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Staff Contact: Brad Watson (x69719) April 25, 2007

**Appropriations Policy Brief**

**H.R. 1591 --- Making Emergency Supplemental Appropriations for**

**FY 2007**

***Conference Report***

**[Global War on Terror Funding (Title I):]{.underline}**

[]{.mark}

In millions

  ----------------------------- ------------- ------------ ----------- ----------------
  **Department of Defense**     **Request**   **Senate**   **House**   **Conference**

  Military Personnel            12,145        13,435       13,566      13,508

  Operations & Maintenance      50,316        48,784       52,499      50,430

  *Afghanistan Security Fund*   5,906         5,906        5,906       5,906

  *Iraq Security Fund*          3,842         3,842        3,842       3,842

  *Iraq Freedom Fund*           206           456          156         356

  *Joint Improvised Explosive   2,433         2,433        2,433       2,433
  Device Defeat Fund*                                                  

  *Strategic Reserve Readiness  0             0            2,500       2,000
  Fund*                                                                

  Procurement                   24,900        24,508       24,814      25,592

  R&D, Test & Evaluation        1,448         1,190        1,035       1,099

  Defense Working Capital Fund  1,316         1,321        1,316       1,321

  Drug Interdiction & Counter   259           255          259         255
  Drug Activities                                                      

  Intelligence Community        67            72           57          72
  Management Account                                                   

  Defense Health Program        1,073         2,467        2,790       3,252

  National Defense Sealift Fund 5             5            5           5

  Military Construction         1,854         4,914        4,916       4,806

  *DoD Base Closure Account*    0             3,136        3,136       3,136
  ----------------------------- ------------- ------------ ----------- ----------------

  ----------------------------- ------------- ------------ ----------- ----------------
  **Department of Agriculture** **Request**   **Senate**   **House**   **Conference**

  P.L. 480, Title II Grants     350           475          450         460

  Bill Emerson Humanitarian     0             82           0           40
  Trust                                                                

  **Department of Homeland                                             
  Security**                                                           

  Departmental Management &     0             0            35          15
  Operations                                                           

  Customs and Border Protection 0             140          100         115

  Air & Marine Interdiction     0             75           150         120

  US Immigration and Customs    0             20           0           10
  Enforcement, Salaries and                                            
  Expenses                                                             

  Transportation Security       0             660          1,250       970
  Administration                                                       

  Federal Air Marshals          0             15           0           8

  Infrastructure Protection &   0             18           25          37
  Information Security                                                 

  Office of Health Affairs      0             18           0           15

  FEMA, Salaries & Expenses     0             20           25          25

  FEMA, State and Local         0             850          415         553
  Programs                                                             

  FEMA, Emergency Management    0                          100         100
  Performance                                                          

  US Citizenship and            0             30           0           10
  Immigration Services                                                 

  Science and Technology,       0             15           0           10
  Research, Development,                                               
  Acquisition, and Operations                                          

  Domestic Nuclear Detection    0             39           0           39
  Office, Research, Development                                        
  and Operations                                                       

  Domestic Nuclear Detection    0             0            400         224
  Office, Systems Acquisition                                          

  **Department of Energy**                                             

  Defense Nuclear               63            63           150         150
  Nonproliferation                                                     

  **Department of Justice**                                            

  General Legal Activities,     4             4            2           2
  Salaries & Expenses                                                  

  U.S. Attorneys, Salaries &    5             13           5           5
  Expenses                                                             

  U.S. Marshals, Salaries &     15            33           3           6
  Expenses                                                             

  National Security Division    2             2            2           2

  FBI, Salaries & Expenses      118           348          118         268

  Drug Enforcement              8             25           8           12
  Administration                                                       

  Bureau of Alcohol, Tobacco,   4             4            4           4
  Firearms, and Explosives,                                            
  Salaries and Expenses                                                

  Federal Prison System         17            17           17          17

  **Legislative Branch**                                               

  House of Representatives,     0             0            6           6
  Salaries & Expenses                                                  

  **Department of State**                                              

  Diplomatic and Consular       913           816          967         871
  Affairs                                                              

  Inspector General             35            37           47          37

  Education and Cultural        20            10           20          20
  Exchange Programs                                                    

  International Organizations   0             59           0           50
  Contributions to                                                     
  International Organizations                                          

  International Peacekeeping    200           200          288         288
  Activities                                                           

  International Broadcasting    10            10           10          10
  Operations                                                           

  Bilateral Economic            0             161          161         161
  Assistance, Child Survival                                           
  and Health Programs Fund                                             

  International Disaster and    0             187          135         165
  Famine Assistance                                                    

  US Agency for International   0             6            11          9
  Development, Operating                                               
  Expenses                                                             

  US Agency for International   0             4            4           4
  Development Office of                                                
  Inspector General                                                    

  Economic Support Fund         3,025         2,602        2,953       2,649

  Assistance for Eastern Europe 279           214          239         229

  Department of State Democracy 0             465          0           260
  Fund                                                                 

  International Narcotics       260           210          335         257
  Control                                                              

  Migration and Refugee         72            143          112         131
  Assistance                                                           

  U.S. Emergency Refugee &      30            55           35          55
  Migration Assistance                                                 

  Nonproliferation,             28            28           88          58
  Antiterrorism, & Demining                                            

  **Department of Treasury**                                           

  International Affairs         3             3            3           3
  Technical Assistance                                                 

  **Funds Appropriated to the                                          
  President**                                                          

  Foreign Military Financing    220           220          260         265
  Program                                                              

  Peacekeeping Operations       278           323          225         230
  ----------------------------- ------------- ------------ ----------- ----------------

[]{.mark}

**[Iraq Policy Section:]{.underline}**

*[Note]{.underline}: All language in this section is the same as that in
the House-passed version of the Supplemental, except where noted.*

**Mission Capable Units in Iraq:**  Prohibits funds from being used to
deploy any unit of the Armed Forces to Iraq, unless the chief of the
military department concerned has certified in writing to Congress at
least 15 days in advance of the deployment that the unit is "fully
mission capable" ("capable of performing assigned mission essential
tasks to prescribed standards under the conditions expected in the
theater of operations, consistent with the guidelines set forth in the
Department of Defense readiness system").

[]{.mark}

**Deployment Time in Iraq:**  Prohibits funds from being used to
initiate the development of, continue the development of, or execute any
order that has the effect of extending the deployment or redeployment
for Operation Iraqi Freedom in violation of a 365-day maximum (for the
Army, Army Reserve, and the National Guard) or a 210-day maximum (for
the Marines and Marine Reserves).

**Presidential Certification on Benchmarks:**  Requires that the
President certify to Congress by July 1, 2007:

-   "whether the Government of Iraq has given United States Armed Forces
    and Iraqi Security Forces the authority to pursue all extremists,
    including Sunni insurgents and Shiite militias, and is:

> \--making substantial progress in delivering necessary Iraqi Security
> Forces for Baghdad and protecting such Forces from political
> interference;
>
> \--intensifying efforts to build balanced security forces throughout
> Iraq that provide even-handed security for all Iraqis;
>
> \--ensuring that Iraq's political authorities are not undermining or
> making false accusations against members of the Iraqi Security Forces;
>
> \--eliminating militia control of local security;
>
> \--establishing a strong militia disarmament program;
>
> \--ensuring fair and just enforcement of laws;
>
> \--establishing political, media, economic, and service committees in
> support of the Baghdad Security Plan; and
>
> \--eradicating safe havens;

-   "whether the Government of Iraq is making substantial progress in
    meeting its commitment to pursue reconciliation initiatives,
    including:

> \--enactment of a hydro-carbon law;
>
> \--adoption of legislation necessary for the conduct of provincial and
> local elections;
>
> \--reform of current laws governing the de-Baathification process;
>
> \--amendment of the Constitution of Iraq; and
>
> \--allocation of Iraqi revenues for reconstruction projects;

-   "whether the Government of Iraq and United States Armed Forces are
    making substantial progress in reducing the level of sectarian
    violence in Iraq; and

-   "whether the Government of Iraq is ensuring the rights of minority
    political parties in the Iraqi Parliament are protected."

**[NOTE]{.underline}:** **The House-passed Supplemental had some of the
above benchmarks (but not all) and included a certification date of
October 1, 2007. In neither legislation are such key terms as "making
substantial progress," "intensifying efforts," or "fair and just
enforcement" defined.**

[]{.mark}

**Withdrawal from Iraq:**  If the President is unable to make the above
certification by July 1, 2007, or if the above report indicates that any
of the required conditions in Iraq have not been met, the Secretary of
Defense would have to commence the withdrawal of the Armed Forces from
Iraq and complete such withdrawal within 180 days.  Even if the
President makes the required certification, the troop withdrawal from
Iraq would have to begin by October 1, 2007, and be completed within 180
days.  Funds in this Act or any other Act would be immediately available
to fund the withdrawal.

**[NOTE]{.underline}: The House-passed Supplemental contained the
two-tiered withdrawal dates of October 1, 2007 and March 1, 2008, rather
than the July 1, 2007 and October 1, 2007, in the conference report.**

**Prohibited Return to Iraq:**  Once the withdrawal from Iraq is
complete, U.S. Forces could not be sent to or retained in Iraq for any
purpose except for certain diplomatic and training missions, or limited,
targeted special actions against terrorists. 

**Funds Withheld:**  Withholds 50% of the funds appropriated by this
bill for the Economic Support Fund (except for the U.S. Agency for
International Development's pro-democracy funds for Iraq) and
International Narcotics Control and Law Enforcement, until the President
has certified that the Government of Iraq has:

-   "enacted a broadly accepted hydro-carbon law that equitably shares
    oil revenues among all Iraqis;

-   "adopted legislation necessary for the conduct of provincial and
    local elections, taken steps to implement such legislation, and set
    a schedule to conduct provincial and local elections;

-   "reformed current laws governing the de-Baathification process to
    allow for more equitable treatment of individuals affected by such
    laws;

-   "amended the Constitution of Iraq consistent with the principles
    contained in article 137 of such constitution \[regarding the
    protection of existing Kurd laws, regulations, and court
    judgments\]; and

-   "allocated and begun expenditure of \$10 billion in Iraqi revenues
    for reconstruction projects, including delivery of essential
    services, on an equitable basis."

**[NOTE]{.underline}: The House-passed Supplemental required withholding
from the Iraq Security Forces Fund as well, and triggered the full
release of the funds on the complete presidential certification required
by this legislation. In the conference report, the full release is
triggered by the certification of a separate list of benchmarks, some of
which are required in the full certification above, and some of which
are not. The funds-release benchmarks are exactly the same as the full
certification benchmarks in the House-passed Supplemental.**

**Assessment Report:**  Directs the Multinational Forces Commander in
Iraq and the U.S. Ambassador to Iraq to jointly report to Congress every
60 days (beginning on September 1, 2007) on the current progress being
made by the Government of Iraq regarding the full list of
withdrawal-related benchmarks. **Such a report was not required in the
House-passed Supplemental.**

**[Possible Conservative Concerns]{.underline}:** Some conservatives
might be concerned that this legislation would undermine the
constitutional authority of the President as Commander-in-Chief.
Furthermore, some conservatives might be concerned that this bill would
give strength to our enemy by showing American weakness and encouraging
our enemy to either wait until after the deadlines in this legislation
to launch more attacks and/or to focus their current attacks on ensuring
that one or more of the benchmarks required for the presidential
certification are not met.

**RSC Staff Contact for This Section:** Paul S. Teller,
<paul.teller@mail.house.gov>, (202) 226-9718

[]{.mark}

**[Items of Note:]{.underline}**

**Strategic Reserve Readiness Fund**: Provides \$2 billion to establish
a new fund to train and equip non-deployed U.S. military forces to
improve their readiness. According to the Committee, "reported readiness
levels are sufficient for forces at home bases. Training readiness is
significantly diminished for units at home station due to personnel
turnover, equipment shortages, and the short turnaround between combat
turnovers."

**Transfer of Funds**: Allows the Secretary of Defense to transfer up to
\$3.5 billion of the funds made available to the Department of Defense
upon his determination that it is in the national interest to do so.
During FY07, the Secretary of Defense may also transfer \$6.3 billion in
of the amounts credited to Defense Cooperation Account.

**Torture Prohibition**: Prohibits the use of funds to negate a series
of laws and regulations promulgated to implement the United Nations
Convention Against Torture and Other Cruel, Inhuman or Degrading
Treatment or Punishment.

**Counter-Drug Activities in Afghanistan/Pakistan**: Limits the amount
of funding for counter-drug activities for Afghanistan and Pakistan to
\$60 million.

**Commander's Emergency Response Program:** Provides \$456 million for
the Commander's Emergency Response Program to allow military commanders
in Iraq and Afghanistan to respond to urgent humanitarian and
reconstruction needs.

**Inspection of Military Medical Treatment Facilities and Military
Housing**: Requires the Secretary of Defense to inspect each military
medical/housing facility to ensure that the facility meets acceptable
standards.

**Assistance to Government of Iraq to Support Disarmament**: Allows
\$156 million of funding provided for Iraq Security Forces Fund to be
used to provide assistance to the government of Iraq to support the
"disarmament, demobilization, and reintegration of militias and illegal
armed groups.

**Transfer of Funds to Military Construction:** Transfers \$6 million
from the FY06 Defense Appropriations bill to Military Construction,
Army.

**Transfer of Funds to Pakistan:** Allows up to \$110 million to be
transferred from the Department of State Economic Support Fund to
support programs in Afghanistan.

**Military Bases in Iraq**: Prohibits the use of \$275 million in
military construction funds unless the Secretary certifies that none of
the funds are being used to establish permanent basin of U.S. military
personnel in Iraq.

**Walter Reed Army Medical Center**: Prohibits closure of Walter Reed
Army Medical Center until equivalent facilities have been constructed
and equipped.

**Base Realignment and Closure Funding**: Provides \$3.1 billion for the
Base Realignment and Closure Account to fulfill the Administration's
FY07 request. The omnibus appropriations bill (H.J.Res. 20) provided
\$2.5 billion for such needs. However, some conservatives may be
concerned that all of this funding should have been provided in the
omnibus bill, where it would have been subject to budget constraints.
Instead, the Appropriations Committee delayed this funding to the
supplemental, freeing up dollars within the budget for lesser
priorities.

[]{.mark}

**RSC Staff Contact for This Title**: Brad Watson,
<brad.watson@mail.house.gov>; (202) 226-9719

**[Hurricane Relief (Title II):]{.underline}**

[]{.mark}

In millions

  ----------------------------- ------------- ------------ ----------- ----------------
                                **Request**   **Senate**   **House**   **Conference**

  **Department of Commerce**                                           

  NOAA, Operations, Research, & 0             166          120         110
  Facilities                                                           

  NASA, Exploration             0             0            35          35
  Capabilities                                                         

  **Department of Justice**                                            

  Office of Justice Programs    0             170          0           50

  **Department of Defense**                                            

  Army Corps of Engineers       0             1,558        1,337       1,433

  **Small Business                                                     
  Administration**                                                     

  Disaster Loan Program Account 0             25           25          25

  **Department of Homeland                                             
  Security**                                                           

  FEMA, Disaster Relief Fund    3,400         4,310        4,310       4,610

  **Department of the                                                  
  Interior**                                                           

  Historic Preservation Fund    0             15           0           10

  **Department of Education**                                          

  Hurricane Education Recovery  0             30           30          30

  Higher Education              0             30           30          30

  **Department of                                                      
  Transportation**                                                     

  Federal Aid Highways,         0             389          0           683
  Emergency Relief Program                                             

  Federal Transit               0             75           0           35
  Administration, Formula                                              
  Grants                                                               

  **Department of HUD**                                                

  Inspector General             0             5            10          7
  ----------------------------- ------------- ------------ ----------- ----------------

[]{.mark}

**[Items of Note:]{.underline}**

**NASA**:  Provides \$35 million to NASA, under the "exploration
capabilities" account, for "expenses related to the consequences of
Hurricane Katrina."  The bill also provides that of the amounts previous
appropriated to NASA, \$48 million may be used to reimburse
hurricane-related costs incurred by NASA in FY 2005.

**Corps of Engineers**:  Provides \$1.4 billion to Corps of Engineers
for continued repairs on the levee system in New Orleans.

**Small Business Administration:** Provides \$25 million to the SBA for
additional funding to carry out the Disaster Loan Program.

**FEMA**:  Provides \$4.6 billion for disaster relief at the Federal
Emergency Management Agency (FEMA), of which \$4 million is to be
transferred to the Office of the Inspector General.  The bill extends
from 12 months to 24, the time frame in which FEMA can provide funds to
pay for utility costs resulting from the provision of temporary housing
unties to Hurricane Katrina evacuees.  In addition, the supplemental
would eliminate the state and local matching requirements for certain
FEMA assistance (in connection with Hurricanes Katrina, Rita, Wilma, and
Dennis) in the states of Alabama, Louisiana, Mississippi, Texas, and
Florida, and provides that the federal portion of these costs will be
100%.

**Office of Inspector General: ** Provides \$7 million for the Office of
Inspector General for "necessary expenses related to the consequences of
Hurricane Katrina and other hurricanes of the 2005 season."

**K-12 Education Funding for Hurricane States: ** Provides \$30 million
to Louisiana, Mississippi, and Alabama for recruiting and compensating
teachers and principals in schools affected by Hurricanes Katrina and
Rita, for the implementation of "high-quality formative assessments,"
and the "establishment of partnerships with nonprofit entities with a
demonstrated track record in recruiting and retaining outstanding
teachers and other school leaders."

**Higher Education Funding for Hurricane States**:  Provides \$30
million in assistance to institutions of higher education located in a
disaster area related to the 2005 Gulf of Mexico Hurricanes.

**Federal Highway Administration Rescission:** Rescinds \$683 million
from unused highway spending.

**RSC Staff Contact for This Title**: Brad Watson,
<brad.watson@mail.house.gov>, (202) 226-0718

**[Other Emergency Appropriations (Title III):]{.underline}**

[]{.mark}

In millions

  ----------------------------- ------------- ------------ ----------- ----------------
                                **Request**   **Senate**   **House**   **Conference**

  NOAA, Commerce                0             60           60          60

  Corps of Engineers            0             3            0           3

  Flood Control and Coastal     0             150          0           150
  Emergencies                                                          

  Water and Related Resources,  0             18           0           18
  Interior                                                             

  Bureau of Land Management,    0             100          100         100
  Interior                                                             

  Fish & Wildlife Services,     0             7            7           7
  Interior                                                             

  National Park Service,        0             1            1           1
  Interior                                                             

  U.S. Geological Survey,       0             5            5           5
  Interior                                                             

  Forest Service                0             12           0           12

  Wildlife Fire Management      0             400          400         400

  CDC                           0             17           0           63

  Secure Rural Schools, USDA    0                          400         425

  LIHEAP                        0             640          400         400

  Public Health & Social        0             820          970         625
  Services Fund (Avian Flu)                                            

  Covered Countermeasure        0             50           50          25
  Process Fund                                                         

  Architect of the Capitol      0             25           50          50

  VA, Medical Services          0             454          415         467

  VA, Medical Administration    0             250          256         250

  VA, Medical Facilities        0             595          595         595

  VA, Medical and Prosthetic    0             30           35          33
  Research                                                             

  VA, Departmental              0             46           62          83
  Administration                                                       

  VA, Information Technology    0             36           35          35
  Systems                                                              

  VA, Construction Minor        0             356          260         326
  Projects                                                             
  ----------------------------- ------------- ------------ ----------- ----------------

**[Items of Note:]{.underline}**

**National Oceanic and Atmospheric Administration (NOAA): ** Provides
\$60.4 million for the National Marine Fisheries Service under NOAA to
be distributed among fishing communities, Indian tribes, individuals,
small businesses, including fishermen, fish processors, and related
businesses for assistance to "mitigate the economic and other social
effects caused by the commercial fishery failure, as determined by the
Secretary on August 10, 2006."

**Wildland Fire Management:**  Provides a combined \$400 million for the
Bureau of Land Management and the U.S. Forest Service for "urgent
wildland fire suppression activities." 

**Secure Rural Schools Act (Forest County Payments):**  Provides \$425
million to be used for one-time payments to be allocated to states under
the Secure Rural Schools and Community Self-Determination Act of 2000. 
This program provides a funding stream (known as forest county payments)
to counties with large amounts of Bureau of Land Management land, in
order to compensate for the loss of receipt-sharing payments on this
land caused by decreased revenue from timber sales due to environmental
protections for endangered species.  The authorization for these forest
county payments expired at the end of FY 2006, and counties received
their last payment under the Act in December 2006. 

**LIHEAP**:  Provides \$400 million for the Low-Income Home Energy
Assistance Program (LIHEAP).

**Avian Flu**:  Provides \$969 million for the Department of HHS to
continue to prepare and respond to an avian flu pandemic. Of this
funding, \$870 million is to be used for the development of vaccines.

**H5N1 Vaccine Compensation:**  Provides \$25 million to compensate
individuals for injuries caused by the H5N1 vaccine, which is a flu
vaccine.

**Capitol Power Plant**:  Provides \$50 million to the Capitol Power
Plant for asbestos abatement and safety improvements.  

**RSC Staff Contact for This Title**: Brad Watson,
<brad.watson@mail.house.gov>, (202) 226-0719

**[Other Matters (Title IV):]{.underline}**

[]{.mark}

In millions

  ----------------------------- ------------- ------------ ----------- ----------------
                                **Request**   **Senate**   **House**   **Conference**

  Farm Service Agency           0             75           48          38

  Office of Federal Housing     0             5            8           6
  Enterprise Oversight                                                 
  ----------------------------- ------------- ------------ ----------- ----------------

**[Items of Note:]{.underline}**

**FDA Office of Women's Health:**  Provides \$4 million for the Office
of Women's Health at the Food and Drug Administration.

**Rescinding Homeland Security Funding**:  Rescinds \$31 million in
funding from the FY06 Homeland Security bill.

**Payment to Widow of Rep. Norwood:**  Provides \$165,200 to Gloria W.
Norwood, the widow of former Rep. Charlie Norwood (R-GA) who passed away
last month.  In the Emergency Supplemental Appropriations Act of 2005
(H.R. 1268), Congress provided \$162,100 to Doris Matsui, the widow of
former Rep. Robert Matsui.

**NTSB Lease**:  Amends a provision in the continuing resolution, which
provided \$78.9 million for the National Transportation Safety Board,
Salaries and Expenses, to "include amounts necessary to make lease
payments due in FY 2007 on an obligation incurred in 2001 under a
capital lease."

**RSC Staff Contact for This Title**: Brad Watson,
<brad.watson@mail.house.gov>, (202) 226-0718

**[Agriculture (Title V):]{.underline}**

[]{.mark}

In millions

  ----------------------------- ------------- ------------ ----------- ----------------
                                **Request**   **Senate**   **House**   **Conference**

  Emergency Conservation        0             35           20          20
  Program                                                              

  Dairy Assistance              0             95                       20

  Emergency Grants to Assist    0             0            0           21
  Low-Income Migrant and                                               
  Seasonal Workers                                                     

  Farm Service Agency,          0             0            0           30
  Administrative Expenses                                              
  ----------------------------- ------------- ------------ ----------- ----------------

***[Note:]{.underline}*** The above chat includes only discretionary
spending and not new agriculture entitlement spending.

**[Items of Note:]{.underline}**

**Crop Disaster Assistance**: Provides agriculture assistance to
producers experiencing crop losses in 2005, 2006, or 2007 due to bad
weather. Farmers experiencing losses in more than one year would be
required to choose only one year for which they wish to receive loss
compensation. A large portion would be provided in the form of direct
payments to agriculture producers who experienced more than 35% crop
loss in expected production. The payment would be 50% of the market
price. Producers would not be eligible for these payments if they had
failed to purchase available crop insurance. The bill ensures that these
disaster payments would not exceed 95% of a crop's worth in the absence
of hurricane destruction.

**Livestock Assistance**: Provides compensation for livestock losses in
2005, 2006, and 2007, due to a disaster, including wildfire in the state
of Texas and other states and blizzards in the states of Colorado,
Kansas, Nebraska, New Mexico, and Oklahoma. Cattlemen experiencing
losses in more than one year would be required to choose only one year
for which they wish to receive loss compensation.

**Livestock Indemnity Payments**: Provides livestock indemnity payments
to producers on farms experiencing livestock losses due to hurricanes,
floods, anthrax, and wildfires in the state of Texas and other states,
and blizzards in the states of Colorado, Kansas, Nebraska, New Mexico,
and Oklahoma. Cattlemen experiencing losses in more than one year would
be required to choose only one year for which they wish to receive loss
compensation. Payments would be not less than 30% of the market value of
the livestock on the day before their death.

**Emergency Conservation Program**: Authorizes \$20 million to the
Secretary of Agriculture for assistance through the Emergency
Conservation Program for cleanup and restoration of farm and
agricultural production lands.

**Milk Income Loss Contract (MILC) Program**: Extends for one month
authorization of MILC Program extending it through September 2007.

**Dairy Assistance**: Provides \$20 million to make payments to dairy
producers for dairy production losses in disaster counties.

**Low Income Migrant Workers**: Provides \$21 million for grants to
public agencies and private organizations (501(c)(3)s) that have
experience in providing emergency services to low-income migrant and
seasonal farm workers after there has been a local, state or national
emergency that has caused these workers to lose income.

**Farm Service Agency**: Provides \$30 million for administrative
expenses (for salaries and expenses) at the Farm Service Agency.

**RSC Staff Contact for This Title**: Joelle Cannon,
joelle.cannon@mail.house.gov, (202) 226-0718

[]{.mark}

**[SCHIP Funding (Title VI):]{.underline}**

**SCHIP: ** Provides "such funding, but not to exceed." \$650 million to
the Secretary of HHS to provide assistance to the SCHIP "shortfall
states" (see list below), in the form of an amount "as the Secretary
determines will eliminate the estimated shortfall." The Majority has
indicated they intend the funding to be a one-time appropriation and not
direct spending included in a supplemental to contravene the Majority's
own PAYGO rules. However, the use of an emergency designation for this
type of spending may be unprecedented---RSC staff has found no instance
where Medicare, Medicaid, and SCHIP have been designated as an
emergency. (CBO scores this provision as costing \$393 million because
of the way the program interacts with Medicaid).

The State Children's Health Insurance Program (SCHIP) is a block grant
provided to states for health care coverage for low-income children in
families with income above Medicaid eligibility levels.  States receive
a fixed federal contribution, which is intended to last for three years,
and any unused funds at the end of that time period are redistributed to
states that have used the entire grant.  Some states experience a
"shortfall" in funding, in light of decisions to insure adults, pregnant
mothers, and children from families with significantly more income than
the poverty level (350% in one state).  According to a 2006 CRS report,
the following 14 states will likely have a shortfall in FY 2007: 
Alaska, Georgia, Illinois, Iowa, Maine, Maryland, Massachusetts,
Minnesota, Mississippi, Missouri, Nebraska, New Jersey, Rhode Island,
and Wisconsin.

**CMS Regulations:** Prohibits the Secretary of Health and Human
Services from implementing a proposed regulation related to SCHIP and
Medicaid that would limit Medicaid payments for graduate medical
education to hospitals.

**Tamper-Resistant Prescription Pads:** Prohibits Medicaid payments for
amounts expended for covered outpatient drugs, unless the prescription
is in written form on a tamper-resistant pad. Also, extends the Pharmacy
Plus waiver, that allows states to seek waivers of federal Medicaid law
and regulations under certain circumstances. According to the Joint
Explanatory Statement, these provisions are intended to "offset the cost
of blocking the Medicaid rules" outlined above.

**RSC Staff Contact for This Title**: Joelle Cannon,
<joelle.cannon@mail.house.gov>, (202) 226-0718

**[Minimum Wage/Tax Provisions:]{.underline}**

**Minimum Wage Increase:** Mandates that employers give some of their
employees' a 41% raise over two years. Specifically, the federal minimum
wage would increase from \$5.15-per-hour to \$7.25-per-hour over two
years. The minimum wage would first increase to \$5.85 sixty days after
this bill's enactment, then to \$6.55 one year after the first increase,
then to \$7.25 one year after the second increase. **Yields \$16.5
billion in private-sector costs over [five]{.underline} years.**

**Mariana Islands:**  Applies a federal minimum wage to the Commonwealth
of the Northern Mariana Islands and increases it steadily until it
matches the new \$7.25 mandate for the 50 states. The remaining U.S.
territories would remain fully or partially exempt from the minimum
wage, as under current law. It is unclear why the Mariana Islands would
be given harsher treatment than the other U.S. territories.

**NOTE: The minimum wage provisions are identical to those in the
House-passed Supplemental, which themselves were identical to those
passed as part of H.R. 2 in the Democrats' 100-Hour Agenda.**

To see the RSC Legislative Bulletin on H.R. 2, which includes more
background on the minimum wage and conservative opposition to it, visit
this webpage:
<http://www.house.gov/hensarling/rsc/doc/LB_011007_minwage100hour.doc>.

**Work Opportunity Tax Credit (WOTC):**   Extends the expiration date
for the WOTC (currently the end of 2007) to August 31, 2011, and expands
its application. The WOTC allows employers to claim the maximum \$2,400
credit when they hire individuals from nine "target" groups---such as
families receiving public assistance, high-risk youths, ex-felons,
qualified veterans, and food stamp recipients age 18-39.

**Section 179 Expensing:** Extends the sunset date for one year (from
the end of 2009 to the end of 2010) for the expanded Section 179
expensing provisions in current law. Presently, small businesses may
expense---i.e., deduct in the first year---up to \$112,000 of certain
asset investments, phasing out dollar-for-dollar to the extent the
business' annual investments exceed \$450,000. This provision would also
immediately increase the \$112,000 and \$450,000 thresholds to \$125,000
and \$500,000, and index them for inflation through and including 2010.
After 2010, the expensing limit will decline to \$25,000 and the
phase-out threshold will decline to \$200,000.

**Restaurant Tip Credit:**  Extends the restaurant tip credit at the
current level of \$5.15 per hour.  For tipped employees, the Fair Labor
Standards Act (FLSA) provides that the \$5.15-per-hour minimum wage may
be reduced to \$2.13, if the combination of tips and cash income equals
the federal minimum wage. Employers still have to pay taxes (under the
Federal Insurance Contributions Act\--FICA) on tip income of their
employees. A business tax credit is provided equal to an employer's FICA
taxes paid on tips [in excess of]{.underline} those treated as wages for
purposes of meeting the minimum wage requirements of FLSA. If this
provision were not included in the bill, restaurants would not be able
to claim the tip credit on payroll taxes paid for tipped employees on
income between \$5.15 and a new higher hourly minimum wage. 

**Credits against the Alternative Minimum Tax (AMT):** Allows the Work
Opportunity Tax Credit and the restaurant tip credit to offset tax
liability under the AMT beginning in tax-year 2007. Generally, business
tax credits cannot be used to offset any liability under the AMT.

**Self-Employment Taxes of Married Couples:**   Allows a qualified joint
venture, whose only members are a husband and wife filing a joint
return, not to be treated as a partnership for tax purposes (as they
currently are required to do).

**Section 179 Expensing in the GO Zone:** Extends by one year (through
the end of 2008) the increased section 179 small business expensing for
qualified property in the Gulf Opportunity (GO) Zone.

**Housing Credits in GO Zone:** Extends the increased cap on special GO
Zone low-income housing credits, which had been implemented for the
hurricane-affected states for 2006 through 2008, for two years (through
the end of 2010). Also extends the GO Zone's designation as a "difficult
to develop area" through the end of 2010---which has implications for
increasing the amount of credits available for investors in projects in
the area.

**CDBG Housing Projects:** Allows low-income (Community Development
Block Grant---CDBG) housing projects to receive additional categories of
federally-subsidized loans without facing a reduction in tax credits.
Under current law, low-income housing projects that receive certain
federally-subsidized loans must either accept a lower credit rate or
make an offsetting reduction in the property's basis.

**Mortgage Revenue Bonds:** Allows the proceeds of Mortgage Revenue
Bonds to be used to refinance an existing mortgage, if repairs or
reconstruction costs total at least 25% of the owner's adjusted basis in
the property. Generally, current law does not allow the proceeds of
Mortgage Revenue Bonds to be used to refinance existing mortgages.

**State and Local Implementation:** Directs the Comptroller General to
report to Congress on the practices employed by state and local
governments in allocating and using tax incentives provided by this bill
and the Gulf Opportunity Zone Act of 2005.

**S Corporations:** Provides nearly \$900 million over eleven years of
tax-relief provisions for S Corporations (a certain class of small
corporations), such as removing the capital gains of S Corporations from
the definition of passive investment income for tax purposes and
eliminating all earnings and profits attributable to years before 1983
for S Corporations.

**Capital Gains Tax Rate for Certain Minors and Adults:** Beginning in
tax-year 2007, taxpayers would be denied the lowest maximum capital
gains and dividends tax rate---5% in 2007, 0% in 2008, 0% in 2009, 0% in
2010, and 8% or 10% thereafter---if they are under age 19 (age 24, in
the case of a student) and if their earned income is less than half of
their financial support (i.e., if they are more than 50% dependent on
their family's financial support). 

**Extends the suspension of interest payments due to the IRS: **
Beginning six months after this legislation's enactment, taxpayers who
underpay their taxes and are subject to interest penalties on the unpaid
amounts would not have their interest payments suspended until 36 months
after the IRS has failed to contact the taxpayers about the
underpayments---as opposed to the current-law 18 months. 

**Collection Due Process Procedures:** Changes the "collection due
process procedures" with regards to employment tax liabilities.
Currently, the IRS is allowed to seize a taxpayer's physical property
given a federal tax lien for underpayments of employment taxes. Prior to
seizing the property, however, the IRS has to notify the taxpayer that
they have a right to a collection due process (CDP) hearing. [This bill
would allow the IRS to seize property without *first* giving the
taxpayer a CDP hearing---but only for taxpayers who have already
requested a CDP hearing within the prior two years.]{.underline}
Taxpayers who have NOT requested a CDP hearing within the prior two
years would NOT be subject to the new requirements allowing pre-hearing
seizures of property. The IRS would still have to send warning notices,
and the hearing would still have to be offered---but not necessarily
before the property seizure.

**IRS User Fees:** Makes IRS user fees---such as fees for opinion
letters or determination letters---permanent.

**Bad Checks and Money Orders**: Increases the fee on sending checks and
money orders to the IRS that are "not duly paid." Currently, the fee for
providing a bad check or money order to the IRS is 2% of the amount of
such check; except that if the amount of such check is less than \$750,
the penalty is \$15 or the amount of such check, whichever is the
lesser. This provision would raise the threshold for the lesser fee from
\$750 to \$1,250 and would raise the \$15 figure to \$25.

**Expanded Penalties for Return Preparers:** Expands and increases the
penalties for tax return preparers who understate a taxpayer's liability
(because of unreasonable positions that could not be sustained on their
merits, reckless or intentional disregard for the law, or willful intent
to understate tax liability) on all types of tax returns, such as those
for nonprofit entities, estate taxes, and employment taxes---not just
income taxes, as under current law.

**Erroneous Refund Claim Penalty:** Creates a new civil penalty for
making an unreasonable, excessive claim for an income tax refund
(excluding the Earned Income Tax Credit). The penalty would be 20% of
the excessive amount---i.e., the amount above the proper refund.

**Corporate Estimated Tax Shifts:** Increases the corporate estimated
tax payments due in the summer of FY2012 for corporations with assets of
at least \$1 billion. This provision does not yield a net tax increase;
it merely requires a higher quarterly payment of corporate estimated
taxes in the summer of 2012, and a correspondingly lowered estimated
payment thereafter. Under current law, the estimated payments due in the
summer of FY2012 have to be 106.25% of what would otherwise be paid
(100% = one quarter of the year's estimated tax payment due). This
provision of the Supplemental would increase that amount from 106.25% to
112.75%, requiring businesses to pay even more of their taxes early.

**Additional Background:** Most of the above provisions have already
passed the House in this exact, or similar, format. For more information
on these provisions, as they were included in other legislation, see:

 

-   The RSC Legislative Bulletin on H.R. 976:
    <http://www.house.gov/hensarling/rsc/doc/LB_021607_smallbiztax.doc>

-   The RSC Legislative Bulletin on H.R. 1562:
    <http://www.house.gov/hensarling/rsc/doc/LB_032707_KatrinaTaxAmended.doc>

-   The RSC Legislative Bulletin on H.R 1591:
    <http://www.house.gov/hensarling/rsc/doc/LB_032207_IraqSuppUpdated.doc>

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-   The RSC Legislative Bulletin on H.R. 1677:
    <http://www.house.gov/hensarling/rsc/doc/LB_041707_suspensions.doc>.

[]{.mark}

**[Possible Conservative Concerns]{.underline}**: Some conservatives
might be concerned that the federal minimum wage itself is
anti-capitalist, since it prevents an employer and a potential employee
from engaging in free-market labor negotiations. Furthermore,
quickly-increased labor costs unrelated to business conditions will
encourage or force employers to fire employees, reduce working hours for
existing employees, and/or postpone plans to hire additional employees.
Conservatives may also be concerned with the pace of this increase,
**which would mandate that employers give certain employees a 41% raise
over two-plus years, yielding [\$18 billion]{.underline} (according to
CBO) in intergovernmental and private-sector costs over
[five]{.underline} years---which is not nearly offset by the tax relief
paired with the minimum wage increase.**

Some conservatives may be concerned that this title contains some
*permanent* tax and revenue increases on some taxpayers to "pay for"
certain *temporary* tax cuts for other taxpayers. **Additionally, some
conservatives may be concerned that the small business tax-cut
provisions---\$4.84 billion over [eleven]{.underline} years---do not
even come close to offsetting the costs of the minimum wage
increase---\$16.5 billion for small businesses over [five]{.underline}
years.** Furthermore, the bill [chips away at the capital gains and
dividends tax cut]{.underline} (by preventing certain students under age
24 and certain non-students under age 19 from getting the lowest rate
available under current law), while effectively increasing interest
penalties for certain taxpayers, and accelerating certain quarterly tax
payments for corporations.

**Revenue Estimate:** According to the Joint Committee on Taxation, the
minimum wage and tax portion of the Supplemental includes \$4.844
billion in tax relief provisions over [eleven]{.underline} years and
\$4.899 billion in tax and revenue increases over [eleven]{.underline}
years, yielding a net tax and revenue increase of \$55 million over
eleven years. Private-sector and intergovernmental costs of raising the
minimum wage are estimated to be [\$18 billion]{.underline} over
[five]{.underline} years.

**RSC Staff Contact for This Title**: Paul S. Teller,
<paul.teller@mail.house.gov>, (202) 226-9718