1204
determined under this subsection) for the
fiscal year in which the redistribution is
made.
‘‘(3) APPROPRIATION.—There are authorized to
be appropriated, and there are appropriated, to
carry out this section—
‘‘(A) $1,967,000,000 for fiscal year 1997;
‘‘(B) $2,067,000,000 for fiscal year 1998;
‘‘(C) $2,167,000,000 for fiscal year 1999;
‘‘(D) $2,367,000,000 for fiscal year 2000;
‘‘(E) $2,567,000,000 for fiscal year 2001;
and
‘‘(F) $2,717,000,000 for fiscal year 2002.
‘‘(4) INDIAN TRIBES.—The Secretary shall re-
serve not more than 1 percent of the aggregate
amount appropriated to carry out this section in
each fiscal year for payments to Indian tribes and
tribal organizations.
‘‘(b) USE OF FUNDS.—
‘‘(1) IN
GENERAL.—Amounts received by a
State under this section shall only be used to provide
child care assistance. Amounts received by a State
under a grant under subsection (a)(1) shall be avail-
able for use by the State without fiscal year limita-
tion.
1205
‘‘(2) USE
FOR
CERTAIN
POPULATIONS.—A
State shall ensure that not less than 70 percent of
the total amount of funds received by the State in
a fiscal year under this section are used to provide
child care assistance to families who are receiving
assistance under a State program under this part,
families who are attempting through work activities
to transition off of such assistance program, and
families who are at risk of becoming dependent on
such assistance program.
‘‘(c) APPLICATION OF CHILD CARE AND DEVELOP-
MENT BLOCK GRANT ACT of 1990.—Notwithstanding any
other provision of law, amounts provided to a State under
this section shall be transferred to the lead agency under
the Child Care and Development Block Grant Act of 1990,
integrated by the State into the programs established by
the State under such Act, and be subject to requirements
and limitations of such Act.
‘‘(d) DEFINITION.—As used in this section, the term
‘State’ means each of the 50 States or the District of Co-
lumbia.’’.
SEC. 4804. LEAD AGENCY.
Section 658D(b) (42 U.S.C. 9858b(b)) is amended—
(1) in paragraph (1)—
1206
(A) in subparagraph (A), by striking
‘‘State’’ the first place that such appears and
inserting ‘‘governmental or nongovernmental’’;
and
(B) in subparagraph (C), by inserting
‘‘with sufficient time and Statewide distribution
of the notice of such hearing,’’ after ‘‘hearing in
the State’’; and
(2) in paragraph (2), by striking the second
sentence.
SEC. 4805. APPLICATION AND PLAN.
Section 658E (42 U.S.C. 9858c) is amended—
(1) in subsection (b)—
(A) by striking ‘‘implemented—’’ and all
that follows through ‘‘(2)’’ and inserting ‘‘im-
plemented’’; and
(B) by striking ‘‘for subsequent State
plans’’;
(2) in subsection (c)—
(A) in paragraph (2)—
(i) in subparagraph (A)—
(I) in clause (i) by striking ‘‘,
other than through assistance pro-
vided under paragraph (3)(C),’’; and
1207
(II) by striking ‘‘except’’ and all
that follows through ‘‘1992’’, and in-
serting ‘‘and provide a detailed de-
scription of the procedures the State
will implement to carry out the re-
quirements of this subparagraph’’;
(ii) in subparagraph (B)—
(I) by striking ‘‘Provide assur-
ances’’ and inserting ‘‘Certify’’; and
(II) by inserting before the pe-
riod at the end ‘‘and provide a de-
tailed description of such procedures’’;
(iii) in subparagraph (C)—
(I) by striking ‘‘Provide assur-
ances’’ and inserting ‘‘Certify’’; and
(II) by inserting before the pe-
riod at the end ‘‘and provide a de-
tailed description of how such record
is maintained and is made available’’;
(iv) by amending subparagraph (D) to
read as follows:
‘‘(D) CONSUMER
EDUCATION
INFORMA-
TION.—Certify that the State will collect and
disseminate to parents of eligible children and
the general public, consumer education informa-
1208
tion that will promote informed child care
choices.’’;
(v) by amending subparagraph (E) to
read as follows:
‘‘(E) COMPLIANCE WITH STATE LICENSING
REQUIREMENTS.—
‘‘(i) IN
GENERAL.—Certify that the
State has in effect licensing requirements
applicable to child care services provided
within the State, and provide a detailed de-
scription of such requirements and of how
such requirements are effectively enforced.
Nothing in the preceding sentence shall be
construed to require that licensing require-
ments be applied to specific types of pro-
viders of child care services.
‘‘(ii) INDIAN TRIBES AND TRIBAL OR-
GANIZATIONS.—In lieu of any licensing
and regulatory requirements applicable
under State and local law, the Secretary,
in consultation with Indian tribes and trib-
al organizations, shall develop minimum
child care standards (that appropriately re-
flect tribal needs and available resources)
that shall be applicable to Indian tribes
1209
and tribal organization receiving assistance
under this subchapter.’’;
(vi) in subparagraph (G), by striking
‘‘Provide assurances’’ and inserting ‘‘Cer-
tify’’; and
(vii) by striking subparagraphs (H),
(I), and (J) and inserting the following:
‘‘(H) MEETING THE NEEDS OF CERTAIN
POPULATIONS.—Demonstrate the manner in
which the State will meet the specific child care
needs of families who are receiving assistance
under a State program under part A of title IV
of the Social Security Act, families who are at-
tempting through work activities to transition
off of such assistance program, and families
that are at risk of becoming dependent on such
assistance program.’’;
(B) in paragraph (3)—
(i) in subparagraph (A), by striking
‘‘(B) and (C)’’ and inserting ‘‘(B) through
(D)’’;
(ii) in subparagraph (B)—
(I) by striking ‘‘.—Subject to the
reservation contained in subparagraph
1210
(C), the’’ and inserting ‘‘AND RELAT-
ED ACTIVITIES.—The’’;
(II) in clause (i) by striking ‘‘;
and’’ at the end and inserting a pe-
riod;
(III) by striking ‘‘for—’’ and all
that 
follows 
through 
‘‘section
658E(c)(2)(A)’’ and inserting ‘‘for
child care services on sliding fee scale
basis, activities that improve the qual-
ity or availability of such services, and
any other activity that the State
deems appropriate to realize any of
the goals specified in paragraphs (2)
through (5) of section 658A(b)’’; and
(IV) by striking clause (ii);
(iii) by amending subparagraph (C) to
read as follows:
‘‘(C) LIMITATION
ON
ADMINISTRATIVE
COSTS.—Not more than 5 percent of the aggre-
gate amount of funds available to the State to
carry out this subchapter by a State in each fis-
cal year may be expended for administrative
costs incurred by such State to carry out all of
its functions and duties under this subchapter.
1211
As used in the preceding sentence, the term
‘administrative costs’ shall not include the costs
of providing direct services.’’; and
(iv) by adding at the end thereof the
following:
‘‘(D) ASSISTANCE
FOR
CERTAIN
FAMI-
LIES.—A State shall ensure that a substantial
portion of the amounts available (after the
State has complied with the requirement of sec-
tion 418(b)(2) of the Social Security Act with
respect to each of the fiscal years 1997 through
2002) to the State to carry out activities under
this subchapter in each fiscal year is used to
provide assistance to low-income working fami-
lies other than families described in paragraph
(2)(F).’’; and
(C) in paragraph (4)(A)—
(i) by striking ‘‘provide assurances’’
and inserting ‘‘certify’’;
(ii) in the first sentence by inserting
‘‘and shall provide a summary of the facts
relied on by the State to determine that
such rates are sufficient to ensure such ac-
cess’’ before the period; and
(iii) by striking the last sentence.
1212
SEC. 4806. LIMITATION ON STATE ALLOTMENTS.
Section 658F(b)(1) (42 U.S.C. 9858d(b)(1)) is
amended by striking ‘‘No’’ and inserting ‘‘Except as pro-
vided for in section 658O(c)(6), no’’.
SEC. 4807. ACTIVITIES TO IMPROVE THE QUALITY OF
CHILD CARE.
Section 658G (42 U.S.C. 9858e) is amended to read
as follows:
‘‘SEC. 658G. ACTIVITIES TO IMPROVE THE QUALITY OF
CHILD CARE.
‘‘A State that receives funds to carry out this sub-
chapter for a fiscal year, shall use not less than 3 percent
of the amount of such funds for activities that are de-
signed to provide comprehensive consumer education to
parents and the public, activities that increase parental
choice, and activities designed to improve the quality and
availability of child care (such as resource and referral
services).’’.
SEC. 4808. REPEAL OF EARLY CHILDHOOD DEVELOPMENT
AND BEFORE- AND AFTER-SCHOOL CARE RE-
QUIREMENT.
Section 658H (42 U.S.C. 9858f) is repealed.
SEC. 4809. ADMINISTRATION AND ENFORCEMENT.
Section 658I(b) (42 U.S.C. 9858g(b)) is amended—
(1) in paragraph (1), by striking ‘‘, and shall
have’’ and all that follows through ‘‘(2)’’; and
1213
(2) in the matter following clause (ii) of para-
graph (2)(A), by striking ‘‘finding and that’’ and all
that follows through the period and inserting ‘‘find-
ing and shall require that the State reimburse the
Secretary for any funds that were improperly ex-
pended for purposes prohibited or not authorized by
this subchapter, that the Secretary deduct from the
administrative portion of the State allotment for the
following fiscal year an amount that is less than or
equal to any improperly expended funds, or a com-
bination of such options.’’.
SEC. 4810. PAYMENTS.
Section 658J(c) (42 U.S.C. 9858h(c)) is amended by
striking ‘‘expended’’ and inserting ‘‘obligated’’.
SEC. 4811. ANNUAL REPORT AND AUDITS.
Section 658K (42 U.S.C. 9858i) is amended—
(1) in the section heading by striking ‘‘ANNUAL
REPORT’’ and inserting ‘‘REPORTS’’;
(2) in subsection (a), to read as follows:
‘‘(a) REPORTS.—
‘‘(1) 
COLLECTION
OF
INFORMATION
BY
STATES.—
‘‘(A) IN GENERAL.—A State that receives
funds to carry out this subchapter shall collect
1214
the information described in subparagraph (B)
on a monthly basis.
‘‘(B) REQUIRED
INFORMATION.—The in-
formation required under this subparagraph
shall include, with respect to a family unit re-
ceiving assistance under this subchapter infor-
mation concerning—
‘‘(i) family income;
‘‘(ii) county of residence;
‘‘(iii) the gender, race, and age of
children receiving such assistance;
‘‘(iv) whether the family includes only
1 parent;
‘‘(v) the sources of family income, in-
cluding the amount obtained from (and
separately identified)—
‘‘(I) employment, including self-
employment;
‘‘(II) cash or other assistance
under part A of title IV of the Social
Security Act;
‘‘(III) housing assistance;
‘‘(IV) assistance under the Food
Stamp Act of 1977; and
‘‘(V) other assistance programs;
1217
(2) in subsection (b)—
(A) in paragraph (1) by striking ‘‘a appli-
cation’’ and inserting ‘‘an application’’;
(B) in paragraph (2) by striking ‘‘any
agency administering activities that receive’’
and inserting ‘‘the State that receives’’; and
(C) in paragraph (4) by striking ‘‘entitles’’
and inserting ‘‘entitled’’.
SEC. 4812. REPORT BY THE SECRETARY.
Section 658L (42 U.S.C. 9858j) is amended—
(1) by striking ‘‘1993’’ and inserting ‘‘1997’’;
(2) by striking ‘‘annually’’ and inserting ‘‘bien-
nially’’; and
(3) by striking ‘‘Education and Labor’’ and in-
serting ‘‘Economic and Educational Opportunities’’.
SEC. 4813. ALLOTMENTS.
Section 658O (42 U.S.C. 9858m) is amended—
(1) in subsection (a)—
(A) in paragraph (1)
(i) by striking ‘‘POSSESSIONS’’ and in-
serting ‘‘POSSESSIONS’’;
(ii) 
by 
inserting 
‘‘and’’ 
after
‘‘States,’’; and
(iii) by striking ‘‘, and the Trust Ter-
ritory of the Pacific Islands’’; and
1218
(B) in paragraph (2), by striking ‘‘3 per-
cent’’ and inserting ‘‘1 percent’’;
(2) in subsection (c)—
(A) in paragraph (5) by striking ‘‘our’’ and
inserting ‘‘out’’; and
(B) by adding at the end thereof the fol-
lowing new paragraph:
‘‘(6) CONSTRUCTION OR RENOVATION OF FA-
CILITIES.—
‘‘(A) REQUEST FOR USE OF FUNDS.—An
Indian tribe or tribal organization may submit
to the Secretary a request to use amounts pro-
vided under this subsection for construction or
renovation purposes.
‘‘(B) DETERMINATION.—With respect to a
request submitted under subparagraph (A), and
except as provided in subparagraph (C), upon
a determination by the Secretary that adequate
facilities are not otherwise available to an In-
dian tribe or tribal organization to enable such
tribe or organization to carry out child care
programs in accordance with this subchapter,
and that the lack of such facilities will inhibit
the operation of such programs in the future,
the Secretary may permit the tribe or organiza-
1219
tion to use assistance provided under this sub-
section to make payments for the construction
or renovation of facilities that will be used to
carry out such programs.
‘‘(C) LIMITATION.—The Secretary may not
permit an Indian tribe or tribal organization to
use amounts provided under this subsection for
construction or renovation if such use will re-
sult in a decrease in the level of child care serv-
ices provided by the tribe or organization as
compared to the level of such services provided
by the tribe or organization in the fiscal year
preceding the year for which the determination
under subparagraph (A) is being made.
‘‘(D) UNIFORM
PROCEDURES.—The Sec-
retary shall develop and implement uniform
procedures for the solicitation and consideration
of requests under this paragraph.’’; and
(3) in subsection (e), by adding at the end
thereof the following new paragraph:
‘‘(4) INDIAN
TRIBES
OR
TRIBAL
ORGANIZA-
TIONS.—Any portion of a grant or contract made to
an Indian tribe or tribal organization under sub-
section (c) that the Secretary determines is not
being used in a manner consistent with the provision
1220
of this subchapter in the period for which the grant
or contract is made available, shall be allotted by the
Secretary to other tribes or organizations that have
submitted applications under subsection (c) in ac-
cordance with their respective needs.’’.
SEC. 4814. DEFINITIONS.
Section 658P (42 U.S.C. 9858n) is amended—
(1) in paragraph (2), in the first sentence by
inserting ‘‘or as a deposit for child care services if
such a deposit is required of other children being
cared for by the provider’’ after ‘‘child care serv-
ices’’; and
(2) by striking paragraph (3);
(3) in paragraph (4)(B), by striking ‘‘75 per-
cent’’ and inserting ‘‘85 percent’’;
(4) in paragraph (5)(B)—
(A) by inserting ‘‘great grandchild, sibling
(if such provider lives in a separate residence),’’
after ‘‘grandchild,’’;
(B) by striking ‘‘is registered and’’; and
(C) by striking ‘‘State’’ and inserting ‘‘ap-
plicable’’.
(5) by striking paragraph (10);
(6) in paragraph (13)—
(A) by inserting ‘‘or’’ after ‘‘Samoa,’’; and
1221
(B) by striking ‘‘, and the Trust Territory
of the Pacific Islands’’;
(7) in paragraph (14)—
(A) by striking ‘‘The term’’ and inserting
the following:
‘‘(A) IN GENERAL.—The term’’; and
(B) by adding at the end thereof the fol-
lowing new subparagraph:
‘‘(B) OTHER ORGANIZATIONS.—Such term
includes a Native Hawaiian Organization, as
defined in section 4009(4) of the Augustus F.
Hawkins-Robert T. Stafford Elementary and
Secondary School Improvement Amendments of
1988 (20 U.S.C. 4909(4)) and a private non-
profit organization established for the purpose
of serving youth who are Indians or Native Ha-
waiians.’’.
SEC. 4815. REPEALS.
(a) CHILD DEVELOPMENT ASSOCIATE SCHOLARSHIP
ASSISTANCE ACT OF 1985.—Title VI of the Human Serv-
ices Reauthorization Act of 1986 (42 U.S.C. 10901–
10905) is repealed.
(b) STATE
DEPENDENT
CARE
DEVELOPMENT
GRANTS ACT.—Subchapter E of chapter 8 of subtitle A
1222
of title VI of the Omnibus Budget Reconciliation Act of
1981 (42 U.S.C. 9871–9877) is repealed.
(c) PROGRAMS OF NATIONAL SIGNIFICANCE.—Title
X of the Elementary and Secondary Education Act of
1965, as amended by Public Law 103–382 (108 Stat.
3809 et seq.), is amended—
(1) in section 10413(a) by striking paragraph
(4),
(2) in section 10963(b)(2) by striking subpara-
graph (G), and
(3) in section 10974(a)(6) by striking subpara-
graph (G).
(d) NATIVE HAWAIIAN FAMILY-BASED EDUCATION
CENTERS.—Section 9205 of the Native Hawaiian Edu-
cation Act, as amended by section 101 of Public Law 103–
382, (108 Stat. 3794) is repealed.
SEC. 4816. EFFECTIVE DATE.
(a) IN GENERAL.—Except as provided in subsection
(b), this subtitle and the amendments made by this sub-
title shall take effect on October 1, 1996.
(b) EXCEPTION.—The amendment made by section
803(a) shall take effect on the date of enactment of this
Act.
1223
Subtitle H—Miscellaneous
SEC. 4901. APPROPRIATION BY STATE LEGISLATURES.
(a) IN GENERAL.—Any funds received by a State
under the provisions of law specified in subsection (b) shall
be subject to appropriation by the State legislature, con-
sistent with the terms and conditions required under such
provisions of law.
(b) PROVISIONS
OF LAW.—The provisions of law
specified in this subsection are the following:
(1) Part A of title IV of the Social Security Act
(relating to block grants for temporary assistance
for needy families).
(2) Section 25 of the Food Stamp Act of 1977
(relating to the optional State food assistance block
grant).
(3) The Child Care and Development Block
Grant Act of 1990 (relating to block grants for child
care).
SEC. 4902. SANCTIONING FOR TESTING POSITIVE FOR CON-
TROLLED SUBSTANCES.
Notwithstanding any other provision of law, States
shall not be prohibited by the Federal Government from
testing welfare recipients for use of controlled substances
nor from sanctioning welfare recipients who test positive
for use of controlled substances.
1225
(2) ADJUSTMENT FOR INFLATION.—Subsection
(j) of section 32 of such Code is amended to read
as follows:
‘‘(j) INFLATION ADJUSTMENTS.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning after 1997, each of the dollar
amounts in subsections (b)(2) and (i)(1) shall be in-
creased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 1996’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(2) ROUNDING.—
‘‘(A) IN GENERAL.—If any dollar amount
in subsection (b)(2), after being increased
under paragraph (1), is not a multiple of $10,
such dollar amount shall be rounded to the
nearest multiple of $10.
‘‘(B) DISQUALIFIED INCOME THRESHOLD
AMOUNT.—If the dollar amount in subsection
(i)(1), after being increased under paragraph
1226
(1), is not a multiple of $50, such amount shall
be rounded to the next lowest multiple of $50.’’
(b) DEFINITION OF DISQUALIFIED INCOME.—Para-
graph (2) of section 32(i) of such Code (defining disquali-
fied income) is amended by striking ‘‘and’’ at the end of
subparagraph (B), by striking the period at the end of
subparagraph (C) and inserting a comma, and by adding
at the end the following new subparagraphs:
‘‘(D) the capital gain net income (as de-
fined in section 1222) of the taxpayer for such
taxable year, and
‘‘(E) the excess (if any) of—
‘‘(i) the aggregate income from all
passive activities for the taxable year (de-
termined without regard to any amount in-
cluded in earned income under subsection
(c)(2) or described in a preceding subpara-
graph), over
‘‘(ii) the aggregate losses from all pas-
sive activities for the taxable year (as so
determined).
For purposes of subparagraph (E), the term ‘passive
activity’ has the meaning given such term by section
469.’’
1227
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 4905. MODIFICATION OF ADJUSTED GROSS INCOME
DEFINITION FOR EARNED INCOME CREDIT.
(a) IN GENERAL.—Subsections (a)(2)(B), (c)(1)(C),
and (f)(2)(B) of section 32 of the Internal Revenue Code
of 1986 are each amended by striking ‘‘adjusted gross in-
come’’ each place it appears and inserting ‘‘modified ad-
justed gross income’’.
(b) MODIFIED
ADJUSTED
GROSS
INCOME
DE-
FINED.—Section 32(c) of such Code (relating to defini-
tions and special rules) is amended by adding at the end
the following new paragraph:
‘‘(5) MODIFIED ADJUSTED GROSS INCOME.—
‘‘(A) IN
GENERAL.—The term ‘modified
adjusted gross income’ means adjusted gross in-
come determined without regard to the amounts
described in subparagraph (B).
‘‘(B) CERTAIN AMOUNTS DISREGARDED.—
An amount is described in this subparagraph if
it is—
‘‘(i) the amount of losses from sales
or exchanges of capital assets in excess of
gains from such sales or exchanges to the
1228
extent such amount does not exceed the
amount under section 1211(b)(1),
‘‘(ii) the net loss from estates and
trusts,
‘‘(iii) the excess (if any) of amounts
described in subsection (i)(2)(C)(ii) over
the 
amounts 
described 
in 
subsection
(i)(2)(C)(i) (relating to nonbusiness rents
and royalties), and
‘‘(iv) 50 percent of the net loss from
the carrying on of trades or businesses,
computed separately with respect to—
‘‘(I) trades or businesses (other
than farming) conducted as sole pro-
prietorships,
‘‘(II) trades or businesses of
farming conducted as sole proprietor-
ships, and
‘‘(III) other trades or businesses.
For purposes of clause (iv), there shall not be
taken into account items which are attributable
to a trade or business which consists of the per-
formance of services by the taxpayer as an em-
ployee.’’
1229
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 4906. MODIFICATION OF EARNED INCOME CREDIT
AMOUNT AND PHASEOUT.
(a) MODIFICATION
OF PHASEOUT.—Subparagraph
(B) of section 32(a)(2) of the Internal Revenue Code of
1986, as amended by section 4905 of this Act, is amended
to read as follows:
‘‘(B) the sum of—
‘‘(i) the initial phaseout percentage of
so much of the modified adjusted gross in-
come (or, if greater, the earned income) of
the taxpayer for the taxable year as ex-
ceeds the initial phaseout amount but does
not exceed the final phaseout amount, plus
‘‘(ii) the final phaseout percentage of
so much of the modified adjusted gross in-
come (or, if greater, the earned income) of
the taxpayer for the taxable year as ex-
ceeds the final phaseout amount.’’
(b) PERCENTAGES AND AMOUNTS.—Subsection (b)
of section 32 of such Code is amended to read as follows:
‘‘(b) PERCENTAGES AND AMOUNTS.—For purposes
of subsection (a)—