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Staff Contact: Brad Watson (x69719) May 10, 2007

**Appropriations Policy Brief**

**H.R. 2206 --- U.S. Troops Readiness, Veterans' Care, Katrina Recovery,
and Iraq Accountability Appropriations Act**

**FY 2007**

**[Funding for Military Operations in Iraq and Afghanistan (Title
I):]{.underline}**

[]{.mark}

In millions

  ------------------------ ------------- ------------ ----------- ---------------- --------
  **Department of          **Request**   **Senate**   **House**   **Conference**   **H.R.
  Defense**                                                                        2206**

  Military Personnel       12,145        13,435       13,566      13,508           7,241

  Operations & Maintenance 50,316        48,784       52,499      50,430           29,249

  *Afghanistan Security    5,906         5,906        5,906       5,906            2,953
  Fund*                                                                            

  *Iraq Security Fund*     3,842         3,842        3,842       3,842            1,921

  *Iraq Freedom Fund*      206           456          156         356              

  *Joint Improvised        2,433         2,433        2,433       2,433            1,216
  Explosive Device Defeat                                                          
  Fund*                                                                            

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

  Procurement              24,900        24,508       24,814      25,592           3,008

  R&D, Test & Evaluation   1,448         1,190        1,035       1,099            0

  Defense Working Capital  1,316         1,321        1,316       1,321            0
  Fund                                                                             

  Drug Interdiction &      259           255          259         255              0
  Counter Drug Activities                                                          

  Intelligence Community   67            72           57          72               0
  Management Account                                                               

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

  National Defense Sealift 5             5            5           5                0
  Fund                                                                             
  ------------------------ ------------- ------------ ----------- ---------------- --------

**[Conditional Funding for Military Operations in Iraq and Afghanistan
(Title I):]{.underline}**

[]{.mark}

In millions

  ------------------------ ------------- ------------ ----------- ---------------- --------
  **Department of          **Request**   **Senate**   **House**   **Conference**   **H.R.
  Defense**                                                                        2206**

  Military Personnel       12,145        13,435       13,566      13,508           6,292

  Operations & Maintenance 50,316        48,784       52,499      50,430           21,154

  *Afghanistan Security    5,906         5,906        5,906       5,906            2,953
  Fund*                                                                            

  *Iraq Security Fund*     3,842         3,842        3,842       3,842            1,921

  *Iraq Freedom Fund*      206           456          156         356              356

  *Joint Improvised        2,433         2,433        2,433       2,433            1,216
  Explosive Device Defeat                                                          
  Fund*                                                                            

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

  Procurement              24,900        24,508       24,814      25,592           22,583

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

  Defense Working Capital  1,316         1,321        1,316       1,321            5
  Fund                                                                             

  Drug Interdiction &      259           255          259         255              255
  Counter Drug Activities                                                          

  Intelligence Community   67            72           57          72               72
  Management Account                                                               

  Defense Health Program   1,073         2,467        2,790       3,252            0

  National Defense Sealift 5             5            5           5                5
  Fund                                                                             
  ------------------------ ------------- ------------ ----------- ---------------- --------

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

*[Note]{.underline}: Language in this section is the same as that in the
conference report of the original 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 the
execution of 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 Report on Benchmarks:**  Requires that the President
report to Congress by July 13, 2007, detailing:

-   "the progress the Government of Iraq has made in---

> \--giving the United States Armed Forces and Iraqi Security Forces the
> authority to pursue all extremists, including Sunni insurgents and
> Shiite militias;
>
> \--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;
>
> \--eradicating safe havens;
>
> \--reducing the level of sectarian violence in Iraq; and
>
> \--ensuring that the rights of minority political parties in the Iraqi
> Parliament are protected; and

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

If such report is not filed on time, emergency funding under Title I,
Chapter 2 of this legislation (a variety of military funding accounts)
could not be obligated.

**[NOTE]{.underline}:** **The conference report of the original
Supplemental included essentially the same benchmarks and required a
certification date of July 1, 2007 (as opposed to the July 13, 2007
report date in the new legislation). In neither piece of legislation are
such key terms as "intensifying efforts" or "fair and just enforcement"
defined.**

[]{.mark}

**Congressional Approval Resolution and Withdrawal from Iraq:**  In
order for Title I, Chapter 2 funding to be obligated past July 13, 2007,
in addition to the on-time filing of the required report above, Congress
would also have to affirmatively approve the continued funding. This
joint resolution of approval, which would have to be signed into law,
would be structured as follows:

-   The resolution would have to be introduced by the Appropriations
    Committee Chairman in either the House or Senate on the first
    legislative day following the filing of the above presidential
    report.

-   The resolution could only read: "That the Congress approves the
    obligation and expenditure of funds provided by chapter 2 of title I
    of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and
    Iraq Accountability Appropriations Act, 2007."

-   The resolution would not be amendable in committee of either body.

-   Each appropriations committee would have four legislative days to
    report the resolution, otherwise the resolution would automatically
    be placed on the calendar of each body.

-   In the House, the resolution would be considered (within two
    legislative days of being reported from committee or of the
    committee being discharged) under a modified closed rule, allowing
    no amendment except one to restrict Iraq funding only to troop
    withdrawal from Iraq within 180 days of the joint resolution's
    enactment, diplomatic services, limited actions against al-Qaeda and
    other terrorist organizations, and training and equipping Iraqi
    Security Forces.

-   In the Senate, any senator could move to proceed to the
    consideration of the resolution (immediately upon being reported
    from committee or the committee being discharged). The motion would
    not be amendable, and no motion to postpone, reconsider, and proceed
    to other business would be in order. There would be a minimum five
    hours of debate, and no amendment to the joint resolution would be
    in order. A vote on final passage would have to occur.

-   If the House passed a joint resolution before the Senate, the Senate
    would have to take up the House resolution.

**[NOTE]{.underline}: The conference report of the original Supplemental
contained a two-tiered withdrawal date of October 1, 2007 (if the
President did not certify one aspect of progress), and March 1, 2008 (if
the President certified progress on all benchmarks). The original
Supplemental contained no provisions for a joint resolution of approval.
This new Supplemental, unlike the conference report for the original
Supplemental, contains no language prohibiting a return to Iraq or
requiring the Multinational Forces Commander in Iraq and the U.S.
Ambassador to Iraq to jointly report to Congress every 60 days on the
current progress being made by the Government of Iraq**

**[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 and congressional
action on an approval resolution in this Supplemental to launch more
attacks and/or to focus their current attacks on ensuring that one or
more of the benchmarks required for the presidential report are not met.

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

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

**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 FY 2007, the Secretary of Defense may also transfer \$6.3 billion
of the amounts credited to Defense Cooperation Account.

**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.

**Military Bases in Iraq**: Prohibits use of funds to establish
permanent bases for U.S. military personnel in Iraq or to exercise U.S.
control over any oil resource of Iraq .

**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.

**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 FY 2006 Defense Appropriations bill to the Military
Construction account for the Army.

**Transfer of Funds to Pakistan:** Allows up to \$110 million to be
transferred from other sections of the bill to support programs in
Pakistan.

[]{.mark}

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

**[Other International and Security-Related Funding (Title
II):]{.underline}**

[]{.mark}

*In millions*

  ------------------------ ------------- ------------ ----------- ---------------- --------
  **Department of Homeland **Request**   **Senate**   **House**   **Conference**   **H.R.
  Security**                                                                       2206**

  Departmental Management  0             0            35          15               15
  & Operations                                                                     

  Customs and Border       0             140          100         115              115
  Protection                                                                       

  Air & Marine             0             75           150         120              120
  Interdiction                                                                     

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

  Transportation Security  0             660          1,250       970              970
  Administration                                                                   

  Federal Air Marshals     0             15           0           8                8

  Infrastructure           0             18           25          37               37
  Protection & Information                                                         
  Security                                                                         

  Office of Health Affairs 0             18           0           15               15

  FEMA, Salaries &         0             20           25          25               25
  Expenses                                                                         

  FEMA, State and Local    0             850          415         553              553
  Programs                                                                         

  FEMA, Emergency          0             100          100         100              100
  Management Performance                                                           

  US Citizenship and       0             30           0           10               10
  Immigration Services                                                             

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

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

  Domestic Nuclear         0             0            400         224              224
  Detection Office,                                                                
  Systems Acquisition                                                              

  **Department of Energy**                                                         

  Defense Nuclear          63            63           150         150              150
  Nonproliferation                                                                 

  **Department of                                                                  
  Justice**                                                                        

  General Legal            4             4            2           2                2
  Activities, Salaries &                                                           
  Expenses                                                                         

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

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

  National Security        2             2            2           2                2
  Division                                                                         

  FBI, Salaries & Expenses 118           348          118         268              268

  Drug Enforcement         8             25           8           12               12
  Administration                                                                   

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

  Federal Prison System    17            17           17          17               17

  **Legislative Branch**                                                           

  House of                 0             0            6           6                6
  Representatives,                                                                 
  Salaries & Expenses                                                              

  **Department of State**                                                          

  Diplomatic and Consular  913           816          967         871              871
  Affairs                                                                          

  Inspector General        35            37           47          37               37

  Education and Cultural   20            10           20          20               20
  Exchange Programs                                                                

  International            0             59           0           50               50
  Organizations                                                                    
  Contributions to                                                                 
  International                                                                    
  Organizations                                                                    

  International            200           200          288         288              288
  Peacekeeping Activities                                                          

  International            10            10           10          10               10
  Broadcasting Operations                                                          

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

  International Disaster   0             187          135         165              165
  and Famine Assistance                                                            

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

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

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

  Assistance for Eastern   279           214          239         229              229
  Europe                                                                           

  Department of State      0             465          0           260              260
  Democracy Fund                                                                   

  International Narcotics  260           210          335         257              257
  Control                                                                          

  Migration and Refugee    72            143          112         131              131
  Assistance                                                                       

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

  Nonproliferation,        28            28           88          58               58
  Antiterrorism, &                                                                 
  Demining                                                                         

  **Department of                                                                  
  Treasury**                                                                       

  International Affairs    3             3            3           3                3
  Technical Assistance                                                             

  **Funds Appropriated to                                                          
  the President**                                                                  

  Foreign Military         220           220          260         265              265
  Financing Program                                                                

  Peacekeeping Operations  278           323          225         230              230

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

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

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

[]{.mark}

**[Note:]{.underline}** In addition to funding in the table above, a
self-executing amendment (to be added to the bill upon adoption of the
rule), adds \$460 million for PL-480 Title II grants and \$40 million
for the Bill Emerson Humanitarian Trust. Both funding levels are the
same as the conference report for H.R. 1591.

[]{.mark}

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

**Transfer of Funds:** Allows the Administrator of the National Nuclear
Security Administration to transfer up to \$1 million from Defense
Nuclear Nonproliferation to the Office of the Administrator during FY
2007.

**Transportation Security Administration (TSA), Aviation Security:** Of
the \$970 million for TSA, \$815 million is for procurement and
installation of checked baggage explosives detective systems, \$45
million is for expansion of checkpoint explosives detection pilot
systems, and \$110 million is for air cargo security.

**FEMA, State and Local Programs:** Of the \$553 million for FEMA (State
and Local Programs) \$190 million is for port security grants, \$325
million is for intercity rail passenger transportation, \$35 million is
for regional grants and regional technical assistance to high risk urban
areas for catastrophic event planning and preparedness, and \$2.5
million is for technical assistance.

**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 III):]{.underline}**

[]{.mark}

In millions

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

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

  NASA, Exploration        0             0            35          35               35
  Capabilities                                                                     

  **Department of                                                                  
  Justice**                                                                        

  Office of Justice        0             170          0           50               50
  Programs                                                                         

  **Department of                                                                  
  Defense**                                                                        

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

  **Small Business                                                                 
  Administration**                                                                 

  Disaster Loan Program    0             25           25          25               25
  Account                                                                          

  **Department of Homeland                                                         
  Security**                                                                       

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

  **Department of the                                                              
  Interior**                                                                       

  Historic Preservation    0             15           0           10               10
  Fund                                                                             

  **Department of                                                                  
  Education**                                                                      

  Hurricane Education      0             30           30          30               30
  Recovery                                                                         

  Higher Education         0             30           30          30               30

  **Department of                                                                  
  Transportation**                                                                 

  Federal Aid Highways,    0             389          0           683              683
  Emergency Relief Program                                                         

  Federal Transit          0             75           0           35               35
  Administration, Formula                                                          
  Grants                                                                           

  **Department of HUD**                                                            

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

[]{.mark}

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

**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%.

**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.

**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.

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

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

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

[]{.mark}

In millions

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

  Corps of Engineers       0             3            0           3                12

  Flood Control and        0             150          0           150              153
  Coastal Emergencies                                                              

  Water and Related        0             18           0           18               18
  Resources, Interior                                                              

  Fish & Wildlife          0             7            7           7                7
  Services, Interior                                                               

  National Park Service,   0             1            1           1                1
  Interior                                                                         

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

  Forest Service           0             12           0           12               12

  CDC                      0             17           0           63               63

  LIHEAP                   0             640          400         400              400

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

  Covered Countermeasure   0             50           50          25               25
  Process Fund                                                                     

  Architect of the Capitol 0             25           50          50               50

  Capitol Police , Radio   0             0            0           0                15
  Modernization                                                                    

  VA, Medical Services     0             454          415         467              467

  VA, Medical              0             250          256         250              250
  Administration                                                                   

  VA, Medical Facilities   0             595          595         595              595

  VA, Medical and          0             30           35          33               33
  Prosthetic Research                                                              

  VA, Departmental         0             46           62          83               83
  Administration                                                                   

  VA, Information          0             36           35          35               35
  Technology Systems                                                               

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

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

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

**Avian Flu**:  Provides \$625 million for the Department of HHS to
continue to prepare and respond to an avian flu pandemic. The money is
to be used for "activities including the development and purchase of
vaccine, antivirals, necessary medical supplies, diagnostics, and other
surveillance tools."

**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.  

**Capitol Police Radio Modernization:** Provides \$15 million for a
radio modernization program for the Capitol Police.

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

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

[]{.mark}

In millions

  ------------------------ ------------- ------------ ----------- ---------------- --------
                           **Request**   **Senate**   **House**   **Conference**   **H.R.
                                                                                   2206**

  Farm Service Agency      0             75           48          38               38

  Office of Federal        0             5            8           6                6
  Housing 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 FY 2006 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) 226-0719

**[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 previously scored 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 (Title VII):]{.underline}**

**Minimum Wage Increase:** [Mandates that employers give some of their
employees a 41% raise over two years]{.underline}. 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.**

**American Samoa and Northern Mariana Islands:**  Applies a federal
minimum wage to the Commonwealth of the Northern Mariana Islands AND
American Samoa and increases it steadily until it matches the new
[\$7.25 mandate]{.underline} 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 and
American Samoa would be given harsher treatment than the other U.S.
territories.

**Assessment Report:** Requires the Secretary of Labor, beginning 26
months after enactment of this legislation, to study the impact of wage
increases required by this legislation and project the future impact on
American Samoa and the Northern Mariana Islands.

**NOTE: The minimum wage provisions are essentially the same as those in
the conference report for the original Supplemental, except that this
new bill applies the federal minimum wage to American Samoa and contains
a reporting requirement.**

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
114.25%, requiring businesses to pay even more of their taxes early.

**[NOTE]{.underline}: These tax provisions are identical to those in the
conference report for the original Supplemental.**

**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 conference report of the original
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. There is no
indication that the revenue estimate is different for the tax portion of
this new Supplemental.

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