I

103D CONGRESS

1ST SESSION H. R. 1776

To facilitate and assist in the economic adjustment and industrial diversification of defense industries, defense-dependent communities, and defense

workers that are adversely affected by the termination or reduction

of defense spending or defense-related contracts.

IN THE HOUSE OF REPRESENTATIVES

APRIL 21, 1993

Ms. DELAURO introduced the following bill; which was referred jointly to the

Committees on Armed Services, Ways and Means, Small Business, Education and Labor, Public Works and Transportation, and Banking, Finance and Urban Affairs

A BILL

To facilitate and assist in the economic adjustment and

industrial diversification of defense industries, defensedependent communities, and defense workers that are

adversely affected by the termination or reduction of

defense spending or defense-related contracts.

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 Diversification and Community Assistance Act of 1993’’.
2

•HR 1776 IH

1 SEC. 2. FINDINGS AND PURPOSE.

2 (a) FINDINGS.—Congress finds the following:

3 (1) As a result of the recent democratization of

4 Eastern Europe and collapse of the Soviet Union,

5 the United States is likely to reevaluate its national

6 defense needs and reorder its national spending pri7 orities.

8 (2) A decrease in defense spending and the re9 duction or elimination of expenditures for some de10 fense or defense-related procurement are likely con11 sequences of such actions.

12 (3) Reductions in such expenditures are likely

13 to result in terminations or reductions of defense-re14 lated procurement contracts.

15 (4) Such terminations and reductions have an

16 adverse impact upon industries and small businesses

17 that are economically dependent on defense-related

18 procurement, the workers of such industries and

19 businesses, and the economies of the regions in

20 which such industries and businesses are located.

21 (5) In 1986, defense spending accounted for 6.5

22 percent of the Gross National Product of the United

23 States (GNP), an increase from 4.8 percent of GNP

24 attributable to such spending in 1979.

25 (6) Adjusted for inflation, the percentage of the

26 GNP spent attributable to defense spending in 1986
3

•HR 1776 IH

1 was roughly equal to the percentage of the GNP at2 tributable to such spending in 1953, at the height

3 of the Korean War, and in 1968, at the height of

4 the Vietnam War.

5 (7) Since 1986, the rise in defense spending has

6 slowed, with the percentage of the GNP attributable

7 to such spending in 1989 falling to 5.9 percent.

8 (8) It is likely that the portion of the Federal

9 budget that is allocated for defense spending will

10 continue to fall throughout the 1990’s.

11 (9) The Department of Defense requires unique

12 specifications for nearly all the parts and equipment

13 procured by the Department.

14 (10) These specifications compel companies

15 that manufacture products pursuant to defense and

16 defense-related contracts and subcontracts to manu17 facture products that have applications only in the

18 defense sector, although many such products could

19 have applications in the civilian sector.

20 (11) Defense industries represent an important

21 segment of the United States industrial and tech22 nology base and cutbacks in defense spending should

23 be undertaken so as to enhance, rather than to af24 fect adversely, this industrial and technology base.
4

•HR 1776 IH

1 (12) The existence of a large military installa2 tion or defense or defense-related industrial facility

3 in a particular geographic area often results in the

4 existence of a network of smaller defense or defense5 related facilities in the same area.

6 (13) The existence of such a network in a geo7 graphic area often magnifies the disruption in the

8 economy and workforce of that area that results

9 from the impact of a reduction in defense spending

10 with respect to a large military installation or de11 fense or defense-related industrial facility.

12 (14) A lack of sufficient financial capital is one

13 of the most significant barriers that defense or de14 fense-related companies face in carrying out the di15 versification of such companies’ products into the ci16 vilian sector.

17 (15) The Federal Government has a compelling

18 obligation to mitigate economic distress for workers,

19 local economies, small businesses, and industries

20 that, by reason of their contributions to the national

21 security of the United States, have become economi22 cally dependent on defense spending by the Federal

23 Government.

24 (16) Predictions about reductions in defense

25 spending suggest that such reductions will occur at
5

•HR 1776 IH

1 a relatively rapid pace over the next several years,

2 making it prudent to begin promptly the process of

3 planning for the diversification of industries, busi4 nesses, and area economies that have become eco5 nomically dependent on defense and defense-related

6 spending by the Federal Government.

7 (b) PURPOSE.—It is the purpose of this Act—

8 (1) to facilitate and assist the economic adjust9 ment and industrial diversification of industries,

10 communities, and workers that are adversely af11 fected by the termination or reduction by the Fed12 eral Government of defense spending or defense or

13 defense-related contracts;

14 (2) to provide for a unified and comprehensive

15 response by the Federal Government to reductions

16 in levels of defense spending; and

17 (3) to minimize job and economic loss due to

18 reduced levels of defense spending by providing ad19 justment assistance to workers, communities, and

20 small businesses that are largely dependent on de21 fense spending.

22 SEC. 3. DEFINITIONS.

23 (a) DEFENSE AGENCY.—The term ‘‘defense agency’’

24 means the Department of Defense, the nuclear weapons

25 division of the Department of Energy, the National Aero-
6

•HR 1776 IH

1 nautics and Space Administration, the Coast Guard, and

2 any other agency of the Government to the extent such

3 agency conducts military or other defense related oper4 ations.

5 (b) DEFENSE CONTRACT.—The term ‘‘defense con6 tract’’ means any contract or subcontract entered into be7 tween a person or nonprofit organization, including sub8 contractors, components manufacturers, suppliers and

9 service contractors, and a defense agency to provide mate10 rial or defense related operations.

11 (c) DEFENSE CONTRACTOR.—The term ‘‘defense

12 contractor’’ means any facility engaged in the furnishing

13 of defense material pursuant to the terms of a defense

14 contract.

15 (d) DEFENSE FACILITY.—The term ‘‘defense facil16 ity’’ means any private plant or other establishment, or

17 part thereof, used under a defense contract or engaged

18 in the production, repair, modification, storage, or han19 dling of defense material, or any Government-owned or

20 Government-leased facility, including bases, forts, ship21 yards, and depots.

22 (e) QUALIFIED DEFENSE FACILITY.—The term

23 ‘‘qualified defense facility’’ means any defense facility at

24 least 35 percent of the average annual gross revenues of
7

•HR 1776 IH

1 which for the preceding 3 years are attributable to defense

2 contracts.

3 (f) SUBSTANTIALLY AND SERIOUSLY AFFECTED

4 COMMUNITY.—The term ‘‘substantially and seriously af5 fected community’’ means any community—

6 (A) which has, within its administrative and po7 litical jurisdiction, 1 or more defense facilities; and

8 (B) in which the curtailment, completion, elimi9 nation, or realignment of a defense contract or pro10 gram or the realignment or closure of any defense

11 facility results in a workforce reduction, over a 12-

12 month period, of 250 or more employees (including

13 part time employees) who in the aggregate work at

14 least 10,000 hours per week, exclusive of hours of

15 overtime.

16 (g) QUALIFIED SMALL MANUFACTURING FIRM.—

17 The term ‘‘qualified small manufacturing firm’’ means

18 any facility which—

19 (1) employs less than 500 employees;

20 (2) is independently owned and operated;

21 (3) is not dominant in its field of operation;

22 (4) has gross revenues consisting of at least 50

23 percent value-added manufacturing activity;

24 (5) has gross revenues consisting of at least 35

25 percent defense contracts; and
8

•HR 1776 IH

1 (6) can demonstrate that such facility has ei2 ther recently experienced or will experience the can3 cellation of a defense contract causing the significant

4 reduction in the volume of defense work in relation

5 to the total defense work in such facility.

6 TITLE I—INDUSTRIAL

7 DIVERSIFICATION STUDY

8 SEC. 101. STUDY AND REPORT REQUIRED.

9 (a) STUDY.—The Secretary of Commerce, in con10 sultation with the Administrator of the Small Business

11 Administration, the Secretary of Defense, and the Direc12 tor of the Advanced Research Projects Agency (ARPA)

13 shall study the extent to which diversification of defense

14 industries to non-defense production can be effectuated.

15 (b) CONTENTS OF STUDY.—The study shall in16 clude—

17 (1) an inventory of the number and type of

18 manufacturing firms in the United States that indi19 vidually receive annual defense contracts totaling

20 over $2,000,000;

21 (2) an historical analysis of the percentage of

22 the Nation’s Gross National Product directly related

23 to defense spending and the role of such defense

24 spending in the economy;
9

•HR 1776 IH

1 (3) a geographic inventory of the regions of the

2 United States most dependent on defense spending,

3 including an analysis of the effect that potential cuts

4 in defense spending will have on the economies of

5 these regions;

6 (4) an analysis of the potential effect that de7 fense cutbacks will have on both the Nation’s tech8 nological base and industrial base, including—

9 (A) the amount of the defense budget

10 allocated for basic and applied research and de11 velopment purposes and the effect of defense re12 ductions on such research and development, in13 cluding the effect on civilian and strategic de14 fense basic and applied research and develop15 ment; and

16 (B) an inventory of the extent of and na17 ture of the civilian-use advanced technologies

18 that have developed as a result of defense-spon19 sored research in the last 10 years and the ef20 fects of potential defense cutbacks on the future

21 of such civilian technologies; and

22 (5) an evaluation and recommendations, on a

23 defense industry sector-by-sector basis, on how di24 versification to nondefense production can be carried

25 out, including a review of which sectors can under-
10

•HR 1776 IH

1 take such diversification, which sectors should be

2 particularly encouraged to undertake diversification

3 for reasons of protecting the Nation’s technological

4 and industrial base and meeting civilian research

5 and development needs, and recommendations for

6 the government’s role in assisting such diversifica7 tion.

8 (c) REPORT.—The Secretary of Commerce shall re9 port the results of the study required under subsection (a)

10 to the President pro tempore of the Senate and the Speak11 er of the House of Representatives not later than the date

12 which is 12 months after the date of the enactment of

13 this Act.

14 (d) AUTHORIZATION OF APPROPRIATIONS.—There is

15 hereby authorized to be appropriated such sums as may

16 be necessary to carry out the study and report required

17 under this section.

18 TITLE II—PRESIDENTIAL COUN19 CIL ON ECONOMIC DIVER20 SIFICATION AND ADJUST21 MENT

22 SEC. 201. ESTABLISHMENT.

23 (a) IN GENERAL.—There is hereby established in the

24 Executive Office of the President the Council on Economic
11

•HR 1776 IH

1 Diversification and Adjustment (hereafter in this Act re2 ferred to as the ‘‘Council’’) which shall be composed of—

3 (1) the Secretary of Labor;

4 (2) the Secretary of Commerce;

5 (3) the Secretary of Defense;

6 (4) the Secretary of Housing and Urban Devel7 opment;

8 (5) the Secretary of Transportation;

9 (6) the Secretary of Energy;

10 (7) the Director of the Office of Management

11 and Budget;

12 (8) the Administrator of the Small Business

13 Administration;

14 (9) the Chairman of the Council of Economic

15 Advisers;

16 (10) 4 representatives of the business-manage17 ment community to be appointed by the President,

18 2 of whom shall be appointed from defense related

19 businesses and 2 from nondefense related busi20 nesses; and

21 (11) 4 representatives of labor union organiza22 tions to be appointed by the President.

23 (b) CO-CHAIRPERSONS.—The Secretaries of Com24 merce and Labor shall cochair the Council, shall preside

25 over meetings of the Council, and shall designate a mem-
12

•HR 1776 IH

1 ber of the Council to preside in the absence of the

2 cochairpersons.

3 (c) VACANCIES.—Vacancies in the membership of the

4 Council described in paragraphs (10) and (11) of sub5 section (a) shall be filled in the same manner as original

6 appointments are made. Vacancies in the membership of

7 the Council shall not affect the authority of the remaining

8 members to execute the functions of the Council.

9 (d) COMPENSATION.—Members of the Council de10 scribed in paragraphs (10) and (11) of subsection (a) shall

11 be reimbursed for travel and per diem in lieu of subsist12 ence expenses during the performance of duties of the

13 Council in accordance with subchapter I of chapter 57 of

14 title 5, United States Code.

15 SEC. 202. OFFICE OF ECONOMIC DIVERSIFICATION AND

16 ADJUSTMENT.

17 (a) ESTABLISHMENT.—(1) There is hereby estab18 lished an Office of Economic Diversification and Adjust19 ment (hereafter in this title referred to as the ‘‘Office’’)

20 within the Executive Office of the President to provide

21 necessary staff support for the Council.

22 (2) The Office shall be headed by a Director who

23 shall be appointed by the President and be compensated

24 at the rate provided for level V of the Executive Schedule

25 under section 5316 of title 5, United States Code.
13

•HR 1776 IH

1 (3) The Director may appoint and fix the compensa2 tion of such personnel as the Director deems advisable.

3 The Director may procure temporary and intermittent

4 services to the same extent authorized by section 3109 of

5 title 5, United States Code.

6 (4) The Director may secure directly from any execu7 tive department, agency or other instrumentality of the

8 Government, information, suggestions, estimates, and sta9 tistics to carry out this Act, and each such entity shall

10 furnish information directly to the Office upon request

11 made by the Director.

12 SEC. 203. DUTIES.

13 (a) IN GENERAL.—The Council shall—

14 (1) carry out the programs provided for in this

15 Act;

16 (2) identify defense related impact problems of

17 States, metropolitan areas, or communities that re18 quire assistance;

19 (3) disseminate information furnished by the

20 Secretary of Defense under subsection (b) to the ap21 propriate Federal, State, and local agencies or au22 thorities as soon as the proposed or pending change

23 described in such notice is known;

24 (4) notify areas that are eligible for community

25 or worker economic adjustment assistance;
14

•HR 1776 IH

1 (5) prepare development strategies and action

2 plans to coordinate Federal, State, and local eco3 nomic adjustment efforts;

4 (6) encourage the preparation of concrete plans

5 for civilian related, private enterprise, and public

6 projects which address vital areas of national con7 cern such as transportation, housing, education, en8 vironment, and health care;

9 (7) develop means to strengthen and make uni10 form the methods for conducting and reporting the

11 economic impact analyses of community require12 ments for Federal economic adjustment resources

13 before contract cancellation or termination, or de14 fense facility closing;

15 (8) develop and coordinate information on

16 federally funded projects, agency programs, and

17 funding possibilities, including loans and loan guar18 antees, pertaining to economic diversification and

19 adjustment;

20 (9) establish priorities for the distribution of

21 funds available for economic diversification and ad22 justment based on an assessment of the needs of

23 substantially and seriously affected communities and

24 workers;
15

•HR 1776 IH

1 (10) establish and maintain a clearinghouse to

2 facilitate the exchange of information among Fed3 eral, State, and local officials involved in the resolu4 tion of business, worker, and community adjustment

5 problems, including the results of studies, technical

6 information, and sources of public and private fi7 nancing;

8 (11) prepare and distribute an economic diver9 sification and adjustment handbook which shall in10 clude—

11 (A) a detailed directory and discussion of

12 currently available Federal programs that pro13 mote economic development and help to mini14 mize the dislocation of workers, communities,

15 and industries;

16 (B) an explanation of the basic issues in17 volved in the diversification process for workers,

18 communities, and businesses;

19 (C) an outline of the basic requirements

20 for a program of professional retraining of tech21 nical personnel in order to effectively reorient

22 such personnel to the prevailing conditions of

23 research, product design, and production oper24 ations within nondefense related facilities;
16

•HR 1776 IH

1 (D) an outline of the basic requirements

2 for the length and nature of occupational re3 training for production workers and junior level

4 administrative employees;

5 (E) illustrative case studies of successful

6 conversion to efficient nondefense related pro7 duction, or references thereto; and

8 (F) directories, by geographic region and

9 area of specialization, of organizations and indi10 vidual consultants in fields such as marketing,

11 facilities design, organization, production engi12 neering, and engineering economy whose major

13 professional experience has been in nondefense

14 related activity.

15 (b) INFORMATION ON CHANGES IN DEFENSE SPEND16 ING.—(1) The Secretary of Defense shall notify the Coun17 cil 1 year in advance of a pending or proposed change in

18 defense spending that would affect employment in the de19 fense industry, including—

20 (A) reduction, technical changes, or elimination

21 of a program by Congress, the Secretary of Defense,

22 the Office of Management and Budget, or the Presi23 dent;

24 (B) termination or slowdown of a research and

25 development or procurement contract; and
17

•HR 1776 IH

1 (C) closure of a defense facility.

2 (2) The Secretary of Defense shall furnish the Coun3 cil with projected future defense spending levels and con4 tract progress reports.

5 SEC. 204. THE PRESIDENT’S ANNUAL ECONOMIC DIVER6 SIFICATION AND ADJUSTMENT REPORT.

7 The Council shall submit an annual report to Con8 gress on economic diversification and adjustment that

9 shall include the following:

10 (1) A detailed discussion of currently available

11 Federal programs, including appropriation and staff

12 levels, that promote economic development and help

13 to minimize the dislocation of workers, communities,

14 and industries.

15 (2) An explanation of the basic issues involved

16 in the retraining, reorientation, and reorganization

17 of personnel.

18 (3) A detailed discussion of available programs

19 within the Export-Import Bank of the United States

20 and the Department of Commerce concerning the

21 international marketplace, export opportunities, and

22 financing packages.

23 (4) A description of assistance packages, initi24 ated by the Council, to communities which have suf-
18

•HR 1776 IH

1 fered economic disruptions and worker dislocation

2 caused by defense cutbacks.

3 SEC. 205. AUTHORIZATION OF APPROPRIATIONS.

4 There is hereby authorized to be appropriated such

5 sums as may be necessary to carry out the provisions of

6 this title.

7 TITLE III—INDUSTRIAL DIVER8 SIFICATION ACCOUNTS; AL9 TERNATIVE DEFENSE INVEST10 MENT TAX CREDIT.

11 SEC. 301. INDUSTRIAL DIVERSIFICATION ACCOUNTS.

12 (a) IN GENERAL.—Chapter 77 of the Internal Reve13 nue Code of 1986 (relating to miscellaneous provisions)

14 is amended by adding at the end thereof the following new

15 section:

16 ‘‘SEC. 7524. INDUSTRIAL DIVERSIFICATION ACCOUNTS.

17 ‘‘(a) AGREEMENT RULES.—Any eligible corporation

18 (as defined in subsection (j)(1)) may enter into an agree19 ment with the Secretary under, and as provided in, this

20 section to establish an industrial diversification account

21 (hereafter in this section referred to as the ‘account’). Any

22 agreement entered into under this section shall be for the

23 purpose of providing qualified plant and equipment in the

24 United States or the retraining or skills upgrading of em25 ployees, for the purpose of diversifying qualified defense
19

•HR 1776 IH

1 facilities from predominately relying on defense contracts

2 to nondefense lines of business, and shall provide for the

3 deposit in the account of the amounts agreed upon as nec4 essary or appropriate to provide for qualified withdrawals

5 under subsection (f). The deposits in the account, and all

6 withdrawals from the account, whether qualified or non7 qualified, shall be subject to such conditions and require8 ments as the Secretary may by regulations prescribe or

9 as set forth in such agreement.

10 ‘‘(b) CEILING ON DEPOSITS.—

11 ‘‘(1) LIMIT DURING FIRST 5 YEARS.—The

12 amount deposited under subsection (a) in the ac13 count for any of the first 5 taxable years following

14 the taxable year in which an agreement was entered

15 into shall not exceed the average of the sum of the

16 following amounts for the 5 taxable years preceding

17 the taxable year for which the determination is being

18 made:

19 ‘‘(A) The amount allowable as a deduction

20 under section 167 for such taxable year.

21 ‘‘(B) The net proceeds from—

22 ‘‘(i) the sale or other disposition of

23 any property of a character subject to the

24 allowance for depreciation, or
20

•HR 1776 IH

1 ‘‘(ii) insurance or indemnity attrib2 utable to any such property.

3 ‘‘(C) The receipts from the investment or

4 reinvestment of amounts held in such account.

5 ‘‘(2) LIMIT AFTER 5 YEARS.—The amount de6 posited under subsection (a) in the account for any

7 taxable year after such 5th taxable year shall not ex8 ceed the amount specified in paragraph (1)(C).

9 ‘‘(c) REQUIREMENTS AS TO INVESTMENTS.—

10 ‘‘(1) IN GENERAL.—Amounts in any account

11 established under this section shall be kept in the

12 depository or depositories specified in the agreement

13 and shall be subject to such trustee and other fidu14 ciary requirements as may be specified by the Sec15 retary.

16 ‘‘(2) LIMITATION OF ACCOUNT INVEST17 MENTS.—Amounts in an account may be invested

18 only in interest-bearing securities approved by the

19 Secretary; except that, if the Secretary consents

20 thereto, an agreed percentage (not in excess of 60

21 percent) of the assets of the account may be invested

22 in the stock of domestic corporations. Such stock

23 must be currently fully listed and registered on an

24 exchange registered with the Securities and Ex25 change Commission or a national securities exchange
21

•HR 1776 IH

1 and must be stock which would be acquired by pru2 dent men of discretion and intelligence in such mat3 ters who are seeking a reasonable income and the

4 preservation of capital. If at any time the fair mar5 ket value of the stock in the account is more than

6 the agreed percentage of the assets in the account,

7 any subsequent investment of withdrawal from the

8 account, shall be made in such a way as to tend to

9 restore the account to a situation in which the fair

10 market value of the stock does not exceed such

11 agreed percentage.

12 ‘‘(3) INVESTMENT IN CERTAIN PREFERRED

13 STOCK PERMITTED.—For purposes of this sub14 section, if the common stock of a corporation meets

15 the requirements of this subsection and if the pre16 ferred stock of such corporation would meet such re17 quirements but for the fact that it cannot be listed

18 and registered as required because it is nonvoting

19 stock, such preferred stock shall be treated as meet20 ing the requirements of this subsection.

21 ‘‘(d) NONTAXABILITY OF DEPOSITS.—

22 ‘‘(1) IN GENERAL.—For purposes of this title—

23 ‘‘(A) gain from a transaction referred to in

24 subsection (b)(1)(B) shall not be taken into ac25 count if an amount equal to the net proceeds
22

•HR 1776 IH

1 from such transaction is deposited in the ac2 count,

3 ‘‘(B) the earnings (including gains and

4 losses) from the investment and reinvestment of

5 amounts held in the account shall not be taken

6 into account,

7 ‘‘(C) the earnings and profits of any cor8 poration (within the meaning of section 316)

9 shall be determined without regard to this sec10 tion and section 7518, and

11 ‘‘(D) in applying the tax imposed by sec12 tion 531 (relating to the accumulated earnings

13 tax), amounts while held in the account shall

14 not be taken into account.

15 ‘‘(2) ONLY QUALIFIED DEPOSITS ELIGIBLE FOR

16 TREATMENT.—Paragraph (1) shall apply with re17 spect to any amount only if such amount is depos18 ited in the account pursuant to the agreement and

19 not later than the time provided in regulations.

20 ‘‘(e) ESTABLISHMENT OF SUBACCOUNTS.—

21 ‘‘(1) IN GENERAL.—Within the account estab22 lished pursuant to this section 3 subaccounts shall

23 be maintained—

24 ‘‘(A) the capital subaccount,

25 ‘‘(B) the capital gain subaccount, and
23

•HR 1776 IH

1 ‘‘(C) the ordinary income subaccount.

2 ‘‘(2) CAPITAL SUBACCOUNT.—The capital sub3 account shall consist of—

4 ‘‘(A) amounts referred to in subsection

5 (b)(1)(A),

6 ‘‘(B) amounts referred to in subsection

7 (b)(1)(B) other than that portion thereof which

8 represents gain not taken into account by rea9 son of subsection (d)(1)(A),

10 ‘‘(C) the percentage applicable under sec11 tion 243(a)(1) of any dividend received by the

12 account with respect to which the person main13 taining the account would (but for subsection

14 (d)(1)(B)) be allowed a deduction under section

15 243, and

16 ‘‘(D) interest income exempt from taxation

17 under section 103.

18 ‘‘(3) CAPITAL GAIN SUBACCOUNT.—The capital

19 gain subaccount shall consist of—

20 ‘‘(A) amounts representing capital gains on

21 assets held for more than 1 year and referred

22 to in subsection (b)(1)(B) or (b)(1)(C), reduced

23 by
24

•HR 1776 IH

1 ‘‘(B) amounts representing capital losses

2 on assets held in the account for more than 1

3 year.

4 ‘‘(4) ORDINARY INCOME SUBACCOUNT.—The

5 ordinary income subaccount shall consist of—

6 ‘‘(A)(i) amounts representing capital gains

7 on assets held for 1 year or less and referred

8 to in subsection (b)(1)(B) or (b)(1)(C), reduced

9 by

10 ‘‘(ii) amounts representing capital losses

11 on assets held in the account for 1 year or less,

12 ‘‘(B) interest (not including any tax-ex13 empt interest referred to in paragraph (2)(D))

14 and other ordinary income (not including any

15 dividend referred to in subparagraph (D) of this

16 paragraph) received on assets held in the ac17 count,

18 ‘‘(C) ordinary income from a transaction

19 described in subsection (b)(1)(B), and

20 ‘‘(D) the portion of any dividend referred

21 to in paragraph (2)(C) not taken into account

22 under such paragraph.

23 ‘‘(5) CAPITAL LOSSES ONLY ALLOWED TO OFF24 SET CERTAIN GAINS.—Except on termination of an

25 account, capital losses referred to in paragraph
25

•HR 1776 IH

1 (3)(B) or in paragraph (4)(A)(ii) shall be allowed

2 only as an offset to gains referred to in paragraph

3 (3)(A) or (4)(A)(i), respective.

4 ‘‘(f) PURPOSES OF QUALIFIED WITHDRAWALS.—

5 ‘‘(1) IN GENERAL.—A qualified withdrawal

6 from the account is one made in accordance with the

7 terms of the agreement but only if it is for—

8 ‘‘(A) the acquisition, construction, or re9 construction of qualified plant and equipment,

10 ‘‘(B) the payment of the principal on in11 debtedness incurred in connection with the ac12 quisition, construction, or reconstruction of

13 qualified plant and equipment, or

14 ‘‘(C) the retraining, skills upgrading, or

15 continued education of employees.

16 ‘‘(2) PENALTY FOR FAILING TO FULFILL ANY

17 SUBSTANTIAL OBLIGATION.—Under joint regula18 tions, if the Secretary determines that any substan19 tial obligation under any agreement is not being ful20 filled, the Secretary may, after notice and oppor21 tunity for hearing to the person maintaining the ac22 count, treat the entire account or any portion there23 of as an amount withdrawn from the account in a

24 nonqualified withdrawal.
26

•HR 1776 IH

1 ‘‘(g) TAX TREATMENT OF QUALIFIED WITHDRAW2 ALS.—

3 ‘‘(1) IN GENERAL.—Any qualified withdrawal

4 from an account shall be treated—

5 ‘‘(A) first as made out of the capital sub6 account,

7 ‘‘(B) second as made out of the capital

8 gain subaccount, and

9 ‘‘(C) third as made out of the ordinary in10 come subaccount.

11 ‘‘(2) ADJUSTMENT TO BASIS WHERE WITH12 DRAWAL FROM ORDINARY INCOME SUBACCOUNT.—If

13 any portion of a qualified withdrawal for plant and

14 equipment is made out of the ordinary income sub15 account, the basis of such plant and equipment shall

16 be reduced by an amount equal to such portion.

17 ‘‘(3) ADJUSTMENT TO BASIS WHERE WITH18 DRAWAL FROM CAPITAL GAIN SUBACCOUNT.—If any

19 portion of a qualified withdrawal for plant and

20 equipment is made out of the capital gain sub21 account, the basis of such plant and equipment shall

22 be reduced by an amount equal to such portion.

23 ‘‘(4) ADJUSTMENT TO BASIS WHERE WITH24 DRAWAL PAYS PRINCIPAL ON DEBT.—If any portion

25 of a qualified withdrawal to pay the principal on any
27

•HR 1776 IH

1 indebtedness is made out of the ordinary income

2 subaccount or the capital gain subaccount, then an

3 amount equal to the aggregate reduction which

4 would be required by paragraphs (2) and (3) if such

5 withdrawal were a qualified withdrawal for a pur6 pose described in such paragraphs shall be applied,

7 in the order provided in joint regulations, to reduce

8 the basis of plant and equipment owned by the per9 son maintaining the account. Any amount of a

10 withdrawal remaining after the application of the

11 preceding sentence shall be treated as a nonqualified

12 withdrawal.

13 ‘‘(5) ORDINARY INCOME RECAPTURE OF BASIS

14 REDUCTION.—If any property the basis of which was

15 reduced under paragraph (2), (3), or (4) is disposed

16 of, any gain realized on such disposition, to the ex17 tent it does not exceed the aggregate reduction in

18 the basis of such property under such paragraphs,

19 shall be treated as an amount referred to in sub20 section (h)(3)(A) which was withdrawn on the date

21 of such disposition. Subject to such conditions and

22 requirements as may be provided in joint regula23 tions, the preceding sentence shall not apply to a

24 disposition where there is a redeposit in an amount

25 determined under joint regulations which will, inso-
28

•HR 1776 IH

1 far as practicable, restore the account to the position

2 such account was in before the withdrawal.

3 ‘‘(h) TAX TREATMENT OF NONQUALIFIED WITH4 DRAWALS.—

5 ‘‘(1) IN GENERAL.—Except as provided in sub6 section (i), any withdrawal from an account which is

7 not a qualified withdrawal shall be treated as a non8 qualified withdrawal.

9 ‘‘(2) ORDERING RULE.—Any nonqualified with10 drawal from an account shall be treated—

11 ‘‘(A) first as made out of the ordinary in12 come subaccount,

13 ‘‘(B) second as made out of the capital

14 gain subaccount, and

15 ‘‘(C) third as made out of the capital sub16 account.

17 For purposes of this section, items withdrawn from any

18 subaccount shall be treated as withdrawn on a first-in19 first-out basis; except that (i) any nonqualified withdrawal

20 for research, development, and design expenses incident

21 to new and advanced plant and equipment, and (ii) any

22 amount treated as a nonqualified withdrawal under the

23 second sentence of subsection (g)(4), shall be treated as

24 withdrawn on a last-in-first-out basis.
29

•HR 1776 IH

1 ‘‘(3) OPERATING RULES.—For purposes of this

2 title—

3 ‘‘(A) any amount referred to in paragraph

4 (2)(A) shall be included in income for the tax5 able year in which the withdrawal is made as an

6 item of ordinary income,

7 ‘‘(B) any amount referred to in paragraph

8 (2)(B) shall be included in income for the tax9 able year in which the withdrawal is made as an

10 item of gain realized during such year from the

11 disposition of an asset held for more than 1

12 year, and

13 ‘‘(C) for the period on or before the last

14 date prescribed for payment of tax for the tax15 able year in which such withdrawal is made—

16 ‘‘(i) no interest shall be payable under

17 section 6601 and no addition to the tax

18 shall be payable under section 6651,

19 ‘‘(ii) interest on the amount of the ad20 ditional tax attributable to any item re21 ferred to in subparagraph (A) or (B) shall

22 be paid at the applicable rate (as defined

23 in paragraph (4)) from the last date

24 prescribed for payment of the tax for the
30

•HR 1776 IH

1 taxable year for which such item was de2 posited in the account, and

3 ‘‘(iii) no interest shall be payable on

4 amounts referred to in clauses (i) and (ii)

5 of paragraph (2).

6 ‘‘(4) APPLICABLE RATE.—For purposes of

7 paragraph (3)(C)(ii), the applicable rate of interest

8 for any nonqualified withdrawal shall be the rate es9 tablished in section 6621(a)(2).

10 ‘‘(5) AMOUNT NOT WITHDRAWN FROM ACCOUNT

11 AFTER 12 YEARS FROM DATE OF AGREEMENT TAXED

12 AS NONQUALIFIED WITHDRAWAL.—

13 ‘‘(A) IN GENERAL.—The applicable per14 centage of any amount which remains in an ac15 count at the close of the 10th, 11th, or 12th

16 taxable year following the taxable year in which

17 an agreement was entered into shall be treated

18 as a nonqualified withdrawal in accordance with

19 the following table:

‘‘If the amount remains in the The applicable

account at the close of the: percentage is:

10th taxable year ....................................... 20 percent

11th taxable year ....................................... 60 percent

12th taxable year ....................................... 100 percent

20 ‘‘(B) EARNINGS TREATED AS DEPOSITS.—

21 The earnings of any account for any taxable

22 year (other than net gains) shall be treated for
31

•HR 1776 IH

1 purposes of this paragraph as an amount re2 maining in the account for such taxable year.

3 ‘‘(C) AMOUNTS COMMITTED TREATED AS

4 WITHDRAWN.—For purposes of subparagraph

5 (A), an amount shall not be treated as remain6 ing in an account at the close of any taxable

7 year to the extent there is a binding contract at

8 the close of such year for a qualified withdrawal

9 of such amount with respect to an identified

10 item for which such withdrawal may be made.

11 ‘‘(D) AUTHORITY TO TREAT EXCESS

12 FUNDS AS WITHDRAWN.—If the Secretary de13 termines that the balance in any account ex14 ceeds the amount which is appropriate to meet

15 the account’s program objectives, the amount of

16 such excess shall be treated as a nonqualified

17 withdrawal under subparagraph (A) unless the

18 person maintaining the account develops appro19 priate program objectives within 3 years to dis20 sipate such excess.

21 ‘‘(6) NONQUALIFIED WITHDRAWALS TAXED AT

22 HIGHEST MARGINAL RATE.—

23 ‘‘(A) IN GENERAL.—In the case of any

24 taxable year for which there is a nonqualified

25 withdrawal (including any amount so treated
32

•HR 1776 IH

1 under paragraph (5)), the tax imposed by chap2 ter 1 shall be determined—

3 ‘‘(i) by excluding such withdrawal

4 from gross income, and

5 ‘‘(ii) by increasing the tax imposed by

6 chapter 1 by the product of the amount of

7 such withdrawal and the highest rate of

8 tax specified in section 11.

9 With respect to the portion of any nonqualified

10 withdrawal made out of the capital gain sub11 account during a taxable year to which section

12 1201(a) applies, the rate of tax taken into ac13 count under the preceding sentence shall not

14 exceed 34 percent.

15 ‘‘(B) TAX BENEFIT RULE.—If any portion

16 of a nonqualified withdrawal is properly attrib17 utable to deposits (other than earnings on de18 posits) made by the taxpayer in any taxable

19 year which did not reduce the taxpayer’s liabil20 ity for tax under chapter 1 for any taxable year

21 preceding the taxable year in which such with22 drawal occurs—

23 ‘‘(i) such portion shall not be taken

24 into account under subparagraph (A), and
33

•HR 1776 IH

1 ‘‘(ii) an amount equal to such portion

2 shall be treated as allowed as a deduction

3 under section 172 for the taxable year in

4 which such withdrawal occurs.

5 ‘‘(C) COORDINATION WITH DEDUCTION

6 FOR NET OPERATING LOSSES.—Any non7 qualified withdrawal excluded from gross in8 come under subparagraph (A) shall be excluded

9 in determining taxable income under section

10 172(b)(2).

11 ‘‘(i) CERTAIN CORPORATE REORGANIZATIONS.—

12 Under joint regulations, transfer of an account from one

13 person to another person in a transaction to which section

14 381 applies may be treated as if such transaction did not

15 constitute a nonqualified withdrawal.

16 ‘‘(j) DEFINITIONS.—For purposes of this section—

17 ‘‘(1) ELIGIBLE CORPORATION.—The term ‘eligi18 ble corporation’ means any corporation at least 35

19 percent of the average annual gross revenues of

20 which for the preceding 3 taxable years are attrib21 utable to defense contracts (as defined in section

22 3(b) of the Defense Industrial Diversification and

23 Community Assistance Act of 1993).

24 ‘‘(2) QUALIFIED PLANT AND EQUIPMENT.—The

25 term ‘qualified plant and equipment’ means new or
34

•HR 1776 IH

1 modernized plant and equipment which will be used

2 for the production of parts, goods, or materials other

3 than under a defense contract (as that term is de4 fined in section 3(b) of such Act).

5 ‘‘(3) RETRAINING.—The term ‘retraining’

6 means any employer-sponsored activity designed to

7 prepare or further prepare individuals for firm-relat8 ed employment.

9 ‘‘(4) JOINT REGULATIONS.—The term ‘joint

10 regulations’ means the regulations prescribed under

11 subsection (k).

12 ‘‘(k) RECORDS; REPORTS; CHANGES IN REGULA13 TIONS.—Each person maintaining an account under this

14 section shall keep such records and shall make such re15 ports as the Secretary or the Secretary of Defense shall

16 require. The Secretary and the Secretary of Defense shall

17 jointly prescribe all rules and regulations, not inconsistent

18 with the foregoing provisions of this section, as may be

19 necessary or appropriate to the determination of tax liabil20 ity under this section. If, after an agreement has been en21 tered into under this section, a change is made either in

22 the joint regulations or in the regulations prescribed by

23 the Secretary under this section which could have a sub24 stantial effect on the rights or obligations of any person
35

•HR 1776 IH

1 maintaining an account under this section, such person

2 may terminate such agreement.

3 ‘‘(l) DEPARTMENTAL REPORTS AND CERTIFI4 CATION.—

5 ‘‘(1) IN GENERAL.—For each calendar year, the

6 Secretary shall provide the Secretary of Defense,

7 within 120 days after the close of such calendar

8 year, a written report with respect to the accounts

9 established under this section.

10 ‘‘(2) CONTENT OF REPORTS.—Each report shall

11 set forth the name and taxpayer identification num12 ber of each person—

13 ‘‘(A) establishing an account during such

14 calendar year;

15 ‘‘(B) maintaining an account as of the last

16 day of such calendar year;

17 ‘‘(C) terminating an account during such

18 calendar year;

19 ‘‘(D) making any withdrawal from or de20 posit into (and the amounts thereof) an account

21 during such calendar year; or

22 ‘‘(E) with respect to which a determination

23 has been made during such calendar year that

24 such person has failed to fulfill a substantial
36

•HR 1776 IH

1 obligation under any account agreement to

2 which such person is a party.’’

3 (b) MINIMUM TAX TREATMENT.—Section 56(c) of

4 the Internal Revenue Code of 1986 (relating to adjust5 ments applicable to corporations) is amended by adding

6 at the end thereof the following new paragraph:

7 ‘‘(4) INDUSTRIAL DIVERSIFICATION AC8 COUNTS.—In the case of an industrial diversification

9 account established under section 7524—

10 ‘‘(A) subparagraphs (A) and (B) of section

11 7524(d)(1) shall not apply, and

12 ‘‘(B) no reduction in basis shall be made

13 under subsection (g) with respect to the with14 drawal from the account of any amount to

15 which subparagraph (A) applies.’’

16 (c) CLERICAL AMENDMENT.—The table of sections

17 for chapter 77 of the Internal Revenue Code of 1986 is

18 amended by adding at the end thereof the following new

19 item:

‘‘Sec. 7524. Industrial diversification accounts.’’

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

21 this section shall apply to taxable years beginning after

22 the date of the enactment of this Act.

23 SEC. 302. ALTERNATIVE INVESTMENT TAX CREDIT.

24 (a) ALLOWANCE OF CREDIT.—Section 46 of the In25 ternal Revenue Code of 1986 (relating to amount of in-
37

•HR 1776 IH

1 vestment credit) is amended by striking ‘‘and’’ at the end

2 of paragraph (2), by striking the period at the end of para3 graph (3) and inserting ‘‘, and’’, and by adding at the

4 end thereof the following new paragraph:

5 ‘‘(4) in the case of an eligible corporation (as

6 defined in section 7524(j)(1)) which does not have

7 an industrial diversification account (within the

8 meaning of section 7524) for the taxable year or any

9 prior taxable year, the industrial diversification cred10 it.’’

11 (b) AMOUNT OF CREDIT.—Section 48 of such Code

12 is amended by adding at the end thereof the following new

13 subsection:

14 ‘‘(c) INDUSTRIAL DIVERSIFICATION CREDIT.—

15 ‘‘(1) GENERAL RULE.—For purposes of section

16 46, the industrial diversification credit for the tax17 able year is an amount equal to 20 percent of the

18 amount paid or incurred during such taxable year

19 for a purpose for which a qualified withdrawal would

20 be permitted by the taxpayer from an industrial di21 versification account (within the meaning of section

22 7524) if the taxpayer had such an account. Such

23 credit shall be in addition to any other credit allow24 able under this subpart.
38

•HR 1776 IH

1 ‘‘(2) SPECIAL RULE.—If any credit is deter2 mined under subsection (a) for any amount which is

3 includible in the basis of any property, such property

4 shall be treated as investment credit property for

5 purposes of this subpart.’’

6 (c) TECHNICAL AMENDMENTS.—

7 (1) Clause (ii) of section 49(a)(1)(C) of such

8 Code is amended by inserting ‘‘or property with re9 spect to which an industrial diversification credit is

10 allowed under section 48(c)’’ after ‘‘energy prop11 erty’’.

12 (2) Paragraph (5) of section 50(a) of such Code

13 is amended by adding at the end thereof the follow14 ing new subparagraph:

15 ‘‘(D) SPECIAL RULES FOR CERTAIN PROP16 ERTY.—In the case of property with respect to

17 which an industrial diversification credit is al18 lowed under section 48(c) and which is 3-year

19 property (within the meaning of section

20 168(e))—

21 ‘‘(i) the percentage set forth in clause

22 (ii) of the table contained in paragraph

23 (1)(B) shall be 66 percent,

24 ‘‘(ii) the percentage set forth in clause

25 (iii) of such table shall be 33 percent, and
39

•HR 1776 IH

1 ‘‘(iii) clauses (iv) and (v) of such table

2 shall not apply.’’

3 (3) The section heading of section 48 of such

4 Code is amended by inserting before the period ‘‘;

5 INDUSTRIAL DIVERSIFICATION CREDIT’’.

6 (4) The table of sections for subpart E of part

7 IV of subchapter A of chapter 1 of such Code is

8 amended by inserting before the period in the item

9 relating to section 48 ‘‘; industrial diversification

10 credit’’.

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

12 this section shall apply to taxable years beginning after

13 the date of the enactment of this Act.

14 TITLE IV—SMALL BUSINESS

15 DIVERSIFICATION

16 SEC. 401. SMALL BUSINESS ADMINISTRATION COMMITTEE

17 ON DEFENSE AND ECONOMIC DIVERSIFICA18 TION.

19 (a) ESTABLISHMENT.—There is established in the

20 Small Business Administration a Committee on Defense

21 and Economic Diversification (hereafter in this title re22 ferred to as the ‘‘Committee’’) which shall be composed

23 of—

24 (1) the Chief Counsel for Advocacy;
40

•HR 1776 IH

1 (2) the Associate Deputy Administrator for Fi2 nance, Investment, and Procurement;

3 (3) the Associate Deputy Administrator for

4 Management and Administration;

5 (4) the Associate Deputy Administrator for

6 Special Programs;

7 (5) the Director of the Office of Economic Di8 versification and Adjustment (established under sec9 tion 202 of this Act);

10 (6) 2 representatives of the small business-man11 agement community to be appointed by the Adminis12 trator of the Small Business Administration, 1 of

13 whom shall be appointed from a defense related

14 small business and 1 from a nondefense related

15 small business; and

16 (7) 2 representatives of labor union organiza17 tions to be appointed by the Administrator of the

18 Small Business Administration.

19 (b) CHAIRPERSON.—The Associate Deputy Adminis20 trator for Finance, Investment, and Procurement shall

21 chair the Committee, shall preside over meetings, and

22 shall designate a member of the Committee to preside in

23 the absence of the Chairperson.

24 (c) VACANCIES.—Vacancies in the membership of the

25 Committee described in paragraphs (6) and (7) of sub-
41

•HR 1776 IH

1 section (a) shall be filled in the same manner as original

2 appointments are made. Vacancies in the membership of

3 the Committee shall not affect the authority of the remain4 ing members to execute the functions of the Committee.

5 (d) COMPENSATION.—Members of the Committee de6 scribed in paragraphs (6) and (7) of subsection (a) shall

7 be reimbursed for travel and per diem in lieu of subsist8 ence expenses during the performance of duties of the

9 Committee in accordance with subchapter I of chapter 57

10 of title 5, United States Code.

11 SEC. 402. ESTABLISHMENT OF SMALL BUSINESS ADMINIS12 TRATION OFFICE OF ECONOMIC DIVER13 SIFICATION.

14 (a) IN GENERAL.—There is established in the Small

15 Business Administration an Office of Economic Diver16 sification (hereafter in this title referred to as the ‘‘Of17 fice’’) to provide staff support for the Committee.

18 (b) DIRECTOR.—The Office shall be headed by a Di19 rector who shall be a civilian appointed by the Adminis20 trator of the Small Business Administration and shall re21 port directly to the Associate Deputy Administrator for

22 Finance, Investment, and Procurement. The Director

23 shall be compensated at the rate provided for level V of

24 the Executive Schedule under section 5316 of title 5, Unit25 ed States Code.
42

•HR 1776 IH

1 (c) COMPENSATION.—The Administrator of the

2 Small Business Administration may appoint and fix the

3 compensation of such personnel for the Office as the Ad4 ministrator deems necessary and appropriate.

5 SEC. 403. DUTIES.

6 (a) IN GENERAL.—The Committee shall—

7 (1) carry out the programs provided for in title

8 V of this Act;

9 (2) identify defense related problems of small

10 businesses that require assistance;

11 (3) disseminate information furnished by the

12 President’s Office of Economic Diversification and

13 Adjustment, the Secretary of Defense, and any other

14 Federal agency or official that may be useful to

15 small business concerns;

16 (4) prepare a plan for coordinating the efforts

17 of the Small Business Administration and the Ad18 ministration’s programs for assisting firms adversely

19 affected by defense cutbacks;

20 (5) collect and disseminate information on—

21 (A) the issues involved with small business

22 diversification;

23 (B) successful diversification cases of small

24 business firms;
43

•HR 1776 IH

1 (C) retraining programs available to small

2 business firms;

3 (D) available venture and seed capital pro4 grams;

5 (E) available management assistance pro6 grams; and

7 (F) available loan and loan guarantee pro8 grams;

9 (6) work with representatives from the Presi10 dent’s Office of Economic Diversification and

11 Adjustment to assist small businesses in finding al12 ternative procurement opportunities with Federal

13 agencies; and

14 (7) coordinate all efforts with the President’s

15 Office of Economic Diversification and Adjustment.

16 SEC. 404. AUTHORIZATION OF APPROPRIATIONS.

17 There is hereby authorized to be appropriated such

18 sums as may be necessary to carry out the provisions of

19 this title.

20 TITLE V—SMALL BUSINESS

21 ASSISTANCE

22 SEC. 501. SMALL BUSINESS DIVERSIFICATION LOAN

23 PROGRAM.

24 (a) IN GENERAL.—The Administrator of the Small

25 Business Administration (hereafter in this title referred
44

•HR 1776 IH

1 to as the ‘‘Administrator’’) is empowered to make either

2 loans or grants, either directly or in cooperation with

3 banks or other financial institutions through agreements

4 to participate on an immediate or deferred (guaranteed)

5 basis, to a qualified small manufacturing firm to assist

6 such firm to diversify from defense related to nondefense

7 related business.

8 (b) LOAN AND GRANT LIMITS AND MATCHING CON9 TRIBUTIONS.—Pursuant to subsection (a), the Adminis10 trator is authorized to make loans or grants in an amount

11 not exceeding the lesser of—

12 (1) $40,000 for each qualified small manufac13 turing firm, or

14 (2) an amount equal to the sum of—

15 (A) the amount of private capital which

16 such firm has committed for the purposes de17 scribed in subsection (e), plus

18 (B) the amount of private capital which

19 such firm can demonstrate it has spent for the

20 purposes described in subsection (e) during the

21 6-month period preceding its application for a

22 loan or grant under subsection (a).

23 (c) PARTICIPATION.—In agreements to participate in

24 loans on a deferred (guaranteed) basis, such participation
45

•HR 1776 IH

1 by the Administrator shall be not less than 100 percent

2 of the amount provided for in subsection (b).

3 (d) LIMITATIONS.—(1) No qualified small manufac4 turing firm shall be deemed eligible for any loan or grant

5 pursuant to this title unless such firm demonstrates to the

6 satisfaction of the Administrator that not later than five

7 years after such firm receives such loan or grant, at least

8 75 percent of such firm’s gross revenues will be derived

9 from nondefense related business.

10 (2) No financial assistance shall be extended pursu11 ant to this title if the applicant can obtain credit or finan12 cial assistance elsewhere, including other programs of the

13 Federal Government, and including loan and loan guaran14 tee programs of the Small Business Administration.

15 (3) No qualified small manufacturing firm shall be

16 eligible for any loan or grant pursuant to this title unless

17 the Administrator determines that the recipient will use

18 such loan or grant for the purposes described in subsection

19 (e).

20 (e) PURPOSES AND USES OF LOAN AND GRANT

21 FUNDS.—

22 (1) PURPOSES FOR WHICH LOANS AND GRANTS

23 USED.—Loans and grants made pursuant to this

24 title shall be used—
46

•HR 1776 IH

1 (A) to assist qualified small manufacturing

2 firms to diversify from defense related to

3 nondefense related business, and

4 (B) to put such firms in a position where

5 such firms can qualify for either private or com6 mercial financing, or for financing under sec7 tion 7(a) of the Small Business Act (15 U.S.C.

8 636(a)) for nondefense related business.

9 (2) SPECIFIC USES.—Loans or grants made

10 pursuant to this title may be used to—

11 (A) conduct market research and analysis,

12 (B) develop an alternative use or business

13 plan,

14 (C) conduct basic or applied research and

15 development for nondefense lines of business,

16 (D) strategic planning, and

17 (E) prototype development.

18 SEC. 502. REGULATIONS.

19 The Administrator shall promulgate regulations to

20 carry out the purposes of this title.

21 SEC. 503. AUTHORIZATION OF APPROPRIATIONS.

22 There is hereby authorized to be appropriated such

23 sums as may be necessary to carry out the purposes of

24 this title.
47

•HR 1776 IH

1 TITLE VI—ECONOMIC ADJUST2 MENT ASSISTANCE FOR EM3 PLOYEES

4 SEC. 601. CERTIFICATION.

5 (a) IN GENERAL.—All worker displacements, as de6 fined in subsection (b), affecting workers employed by a

7 defense contractor or civilian workers employed by the

8 Armed Services, shall be reported by the management of

9 the defense facility to the Office of Economic Diversifica10 tion and Adjustment and the State employment security

11 agency acting as agent of the Secretary of Labor for the

12 administration of the program under this title.

13 (b) WORKER DISPLACEMENT.—The displacement of

14 any worker who demonstrates that—

15 (1) he or she has permanently lost his or her

16 employment due to—

17 (A) the cancellation of a defense contract

18 affecting the defense facility at which he or she

19 is employed,

20 (B) the significant reduction in the volume

21 of defense work in relation to total defense

22 work in such facility, or

23 (C) the significant workforce reduction or

24 closure of a defense facility, and
48

•HR 1776 IH

1 (2) such employment loss has occurred within

2 the period beginning 6 months before and ending 1

3 year after causal action, described in subparagraph

4 (A), (B), or (C) of paragraph (1)

5 shall, for purposes of subsection (a), be deemed to be a

6 displacement attributable to that action.

7 (c) The Office of Economic Diversification and Ad8 justment in cooperation with the Department of Labor

9 shall certify eligibility, for the benefits available under this

10 title, of workers suffering displacement as defined in sub11 section (b) based on regulations established by the Council

12 on Economic Diversification and Adjustment, after con13 sultation with the Secretary of Labor.

14 SEC. 602. RETRAINING.

15 (a) REALLOTMENT.—Section 302 of the Job Train16 ing Partnership Act (29 U.S.C. 1652) is amended—

17 (1) in subsection (a)(1), by striking ‘‘80 per18 cent’’ and inserting ‘‘75 percent’’;

19 (2) in subsection (a)(2), by striking ‘‘20 per20 cent’’ and inserting ‘‘25 percent’’;

21 (3) in subsection (b)(2)(A), by striking ‘‘25 per22 cent’’ and inserting ‘‘23.3 percent’’ and by striking

23 ‘‘75 percent’’ and inserting ‘‘70 percent’’; and

24 (4) in subsection (b)(2)(B), by striking ‘‘25 per25 cent’’ and inserting ‘‘30 percent’’ and by striking
49

•HR 1776 IH

1 ‘‘section 462(e)’’ and inserting ‘‘subsections (e) and

2 (h) of section 462’’.

3 (b) INCLUSION OF SKILLS UPGRADING FOR QUALI4 FIED DEFENSE CONTRACTOR EMPLOYEES UNDER TITLE

5 III.—Section 314 of the Job Training Partnership Act

6 (29 U.S.C. 1661c) is amended by adding at the end the

7 following new subsection:

8 ‘‘(i) SKILLS UPGRADING FOR QUALIFIED DEFENSE

9 CONTRACTOR EMPLOYEES.—Funds allotted under section

10 302 may be used to provide skills upgrading to individuals

11 described in section 325A(f)(2) in accordance with such

12 section.’’.

13 (c) DATA ON DISPLACED DEFENSE WORKERS.—

14 (1) IN GENERAL.—Section 462 of the Job

15 Training Partnership Act (29 U.S.C. 1752) is

16 amended by adding at the end the following new

17 subsection:

18 ‘‘(h)(1) The Secretary shall develop, in coordination

19 with the Council on Economic Diversification and Adjust20 ment, statistical data relating to permanent dislocation of

21 defense workers due to reductions in defense expenditures,

22 termination or reduction of defense contracts (as defined

23 in section 3(b) of the Defense Industrial Diversification

24 and Community Assistance Act of 1993), or the closure
50

•HR 1776 IH

1 or realignment of defense facilities (as defined in section

2 3(d) of such Act). Among the data to be included are—

3 ‘‘(A) the number of defense facilities affected;

4 ‘‘(B) the number of defense workers displaced;

5 ‘‘(C) the location of affected defense facilities;

6 and

7 ‘‘(D) the types of defense facilities involved.

8 ‘‘(2) The Secretary shall publish a report based upon

9 such data as soon as practicable after the end of each cal10 endar year. Such report shall include a comparison of data

11 contained therein with contemporary data used by the Bu12 reau of Labor Statistics in determining the annual em13 ployment and unemployment rates of the United States

14 and an analysis of whether defense workers are being ade15 quately counted in such employment statistics. Such re16 port shall also include an analysis of alternative methods

17 for reducing the adverse effects of displacement of defense

18 workers, not only on the individual worker, but on the sur19 rounding community.’’.

20 (2) CONFORMING AMENDMENT.—Section

21 405(a) of the Job Training Reform Amendments of

22 1992 is amended by striking ‘‘adding at the end’’

23 and inserting ‘‘inserting after subsection (f)’’.
51

•HR 1776 IH

1 SEC. 603. INDIVIDUAL RETIREMENT ACCOUNT WITH2 DRAWAL.

3 (a) EXEMPTION FROM PROHIBITED TRANSACTION

4 RULES.—Section 4975 of the Internal Revenue Code of

5 1986 (relating to tax on prohibited transactions) is

6 amended by redesignating subsection (i) as subsection (j)

7 and by inserting after subsection (h) the following new

8 subsection:

9 ‘‘(i) SPECIAL RULE FOR QUALIFIED DEFENSE

10 WORKERS.—

11 ‘‘(1) IN GENERAL.—The prohibition provided in

12 subsection (c) shall not apply to any qualified de13 fense worker for a 1 year period from such worker’s

14 date of layoff if such worker uses the funds for—

15 ‘‘(A) the payment of the principal or inter16 est on a mortgage of such worker’s primary res17 idence; or

18 ‘‘(B) for the rental expenses on his or her

19 primary residence.

20 ‘‘(2) QUALIFIED DEFENSE WORKER DE21 FINED.—For the purposes of this subsection, the

22 term ‘qualified defense worker’ means any worker

23 who demonstrates that—

24 ‘‘(A) he or she has permanently lost his or

25 her employment due to—
52

•HR 1776 IH

1 ‘‘(i) the cancellation of a defense con2 tract affecting the defense facility at which

3 he or she is employed,

4 ‘‘(ii) the significant reduction in the

5 volume of defense work in relation to total

6 defense work in such facility, or

7 ‘‘(iii) the significant workforce reduc8 tion or closure of such facility, and

9 ‘‘(B) such employment loss has occurred

10 within the period beginning 6 months before

11 and ending 1 year after the causal action, as

12 described in clauses (i), (ii), or (iii) of subpara13 graph (A).

14 ‘‘(3) SIGNIFICANT WORKFORCE REDUCTION.—

15 For purposes of this subsection, the term ‘significant

16 workforce reduction’ means any reduction in

17 workforce which results in an employment loss (as

18 defined in section 2(a)(6) of the Worker Adjustment

19 and Retraining Notification Act (29 U.S.C.

20 2101(a)(6)) at the single site of employment during

21 any 30-day period for—

22 ‘‘(A) at least 50 employees (excluding any

23 part-time employees), if such employees con24 stitute at least 33 percent of the workforce (ex25 cluding any part-time employees), or
53

•HR 1776 IH

1 ‘‘(B) at least 300 employees (excluding any

2 part-time employees).

3 ‘‘(4) OTHER DEFINITIONS.—For purposes of

4 this subsection, the terms ‘defense contract’ and ‘de5 fense facility’ shall have the meanings given such

6 terms by sections 3(b) and 3(d) of the Defense In7 dustrial Diversification and Community Assistance

8 Act of 1993, respectively.’’.

9 TITLE VII—COMMUNITY ECO10 NOMIC ADJUSTMENT PLAN11 NING

12 SEC. 701. NOTIFICATION.

13 (a) IN GENERAL.—Upon release of the President’s

14 budget or any announcement of the realignment or closure

15 of any qualified defense facility, the Secretary of Defense,

16 acting through the Council on Economic Diversification

17 and Adjustment, shall promptly notify any State or local

18 government which may be affected by—

19 (1) the realignment or closure of any qualified

20 defense facility; or

21 (2) the slowdown, termination, or cancellation

22 of any defense contract,

23 which is proposed in, or would likely result from any pro24 posal contained in, such budget or in such announcement.
54

•HR 1776 IH

1 (b) NOTIFICATION OF COMMUNITIES AFFECTED BY

2 DEFENSE REALIGNMENT BEFORE DATE OF ENACT3 MENT.—In addition to the requirement of subsection (a),

4 the Secretary of Defense shall provide notice pursuant to

5 such subsection to any community likely to be affected by

6 any action described in paragraph (1) or (2) of such sub7 section which was proposed in any budget of the President

8 which was released or announced before the date of the

9 enactment of this Act.

10 SEC. 702. ELIGIBILITY OF COMMUNITIES FOR ECONOMIC

11 ADJUSTMENT PLANNING ASSISTANCE.

12 (a) IN GENERAL.—Any community which—

13 (1) is likely to be a substantially and seriously

14 affected community upon the implementation of re15 alignment or closure of any qualified defense facility,

16 or the slowdown, termination, or cancellation of any

17 defense contract (including any action for which no18 tice was provided pursuant to section 701(b) of this

19 Act); and

20 (2) complies with the requirements of sub21 section (b),

22 shall be eligible for economic adjustment planning assist23 ance under section 703 of this Act.
55

•HR 1776 IH

1 (b) ANALYSES AND FORECASTS.—(1) Any commu2 nity which seeks to become eligible for economic adjust3 ment planning assistance shall prepare—

4 (A) an analysis and forecast of the effect any

5 action described in paragraph (1) or (2) of section

6 701(a) of this Act will have on the local economy

7 and workforce; and

8 (B) a proposal for an economic adjustment plan

9 that addresses the community economic adjustments

10 appropriate to reduce the adverse effect of any such

11 action.

12 (2) Analyses, forecasts, and proposals for economic

13 adjustment plans prepared pursuant to paragraph (1)

14 shall be submitted to the Council for review and comment

15 before the end of the 4-month period beginning on the

16 date the Secretary of Defense provides notice under sub17 section (a) or (b) of section 701 of this Act.

18 (3) Any analysis and forecast prepared pursuant to

19 paragraph (1)(A) shall include a specific estimate of the

20 increase in unemployment projected as a result of any ac21 tion described in paragraph (1) or (2) of section 701(a)

22 of this Act for the most appropriate geographic or govern23 mental entity for which reliable statistics are compiled.

24 (4) The economic assumptions, methodology, and

25 analyses used to produce any estimate referred to in para-
56

•HR 1776 IH

1 graph (3) shall be made part of any planning documenta2 tion submitted to the Council pursuant to paragraph (2).

3 (c) DETERMINATION OF ELIGIBLE COMMUNITIES;

4 ANNUAL LISTS.—(1) The Council shall—

5 (A) review the material submitted under sub6 section (b)(2) by any community and determine

7 whether such community meets the requirement of

8 subsection (a) for eligibility for economic adjustment

9 planning assistance; and

10 (B) publish a list annually of communities eligi11 ble for economic adjustment planning assistance

12 under this title at the time the list is prepared.

13 (2) If the Council—

14 (A) determines under paragraph (1)(A) that

15 any community is not eligible for economic adjust16 ment planning assistance under this title; or

17 (B) fails to include any community in the an18 nual list published under paragraph (1)(B),

19 the community may petition the Council for review of such

20 determination or inclusion in such list, as the case may

21 be.

22 (3) The Council shall promptly review any petition

23 filed under paragraph (2).
57

•HR 1776 IH

1 SEC. 703. COMMUNITY ECONOMIC ADJUSTMENT PLANNING

2 ASSISTANCE.

3 Any community which has been determined by the

4 Council under section 702(c) to be eligible for economic

5 adjustment planning assistance shall be eligible for assist6 ance under section 2391(b) of title 10, United States

7 Code.

8 SEC. 704. COMMUNITY ECONOMIC ADJUSTMENT ASSIST9 ANCE.

10 Any substantially and seriously affected community

11 shall be eligible for economic adjustment assistance au12 thorized under title IX of the Public Works and Economic

13 Development Act of 1965 (42 U.S.C. 3241 et seq.).

14 TITLE VIII—COMMERCIAL AND

15 DEFENSE PRODUCTION INTE16 GRATION

17 SEC. 801. INTEGRATION OF COMMERCIAL PRODUCTION

18 PROCESSES AND DEFENSE PROCUREMENT

19 PRACTICES.

20 (a) OFFICE OF COMMERCIAL AND DEFENSE PRO21 DUCTION INTEGRATION.—Part IV of subtitle A of title 10,

22 United States Code, is amended by adding at the end the

23 following new chapter:
58

•HR 1776 IH

1 ‘‘CHAPTER 173—INTEGRATION OF COM2 MERCIAL AND DEFENSE PRODUCTION

‘‘Sec.

‘‘2911. Office of Commercial and Defense Production Integration.

3 ‘‘§ 2911. Office of Commercial and Defense Produc4 tion Integration

5 ‘‘(a) ESTABLISHMENT.—There is established within

6 the Department of Defense an office to be known as the

7 Office of Commercial and Defense Production Integration.

8 The office shall be under the Under Secretary of Defense

9 for Acquisition.

10 ‘‘(b) PURPOSES; DUTIES.—(1) The Office of Com11 mercial and Defense Production Integration shall develop

12 and implement policies, practices, and procedures designed

13 to achieve an effective integration of commercial produc14 tion processes and defense procurement practices. A pro15 curement practice or procedure shall be considered to

16 achieve effectively the integration of a commercial produc17 tion process and a defense procurement practice if the

18 practice or procedure—

19 ‘‘(A) increases the use of commercial products

20 in defense procurement;

21 ‘‘(B) increases commercial-style competition in

22 defense procurement practices;

23 ‘‘(C) lowers defense acquisition costs by stream24 lining the defense product acquisition process;
59

•HR 1776 IH

1 ‘‘(D) encourages integrated processes for manu2 facturing civilian and defense products; or

3 ‘‘(E) encourages research and development of

4 products having civilian and military applications.

5 ‘‘(2) The policies, practices, and procedures referred

6 to in paragraph (1) shall require, to the maximum extent

7 practicable—

8 ‘‘(A) the elimination of unique military speci9 fications in the procurement of defense products;

10 ‘‘(B) the adoption of military product specifica11 tions that are compatible with existing or evolving

12 commercial product specifications;

13 ‘‘(C) the adaptation of military products and

14 systems to permit the effective utilization of existing

15 or evolving commercial products;

16 ‘‘(D) the identification of commercial suppliers

17 that have exhibited historically high standards of

18 product quality and reliability in commercial or de19 fense production;

20 ‘‘(E) maximum participation by such qualified

21 suppliers in the defense procurement process; and

22 ‘‘(F) increased emphasis on supply quality.

23 ‘‘(c) NONDEVELOPMENTAL ITEMS.—The Office of

24 Commercial and Defense Production Integration shall as25 sist the Under Secretary of Defense for Acquisition in car-
60

•HR 1776 IH

1 rying out the duties of the Under Secretary under section

2 2325 of this title, relating to the procurement of

3 nondevelopmental items.’’.

4 (b) CONFORMING AMENDMENTS.—(1) Section

5 2325(a) of title 10, United States Code, is amended—

6 (A) by striking ‘‘and’’ at the end of paragraph

7 (3);

8 (B) by redesignating paragraph (4) as para9 graph (5); and

10 (C) by inserting after paragraph (3), the follow11 ing new paragraph:

12 ‘‘(4) such requirements achieve effective inte13 gration of commercial production processes and mili14 tary procurement practices; and’’.

15 (2) The table of chapters at the beginning of subtitle

16 A, and at the beginning of part IV of subtitle A, of title

17 10, United States Code, are each amended by adding after

18 the item relating to chapter 172 the following new item:

‘‘173. Integration of Commercial and Defense Production 2911’’.

19 SEC. 802. REGULATIONS.

20 Not later than six months after the date of enactment

21 of this Act, the Secretary of Defense shall prescribe such

22 regulations as may be necessary to carry out the amend23 ments made by section 801 of this Act.
61

•HR 1776 IH

1 SEC. 803. DEMONSTRATION PROJECTS.

2 (a) DEMONSTRATION PROJECTS.—(1) The Secretary

3 of Defense, acting through the Office of Commercial and

4 Defense Production Integration, shall conduct not less

5 than three projects designed to demonstrate the feasibility

6 of achieving effective integration of commercial production

7 processes and military procurement practices.

8 (2) The projects referred to in paragraph (1) shall

9 commence not later than six months after the date of en10 actment of this Act and continue thereafter for not longer

11 than one year.

12 (b) PROJECT PROPOSALS.—Not less than 30 days be13 fore the commencement of each project referred to in sub14 section (a), the Secretary shall notify Congress of the pro15 posed demonstration project. The Secretary shall include

16 in the notice—

17 (1) a description of the scope and structure of

18 the project; and

19 (2) an evaluation of the means by which the

20 project will achieve effective integration of commer21 cial production processes and military procurement

22 practices.

23 (c) PROJECT REPORTS.—Not later than 60 days

24 after the termination of each project referred to in sub25 section (a), the Secretary shall submit a report to Con26 gress evaluating the extent to which the project achieved
62

•HR 1776 IH

1 effective integration of commercial production processes

2 and military procurement practices, together with such

3 recommendations for additional legislation as the Sec4 retary determines necessary to carry out more effectively

5 the purposes described in section 801 of this Act.

6 TITLE IX—COMMISSION ON

7 MILITARY BUDGET REFORM

8 SEC. 901. ESTABLISHMENT OF COMMISSION.

9 (a) IN GENERAL.—There is established a commission

10 to be known as the Commission on Military Budget Re11 form (referred to in this Act as the ‘‘Commission’’).

12 (b) MEMBERS.—The Commission shall consist of 12

13 members, appointed as follows:

14 (1) Four to be appointed by the Secretary of

15 Defense.

16 (2) Four to be appointed by the President pro

17 tempore of the Senate.

18 (3) Four to be appointed by the Speaker of the

19 House of Representatives.

20 (c) TERMS AND VACANCIES.—Members shall be ap21 pointed for the life of the Commission. Any vacancy occur22 ring in the membership of the Commission shall not affect

23 the powers of the Commission and shall be filled in the

24 same manner in which the original appointment was made.
63

•HR 1776 IH

1 (d) CHAIRMAN AND VICE CHAIRMAN.—The Commis2 sion shall elect a Chairman and Vice Chairman from

3 among its members.

4 (e) MEETINGS.—The Commission shall convene its

5 first meeting within 30 days after the first date on which

6 all members of the Commission have been appointed.

7 Thereafter, the Commission shall meet at the discretion

8 of its Chairman or at the call of a majority of its members.

9 (f) QUORUM.—Seven members of the Commission

10 shall constitute a quorum, but a lesser number may hold

11 hearings.

12 (g) COMPENSATION AND TRAVEL EXPENSES.—A

13 member of the Commission may not be paid compensation

14 for service performed as a member of the Commission.

15 However, members of the Commission shall be allowed

16 travel expenses, including per diem in lieu of subsistence,

17 at rates authorized for employees of agencies under sub18 chapter I of chapter 57 of title 5, United States Code,

19 while away from their homes or regular places of business

20 in the performance of services for the Commission.

21 SEC. 902. DUTIES.

22 (a) STUDY.—The Commission shall conduct a study

23 to determine the desirability and feasibility of Congress

24 instituting a three year budget cycle program for the De25 partment of Defense under which—
64

•HR 1776 IH

1 (1) the President would submit to Congress a

2 proposed budget for the Department of Defense for

3 three separate consecutive fiscal years;

4 (2) the Congress would enact separate legisla5 tion authorizing funds for the Department of De6 fense for three consecutive fiscal years and appro7 priating funds for that purpose for two consecutive

8 fiscal years;

9 (3) in each fiscal year after enactment of the

10 initial three year budget, the President would submit

11 to Congress a proposed budget for the Department

12 of Defense for the fiscal year following the last fiscal

13 year of the previous budget for the Department of

14 Defense; and

15 (4) in each fiscal year after the enactment of

16 the initial legislation authorizing funds for three

17 consecutive fiscal years and appropriating funds for

18 two consecutive fiscal years, Congress would enact

19 legislation authorizing funds for the fiscal year fol20 lowing the last fiscal year for which funds were au21 thorized in the previous budget referred to in para22 graph (3) and would enact legislation appropriating

23 funds for the fiscal year following the last fiscal year

24 for which funds were appropriated in the previous

25 budget referred to in that paragraph.
65

•HR 1776 IH

1 (b) SPECIFIC MATTERS TO BE CONSIDERED.—In

2 carrying out the study referred to in subsection (a), the

3 Commission shall specifically consider the following:

4 (1) the advantages and disadvantages of such a

5 program;

6 (2) the amount of savings that will likely result

7 from such a program;

8 (3) the effects that such a program would likely

9 have—

10 (A) on the activities and programs of the

11 Department of Defense;

12 (B) on both short-range and long-range

13 planning for national security; and

14 (C) on foreign military sales;

15 (4) the favorable and adverse effects that

16 multiyear defense budget programs have had on the

17 defense budget processes in foreign nations that

18 have adopted such programs; and

19 (5) alternative means of carrying out a

20 multiyear defense budget program.

21 (c) REPORT.—The Commission shall submit to the

22 Secretary of Defense and Congress a report on the results

23 of the study carried out under this Act, together with such

24 comments and recommendations as the Commission con25 siders appropriate, not later than 12 months after the date
66

•HR 1776 IH

1 of the first meeting of the Commission under section

2 901(e) of this Act.

3 SEC. 903. POWERS OF COMMISSION.

4 (a) MEETINGS AND HEARINGS.—For purposes of

5 carrying out this Act, the Commission or, on the author6 ization of the Commission, any subcommittee or member

7 thereof, may hold such hearings, sit and act at such times

8 and places, take such testimony, and receive such evidence

9 as is appropriate.

10 (b) OBTAINING INFORMATION FROM FEDERAL

11 AGENCIES.—The Commission may secure directly from

12 any department or agency of the United States such infor13 mation as the Commission may require to carry out its

14 duties under this Act. Upon request of the Chairman of

15 the Commission, the head of such department or agency

16 shall furnish such information to the Commission.

17 SEC. 904. ADMINISTRATIVE PROVISIONS.

18 (a) STAFF.—(1) The Commission may appoint and

19 fix the compensation of such personnel as may be nec20 essary, without regard to the provisions of title 5, United

21 States Code, governing appointments in the competitive

22 service, and without regard to the provisions of chapter

23 51 and subchapter III of chapter 53 of such title relating

24 to classification and General Schedule pay rates, except

25 that the compensation of any employee of the Commission
67

•HR 1776 IH

1 may not exceed a rate equivalent to the rate payable under

2 level V of the Executive Schedule under section 5316 of

3 such title.

4 (2) Upon request of the Commission, the head of any

5 Federal agency is authorized to detail to the Commission,

6 on a reimbursable basis, any of the personnel of such

7 agency to assist the Commission in carrying out its duties

8 under this Act and such detail shall be without interrup9 tion or loss of civil service status or privilege.

10 (b) USE OF EXPERTS AND CONSULTANTS.—The

11 Commission may obtain the services of experts and con12 sultants in accordance with the provisions of section 3109

13 of title 5, United States Code, but at rates for individuals

14 not to exceed the daily equivalent of the minimum annual

15 rate of basic pay payable for a position classified above

16 GS–15 under section 5332 of such title.

17 SEC. 905. TERMINATION OF COMMISSION.

18 The Commission shall expire 30 days after the date

19 on which the report of the Commission is submitted to

20 the Secretary of Defense and Congress.

21 SEC. 906. AUTHORIZATION OF APPROPRIATIONS.

22 There is hereby authorized to be appropriated such

23 sums as may be necessary to carry out the purposes of

24 this title.
68

•HR 1776 IH

Æ

HR 1776 IH——2

HR 1776 IH——3

HR 1776 IH——4

HR 1776 IH——5