(b) APPOINTMENT AND QUALIFICATIONS OF DIREC-
TOR OF FEDERAL EMERGENCY MANAGEMENT AGENCY.— 
Section 507 of the Homeland Security Act of 2002 (6 
U.S.C. 317) is amended— 
(1) by redesignating subsections (a) and (b) as 
subsections (b) and (c), respectively; and 
(2) by inserting before subsection (b), as so re-
designated, the following: 
‘‘(a) APPOINTMENT AND QUALIFICATIONS OF DIREC-
TOR.—The Federal Emergency Management Agency shall 
be headed by a Director, who shall be appointed by the 
President, by and with the advice and consent of the Sen-
ate. The Director shall be appointed from among individ-
uals who meet the same qualification requirements as 
apply to the Under Secretary for Emergency Preparedness 
and Response under section 501(b).’’. 
SEC. 4. NONREFUNDABLE CREDIT FOR EXPENSES RE-
LATED TO SEISMIC RETROFIT OF PRINCIPAL 
RESIDENCE. 
(a) GENERAL RULE.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to nonrefundable personal credits) is 
amended by inserting after section 25D the following:
‘‘SEC. 25E. EXPENSES RELATED TO SEISMIC RETROFIT OF 
PRINCIPAL RESIDENCE. 
‘‘(a) GENERAL RULE.—In the case of an individual, 
there shall be allowed as a credit against the tax imposed 
by this chapter for the taxable year an amount equal to 
50 percent of so much of the qualified seismic retrofit ex-
penses of the taxpayer for the taxable year as do not ex-
ceed $6,000. 
‘‘(b) QUALIFIED SEISMIC RETROFIT EXPENSES.— 
For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified seismic 
retrofit expenses’ means amounts paid or incurred 
by the taxpayer during the taxable year in relation 
to any seismic retrofit construction of the principal 
residence of the taxpayer. 
‘‘(2) SEISMIC RETROFIT CONSTRUCTION.—The 
term ‘seismic retrofit construction’ means any addi-
tion or improvement— 
‘‘(A) which is certified by the State dis-
aster agency or other applicable agency— 
‘‘(i) as resulting in the mitigation of 
the risk of damage to existing property 
from an earthquake, and 
‘‘(ii) as being in addition to any addi-
tion or improvement required by any State
or local law with respect to such property, 
and 
‘‘(B) which is placed in service at least 5 
years after the date the building is first placed 
in service. 
Such term does not include the cost of acquiring 
such property (or any interest therein). 
‘‘(3) PRINCIPAL RESIDENCE.—The term ‘prin-
cipal residence’ has the same meaning as when used 
in section 121. 
‘‘(c) DENIAL OF DOUBLE BENEFIT.—No deduction 
shall be allowed under any other provision of this chapter 
with respect to any amount of qualified seismic retrofit 
expenses taken into account under subsection (a). 
‘‘(d) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section with respect 
to any residence, the basis of such residence shall be re-
duced by the amount of the credit so allowed.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 of the Internal Rev-
enue Code of 1986 is amended by inserting after the 
item relating to section 25D the following new item: 
‘‘Sec. 25E. Expenses related to seismic retrofit of principal residence.’’. 
(2) Subsection (a) of section 1016 of such Code 
is amended by striking ‘‘and’’ at the end of para-
graph (36), by striking the period at the end of 
paragraph (37) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph: 
‘‘(38) in the case of a residence with respect to 
which a credit was allowed under section 25E, to the 
extent provided in section 25E(d).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to expenses paid or incurred in 
taxable years beginning after December 31, 2005. 
SEC. 5. RECOVERY PERIOD FOR DEPRECIATION OF CER-
TAIN SEISMIC RETROFIT EXPENSES. 
(a) TREATMENT
AS 5-YEAR PROPERTY.—Section 
168(e)(3)(B) of the Internal Revenue Code of 1986 (relat-
ing to 5-year property) is amended by striking ‘‘and’’ at 
the end of clause (v), by striking the period and inserting 
‘‘, and’’ at the end of clause (vi), and by inserting after 
clause (vi) the following new clause: 
‘‘(vii) any qualified seismic retrofit 
property.’’. 
(b) DEFINITION OF QUALIFIED SEISMIC RETROFIT 
PROPERTY.—Section 168(i) of the Internal Revenue Code 
of 1986 (relating to definitions and special rules) is 
amended by adding at the end the following new para-
graph:
‘‘(18) QUALIFIED
SEISMIC
RETROFIT
PROP-
ERTY.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
seismic retrofit property’ means any addition or 
improvement to real property for which depre-
ciation is allowable under this section— 
‘‘(i) for which the expenditure is prop-
erly chargeable to the capital account, and 
‘‘(ii) which is a seismic retrofit. 
‘‘(B) SEISMIC RETROFIT.—For purposes of 
subparagraph (A)(i), the term ‘seismic retrofit’ 
means any addition or improvement— 
‘‘(i) which is certified by the State 
disaster agency or other applicable agen-
cy— 
‘‘(I) as resulting in the mitiga-
tion of the risk of damage to existing 
property from an earthquake, and 
‘‘(II) as being in addition to any 
addition or improvement required by 
any State or local law with respect to 
such property, and 
‘‘(ii) which is placed in service at least 
5 years after the date the building is first 
placed in service.
Such term does not include the cost of acquir-
ing such property (or any interest therein).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to qualified seismic retrofit prop-
erty placed in service after December 31, 2005. 
SEC. 6. QUALIFIED SEISMIC RETROFITTING BONDS. 
(a) IN GENERAL.—Section 144 of the Internal Rev-
enue Code of 1986 (relating to qualified small issue bond; 
qualified student loan bond; qualified redevelopment bond) 
is amended by adding at the end the following new sub-
section: 
‘‘(d) QUALIFIED SEISMIC RETROFITTING BOND.— 
For purposes of this part— 
‘‘(1) IN GENERAL.—The term ‘qualified seismic 
retrofitting bond’ means any bond issued as part of 
an issue 95 percent or more of the net proceeds of 
which are to be used— 
‘‘(A) for seismic retrofitting expenditures, 
and 
‘‘(B) in a manner which meets the require-
ments of paragraph (3). 
‘‘(2) SEISMIC RETROFITTING EXPENDITURE.— 
For purposes of paragraph (1), the term ‘seismic 
retrofitting expenditure’ means any amount properly 
chargeable to capital account—
‘‘(A) which is certified by the State dis-
aster agency or other applicable agency— 
‘‘(i) as resulting in the mitigation of 
the risk of damage to existing property 
from an earthquake, and 
‘‘(ii) as being in addition to any addi-
tion or improvement required by any State 
or local law with respect to such property, 
and 
‘‘(B) which is placed in service at least 5 
years after the date the building is first placed 
in service. 
Such term does not include the cost of acquiring 
such property (or any interest therein). 
‘‘(3) USE OF PROCEEDS REQUIREMENTS.—The 
use of the proceeds of an issue meets the require-
ments of this paragraph if within the 26-month pe-
riod beginning with the date of issue— 
‘‘(A) at least 95 percent of the net pro-
ceeds of such issue are used for seismic retro-
fitting expenditures or are used to finance 1 or 
more loans to ultimate borrowers for such ex-
penditures, or 
‘‘(B) to the extent not so used under sub-
paragraph (A), such proceeds in excess of
$10,000 are used to redeem bonds which are 
part of such issue.’’. 
(b) BONDS TREATED AS QUALIFIED BONDS.—Para-
graph (1) of section 141(e) of the Internal Revenue Code 
of 1986 (defining qualified bond) is amended by striking 
‘‘or’’ at the end of subparagraph (F), by redesignating 
subparagraph (G) as subparagraph (H), and by inserting 
after subparagraph (F) the following new subparagraph: 
‘‘(G) a qualified seismic retrofitting bond, 
or’’. 
(c) BONDS INCLUDED FOR PURPOSES OF SMALL 
ISSUER EXEMPTION STATUS.—Subclause (I) of section 
265(b)(3)(C)(ii) of the Internal Revenue Code of 1986 (re-
lating to obligations not taken into account in determining 
status as qualified small issuer) is amended by inserting 
‘‘, or a qualified seismic retrofitting bond, as defined in 
section 144(d)(1)’’ after ‘‘section 145’’. 
(d) EXCEPTION
FROM
VOLUME
CAP.—Section 
146(g) of the Internal Revenue Code of 1986 (relating to 
exception for certain bonds) is amended by striking ‘‘and’’ 
at the end of paragraph (3), by striking the period at the 
end of paragraph (4) and inserting a comma, and by add-
ing after paragraph (4) the following new paragraphs: 
‘‘(5) any qualified mortgage bond if 95 percent 
or more of the net proceeds of the bond are to be
used to provide home improvement loans in connec-
tion with seismic retrofitting expenditures (as de-
fined in section 144(d)(2) without regard to the cap-
ital account requirement), and 
‘‘(6) any qualified seismic retrofitting bond.’’. 
(e) PROCEEDS
OF MORTGAGE REVENUE BONDS 
USED IN CONNECTION WITH SEISMIC RETROFITTING.— 
(1) IN
GENERAL.—Paragraph (4) of section 
143(k) of the Internal Revenue Code of 1986 (relat-
ing to other definitions and special rules for quali-
fied mortgage bonds) is amended to read as follows: 
‘‘(4) QUALIFIED HOME IMPROVEMENT LOAN.— 
The term ‘qualified home improvement loan’ 
means— 
‘‘(A) the financing (in an amount which 
does not exceed $15,000)— 
‘‘(i) of alterations, repairs, and im-
provements on or in connection with an ex-
isting residence by the owner thereof, but 
‘‘(ii) only for such items as substan-
tially protect or improve the basic livability 
or energy efficiency of the property, and 
‘‘(B) the financing (in an amount which 
does not exceed $20,000) of seismic retrofitting 
expenditures (as defined in section 144(d)(2)
without regard to the capital account require-
ment) in connection with an existing residence 
by the owner thereof.’’. 
(2) 
EXCEPTION
FROM
INCOME
REQUIRE-
MENTS.—Section 143(f) of such Code (relating to 
income requirements) is amended by adding at the 
end the following new paragraph: 
‘‘(7) EXCEPTION
FOR
CERTAIN
QUALIFIED 
HOME IMPROVEMENT LOANS.—Paragraph (1) shall 
not apply with respect to any qualified home im-
provement 
loan 
(as 
defined 
in 
subsection 
(k)(4)(B).’’. 
(f) CLERICAL AMENDMENTS.— 
(1) The heading of section 144 of the Internal 
Revenue Code of 1986 is amended by striking 
‘‘BOND.’’ and inserting ‘‘BOND; QUALIFIED SEIS-
MIC RETROFITTING BOND.’’. 
(2) The item relating to section 144 in the table 
of sections for subpart A of part IV of subchapter 
B of chapter 1 of such Code is amended by striking 
‘‘bond.’’ and inserting ‘‘bond; qualified seismic retro-
fitting bond.’’ 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to bonds issued after the date of 
the enactment of this Act.
SEC. 7. TREATMENT OF PASSIVE LOSSES OF CERTAIN 
PARTNERSHIPS ENGAGED IN SEISMIC RET-
ROFITTING. 
(a) IN GENERAL.—Section 469 of the Internal Rev-
enue Code of 1986 (relating to passive activity losses and 
credits limited) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(n) EXEMPTION
FOR
SEISMIC
RETROFITTING 
TRADE OR BUSINESS.— 
‘‘(1) IN GENERAL.—In the case of any natural 
person, subsection (a) shall not apply to that portion 
of the passive activity loss or the deduction equiva-
lent (within the meaning of subsection (j)(5)) of the 
passive activity credit for any taxable year which is 
attributable to any seismic retrofitting activity which 
such person engages in during the taxable year, 
whether or not the taxpayer materially participates 
in such activity. 
‘‘(2) SEISMIC
RETROFITTING
ACTIVITY.—For 
purposes of this subsection, the term ‘seismic retro-
fitting activity’ means any activity which involves the 
trade or business of seismic retrofit construction (as 
defined in section 25E(b)(2)) for residential prop-
erty.’’.
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 8. MORTGAGE INSURANCE INCENTIVE. 
Section 203(b)(2) of the National Housing Act (12 
U.S.C. 1709(b)(2)), is amended, in the first undesignated 
paragraph (relating to increase of amounts insured for 
costs due to installation of solar energy systems) that fol-
lows subparagraph (A), by inserting ‘‘or due to seismic 
retrofitting of the residence (within the meaning of the 
term 
‘seismic 
retrofit 
construction’ 
under 
section 
25E(b)(2) of the Internal Revenue Code of 1986)’’ before 
the period at the end. 
SEC. 9. EARTHQUAKE DISASTER MITIGATION AND RECOV-
ERY PLANNING GRANT PROGRAM. 
(a) DEFINITIONS.—Section 4 of the Earthquake 
Hazards Reduction Act of 1977 (42 U.S.C. 7703) is 
amended by adding at the end the following: 
‘‘(10) AGENCY.—The term ‘Agency’ means the 
Federal Emergency Management Agency. 
‘‘(11) CRITICAL FACILITY.—The term ‘critical 
facility’ means— 
‘‘(A) a public structure (including a police 
station, fire station, city or town hall, school, or
other public building) or a public or nonprofit 
private hospital that is— 
‘‘(i) owned by an entity; and 
‘‘(ii) critical to the continuity of the 
entity or to the conduct of the disaster re-
sponse activities of the entity; or 
‘‘(B) a facility that— 
‘‘(i) provides medical services to a spe-
cific occupational or industry segment of 
the general public; and 
‘‘(ii) is operated by an organization 
described in subsection (c) or (d) of section 
501 of the Internal Revenue Code of 1986 
and exempt from taxation under subsection 
(a) of such section. 
‘‘(12) CRITICAL
PUBLIC
INFRASTRUCTURE.— 
The term ‘critical public infrastructure’ means a 
utility or transportation system (including a bridge, 
energy system, water or sewer system, or commu-
nication system) that is— 
‘‘(A) owned by an entity; and 
‘‘(B) critical to the conduct of the disaster 
response activities of the entity. 
‘‘(13) EARTHQUAKE DISASTER.—
‘‘(A) IN GENERAL.—The term ‘earthquake 
disaster’ means a disaster that results from a 
movement of the earth. 
‘‘(B) INCLUSIONS.—The term ‘earthquake 
disaster’ includes a disaster that results from a 
tsunami or an earthquake-caused landslide or 
liquefaction (as determined by the Director of 
the Agency). 
‘‘(14) GRANT PROGRAM.—The term ‘grant pro-
gram’ means the earthquake disaster mitigation and 
recovery planning grant program established under 
section 6. 
‘‘(15) INDIAN TRIBE.—The term ‘Indian tribe’ 
has the meaning given the term in section 4 of the 
Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450b). 
‘‘(16) INSTITUTION OF HIGHER EDUCATION.— 
The term ‘institution of higher education’ has the 
meaning given the term in section 101 of the Higher 
Education Act of 1965 (20 U.S.C. 1001). 
‘‘(17) LOCAL GOVERNMENT.—The term ‘local 
government’ means— 
‘‘(A) a city, town, township, county, parish, 
village, or other general-purpose political sub-
division of a State;
‘‘(B) an Indian tribe; and 
‘‘(C) a geologic hazard abatement or simi-
lar special purpose district formed to carry out 
or fund projects to reduce the vulnerability of 
infrastructure and buildings to earthquake dis-
asters. 
‘‘(18) LOSS
REDUCTION
TRUST
FUND.—The 
term ‘Loss Reduction Trust Fund’ means the Loss 
Reduction Trust Fund established by section 7.’’. 
(b) GRANT PROGRAM.—The Earthquake Hazards 
Reduction Act of 1977 is amended by inserting after sec-
tion 5 (42 U.S.C. 7704) the following: 
‘‘SEC. 6. EARTHQUAKE DISASTER MITIGATION AND RECOV-
ERY PLANNING GRANT PROGRAM. 
‘‘(a) ESTABLISHMENT.—The Director of the Agency 
may establish a grant program to provide financial assist-
ance to eligible recipients described in subsection (b) to 
pay the Federal share of the cost of carrying out earth-
quake disaster mitigation and recovery planning measures 
with respect to the critical facilities and critical public in-
frastructure under the jurisdiction of the recipients. 
‘‘(b) ELIGIBLE RECIPIENTS.— 
‘‘(1) IN GENERAL.—To be eligible for a grant 
under the grant program, an entity shall be a local
government, public or nonprofit private hospital, or 
public institution of higher education that— 
‘‘(A) has jurisdiction over, or is located in, 
an area that is subject to earthquake disasters; 
‘‘(B) submits to the Director of the Agency 
for approval an application for the grant in 
such form as the Director shall require; 
‘‘(C) has completed an earthquake disaster 
risk analysis; 
‘‘(D) has adopted a long-term strategic 
earthquake disaster loss reduction plan that 
identifies high priority earthquake disaster loss 
reduction projects; and 
‘‘(E) meets criteria established by the Di-
rector under paragraph (2). 
‘‘(2) CRITERIA.— 
‘‘(A) ESTABLISHMENT.—The Director of 
the Agency shall establish, by regulation, cri-
teria that local governments, public and non-
profit private hospitals, and public institutions 
of higher education shall meet to qualify for 
grants under the grant program. 
‘‘(B) 
REQUIREMENT
APPLICABLE
TO 
LOCAL
GOVERNMENTS.—The criteria under 
subparagraph (A) applicable to local govern-
ments shall include the requirement that a local 
government adopt and enforce comprehensive 
ordinances, building codes, land use measures, 
and other measures for earthquake disaster loss 
reduction that— 
‘‘(i) take into consideration the identi-
fied earthquake hazards applicable to the 
area over which the local government has 
jurisdiction; and 
‘‘(ii) reflect current, cost-effective 
techniques designed to reduce losses from 
earthquake disasters and ensure the con-
tinued functionality of critical facilities and 
critical public infrastructure. 
‘‘(C) CONSULTATION.—The criteria under 
subparagraph (A) shall be adopted after con-
sultation with— 
‘‘(i) Federal, State, and local govern-
ment officials and agencies; and 
‘‘(ii) other persons knowledgeable in 
the fields of natural disasters and hazard 
mitigation. 
‘‘(c) COST SHARING.— 
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
the Federal share of the cost of measures carried
out using a grant under the grant program shall be 
75 percent. 
‘‘(2) INSUFFICIENCY OF FEDERAL FUNDS.—In 
paying the Federal share under paragraph (1) in a 
case in which there are insufficient funds in the 
Loss Reduction Trust Fund to fund all applications 
that are eligible for approval, the Director of the 
Agency may consider— 
‘‘(A) the desirability of geographical dis-
persal of available funds; 
‘‘(B) the extent to which any applicant 
faces a greater risk of earthquake disasters, in 
number or severity, than other applicants; 
‘‘(C) the extent to which each applicant is 
expending resources on addressing urgent prob-
lems concerning critical facilities or critical pub-
lic infrastructure; and 
‘‘(D) the extent to which the measures pro-
posed to be funded using the grant are expected 
to result in cost savings to the Federal Govern-
ment under the Robert T. Stafford Disaster Re-
lief and Emergency Assistance Act (42 U.S.C. 
5121 et seq.). 
‘‘(d) USE OF GRANT FUNDS.—
‘‘(1) IN GENERAL.—A grant under the grant 
program may be used— 
‘‘(A) to retrofit critical facilities and crit-
ical public infrastructure in accordance with 
paragraph (2); 
‘‘(B) to implement earthquake disaster 
mitigation measures in accordance with para-
graph (3); and 
‘‘(C) to develop earthquake disaster recov-
ery plans in accordance with paragraph (4). 
‘‘(2) RETROFIT OF CRITICAL FACILITIES AND 
CRITICAL PUBLIC INFRASTRUCTURE.— 
‘‘(A) IN
GENERAL.—A grant under the 
grant program may be used to retrofit a critical 
facility or critical public infrastructure with 
parts or equipment that meets current stand-
ards for withstanding earthquake disasters (as 
determined by the Director of the Agency). 
‘‘(B) SELECTION OF CRITICAL FACILITIES 
AND
CRITICAL
PUBLIC
INFRASTRUCTURE.—A 
critical facility or critical public infrastructure 
shall be selected for a grant under subpara-
graph (A) if the critical facility or critical public 
infrastructure is identified in a long-term stra-
tegic earthquake disaster loss reduction plan
adopted under subsection (b)(1)(D) as having 
high priority for retrofit because of the effect 
that damage to the critical facility or critical 
public infrastructure from an earthquake dis-
aster would have on the quality of human life 
in the region and on recovery from the earth-
quake disaster. 
‘‘(3) IMPLEMENTATION OF EARTHQUAKE DIS-
ASTER MITIGATION MEASURES.—A grant under the 
grant program may be used to implement an earth-
quake disaster mitigation measure designed to en-
sure the continued functionality of a critical facility 
or critical public infrastructure. 
‘‘(4) DEVELOPMENT
OF
EARTHQUAKE
DIS-
ASTER RECOVERY PLANS.— 
‘‘(A) IN
GENERAL.—A grant under the 
grant program may be used to develop an 
earthquake disaster recovery plan that in-
cludes— 
‘‘(i) a plan for reestablishing govern-
ment operations and community services 
after an earthquake disaster; and 
‘‘(ii) a plan for long-term recovery 
after an earthquake disaster.
‘‘(B) SCHEDULE FOR PAYMENT OF GRANT 
FUNDS.—Of a grant for measures described in 
subparagraph (A)— 
‘‘(i) 50 percent shall be paid upon ap-
proval by the Director of the Agency of the 
application for the grant; and 
‘‘(ii) 50 percent shall be paid upon 
adoption of the earthquake disaster recov-
ery plan by the local government, public 
hospital, or public institution of higher 
education. 
‘‘SEC. 7. LOSS REDUCTION TRUST FUND. 
‘‘(a) ESTABLISHMENT.—There is established in the 
Treasury of the United States a fund to be known as the 
‘Loss Reduction Trust Fund’, consisting of— 
‘‘(1) such amounts as are appropriated to the 
Loss Reduction Trust Fund under subsection (b); 
‘‘(2) such amounts as are appropriated to the 
Loss Reduction Trust Fund under section 12(e); 
and 
‘‘(3) any interest earned on investment of 
amounts in the Loss Reduction Trust Fund under 
subsection (d).
‘‘(b) TRANSFERS
TO
LOSS
REDUCTION
TRUST 
FUND.—There are appropriated to the Loss Reduction 
Trust Fund amounts equivalent to— 
‘‘(1) such amounts as the Director of the Agen-
cy determines are remaining after the close-out of 
any active disaster declaration account under the 
Robert T. Stafford Disaster Relief and Emergency 
Assistance Act (42 U.S.C. 5121 et seq.); 
‘‘(2) such amounts as— 
‘‘(A) were allocated for hazard mitigation 
assistance with respect to a major disaster 
under section 404 of that Act (42 U.S.C. 
5170c); and 
‘‘(B) the Director of the Agency deter-
mines are remaining after expiration of the 
time limits established under subsection (c) of 
that section; and 
‘‘(3) amounts received as gifts under subsection 
(f). 
‘‘(c) EXPENDITURES FROM LOSS REDUCTION TRUST 
FUND.—Upon request by the Director of the Agency, the 
Secretary of the Treasury shall transfer from the Loss Re-
duction Trust Fund to the Director of the Agency such 
amounts as the Director of the Agency determines are nec-
essary to carry out section 6.