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[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1776 Introduced in House (IH)]

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, defense-dependent communities, 
 and defense workers that are adversely affected by the termination or 
      reduction of defense spending or defense-related contracts.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Defense Industrial Diversification 
and Community Assistance Act of 1993''.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--Congress finds the following:
            (1) As a result of the recent democratization of Eastern 
        Europe and collapse of the Soviet Union, the United States is 
        likely to reevaluate its national defense needs and reorder its 
        national spending priorities.
            (2) A decrease in defense spending and the reduction or 
        elimination of expenditures for some defense or defense-related 
        procurement are likely consequences of such actions.
            (3) Reductions in such expenditures are likely to result in 
        terminations or reductions of defense-related procurement 
        contracts.
            (4) Such terminations and reductions have an adverse impact 
        upon industries and small businesses that are economically 
        dependent on defense-related procurement, the workers of such 
        industries and businesses, and the economies of the regions in 
        which such industries and businesses are located.
            (5) In 1986, defense spending accounted for 6.5 percent of 
        the Gross National Product of the United States (GNP), an 
        increase from 4.8 percent of GNP attributable to such spending 
        in 1979.
            (6) Adjusted for inflation, the percentage of the GNP spent 
        attributable to defense spending in 1986 was roughly equal to 
        the percentage of the GNP attributable to such spending in 
        1953, at the height of the Korean War, and in 1968, at the 
        height of the Vietnam War.
            (7) Since 1986, the rise in defense spending has slowed, 
        with the percentage of the GNP attributable to such spending in 
        1989 falling to 5.9 percent.
            (8) It is likely that the portion of the Federal budget 
        that is allocated for defense spending will continue to fall 
        throughout the 1990's.
            (9) The Department of Defense requires unique 
        specifications for nearly all the parts and equipment procured 
        by the Department.
            (10) These specifications compel companies that manufacture 
        products pursuant to defense and defense-related contracts and 
        subcontracts to manufacture products that have applications 
        only in the defense sector, although many such products could 
        have applications in the civilian sector.
            (11) Defense industries represent an important segment of 
        the United States industrial and technology base and cutbacks 
        in defense spending should be undertaken so as to enhance, 
        rather than to affect adversely, this industrial and technology 
        base.
            (12) The existence of a large military installation or 
        defense or defense-related industrial facility in a particular 
        geographic area often results in the existence of a network of 
        smaller defense or defense-related facilities in the same area.
            (13) The existence of such a network in a geographic area 
        often magnifies the disruption in the economy and workforce of 
        that area that results from the impact of a reduction in 
        defense spending with respect to a large military installation 
        or defense or defense-related industrial facility.
            (14) A lack of sufficient financial capital is one of the 
        most significant barriers that defense or defense-related 
        companies face in carrying out the diversification of such 
        companies' products into the civilian sector.
            (15) The Federal Government has a compelling obligation to 
        mitigate economic distress for workers, local economies, small 
        businesses, and industries that, by reason of their 
        contributions to the national security of the United States, 
        have become economically dependent on defense spending by the 
        Federal Government.
            (16) Predictions about reductions in defense spending 
        suggest that such reductions will occur at a relatively rapid 
        pace over the next several years, making it prudent to begin 
        promptly the process of planning for the diversification of 
        industries, businesses, and area economies that have become 
        economically dependent on defense and defense-related spending 
        by the Federal Government.
    (b) Purpose.--It is the purpose of this Act--
            (1) to facilitate and assist the economic adjustment and 
        industrial diversification of industries, communities, and 
        workers that are adversely affected by the termination or 
        reduction by the Federal Government of defense spending or 
        defense or defense-related contracts;
            (2) to provide for a unified and comprehensive response by 
        the Federal Government to reductions in levels of defense 
        spending; and
            (3) to minimize job and economic loss due to reduced levels 
        of defense spending by providing adjustment assistance to 
        workers, communities, and small businesses that are largely 
        dependent on defense spending.

SEC. 3. DEFINITIONS.

    (a) Defense Agency.--The term ``defense agency'' means the 
Department of Defense, the nuclear weapons division of the Department 
of Energy, the National Aeronautics and Space Administration, the Coast 
Guard, and any other agency of the Government to the extent such agency 
conducts military or other defense related operations.
    (b) Defense Contract.--The term ``defense contract'' means any 
contract or subcontract entered into between a person or nonprofit 
organization, including subcontractors, components manufacturers, 
suppliers and service contractors, and a defense agency to provide 
material or defense related operations.
    (c) Defense Contractor.--The term ``defense contractor'' means any 
facility engaged in the furnishing of defense material pursuant to the 
terms of a defense contract.
    (d) Defense Facility.--The term ``defense facility'' means any 
private plant or other establishment, or part thereof, used under a 
defense contract or engaged in the production, repair, modification, 
storage, or handling of defense material, or any Government-owned or 
Government-leased facility, including bases, forts, shipyards, and 
depots.
    (e) Qualified Defense Facility.--The term ``qualified defense 
facility'' means any defense facility at least 35 percent of the 
average annual gross revenues of which for the preceding 3 years are 
attributable to defense contracts.
    (f) Substantially and Seriously Affected Community.--The term 
``substantially and seriously affected community'' means any 
community--
            (A) which has, within its administrative and political 
        jurisdiction, 1 or more defense facilities; and
            (B) in which the curtailment, completion, elimination, or 
        realignment of a defense contract or program or the realignment 
        or closure of any defense facility results in a workforce 
        reduction, over a 12-month period, of 250 or more employees 
        (including part time employees) who in the aggregate work at 
        least 10,000 hours per week, exclusive of hours of overtime.
    (g) Qualified Small Manufacturing Firm.--The term ``qualified small 
manufacturing firm'' means any facility which--
            (1) employs less than 500 employees;
            (2) is independently owned and operated;
            (3) is not dominant in its field of operation;
            (4) has gross revenues consisting of at least 50 percent 
        value-added manufacturing activity;
            (5) has gross revenues consisting of at least 35 percent 
        defense contracts; and
            (6) can demonstrate that such facility has either recently 
        experienced or will experience the cancellation of a defense 
        contract causing the significant reduction in the volume of 
        defense work in relation to the total defense work in such 
        facility.

               TITLE I--INDUSTRIAL DIVERSIFICATION STUDY

SEC. 101. STUDY AND REPORT REQUIRED.

    (a) Study.--The Secretary of Commerce, in consultation with the 
Administrator of the Small Business Administration, the Secretary of 
Defense, and the Director of the Advanced Research Projects Agency 
(ARPA) shall study the extent to which diversification of defense 
industries to non-defense production can be effectuated.
    (b) Contents of Study.--The study shall include--
            (1) an inventory of the number and type of manufacturing 
        firms in the United States that individually receive annual 
        defense contracts totaling over $2,000,000;
            (2) an historical analysis of the percentage of the 
        Nation's Gross National Product directly related to defense 
        spending and the role of such defense spending in the economy;
            (3) a geographic inventory of the regions of the United 
        States most dependent on defense spending, including an 
        analysis of the effect that potential cuts in defense spending 
        will have on the economies of these regions;
            (4) an analysis of the potential effect that defense 
        cutbacks will have on both the Nation's technological base and 
        industrial base, including--
                    (A) the amount of the defense budget allocated for 
                basic and applied research and development purposes and 
                the effect of defense reductions on such research and 
                development, including the effect on civilian and 
                strategic defense basic and applied research and 
                development; and
                    (B) an inventory of the extent of and nature of the 
                civilian-use advanced technologies that have developed 
                as a result of defense-sponsored research in the last 
                10 years and the effects of potential defense cutbacks 
                on the future of such civilian technologies; and
            (5) an evaluation and recommendations, on a defense 
        industry sector-by-sector basis, on how diversification to 
        nondefense production can be carried out, including a review of 
        which sectors can undertake such diversification, which sectors 
        should be particularly encouraged to undertake diversification 
        for reasons of protecting the Nation's technological and 
        industrial base and meeting civilian research and development 
        needs, and recommendations for the government's role in 
        assisting such diversification.
    (c) Report.--The Secretary of Commerce shall report the results of 
the study required under subsection (a) to the President pro tempore of 
the Senate and the Speaker of the House of Representatives not later 
than the date which is 12 months after the date of the enactment of 
this Act.
    (d) Authorization of Appropriations.--There is hereby authorized to 
be appropriated such sums as may be necessary to carry out the study 
and report required under this section.

    TITLE II--PRESIDENTIAL COUNCIL ON ECONOMIC DIVERSIFICATION AND 
                               ADJUSTMENT

SEC. 201. ESTABLISHMENT.

    (a) In General.--There is hereby established in the Executive 
Office of the President the Council on Economic Diversification and 
Adjustment (hereafter in this Act referred to as the ``Council'') which 
shall be composed of--
            (1) the Secretary of Labor;
            (2) the Secretary of Commerce;
            (3) the Secretary of Defense;
            (4) the Secretary of Housing and Urban Development;
            (5) the Secretary of Transportation;
            (6) the Secretary of Energy;
            (7) the Director of the Office of Management and Budget;
            (8) the Administrator of the Small Business Administration;
            (9) the Chairman of the Council of Economic Advisers;
            (10) 4 representatives of the business-management community 
        to be appointed by the President, 2 of whom shall be appointed 
        from defense related businesses and 2 from nondefense related 
        businesses; and
            (11) 4 representatives of labor union organizations to be 
        appointed by the President.
    (b) Co-Chairpersons.--The Secretaries of Commerce and Labor shall 
cochair the Council, shall preside over meetings of the Council, and 
shall designate a member of the Council to preside in the absence of 
the cochairpersons.
    (c) Vacancies.--Vacancies in the membership of the Council 
described in paragraphs (10) and (11) of subsection (a) shall be filled 
in the same manner as original appointments are made. Vacancies in the 
membership of the Council shall not affect the authority of the 
remaining members to execute the functions of the Council.
    (d) Compensation.--Members of the Council described in paragraphs 
(10) and (11) of subsection (a) shall be reimbursed for travel and per 
diem in lieu of subsistence expenses during the performance of duties 
of the Council in accordance with subchapter I of chapter 57 of title 
5, United States Code.

SEC. 202. OFFICE OF ECONOMIC DIVERSIFICATION AND ADJUSTMENT.

    (a) Establishment.--(1) There is hereby established an Office of 
Economic Diversification and Adjustment (hereafter in this title 
referred to as the ``Office'') within the Executive Office of the 
President to provide necessary staff support for the Council.
    (2) The Office shall be headed by a Director who shall be appointed 
by the President and be compensated at the rate provided for level V of 
the Executive Schedule under section 5316 of title 5, United States 
Code.
    (3) The Director may appoint and fix the compensation of such 
personnel as the Director deems advisable. The Director may procure 
temporary and intermittent services to the same extent authorized by 
section 3109 of title 5, United States Code.
    (4) The Director may secure directly from any executive department, 
agency or other instrumentality of the Government, information, 
suggestions, estimates, and statistics to carry out this Act, and each 
such entity shall furnish information directly to the Office upon 
request made by the Director.

SEC. 203. DUTIES.

    (a) In General.--The Council shall--
            (1) carry out the programs provided for in this Act;
            (2) identify defense related impact problems of States, 
        metropolitan areas, or communities that require assistance;
            (3) disseminate information furnished by the Secretary of 
        Defense under subsection (b) to the appropriate Federal, State, 
        and local agencies or authorities as soon as the proposed or 
        pending change described in such notice is known;
            (4) notify areas that are eligible for community or worker 
        economic adjustment assistance;
            (5) prepare development strategies and action plans to 
        coordinate Federal, State, and local economic adjustment 
        efforts;
            (6) encourage the preparation of concrete plans for 
        civilian related, private enterprise, and public projects which 
        address vital areas of national concern such as transportation, 
        housing, education, environment, and health care;
            (7) develop means to strengthen and make uniform the 
        methods for conducting and reporting the economic impact 
        analyses of community requirements for Federal economic 
        adjustment resources before contract cancellation or 
        termination, or defense facility closing;
            (8) develop and coordinate information on federally funded 
        projects, agency programs, and funding possibilities, including 
        loans and loan guarantees, pertaining to economic 
        diversification and adjustment;
            (9) establish priorities for the distribution of funds 
        available for economic diversification and adjustment based on 
        an assessment of the needs of substantially and seriously 
        affected communities and workers;
            (10) establish and maintain a clearinghouse to facilitate 
        the exchange of information among Federal, State, and local 
        officials involved in the resolution of business, worker, and 
        community adjustment problems, including the results of 
        studies, technical information, and sources of public and 
        private financing;
            (11) prepare and distribute an economic diversification and 
        adjustment handbook which shall include--
                    (A) a detailed directory and discussion of 
                currently available Federal programs that promote 
                economic development and help to minimize the 
                dislocation of workers, communities, and industries;
                    (B) an explanation of the basic issues involved in 
                the diversification process for workers, communities, 
                and businesses;
                    (C) an outline of the basic requirements for a 
                program of professional retraining of technical 
                personnel in order to effectively reorient such 
                personnel to the prevailing conditions of research, 
                product design, and production operations within 
                nondefense related facilities;
                    (D) an outline of the basic requirements for the 
                length and nature of occupational retraining for 
                production workers and junior level administrative 
                employees;
                    (E) illustrative case studies of successful 
                conversion to efficient nondefense related production, 
                or references thereto; and
                    (F) directories, by geographic region and area of 
                specialization, of organizations and individual 
                consultants in fields such as marketing, facilities 
                design, organization, production engineering, and 
                engineering economy whose major professional experience 
                has been in nondefense related activity.
    (b) Information on Changes in Defense Spending.--(1) The Secretary 
of Defense shall notify the Council 1 year in advance of a pending or 
proposed change in defense spending that would affect employment in the 
defense industry, including--
            (A) reduction, technical changes, or elimination of a 
        program by Congress, the Secretary of Defense, the Office of 
        Management and Budget, or the President;
            (B) termination or slowdown of a research and development 
        or procurement contract; and
            (C) closure of a defense facility.
    (2) The Secretary of Defense shall furnish the Council with 
projected future defense spending levels and contract progress reports.

SEC. 204. THE PRESIDENT'S ANNUAL ECONOMIC DIVERSIFICATION AND 
              ADJUSTMENT REPORT.

    The Council shall submit an annual report to Congress on economic 
diversification and adjustment that shall include the following:
            (1) A detailed discussion of currently available Federal 
        programs, including appropriation and staff levels, that 
        promote economic development and help to minimize the 
        dislocation of workers, communities, and industries.
            (2) An explanation of the basic issues involved in the 
        retraining, reorientation, and reorganization of personnel.
            (3) A detailed discussion of available programs within the 
        Export-Import Bank of the United States and the Department of 
        Commerce concerning the international marketplace, export 
        opportunities, and financing packages.
            (4) A description of assistance packages, initiated by the 
        Council, to communities which have suffered economic 
        disruptions and worker dislocation caused by defense cutbacks.

SEC. 205. AUTHORIZATION OF APPROPRIATIONS.

    There is hereby authorized to be appropriated such sums as may be 
necessary to carry out the provisions of this title.

  TITLE III--INDUSTRIAL DIVERSIFICATION ACCOUNTS; ALTERNATIVE DEFENSE 
                         INVESTMENT TAX CREDIT.

SEC. 301. INDUSTRIAL DIVERSIFICATION ACCOUNTS.

    (a) In General.--Chapter 77 of the Internal Revenue Code of 1986 
(relating to miscellaneous provisions) is amended by adding at the end 
thereof the following new section:

``SEC. 7524. INDUSTRIAL DIVERSIFICATION ACCOUNTS.

    ``(a) Agreement Rules.--Any eligible corporation (as defined in 
subsection (j)(1)) may enter into an agreement with the Secretary 
under, and as provided in, this section to establish an industrial 
diversification account (hereafter in this section referred to as the 
`account'). Any agreement entered into under this section shall be for 
the purpose of providing qualified plant and equipment in the United 
States or the retraining or skills upgrading of employees, for the 
purpose of diversifying qualified defense facilities from predominately 
relying on defense contracts to nondefense lines of business, and shall 
provide for the deposit in the account of the amounts agreed upon as 
necessary or appropriate to provide for qualified withdrawals under 
subsection (f). The deposits in the account, and all withdrawals from 
the account, whether qualified or nonqualified, shall be subject to 
such conditions and requirements as the Secretary may by regulations 
prescribe or as set forth in such agreement.
    ``(b) Ceiling on Deposits.--
            ``(1) Limit during first 5 years.--The amount deposited 
        under subsection (a) in the account for any of the first 5 
        taxable years following the taxable year in which an agreement 
        was entered into shall not exceed the average of the sum of the 
        following amounts for the 5 taxable years preceding the taxable 
        year for which the determination is being made:
                    ``(A) The amount allowable as a deduction under 
                section 167 for such taxable year.
                    ``(B) The net proceeds from--
                            ``(i) the sale or other disposition of any 
                        property of a character subject to the 
                        allowance for depreciation, or
                            ``(ii) insurance or indemnity attributable 
                        to any such property.
                    ``(C) The receipts from the investment or 
                reinvestment of amounts held in such account.
            ``(2) Limit after 5 years.--The amount deposited under 
        subsection (a) in the account for any taxable year after such 
        5th taxable year shall not exceed the amount specified in 
        paragraph (1)(C).
    ``(c) Requirements as to Investments.--
            ``(1) In general.--Amounts in any account established under 
        this section shall be kept in the depository or depositories 
        specified in the agreement and shall be subject to such trustee 
        and other fiduciary requirements as may be specified by the 
        Secretary.
            ``(2) Limitation of account investments.--Amounts in an 
        account may be invested only in interest-bearing securities 
        approved by the Secretary; except that, if the Secretary 
        consents thereto, an agreed percentage (not in excess of 60 
        percent) of the assets of the account may be invested in the 
        stock of domestic corporations. Such stock must be currently 
        fully listed and registered on an exchange registered with the 
        Securities and Exchange Commission or a national securities 
        exchange and must be stock which would be acquired by prudent 
        men of discretion and intelligence in such matters who are 
        seeking a reasonable income and the preservation of capital. If 
        at any time the fair market value of the stock in the account 
        is more than the agreed percentage of the assets in the 
        account, any subsequent investment of withdrawal from the 
        account, shall be made in such a way as to tend to restore the 
        account to a situation in which the fair market value of the 
        stock does not exceed such agreed percentage.
            ``(3) Investment in certain preferred stock permitted.--For 
        purposes of this subsection, if the common stock of a 
        corporation meets the requirements of this subsection and if 
        the preferred stock of such corporation would meet such 
        requirements but for the fact that it cannot be listed and 
        registered as required because it is nonvoting stock, such 
        preferred stock shall be treated as meeting the requirements of 
        this subsection.
    ``(d) Nontaxability of Deposits.--
            ``(1) In general.--For purposes of this title--
                    ``(A) gain from a transaction referred to in 
                subsection (b)(1)(B) shall not be taken into account if 
                an amount equal to the net proceeds from such 
                transaction is deposited in the account,
                    ``(B) the earnings (including gains and losses) 
                from the investment and reinvestment of amounts held in 
                the account shall not be taken into account,
                    ``(C) the earnings and profits of any corporation 
                (within the meaning of section 316) shall be determined 
                without regard to this section and section 7518, and
                    ``(D) in applying the tax imposed by section 531 
                (relating to the accumulated earnings tax), amounts 
                while held in the account shall not be taken into 
                account.
            ``(2) Only qualified deposits eligible for treatment.--
        Paragraph (1) shall apply with respect to any amount only if 
        such amount is deposited in the account pursuant to the 
        agreement and not later than the time provided in regulations.
    ``(e) Establishment of Subaccounts.--
            ``(1) In general.--Within the account established pursuant 
        to this section 3 subaccounts shall be maintained--
                    ``(A) the capital subaccount,
                    ``(B) the capital gain subaccount, and
                    ``(C) the ordinary income subaccount.
            ``(2) Capital subaccount.--The capital subaccount shall 
        consist of--
                    ``(A) amounts referred to in subsection (b)(1)(A),
                    ``(B) amounts referred to in subsection (b)(1)(B) 
                other than that portion thereof which represents gain 
                not taken into account by reason of subsection 
                (d)(1)(A),
                    ``(C) the percentage applicable under section 
                243(a)(1) of any dividend received by the account with 
                respect to which the person maintaining the account 
                would (but for subsection (d)(1)(B)) be allowed a 
                deduction under section 243, and
                    ``(D) interest income exempt from taxation under 
                section 103.
            ``(3) Capital gain subaccount.--The capital gain subaccount 
        shall consist of--
                    ``(A) amounts representing capital gains on assets 
                held for more than 1 year and referred to in subsection 
                (b)(1)(B) or (b)(1)(C), reduced by
                    ``(B) amounts representing capital losses on assets 
                held in the account for more than 1 year.
            ``(4) Ordinary income subaccount.--The ordinary income 
        subaccount shall consist of--
                    ``(A)(i) amounts representing capital gains on 
                assets held for 1 year or less and referred to in 
                subsection (b)(1)(B) or (b)(1)(C), reduced by
                    ``(ii) amounts representing capital losses on 
                assets held in the account for 1 year or less,
                    ``(B) interest (not including any tax-exempt 
                interest referred to in paragraph (2)(D)) and other 
                ordinary income (not including any dividend referred to 
                in subparagraph (D) of this paragraph) received on 
                assets held in the account,
                    ``(C) ordinary income from a transaction described 
                in subsection (b)(1)(B), and
                    ``(D) the portion of any dividend referred to in 
                paragraph (2)(C) not taken into account under such 
                paragraph.
            ``(5) Capital losses only allowed to offset certain 
        gains.--Except on termination of an account, capital losses 
        referred to in paragraph (3)(B) or in paragraph (4)(A)(ii) 
        shall be allowed only as an offset to gains referred to in 
        paragraph (3)(A) or (4)(A)(i), respective.
    ``(f) Purposes of Qualified Withdrawals.--
            ``(1) In general.--A qualified withdrawal from the account 
        is one made in accordance with the terms of the agreement but 
        only if it is for--
                    ``(A) the acquisition, construction, or 
                reconstruction of qualified plant and equipment,
                    ``(B) the payment of the principal on indebtedness 
                incurred in connection with the acquisition, 
                construction, or reconstruction of qualified plant and 
                equipment, or
                    ``(C) the retraining, skills upgrading, or 
                continued education of employees.
            ``(2) Penalty for failing to fulfill any substantial 
        obligation.--Under joint regulations, if the Secretary 
        determines that any substantial obligation under any agreement 
        is not being fulfilled, the Secretary may, after notice and 
        opportunity for hearing to the person maintaining the account, 
        treat the entire account or any portion thereof as an amount 
        withdrawn from the account in a nonqualified withdrawal.
    ``(g) Tax Treatment of Qualified Withdrawals.--
            ``(1) In general.--Any qualified withdrawal from an account 
        shall be treated--
                    ``(A) first as made out of the capital subaccount,
                    ``(B) second as made out of the capital gain 
                subaccount, and
                    ``(C) third as made out of the ordinary income 
                subaccount.
            ``(2) Adjustment to basis where withdrawal from ordinary 
        income subaccount.--If any portion of a qualified withdrawal 
        for plant and equipment is made out of the ordinary income 
        subaccount, the basis of such plant and equipment shall be 
        reduced by an amount equal to such portion.
            ``(3) Adjustment to basis where withdrawal from capital 
        gain subaccount.--If any portion of a qualified withdrawal for 
        plant and equipment is made out of the capital gain subaccount, 
        the basis of such plant and equipment shall be reduced by an 
        amount equal to such portion.
            ``(4) Adjustment to basis where withdrawal pays principal 
        on debt.--If any portion of a qualified withdrawal to pay the 
        principal on any indebtedness is made out of the ordinary 
        income subaccount or the capital gain subaccount, then an 
        amount equal to the aggregate reduction which would be required 
        by paragraphs (2) and (3) if such withdrawal were a qualified 
        withdrawal for a purpose described in such paragraphs shall be 
        applied, in the order provided in joint regulations, to reduce 
        the basis of plant and equipment owned by the person 
        maintaining the account. Any amount of a withdrawal remaining 
        after the application of the preceding sentence shall be 
        treated as a nonqualified withdrawal.
            ``(5) Ordinary income recapture of basis reduction.--If any 
        property the basis of which was reduced under paragraph (2), 
        (3), or (4) is disposed of, any gain realized on such 
        disposition, to the extent it does not exceed the aggregate 
        reduction in the basis of such property under such paragraphs, 
        shall be treated as an amount referred to in subsection 
        (h)(3)(A) which was withdrawn on the date of such disposition. 
        Subject to such conditions and requirements as may be provided 
        in joint regulations, the preceding sentence shall not apply to 
        a disposition where there is a redeposit in an amount 
        determined under joint regulations which will, insofar as 
        practicable, restore the account to the position such account 
        was in before the withdrawal.
    ``(h) Tax Treatment of Nonqualified Withdrawals.--
            ``(1) In general.--Except as provided in subsection (i), 
        any withdrawal from an account which is not a qualified 
        withdrawal shall be treated as a nonqualified withdrawal.
            ``(2) Ordering rule.--Any nonqualified withdrawal from an 
        account shall be treated--
                    ``(A) first as made out of the ordinary income 
                subaccount,
                    ``(B) second as made out of the capital gain 
                subaccount, and
                    ``(C) third as made out of the capital subaccount.
For purposes of this section, items withdrawn from any subaccount shall 
be treated as withdrawn on a first-in-first-out basis; except that (i) 
any nonqualified withdrawal for research, development, and design 
expenses incident to new and advanced plant and equipment, and (ii) any 
amount treated as a nonqualified withdrawal under the second sentence 
of subsection (g)(4), shall be treated as withdrawn on a last-in-first-
out basis.
            ``(3) Operating rules.--For purposes of this title--
                    ``(A) any amount referred to in paragraph (2)(A) 
                shall be included in income for the taxable year in 
                which the withdrawal is made as an item of ordinary 
                income,
                    ``(B) any amount referred to in paragraph (2)(B) 
                shall be included in income for the taxable year in 
                which the withdrawal is made as an item of gain 
                realized during such year from the disposition of an 
                asset held for more than 1 year, and
                    ``(C) for the period on or before the last date 
                prescribed for payment of tax for the taxable year in 
                which such withdrawal is made--
                            ``(i) no interest shall be payable under 
                        section 6601 and no addition to the tax shall 
                        be payable under section 6651,
                            ``(ii) interest on the amount of the 
                        additional tax attributable to any item 
                        referred to in subparagraph (A) or (B) shall be 
                        paid at the applicable rate (as defined in 
                        paragraph (4)) from the last date prescribed 
                        for payment of the tax for the taxable year for 
                        which such item was deposited in the account, 
                        and
                            ``(iii) no interest shall be payable on 
                        amounts referred to in clauses (i) and (ii) of 
                        paragraph (2).
            ``(4) Applicable rate.--For purposes of paragraph 
        (3)(C)(ii), the applicable rate of interest for any 
        nonqualified withdrawal shall be the rate established in 
        section 6621(a)(2).
            ``(5) Amount not withdrawn from account after 12 years from 
        date of agreement taxed as nonqualified withdrawal.--
                    ``(A) In general.--The applicable percentage of any 
                amount which remains in an account at the close of the 
                10th, 11th, or 12th taxable year following the taxable 
                year in which an agreement was entered into shall be 
                treated as a nonqualified withdrawal in accordance with 
                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  
                    ``(B) Earnings treated as deposits.--The earnings 
                of any account for any taxable year (other than net 
                gains) shall be treated for purposes of this paragraph 
                as an amount remaining in the account for such taxable 
                year.
                    ``(C) Amounts committed treated as withdrawn.--For 
                purposes of subparagraph (A), an amount shall not be 
                treated as remaining in an account at the close of any 
                taxable year to the extent there is a binding contract 
                at the close of such year for a qualified withdrawal of 
                such amount with respect to an identified item for 
                which such withdrawal may be made.
                    ``(D) Authority to treat excess funds as 
                withdrawn.--If the Secretary determines that the 
                balance in any account exceeds the amount which is 
                appropriate to meet the account's program objectives, 
                the amount of such excess shall be treated as a 
                nonqualified withdrawal under subparagraph (A) unless 
                the person maintaining the account develops appropriate 
                program objectives within 3 years to dissipate such 
                excess.
            ``(6) Nonqualified withdrawals taxed at highest marginal 
        rate.--
                    ``(A) In general.--In the case of any taxable year 
                for which there is a nonqualified withdrawal (including 
                any amount so treated under paragraph (5)), the tax 
                imposed by chapter 1 shall be determined--
                            ``(i) by excluding such withdrawal from 
                        gross income, and
                            ``(ii) by increasing the tax imposed by 
                        chapter 1 by the product of the amount of such 
                        withdrawal and the highest rate of tax 
                        specified in section 11.
                With respect to the portion of any nonqualified 
                withdrawal made out of the capital gain subaccount 
                during a taxable year to which section 1201(a) applies, 
                the rate of tax taken into account under the preceding 
                sentence shall not exceed 34 percent.
                    ``(B) Tax benefit rule.--If any portion of a 
                nonqualified withdrawal is properly attributable to 
                deposits (other than earnings on deposits) made by the 
                taxpayer in any taxable year which did not reduce the 
                taxpayer's liability for tax under chapter 1 for any 
                taxable year preceding the taxable year in which such 
                withdrawal occurs--
                            ``(i) such portion shall not be taken into 
                        account under subparagraph (A), and
                            ``(ii) an amount equal to such portion 
                        shall be treated as allowed as a deduction 
                        under section 172 for the taxable year in which 
                        such withdrawal occurs.
                    ``(C) Coordination with deduction for net operating 
                losses.--Any nonqualified withdrawal excluded from 
                gross income under subparagraph (A) shall be excluded 
                in determining taxable income under section 172(b)(2).
    ``(i) Certain Corporate Reorganizations.--Under joint regulations, 
transfer of an account from one person to another person in a 
transaction to which section 381 applies may be treated as if such 
transaction did not constitute a nonqualified withdrawal.
    ``(j) Definitions.--For purposes of this section--
            ``(1) Eligible corporation.--The term `eligible 
        corporation' means any corporation at least 35 percent of the 
        average annual gross revenues of which for the preceding 3 
        taxable years are attributable to defense contracts (as defined 
        in section 3(b) of the Defense Industrial Diversification and 
        Community Assistance Act of 1993).
            ``(2) Qualified plant and equipment.--The term `qualified 
        plant and equipment' means new or modernized plant and 
        equipment which will be used for the production of parts, 
        goods, or materials other than under a defense contract (as 
        that term is defined in section 3(b) of such Act).
            ``(3) Retraining.--The term `retraining' means any 
        employer-sponsored activity designed to prepare or further 
        prepare individuals for firm-related employment.
            ``(4) Joint regulations.--The term `joint regulations' 
        means the regulations prescribed under subsection (k).
    ``(k) Records; Reports; Changes in Regulations.--Each person 
maintaining an account under this section shall keep such records and 
shall make such reports as the Secretary or the Secretary of Defense 
shall require. The Secretary and the Secretary of Defense shall jointly 
prescribe all rules and regulations, not inconsistent with the 
foregoing provisions of this section, as may be necessary or 
appropriate to the determination of tax liability under this section. 
If, after an agreement has been entered into under this section, a 
change is made either in the joint regulations or in the regulations 
prescribed by the Secretary under this section which could have a 
substantial effect on the rights or obligations of any person 
maintaining an account under this section, such person may terminate 
such agreement.
    ``(l) Departmental Reports and Certification.--
            ``(1) In general.--For each calendar year, the Secretary 
        shall provide the Secretary of Defense, within 120 days after 
        the close of such calendar year, a written report with respect 
        to the accounts established under this section.
            ``(2) Content of reports.--Each report shall set forth the 
        name and taxpayer identification number of each person--
                    ``(A) establishing an account during such calendar 
                year;
                    ``(B) maintaining an account as of the last day of 
                such calendar year;
                    ``(C) terminating an account during such calendar 
                year;
                    ``(D) making any withdrawal from or deposit into 
                (and the amounts thereof) an account during such 
                calendar year; or
                    ``(E) with respect to which a determination has 
                been made during such calendar year that such person 
                has failed to fulfill a substantial obligation under 
                any account agreement to which such person is a 
                party.''
    (b) Minimum Tax Treatment.--Section 56(c) of the Internal Revenue 
Code of 1986 (relating to adjustments applicable to corporations) is 
amended by adding at the end thereof the following new paragraph:
            ``(4) Industrial diversification accounts.--In the case of 
        an industrial diversification account established under section 
        7524--
                    ``(A) subparagraphs (A) and (B) of section 
                7524(d)(1) shall not apply, and
                    ``(B) no reduction in basis shall be made under 
                subsection (g) with respect to the withdrawal from the 
                account of any amount to which subparagraph (A) 
                applies.''
    (c) Clerical Amendment.--The table of sections for chapter 77 of 
the Internal Revenue Code of 1986 is amended by adding at the end 
thereof the following new item:

                              ``Sec. 7524. Industrial diversification 
                                        accounts.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 302. ALTERNATIVE INVESTMENT TAX CREDIT.

    (a) Allowance of Credit.--Section 46 of the Internal Revenue Code 
of 1986 (relating to amount of investment credit) is amended by 
striking ``and'' at the end of paragraph (2), by striking the period at 
the end of paragraph (3) and inserting ``, and'', and by adding at the 
end thereof the following new paragraph:
            ``(4) in the case of an eligible corporation (as defined in 
        section 7524(j)(1)) which does not have an industrial 
        diversification account (within the meaning of section 7524) 
        for the taxable year or any prior taxable year, the industrial 
        diversification credit.''
    (b) Amount of Credit.--Section 48 of such Code is amended by adding 
at the end thereof the following new subsection:
    ``(c) Industrial Diversification Credit.--
            ``(1) General rule.--For purposes of section 46, the 
        industrial diversification credit for the taxable year is an 
        amount equal to 20 percent of the amount paid or incurred 
        during such taxable year for a purpose for which a qualified 
        withdrawal would be permitted by the taxpayer from an 
        industrial diversification account (within the meaning of 
        section 7524) if the taxpayer had such an account. Such credit 
        shall be in addition to any other credit allowable under this 
        subpart.
            ``(2) Special rule.--If any credit is determined under 
        subsection (a) for any amount which is includible in the basis 
        of any property, such property shall be treated as investment 
        credit property for purposes of this subpart.''
    (c) Technical Amendments.--
            (1) Clause (ii) of section 49(a)(1)(C) of such Code is 
        amended by inserting ``or property with respect to which an 
        industrial diversification credit is allowed under section 
        48(c)'' after ``energy property''.
            (2) Paragraph (5) of section 50(a) of such Code is amended 
        by adding at the end thereof the following new subparagraph:
                    ``(D) Special rules for certain property.--In the 
                case of property with respect to which an industrial 
                diversification credit is allowed under section 48(c) 
                and which is 3-year property (within the meaning of 
                section 168(e))--
                            ``(i) the percentage set forth in clause 
                        (ii) of the table contained in paragraph (1)(B) 
                        shall be 66 percent,
                            ``(ii) the percentage set forth in clause 
                        (iii) of such table shall be 33 percent, and
                            ``(iii) clauses (iv) and (v) of such table 
                        shall not apply.''
            (3) The section heading of section 48 of such Code is 
        amended by inserting before the period ``; industrial 
        diversification credit''.
            (4) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        before the period in the item relating to section 48 ``; 
        industrial diversification credit''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

                TITLE IV--SMALL BUSINESS DIVERSIFICATION

SEC. 401. SMALL BUSINESS ADMINISTRATION COMMITTEE ON DEFENSE AND 
              ECONOMIC DIVERSIFICATION.

    (a) Establishment.--There is established in the Small Business 
Administration a Committee on Defense and Economic Diversification 
(hereafter in this title referred to as the ``Committee'') which shall 
be composed of--
            (1) the Chief Counsel for Advocacy;
            (2) the Associate Deputy Administrator for Finance, 
        Investment, and Procurement;
            (3) the Associate Deputy Administrator for Management and 
        Administration;
            (4) the Associate Deputy Administrator for Special 
        Programs;
            (5) the Director of the Office of Economic Diversification 
        and Adjustment (established under section 202 of this Act);
            (6) 2 representatives of the small business-management 
        community to be appointed by the Administrator of the Small 
        Business Administration, 1 of whom shall be appointed from a 
        defense related small business and 1 from a nondefense related 
        small business; and
            (7) 2 representatives of labor union organizations to be 
        appointed by the Administrator of the Small Business 
        Administration.
    (b) Chairperson.--The Associate Deputy Administrator for Finance, 
Investment, and Procurement shall chair the Committee, shall preside 
over meetings, and shall designate a member of the Committee to preside 
in the absence of the Chairperson.
    (c) Vacancies.--Vacancies in the membership of the Committee 
described in paragraphs (6) and (7) of subsection (a) shall be filled 
in the same manner as original appointments are made. Vacancies in the 
membership of the Committee shall not affect the authority of the 
remaining members to execute the functions of the Committee.
    (d) Compensation.--Members of the Committee described in paragraphs 
(6) and (7) of subsection (a) shall be reimbursed for travel and per 
diem in lieu of subsistence expenses during the performance of duties 
of the Committee in accordance with subchapter I of chapter 57 of title 
5, United States Code.

SEC. 402. ESTABLISHMENT OF SMALL BUSINESS ADMINISTRATION OFFICE OF 
              ECONOMIC DIVERSIFICATION.

    (a) In General.--There is established in the Small Business 
Administration an Office of Economic Diversification (hereafter in this 
title referred to as the ``Office'') to provide staff support for the 
Committee.
    (b) Director.--The Office shall be headed by a Director who shall 
be a civilian appointed by the Administrator of the Small Business 
Administration and shall report directly to the Associate Deputy 
Administrator for Finance, Investment, and Procurement. The Director 
shall be compensated at the rate provided for level V of the Executive 
Schedule under section 5316 of title 5, United States Code.
    (c) Compensation.--The Administrator of the Small Business 
Administration may appoint and fix the compensation of such personnel 
for the Office as the Administrator deems necessary and appropriate.

SEC. 403. DUTIES.

    (a) In General.--The Committee shall--
            (1) carry out the programs provided for in title V of this 
        Act;
            (2) identify defense related problems of small businesses 
        that require assistance;
            (3) disseminate information furnished by the President's 
        Office of Economic Diversification and Adjustment, the 
        Secretary of Defense, and any other Federal agency or official 
        that may be useful to small business concerns;
            (4) prepare a plan for coordinating the efforts of the 
        Small Business Administration and the Administration's programs 
        for assisting firms adversely affected by defense cutbacks;
            (5) collect and disseminate information on--
                    (A) the issues involved with small business 
                diversification;
                    (B) successful diversification cases of small 
                business firms;
                    (C) retraining programs available to small business 
                firms;
                    (D) available venture and seed capital programs;
                    (E) available management assistance programs; and
                    (F) available loan and loan guarantee programs;
            (6) work with representatives from the President's Office 
        of Economic Diversification and Adjustment to assist small 
        businesses in finding alternative procurement opportunities 
        with Federal agencies; and
            (7) coordinate all efforts with the President's Office of 
        Economic Diversification and Adjustment.

SEC. 404. AUTHORIZATION OF APPROPRIATIONS.

    There is hereby authorized to be appropriated such sums as may be 
necessary to carry out the provisions of this title.

                   TITLE V--SMALL BUSINESS ASSISTANCE

SEC. 501. SMALL BUSINESS DIVERSIFICATION LOAN PROGRAM.

    (a) In General.--The Administrator of the Small Business 
Administration (hereafter in this title referred to as the 
``Administrator'') is empowered to make either loans or grants, either 
directly or in cooperation with banks or other financial institutions 
through agreements to participate on an immediate or deferred 
(guaranteed) basis, to a qualified small manufacturing firm to assist 
such firm to diversify from defense related to nondefense related 
business.
    (b) Loan and Grant Limits and Matching Contributions.--Pursuant to 
subsection (a), the Administrator is authorized to make loans or grants 
in an amount not exceeding the lesser of--
            (1) $40,000 for each qualified small manufacturing firm, or
            (2) an amount equal to the sum of--
                    (A) the amount of private capital which such firm 
                has committed for the purposes described in subsection 
                (e), plus
                    (B) the amount of private capital which such firm 
                can demonstrate it has spent for the purposes described 
                in subsection (e) during the 6-month period preceding 
                its application for a loan or grant under subsection 
                (a).
    (c) Participation.--In agreements to participate in loans on a 
deferred (guaranteed) basis, such participation by the Administrator 
shall be not less than 100 percent of the amount provided for in 
subsection (b).
    (d) Limitations.--(1) No qualified small manufacturing firm shall 
be deemed eligible for any loan or grant pursuant to this title unless 
such firm demonstrates to the satisfaction of the Administrator that 
not later than five years after such firm receives such loan or grant, 
at least 75 percent of such firm's gross revenues will be derived from 
nondefense related business.
    (2) No financial assistance shall be extended pursuant to this 
title if the applicant can obtain credit or financial assistance 
elsewhere, including other programs of the Federal Government, and 
including loan and loan guarantee programs of the Small Business 
Administration.
    (3) No qualified small manufacturing firm shall be eligible for any 
loan or grant pursuant to this title unless the Administrator 
determines that the recipient will use such loan or grant for the 
purposes described in subsection (e).
    (e) Purposes and Uses of Loan and Grant Funds.--
            (1) Purposes for which loans and grants used.--Loans and 
        grants made pursuant to this title shall be used--
                    (A) to assist qualified small manufacturing firms 
                to diversify from defense related to nondefense related 
                business, and
                    (B) to put such firms in a position where such 
                firms can qualify for either private or commercial 
                financing, or for financing under section 7(a) of the 
                Small Business Act (15 U.S.C. 636(a)) for nondefense 
                related business.
            (2) Specific uses.--Loans or grants made pursuant to this 
        title may be used to--
                    (A) conduct market research and analysis,
                    (B) develop an alternative use or business plan,
                    (C) conduct basic or applied research and 
                development for nondefense lines of business,
                    (D) strategic planning, and
                    (E) prototype development.

SEC. 502. REGULATIONS.

    The Administrator shall promulgate regulations to carry out the 
purposes of this title.

SEC. 503. AUTHORIZATION OF APPROPRIATIONS.

    There is hereby authorized to be appropriated such sums as may be 
necessary to carry out the purposes of this title.

         TITLE VI--ECONOMIC ADJUSTMENT ASSISTANCE FOR EMPLOYEES

SEC. 601. CERTIFICATION.

    (a) In General.--All worker displacements, as defined in subsection 
(b), affecting workers employed by a defense contractor or civilian 
workers employed by the Armed Services, shall be reported by the 
management of the defense facility to the Office of Economic 
Diversification and Adjustment and the State employment security agency 
acting as agent of the Secretary of Labor for the administration of the 
program under this title.
    (b) Worker Displacement.--The displacement of any worker who 
demonstrates that--
            (1) he or she has permanently lost his or her employment 
        due to--
                    (A) the cancellation of a defense contract 
                affecting the defense facility at which he or she is 
                employed,
                    (B) the significant reduction in the volume of 
                defense work in relation to total defense work in such 
                facility, or
                    (C) the significant workforce reduction or closure 
                of a defense facility, and
            (2) such employment loss has occurred within the period 
        beginning 6 months before and ending 1 year after causal 
        action, described in subparagraph (A), (B), or (C) of paragraph 
        (1)
shall, for purposes of subsection (a), be deemed to be a displacement 
attributable to that action.
    (c) The Office of Economic Diversification and Adjustment in 
cooperation with the Department of Labor shall certify eligibility, for 
the benefits available under this title, of workers suffering 
displacement as defined in subsection (b) based on regulations 
established by the Council on Economic Diversification and Adjustment, 
after consultation with the Secretary of Labor.

SEC. 602. RETRAINING.

    (a) Reallotment.--Section 302 of the Job Training Partnership Act 
(29 U.S.C. 1652) is amended--
            (1) in subsection (a)(1), by striking ``80 percent'' and 
        inserting ``75 percent'';
            (2) in subsection (a)(2), by striking ``20 percent'' and 
        inserting ``25 percent'';
            (3) in subsection (b)(2)(A), by striking ``25 percent'' and 
        inserting ``23.3 percent'' and by striking ``75 percent'' and 
        inserting ``70 percent''; and
            (4) in subsection (b)(2)(B), by striking ``25 percent'' and 
        inserting ``30 percent'' and by striking ``section 462(e)'' and 
        inserting ``subsections (e) and (h) of section 462''.
    (b) Inclusion of Skills Upgrading for Qualified Defense Contractor 
Employees Under Title III.--Section 314 of the Job Training Partnership 
Act (29 U.S.C. 1661c) is amended by adding at the end the following new 
subsection:
    ``(i) Skills Upgrading for Qualified Defense Contractor 
Employees.--Funds allotted under section 302 may be used to provide 
skills upgrading to individuals described in section 325A(f)(2) in 
accordance with such section.''.
    (c) Data on Displaced Defense Workers.--
            (1) In general.--Section 462 of the Job Training 
        Partnership Act (29 U.S.C. 1752) is amended by adding at the 
        end the following new subsection:
    ``(h)(1) The Secretary shall develop, in coordination with the 
Council on Economic Diversification and Adjustment, statistical data 
relating to permanent dislocation of defense workers due to reductions 
in defense expenditures, termination or reduction of defense contracts 
(as defined in section 3(b) of the Defense Industrial Diversification 
and Community Assistance Act of 1993), or the closure or realignment of 
defense facilities (as defined in section 3(d) of such Act). Among the 
data to be included are--
            ``(A) the number of defense facilities affected;
            ``(B) the number of defense workers displaced;
            ``(C) the location of affected defense facilities; and
            ``(D) the types of defense facilities involved.
    ``(2) The Secretary shall publish a report based upon such data as 
soon as practicable after the end of each calendar year. Such report 
shall include a comparison of data contained therein with contemporary 
data used by the Bureau of Labor Statistics in determining the annual 
employment and unemployment rates of the United States and an analysis 
of whether defense workers are being adequately counted in such 
employment statistics. Such report shall also include an analysis of 
alternative methods for reducing the adverse effects of displacement of 
defense workers, not only on the individual worker, but on the 
surrounding community.''.
            (2) Conforming amendment.--Section 405(a) of the Job 
        Training Reform Amendments of 1992 is amended by striking 
        ``adding at the end'' and inserting ``inserting after 
        subsection (f)''.

SEC. 603. INDIVIDUAL RETIREMENT ACCOUNT WITHDRAWAL.

    (a) Exemption From Prohibited Transaction Rules.--Section 4975 of 
the Internal Revenue Code of 1986 (relating to tax on prohibited 
transactions) is amended by redesignating subsection (i) as subsection 
(j) and by inserting after subsection (h) the following new subsection:
    ``(i) Special Rule for Qualified Defense Workers.--
            ``(1) In general.--The prohibition provided in subsection 
        (c) shall not apply to any qualified defense worker for a 1 
        year period from such worker's date of layoff if such worker 
        uses the funds for--
                    ``(A) the payment of the principal or interest on a 
                mortgage of such worker's primary residence; or
                    ``(B) for the rental expenses on his or her primary 
                residence.
            ``(2) Qualified defense worker defined.--For the purposes 
        of this subsection, the term `qualified defense worker' means 
        any worker who demonstrates that--
                    ``(A) he or she has permanently lost his or her 
                employment due to--
                            ``(i) the cancellation of a defense 
                        contract affecting the defense facility at 
                        which he or she is employed,
                            ``(ii) the significant reduction in the 
                        volume of defense work in relation to total 
                        defense work in such facility, or
                            ``(iii) the significant workforce reduction 
                        or closure of such facility, and
                    ``(B) such employment loss has occurred within the 
                period beginning 6 months before and ending 1 year 
                after the causal action, as described in clauses (i), 
                (ii), or (iii) of subparagraph (A).
            ``(3)  Significant workforce reduction.--For purposes of 
        this subsection, the term `significant workforce reduction' 
        means any reduction in workforce which results in an employment 
        loss (as defined in section 2(a)(6) of the Worker Adjustment 
        and Retraining Notification Act (29 U.S.C. 2101(a)(6)) at the 
        single site of employment during any 30-day period for--
                    ``(A) at least 50 employees (excluding any part-
                time employees), if such employees constitute at least 
                33 percent of the workforce (excluding any part-time 
                employees), or
                    ``(B) at least 300 employees (excluding any part-
                time employees).
            ``(4) Other definitions.--For purposes of this subsection, 
        the terms `defense contract' and `defense facility' shall have 
        the meanings given such terms by sections 3(b) and 3(d) of the 
        Defense Industrial Diversification and Community Assistance Act 
        of 1993, respectively.''.

           TITLE VII--COMMUNITY ECONOMIC ADJUSTMENT PLANNING

SEC. 701. NOTIFICATION.

    (a) In General.--Upon release of the President's budget or any 
announcement of the realignment or closure of any qualified defense 
facility, the Secretary of Defense, acting through the Council on 
Economic Diversification and Adjustment, shall promptly notify any 
State or local government which may be affected by--
            (1) the realignment or closure of any qualified defense 
        facility; or
            (2) the slowdown, termination, or cancellation of any 
        defense contract,
which is proposed in, or would likely result from any proposal 
contained in, such budget or in such announcement.
    (b) Notification of Communities Affected by Defense Realignment 
Before Date of Enactment.--In addition to the requirement of subsection 
(a), the Secretary of Defense shall provide notice pursuant to such 
subsection to any community likely to be affected by any action 
described in paragraph (1) or (2) of such subsection which was proposed 
in any budget of the President which was released or announced before 
the date of the enactment of this Act.

SEC. 702. ELIGIBILITY OF COMMUNITIES FOR ECONOMIC ADJUSTMENT PLANNING 
              ASSISTANCE.

    (a) In General.--Any community which--
            (1) is likely to be a substantially and seriously affected 
        community upon the implementation of realignment or closure of 
        any qualified defense facility, or the slowdown, termination, 
        or cancellation of any defense contract (including any action 
        for which notice was provided pursuant to section 701(b) of 
        this Act); and
            (2) complies with the requirements of subsection (b),
shall be eligible for economic adjustment planning assistance under 
section 703 of this Act.
    (b) Analyses and Forecasts.--(1) Any community which seeks to 
become eligible for economic adjustment planning assistance shall 
prepare--
            (A) an analysis and forecast of the effect any action 
        described in paragraph (1) or (2) of section 701(a) of this Act 
        will have on the local economy and workforce; and
            (B) a proposal for an economic adjustment plan that 
        addresses the community economic adjustments appropriate to 
        reduce the adverse effect of any such action.
    (2) Analyses, forecasts, and proposals for economic adjustment 
plans prepared pursuant to paragraph (1) shall be submitted to the 
Council for review and comment before the end of the 4-month period 
beginning on the date the Secretary of Defense provides notice under 
subsection (a) or (b) of section 701 of this Act.
    (3) Any analysis and forecast prepared pursuant to paragraph (1)(A) 
shall include a specific estimate of the increase in unemployment 
projected as a result of any action described in paragraph (1) or (2) 
of section 701(a) of this Act for the most appropriate geographic or 
governmental entity for which reliable statistics are compiled.
    (4) The economic assumptions, methodology, and analyses used to 
produce any estimate referred to in paragraph (3) shall be made part of 
any planning documentation submitted to the Council pursuant to 
paragraph (2).
    (c) Determination of Eligible Communities; Annual Lists.--(1) The 
Council shall--
            (A) review the material submitted under subsection (b)(2) 
        by any community and determine whether such community meets the 
        requirement of subsection (a) for eligibility for economic 
        adjustment planning assistance; and
            (B) publish a list annually of communities eligible for 
        economic adjustment planning assistance under this title at the 
        time the list is prepared.
    (2) If the Council--
            (A) determines under paragraph (1)(A) that any community is 
        not eligible for economic adjustment planning assistance under 
        this title; or
            (B) fails to include any community in the annual list 
        published under paragraph (1)(B),
the community may petition the Council for review of such determination 
or inclusion in such list, as the case may be.
    (3) The Council shall promptly review any petition filed under 
paragraph (2).

SEC. 703. COMMUNITY ECONOMIC ADJUSTMENT PLANNING ASSISTANCE.

    Any community which has been determined by the Council under 
section 702(c) to be eligible for economic adjustment planning 
assistance shall be eligible for assistance under section 2391(b) of 
title 10, United States Code.

SEC. 704. COMMUNITY ECONOMIC ADJUSTMENT ASSISTANCE.

    Any substantially and seriously affected community shall be 
eligible for economic adjustment assistance authorized under title IX 
of the Public Works and Economic Development Act of 1965 (42 U.S.C. 
3241 et seq.).

       TITLE VIII--COMMERCIAL AND DEFENSE PRODUCTION INTEGRATION

SEC. 801. INTEGRATION OF COMMERCIAL PRODUCTION PROCESSES AND DEFENSE 
              PROCUREMENT PRACTICES.

    (a) Office of Commercial and Defense Production Integration.--Part 
IV of subtitle A of title 10, United States Code, is amended by adding 
at the end the following new chapter:

    ``CHAPTER 173--INTEGRATION OF COMMERCIAL AND DEFENSE PRODUCTION

``Sec.
``2911. Office of Commercial and Defense Production Integration.
``Sec. 2911. Office of Commercial and Defense Production Integration
    ``(a) Establishment.--There is established within the Department of 
Defense an office to be known as the Office of Commercial and Defense 
Production Integration. The office shall be under the Under Secretary 
of Defense for Acquisition.
    ``(b) Purposes; Duties.--(1) The Office of Commercial and Defense 
Production Integration shall develop and implement policies, practices, 
and procedures designed to achieve an effective integration of 
commercial production processes and defense procurement practices. A 
procurement practice or procedure shall be considered to achieve 
effectively the integration of a commercial production process and a 
defense procurement practice if the practice or procedure--
            ``(A) increases the use of commercial products in defense 
        procurement;
            ``(B) increases commercial-style competition in defense 
        procurement practices;
            ``(C) lowers defense acquisition costs by streamlining the 
        defense product acquisition process;
            ``(D) encourages integrated processes for manufacturing 
        civilian and defense products; or
            ``(E) encourages research and development of products 
        having civilian and military applications.
    ``(2) The policies, practices, and procedures referred to in 
paragraph (1) shall require, to the maximum extent practicable--
            ``(A) the elimination of unique military specifications in 
        the procurement of defense products;
            ``(B) the adoption of military product specifications that 
        are compatible with existing or evolving commercial product 
        specifications;
            ``(C) the adaptation of military products and systems to 
        permit the effective utilization of existing or evolving 
        commercial products;
            ``(D) the identification of commercial suppliers that have 
        exhibited historically high standards of product quality and 
        reliability in commercial or defense production;
            ``(E) maximum participation by such qualified suppliers in 
        the defense procurement process; and
            ``(F) increased emphasis on supply quality.
    ``(c) Nondevelopmental Items.--The Office of Commercial and Defense 
Production Integration shall assist the Under Secretary of Defense for 
Acquisition in carrying out the duties of the Under Secretary under 
section 2325 of this title, relating to the procurement of 
nondevelopmental items.''.
    (b) Conforming Amendments.--(1) Section 2325(a) of title 10, United 
States Code, is amended--
            (A) by striking ``and'' at the end of paragraph (3);
            (B) by redesignating paragraph (4) as paragraph (5); and
            (C) by inserting after paragraph (3), the following new 
        paragraph:
            ``(4) such requirements achieve effective integration of 
        commercial production processes and military procurement 
        practices; and''.
    (2) The table of chapters at the beginning of subtitle A, and at 
the beginning of part IV of subtitle A, of title 10, United States 
Code, are each amended by adding after the item relating to chapter 172 
the following new item:

``173. Integration of Commercial and Defense Production.....    2911''.

SEC. 802. REGULATIONS.

    Not later than six months after the date of enactment of this Act, 
the Secretary of Defense shall prescribe such regulations as may be 
necessary to carry out the amendments made by section 801 of this Act.

SEC. 803. DEMONSTRATION PROJECTS.

    (a) Demonstration Projects.--(1) The Secretary of Defense, acting 
through the Office of Commercial and Defense Production Integration, 
shall conduct not less than three projects designed to demonstrate the 
feasibility of achieving effective integration of commercial production 
processes and military procurement practices.
    (2) The projects referred to in paragraph (1) shall commence not 
later than six months after the date of enactment of this Act and 
continue thereafter for not longer than one year.
    (b) Project Proposals.--Not less than 30 days before the 
commencement of each project referred to in subsection (a), the 
Secretary shall notify Congress of the proposed demonstration project. 
The Secretary shall include in the notice--
            (1) a description of the scope and structure of the 
        project; and
            (2) an evaluation of the means by which the project will 
        achieve effective integration of commercial production 
        processes and military procurement practices.
    (c) Project Reports.--Not later than 60 days after the termination 
of each project referred to in subsection (a), the Secretary shall 
submit a report to Congress evaluating the extent to which the project 
achieved effective integration of commercial production processes and 
military procurement practices, together with such recommendations for 
additional legislation as the Secretary determines necessary to carry 
out more effectively the purposes described in section 801 of this Act.

             TITLE IX--COMMISSION ON MILITARY BUDGET REFORM

SEC. 901. ESTABLISHMENT OF COMMISSION.

    (a) In General.--There is established a commission to be known as 
the Commission on Military Budget Reform (referred to in this Act as 
the ``Commission'').
    (b) Members.--The Commission shall consist of 12 members, appointed 
as follows:
            (1) Four to be appointed by the Secretary of Defense.
            (2) Four to be appointed by the President pro tempore of 
        the Senate.
            (3) Four to be appointed by the Speaker of the House of 
        Representatives.
    (c) Terms and Vacancies.--Members shall be appointed for the life 
of the Commission. Any vacancy occurring in the membership of the 
Commission shall not affect the powers of the Commission and shall be 
filled in the same manner in which the original appointment was made.
    (d) Chairman and Vice Chairman.--The Commission shall elect a 
Chairman and Vice Chairman from among its members.
    (e) Meetings.--The Commission shall convene its first meeting 
within 30 days after the first date on which all members of the 
Commission have been appointed. Thereafter, the Commission shall meet 
at the discretion of its Chairman or at the call of a majority of its 
members.
    (f) Quorum.--Seven members of the Commission shall constitute a 
quorum, but a lesser number may hold hearings.
    (g) Compensation and Travel Expenses.--A member of the Commission 
may not be paid compensation for service performed as a member of the 
Commission. However, members of the Commission shall be allowed travel 
expenses, including per diem in lieu of subsistence, at rates 
authorized for employees of agencies under subchapter I of chapter 57 
of title 5, United States Code, while away from their homes or regular 
places of business in the performance of services for the Commission.

SEC. 902. DUTIES.

    (a) Study.--The Commission shall conduct a study to determine the 
desirability and feasibility of Congress instituting a three year 
budget cycle program for the Department of Defense under which--
            (1) the President would submit to Congress a proposed 
        budget for the Department of Defense for three separate 
        consecutive fiscal years;
            (2) the Congress would enact separate legislation 
        authorizing funds for the Department of Defense for three 
        consecutive fiscal years and appropriating funds for that 
        purpose for two consecutive fiscal years;
            (3) in each fiscal year after enactment of the initial 
        three year budget, the President would submit to Congress a 
        proposed budget for the Department of Defense for the fiscal 
        year following the last fiscal year of the previous budget for 
        the Department of Defense; and
            (4) in each fiscal year after the enactment of the initial 
        legislation authorizing funds for three consecutive fiscal 
        years and appropriating funds for two consecutive fiscal years, 
        Congress would enact legislation authorizing funds for the 
        fiscal year following the last fiscal year for which funds were 
        authorized in the previous budget referred to in paragraph (3) 
        and would enact legislation appropriating funds for the fiscal 
        year following the last fiscal year for which funds were 
        appropriated in the previous budget referred to in that 
        paragraph.
    (b) Specific Matters To Be Considered.--In carrying out the study 
referred to in subsection (a), the Commission shall specifically 
consider the following:
            (1) the advantages and disadvantages of such a program;
            (2) the amount of savings that will likely result from such 
        a program;
            (3) the effects that such a program would likely have--
                    (A) on the activities and programs of the 
                Department of Defense;
                    (B) on both short-range and long-range planning for 
                national security; and
                    (C) on foreign military sales;
            (4) the favorable and adverse effects that multiyear 
        defense budget programs have had on the defense budget 
        processes in foreign nations that have adopted such programs; 
        and
            (5) alternative means of carrying out a multiyear defense 
        budget program.
    (c) Report.--The Commission shall submit to the Secretary of 
Defense and Congress a report on the results of the study carried out 
under this Act, together with such comments and recommendations as the 
Commission considers appropriate, not later than 12 months after the 
date of the first meeting of the Commission under section 901(e) of 
this Act.

SEC. 903. POWERS OF COMMISSION.

    (a) Meetings and Hearings.--For purposes of carrying out this Act, 
the Commission or, on the authorization of the Commission, any 
subcommittee or member thereof, may hold such hearings, sit and act at 
such times and places, take such testimony, and receive such evidence 
as is appropriate.
    (b) Obtaining Information From Federal Agencies.--The Commission 
may secure directly from any department or agency of the United States 
such information as the Commission may require to carry out its duties 
under this Act. Upon request of the Chairman of the Commission, the 
head of such department or agency shall furnish such information to the 
Commission.

SEC. 904. ADMINISTRATIVE PROVISIONS.

    (a) Staff.--(1) The Commission may appoint and fix the compensation 
of such personnel as may be necessary, without regard to the provisions 
of title 5, United States Code, governing appointments in the 
competitive service, and without regard to the provisions of chapter 51 
and subchapter III of chapter 53 of such title relating to 
classification and General Schedule pay rates, except that the 
compensation of any employee of the Commission may not exceed a rate 
equivalent to the rate payable under level V of the Executive Schedule 
under section 5316 of such title.
    (2) Upon request of the Commission, the head of any Federal agency 
is authorized to detail to the Commission, on a reimbursable basis, any 
of the personnel of such agency to assist the Commission in carrying 
out its duties under this Act and such detail shall be without 
interruption or loss of civil service status or privilege.
    (b) Use of Experts and Consultants.--The Commission may obtain the 
services of experts and consultants in accordance with the provisions 
of section 3109 of title 5, United States Code, but at rates for 
individuals not to exceed the daily equivalent of the minimum annual 
rate of basic pay payable for a position classified above GS-15 under 
section 5332 of such title.

SEC. 905. TERMINATION OF COMMISSION.

    The Commission shall expire 30 days after the date on which the 
report of the Commission is submitted to the Secretary of Defense and 
Congress.

SEC. 906. AUTHORIZATION OF APPROPRIATIONS.

    There is hereby authorized to be appropriated such sums as may be 
necessary to carry out the purposes of this title.

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