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103D CONGRESS

2D SESSION H. R. 5121

To assist in the economic conversion and diversification of industries and

small businesses in the defense industrial base of the United States

that are adversely affected by significant reductions in spending for

national defense.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 28, 1994

Mr. KLINK introduced the following bill; which was referred jointly to the

Committees on Energy and Commerce, Armed Services, Ways and

Means, and Foreign Affairs

A BILL

To assist in the economic conversion and diversification of

industries and small businesses in the defense industrial

base of the United States that are adversely affected

by significant reductions in spending for national defense.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Defense Industrial

5 Conversion Act of 1994’’.

6 SEC. 2. FINDINGS AND PURPOSE.

7 (a) FINDINGS.—Congress finds the following:
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1 (1) In recent years, the United States has re2 duced its defense spending.

3 (2) The reduction in United States defense

4 spending is likely to continue in the foreseeable fu5 ture.

6 (3) Reductions in United States defense spend7 ing have resulted and will continue to result in lay8 offs and downsizing in industries and small busi9 nesses that are economically dependent on defense10 related procurement.

11 (b) PURPOSE.—The purpose of this Act is to assist

12 the economic conversion, adjustment, and diversification

13 of industries, small businesses, communities, and workers

14 economically dependent on defense spending through the

15 dissemination of information, the availability of tax cred16 its, and creation of a Defense Industrial Conversion Fund.

17 SEC. 3. OFFICE OF ECONOMIC CONVERSION INFORMATION.

18 (a) ESTABLISHMENT.—There is established within

19 the Department of Commerce the Office of Economic Con20 version Information (in this section referred to as the ‘‘Of21 fice’’).

22 (b) PURPOSE.—It is the purpose of the Office—

23 (1) to serve as a central information clearing24 house on matters relating to economic adjustment

25 and defense conversion programs and activities of
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1 the Federal and State governments, including politi2 cal subdivisions of the States; and

3 (2) to help potential and actual applicants for

4 economic adjustment and defense conversion assist5 ance under Federal, State and local laws in locating

6 and applying for such assistance, including financial

7 and technical assistance.

8 (c) DIRECTOR AND STAFF.—The Office shall be

9 headed by a Director. The Secretary of Commerce shall

10 appoint and fix the compensation of the Director. The Di11 rector may appoint such personnel as may be necessary

12 to enable the Office to perform its duties.

13 (d) INFORMATION DATABASES.—

14 (1) USES.—The Office shall develop informa15 tion databases for use by Federal departments and

16 agencies, State and local governmental agencies,

17 public and private entities, and individuals to assist

18 such agencies, entities, and individuals in the proc19 ess of identifying and applying for assistance and re20 sources under economic adjustment and defense con21 version programs and activities of the Federal,

22 State, and local governments.

23 (2) FEDERAL AGENCIES AND PROGRAMS.—The

24 databases established pursuant to paragraph (1)

25 shall include a comprehensive compilation of all rel-
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1 evant information concerning available economic ad2 justment and defense conversion-related programs of

3 the Federal Government. The compilation shall iden4 tify the administering department, office, or agency,

5 which administers such programs, and key contact

6 people; and descriptions of the application process,

7 eligibility requirements and criteria, selection, and

8 follow up procedures. Such compilation shall also in9 clude data as to the expenditure of funds under such

10 programs, projects supported by such programs, and

11 the types and amounts of funding available for as12 sistance under such programs.

13 (3) RANGE OF PROGRAMS.—The range of pro14 grams covered by the database shall include the fol15 lowing:

16 (A) Worker adjustment assistance for pri17 vate sector employees and Federal civilian and

18 military personnel.

19 (B) Community adjustment assistance

20 (planning and implementation), including the

21 so-called ‘‘bricks and mortar’’ programs, such

22 as infrastructure rebuilding, and airport im23 provement.

24 (C) Technology development and deploy25 ment programs administered through the Ad-
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1 vanced Research Projects Agency, Department

2 of Defense, coordinated Technology Reinvest3 ment Project.

4 (D) Other relevant technology research

5 and development programs administered by the

6 Department of Commerce, National Aero7 nautics and Space Administration, Department

8 of Energy, the Environmental Protection Agen9 cy, Department of Transportation, and the Na10 tional Institutes of Health and other technology

11 agencies.

12 (E) Small business assistance (financial,

13 technical, marketing).

14 (F) Defense facility environmental restora15 tion.

16 (G) Available tax credits and incentives,

17 relevant regulatory information (environmental,

18 occupational health and safety, and intellectual

19 property rights) affecting application proce20 dures and the implementation of federally sup21 ported projects involving economic adjustment

22 and defense conversion.

23 (4) AVAILABLE ASSISTANCE.—In developing

24 such database, the Office shall survey all Federal de25 partments and agencies in order to identify all rel-
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1 evant assistance and resources that may be available

2 to assist defense-dependent communities, businesses,

3 and workers in their adjustment and conversion ef4 forts, especially the Department of Defense, the De5 partment of Commerce, the Department of Labor,

6 the Small Business Administration, the Department

7 of Housing and Urban Development, the Depart8 ment of Health and Human Services, the Depart9 ment of Education, the Department of Transpor10 tation, the National Science Foundation, the Na11 tional Aeronautics and Space Administration, and

12 the Environmental Protection Agency.

13 (5) DATABASE OF MAJOR STATE AND LOCAL

14 PROGRAMS.—The Office shall establish a database

15 containing State and local governmental economic

16 adjustment and defense conversion assistance pro17 grams. Such database shall include a current listing

18 of appropriate offices, officers, and contact personnel

19 connected with, or involved in, such programs.

20 (6) DEFENSE CUTBACK EARLY WARNING

21 DATABASE.—The Office, working with the Secretary

22 of Defense, shall establish and keep current a

23 database containing a listing of available defense

24 contracts, and information listing military bases and

25 installations expected to be closed, cut back, or re-
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1 aligned, or which are in the process of being closed,

2 cut back, or realigned, including a current listing of

3 States, communities, industries, firms, and employ4 ment likely to be most adversely affected as a result

5 thereof.

6 (7) DATABASE OF CONVERSION EFFORTS AND

7 SUCCESSES.—The Office shall establish a database

8 of listings and descriptions of defense conversion ef9 forts, their successes and failures, as well as a cur10 rent listing of ongoing conversion and assistance ef11 forts by communities, contractors, and small- and

12 mid-sized businesses, and labor organizations.

13 (8) REFERENCE LISTS AND BIBLIOGRAPHIES.—

14 The Office shall establish a database which shall in15 clude a listing of published works (books, reports,

16 articles, videos, and tapes) related to all facets of de17 fense economic adjustment and defense conversion.

18 Such listing shall further include manuals relating to

19 economic adjustment and defense conversion devel20 oped by the National Governors Association, the Na21 tional League of Cities, public interest groups, labor

22 unions, business associations, and similar organiza23 tions, and a listing of contact organizations and peo24 ple for obtaining such references. The Office shall

25 also maintain in electronic form the full texts of se-
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1 lected references and make such references available

2 to the public through online services.

3 (9) ALTERNATIVE PRODUCT BANK FOR INDUS4 TRIES AND FIRMS.—The Office shall establish a

5 databank of potentially commercializable tech6 nologies and products matched to the capabilities of

7 defense-dependent industries and firms. Such

8 databank shall include a short overview of market

9 potential and shall identify potential programs in

10 Federal, State and local governments that may be

11 available to support technology development, deploy12 ment, and commercialization in these specific areas.

13 (e) MULTIPLE POINTS OF PUBLIC ACCESS TO

14 DATABASES.—

15 (1) EASY ACCESS.—The Office shall establish

16 several mechanisms to assure easy access by the

17 public and others to such databases, and to assure

18 that the databases be as accessible, user-friendly,

19 culturally neutral, and affordable as possible. In ad20 dition, the Office shall conduct an extensive outreach

21 to States and communities, especially in the most

22 defense-dependent regions of the Nation, and to a

23 wide range of constituencies, including State and

24 local government officials, chambers of commerce,

25 industrial organizations, labor unions, and commu-
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1 nity organizations, to publicize the existence of

2 databanks and other assistance and services pro3 vided by this Act, and how to acquire such assist4 ance and services, and access such databanks.

5 (2) 1–800–TOLL FREE NUMBER.—The Office

6 shall establish a toll free 1–800 number to provide

7 a first point of entry into the Office information

8 database system. An individual calling such number

9 shall receive information on how to use the Office

10 databases, how to receive printed materials, and how

11 to contact appropriate people in other governmental

12 agencies for information about specific programs,

13 and answer other requests regarding services of the

14 Office.

15 (3) ONLINE ELECTRONIC ACCESS THROUGH

16 NETWORK.—Databases established by the Office

17 shall be easily accessible through existing computer

18 networks and publicly available computer database

19 access facilities, such as at repository libraries and

20 by direct call-in via modem, and shall be menu-driv21 en and highly user-friendly.

22 (4) PRINTED MANUALS AND ORIENTATION MA23 TERIALS.—The Office shall develop and make avail24 able to the public and others a printed manual, and

25 other printed material, reviewing the major Federal
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1 agencies and programs engaged in economic adjust2 ment, defense conversion, and technology invest3 ments. It shall also serve as a guide to using the

4 databases and services of the Office, list State and

5 local contacts and resources, and include a bibliog6 raphy of major reference materials.

7 (5) ORIENTATION WORKSHOPS.—The Office

8 shall offer periodic workshops (1–2 weeks long)

9 available to selected representatives from defense-de10 pendent communities, businesses, and occupational

11 groups, to orient and train them in using the Office

12 and the services of the Office.

13 (6) INFORMATION SPECIALISTS.—The Office

14 shall maintain on-call economic adjustment and con15 version information specialists to address special

16 problems requiring person-to-person assistance, as

17 needed.

18 (f) PROGRAM EVALUATION.—

19 (1) REVIEW.—The Office shall conduct a regu20 lar review of the various agencies and programs in

21 the Federal system involving economic adjustment

22 and defense conversion. Such review shall evaluate

23 the procedures of these agencies and programs, and

24 the success of their activities. Such reviews shall be

25 based on periodic surveys of both Federal officials
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1 and recipients of economic adjustment and defense

2 conversion assistance. The Office shall identify prob3 lems with the programs and barriers to entry in

4 such programs, for inclusion in the databases estab5 lished pursuant to this section. Such review shall in6 clude recommendations for improving such pro7 grams.

8 (2) COMMUNITY ROUNDTABLES.—The Office

9 shall conduct, on an annual basis, consultative meet10 ings and briefings with defense-impacted constitu11 encies drawn from local and State governments,

12 business, labor, community and public interest orga13 nizations and academic institutions. Such meetings

14 and briefings shall be held in all major defense-de15 pendent regions of the United States, both to intro16 duce its programs and receive comments and rec17 ommendations concerning its services and how to ex18 pand and improve them.

19 SEC. 4. DEFENSE CONVERSION TAX CREDIT.

20 (a) GENERAL RULE.—Section 46 of the Internal

21 Revenue Code of 1986 (relating to amount of investment

22 credit) is amended—

23 (1) by striking ‘‘and’’ at the end of paragraph

24 (2),
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1 (2) by striking the period at the end of para2 graph (3) and inserting ‘‘, and’’, and

3 (3) by adding at the end thereof the following

4 new paragraph:

5 ‘‘(4) the defense conversion credit.’’

6 (b) DEFENSE CONVERSION CREDIT.—Section 48 of

7 such Code is amended by adding at the end thereof the

8 following new subsection:

9 ‘‘(c) DEFENSE CONVERSION CREDIT.—

10 ‘‘(1) IN GENERAL.—For purposes of section 46,

11 the defense conversion credit for any taxable year is

12 the sum of—

13 ‘‘(A) the defense conversion employment

14 credit for the taxable year, and

15 ‘‘(B) the defense conversion investment

16 credit for the taxable year.

17 ‘‘(2) DEFENSE CONVERSION EMPLOYMENT

18 CREDIT.—

19 ‘‘(A) IN GENERAL.—The defense conver20 sion employment credit for any taxable year is

21 10 percent of the qualified wages paid or in22 curred by a qualified employer during such

23 year.

24 ‘‘(B) QUALIFIED WAGES.—For purposes of

25 this subsection—
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1 ‘‘(i) IN GENERAL.—The term ‘quali2 fied wages’ means the wages (as defined in

3 clause (ii)) paid or incurred by the quali4 fied employer during the taxable year to,

5 and amounts paid or incurred by the quali6 fied employer to third parties for retrain7 ing expenses with respect to, qualified con8 version employees during the period com9 mencing on January 1, 1995, and ending

10 on December 31, 1999 (‘the qualified pe11 riod’).

12 ‘‘(ii) WAGES DEFINED.—Except as

13 provided in subparagraph (C)(ii), the term

14 ‘wages’ has the meaning given to such

15 term by subsection (b) of section 3306 (de16 termined without regard to any dollar limi17 tation contained in such section), but the

18 amount of wages during any taxable year

19 which may be taken into account with re20 spect to any individual shall not exceed 25

21 percent of the wages (determined without

22 regard to this subsection) paid to such in23 dividual during such taxable year or por24 tion thereof included within the qualified

25 period.
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1 ‘‘(iii) RETRAINING EXPENSES.—The

2 term ‘retraining expenses’ includes all

3 amounts paid or incurred with respect to

4 educational or training programs in which

5 a qualified conversion employee partici6 pates to learn or improve skills necessary

7 or useful to such employee’s employment in

8 the qualified employer’s nondefense-related

9 business.

10 ‘‘(C) QUALIFIED CONVERSION EMPLOY11 EES.—

12 ‘‘(i) IN GENERAL.—For purposes of

13 this subsection, the term ‘qualified conver14 sion employees’ means an employee of a

15 qualified employer who had been employed

16 by the qualified employer or another em17 ployer in a defense-related business and

18 who is employed by the qualified employer

19 in a nondefense-related business during the

20 taxable year.

21 ‘‘(ii) PRORATION IN CASE OF DUAL

22 EMPLOYMENT.—If a qualified conversion

23 employee is employed by the qualified em24 ployer in both a defense-related business

25 and a nondefense-related business during
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1 the taxable year, only the portion of the

2 employee’s wages properly allocable to em3 ployment in the nondefense-related busi4 ness shall be treated as ‘wages’ for pur5 poses of subparagraph (B)(ii).

6 ‘‘(D) QUALIFIED EMPLOYER.—For pur7 poses of this paragraph, a qualified employer is

8 an employer which is engaged in a qualified

9 business (as defined in paragraph (3)(D)).

10 ‘‘(3) DEFENSE CONVERSION INVESTMENT

11 CREDIT.—

12 ‘‘(A) IN GENERAL.—The defense conver13 sion investment credit for any taxable year is

14 the applicable percentage of the qualified con15 version investment by a qualified business dur16 ing the taxable year.

17 ‘‘(B) APPLICABLE PERCENTAGE.—For

18 purposes of this paragraph—

19 ‘‘(i) IN GENERAL.—The applicable

20 percentage shall be 5 percent for all tax21 able years ending after December 31,

22 1994, and on or before December 31,

23 1999.

24 ‘‘(ii) INCREMENTAL EMPLOYMENT IN25 CENTIVE PERCENTAGE.—The applicable
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1 percentage shall be 8 percent for any tax2 able year ending after December 31, 1994,

3 and on or before December 31, 1999, if in

4 such year the number of employees of the

5 qualified business increases 4 percent or

6 more over the average number of employ7 ees of the qualified business during the 3

8 preceding years (the ‘qualifying increase’).

9 ‘‘(iii) RECAPTURE IN CASE OF DE10 CREASED EMPLOYMENT.—If a qualified

11 business claims the benefit of the incre12 mental employment incentive percentage

13 under clause (ii), and its average employ14 ment during any of the 3 years following

15 the year in which the benefit of the in16 creased percentage was claimed falls below

17 the qualifying increase level (a ‘disqualify18 ing decrease’), the qualified business shall

19 increase its tax liability for the year during

20 which the disqualifying decrease occurred

21 by the difference between the credit to

22 which it would have been entitled under

23 clause (i) and the credit claimed under

24 clause (ii).
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1 ‘‘(C) QUALIFIED CONVERSION INVEST2 MENT.—For purposes of this paragraph—

3 ‘‘(i) IN GENERAL.—The term ‘quali4 fied conversion investment’ means the

5 costs paid or incurred by a qualified busi6 ness during the taxable year for the pur7 pose of acquiring, constructing, creating,

8 or developing any tangible or intangible as9 sets, in connection with the conduct of the

10 qualified business’ nondefense-related busi11 ness, except that such term shall not in12 clude direct production costs of any prop13 erty held by the qualified business for sale

14 to customers in the ordinary course of its

15 trade or business.

16 ‘‘(ii) INTANGIBLE ASSETS.—The term

17 ‘intangible assets’ includes all ‘intangible

18 property’ as defined in section

19 936(h)(3)(B) (other than literary, musical

20 or artistic compositions) and specifically

21 includes processes and products, models,

22 and prototypes.

23 ‘‘(D) QUALIFIED BUSINESS.—For pur24 poses of this subsection and pursuant to regula25 tions to be prescribed by the Secretary—
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1 ‘‘(i) IN GENERAL.—The term ‘quali2 fied business’ means any corporation, part3 nership, or sole proprietorship or separate

4 unit thereof in existence on January 1,

5 1995, which derived a substantial portion

6 of its gross receipts or incurred a substan7 tial portion of its gross costs during the 5

8 years preceding January 1, 1995, from 1

9 or more defense-related businesses, and

10 which derives a significant portion of its

11 gross receipts from (or incurs a significant

12 amount of costs in acquiring or developing)

13 1 or more nondefense-related businesses

14 during the taxable year.

15 ‘‘(ii) DEFENSE-RELATED BUSINESS.—

16 A ‘defense-related business’ is an activity

17 in connection with the development or pro18 duction (pursuant to a contract or sub19 contract) of any property designed, modi20 fied, or equipped for military purposes (in21 cluding NASA).

22 ‘‘(iii) NONDEFENSE-RELATED BUSI23 NESS.—A ‘nondefense-related business’ is

24 any activity in connection with the develop25 ment or production of any property not de-
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1 signed, modified, or equipped for military

2 purposes which uses a significant portion

3 of assets and employees which had been

4 employed in a defense-related business.’’

5 (c) ACCELERATED DEPRECIATION OF EXCESS DE6 FENSE CONVERSION PROPERTY.—

7 (1) Subsection (b)(3) of section 168 of such

8 Code is amended by adding at the end thereof the

9 following new subparagraph:

10 ‘‘(F) Property described in subsection

11 (e)(3)(B)(vii).’’

12 (2) Subsection (e)(3)(B) of section 168 of such

13 Code is amended by striking ‘‘and’’ at the end of

14 clause (v), by striking the period at the end of clause

15 (vi) and inserting ‘‘, and’’, and by adding at the end

16 thereof the following new clause:

17 ‘‘(vii) any qualifying excess defense

18 conversion property.’’

19 (3) Subsection (i) of section 168 of such Code

20 is amended by adding at the end thereof the follow21 ing new paragraph:

22 ‘‘(14) QUALIFYING EXCESS DEFENSE CONVER23 SION PROPERTY.—

24 ‘‘(A) The term ‘qualifying excess defense

25 conversion property’ means, with respect to
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1 property owned or leased by the taxpayer and

2 otherwise subject to depreciation under this sec3 tion and which is ‘excess defense conversion

4 property’ (as defined in subparagraph (B)), the

5 basis of property (or the portion thereof) con6 stituting excess defense conversion property

7 owned by the taxpayer or the total discounted

8 cost of lease obligations during the remaining

9 term of the lease applicable to excess conversion

10 property leased by the taxpayer.

11 ‘‘(B) The term ‘excess defense conversion

12 property’ means property that—

13 ‘‘(i) has been used by the taxpayer in

14 a defense-related business (as defined in

15 section 48(c)(3)(D)); and

16 ‘‘(ii) is not being used in the taxable

17 year, and is not reasonably expected to be

18 used in the foreseeable future, in a de19 fense-related business.

20 ‘‘(C) Any deductions claimed by a taxpayer

21 with respect to property reported on its return

22 as qualifying excess defense conversion property

23 and which is later determined as not constitut24 ing excess defense conversion property shall be
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1 recaptured at the rate of 150 percent of the de2 ductions so claimed.

3 ‘‘(D) For purposes of this section, the

4 amount of the property’s basis constituting

5 qualifying excess defense conversion property

6 shall be considered to be placed in service on

7 the first day of the taxable year in which the

8 property is determined to constitute qualifying

9 excess defense conversion property.’’

10 (d) EFFECTIVE DATE.—The amendments made by

11 this section shall take effect on January 1, 1995.

12 SEC. 5. FUNDING OF DEFENSE CONVERSION ACTIVITIES

13 USING FUNDS RECOUPED FROM DEFENSE

14 EXPENDITURES OUTSIDE THE UNITED

15 STATES.

16 (a) AGREEMENTS TO RECOUP DEFENSE COSTS.—

17 The President should endeavor to enter into an agreement

18 with each European member nation of the North Atlantic

19 Treaty Organization in which members of the Armed

20 Forces of the United States are stationed and with Japan

21 and the Republic of Korea to provide for the payment by

22 such nation of at least one-half of the cost of maintaining

23 the Armed Forces of the United States in such nation,

24 including the cost of compensating members of the Armed

25 Forces stationed in such nation. Payments under such an
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1 agreement may be made in the form of money or real or

2 personal property.

3 (b) AUTHORITY TO ACCEPT PAYMENTS.—The Sec4 retary of Defense may accept any payment of money or

5 real or personal property made pursuant to any agreement

6 described in subsection (a).

7 (c) USE OF FUNDS.—Money accepted by the Sec8 retary of Defense under subsection (b), and proceeds from

9 the sale of any property so accepted by the Secretary of

10 Defense, shall be used by the Secretary to provide addi11 tional funds for defense conversion, reinvestment, and

12 transition assistance programs (as defined in section

13 1102(c) of the National Defense Authorization Act for

14 Fiscal Year 1995) of the Department of Defense.

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