. Congress for 
redress of their claim.

  In 1946, the Congress waived its sovereign immunity and established 
the Indian Claims Commission for the purpose of granting tribes their 
long-delayed day in court. The Indian Claims Commission Act (ICCA) 
granted the Commission jurisdiction over claims such as the type 
involved here. In 1948, the Wisconsin Band Pottawatomis from both sides 
of the border--brought suit together in the Indian Claims Commission 
for recovery of damages. Hannahville Indian Community v. U.S., No. 28 
(Ind. C1. Comm. Filed May 4, 1948). Unfortunately, the Indian Claims 
Commission dismissed Pottawatomi Nation in Canada's part of the claim 
ruling that the Commission had no jurisdiction to consider claims of 
Indians living outside territorial limits of the United States. 
Hannahville Indian Community v. U.S., 115 Ct. C1. 823 (1950). The claim 
of the Wisconsin band residing in the United States that was filed in 
the Indian Claims Commission was finally decided in favor of the 
Wisconsin Band by the U.S. Claims court in 1983. Hannahville Indian 
Community v. United States, 4 Ct. C1. 445 (1983). The Court of Claims 
concluded that the Wisconsin Band was owed a member's proportionate 
share of unpaid annuities from 1838 through 1907 due under various 
treaties, including the Treaty of Chicago and entered judgment for the 
American Wisconsin band Pottawatomis for any monies not paid. Still the 
Pottawatomi Nation in Canada was excluded because of the jurisdictional 
limits of the ICCA.
  Undaunted, the Pottawatomi Nation in Canada came to the Senate and 
after careful consideration, we finally gave them their long-awaited 
day in court through the congressional reference process. The court has 
now reported back to us that their claim is meritorious and that the 
payment that this bill would make constitutes a ``fair, just and 
equitable'' resolution to this claim.
  The Pottawatomi Nation in Canada has sought justice for over 150 
years. They have done all that we asked in order to establish their 
claim. Now it is time for us to finally live up to the promise our 
government made so many years ago. It will not correct all the wrongs 
of the past, but it is a demonstration that this government is willing 
to admit when it has left unfulfilled an obligation and that the United 
States is willing to do what we can to see that justice--so long 
delayed--is not now denied.

  Finally, I would just note that the claim of the Pottawatomi Nation 
in Canada is supported through specific resolutions by the National 
Congress of American Indians, the oldest, largest and most-
representative tribal organization here in the United States, the 
Assembly of First Nations, which includes all recognized tribal 
entities in Canada, and each and every one of the Pottawatomi tribal 
groups that remain in the United States today.
  I ask unanimous consent that the text of the legislation be printed 
in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 663

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

     SECTION 1. SETTLEMENT OF CERTAIN CLAIMS.

       (a) Authorization for Payment.--Notwithstanding any other 
     provision of law, subject to subsection (b), the Secretary of 
     the Treasury shall pay to the Pottawatomi Nation in Canada 
     $1,830,000 from amounts appropriated under section 1304 of 
     title 31, United States Code.
       (b) Payment in Accordance With Stipulation for 
     Recommendation of Settlement.--The payment under subsection 
     (a) shall--
       (1) be made in accordance with the terms and conditions of 
     the Stipulation for Recommendation of Settlement dated May 
     22, 2000, entered into between the Pottawatomi Nation in 
     Canada and the United States (referred to in this Act as the 
     ``Stipulation for Recommendation of Settlement''); and
       (2) be included in the report of the Chief Judge of the 
     United States Court of Federal Claims regarding Congressional 
     Reference No. 94-1037X submitted to the Senate on January 4, 
     2001, in accordance with sections 1492 and 2509 of title 28, 
     United States Code.
       (c) Full Satisfaction of Claims.--The payment under 
     subsection (a) shall be in full satisfaction of all claims of 
     the Pottawatomi Nation in Canada against the United States 
     that are referred to or described in the Stipulation for 
     Recommendation of Settlement.
       (d) Nonapplicability.--Notwithstanding any other provision 
     of law, the Indian Tribal Judgment Funds Use or Distribution 
     Act (25 U.S.C. 1401 et seq.) shall not apply to the payment 
     under subsection (a).
                                 ______
                                 
      By Mr. HATCH (for himself, Mr. Baucus, Mr. Grassley, Mr. 
        Rockefeller, Mr. Smith, Mr. Daschle, Mr. Kyl, Mrs. Lincoln, Mr. 
        Thomas, Mr. Kerry, Mr. Bunning, Mrs. Feinstein, Mr. Allen, Mrs. 
        Boxer, Mr. Cochran, Mr. Lieberman, Mrs. Hutchison, Ms. 
        Stabenow, Mr. Ensign, Mr. Bayh, Mr. Allard, Mr. Miller, and Ms. 
        Cantwell):
  S. 664. A bill to amend the Internal Revenue Code of 1986 to 
permanently extend the research credit, to increase the rates of the 
alternative incremental credit, and to provide an alternative 
simplified credit for qualified research expenses; to the Committee on 
Finance.
  Mr. HATCH. Mr. President, I am very pleased to join with my friend 
and colleague Senator Baucus and a majority of our Finance Committee 
colleagues from both sides of the aisle today in introducing 
legislation that would permanently extend and improve the research tax 
credit.
  The 1990s were a great period in American economic history because 
American workers became more productive. This increase in productivity 
allowed the economy to continue to grow faster than almost anyone 
thought possible. Throughout the 1990s, doomsayers said that we had 
reached the economy's speed limit, but we just kept growing. How did 
this happen?
  The Congressional Budget Office, Federal Reserve Chairman Alan 
Greenspan, and dozens of leading economists have all heralded the 
increase in our

[[Page S4003]]

productivity as a key to those economic good times. A major reason for 
this increase in productivity, is the flowering of new ideas through 
research and development. Restoring and increasing that growth is what 
our bill today is all about.
  But why do we need a research tax credit? Are not profitable new 
ideas their own reward? Is not the promise of future profits from new 
drug discoveries and new manufacturing techniques its own incentive? 
Will not companies do large amounts of R on their own, without any 
special tax incentives?
  Yes, of course, they will. But they clearly will not do enough. This 
is because cutting-edge research and development has spillover effects 
that reach far beyond the company that makes the investment. When 
companies invent new ideas and new production techniques, those 
inventions last forever, and help people in the United States and 
throughout the world. But the company that invests in R will only be 
able to make a sizable profit on its invention for a few years at most. 
That is because either the patent will expire, or other companies will 
imitate the new technique and cut the inventor's hoped-for profits.
  Now, I am all in favor of vigorous competition--it keeps our 
companies strong and efficient. But we have to recognize that 
competition means that innovators will receive only a fraction of the 
benefits of their innovation. Once the imitators pop up and competition 
increases, we know that profits will fall, prices will fall, and the 
benefits of innovation, thankfully, will get passed on to consumers. We 
need innovation, and fortunately, we have a strong, proven tax 
incentive that can encourage that innovation. The benefits of 
innovation reach far beyond the company that invents them. That is why 
we need to give companies incentives to do more innovation.
  I believe the best way to ensure that private-sector investment in 
research and development continues at the healthy rate needed to fuel 
productivity gains in the future is to improve and permanently extend 
the research credit. This tax provision is a proven and a cost-
effective incentive to increase private-sector R spending.
  Studies have shown that the research tax credit significantly 
increases research and development expenditures. The marginal effect of 
one dollar of the research credit creates approximately one dollar of 
additional private research and development spending over the short-run 
and as much as two dollars of extra R spending over the long-run. 
That, is a good deal for the American taxpayer.
  One of the greatest strengths of the research credit has always been 
that it gave good incentives for more innovation. This year's proposal 
to extend the credit is no exception. This year, we have added a third 
way to qualify for the credit, an elective ``alternative simplified 
credit.'' We propose to base this new alternative credit on how much a 
company has increased its R spending compared to the last three 
years. Companies will average their R spending over the previous 
three years, and cut that number in half. For every dollar they spend 
over that amount, they get a 12 percent tax credit. If they spend less 
than that amount, they get no credit at all. This is why this credit is 
so effective--it gives benefits to companies that do more, and gives no 
benefits to companies that do less. That is good tax policy, and good 
growth policy.
  Once again, I want to ask my colleagues to make this credit 
permanent. I think we all know that this credit is going to be 
extended, again and again, every few years. It takes time and energy 
for my colleagues to revisit this issue every few years. Can we not 
just, once and for all, make this provision permanent? We know this is 
good policy, and it is one of the most effective tax incentives in the 
code. As I stated earlier, even under today's permanently temporary 
credit, every dollar of tax credit is estimated to increase R 
spending by one dollar in the short run and by up to two dollars in the 
long run. And if we make this permanent, those incentives will only 
improve.
  As it stands, companies have to take account of the fact that 
Congress could allow the credit lapse for a few months, as it did a 
number of years ago. So companies hedge their bets, they spend a little 
less on R, and our economy suffers as a result. By contrast, 
permanence helps planning. The sooner we make this permanent, the 
sooner companies can begin to enlarge and expand their research and 
development units, and the sooner their innovations will strengthen 
economic growth.
  A permanent extension of this credit may seem costly in terms of lost 
revenue. However, when you consider the value that this investment will 
create for our economy, it is a bargain. In fact, one study estimates 
that a permanent research credit would result in our Gross Domestic 
Product increasing by $10 billion after five years and by $31 billion 
after 20 years.
  By making our workers more productive, this credit will also increase 
wages. That is because study after study shows an iron-clad link 
between worker productivity and worker wages. Findings from a study 
conducted by Coopers & Lybrand show that workers in every state will 
benefit from higher wages if the research tax credit is made permanent. 
Payroll increases as a result of gains in productivity stemming from 
the credit have been estimated to exceed $60 billion over the next 12 
years.
  My home State of Utah is a good example of how State economies 
benefit from the research tax credit. Utah is home to a large number of 
firms that invest a high percentage of their revenue on research and 
development.
  In Utah, five percent of the workers--51,000 people--work in the 
research-intensive high technology sector. That includes over 10,000 
people working just to design computer systems, and over 6,000 
producing medical equipment. And there is a lot of R taking place 
outside of Utah's high tech sector.
  Just to give one example, more than 7,000 people work in Utah's 
chemical industry, and workers in that industry benefit from research 
and development taking place in Utah and throughout the country. 
Aerospace and the drug and pharmaceutical industries are two more 
examples of big Utah employer groups that reap the benefits of R And 
even in the midst of my state's currently weak job market, two 
industries that increased employment in 2002 were the medical equipment 
and the scientific research and development services industries.
  So, the point I want to make is not that Utah needs to do all of the 
research in order to reap the benefits of that research. Instead, the 
point I want to make is that workers in my state will become more 
productive and earn higher wages both when they invent new ideas, and 
when they use new ideas, wherever those new ideas come from.
  I want Utah companies to be able to buy better manufacturing 
equipment, more reliable electronics, and have access to more efficient 
quality control techniques. The workers who use new inventions will get 
just as many benefits as workers who create those new inventions. And 
the evidence clearly shows, that the research credit will increase 
creation.
  In short, there are tens of thousands of employees working in Utah's 
thousands of technology based companies, with tens of thousands more 
working in other sectors that engage in R Beyond that, practically 
all of Utah's hundreds of thousands of workers benefit from higher 
productivity coming from the innovations that researchers both inside 
and outside of Utah produce. Research and development is clearly the 
lifeblood of our economy.
  During the ten times in the past 20 years that Congress has extended 
the research credit for a short time, the ostensible reason has been a 
lack of revenue. The excuse we give to constituents is that we didn't 
have the money to extend the bill permanently. Ironically, it costs at 
least as much in terms of lost revenue, in the long run, to enact 
short-term extensions as it does to extend it permanently.
  A permanent research credit has wide support in both the Senate and 
the House. A few years ago, this body passed by a vote of 98-1 an 
amendment that would have permanently extended the credit. 
Unfortunately, all amendments were ultimately stripped from the 
underlying bill. Moreover, the permanent extension of the credit is a 
major provision in President Bush's tax plan, and was supported by both 
former President Clinton and by Al

[[Page S4004]]

Gore. Again in 2001, this body voted to include a permanent research 
credit in the President's tax plan.
  In conclusion, making the research tax credit permanent will increase 
the growth rate of our economy. It will mean more and better jobs for 
American workers. Making the tax credit permanent will speed economic 
growth. And new technology resulting from American research and 
development will continue to improve the standard of living for every 
person in the U.S. and around the world. I look forward to working with 
my colleagues on the Finance Committee and in the Senate as a whole to 
create a permanent, improved research and development tax credit.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 664

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Investment in America Act of 
     2003''.

     SEC. 2. FINDINGS.

       Congress finds the following:
       (1) Research and development performed in the United States 
     results in quality jobs, better and safer products, increased 
     ownership of technology-based intellectual property, and 
     higher productivity in the United States.
       (2) The extent to which companies perform and increase 
     research and development activities in the United States is 
     in part dependent on Federal tax policy.
       (3) Congress should make permanent a research and 
     development credit that provides a meaningful incentive to 
     all types of taxpayers.

     SEC. 3. PERMANENT EXTENSION OF RESEARCH CREDIT.

       (a) In General.--Section 41 of the Internal Revenue Code of 
     1986 (relating to credit for increasing research activities) 
     is amended by striking subsection (h).
       (b) Conforming Amendment.--Paragraph (1) of section 45C(b) 
     of such Code is amended by striking subparagraph (D).
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after the date of the 
     enactment of this Act.

     SEC. 4. INCREASE IN RATES OF ALTERNATIVE INCREMENTAL CREDIT.

       (a) In General.--Subparagraph (A) of section 41(c)(4) of 
     the Internal Revenue Code of 1986 (relating to election of 
     alternative incremental credit) is amended--
       (1) by striking ``2.65 percent'' and inserting ``3 
     percent'',
       (2) by striking ``3.2 percent'' and inserting ``4 
     percent'', and
       (3) by striking ``3.75 percent'' and inserting ``5 
     percent''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 5. ALTERNATIVE SIMPLIFIED CREDIT FOR QUALIFIED RESEARCH 
                   EXPENSES.

       (a) In General.--Subsection (c) of section 41 of the 
     Internal Revenue Code of 1986 (relating to base amount) is 
     amended by redesignating paragraphs (5) and (6) as paragraphs 
     (6) and (7), respectively, and by inserting after paragraph 
     (4) the following new paragraph:
       ``(5) Election of alternative simplified credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     12 percent of so much of the qualified research expenses for 
     the taxable year as exceeds 50 percent of the average 
     qualified research expenses for the 3 taxable years preceding 
     the taxable year for which the credit is being determined.
       ``(B) Special rule in case of no qualified research 
     expenses in any of 3 preceding taxable years.--
       ``(i) Taxpayers to which subparagraph applies.--The credit 
     under this paragraph shall be determined under this 
     subparagraph if the taxpayer has no qualified research 
     expenses in any 1 of the 3 taxable years preceding the 
     taxable year for which the credit is being determined.
       ``(ii) Credit rate.--The credit determined under this 
     subparagraph shall be equal to 6 percent of the qualified 
     research expenses for the taxable year.
       ``(C) Election.--An election under this paragraph shall 
     apply to the taxable year for which made and all succeeding 
     taxable years unless revoked with the consent of the 
     Secretary. An election under this paragraph may not be made 
     for any taxable year to which an election under paragraph (4) 
     applies.''
       (b) Coordination With Election of Alternative Incremental 
     Credit.--
       (1) In general.--Section 41(c)(4)(B) of the Internal 
     Revenue Code of 1986 (relating to election) is amended by 
     adding at the end the following: ``An election under this 
     paragraph may not be made for any taxable year to which an 
     election under paragraph (5) applies.''
       (2) Transition rule.--In the case of an election under 
     section 41(c)(4) of the Internal Revenue Code of 1986 which 
     applies to the taxable year which includes the date of the 
     enactment of this Act, such election shall be treated as 
     revoked with the consent of the Secretary of the Treasury if 
     the taxpayer makes an election under section 41(c)(5) of such 
     Code (as added by subsection (a)) for such year.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

  Mr. BAUCUS. Mr. President, I am pleased to again join with my friend, 
Senator Hatch, and my other colleagues, in introducing legislation to 
make a permanent commitment to research-intensive businesses in the 
United States. This legislation is bipartisan and bicameral. A 
companion bill was introduced in January in the House of 
Representatives by Congresswoman Nancy Johnson and Congressman Robert 
Matsui.
  Every morning we here news of some new product or discovery that 
promises to make our jobs easier or our lives better. Many of these 
innovations started with a business decision to hire needed researchers 
and finance the expensive and long process of research and 
experimentation. Since 1981, when the R tax credit was first enacted, 
the federal government was a partner in that business endeavor because 
of the potential spillover benefits to society overall from additional 
research spending.
  Research has shown that a tax credit is a cost-effective way to 
promote R The General Accounting Office, the Bureau of Labor 
Statistics, the National Bureau of Economic Research, and others have 
all found significant evidence that a tax credit stimulates additional 
domestic R spending by U.S. companies. A reported by the 
Congressional Research Service, CRS, indicates that economists 
generally agree that, without government support, firm investment in 
R would fall short of the socially optimal amount and thus CRS 
advocates government policies to boost private sector R
  R is linked to broader economic and labor benefits. R lays the 
foundation for technological innovation, which, in turn, is an 
important driving force in long-term economic growth--mainly through 
its impact on the productivity of capital and labor. We have many times 
heard testimony from economists, including Federal Research Board Alan 
Greenspan, that the reason our economy grew at such breakneck speed 
during the 1990s stemmed from the productivity growth we realized 
thanks to technological innovations.
  There has been a belief that companies would continue to increase 
their research spending and that the benefits of these investments on 
the economy and labor markets would continue without end. 
Unfortunately, that is not the case. New data compiled by Battelle 
Memorial Institute and R Magazine project that for 2003, U.S. company 
spending on research will be mostly flat for the second year in a row. 
According to this report, companies plan a 0.1 percent increase in R 
spending in 2003. Spending in 2002 rose a mere 0.3 percent over 2001 
levels. This compares to 2001 when R spending grew by 5 percent over 
the previous year. Those numbers should be a wake up call for all of 
us. As research spending falls, so too will the level of future 
economic growth.
  It is also important to recognize that many of our foreign 
competitors are offering permanent and generous incentives to firms 
that attract research dollars to those countries. A 2001 study by the 
Organization of Economic Cooperation and Development, OECD, ranked the 
U.S. ninth behind other nations in terms of its incentives for business 
R spending. Countries that provide more generous R incentives 
include Spain, Canada, Portugal, Austria, Australia, Netherlands, 
France, and Korea. The United Kingdom was added to this list in 2002 
when it further expanded its existing R incentives program. The 
continued absence of a long-term U.S. government R policy that 
encourages U.S.-based R will undermine the ability of American 
companies to remain competitive in U.S. and foreign markets. This 
disparity could limit U.S. competitiveness relative to its trading 
partners in the long-run.
  Also, U.S. workers who are engaged in R activities currently 
benefit

[[Page S4005]]

from some of the most intellectually stimulating, high-paying, high-
skilled jobs in the economy. My own State of Montana is an excellent 
example of this economic activity. During the 1990s, about 400 
establishments provided high-technology services, at an average wage of 
about $35,000 per year. These jobs paid nearly 80 percent more than the 
average private sector wage of less than $20,000 per year during the 
same year. Many of these jobs would never have been created without the 
assistance of the R credit. While there may not be an immediate rush 
to move all projects and jobs offshore, there has been movement at the 
margins on those projects that are most cost-sensitive. Once those 
projects and jobs are gone, it will be many years before companies will 
have any incentive to bring them back to the United States.
  We continue to grapple with the need to stimulate economic growth and 
advance policies that represent solid long-term investments that will 
reap benefits for many years to come. Senator Hatch and I repeatedly 
have pointed to the R tax credit as a measure that gives us a good 
``bang for our buck.'' I hope this year we can enact a permanent tax 
credit that is effective and more widely available. I encourage my 
colleagues to join us in this effort.
  As we have in years past, our proposal would make the current 
research and experimentation tax credit permanent and increase the 
Alternative Incremental Research Credit, AIRC, rates. This year we take 
one additional but necessary step.
  We propose a new alternative simplified credit that will allow 
taxpayers to elect to calculate the R credit under new computational 
rules that will eliminate the present-law distortions caused by gross 
receipts.
  There is no good policy reason to make research more expensive for 
some industries than for others. While the regular R tax credit works 
very well for many companies, as the credit's base period recedes and 
business cycles change, the current credit is out of reach for some 
other firms that still incur significant research expenditures. To help 
solve part of this problem Congress enacted the AIRC in 1996 and now we 
propose a way to address the rest of that problem.
  Under current law, both the regular credit and the AIRC are 
calculated by reference to a taxpayer's gross receipts, a benchmark 
that can produce inequities and anomalous results. For example, many 
taxpayers are no longer able to qualify for the regular credit, despite 
substantial R investments, because their R spending relative to 
gross receipts has not kept pace with the ratio set in the 1984-88 base 
period, which governs calculation of the regular credit. This can 
happen, for example, simply where a company's sales increase 
significantly in the intervening years, where a company enters into an 
additional line of business that generates additional gross receipts 
but involves little R, or where a company becomes more efficient in 
its R processes.
  Our proposal would correct this by allowing taxpayers a 
straightforward alternative research credit election. Taxpayers could 
elect, in lieu of the regular credit or the AIRC, a credit that would 
equal 12 percent of the excess of the taxpayer's current year qualified 
research expenditures, ``QREs'', over 50 percent of the taxpayer's 
average QREs for the 3 preceding years. Unlike the regular credit and 
the AIRC, this credit calculation does not involve gross receipts.
  The R tax credit has proven it can be an effective incentive. We 
need to act to make it a permanent part of the tax code that U.S. 
businesses can rely on. The best thing we can do for our long-term 
economic well-being is to stoke the engine of growth--technology, high-
wage jobs and productivity. I look forward to working with Sen. Hatch 
and all my colleagues on this important issue.
  I urge my colleagues to support this important piece of legislation.
                                 ______
                                 
      By Mr. GRASSLEY (for himself, Mr. Baucus, Mr. Roberts, Mr. 
        Brownback, Mrs. Lincoln, Mr. Burns, Mr. Craig, Mr. Crapo, Mr. 
        Fitzgerald, Mr. Johnson, Mr. Hagel, Mr. Miller, Mr. Dorgan, and 
        Mr. Daschle):
  S. 665. A bill to amend the Internal Revenue Code of 1986 to provide 
tax relief for farmers and fishermen, and for other purposes; to the 
Committee on Finance.
  Mr. GRASSLEY. Mr. President, I rise today to introduce, along with my 
good friend, Senator Baucus, to introduce the Tax Empowerment and 
Relief for Farmers and Fishermen Act, which I will refer to as the 
``TERFF Act.'' I am pleased that Senators Roberts, Brownback, Lincoln, 
Burns, Craig, Crapo, Fitzgerald, Hagel, and Dorgan are joining Senator 
Baucus and me as cosponsors of this important legislation.
  I am a farmer, like my father was before me. I understand farming and 
how policy decisions from Washington impact hardworking farmers, like 
my son Robin. Before I ran for elected office and after I leave, God 
willing, I'll still be farming. There is little that I feel more 
strongly about than providing the agriculture community with the 
potential to survive and to thrive. As far as I'm concerned, 
agriculture is my ``turf'' and as long as I'm in this town, I'll do all 
I can to serve my friends and neighbors in the agriculture community.
  This legislation has already been adopted by the Senate multiple 
times. In the midst of a serious downturn in the agriculture economy, 
it seems to me we ought to be doing everything we can to help farmers, 
and this would provide significant assistance.
  First, this legislation includes Farm, Fish, and Ranch Risk 
Management Accounts. These farmer saving accounts would allow farmers 
to contribute up to 20 percent of their income in an account, and 
deduct it in the same year. Farm accounts would be a very important 
risk management tool that will help farmers put away money when there's 
actual income, so that, in the bad times, there will be a safety net. 
This measure has strong bipartisan support and was actually sent to 
President Clinton, who vetoed it.
  In addition, this legislation would exempt Conservation Reserve 
Program payments from self-employment tax. Under current law, farmers 
who participate in the CRP are unnecessarily struggling during tax 
season because of a case pushed by the IRS. The latest 6th Circuit 
court's ruling treats CRP payments as farm income subject to the 
additional self-employment tax rate of 15 percent.
  Senator Brownback has taken the lead on fixing this problem. This 
unfair tax not only ignores the intent of Congress in creating the CRP, 
it discourages farmers from using environmentally pro-active measures. 
At a time when farmers are struggling to regain their footing 
economically and do the right thing environmentally, it's important 
that Congress support them by upholding its promise on CRP.
  In addition, Senator Lugar has led the effort to expand the current 
program that allows companies to donate to food banks, so that farmers 
and restaurants can also donate surplus food directly to needy food 
banks. This will be a win for the farmers and a big win for people who 
depend on food bank assistance.
  In addition, when we passed income averaging for farmers a few years 
ago, we neglected to take into account the problem of running into the 
alternative minimum tax, which many farmers are facing now. My bill 
will fix this growing problem.
  My bill also expands opportunities for beginning farmers who are in 
need of low interest rate loans for capital purchases of farmland and 
equipment.
  Current law permits State authorities to issue tax exempt bonds and 
to lend the proceeds from the sale of the bonds to beginning farmers 
and ranchers to finance the cost of acquiring land, buildings and 
equipment used in a farm or ranch operation.
  Unfortunately, aggie bonds are subject to a volume cap and must 
compete with big industrial projects for bond allocation. Aggie bonds 
share few similarities to industrial revenue bonds and should not be 
subject to the volume cap established for industrial revenue bonds.
  Insufficient allocation of funding due to the volume cap limits the 
effectiveness of this program. We can't stand by and allow the next 
generation of farmers to lose an opportunity to participate in farming 
because of competition with industry for reduced interest loan rates.

[[Page S4006]]

  In addition, the IRS recently determined that some cooperatives 
should be exposed to a regular corporate tax due to the fact that they 
are using organic value-added practices rather than manufactured value-
added practices. This is unfair, and needs to be fixed.
  It is also imperative that we not neglect the difficulties many 
producers are facing in light of persistent drought conditions. Under 
current law, a producer who loses livestock, or is forced to sell 
livestock, or is forced to sell livestock, is required to replace that 
livestock within two years. However, some parts of the country have 
already experienced two years of drought with no end in sight.
  It goes against common sense for these producers to replace livestock 
until conditions improve. My legislation would extend the 2-year 
deadline to 4 years.
  And of course my package wouldn't be complete without a provision 
leveling the playing field for ethanol producers.
  The Small Ethanol Producer Credit will allow small cooperative 
producers of ethanol to be able to receive the same tax benefits as 
large companies. This provision provides cooperatives the ability to 
elect to pass through small ethanol producer credits to its patron.
  The ``TERFF'' package will do more to reform taxes for the American 
farmer than any other measure in recent memory. I urge my colleagues to 
strongly support this measure.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 665

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

     SECTION 1. SHORT TITLE; ETC.

       (a) Short Title.--This Act may be cited as the ``Tax 
     Empowerment and Relief for Farmers and Fishermen (TERFF) 
     Act''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act 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.
       (c) Table of Contents.--

Sec. 1. Short title; etc.
Sec. 2. Farm, fishing, and ranch risk management accounts.
Sec. 3. Exclusion of rental income from self-employment tax.
Sec. 4. Exclusion of conservation reserve program payments from self-
              employment tax.
Sec. 5. Exemption of agricultural bonds from private activity bond 
              volume limits.
Sec. 6. Modifications to section 512(b)(13).
Sec. 7. Charitable deduction for contributions of food inventory.
Sec. 8. Coordinate farmers and fishermen income averaging and the 
              alternative minimum tax.
Sec. 9. Modification to cooperative marketing rules to include value 
              added processing involving animals.
Sec. 10. Extension of declaratory judgment procedures to farmers' 
              cooperative organizations.
Sec. 11. Small ethanol producer credit.
Sec. 12. Payment of dividends on stock of cooperatives without reducing 
              patronage dividends.
Sec. 13. Special rules for livestock sold on account of weather-related 
              conditions.

     SEC. 2. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 (relating to taxable year for which deductions 
     taken) is amended by inserting after section 468B the 
     following new section:

     ``SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGEMENT 
                   ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an individual 
     engaged in an eligible farming business or commercial 
     fishing, there shall be allowed as a deduction for any 
     taxable year the amount paid in cash by the taxpayer during 
     the taxable year to a Farm, Fishing, and Ranch Risk 
     Management Account (hereinafter referred to as the `FFARRM 
     Account').
       ``(b) Limitation.--
       ``(1) Contributions.--The amount which a taxpayer may pay 
     into the FFARRM Account for any taxable year shall not exceed 
     20 percent of so much of the taxable income of the taxpayer 
     (determined without regard to this section) which is 
     attributable (determined in the manner applicable under 
     section 1301) to any eligible farming business or commercial 
     fishing.
       ``(2) Distributions.--Distributions from a FFARRM Account 
     may not be used to purchase, lease, or finance any new 
     fishing vessel, add capacity to any fishery, or otherwise 
     contribute to the overcapitalization of any fishery. The 
     Secretary of Commerce shall implement regulations to enforce 
     this paragraph.
       ``(c) Eligible Businesses.--For purposes of this section--
       ``(1) Eligible farming business.--The term `eligible 
     farming business' means any farming business (as defined in 
     section 263A(e)(4)) which is not a passive activity (within 
     the meaning of section 469(c)) of the taxpayer.
       ``(2) Commercial fishing.--The term `commercial fishing' 
     has the meaning given such term by section (3) of the 
     Magnuson-Stevens Fishery Conservation and Management Act (16 
     U.S.C. 1802) but only if such fishing is not a passive 
     activity (within the meaning of section 469(c)) of the 
     taxpayer.
       ``(d) FFARRM Account.--For purposes of this section--
       ``(1) In general.--The term `FFARRM Account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of the taxpayer, but only if the written governing 
     instrument creating the trust meets the following 
     requirements:
       ``(A) No contribution will be accepted for any taxable year 
     in excess of the amount allowed as a deduction under 
     subsection (a) for such year.
       ``(B) The trustee is a bank (as defined in section 408(n)) 
     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) The assets of the trust consist entirely of cash or 
     of obligations which have adequate stated interest (as 
     defined in section 1274(c)(2)) and which pay such interest 
     not less often than annually.
       ``(D) All income of the trust is distributed currently to 
     the grantor.
       ``(E) The assets of the trust will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(2) Account taxed as grantor trust.--The grantor of a 
     FFARRM Account shall be treated for purposes of this title as 
     the owner of such Account and shall be subject to tax thereon 
     in accordance with subpart E of part I of subchapter J of 
     this chapter (relating to grantors and others treated as 
     substantial owners).
       ``(e) Inclusion of Amounts Distributed.--
       ``(1) In general.--Except as provided in paragraph (2), 
     there shall be includible in the gross income of the taxpayer 
     for any taxable year--
       ``(A) any amount distributed from a FFARRM Account of the 
     taxpayer during such taxable year, and
       ``(B) any deemed distribution under--
       ``(i) subsection (f )(1) (relating to deposits not 
     distributed within 5 years),
       ``(ii) subsection (f )(2) (relating to cessation in 
     eligible farming business), and
       ``(iii) subparagraph (B) or (C) of subsection (f )(3) 
     (relating to prohibited transactions and pledging account as 
     security).
       ``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
       ``(A) any distribution to the extent attributable to income 
     of the Account, and
       ``(B) the distribution of any contribution paid during a 
     taxable year to a FFARRM Account to the extent that such 
     contribution exceeds the limitation applicable under 
     subsection (b) if requirements similar to the requirements of 
     section 408(d)(4) are met.

     For purposes of subparagraph (A), distributions shall be 
     treated as first attributable to income and then to other 
     amounts.
       ``(f ) Special Rules.--
       ``(1) Tax on deposits in account which are not distributed 
     within 5 years.--
       ``(A) In general.--If, at the close of any taxable year, 
     there is a nonqualified balance in any FFARRM Account--
       ``(i) there shall be deemed distributed from such Account 
     during such taxable year an amount equal to such balance, and
       ``(ii) the taxpayer's tax imposed by this chapter for such 
     taxable year shall be increased by 10 percent of such deemed 
     distribution.

     The preceding sentence shall not apply if an amount equal to 
     such nonqualified balance is distributed from such Account to 
     the taxpayer before the due date (including extensions) for 
     filing the return of tax imposed by this chapter for such 
     year (or, if earlier, the date the taxpayer files such return 
     for such year).
       ``(B) Nonqualified balance.--For purposes of subparagraph 
     (A), the term `nonqualified balance' means any balance in the 
     Account on the last day of the taxable year which is 
     attributable to amounts deposited in such Account before the 
     4th preceding taxable year.
       ``(C) Ordering rule.--For purposes of this paragraph, 
     distributions from a FFARRM Account (other than distributions 
     of current income) shall be treated as made from deposits in 
     the order in which such deposits were made, beginning with 
     the earliest deposits.
       ``(2) Cessation in eligible business.--At the close of the 
     first disqualification period after a period for which the 
     taxpayer was engaged in an eligible farming business or 
     commercial fishing, there shall be deemed distributed from 
     the FFARRM Account of the taxpayer an amount equal to the 
     balance in such Account (if any) at the close of such 
     disqualification period. For purposes of the

[[Page S4007]]

     preceding sentence, the term `disqualification period' means 
     any period of 2 consecutive taxable years for which the 
     taxpayer is not engaged in an eligible farming business or 
     commercial fishing.
       ``(3) Certain rules to apply.--Rules similar to the 
     following rules shall apply for purposes of this section:
       ``(A) Section 220(f )(8) (relating to treatment after death 
     of account holder).
       ``(B) Section 408(e)(2) (relating to loss of exemption of 
     account where individual engages in prohibited transaction).
       ``(C) Section 408(e)(4) (relating to effect of pledging 
     account as security).
       ``(D) Section 408(g) (relating to community property laws).
       ``(E) Section 408(h) (relating to custodial accounts).
       ``(4) Time when payments deemed made.--For purposes of this 
     section, a taxpayer shall be deemed to have made a payment to 
     a FFARRM Account on the last day of a taxable year if such 
     payment is made on account of such taxable year and is made 
     on or before the due date (without regard to extensions) for 
     filing the return of tax for such taxable year.
       ``(5) Individual.--For purposes of this section, the term 
     `individual' shall not include an estate or trust.
       ``(6) Deduction not allowed for self-employment tax.--The 
     deduction allowable by reason of subsection (a) shall not be 
     taken into account in determining an individual's net 
     earnings from self-employment (within the meaning of section 
     1402(a)) for purposes of chapter 2.
       ``(g) Reports.--The trustee of a FFARRM Account shall make 
     such reports regarding such Account to the Secretary and to 
     the person for whose benefit the Account is maintained with 
     respect to contributions, distributions, and such other 
     matters as the Secretary may require under regulations. The 
     reports required by this subsection shall be filed at such 
     time and in such manner and furnished to such persons at such 
     time and in such manner as may be required by such 
     regulations.''.
       (b) Tax on Excess Contributions.--
       (1) Subsection (a) of section 4973 (relating to tax on 
     excess contributions to certain tax-favored accounts and 
     annuities) is amended by striking ``or'' at the end of 
     paragraph (3), by redesignating paragraph (4) as paragraph 
     (5), and by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) a FFARRM Account (within the meaning of section 
     468C(d)), or''.
       (2) Section 4973 is amended by adding at the end the 
     following new subsection:
       ``(g) Excess Contributions to FFARRM Accounts.--For 
     purposes of this section, in the case of a FFARRM Account 
     (within the meaning of section 468C(d)), the term `excess 
     contributions' means 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 
     468C(b) for such taxable year. For purposes of this 
     subsection, any contribution which is distributed out of the 
     FFARRM Account in a distribution to which section 
     468C(e)(2)(B) applies shall be treated as an amount not 
     contributed.''.
       (3) The section heading for section 4973 is amended to read 
     as follows:

     ``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, 
                   ANNUITIES, ETC.''.

       (4) The table of sections for chapter 43 is amended by 
     striking the item relating to section 4973 and inserting the 
     following new item:

``Sec. 4973. Excess contributions to certain accounts, annuities, 
              etc.''.

       (c) Tax on Prohibited Transactions.--
       (1) Subsection (c) of section 4975 (relating to tax on 
     prohibited transactions) is amended by adding at the end the 
     following new paragraph:
       ``(6) Special rule for ffarrm accounts.--A person for whose 
     benefit a FFARRM Account (within the meaning of section 
     468C(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 FFARRM Account by reason of the application of 
     section 468C(f )(3)(A) to such account.''.
       (2) Paragraph (1) of section 4975(e) is amended by 
     redesignating subparagraphs (E) and (F) as subparagraphs (F) 
     and (G), respectively, and by inserting after subparagraph 
     (D) the following new subparagraph:
       ``(E) a FFARRM Account described in section 468C(d),''.
       (d) Failure To Provide Reports on FFARRM Accounts.--
     Paragraph (2) of section 6693(a) (relating to failure to 
     provide reports on certain tax-favored accounts or annuities) 
     is amended by redesignating subparagraphs (C) and (D) as 
     subparagraphs (D) and (E), respectively, and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) section 468C(g) (relating to FFARRM Accounts),''.
       (e) Clerical Amendment.--The table of sections for subpart 
     C of part II of subchapter E of chapter 1 is amended by 
     inserting after the item relating to section 468B the 
     following new item:

``Sec. 468C. Farm, Fishing and Ranch Risk Management Accounts.''.

       (f ) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 3. EXCLUSION OF RENTAL INCOME FROM SELF-EMPLOYMENT TAX.

       (a) Internal Revenue Code.--Section 1402(a)(1)(A) (relating 
     to net earnings from self-employment) is amended by striking 
     ``an arrangement'' and inserting ``a written lease 
     agreement''.
       (b) Social Security Act.--Section 211(a)(1)(A) of the 
     Social Security Act is amended by striking ``an arrangement'' 
     and inserting ``a written lease agreement''.
       (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. 4. EXCLUSION OF CONSERVATION RESERVE PROGRAM PAYMENTS 
                   FROM SELF-EMPLOYMENT TAX.

       (a) Internal Revenue Code.--Section 1402(a)(1) (relating to 
     net earnings from self-employment) is amended by inserting 
     ``and including payments under section 1233(2) of the Food 
     Security Act of 1985 (16 U.S.C. 3833(2))'' after ``crop 
     shares''.
       (b) Social Security Act.--Section 211(a)(1) of the Social 
     Security Act is amended by inserting ``and including payments 
     under section 1233(2) of the Food Security Act of 1985 (16 
     U.S.C. 3833(2))'' after ``crop shares''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made after the date of the enactment 
     of this Act.

     SEC. 5. EXEMPTION OF AGRICULTURAL BONDS FROM PRIVATE ACTIVITY 
                   BOND VOLUME LIMITS.

       (a) In General.--Section 146(g) (relating to exception for 
     certain bonds) is amended by striking ``and'' at the end of 
     paragraph (3), by striking the period at the end of paragraph 
     (4) and inserting ``, and'', and by inserting after paragraph 
     (4) the following new paragraph:
       ``(5) any qualified small issue bond described in section 
     144(a)(12)(B)(ii).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 6. MODIFICATIONS TO SECTION 512(B)(13).

       (a) In General.--Paragraph (13) of section 512(b) (relating 
     to special rules for certain amounts received from controlled 
     entities) is amended by redesignating subparagraph (E) as 
     subparagraph (F) and by inserting after subparagraph (D) the 
     following new subparagraph:
       ``(E) Paragraph to apply only to excess payments.--
       ``(i) In general.--Subparagraph (A) shall apply only to the 
     portion of a specified payment received or accrued by the 
     controlling organization that exceeds the amount which would 
     have been paid or accrued if such payment met the 
     requirements prescribed under section 482.
       ``(ii) Addition to tax for valuation misstatements.--The 
     tax imposed by this chapter on the controlling organization 
     shall be increased by an amount equal to 20 percent of the 
     larger of--

       ``(I) such excess determined without regard to any 
     amendment or supplement to a return of tax, or
       ``(II) such excess determined with regard to all such 
     amendments and supplements.''.

       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to payments received or accrued after December 31, 
     2000.
       (2) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 did not apply to any amount received or accrued 
     in the first 2 taxable years beginning on or after the date 
     of the enactment of the Taxpayer Relief Act of 1997 under any 
     contract described in subsection (b)(2) of such section, such 
     amendments also shall not apply to amounts received or 
     accrued under such contract before January 1, 2001.

     SEC. 7. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD 
                   INVENTORY.

       (a) In General.--Subsection (e) of section 170 (relating to 
     certain contributions of ordinary income and capital gain 
     property) is amended by adding at the end the following new 
     paragraph:
       ``(7) Application of paragraph (3) to certain contributions 
     of food inventory.--For purposes of this section--
       ``(A) Extension to individuals.--In the case of a 
     charitable contribution of apparently wholesome food--
       ``(i) paragraph (3)(A) shall be applied without regard to 
     whether the contribution is made by a C corporation, and
       ``(ii) in the case of a taxpayer other than a C 
     corporation, the aggregate amount of such contributions from 
     any trade or business (or interest therein) of the taxpayer 
     for any taxable year which may be taken into account under 
     this section shall not exceed 10 percent of the taxpayer's 
     net income from any such trade or business, computed without 
     regard to this section, for such taxable year.
       ``(B) Limitation on reduction.--In the case of a charitable 
     contribution of apparently wholesome food, notwithstanding 
     paragraph (3)(B), the amount of the reduction determined 
     under paragraph (1)(A) shall not exceed the amount by which 
     the fair market value of such property exceeds twice the 
     basis of such property.
       ``(C) Determination of basis.--If a taxpayer--
       ``(i) does not account for inventories under section 471, 
     and
       ``(ii) is not required to capitalize indirect costs under 
     section 263A,


[[Page S4008]]


     the taxpayer may elect, solely for purposes of paragraph 
     (3)(B), to treat the basis of any apparently wholesome food 
     as being equal to 25 percent of the fair market value of such 
     food.
       ``(D) Determination of fair market value.--In the case of a 
     charitable contribution of apparently wholesome food which is 
     a qualified contribution (within the meaning of paragraph 
     (3), as modified by subparagraph (A) of this paragraph) and 
     which, solely by reason of internal standards of the taxpayer 
     or lack of market, cannot or will not be sold, the fair 
     market value of such contribution shall be determined--
       ``(i) without regard to such internal standards or such 
     lack of market and
       ``(ii) by taking into account the price at which the same 
     or substantially the same food items (as to both type and 
     quality) are sold by the taxpayer at the time of the 
     contribution (or, if not so sold at such time, in the recent 
     past).
       ``(E) Apparently wholesome food.--For purposes of this 
     paragraph, the term `apparently wholesome food' has the 
     meaning given such term by section 22(b)(2) of the Bill 
     Emerson Good Samaritan Food Donation Act (42 U.S.C. 
     1791(b)(2)), as in effect on the date of the enactment of 
     this paragraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after the date of the 
     enactment of this Act.

     SEC. 8. COORDINATE FARMERS AND FISHERMEN INCOME AVERAGING AND 
                   THE ALTERNATIVE MINIMUM TAX.

       (a) In General.--Section 55(c) (defining regular tax) is 
     amended by redesignating paragraph (2) as paragraph (3) and 
     by inserting after paragraph (1) the following new paragraph:
       ``(2) Coordination with income averaging for farmers and 
     fishermen.--Solely for purposes of this section, section 1301 
     (relating to averaging of farm and fishing income) shall not 
     apply in computing the regular tax.''.
       (b) Allowing Income Averaging for Fishermen.--
       (1) In general.--Section 1301(a) is amended by striking 
     ``farming business'' and inserting ``farming business or 
     fishing business''.
       (2) Definition of elected farm income.--
       (A) In general.--Clause (i) of section 1301(b)(1)(A) is 
     amended by inserting ``or fishing business'' before the 
     semicolon.
       (B) Conforming amendment.--Subparagraph (B) of section 
     1301(b)(1) is amended by inserting ``or fishing business'' 
     after ``farming business'' both places it occurs.
       (3) Definition of fishing business.--Section 1301(b) is 
     amended by adding at the end the following new paragraph:
       ``(4) Fishing business.--The term `fishing business' means 
     the conduct of commercial fishing as defined in section 3 of 
     the Magnuson-Stevens Fishery Conservation and Management Act 
     (16 U.S.C. 1802).''.
       (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. 9. MODIFICATION TO COOPERATIVE MARKETING RULES TO 
                   INCLUDE VALUE ADDED PROCESSING INVOLVING 
                   ANIMALS.

       (a) In General.--Section 1388 (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new subsection:
       ``(k) Cooperative Marketing Includes Value-Added Processing 
     Involving Animals.--For purposes of section 521 and this 
     subchapter, the term `marketing the products of members or 
     other producers' includes feeding the products of members or 
     other producers to cattle, hogs, fish, chickens, or other 
     animals and selling the resulting animals or animal 
     products.''.
       (b) Conforming Amendment.--Section 521(b) is amended by 
     adding at the end the following new paragraph:
       ``(7) Cross Reference.--

  ``For treatment of value-added processing involving animals, see 
section 1388(k).''.

       (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. 10. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO 
                   FARMERS' COOPERATIVE ORGANIZATIONS.

       (a) In General.--Section 7428(a)(1) (relating to 
     declaratory judgments of tax exempt organizations) is amended 
     by striking ``or'' at the end of subparagraph (B) and by 
     adding at the end the following new subparagraph:
       ``(D) with respect to the initial classification or 
     continuing classification of a cooperative as described in 
     section 521(b) which is exempt from tax under section 521(a), 
     or''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to pleadings filed after the date of 
     the enactment of this Act.

     SEC. 11. SMALL ETHANOL PRODUCER CREDIT.

       (a) Allocation of Alcohol Fuels Credit to Patrons of a 
     Cooperative.--Section 40(g) (relating to alcohol used as 
     fuel) is amended by adding at the end the following new 
     paragraph:
       ``(6) Allocation of small ethanol producer credit to 
     patrons of cooperative.--
       ``(A) Election to allocate.--
       ``(i) In general.--In the case of a cooperative 
     organization described in section 1381(a), any portion of the 
     credit determined under subsection (a)(3) for the taxable 
     year may, at the election of the organization, be apportioned 
     pro rata among patrons of the organization on the basis of 
     the quantity or value of business done with or for such 
     patrons for the taxable year.
       ``(ii) Form and effect of election.--An election under 
     clause (i) for any taxable year shall be made on a timely 
     filed return for such year. Such election, once made, shall 
     be irrevocable for such taxable year.
       ``(B) Treatment of organizations and patrons.--The amount 
     of the credit apportioned to patrons under subparagraph (A)--
       ``(i) shall not be included in the amount determined under 
     subsection (a) with respect to the organization for the 
     taxable year,
       ``(ii) shall be included in the amount determined under 
     subsection (a) for the taxable year of each patron for which 
     the patronage dividends for the taxable year described in 
     subparagraph (A) are included in gross income, and
       ``(iii) shall be included in gross income of such patrons 
     for the taxable year in the manner and to the extent provided 
     in section 87.
       ``(C) Special rules for decrease in credits for taxable 
     year.--If the amount of the credit of a cooperative 
     organization determined under subsection (a)(3) for a taxable 
     year is less than the amount of such credit shown on the 
     return of the cooperative organization for such year, an 
     amount equal to the excess of--
       ``(i) such reduction, over
       ``(ii) the amount not apportioned to such patrons under 
     subparagraph (A) for the taxable year,

     shall be treated as an increase in tax imposed by this 
     chapter on the organization. Such increase shall not be 
     treated as tax imposed by this chapter for purposes of 
     determining the amount of any credit under this chapter or 
     for purposes of section 55.''.
       (b) Improvements to Small Ethanol Producer Credit.--
       (1) Definition of small ethanol producer.--Section 40(g) 
     (relating to definitions and special rules for eligible small 
     ethanol producer credit) is amended by striking 
     ``30,000,000'' each place it appears and inserting 
     ``60,000,000''.
       (2) Small ethanol producer credit not a passive activity 
     credit.--Clause (i) of section 469(d)(2)(A) is amended by 
     striking ``subpart D'' and inserting ``subpart D, other than 
     section 40(a)(3),''.
       (3) Allowing credit against entire regular tax and minimum 
     tax.--
       (A) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax), as amended by section 
     301(b) of the Job Creation and Worker Assistance Act of 2002, 
     is amended by redesignating paragraph (4) as paragraph (5) 
     and by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) Special rules for small ethanol producer credit.--
       ``(A) In general.--In the case of the small ethanol 
     producer credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) the amounts in subparagraphs (A) and (B) thereof 
     shall be treated as being zero, and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the small 
     ethanol producer credit).

       ``(B) Small ethanol producer credit.--For purposes of this 
     subsection, the term `small ethanol producer credit' means 
     the credit allowable under subsection (a) by reason of 
     section 40(a)(3).''.
       (B) Conforming amendments.--Subclause (II) of section 
     38(c)(2)(A)(ii), as amended by section 301(b)(2) of the Job 
     Creation and Worker Assistance Act of 2002, and subclause 
     (II) of section 38(c)(3)(A)(ii), as added by section 
     301(b)(1) of such Act, are each amended by inserting ``or the 
     small ethanol producer credit'' after ``employee credit''.
       (4) Small ethanol producer credit not added back to income 
     under section 87.--Section 87 (relating to income inclusion 
     of alcohol fuel credit) is amended to read as follows:

     ``SEC. 87. ALCOHOL FUEL CREDIT.

       ``Gross income includes an amount equal to the sum of--
       ``(1) the amount of the alcohol mixture credit determined 
     with respect to the taxpayer for the taxable year under 
     section 40(a)(1), and
       ``(2) the alcohol credit determined with respect to the 
     taxpayer for the taxable year under section 40(a)(2).''.
       (c) Conforming Amendment.--Section 1388 (relating to 
     definitions and special rules for cooperative organizations) 
     is amended by adding at the end the following new subsection:
       ``(k) Cross Reference.--For provisions relating to the 
     apportionment of the alcohol fuels credit between cooperative 
     organizations and their patrons, see section 40(g)(6).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 12. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES 
                   WITHOUT REDUCING PATRONAGE DIVIDENDS.

       (a) In General.--Subsection (a) of section 1388 (relating 
     to patronage dividend defined) is amended by adding at the 
     end the following new sentence: ``For purposes of paragraph 
     (3), net earnings shall not be reduced by amounts paid during 
     the year as dividends on capital stock or other proprietary

[[Page S4009]]

     capital interests of the organization to the extent that the 
     articles of incorporation or bylaws of such organization or 
     other contract with patrons provide that such dividends are 
     in addition to amounts otherwise payable to patrons which are 
     derived from business done with or for patrons during the 
     taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in taxable years beginning after 
     the date of the enactment of this Act.

     SEC. 13. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF 
                   WEATHER-RELATED CONDITIONS.

       (a) Rules for Replacement of Involuntarily Converted 
     Livestock.--Subsection (e) of section 1033 (relating to 
     involuntary conversions) is amended--
       (1) by striking ``Conditions.--For purposes'' and inserting 
     ``Conditions.--
       ``(1) In general.--For purposes'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Extension of replacement period.--
       ``(A) In general.--In the case of drought, flood, or other 
     weather-related conditions described in paragraph (1) which 
     result in the area being designated as eligible for 
     assistance by the Federal Government, subsection (a)(2)(B) 
     shall be applied with respect to any converted property by 
     substituting `4 years' for `2 years'.
       ``(B) Further extension by secretary.--The Secretary may 
     extend on a regional basis the period for replacement under 
     this section (after the application of subparagraph (A)) for 
     such additional time as the Secretary determines appropriate 
     if the weather-related conditions which resulted in such 
     application continue for more than 3 years.''.
       (b) Income Inclusion Rules.--Section 451(e) (relating to 
     special rule for proceeds from livestock sold on account of 
     drought, flood, or other weather-related conditions) is 
     amended by adding at the end the following new paragraph:
       ``(3) Special election rules.--If section 1033(e)(2) 
     applies to a sale or exchange of livestock described in 
     paragraph (1), the election under paragraph (1) shall be 
     deemed valid if made during the replacement period described 
     in such section.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

  Mr. BAUCUS. Mr. President, I am pleased to join Chairman Grassley in 
introducing the Tax Empowerment and Relief for Farmers and Fishermen 
Act.
  Rural America has been experiencing some hard times. Drought, low 
prices, and an economic downturn have left agricultural producers in 
dire straits and have left rural economies reeling. Farmers and 
ranchers are the life blood to rural economies, and when agriculture is 
hurting, rural America hurts. Small towns are dying, stores on Main 
Street are closing and farmers are leaving their land.
  Congress has worked hard to help our nation's agricultural producers, 
but with this bill, we are giving them the tools to help themselves. 
This package includes Farm, Fish, and Ranch Risk Management Accounts, 
otherwise known as FFARRM Accounts. These farmer savings accounts would 
allow farmers to contribute up to 20 percent of their income to a 
savings account, and deduct it in the same year. FFARRM accounts would 
be a very important risk management tool to help farmers put away money 
when there's actual income, so that in the really bad times there would 
be a safety net.
  This legislation also reverses unfair IRS decisions on self-
employment tax for farmers. Farmers who participate in the Conservation 
Reserve Program are unnecessarily struggling during tax season because 
of a case pursued by the IRS. The latest 6th-Circuit Court ruling 
treats CRP as farm income subject to the additional self-employment tax 
rate of 15 percent. This unfair tax not only ignores the intent of 
Congress in creating the CRP, but it also discourages farmers from 
using environmentally pro-active measures. The bill also includes a 
provision to reverse an IRS attempt to apply the self-employment tax on 
farmers' cash rental income.
  Also included in the package is a provision to hold farmers harmless 
from the Alternative Minimum Tax when they use income averaging. When 
Congress passed income averaging for farmers a few years ago, it 
neglected to take into account the problem of running into the 
alternative minimum tax, which many farmers are facing now. This 
legislation will fix this growing problem.
  It also contains an expansion of first-time farmer loans, or Aggie 
Bonds. This expands opportunities for beginning farmers who need low-
interest rate loans for purchases of farmland and equipment. Current 
law permits state authorities to issue tax-exempt bonds and to lend the 
proceeds from the sale of the bonds to beginning farmers and ranchers 
to finance the cost of acquiring land, buildings and equipment used in 
a farm or ranch operation. Unfortunately, Aggie Bonds are subjected to 
a volume cap and must compete with big industrial projects for bond 
allocation. Aggie Bonds share few similarities to Industrial Revenue 
Bonds and should not be subjected to the volume cap established for 
IRBs. Insufficient allocation of funding due to the volume cap limits 
the effectiveness of this program.
  Farmer co-op initiatives are also included. Recently the IRS 
determined that some cooperatives should be exposed to a regular 
corporate tax due to the fact that they are using organic value-added 
practices rather than manufactured value-added practices. The bill also 
would permit small cooperative producers of ethanol to receive the same 
tax benefits as large companies.
  Another important provision provides tax relief for ranchers that are 
forced to sell their livestock on account of drought. The bill gives 
producers the time they need to reinvest proceeds tax-free when drought 
makes it impossible to feed their herds.
  I look forward to working with my colleagues to enact this crucial 
piece of legislation.
                                 ______
                                 
      By Mr. LIEBERMAN (for himself and Mr. Hatch):
  S. 666. A bill to provide incentives to increase research by private 
sector entities to develop antivirals, antibiotics and other drugs, 
vaccines, microbicides, detection, and diagnostic technologies to 
prevent and treat illnesses associated with a biological, chemical, or 
radiological weapons attack; to the Committee on Finance.
  Mr. LIEBERMAN. Mr. President, America has a major flaw in its 
defenses against bioterrorism. Hearings I chaired in the Government 
Affairs Committee on bioterrorism demonstrated that America has not 
made a national commitment to research and development of treatments 
and cures for those who might be exposed to or infected by a biological 
agent, chemical toxin, or radiological material. Correcting this 
critical gap is the purpose of legislation we are introducing today.
  This legislation is a refined and upgraded version of legislation I 
introduced last year, S. 1764, December 4, 2001, and S. 3148, October 
17, 2002, and I am delighted that Senator Hatch has joined me as the 
lead cosponsor of the new bill.
  Obviously, our first priority must be to attempt to prevent the use 
of these agents and toxins by terrorists, quickly assess when an attack 
has occurred, take appropriate public health steps to contain the 
exposure, stop the spread of contagion, and then detoxify the site. 
These are all critical functions, but in the end we must recognize that 
some individuals may be exposed or infected. Then the critical issue is 
whether we can treat and cure them and prevent death and disability.
  In short, we need a diversified portfolio of medicines. In cases 
where we have ample advance warning of an attack and specific 
information about the agent, toxin, or material, we may be able to 
vaccinate the vulnerable population in advance. In other cases, even if 
we have a vaccine, we might well prefer to use medicines that would 
quickly stop the progression of the disease or the toxic effects. We 
also need a powerful capacity quickly to develop new countermeasures 
where we face a new agent, toxin, or material.
  Unfortunately, we are woefully short of vaccines and medicines to 
treat individuals who are exposed or infected. We have antibiotics that 
seem to work for most of those infected in the current anthrax attack, 
but these have not prevented five deaths. We have no effective vaccines 
or medicines for most other biological agents and chemical toxins we 
might confront. We have very limited capacity to respond medically to a 
radiological attack. In some cases we have vaccines to prevent, but no 
medicines to treat, an agent. We have limited capacity to speed the 
development of vaccines and medicines to prevent or treat novel agents 
and toxins not currently known to us.
  We have provided, and should continue to provide, direct Federal 
funding for research and development of new

[[Page S4010]]

medicines, however, this funding is unlikely to be sufficient. Even 
with ample Federal funding, many private companies will be reluctant to 
enter into agreements with government agencies to conduct this 
research. Other companies would be willing to conduct the research with 
their own capital and at their own risk but are not able to secure the 
funding from investors.
  The legislation we introduce today would provide incentives for 
private biotechnology companies to form capital to develop 
countermeasures--medicines--to prevent, treat and cure victims of 
bioterror, chemical and radiological attacks. This will enable this 
industry to become a vital part of the national defense infrastructure 
and do so for business reasons that make sense for their investors on 
the bottom line.
  Enactment of these incentives is necessary because most biotech 
companies have no approved products or revenue from product sales to 
fund research. They rely on investors and equity capital markets to 
fund the research. They must necessarily focus on research that will 
lead to product sales and revenue and, thus, to an end to their 
dependence on investor capital. There is no established or predictable 
market for countermeasures. These concerns are shared by pharmaceutical 
firms. Investors are justifiably reluctant to fund this research, which 
will present challenges similar in complexity to AIDS. Investors need 
assurances that research on countermeasures has the potential to 
provide a rate of return commensurate with the risk, complexity and 
cost of the research, a rate of return comparable to that which may 
arise from a treatment for cancer, MS, Cystic Fibrosis and other major 
diseases.
  It is in our national interest to enlist these companies in the 
development of countermeasures as biotech companies tend to be 
innovative and nimble and intently focused on the intractable diseases 
for which no effective medical treatments are available.
  The incentives we have proposed are innovative and some may be 
controversial. We invite everyone who has an interest and a stake in 
this research to enter into a dialogue about the issue and about the 
nature and terms of the appropriate incentives. We have attempted to 
anticipate the many complicated technical and policy issues that this 
legislation raises. The key focus of our debate should be how, not 
whether, we address this critical gap in our public health 
infrastructure and the role that the private sector should play. 
Millions of Americans will be at risk if we fail to enact legislation 
to meet this need.
  On November 26 of 2001, the Centers for Disease Control issued its 
interim working draft plan for responding to an outbreak of smallpox. 
The plan does not call for mass vaccination in advance of a smallpox 
outbreak because the risk of side effects from the vaccine outweighs 
the risks of someone actually being exposed to the smallpox virus. At 
the heart of the plan is a strategy sometimes called ``search and 
containment.''
  This strategy involves identifying infected individual or individuals 
with confirmed smallpox, identifying and locating those people who come 
in contact with that person, and vaccinating those people in outward 
rings of contact. The goal is to produce a buffer of immune individuals 
and was shown to prevent smallpox and to ultimately eradicate the 
outbreak. Priorities would be set on who is vaccinated, perhaps 
focusing on the outward rings before those at the center of the 
outbreak. The plan assumes that the smallpox vaccination is effective 
for persons who have been exposed to the disease as long as the disease 
has not taken hold.
  In practice it may be necessary to set a wide perimeter for these 
areas because smallpox is highly contagious before it might be 
diagnosed. There may be many areas subject to search and containment 
because people in our society travel frequently and widely. Terrorists 
might trigger attacks in a wide range of locations to multiply the 
confusion and panic. The most common form of smallpox has a 30 percent 
mortality rate, but terrorists might be able to obtain supplies of 
``flat-type'' smallpox with a mortality rate of 96 percent and 
hemorrhagic-type smallpox, which is almost always fatal. For these 
reasons, the CDC plan accepts the possibility that whole cities or 
other geographic areas could be cordoned off, letting no one in or 
out--a quarantine enforced by police or troops.
  The plan focuses on enforcement authority through police or National 
Guard, isolation and quarantine, mandatory medical examinations, and 
rationing of medicines. It includes a discussion of ``population-wide 
quarantine measures which restrict activities or limit movement of 
individuals [including] suspension of large public gatherings, closing 
of public places, restriction on travel [air, rail, water, motor 
vehicle, and pedestrian], and/or `cordon sanitaire' [literally a 
`sanitary cord' or line around a quarantined area guarded to prevent 
spread of disease by restricting passage into or out of the area].'' 
The CDC recommends that states update their laws to provide authority 
for ``enforcing quarantine measures'' and it recommends that States in 
``pre-event planning'' identify ``personnel who can enforce these 
isolation and quarantine measures, if necessary.'' Guide C--Isolation 
and Quarantine, page 17.
  On October 23, 2001, the CDC published a ``Model State Emergency 
Health Powers Act.'' It was prepared by the Center for Law and the 
Public's Health at Georgetown and Johns Hopkins Universities, in 
conjunction with the National Governors Association, National 
Conference of State Legislatures, Association of State and Territorial 
Health Officials, National Association of City and County Health 
Officers, and National Association of Attorneys General. A copy of the 
model law is printed at www.publichealthlaw.net. The law would provide 
powers to enforce the ``compulsory physical separation (including the 
restriction of movement or confinement) of individuals and/or groups 
believed to have been exposed to or known to have been infected with a 
contagious disease from individuals who are believed not to have been 
exposed or infected, in order to prevent or limit the transmission of 
the disease to others.'' Federal law on this subject is very strong and 
the Administration can always rely on the President's Constitution 
authority as Commander in Chief.
  Let us try to imagine, however, what it would be like if a quarantine 
is imposed. Let us assume that there is not enough smallpox vaccine 
available for use in a large outbreak, that the priority is to 
vaccinate those in the outward rings of the containment area first, 
that the available vaccines cannot be quickly deployed inside the 
quarantined area, that it is not possible to quickly trace and identify 
all of the individuals who might have been exposed, and/or that public 
health workers themselves might be infected. We know that there is no 
medicine to treat those who do become infected. We know the mortality 
rates. It is not hard to imagine how much force might be necessary to 
enforce the quarantine. It would be quite unacceptable to permit 
individuals to leave the quarantined area no matter how much panic had 
taken hold.
  Think about how different this scenario would be if we had medicines 
that could effectively treat and cure those who become infected by 
smallpox. We still might implement the CDC plan but a major element of 
the strategy would be to persuade people to visit their local clinic or 
hospital to be dispenses their supply of medicine. We could trust that 
there would be a very high degree of voluntary compliance. This would 
give us more time, give us options if the containment is not 
successful, give us options to treat those in the containment area who 
are infected, and enable us to quell the public panic.
  Because we have no medicine to treat those infected by smallpox, we 
have to be prepared to implement a plan like the one CDC has proposed. 
Theirs is the only option because our options are so limited. We need 
to expand our range of options.
  We should not be lulled by the apparent successes with Cipro and the 
strains of anthrax we have seen in the recent attacks. We have not been 
able to prevent death in some of the patients with late-stage 
inhalation anthrax and Robert Stevens, Thomas Morris Jr., Joseph 
Curseen, Kathy Nguyen, and Ottilie Lundgren died. This legislation is 
named in honor of

[[Page S4011]]

them. What we needed for them, and did not have, is a drug or vaccine 
that would treat late stage inhalation anthrax.
  As I have said, we need an effective treatment for those who become 
infected with smallpox. We have a vaccine that effectively prevents 
smallpox infection, and administering this vaccine within four days of 
first exposure has been shown to offer some protections against 
acquiring infection and significant protection against a fatal outcome. 
The problem is that administering the vaccine in this time frame to all 
those who might have been exposed may be exceedingly difficult. And 
once infection has occurred, we have no effective treatment options.
  In the last century 500 million people have died of smallpox--more 
than have from any other infectious diseases--as compared to 320 
million deaths in all the wars of the twentieth century. Smallpox was 
one of the diseases that nearly wiped out the entire Native American 
population in this hemisphere. The last naturally acquired case of 
smallpox occurred in Somalia in 1977 and the last case from laboratory 
exposure was in 1978.
  Smallpox is a nasty pathogen, carried in microscopic airborne 
droplets inhaled by its victims. The first signs are headache, fever, 
nausea and backache, sometimes convulsions and delirium. Soon, the skin 
turns scarlet. When the fever lets up, the telltale rash appears--flat 
red spots that turn into pimples, then big yellow pustules, then scabs. 
Smallpox also affects the throat and eyes, and inflames the heart, 
lungs, liver, intestines and other internal organs. Death often came 
from internal bleeding, or from the organs simply being overwhelmed by 
the virus. Survivors were left covered with pockmarks--if they were 
lucky. The unlucky ones were left blind, their eyes permanently clouded 
over. Nearly one in four victims died. The infection rate is estimated 
to be 25-40 percent for those who are unvaccinated and a single case 
can cause 20 or more additional infections.
  During the 16th Century, 3.5 million Aztecs--more than half the 
population died of smallpox during a two-year span after the Spanish 
army brought the disease to Mexico. Two centuries later, the virus 
ravaged George Washington's troops at Valley Forge. And it cut a deadly 
path through the Crow, Dakota, Sioux, Blackfoot, Apache, Comanche and 
other American Indian tribes, helping to clear the way for white 
settlers to lay claim to the western plains. The epidemics began to 
subside with one of medicine's most famous discoveries: the finding by 
British physician Edward Jenner in 1796 that English milkmaids who were 
exposed to cowpox, a mild second cousin to smallpox that afflicts 
cattle, seemed to be protected against the more deadly disease. 
Jenner's work led to the development of the first vaccine in Western 
medicine. While later vaccines used either a killed or inactivated form 
of the virus they were intended to combat, the smallpox vaccine worked 
in a different way. It relied on a separate, albeit related virus: 
first cowpox and the vaccinia, a virus of mysterious origins that is 
believed to be a cowpox derivative. The last American was vaccinated 
back in the 1970s and half of the US population has never been 
vaccinated. It is not known how long these vaccines provide protection, 
but it is estimated that the term is 3 to 5 years.
  In an elaborate smallpox biowarfare scenario enacted in February 1999 
by the Johns Hopkins Center for Civilian Biodefense Studies, it was 
projected that within two months 15,000 people had died, epidemics were 
out of control in fourteen countries, all supplies of smallpox vaccine 
were depleted, the global economy was on the verge of collapse, and 
military control and quarantines were in place. Within twelve months it 
was projected that eighty million people worldwide had died.
  A single case of smallpox today would become a global public health 
threat and it has been estimated that a single smallpox bioterror 
attack on a single American city would necessitate the vaccination of 
30 to 40 million people.
  The US government is now in the process of purchasing substantial 
stocks of the smallpox vaccine. We then face a very difficult decision 
on deploying the vaccine. We know that some individuals will have an 
adverse reaction to this vaccine. No one in the United States has been 
vaccinated against smallpox in twenty-five years. Those that were 
vaccinated back then may not be protected against the disease today. If 
we had an effective treatment for those who might become infected by 
smallpox, we would face much less pressure regarding deploying the 
vaccine. If we face a smallpox epidemic from a bioterrorism attack, we 
will have no Cipro to reassure the public and we will be facing a 
highly contagious disease and epidemic. To be blunt, it will make the 
current anthrax attack look benign by comparison.
  Smallpox is not the only threat. We have seen other epidemics in this 
century. The 1918 influenza epidemic provides a sobering admonition 
about the need for research to develop medicines. In two years, a fifth 
of the world's population was infected. In the United States the 1918 
epidemic killed more than 650,000 people in a short period of time and 
left 20 million seriously ill, one fourth of the entire population. The 
average lifespan in the US was depressed by ten years. In just one 
year, the epidemic killed 21 million human beings worldwide--well over 
twice the number of combat deaths in the whole of World War I. The flu 
was exceptionally virulent to begin with and it then underwent several 
sudden and dramatic mutations in its structure. Such mutations can turn 
flu into a killer because its victims' immune systems have no 
antibodies to fight off the altered virus. Fatal pneumonia can rapidly 
develop.
  Another deadly toxin, ricin toxin, was of interest to the al-Qaeda 
terrorist network. At an al-Qaeda safehouse in Saraq Panza, Kabul 
reporters found instructions for making ricin. The instructions make 
chilling reading. ``A certain amount, equal to a strong dose, will be 
able to kill an adult, and a dose equal to seven seeds will kill a 
child,'' one page reads. Another page says: ``Gloves and face mask are 
essential for the preparation of ricin. Period of death varies from 3 
to 5 days minimum, 4 to 14 days maximum.'' The instructions listed the 
symptoms of ricin as vomiting, stomach cramps, extreme thirst, bloody 
diarrhea, throat irritation, respiratory collapse and death.
  No specific treatment or vaccine for ricin toxin exists. Ricin is 
produced easily and inexpensively, highly toxic, and stable in 
aerosolized form. A large amount of ricin is necessary to infect whole 
populations--the amount of ricin necessary to cover a 100-km\2\ area 
and cause 50 percent lethality, assuming aerosol toxicity of 3 mcg/kg 
and optimum dispersal conditions, is approximately 4 metric tons, 
whereas only 1 kg of Bacillus anthracis is required. But it can be used 
to terrorize a large population with great effect because it is so 
lethal.
  Use of ricin as a terror weapon is not theoretical. In 1991 in 
Minnesota, 4 members of the Patriots Council, an extremist group that 
held antigovernment and antitax ideals and advocated the overthrow of 
the US government, were arrested for plotting to kill a US marshal with 
ricin. The ricin was produced in a home laboratory. They planned to mix 
the ricin with the solvent dimethyl sulfoxide, DMSO, and then smear it 
on the door handles of the marshal's vehicle. The plan was discovered, 
and the 4 men were convicted. In 1995, a man entered Canada from Alaska 
on his way to North Carolina. Canadian custom officials stopped the man 
and found him in possession of several guns, $98,000, and a container 
of white powder, which was identified as ricin. In 1997, a man shot his 
stepson in the face. Investigators discovered a makeshift laboratory in 
his basement and found agents such as ricin and nicotine sulfate. And, 
ricin was used by the Bulgarian secret police when they killed Georgi 
Markov by stabbing him with a poison umbrella as he crossed Waterloo 
Bridge in 1978.
  Going beyond smallpox, influenza, and ricin, we do not have an 
effective vaccine or treatment for dozens of other deadly and disabling 
agents and toxins. Here is a partial list of some of the other 
biological agents and chemical toxins for which we have no effective 
treatments: clostridium botulinum toxin, botulism, francisella 
tularensis, tularaemia, Ebola hemorrhagic fever, Marbug hemorrhagic 
fever, Lassa fever, Julin, Argentine

[[Page S4012]]

hemorrhagic fever, Coxiella burnetti, Q fever, brucella species, 
brucellosis, burkholderia mallei, glanders, Venezuelan 
encephalomyelitis, eastern and western equine encephalomyelitis, 
epsilon toxin of clostridium perfringens, staphylococcus entretoxin B, 
salmonella species, shigella dysenteriae, escherichia coli O157:H7, 
vibrio cholerae, cryptosporidium parvum, nipah virus, hantaviruses, 
tickborne hemorrhagic fever viruses, tickborne encephalitis virus, 
yellow fever, nerve agents, tabun, sarin, soman, GF, and VX, blood 
agents, hydrogen cyanide and cyanogens chloride, blister agents, 
lewisite, nitrogenadn sulfur mustards, and phosgene oxime, heavy 
metals, arsenic, lead, and mercury, and volatile toxins, benzene, 
chloroform, trihalomethanes, pulmonary agents, Phosgene, chlorine, 
vinly chloride, and incapacitating agents, BZ.
  The naturally occurring forms of these agents and toxins are enough 
to cause concern, but we also know that during the 1980s and 1990s the 
Soviet Union conducted bioweapons research at forty-seven laboratories 
and testing sites, employed nearly fifty thousand scientists in the 
work, and that they developed genetically modified versions of some of 
these agents and toxins. The goal was to develop an agent or toxin that 
was particularly virulent or not vulnerable to available antibiotics.
  The United States has publicly stated that five countries are 
developing biological weapons in violation of the Biological Weapons 
convention, North Korea, Iraq, Iran, Syria, and Libya, and stated that 
additional countries not yet named, possibly including Russia, China, 
Israel, Sudan and Egypt, are also doing so as well.
  What is so insidious about biological weapons is that in many cases 
the symptoms resulting from a biological weapons attack would likely 
take time to develop, so an act of bioterrorism may go undetected for 
days or weeks. Affected individuals would seek medical attention not 
from special emergency response teams but in a variety of civilian 
settings at scattered locations. This means we will need medicines that 
can treat a late stage of the disease, long after the infection has 
taken hold.
  We must recognize that the distinctive characteristic of biological 
weapons is that they are living micro-organisms and are thus the only 
weapons that can continue to proliferate without further assistance 
once released in a suitable environment.
  The lethality of these agents and toxins, and the panic they can 
cause, is quite frightening. The capacity for terror is nearly beyond 
comprehension. We do not believe it is necessary to describe the facts 
here. Our point is simple: we need more than military intelligence, 
surveillance, and public health capacity. We also need effective 
medicines. We also need more powerful research tools that will enable 
us to quickly develop treatments for agents and toxins not on this or 
any other list.
  We need to do whatever it takes to be able to reassure the American 
people that hospitals and doctors have powerful medicines to treat them 
if they are exposed to biological agents or toxins, that we can contain 
an outbreak of an infectious agent, and that there is little to fear. 
To achieve this objective, we need to rely on the entrepreneurship of 
the biotechnology industry.
  In the summer of 200_, the Defense Science Board completed a study of 
the countermeasures we have available. It focused on countermeasures--
diagnostics, vaccines, and drugs--for the top nineteen bioterror 
threats, and estimated what we have available today, what we might have 
available in five years and what we might have available in ten years.
  If one assumes that we need diagnostics, vaccines, and drugs for all 
nineteen of these bioterror threats, we need fifty-seven 
countermeasures (19 times 3). It found that today we have only one of 
these fifty-seven countermeasures, a drug for Chlamydia psittaci. It 
found that in five years we might have twenty of the fifty-seven 
countermeasures and in ten years we might have thirty-four of the 
fifty-seven. These are optimistic assessments.
  It set reasonable criteria for what constitutes an effective 
countermeasure. For diagnostics, it said that we are unprepared if our 
diagnostic takes more than 24 hours, requires confirmatory testing and 
the patient must be symptomatic. If said we are somewhat prepared if 
the diagnostic takes 12 to 24 hours, requires confirmatory testing, and 
works in some cases where the patient is asymptomatic. It said we are 
only truly prepared if the test takes less than 12 hours, requires no 
confirmatory testing, and detects the disease when the patient is 
asymptomatic. It found that we have no diagnostics today that meet the 
top standard and might have diagnostics for seventeen of the nineteen 
terror threats in five years and eighteen of the nineteen in ten years.
  For vaccines it found that we are unprepared if we have no vaccine. 
We are partially prepared if we have a vaccine but have production or 
use limitations. And we are fully prepared if we have a vaccine 
generally available. It found that we have no vaccines today that meet 
the top standard and might have vaccines for two of the terror threats 
in five years and nine in ten years.
  For therapeutics it found that we are unprepared if we have no 
approved treatment. We are partially prepared if we have a treatment 
available but have production or use limitations. And we are fully 
prepared if we have a treatment available. It found that we have one 
treatment that meets the top standard and might have treatments for the 
same agent in five years and seven treatments in ten years.
  Obviously, we are woefully unprepared. The Defense Science Board only 
focused on the top nineteen threats, and there are many others for 
which we are also unprepared.
  My proposal would supplement direct Federal Government funding of 
research with incentives that make it possible for private companies to 
form the capital to conduct this research on their own initiative, 
utilizing their own capital, and at their own risk--all for good 
business reasons going to their bottom line.
  The U.S. biotechnology industry, approximately 1,300 companies, spent 
$13.8 billion on research last year. Only 350 of these companies have 
managed to go public. The industry employs 124,000, Ernest & Young 
data, people. The top five companies spent an average of $89,000 per 
employee on research, making it the most research-intensive industry in 
the world. The industry has 350 products in human clinical trials 
targeting more than 200 diseases. Losses for the industry were $5.8 
billion in 2001, $5.6 billion in 2000, $4.4 billion in 1999, $4.1 
billion in 1998, $4.5 billion in 1997, $4.6 billion in 1996, and 
similar amounts before that. In 2000 fully 38 percent of the public 
biotech companies had less than 2 years of funding for their research. 
Only one quarter of the biotech companies in the United States are 
publicly traded and they tend to be the best funded.
  There is a broad range of research that could be undertaken under 
this legislation. Vaccines could be developed to prevent infection or 
treat an infection from a bioterror attack. Broad-spectrum antibiotics 
are needed. Also, promising research has been undertaken on antitoxins 
that could neutralize the toxins that are released, for example, by 
anthrax. With anthrax it is the toxins, not the bacteria itself, that 
cause death. An antitoxin could act like a decoy, attaching itself to 
sites on cells where active anthrax toxin binds and then combining with 
normal active forms of the toxin and inactivating them. An antitoxin 
could block the production of the toxin.
  We can rely on the innovativeness of the biotech industry, working in 
collaboration with academic medical centers, to explore a broad range 
of innovative approaches. This mobilizes the entire biotechnology 
industry as a vital component of our national defense against bioterror 
weapons.
  The legislation takes a comprehensive approach to the challenges the 
biotechnology industry faces in forming capital to conduct research on 
countermeasures. It includes capital formation tax incentives, 
guaranteed purchase funds, patent protections, and liability 
protections. We believe we will have to include each of these types of 
incentives to ensure that we mobilize the biotechnology industry for 
this urgent national defense research.
  Some of the tax incentives in this legislation, and both of the two 
patent incentives I have proposed, may be controversial. In our view, 
we can debate tax or patent policy as long as you

[[Page S4013]]

want, but let's not lose track of the issue here--development of 
countermeasures to treat people infected or exposed to lethal and 
disabling bioterror weapons.
  We know that incentives can spur research. In 1983 we enacted the 
Orphan Drug Act to provide incentives for companies to develop 
treatments for rare diseases with small potential markets deemed to be 
unprofitable by the industry. In the decade before this legislation was 
enacted, fewer than 10 drugs for orphan diseases were developed and 
these were mostly chance discoveries. Since the Act became law, 218 
orphan drugs have been approved and 800 more are in the pipeline. The 
Act provides 7 years of market exclusivity and a tax credit covering 
some research costs. The effectiveness of the incentives we have 
enacted for orphan disease research show us how much we can accomplish 
when we set a national priority for certain types of research.
  The incentives we have proposed differ from those set by the Orphan 
Drug Act. We need to maintain the effectiveness of the Orphan Drug Act 
and not undermine it by adding many other disease research targets. In 
addition, the tax credits for research for orphan drug research have no 
value for most biotechnology companies because few of them have tax 
liability with respect to which to claim the credit. This explains why 
we have not proposed to utilize tax credits to spur countermeasures 
research. It is also clear that the market for countermeasures is even 
more speculative than the market for orphan drugs and we need to enact 
a broader and deeper package of incentives.
  The government determines which research is covered by the 
legislation and which companies qualify for the incentives for this 
research. No company is entitled to utilize the incentives until the 
government certifies its eligibility.
  These decisions are vested in the Secretary, Department of Homeland 
Security. In S. 1764, the decisions were vested in the White House 
Office of Homeland Security, but it is now likely that a Department 
will be created. I have strongly endorsed that concept and led the 
effort to enact the legislation forming the new Department.
  The legislation confers on the Secretary, in consultation with the 
Secretary of Defense and Secretary of Health and Human Services, 
authority to set the list of agents and toxins with respect to which 
the legislation and incentives applies.
  The Secretary determines which agents and toxins present a threat and 
whether the countermeasures are ``more likely'' to be developed with 
the application of the incentives in the legislation. The Secretary may 
determine that an agent or toxin does not present a threat or that 
countermeasures are not more likely to be developed with the 
incentives. It may determine that the government itself should fund the 
research and development effort and not rely on private companies. The 
Department is required to consider the status of existing research, the 
availability of non-countermeasure markets for the research, and the 
most effective strategy for ensuring that the research goes forward. 
The legislation includes an illustrative, non-binding list of fifty-
four agents and toxins that might be included on the Secretary's list. 
The decisions of the Secretary are final and are not subject to 
judicial review.
  The Department then must provide information to potential 
manufacturers of these countermeasures in sufficient detail to permit 
them to conduct the research and determine when they have developed the 
needed countermeasure. It may exempt from publication such information 
as it deems to be sensitive.
  The Department also must specify the government market that will be 
available when a countermeasure is successfully developed, including 
the minimum number of dosages that will be purchased, the minimum price 
per dose, and the timing and number of years projected for such 
purchases. Authority is provided for the Department to make advance, 
partial, progress, milestone, or other payments to the manufacturers.
  The Department is responsible for determining when a manufacturer 
has, in fact, successfully developed the needed countermeasure. It must 
provide information in sufficient detail so that manufacturers and the 
government may determine when the manufacturer has successfully 
developed the countermeasure the government needs. If and when the 
manufacturer has successfully developed the countermeasure, it becomes 
entitled to the procurement, patent, and liability incentives in the 
legislation.
  Once the list of agents and toxins is set, companies may register 
with the Department their intent to undertake research and development 
of a countermeasure to prevent or treat the agent or toxin. This 
registration is required only for companies that seek to be eligible 
for the tax, purchase, patent, and liability provisions of the 
legislation. The registration requirement gives the Department vital 
information about the research effort and the personnel involved with 
the research, authorizes inspections and other review of the research 
effort, and the filing of reports by the company.
  The Secretary then may certify that the company is eligible for the 
tax, purchase, patent, and liability incentives in the legislation. It 
bases this certification on the qualifications of the company to 
conduct the countermeasure research. Eligibility for the purchase fund, 
patent and liability incentives is contingent on successful development 
of a countermeasure according to the standards set in the legislation, 
as determined by the Secretary.
  The legislation contemplates that a company might well register and 
seek certification with respect to more than one research project and 
become eligible for the tax, purchase, patent, and liability incentives 
for each. There is no policy rationale for limiting a company to one 
registration and one certification.
  This process is similar to the current registration process for 
research on orphan, rare, diseases. In that case, companies that are 
certified by the FDA become eligible for both tax and market 
exclusivity incentives. This process gives the government complete 
control on the number of registrations and certifications. This gives 
the government control over the cost and impact of the legislation on 
private sector research.
  The registration and certification process applies to research to 
develop diagnostics and research tools, not just drugs and vaccines.
  Diagnostics are vital because healthcare professionals need to know 
which agent or toxin has been used in an attack. This enables them to 
determine which treatment strategy is likely to be most effective. We 
need quickly to determine which individuals have been exposed or 
infected, and to separate them from the ``worried well.'' It is likely 
in an attack that large numbers of individuals who have not been 
exposed or infected will flood into healthcare facilities seeking 
treatment. We need to be able to focus on those individuals who are at 
risk and reassure those who are not at risk.
  In terms of research tools, it is possible that we will face 
biological agents and chemical agents we have never seen before. As 
I've mentioned, the Soviet Union bioterror research focused in part on 
use of genetic modification technology to develop agents and toxins 
that currently-available antibiotics can not treat. Australian 
researchers accidentally created a modified mousepox virus, which does 
not affect humans, but it was 100 percent lethal to the mice. Their 
research focused on trying to make a mouse contraceptive vaccine for 
pest control. The surprise was that it totally suppressed the ``cell-
mediated response''--the arm of the immune system that combats viral 
infection. To make matters worse, the engineered virus also appears 
unnaturally resistant to attempts to vaccinate the mice. A vaccine that 
would normally protect mouse strains that are susceptible to the virus 
only worked in half the mice exposed to the killer version. If 
bioterrorists created a human version of the virus, vaccination 
programs would be of limited use. This highlights the drawback of 
working on vaccines against bioweapons rather than treatments.
  With the advances in gene sequencing--genomics--we will know the 
exact genetic structure of a biological agent. This information in the 
wrong hands could easily be manipulated to design and possibly grow a 
lethal new bacterial and viral strains not found in nature. A scientist 
might be able to mix

[[Page S4014]]

and match traits from different microorganisms--called recombinant 
technology--to take a gene that makes a deadly toxin from one strain of 
bacteria and introduce it into other bacterial strains. Dangerous 
pathogens or infectious agents could be made more deadly, and 
relatively benign agents could be designed as major public health 
problems. Bacteria that cause diseases such as anthrax could be altered 
in such a way that would make current vaccines or antibiotics against 
them ineffective. It is even possible that a scientist could develop an 
organism that develops resistance to antibiotics at an accelerated 
rate.
  This means we need to develop technology--research tools--that will 
enable us to quickly develop a tailor-made, specific countermeasure to 
a previously unknown organism or agent. These research tools will 
enable us to develop a tailor-made vaccine or drug to deploy as a 
countermeasure against a new threat. The legislation authorizes 
companies to register and receive a certification making them eligible 
for the incentives in the bill for this vital research.
  The legislation includes four tax incentives to enable biotechnology 
and pharmaceutical companies to form capital to fund research and 
development of countermeasures. Companies must irrevocably elect only 
one of the incentives with regard to the countermeasure research.
  Four different tax incentives are available so that companies have 
flexibility in forming capital to fund the research. Each of the 
options comes with advantages and limitations that may make it 
appropriate or inappropriate for a given company or research project. 
We do not now know fully how investors and capital markets will respond 
to the different options, but we assume that companies will consult 
with the investor community about which option will work best for a 
given research project. Capital markets are diverse and investors have 
different needs and expectations. Over time these markets and investor 
expectations evolve. If companies register for more than one research 
project, they may well utilize different tax incentives for the 
different projects.
  Companies are permitted to undertake a series of discrete and 
separate research projects and make this election with respect to each 
project. They may only utilize one of the options with respect to each 
of these research projects.
  The first option is for the company to establish an R Limited 
Partnership to conduct the research. The partnership passes through all 
business deductions and credits to the partners. For example, under 
this arrangement, the research and development tax credits and 
depreciation deductions for the company may be passed by the 
corporation through to its partners to be used to offset their 
individual tax liability. These deductions and credits are then lost to 
the corporation. This alternative is available only to companies with 
less than $750,000,000 in paid-in capital.
  The second option is for the company to issue a special class of 
stock for the entity to conduct the research. The investors would be 
entitled to a zero capital gains tax rate on any gains realized on the 
stock held for at least three years. This is a modification of the 
current Section 1202 where only 50 percent of the gains are not taxed. 
This provision is adapted from legislation I have introduced, S. 1134, 
and introduced in the House by Representatives Dunn and Matsui, H.R. 
2383. A similar bill has been introduced by Senator Collins, S. 455. 
This option also is available to small companies.
  The third and fourth options grant special tax credits to the company 
for the research. The first credit is for research conducted by the 
company and the other for research conducted at a teaching hospital or 
similar institution. Tax credits are available to any company, but they 
only are useful to a company with tax liability against which to claim 
the credit. Very few biotechnology companies receive revenue from 
product sales and therefore have no tax liability. Companies with 
revenue may be able to fund the research from retained earnings rather 
than secure funding from investors.
  A company that elects to utilize one of these incentives is not 
eligible to receive benefits of the Orphan Drug Tax Credit. Companies 
that can utilize tax credits--companies with taxable income and tax 
liability--might find the Orphan Credit more valuable. The legislation 
includes an amendment to the Orphan Credit to correct a defect in the 
current credit. The amendment has been introduced in the Senate as S. 
1341 by Senators Hatch, Kennedy and Jeffords. The amendment simply 
states that the Credit is available starting the day an application for 
orphan drug status is filed, not the date the FDA finally acts on it. 
The amendment was one of many initiatives championed by Lisa J. Raines, 
who died on September 11 in the plane that hit the Pentagon, and the 
amendment is named in her honor. As we go forward in the legislative 
process, I hope we will have an opportunity to speak in more detail 
about the service of Ms. Raines on behalf of medical research, 
particularly on rare diseases.
  The guaranteed purchase fund, and the patent protections, and 
liability provisions described below provide an additional incentive 
for investors and companies to fund the research.
  The market for countermeasures is speculative and small. This means 
that if a company successfully develops a countermeasure, it may not 
receive sufficient revenue on sales to justify the risk and expense of 
the research. This is why the legislation establishes a countermeasures 
purchase fund that will define the market for the products with some 
specificity before the research begins.
  The Secretary will set standards for which countermeasures it will 
purchase and define the financial terms of the purchase commitment. 
This will enable companies to evaluate the market potential of its 
research before it launches into the project. The specifications will 
need to be set with sufficient specificity so that the company--and its 
investors--can evaluate the market and with enough flexibility so that 
it does not inhibit the innovativeness of the researchers. This 
approach is akin to setting a performance standard for a new military 
aircraft.
  The legislation provides that the Secretary will determine whether 
the government will purchase more than one product per class. It might 
make sense--as an incentive--for the government to commit to purchasing 
more than one product so that many more than one company conducts the 
research. A winner-take-all system may well intimidate some companies 
and we may end up without a countermeasure to be purchased. It is also 
possible that we will find that we need more than one countermeasure 
because different products are useful for different patients. We may 
also find that the first product developed is not the most effective.
  The purchase commitment for countermeasures is available to any 
company irrespective of its paid-in capital.
  Intellectual property protection of research is essential to 
biotechnology and pharmaceutical companies for one simple reason: they 
need to know that if they successfully develop a medical product 
another company cannot expropriate it. It's a simple matter of 
incentives.
  The patent system has its basis in the U.S. Constitution where the 
federal government is given the mandate to ``promote the Progress of 
Science and the Useful Arts by securing for a limited time to Authors 
and Inventors the exclusive right to their respective Writings and 
Discoveries.'' In exchange for full disclosure of the terms of their 
inventions, inventors are granted the right to exclude others from 
making, using, or selling their inventions for a limited period of 
time. This quid pro quo provides investors with the incentive to 
invent. In the absence of the patent law, discoverable inventions would 
be freely available to anyone who wanted to use them and inventors 
would not be able to capture the value of their inventions or secure a 
return on their investments.
  The patent system strikes a balance. Companies receive limited 
protection of their inventions if they are willing to publish the terms 
of their invention for all to see. At the end of the term of the 
patent, anyone can practice the invention without any threat of an 
infringement action. During the term of the patent, competitors can 
learn from the published description of the invention and may well find 
a new and distinct patentable invention.
  The legislation provides two types of intellectual property 
protection. The

[[Page S4015]]

first simply provides that the term of the patent on the countermeasure 
will be the term of the patent granted by the Patent and Trademark 
Office without any erosion due to delays in approval of the product by 
the Food and Drug Administration. The second provides that a company 
that successfully develops a countermeasure will receive a bonus of two 
years on the term of any patent held by that company. Companies must 
elect one of these two protections, but only small biotechnology 
companies may elect the second protection. Large, profitable 
pharmaceutical companies may elect only the first of the two options.
  The first protection against erosion of the term of the patent is an 
issue that is partially addressed in current law, the Hatch-Waxman 
Patent Term Restoration Act. That act provides partial protection 
against erosion of the term, length, of a patent when there are delays 
at the FDA in approving a product. The erosion occurs when the PTO 
issues a patent before the product is approved by the FDA. In these 
cases, the term of the patent is running but the company cannot market 
the product. The Hatch-Waxman Act provides some protections against 
erosion of the term of the patent, but the protections are incomplete. 
As a result, many companies end up with a patent with a reduced term, 
sometimes substantially reduced.
  The issue of patent term erosion has become more serious due to 
changes at the PTO in the patent system. The term of a patent used to 
be fixed at 17 years from the date the patent was granted by the PTO. 
It made no difference how long it took for the PTO to process the 
patent application and sometimes the processing took years, even 
decades. Under this system, there were cases where the patent would 
issue before final action at the FDA, but there were other cases where 
the FDA acted to approve a product before the patent was issued. 
Erosion was an issue, but it did not occur in many cases.
  Since 1995 the term of a patent has been set at 20 years from the 
date of application for the patent. This means that the processing time 
by the PTO of the application all came while the term of the patent is 
running. This gives companies a profound incentive to rush the patent 
through the PTO. Under the old system, companies had the opposite 
incentive. With patents being issued earlier by the PTO, the issue of 
erosion of patent term due to delays at the FDA is becoming more 
serious and more common.
  The provision in the legislation simply states that in the case of 
bioterrorism countermeasures, no erosion in the term of the patent will 
occur. The term of the patent at the date of FDA approval will be the 
same as the term of the patent when it was issued by the PTO. There is 
no extension of the patent, simply protections against erosion. Under 
the new 20 year term, patents might be more or less than 17 years 
depending on the processing time at the PTO, and all this legislation 
says is that whatever term is set by the PTO will govern irrespective 
of the delays at the FDA. This option is available to any company that 
successfully develops a countermeasure eligible to be purchased by the 
fund.
  The second option, the bonus patent term, is only available to small 
companies with less than $750,000,000 in paid-in capital. It provides 
that a company that successfully develops a countermeasure is entitled 
to a two-year extension of any patent in its portfolio. This does not 
apply to any patent of another company bought or transferred in to the 
countermeasure research company.
  I am well aware that this bonus patent term provision will be 
controversial with some. A company would tend to utilize this option if 
it owned the patent on a product that still had, or might have, market 
value at the end of the term of the patent. Because this option is only 
available to small biotechnology companies, most of whom have no 
product on the market, in most cases they would be speculating about 
the value of a product at the end of its patent. The company might 
apply this provision to a patent that otherwise would be eroded due to 
FDA delays or it might apply it to a patent that was not eroded. The 
result might be a patent term that is no longer than the patent term 
issued by the PTO. It all depends on which companies elect this option 
and which patent they select. In some cases, the effect of this 
provision might be to delay the entry onto the market of lower priced 
generics. This would tend to shift some of the cost of the incentive to 
develop a countermeasure to insurance companies and patients with an 
unrelated disease.
  My rationale for including the patent bonus in the legislation is 
simple: I want this legislation to say emphatically that we mean 
business, we are serious, and we want biotechnology companies to 
reconfigure their research portfolios to focus in part on development 
of countermeasures. The other provisions in the legislation are 
powerful, but they may not be sufficient.
  This proposal protects companies willing to take the risks of 
producing anti-terrorism products for the American public from 
potential losses incurred from lawsuits alleging adverse reactions to 
these products. It also preserves the right for plaintiffs to seek 
recourse for alleged adverse reactions in Federal District Court, with 
procedural and monetary limitations.
  Under the plan, the Secretary of HHS is required to indemnify and 
defend entities engaged in qualified countermeasure research through 
execution of ``indemnification and defense agreements.'' This 
protection is only available for countermeasures purchased under the 
legislation or to use of such countermeasures as recommended by the 
Surgeon General in the event of a public health emergency.
  The legislation contains a series of provisions designed to enhance 
countermeasure research.
  The legislation provides for accelerated approval by the FDA of 
countermeasures developed under the legislation. In most cases, the 
products would clearly qualify for accelerated approval, but the 
legislation ensures that they will be reviewed under this process.
  It provides a statutory basis for the FDA approving countermeasures 
where human clinical trials are not appropriate or ethical. Rules 
regarding such products have been promulgated by the FDA.
  It grants a limited antitrust exemption for certain cooperative 
research and development of countermeasures.
  It provides incentives for the construction of biologics 
manufacturing facilities and research to increase the efficiency of 
current biologics manufacturing facilities.
  It enhances the synergy between our for-profit and not for profit 
biomedical research entities. The Bayh-Dole Act and Stevenson-Wydler 
Act form the legal framework for mutually beneficially partnerships 
between academia and industry. My legislation strengthens this synergy 
and these relationships with two provisions, one to upgrade the basic 
research infrastructure available to conduct research on 
countermeasures and the other to increase cooperation between the 
National Institutes of Health and private companies.
  Research on countermeasures necessitates the use of special 
facilities where biological agents can be handled safely without 
exposing researchers and the public to danger. Very few academic 
institutions or private companies can justify or capitalize the 
construction of these special facilities. The Federal government can 
facilitate research and development of countermeasures by financing the 
construction of these facilities for use on a fee-for-service basis. 
The legislation authorizes appropriations for grants to non-profit and 
for-profit institutions to construct, maintain, and manage up to ten 
Biosafety Level 3-4 facilities, or their equivalent, in different 
regions of the country for use in research to develop countermeasures. 
BSL 3-4 facilities are ones used for research on indigenous, exotic or 
dangerous agents with potential for aerosol transmission of disease 
that may have serious or lethal consequences or where the agents pose 
high risk of life-threatening disease, aerosol-transmitted lab 
infections, or related agents with unknown risk of transmission. The 
Director of the Office and NIH shall issue regulations regarding the 
qualifications of the researchers who may utilize the facilities. 
Companies that have registered with and been certified by the 
Director--to develop countermeasures under Section 5 (d) of the 
legislation--shall

[[Page S4016]]

be given priority in the use of the facilities.
  The legislation also reauthorizes a very successful NIH-industry 
partnership program launched in FY 2000 in Public Law 106-113. The 
funding is for partnership challenge grants to promote joint ventures 
between NIH and its grantees and for-profit biotechnology, 
pharmaceutical and medical device industries with regard to the 
development of countermeasures, as defined in Section 3 of the bill, 
and research tools, as defined in Section 4(d)(3) of the bill. Such 
grants shall be awarded on a one-for-one matching basis. So far the 
matching grants have focused on development of medicines to treat 
malaria, tuberculosis, emerging and resistant infections, and 
therapeutics for emerging threats. My proposal should be matched by 
reauthorization of the challenge grant program for these deadly 
diseases.
  The legislation also sets incentives for the development of adjuvents 
to enhance the potency, and efficacy of antigens in responding to a 
biological agent.
  It requires the new Department to issue annual reports on the 
effectiveness of this legislation and these incentives, and directs it 
to host an international conference each year on countermeasure 
research.
  This legislation is carefully calibrated to provide incentives only 
where they are needed. This accounts for the choices in the legislation 
about which provisions are available to small biotechnology companies 
and large pharmaceutical companies.
  The legislation makes choices. It sets the priorities. It provides a 
dose of incentives and seeks a response in the private sector. We are 
attempting here to do something that has not been done before. This is 
uncharted territory. And it also an urgent mission.
  There may be cases where a countermeasure developed to treat a 
biological toxin or chemical agent will have applications beyond this 
use. A broad-spectrum antibiotic capable of treating many different 
biological agents may well have the capacity to treat naturally 
occurring diseases.
  This same issue arises with the Orphan Drug Act, which provides both 
tax and FDA approval incentives for companies that develop medicines to 
treat rare diseases. In some cases these treatments can also be used 
for larger disease populations. There are few who object to this 
situation. We have come to the judgment that the urgency of this 
research is worth the possible additional benefits that might accrue to 
a company.
  In the context of research to develop countermeasures, I do not 
consider it a problem that a company might find a broader commercial 
market for a countermeasure. Indeed, it may well be the combination of 
the incentives in this legislation and these broader markets that 
drives the successful development of a countermeasure. If our intense 
focus on developing countermeasures, and research tools, provides 
benefits for mankind going well beyond terror weapons, we should 
rejoice. If this research helps us to develop an effective vaccine or 
treatment for AIDS, we should give the company the Nobel Prize for 
Medicine. If we do not develop a vaccine or treatment for AIDS, we may 
see 100 million people die of AIDS. We also have 400 million people 
infected with malaria and more than a million annual deaths. Millions 
of children die of diarrhea, cholera and other deadly and disabling 
diseases. Countermeasures research may deepen our understanding of the 
immune system and speed development of treatments for cancer and 
autoimmune diseases. That is not the central purpose of this 
legislation, but it is an additional rationale for it.
  The issue raised by my legislation is very simple: do we want the 
Federal government to fund and supervise much of the research to 
develop countermeasures or should we also provide incentives that make 
it possible for the private sector, at its own expense, and at its own 
risk, to undertake this research for good business reasons. The Frist-
Kennedy law focuses effectively on direct Federal funding and 
coordination issues, but it does not include sufficient incentives for 
the private sector to undertake this research on its own initiative. 
That law and my legislation are perfectly complimentary. We need to 
enact both to ensure that we are prepared for bioterror attacks.
  Mr. President, I ask unanimous consent that a summary of the bill be 
printed in the Record.
  There being no objection, the summary was ordered to be printed in 
the Record, as follows:

Biological, Chemical and Radiological Weapons Countermeasures Research 
                              Act of 2003


 senators Lieberman and Hatch, Congressmen Tom Davis, Cal Dooley, Curt 
                         Weldon, and Norm Dicks

       The legislation proposes incentives that will enable 
     biotechnology and pharmaceutical companies to take the 
     initiative--for good business reasons--to conduct research to 
     develop countermeasures, including diagnostics, therapeutics, 
     and vaccines, to treat those who might be exposed to or 
     infected by biological, chemical or radiological agents and 
     materials in a terror attack.
       The premise of this legislation is that direct government 
     funding of this research is likely to be much more expensive 
     and risky to the government and less likely to produce the 
     countermeasures we need to defend America. Shifting some of 
     the expense and risk of this research to entrepreneurial 
     private sector firms is likely to be less expensive and much 
     more likely to produce the countermeasures we need to protect 
     ourselves in the event of an attack.
       For biotechnology companies, incentives for capital 
     formation are needed because most such companies have no 
     approved products or revenue from product sales to fund 
     research. They rely on investors and equity capital markets 
     to fund the research. These companies must focus on research 
     that will lead to product sales and revenue and end their 
     dependence on investor capital. When they are able to form 
     the capital to fund research, biotech companies tend to be 
     innovative and nimble and focused on the intractable diseases 
     for which no effective medical treatments are available. 
     Special research credits for pharmaceutical companies are 
     also needed.
       For both biotech and pharmaceutical companies, there is no 
     established or predictable market for these countermeasures. 
     Investors and companies are justifiably reluctant to fund 
     this research, which will present technical challenges 
     similar in complexity to development of effective treatments 
     for AIDS. Investors and companies need assurances that 
     research on countermeasures has the potential to provide a 
     rate of return commensurate with the risk complexity and cost 
     of the research, a rate of return comparable to that which 
     may arise from a treatment for cancer, MS, Cystic Fibrosis 
     and other major diseases or from other investments.
       President Bush's BioShield initiative is designed to 
     establish and predictable market for these countermeasures. 
     This legislation provides a template for implementation of 
     BioShield and supplements it with additional incentives to 
     ensure that the industry is enthusiastically engaged in this 
     vital research.
       The legislation provides tax incentives to enable companies 
     to form capital to conduct the research and tax credits 
     usable by larger companies with tax liability with respect to 
     which to claim the credits. It provides a guaranteed and pre-
     determined market for the countermeasures and special 
     intellectual property protections to serve as a substitute 
     for a market. Finally, it establishes liability protections 
     for the countermeasures that are developed.
       Section 3 of the legislation is drafted as an amendment to 
     the Homeland Security Act of 2002 (HSA)(P.L. 107-296). 
     Section 2 sets forth findings and sections 4-9 are drafted as 
     amendments to other statutes.
       1. Setting Research Priorities (Section 1811 of HSA): The 
     Department of Homeland Security sets the countermeasure 
     research priorities in advance. It focuses the priorities on 
     threats for which countermeasures are needed, and with regard 
     to which the incentives make it ``more likely'' that the 
     private sector will conduct the research to develop 
     countermeasures. It is required to consider the status of 
     existing research, the availability of non-countermeasure 
     markets for the research, and the most effective strategy for 
     ensuring that the research goes forward. The Department then 
     provides information to potential manufacturers of these 
     countermeasures in sufficient detail to permit them to 
     conduct the research and determine when they have developed 
     the needed countermeasure. The Department is responsible for 
     determining when a manufacturer has, in fact, successfully 
     developed the needed countermeasure.
       2. Registration of Companies (Section 1812 of HSA): 
     Biotechnology and pharmaceutical companies register with the 
     Department to become eligible for the incentives in the 
     legislation. They are obligated to provide reports to the 
     Department as requested and be open to inspections. The 
     Department certifies which companies are eligible for the 
     incentives.
       Once a company is certified as eligible for the incentives, 
     it becomes eligible for the tax incentives for capital 
     formation, and if it successfully develops a countermeasure 
     that meets the specifications of the Department, it becomes 
     eligible for the procurement, patent, and liability 
     provisions.
       3. Diagnostics (Sections 1813 and 1814 of HSA): The 
     incentives apply to development of detection systems and 
     diagnostics, as well as drugs, vaccines and other needed 
     countermeasures.

[[Page S4017]]

       4. Research Tools (Section 1815 of HSA): A company is also 
     eligible for certification for the tax and patent provisions 
     if it seeks to develop a research tool that will make it 
     possible to quickly develop a countermeasure to a previously 
     unknown agent or toxin, or an agent or toxin not targeted by 
     the Department for research.
       5. Capital Formation for Countermeasures Research (Section 
     1821 of HSA; also section 4 of the legislation): The 
     legislation provides that a company seeking to fund research 
     is eligible to elect from among four tax incentives. The 
     companies are eligible to:
       (a). Establish an R Limited Partnership to conduct the 
     research. The partnership passes through all business 
     deductions and credits to the partners.
       (b). Issue a special class of stock for the entity to 
     conduct the research. The investors would be entitled to a 
     zero capital gains tax rate on any gains realized on the 
     stock.
       (c). Receive a special tax credit to help fund the 
     research.
       (d). Receive a special tax credit for research conducted at 
     a non-profit and academic research institution.
       A company must elect only one of these incentives and, if 
     it elects one of these incentives, it is then not eligible to 
     receive benefits under the Orphan Drug Act. The legislation 
     includes amendments (Section 9 of this legislation) to the 
     Orphan Drug Act championed by Senators Hatch, Kennedy and 
     Jeffords (S. 1341). The amendments make the Credit available 
     from the date of the application for Orphan Drug status, not 
     the date the application is approved as provided under 
     current law.
       6. Countermeasure Purchase Fund (Section 1822 of HSA): The 
     legislation provides that a company that successfully 
     develops a countermeasure--through FDA approval--is eligible 
     to sell the product to the Federal government at a pre-
     established price and in a pre-determined amount. The company 
     is given notice of the terms of the sale before it commences 
     the research.
       7. Intellectual Property Incentives (Section 1823 of HSA; 
     also section 5 of this legislation): The legislation provides 
     that a company that successfully develops a countermeasure is 
     eligible to elect one of two patent incentives. The two 
     alternatives are as follows:
       (a). The company is eligible to receive a patent for its 
     invention with a term as long as the term of the patent when 
     it was issued by the Patent and Trademark Office, without any 
     erosion due to delays in the FDA approval process. This 
     alternative is available to any company that successfully 
     develops a countermeasure irrespective of its paid-in 
     capital.
       (b). The company is eligible to extend the term of any 
     patent owned by the company for two years. The patent may not 
     be one that is acquired by the company from a third party. 
     This is included as a capital formation incentive for small 
     biotechnology companies with less than $750 million in paid-
     in capital, or, at the discretion of the Department of 
     Homeland Security, to any firm that successfully develops a 
     countermeasure.
       In addition, a company that successfully develops a 
     countermeasure is eligible for a 10-year period of market 
     exclusivity on the countermeasure.
       8. Indemnification Protections (Section 1824 of HAS; also 
     Section 10 of the legislation): The legislation provides for 
     indemnifications for liability for the company that 
     successfully develops a countermeasure.
       9. Accelerated Approval of Countermeasure (Section 1831 of 
     HSA): The countermeasures are considered for approval by the 
     FDA on a ``fast track'' basis.
       10. Special Approval Standards (Section 6 of this 
     legislation: The countermeasures may be approved in the 
     absence of human clinical trails if such trails are 
     impractical or unethical.
       11. Limited Antitrust Exemption (Section 7 of this 
     legislation): Companies are granted a limited exemption from 
     the antitrust laws as they seek to expedite research on 
     countermeasures.
       12. Biologics Manufacturing Capacity and Efficiency 
     (Section 1832 and 1833 of HSA; and section 8 of this 
     legislation): Special incentives are incorporated to ensure 
     that manufacturing capacity is available for countermeasures.
       13. Strengthening of Biomedical Research Infrastructure 
     (Section 1834 and 1835 of HSA): Authorizes appropriations for 
     grants to construct specialized biosafety containment 
     facilities where biological agents can be handled safely 
     without exposing researchers and the public to danger 
     (Section 216). Also reauthorizes a successful NIH-industry 
     partnership challenge grants to promote joint ventures 
     between NIH and its grantees and for-profit biotechnology, 
     pharmaceutical and medical device industries with regard to 
     the development of countermeasures and research tools 
     (Section 217).
       14. Annual Report (Section 1841 of HSA): The Department is 
     required to prepare for the Congress an annual report on the 
     implementation of these incentives.
       15. International Conference (Section 1842 of HSA): The 
     Department is required to organize an annual international 
     conference on countermeasure research.
                                 ______
                                 
      By Mr. GRASSLEY (for himself, Mr. Hagel, Mr. Dorgan, Mr. Johnson, 
        and Mr. Daschle):
  S. 667. A bill to amend the Food Security Act of 1985 to strengthen 
payment limitations for commodity payments and benefits; to the 
Committee on Agriculture, Nutrition, and Forestry.
  Mr. GRASSLEY. Mr. President, the American people recognize the 
importance of the family farmer to our Nation, and the need to provide 
an adequate safety net for family farmers. In recent years, however, 
assistance to farmers has come under increasing scrutiny.
  Critics of farm payments have argued that the largest corporate farms 
reap most of the benefits of these payments. The reality is, over 60 
percent of the payments have gone to only 10 percent of our Nation's 
farmers.
  What's more, farm payments that were originally designed to benefit 
small and medium-sized family farmers have contributed to their own 
demise. Unlimited farm payments have placed upward pressure on land 
prices and have contributed to overproduction and lower commodity 
prices, driving many family farmers off the farm.
  The Senate agreed, by an overwhelming vote of 66 to 31, to a 
bipartisan amendment sponsored by Senators Dorgan and myself to target 
federal assistance to small and medium-sized family farmers. The 
amendment would have limited direct and counter-cyclical payments to 
$75,000. It would have limited gains from marketing loans and LDPs to 
$150,000, and generic certificates would have been included in this 
limit. That would have limited farm payments to a combined total of 
$275,000.
  That amendment was critical to family farmers in Iowa. I feel 
strongly the farm bill failed Iowa when it failed to effectively 
address the issue of payment limitations. This is our chance to remedy 
the problem.
  This bi-partisan legislation provides a limit of $40,000 for direct 
payments, $60,000 for counter-cyclical pavement, and $175,000 for LDPs 
and marketing loan gains. The combined limit is $275,000.
  I urge my colleagues to support this bi-partisan legislation and to 
encourage the development of reasonable, legitimate payment limits.
  I ask unanimous consent the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 667

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

     SECTION 1. PAYMENT LIMITATIONS.

       Section 1001 of the Food Security of 1985 (7 U.S.C. 1308) 
     is amended--
       (1) in subsection (b)(1), by striking ``$40,000'' and 
     inserting ``$20,000'';
       (2) in subsection (c)(1), by striking ``$65,000'' and 
     inserting ``$30,000'';
       (3) by striking ``(d)'' and all that follows through the 
     end of paragraph (1) and inserting the following:
       ``(d) Limitations on Marketing Loan Gains, Loan Deficiency 
     Payments, and Commodity Certificate Transactions.--
       ``(1) Loan commodities.--The total amount of the following 
     gains and payments that a person may receive during any crop 
     year may not exceed $87,500:
       ``(A)(i) Any gain realized by a producer from repaying a 
     marketing assistance loan for 1 or more loan commodities 
     under subtitle B of title I of the Farm Security and Rural 
     Investment Act of 2002 (7 U.S.C. 7931 et seq.) at a lower 
     level than the original loan rate established for the loan 
     commodity under that subtitle.
       ``(ii) In the case of settlement of a marketing assistance 
     loan for 1 or more loan commodities under that subtitle by 
     forfeiture, the amount by which the loan amount exceeds the 
     repayment amount for the loan if the loan had been settled by 
     repayment instead of forfeiture.
       ``(B) Any loan deficiency payments received for 1 or more 
     loan commodities under that subtitle.
       ``(C) Any gain realized from the use of a commodity 
     certificate issued by the Commodity Credit Corporation for 1 
     or more loan commodities, as determined by the Secretary, 
     including the use of a certificate for the settlement of a 
     marketing assistance loan made under that subtitle.''; and
       (4) by adding at the end the following:
       ``(h) Single Farming Operation.--
       ``(1) In general.--Notwithstanding subsections (b) through 
     (d), subject to paragraph (2), if a person participates only 
     in a single farming operation and receives, directly or 
     indirectly, any payment or gain covered by this section 
     through the operation, the total amount of payments or gains 
     (as applicable) covered by this section that the person may 
     receive during any crop year may not exceed twice the 
     applicable dollar amounts specified in subsections (b), (c), 
     and (d).
       ``(2) Individuals.--The total amount of payments or gains 
     (as applicable) covered by this section that an individual 
     person may receive during any crop year may not exceed 
     $275,000.

[[Page S4018]]

       ``(i) Spouse Equity.--Notwithstanding subsections (b) 
     through (d), except as provided in subsection (e)(2)(C)(i), 
     if an individual and spouse are covered by subsection 
     (e)(2)(C) and receive, directly or indirectly, any payment or 
     gain covered by this section, the total amount of payments or 
     gains (as applicable) covered by this section that the 
     individual and spouse may jointly receive during any crop 
     year may not exceed twice the applicable dollar amounts 
     specified in subsections (b), (c), and (d).
       ``(j) Regulations.--
       ``(1) In general.--Not later than July 1, 2003, the 
     Secretary shall promulgate regulations--
       ``(A) to ensure that total payments and gains described in 
     this section made to or through joint operations or multiple 
     entities under the primary control of a person, in 
     combination with the payments and gains received directly by 
     the person, shall not exceed twice the applicable dollar 
     amounts specified in subsections (b), (c), and (d);
       ``(B) in the case of a person that in the aggregate owns, 
     conducts farming operations, or provides custom farming 
     services on land with respect to which the aggregate payments 
     received by the person exceed the applicable dollar amounts 
     specified in subsections (b), (c), and (d), to attribute all 
     payments and gains made to the person on crops produced on 
     the land to--
       ``(i) a person that rents land for a share of the crop that 
     is less than the usual and customary rate, as determined by 
     the Secretary;
       ``(ii) a person that provides custom farming services 
     through arrangements under which--

       ``(I) all or part of the compensation for the services is 
     at risk;
       ``(II) farm management services are provided by--

       ``(aa) the same person;
       ``(bb) an immediate family member; or
       ``(cc) an entity or individual that has a business 
     relationship that is not an arm's length relationship, as 
     determined by the Secretary; or

       ``(III) more than \2/3\ of all payments received for custom 
     farming services are received by--

       ``(aa) the same person;
       ``(bb) an immediate family member; or
       ``(cc) an entity or individual that has a business 
     relationship that is not an arm's length relationship, as 
     determined by the Secretary; or
       ``(iii) a person under such other arrangements as the 
     Secretary determines are established to transfer payments 
     from persons that would otherwise exceed the applicable 
     dollar amounts specified in subsections (b), (c), and (d); 
     and
       ``(C) to ensure that payments attributed under this section 
     to a person other than the direct recipient shall also count 
     toward the limit of the direct recipient.
       ``(2) Primary control.--The regulations under paragraph (1) 
     shall define `primary control' to include a joint operation 
     or multiple entity in which a person owns an interest that is 
     greater than the total interests held by other persons that 
     materially participate on a regular, substantial, and 
     continuous basis in the management of the operation or 
     entity.''.

     SEC. 2. REGULATIONS.

       (a) In General.--The Secretary of Agriculture may 
     promulgate such regulations as are necessary to implement 
     this Act and the amendments made by this Act.
       (b) Procedure.--The promulgation of the regulations and 
     administration of this Act and the amendments made by this 
     Act shall be made without regard to--
       (1) the notice and comment provisions of section 553 of 
     title 5, United States Code;
       (2) the Statement of Policy of the Secretary of Agriculture 
     effective July 24, 1971 (36 Fed. Reg. 13804), relating to 
     notices of proposed rulemaking and public participation in 
     rulemaking; and
       (3) chapter 35 of title 44, United States Code (commonly 
     known as the ``Paperwork Reduction Act'').
       (c) Congressional Review of Agency Rulemaking.--In carrying 
     out this section, the Secretary shall use the authority 
     provided under section 808 of title 5, United States Code.

  Mr. DORGAN. Mr. President, I rise today to co-sponsor a bill that 
imposes meaningful farm payment limitations.
  A gentleman from Arkansas is the principal landlord of a 61,000-acre 
farm. Although he serves as president of a tractor dealership with 
sales over $30 million, this ``farmer'' received $38 million in farm 
subsidies over 5 years. Stories like these about corporate farmers who 
received millions of dollars in Federal agriculture payments undermine 
support for the real purpose of our farm program: to help family 
farmers.
  What do I mean by family farmers? I am talking about people out there 
living in a rural community, trying to raise a family and trying to 
operate a family farm and trying to raise enough food to support 
themselves. They go to town and buy their supplies, keeping small town 
life not only viable, but also vibrant. I am talking about a network of 
food producers scattered across this country that represents, in my 
judgment, food security for our country.
  And this goal of helping family farmers with a safety net in the form 
of farm program payments during tough times is something that has 
become much different over a long period of time. It is not the case 
that we are fighting over farm program payments for family farmers.
  But regrettably, millions of dollars of farm payments are not going 
to small towns and family farms. They are going to big cities and 
corporate America. They are going to that millionaire farmer in 
Arkansas, to Ted Turner, and city dwellers who visit their farm twice a 
year. The biggest operations keep getting the bulk of the farm benefits 
while the small farmers are getting squeezed out of the rural areas. 
When this happens, the family farm operation can't compete with the 
larger enterprises because of the financial disadvantages.
  My fear is that if we do not do something about this problem, the 
American people are going to push back on this issue and say, ``This is 
not why we are paying taxes. We really support family farms. We believe 
family farms are important for America. But we don't believe we are 
paying taxes so you can transfer money to the tune of millions, even 
hundreds of millions, to those who need it least and ought not be 
getting farm payments.''
  So I am co-sponsoring this legislation. This bill would impose modest 
limits on the amount of farm payments that any farm operation can 
receive in one year. These limits would have virtually no impact on 
family farms and would strengthen our agriculture program by targeting 
the payments to these smaller operations.
  Here are the limitations that my bill would impose: the bill would 
limit direct payments to producers to $40,000. Limits on counter-
cyclical payments would be $60,000. The bill limits Marketing Loan 
Gains and Loan Deficiency Payments to $175,000. The overall limit for a 
farm is $275,000. The limits would save the Federal Government more 
than $1 billion over 10 years.
  In times of budget deficits, government expenditures need to be 
targeted to those who need it most. Fortune 500 companies aren't the 
intended targets of farm legislation, family farmers are. Limiting farm 
payments to those who provide the food security of this country ought 
to be the farm policy of this country and this legislation is a step in 
that direction.
                                 ______
                                 
      By Mr. REED (for himself, Mr. Dodd, Mr. Kennedy, and Mrs. 
        Murray):
  S. 668. A bill to amend the Child Care and Development Block Grant 
Act of 1990 to provide incentive grants to improve the quality of child 
care; to the Committee on Health, Education, Labor, and Pensions.
  Mr. REED. Mr. President, I rise today to introduce the Child Care 
Quality Incentive Act of 2003.
  This legislation seeks to address low child care payment or 
reimbursement rates. Payment rates determine the level at which States 
will reimburse child care providers who care for those low-income 
children who receive a subsidy.
  Low payment rates directly affect the kind of care children get and 
whether families can find quality child care in their communities. Low 
payment rates mean limited parental access to quality child care.
  Child care providers are also affected when rates are set below the 
market rate. Low payment rates force child care providers serving low-
income children to cut corners in ways that lower the quality of child 
care such as reducing staff or decreasing salaries and benefits, 
eliminating professional development opportunities, and forgoing books 
and other literacy materials. Providers who avoid this route may simply 
not accept low-income children with subsidies or may even go out of 
business.
  These dilemmas can be avoided if we help states set payment rates 
that keep pace with the marketplace.
  Currently, the Child Care and Development Block Grant, CCDBG, 
requires States to ensure that their rates are sufficient to ``ensure 
equal access'' for eligible families to child care services comparable 
to those available to non-eligible families in the private market. 
CCDBG regulations require states to conduct market rate surveys every

[[Page S4019]]

other year, but there is no requirement for states to actually use the 
market rate surveys to set payment rates.
  Unfortunately, more than half of the States do not make payment rates 
based on the 75th percentile, by which families could access care from 
75 out of 100 local providers, of a current market survey.
  The need for quality child care has never been greater, as our 
welfare reform policy directs more of our low-income families to find 
work and our educational policy demands more of our students and 
schools. Yet, States, due to severe budget crunches, are cutting back 
on rates and other quality initiatives and restricting eligibility for 
subsidies.
  I am pleased to be joined by Senators Dodd, Kennedy, and Murray in 
once again introducing the Child Care Quality Incentive Act, which 
seeks to redouble our child care efforts and renew the child care 
partnership with the States by providing incentive funding to increase 
payment rates.
  Our legislation establishes a new, mandatory pool of funding under 
the Child Care and Development Block Grant, CCDBG. This new funding, 
coupled with mandatory, current market rate surveys, will form the 
foundation for significant increases in state payment rates for the 
provision of quality child care.
  We have received overwhelming support for this bill from the child 
care community, including endorsements from USA Child Care, Children's 
Defense Fund, Catholic Charities of USA, YMCA of USA, the National 
Child Care Association, and a host of organizations and agencies across 
the country.
  Children are the hope of America, and they need the best of America. 
We cannot ask working families to choose between paying the rent, 
buying food, and being able to afford the quality care their children 
need. We've made a lot of progress in improving the health, safety, and 
well-being of children in this country. If we are serious about putting 
parents to work and protecting children, we must invest more in child 
care help for families.
  This year, Congress is slated to reauthorize the Child Care and 
Development Block Grant. The time for action on rates is now. I urge my 
colleagues to join Senators Dodd, Kennedy, Murray, and me in this 
endeavor to improve the quality of child care by cosponsoring the Child 
Care Quality Incentive Act and working to include its provisions in the 
CCDBG reauthorization.
  I ask unanimous consent that the text of this legislation be printed 
in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 668

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Child Care Quality Incentive 
     Act of 2003''.

     SEC. 2. FINDINGS AND PURPOSES.

       (a) Findings.--Congress makes the following findings:
       (1) Recent research on early brain development reveals that 
     much of a child's growth is determined by early learning and 
     nurturing care. Research also shows that quality early care 
     and education leads to increased cognitive abilities, 
     positive classroom learning behavior, increased likelihood of 
     long-term school success, and greater likelihood of long-term 
     economic and social self-sufficiency.
       (2) Each day an estimated 13,000,000 children, including 
     6,000,000 infants and toddlers, spend some part of their day 
     in child care. However, a study in 4 States found that only 1 
     in 7 child care centers provide care that promotes healthy 
     development, while 1 in 8 child care centers provide care 
     that threatens the safety and health of children.
       (3) Full-day child care can cost $4,000 to $12,000 per 
     year.
       (4) Although Federal assistance is available for child 
     care, funding is severely limited. Even with Federal 
     subsidies, many families cannot afford child care. For 
     families with young children and a monthly income under 
     $1,200, the cost of child care typically consumes 25 percent 
     of their income.
       (5) Payment (or reimbursement) rates, which determine the 
     maximum the State will reimburse a child care provider for 
     the care of a child who receives a subsidy, are too low to 
     ensure that quality care is accessible to all families.
       (6) Low payment rates directly affect the kind of care 
     children get and whether families can find quality child care 
     in their communities. In many instances, low payment rates 
     force child care providers serving low-income children to cut 
     corners in ways that impact the quality of care for the 
     children, including reducing the number of staff, eliminating 
     professional development opportunities, and cutting enriching 
     educational activities and services.
       (7) Children in low-quality child care are more likely to 
     have delayed reading and language skills, and display more 
     aggression toward other children and adults.
       (8) Increased payment rates lead to higher quality child 
     care as child care providers are able to attract and retain 
     qualified staff, provide salary increases and professional 
     training, maintain a safe and healthy environment, and 
     purchase basic supplies, children's literature, and 
     developmentally appropriate educational materials.
       (b) Purpose.--The purpose of this Act is to improve the 
     quality of, and access to, child care by increasing child 
     care payment rates.

     SEC. 3. PAYMENT RATES.

       Section 658E(c)(4) of the Child Care and Development Block 
     Grant Act of 1990 (42 U.S.C. 9858c(c)(4)) is amended--
       (1) by redesignating subparagraph (B) as subparagraph (C);
       (2) in subparagraph (A), by striking ``to comparable child 
     care services'' and inserting ``to child care services that 
     are comparable (in terms of quality and types of services 
     provided) to child care services''; and
       (3) by inserting after subparagraph (A) the following:
       ``(B) Payment rates.--
       ``(i) Surveys.--In order to provide the certification 
     described in subparagraph (A), the State shall conduct 
     statistically valid and reliable market rate surveys (that 
     reflect variations in the cost of child care services by 
     locality), in accordance with such methodology standards as 
     the Secretary shall issue. The State shall conduct the 
     surveys not less often than at 2-year intervals, and use the 
     results of such surveys to implement, not later than 1 year 
     after conducting each survey, payment rates described in 
     subparagraph (A) that ensure equal access to comparable 
     services as required by subparagraph (A).
       ``(ii) Cost of living adjustments.--The State shall adjust 
     the payment rates at intervals between such surveys to 
     reflect increases in the cost of living, in such manner as 
     the Secretary may specify.
       ``(iii) Rates for different ages and types of care.--The 
     State shall ensure that the payment rates reflect variations 
     in the cost of providing child care services for children of 
     different ages and providing different types of care.
       ``(iv) Public dissemination.--The State shall, not later 
     than 30 days after the completion of each survey described in 
     clause (i), make the results of the survey widely available 
     through public means, including posting the results on the 
     Internet.''.

     SEC. 4. INCENTIVE GRANTS TO IMPROVE THE QUALITY OF CHILD 
                   CARE.

       (a) Funding.--Section 658B of the Child Care and 
     Development Block Grant Act of 1990 (42 U.S.C. 9858) is 
     amended--
       (1) by striking ``There'' and inserting the following:
       ``(a) Authorization of Appropriations.--There'';
       (2) in subsection (a), by inserting ``(other than section 
     658H)'' after ``this subchapter''; and
       (3) by adding at the end the following:
       ``(b) Appropriation of Funds for Grants To Improve the 
     Quality of Child Care.--Out of any funds in the Treasury that 
     are not otherwise appropriated, there is authorized to be 
     appropriated and there is appropriated $500,000,000 for each 
     of fiscal years 2004 through 2008, for the purpose of making 
     grants under section 658H.''.
       (b) Use of Block Grant Funds.--Section 658E(c)(3) of the 
     Child Care and Development Block Grant Act of 1990 (42 U.S.C. 
     9858c(c)(3)) is amended--
       (1) in subparagraph (B), by striking ``under this 
     subchapter'' and inserting ``under this subchapter (other 
     than section 658B(b))''; and
       (2) in subparagraph (D), by inserting ``(other than section 
     658H)'' after ``under this subchapter''.
       (c) Establishment of Program.--Section 658G of the Child 
     Care and Development Block Grant Act of 1990 (42 U.S.C. 
     9858e) is amended by inserting ``(other than section 658H)'' 
     after ``this subchapter''.
       (d) Grants To Improve the Quality of Child Care.--The Child 
     Care and Development Block Grant Act of 1990 (42 U.S.C. 9858 
     et seq.) is amended by inserting after section 658G the 
     following:

     ``SEC. 658H. GRANTS TO IMPROVE THE QUALITY OF CHILD CARE.

       ``(a) Authority.--
       ``(1) In general.--The Secretary shall use the amount 
     appropriated under section 658B(b) for a fiscal year to make 
     grants to eligible States, and Indian tribes and tribal 
     organizations, in accordance with this section.
       ``(2) Annual payments.--The Secretary shall make an annual 
     payment for such a grant to each eligible State, and for 
     Indian tribes and tribal organizations, out of the 
     corresponding payment or allotment made under subsections 
     (a), (b), and (e) of section 658O from the amount 
     appropriated under section 658B(b).
       ``(b) Eligible States.--
       ``(1) In general.--In this section, the term `eligible 
     State' means a State that--
       ``(A) has conducted a statistically valid survey of the 
     market rates for child care services in the State within the 
     2 years preceding the date of the submission of an 
     application under paragraph (2); and

[[Page S4020]]

       ``(B) submits an application in accordance with paragraph 
     (2).
       ``(2) Application.--
       ``(A) In general.--To be eligible to receive a grant under 
     this section, a State shall submit an application to the 
     Secretary at such time, in such manner, and accompanied by 
     such information, in addition to the information required 
     under subparagraph (B), as the Secretary may require.
       ``(B) Information required.--Each application submitted for 
     a grant under this section shall--
       ``(i) detail the methodology and results of the State 
     market rates survey conducted pursuant to paragraph (1)(A);
       ``(ii) describe the State's plan to increase payment rates 
     from the initial baseline determined under clause (i);
       ``(iii) describe how the State will increase payment rates 
     in accordance with the market survey results, for all types 
     of child care providers who provide services for which 
     assistance is made available under this subchapter;
       ``(iv) describe how payment rates will be set to reflect 
     the variations in the cost of providing care for children of 
     different ages and different types of care;
       ``(v) describe how the State will prioritize increasing 
     payment rates for--

       ``(I) care of higher-than-average quality, such as care by 
     accredited providers or care that includes the provision of 
     comprehensive services;
       ``(II) care for children with disabilities and children 
     served by child protective services; or
       ``(III) care for children in communities served by local 
     educational agencies that have been identified for 
     improvement under section 1116(c)(3) of the Elementary and 
     Secondary Education Act of 1965 (20 U.S.C. 6316(c)(3));

       ``(vi) describe the State's plan to assure that the State 
     will make the payments on a timely basis and follow the usual 
     and customary market practices with regard to payment for 
     child absentee days; and
       ``(vii) describe the State's plans for making the results 
     of the survey widely available through public means.
       ``(3) Continuing eligibility requirement.--
       ``(A) Second and subsequent payments.--A State shall be 
     eligible to receive a second or subsequent annual payment 
     under this section only if the Secretary determines that the 
     State has made progress, through the activities assisted 
     under this subchapter, in maintaining increased payment 
     rates.
       ``(B) Third and subsequent payments.--A State shall be 
     eligible to receive a third or subsequent annual payment 
     under this section only if the State has conducted, at least 
     once every 2 years, an update of the survey described in 
     paragraph (1)(A).
       ``(4) Requirement of matching funds.--
       ``(A) In general.--To be eligible to receive a grant under 
     this section, the State shall agree to make available State 
     contributions from State sources toward the costs of the 
     activities to be carried out by the State pursuant to 
     subsection (c) in an amount that is not less than 20 percent 
     of such costs.
       ``(B) Determination of state contributions.--Such State 
     contributions shall be in cash. Amounts provided by the 
     Federal Government may not be included in determining the 
     amount of such State contributions.
       ``(c) Use of Funds.--
       ``(1) Priority use.--An eligible State that receives a 
     grant under this section shall use the funds received to 
     significantly increase the payment rate for the provision of 
     child care assistance in accordance with this subchapter up 
     to the 100th percentile of the market rate determined under 
     the market rate survey described in subsection (b)(1)(A).
       ``(2) Additional uses.--An eligible State that demonstrates 
     to the Secretary that the State has achieved a payment rate 
     of the 100th percentile of the market rate determined under 
     the market rate survey described in subsection (b)(1)(A) may 
     use funds received under a grant made under this section for 
     any other activity that the State demonstrates to the 
     Secretary will enhance the quality of child care services 
     provided in the State.
       ``(3) Supplement not supplant.--Amounts paid to a State 
     under this section shall be used to supplement and not 
     supplant other Federal, State, or local funds provided to the 
     State under this subchapter or any other provision of law.
       ``(d) Evaluations and Reports.--
       ``(1) State evaluations.--Each eligible State shall submit 
     to the Secretary, at such time and in such form and manner as 
     the Secretary may require, information regarding the State's 
     efforts to increase payment rates and the impact increased 
     payment rates are having on the quality of child care in the 
     State and the access of parents to high-quality child care in 
     the State.
       ``(2) Reports to congress.--The Secretary shall submit 
     biennial reports to Congress on the information described in 
     paragraph (1). Such reports shall include data from the 
     applications submitted under subsection (b)(2) as a baseline 
     for determining the progress of each eligible State in 
     maintaining increased payment rates.
       ``(e) Indian Tribes and Tribal Organizations.--The 
     Secretary shall determine the manner in which and the extent 
     to which the provisions of this section apply to Indian 
     tribes and tribal organizations.
       ``(f) Payment Rate.--In this section, the term `payment 
     rate' means the rate of reimbursement to providers for 
     subsidized child care.''.
       (e) Payments.--Section 658J(a) of the Child Care and 
     Development Block Grant Act of 1990 (42 U.S.C. 9858h(a)) is 
     amended by inserting ``from funds appropriated under section 
     658B(a)'' after ``section 658O''.
       (f) Allotment.--Section 658O of the Child Care and 
     Development Block Grant Act of 1990 (42 U.S.C. 9858m) is 
     amended--
       (1) in subsection (b)(1), in the matter preceding 
     subparagraph (A)--
       (A) by striking ``section 658B'' and inserting ``section 
     658B(a)''; and
       (B) by inserting ``and from the amounts appropriated under 
     section 658B(b) for each fiscal year remaining after 
     reservations under subsection (a),'' before ``the Secretary 
     shall allot''; and
       (2) in subsection (e)--
       (A) in paragraph (1), by striking ``the allotment under 
     subsection (b)'' and inserting ``an allotment made under 
     subsection (b)''; and
       (B) in paragraph (3), by inserting ``corresponding'' before 
     ``allotment''.

                          ____________________