I
103D CONGRESS
1ST SESSION
H. R. 1776
To facilitate and assist in the economic adjustment and industrial diversifica-
tion 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, Edu-
cation and Labor, Public Works and Transportation, and Banking, Fi-
nance 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 Representa-
tives 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 pri-
orities.
(2) A decrease in defense spending and the re-
duction or elimination of expenditures for some de-
fense or defense-related procurement are likely con-
sequences of such actions.
(3) Reductions in such expenditures are likely
to result in terminations or reductions of defense-re-
lated 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 at-
tributable 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 manu-
facture 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 tech-
nology base and cutbacks in defense spending should
be undertaken so as to enhance, rather than to af-
fect adversely, this industrial and technology base.
(12) The existence of a large military installa-
tion 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 geo-
graphic 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 de-
fense or defense-related industrial facility.
(14) A lack of sufficient financial capital is one
of the most significant barriers that defense or de-
fense-related companies face in carrying out the di-
versification of such companies’ products into the ci-
vilian 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 economi-
cally 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, busi-
nesses, and area economies that have become eco-
nomically 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 adjust-
ment and industrial diversification of industries,
communities, and workers that are adversely af-
fected by the termination or reduction by the Fed-
eral 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 ad-
justment assistance to workers, communities, and
small businesses that are largely dependent on de-
fense 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 Aero-
which for the preceding 3 years are attributable to defense
contracts.
(f) SUBSTANTIALLY
AND
SERIOUSLY
AFFECTED
COMMUNITY.—The term ‘‘substantially and seriously af-
fected community’’ means any community—
(A) which has, within its administrative and po-
litical jurisdiction, 1 or more defense facilities; and
(B) in which the curtailment, completion, elimi-
nation, or realignment of a defense contract or pro-
gram 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 ei-
ther recently experienced or will experience the can-
cellation 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 con-
sultation with the Administrator of the Small Business
Administration, the Secretary of Defense, and the Direc-
tor 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 in-
clude—
(1) an inventory of the number and type of
manufacturing firms in the United States that indi-
vidually 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 de-
fense cutbacks will have on both the Nation’s tech-
nological base and industrial base, including—
(A) the amount of the defense budget
allocated for basic and applied research and de-
velopment purposes and the effect of defense re-
ductions on such research and development, in-
cluding the effect on civilian and strategic de-
fense basic and applied research and develop-
ment; and
(B) an inventory of the extent of and na-
ture of the civilian-use advanced technologies
that have developed as a result of defense-spon-
sored research in the last 10 years and the ef-
fects 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 di-
versification to nondefense production can be carried
out, including a review of which sectors can under-
take 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 diversifica-
tion.
(c) REPORT.—The Secretary of Commerce shall re-
port the results of the study required under subsection (a)
to the President pro tempore of the Senate and the Speak-
er 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 COUN-
CIL 
ON 
ECONOMIC 
DIVER-
SIFICATION 
AND 
ADJUST-
MENT
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 re-
ferred 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 Devel-
opment;
(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-manage-
ment community to be appointed by the President,
2 of whom shall be appointed from defense related
businesses and 2 from nondefense related busi-
nesses; and
(11) 4 representatives of labor union organiza-
tions to be appointed by the President.
(b) CO-CHAIRPERSONS.—The Secretaries of Com-
merce and Labor shall cochair the Council, shall preside
over meetings of the Council, and shall designate a mem-
ber 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 sub-
section (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 de-
scribed in paragraphs (10) and (11) of subsection (a) shall
be reimbursed for travel and per diem in lieu of subsist-
ence 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 estab-
lished an Office of Economic Diversification and Adjust-
ment (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 compensa-
tion 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 execu-
tive department, agency or other instrumentality of the
Government, information, suggestions, estimates, and sta-
tistics 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 re-
quire assistance;
(3) disseminate information furnished by the
Secretary of Defense under subsection (b) to the ap-
propriate Federal, State, and local agencies or au-
thorities 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 eco-
nomic adjustment efforts;
(6) encourage the preparation of concrete plans
for civilian related, private enterprise, and public
projects which address vital areas of national con-
cern such as transportation, housing, education, en-
vironment, and health care;
(7) develop means to strengthen and make uni-
form the methods for conducting and reporting the
economic impact analyses of community require-
ments for Federal economic adjustment resources
before contract cancellation or termination, or de-
fense facility closing;
(8) develop and coordinate information on
federally funded projects, agency programs, and
funding possibilities, including loans and loan guar-
antees, pertaining to economic diversification and
adjustment;
(9) establish priorities for the distribution of
funds available for economic diversification and ad-
justment 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 Fed-
eral, State, and local officials involved in the resolu-
tion of business, worker, and community adjustment
problems, including the results of studies, technical
information, and sources of public and private fi-
nancing;
(11) prepare and distribute an economic diver-
sification and adjustment handbook which shall in-
clude—
(A) a detailed directory and discussion of
currently available Federal programs that pro-
mote economic development and help to mini-
mize the dislocation of workers, communities,
and industries;
(B) an explanation of the basic issues in-
volved in the diversification process for workers,
communities, and businesses;
(C) an outline of the basic requirements
for a program of professional retraining of tech-
nical personnel in order to effectively reorient
such personnel to the prevailing conditions of
research, product design, and production oper-
ations within nondefense related facilities;
(D) an outline of the basic requirements
for the length and nature of occupational re-
training for production workers and junior level
administrative employees;
(E) illustrative case studies of successful
conversion to efficient nondefense related pro-
duction, or references thereto; and
(F) directories, by geographic region and
area of specialization, of organizations and indi-
vidual consultants in fields such as marketing,
facilities design, organization, production engi-
neering, and engineering economy whose major
professional experience has been in nondefense
related activity.
(b) INFORMATION ON CHANGES IN DEFENSE SPEND-
ING.—(1) The Secretary of Defense shall notify the Coun-
cil 1 year in advance of a pending or proposed change in
defense spending that would affect employment in the de-
fense 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 Presi-
dent;
(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 Coun-
cil with projected future defense spending levels and con-
tract progress reports.
SEC. 204. THE PRESIDENT’S ANNUAL ECONOMIC DIVER-
SIFICATION AND ADJUSTMENT REPORT.
The Council shall submit an annual report to Con-
gress 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, initi-
ated by the Council, to communities which have suf-
fered 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 DIVER-
SIFICATION ACCOUNTS; AL-
TERNATIVE DEFENSE INVEST-
MENT TAX CREDIT.
SEC. 301. INDUSTRIAL DIVERSIFICATION ACCOUNTS.
(a) IN GENERAL.—Chapter 77 of the Internal Reve-
nue 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 agree-
ment 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 em-
ployees, for the purpose of diversifying qualified defense
‘‘(ii) insurance or indemnity attrib-
utable 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 de-
posited under subsection (a) in the account for any
taxable year after such 5th taxable year shall not ex-
ceed 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 fidu-
ciary requirements as may be specified by the Sec-
retary.
‘‘(2) 
LIMITATION
OF
ACCOUNT
INVEST-
MENTS.—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 Ex-
change Commission or a national securities exchange
and must be stock which would be acquired by pru-
dent men of discretion and intelligence in such mat-
ters who are seeking a reasonable income and the
preservation of capital. If at any time the fair mar-
ket 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 sub-
section, if the common stock of a corporation meets
the requirements of this subsection and if the pre-
ferred stock of such corporation would meet such re-
quirements 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 meet-
ing 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 ac-
count if an amount equal to the net proceeds
from such transaction is deposited in the ac-
count,
‘‘(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 cor-
poration (within the meaning of section 316)
shall be determined without regard to this sec-
tion and section 7518, and
‘‘(D) in applying the tax imposed by sec-
tion 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 re-
spect to any amount only if such amount is depos-
ited 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 estab-
lished 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 sub-
account 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 rea-
son of subsection (d)(1)(A),
‘‘(C) the percentage applicable under sec-
tion 243(a)(1) of any dividend received by the
account with respect to which the person main-
taining 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-ex-
empt 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 ac-
count,
‘‘(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 OFF-
SET 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 re-
construction of qualified plant and equipment,
‘‘(B) the payment of the principal on in-
debtedness incurred in connection with the ac-
quisition, 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 regula-
tions, if the Secretary determines that any substan-
tial obligation under any agreement is not being ful-
filled, the Secretary may, after notice and oppor-
tunity for hearing to the person maintaining the ac-
count, treat the entire account or any portion there-
of as an amount withdrawn from the account in a
nonqualified withdrawal.
‘‘(g) TAX TREATMENT OF QUALIFIED WITHDRAW-
ALS.—
‘‘(1) IN GENERAL.—Any qualified withdrawal
from an account shall be treated—
‘‘(A) first as made out of the capital sub-
account,
‘‘(B) second as made out of the capital
gain subaccount, and
‘‘(C) third as made out of the ordinary in-
come subaccount.
‘‘(2) ADJUSTMENT
TO
BASIS
WHERE
WITH-
DRAWAL FROM ORDINARY INCOME SUBACCOUNT.—If
any portion of a qualified withdrawal for plant and
equipment is made out of the ordinary income sub-
account, the basis of such plant and equipment shall
be reduced by an amount equal to such portion.
‘‘(3) ADJUSTMENT
TO
BASIS
WHERE
WITH-
DRAWAL FROM CAPITAL GAIN SUBACCOUNT.—If any
portion of a qualified withdrawal for plant and
equipment is made out of the capital gain sub-
account, the basis of such plant and equipment shall
be reduced by an amount equal to such portion.
‘‘(4) ADJUSTMENT
TO
BASIS
WHERE
WITH-
DRAWAL 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 pur-
pose 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 per-
son 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 ex-
tent 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 sub-
section (h)(3)(A) which was withdrawn on the date
of such disposition. Subject to such conditions and
requirements as may be provided in joint regula-
tions, the preceding sentence shall not apply to a
disposition where there is a redeposit in an amount
determined under joint regulations which will, inso-
far as practicable, restore the account to the position
such account was in before the withdrawal.
‘‘(h) TAX TREATMENT
OF NONQUALIFIED WITH-
DRAWALS.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (i), any withdrawal from an account which is
not a qualified withdrawal shall be treated as a non-
qualified withdrawal.
‘‘(2) ORDERING RULE.—Any nonqualified with-
drawal from an account shall be treated—
‘‘(A) first as made out of the ordinary in-
come subaccount,
‘‘(B) second as made out of the capital
gain subaccount, and
‘‘(C) third as made out of the capital sub-
account.
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 tax-
able 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 tax-
able 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 tax-
able 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 ad-
ditional tax attributable to any item re-
ferred 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 de-
posited 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 es-
tablished 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 per-
centage of any amount which remains in an ac-
count 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 re-
maining 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 remain-
ing 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 de-
termines that the balance in any account ex-
ceeds 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 appro-
priate program objectives within 3 years to dis-
sipate 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 chap-
ter 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 sub-
account during a taxable year to which section
1201(a) applies, the rate of tax taken into ac-
count under the preceding sentence shall not
exceed 34 percent.
‘‘(B) TAX BENEFIT RULE.—If any portion
of a nonqualified withdrawal is properly attrib-
utable to deposits (other than earnings on de-
posits) made by the taxpayer in any taxable
year which did not reduce the taxpayer’s liabil-
ity for tax under chapter 1 for any taxable year
preceding the taxable year in which such with-
drawal 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 non-
qualified withdrawal excluded from gross in-
come 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 ‘eligi-
ble corporation’ means any corporation at least 35
percent of the average annual gross revenues of
which for the preceding 3 taxable years are attrib-
utable 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 de-
fined 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-relat-
ed employment.
‘‘(4) JOINT
REGULATIONS.—The term ‘joint
regulations’ means the regulations prescribed under
subsection (k).
‘‘(k) RECORDS; REPORTS; CHANGES
IN REGULA-
TIONS.—Each person maintaining an account under this
section shall keep such records and shall make such re-
ports 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 liabil-
ity under this section. If, after an agreement has been en-
tered 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 sub-
stantial 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
CERTIFI-
CATION.—
‘‘(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 num-
ber 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 de-
posit 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 adjust-
ments applicable to corporations) is amended by adding
at the end thereof the following new paragraph:
‘‘(4) 
INDUSTRIAL
DIVERSIFICATION
AC-
COUNTS.—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 with-
drawal 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 In-
ternal Revenue Code of 1986 (relating to amount of in-
vestment credit) is amended by striking ‘‘and’’ at the end
of paragraph (2), by striking the period at the end of para-
graph (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 cred-
it.’’
(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 tax-
able 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 di-
versification account (within the meaning of section
7524) if the taxpayer had such an account. Such
credit shall be in addition to any other credit allow-
able under this subpart.
‘‘(2) SPECIAL RULE.—If any credit is deter-
mined 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 re-
spect to which an industrial diversification credit is
allowed under section 48(c)’’ after ‘‘energy prop-
erty’’.
(2) Paragraph (5) of section 50(a) of such Code
is amended by adding at the end thereof the follow-
ing new subparagraph:
‘‘(D) SPECIAL RULES FOR CERTAIN PROP-
ERTY.—In the case of property with respect to
which an industrial diversification credit is al-
lowed 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 DIVERSIFICA-
TION.
(a) ESTABLISHMENT.—There is established in the
Small Business Administration a Committee on Defense
and Economic Diversification (hereafter in this title re-
ferred to as the ‘‘Committee’’) which shall be composed
of—
(1) the Chief Counsel for Advocacy;
(2) the Associate Deputy Administrator for Fi-
nance, 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 Di-
versification and Adjustment (established under sec-
tion 202 of this Act);
(6) 2 representatives of the small business-man-
agement community to be appointed by the Adminis-
trator 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 organiza-
tions to be appointed by the Administrator of the
Small Business Administration.
(b) CHAIRPERSON.—The Associate Deputy Adminis-
trator 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 sub-
section (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 remain-
ing members to execute the functions of the Committee.
(d) COMPENSATION.—Members of the Committee de-
scribed in paragraphs (6) and (7) of subsection (a) shall
be reimbursed for travel and per diem in lieu of subsist-
ence 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 ADMINIS-
TRATION 
OFFICE 
OF 
ECONOMIC 
DIVER-
SIFICATION.
(a) IN GENERAL.—There is established in the Small
Business Administration an Office of Economic Diver-
sification (hereafter in this title referred to as the ‘‘Of-
fice’’) to provide staff support for the Committee.
(b) DIRECTOR.—The Office shall be headed by a Di-
rector who shall be a civilian appointed by the Adminis-
trator of the Small Business Administration and shall re-
port 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, Unit-
ed 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 Ad-
ministrator 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 Ad-
ministration’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 pro-
grams;
(E) available management assistance pro-
grams; and
(F) available loan and loan guarantee pro-
grams;
(6) work with representatives from the Presi-
dent’s Office of Economic Diversification and
Adjustment to assist small businesses in finding al-
ternative 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 CON-
TRIBUTIONS.—Pursuant to subsection (a), the Adminis-
trator is authorized to make loans or grants in an amount
not exceeding the lesser of—
(1) $40,000 for each qualified small manufac-
turing firm, or
(2) an amount equal to the sum of—
(A) the amount of private capital which
such firm has committed for the purposes de-
scribed 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 manufac-
turing 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 pursu-
ant to this title if the applicant can obtain credit or finan-
cial assistance elsewhere, including other programs of the
Federal Government, and including loan and loan guaran-
tee 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 com-
mercial financing, or for financing under sec-
tion 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 ADJUST-
MENT ASSISTANCE FOR EM-
PLOYEES
SEC. 601. CERTIFICATION.
(a) IN GENERAL.—All worker displacements, as de-
fined 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 Diversifica-
tion 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 Ad-
justment in cooperation with the Department of Labor
shall certify eligibility, for the benefits available under this
title, of workers suffering displacement as defined in sub-
section (b) based on regulations established by the Council
on Economic Diversification and Adjustment, after con-
sultation with the Secretary of Labor.
SEC. 602. RETRAINING.
(a) REALLOTMENT.—Section 302 of the Job Train-
ing Partnership Act (29 U.S.C. 1652) is amended—
(1) in subsection (a)(1), by striking ‘‘80 per-
cent’’ and inserting ‘‘75 percent’’;
(2) in subsection (a)(2), by striking ‘‘20 per-
cent’’ and inserting ‘‘25 percent’’;
(3) in subsection (b)(2)(A), by striking ‘‘25 per-
cent’’ and inserting ‘‘23.3 percent’’ and by striking
‘‘75 percent’’ and inserting ‘‘70 percent’’; and
(4) in subsection (b)(2)(B), by striking ‘‘25 per-
cent’’ 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 QUALI-
FIED 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 Adjust-
ment, 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 cal-
endar year. Such report shall include a comparison of data
contained therein with contemporary data used by the Bu-
reau of Labor Statistics in determining the annual em-
ployment and unemployment rates of the United States
and an analysis of whether defense workers are being ade-
quately counted in such employment statistics. Such re-
port 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 sur-
rounding 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 
WITH-
DRAWAL.
(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 de-
fense 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 inter-
est on a mortgage of such worker’s primary res-
idence; or
‘‘(B) for the rental expenses on his or her
primary residence.
‘‘(2) 
QUALIFIED
DEFENSE
WORKER
DE-
FINED.—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 con-
tract 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 reduc-
tion 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 subpara-
graph (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 con-
stitute at least 33 percent of the workforce (ex-
cluding 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 ‘de-
fense facility’ shall have the meanings given such
terms by sections 3(b) and 3(d) of the Defense In-
dustrial Diversification and Community Assistance
Act of 1993, respectively.’’.
TITLE 
VII—COMMUNITY 
ECO-
NOMIC ADJUSTMENT PLAN-
NING
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 pro-
posal contained in, such budget or in such announcement.
(b) NOTIFICATION OF COMMUNITIES AFFECTED BY
DEFENSE REALIGNMENT BEFORE DATE
OF ENACT-
MENT.—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 sub-
section 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 re-
alignment or closure of any qualified defense facility,
or the slowdown, termination, or cancellation of any
defense contract (including any action for which no-
tice was provided pursuant to section 701(b) of this
Act); and
(2) complies with the requirements of sub-
section (b),
shall be eligible for economic adjustment planning assist-
ance under section 703 of this Act.
(b) ANALYSES AND FORECASTS.—(1) Any commu-
nity which seeks to become eligible for economic adjust-
ment 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 sub-
section (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 ac-
tion described in paragraph (1) or (2) of section 701(a)
of this Act for the most appropriate geographic or govern-
mental entity for which reliable statistics are compiled.
(4) The economic assumptions, methodology, and
analyses used to produce any estimate referred to in para-
graph (3) shall be made part of any planning documenta-
tion 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 sub-
section (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 eligi-
ble 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 adjust-
ment planning assistance under this title; or
(B) fails to include any community in the an-
nual 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 assist-
ance under section 2391(b) of title 10, United States
Code.
SEC. 704. COMMUNITY ECONOMIC ADJUSTMENT ASSIST-
ANCE.
Any substantially and seriously affected community
shall be eligible for economic adjustment assistance au-
thorized 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 INTE-
GRATION
SEC. 801. INTEGRATION OF COMMERCIAL PRODUCTION
PROCESSES AND DEFENSE PROCUREMENT
PRACTICES.
(a) OFFICE OF COMMERCIAL AND DEFENSE PRO-
DUCTION 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 COM-
MERCIAL AND DEFENSE PRODUCTION
‘‘Sec.
‘‘2911. Office of Commercial and Defense Production Integration.
‘‘§ 2911. Office of Commercial and Defense Produc-
tion 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 Com-
mercial and Defense Production Integration shall develop
and implement policies, practices, and procedures designed
to achieve an effective integration of commercial produc-
tion processes and defense procurement practices. A pro-
curement practice or procedure shall be considered to
achieve effectively the integration of a commercial produc-
tion 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 stream-
lining the defense product acquisition process;
‘‘(D) encourages integrated processes for manu-
facturing 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 speci-
fications in the procurement of defense products;
‘‘(B) the adoption of military product specifica-
tions 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 de-
fense 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 as-
sist the Under Secretary of Defense for Acquisition in car-
rying 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 para-
graph (5); and
(C) by inserting after paragraph (3), the follow-
ing new paragraph:
‘‘(4) such requirements achieve effective inte-
gration of commercial production processes and mili-
tary 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 amend-
ments 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 en-
actment of this Act and continue thereafter for not longer
than one year.
(b) PROJECT PROPOSALS.—Not less than 30 days be-
fore the commencement of each project referred to in sub-
section (a), the Secretary shall notify Congress of the pro-
posed 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 commer-
cial production processes and military procurement
practices.
(c) PROJECT REPORTS.—Not later than 60 days
after the termination of each project referred to in sub-
section (a), the Secretary shall submit a report to Con-
gress 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 Sec-
retary 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 Re-
form (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 ap-
pointed for the life of the Commission. Any vacancy occur-
ring 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 Commis-
sion 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 sub-
chapter 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 De-
partment 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 legisla-
tion authorizing funds for the Department of De-
fense for three consecutive fiscal years and appro-
priating 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 fol-
lowing the last fiscal year for which funds were au-
thorized in the previous budget referred to in para-
graph (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 con-
siders 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 author-
ization 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 infor-
mation 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 nec-
essary, 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