Rural Universal Service Equity Act of 2003

Mr. President, last week the Senate Committee on Commerce, Science, and Transportation held a hearing on Universal Service, taking testimony from Michael Powell, the Chairman of the Federal Communications Commission. I want to commend the committee for examining issues affecting the preservation and advancement of universal service. This is a discussion that is of great interest to me and great importance to my State.

We have long sought to ensure that telephone service is available in rural America, through direct infrastructure programs like those of the Rural Utilities Service, through internal telephone company cross- subsidies and, more recently, through the universal service fund. The low population density in so much of our Nation makes some assistance necessary; the costs of wiring such areas is simply too high. Phone service is simply too important to our social fabric to ignore this challenge. We must keep it affordable for all Americans. That is why we need universal service.

Access to modern telecommunications services is vital to the economy of my home State of South Dakota and in rural areas throughout the Nation. It helps new businesses develop, even if they are far away from their customers or clients. Telecommuting is already allowing many of my constituents to remain in, or move back to, their home towns rather than having to leave in search of employment. That is a trend we need to encourage and build upon. But it is only possible if rural America has a modern telecommunications infrastructure.

Universal service is vital to South Dakota. Yet universal service is not just about rural America. It also supports telephone service for low-income individuals throughout the country, and telecommunications services and Internet access in our schools and libraries. I believe it is important that the country remain committed to these goals and the principle of universal service.

Despite its importance, the future of universal service is uncertain. Some question the long-term viability of the current structure, as its funding base of interstate telephone revenue declines. I believe that we will need to reevaluate the universal service structure and consider comprehensive legislation to ensure that the program remains effective and affordable in the future. I am pleased that the Commerce Committee has begun that process.

The committee includes the Senators who have been the most engaged on this front. I want to commend Senator Burns for his leadership on the issue, along with Senator Dorgan, Senator Stevens, Chairman McCain, and Ranking Member Hollings. I look forward to working with them to keep the universal service system strong and effective.

Senator Gordon Smith has introduced legislation that addresses an important component of universal service, high cost funding for nonrural carriers. Today, I am cosponsoring that legislation, S. 1380, the Rural Universal Service Equity Act of 2003, which seeks to more equitably distribute that portion of universal service.

Today, telephone companies in only eight States receive all of these funds. Nonrural carriers in the rest of the country, even those in rural States like South Dakota, receive nothing. We should reevaluate that distribution as part of universal service reform.

I fully appreciate that S. 1380 only addresses one small, albeit significant, portion of Universal Service. It is important to focus attention on the need to understand and address it.

That point made, I favor reforming the high cost support program for non-rural companies within the context of reform of the entire system. Telephone service has developed in different ways throughout the country, with service provided to various degrees by the Regional Bell Operating Companies, independent phone companies, cooperatives, wireless, and competitive carriers. We should keep that in mind when we consider alternative approaches and look at the system as a whole, not just focus on each individual component of universal service separately.

When we do consider universal service legislation, I think the approach taken by S. 1380 shifting the basis of support for nonrural companies to costs at the wire center level, rather than statewide costs deserves consideration as part of a broader package. Using statewide costs makes it difficult for a company that serves a relatively large city to obtain support for rural areas that it serves in the same State. That can limit its ability to invest in and modernize its rural infrastructure.

I do want to raise a specific concern about S. 1380. In reallocating some universal service funding, the bill shifts funds around, creating winners and losers. I am worried that this approach pits carriers and regions against each other, rather than uniting in a common goal of protecting universal service and the people who depend upon it for affordable telephone service in rural and low-income communities throughout the country. We can and should fix that problem. That is another reason why I think the bill should be considered within the context of broader universal service reform.

I want to note a special problem with one potential loser under the bill. It shifts some funds that are currently allocated to Puerto Rico. Puerto Rico is not represented in this body. Without an advocate of its own to force attention to the Commonwealth's concerns, it is important that we all carefully consider the impact legislation can have upon Puerto Rico and its residents. When we address universal service, we should not take steps that might inadvertently reduce the availability and affordability of telephone and telecommunications services to the residents of Puerto Rico.

In conclusion, I want to again thank the Commerce Committee for focusing greater attention on the future of universal service. I look forward to working with Senators on the committee and others concerned about universal service for rural residents, low-income consumers and our schools and libraries to lay the groundwork for legislation to reform and strengthen the universal service system.

Mr. President, as the month of August nears and the remaining summer days dwindle, many Americans are turning their attention to the highway as they plan family vacations and road trips, setting their sights on destinations that may be close to home or several States away. As they plot their travel plans, they must take into account several road-related factors, including, what route to take, which highway to use and how long it will take to get to their. Road safety, highway quality and congestion will undoubtedly be major considerations that will enter this equation.

In addition to personal mobility, roads also serve as the backbone of the national economy. Our economic success depends on a sound transportation system that efficiently carries goods to and from the marketplace. We must work diligently throughout the upcoming highway re-authorization to provide a policy framework that facilitates access to both markets for goods and places for people.

It is for these reasons, among others, that I rise today to introduce the Freeing Alternatives to Speedy Transportation Act, or for short, the FAST Act--legislation that will ease and alleviate traffic congestion, increase highway capacity, decrease pollution and improve the quality of life for millions of Americans. The legislation has already been introduced in the House of Representatives by Congressman Kennedy of Minnesota. His bi-partisan version of the bill has gained strong support and momentum, and I thank him for his leadership on transportation matters.

It is easy to say how important our roads are to our success. But the question that has everyone stumped is how to pay for it all. We must look to creative policies that place the State in the drivers seat toward ending the transportation funding dilemma--policies that capitalize on user choice and private financing. The FAST Act provides just that--flexibility and innovation to move forward with important Interstate highway expansion projects--projects that would not be possible with out the FAST Act--to ease congestion and alleviate the strain on our roads.

The FAST Act removes the obstacles that prevent States from collecting user fees on Interstate highway expansion projects. It allows a State to create an authority that collects user fees to finance expansion lanes on Interstates, while building in several protective measures that boost consumer confidence and protection. The fees are collected only on the expansion land--the existing lanes remain open and free of charge. Fees can be used only for the construction of the FAST lane and accompanying structures--the money cannot be diverted to other accounts or projects. It allows the State to collect, as part of the fee, a maintenance reserve for that lane, and guarantees that the fee will be removed once the project is paid off. In other words, the fee pays for the project, ends, and the FAST lane then becomes available to everyone free of the fee. While I realize this bill is but one avenue in bridging our highway policy needs, the options it opens through user-choice and dedicated funding will promote sound State planning and decision making.

The FAST Act has the support of the Colorado Department of Transportation, think tanks, State governments and many others who hope to find new ways to expend highways. Tom Norton, Executive Director of the Colorado Department of Transportation, wrote in support of the FAST Act, ``With nationwide transportation needs continually increasing, Federal Government, as well as the States, must seek new funding sources to keep up with this demand. This needed legislation provides States the ability to explore a new source in order to fund highway expansion.'' In addition to the backing the legislation has received from the Colorado Department of Transportation, both the Minnesota and Washington DOTs support the bill as well.

Earlier this week, the Joint Economic Committee released a white paper, noting ``roads are deteriorating while congestion worsens every year.'' The paper highlights the FAST Act as a new funding mechanism for highways, noting that many economists believe that the new authorization bill should grant the states more flexibility in raising money for funding transportation projects. It concludes by stating that the FAST Act is a modest measure that can help bridge the financing chasm.

Numerous organizations and associations across the country have either endorsed the FAST Act or have strong and positive interest in the legislation. These groups include: Americans for Tax Reform, American Highway Users Alliance, Associated General Contractors of America, National Taxpayers Union, Association for Commuter Transportation, and the American Association of State and Highway Transportation Officials.

As the population of the United States continues to surge and miles traveled by automobiles increase every year, transportation planners must find new and innovative ways to expand highway congestion. With today's budget crisis, this task becomes even more formidable as States look for new ways to stretch every dollar. The FAST Act give States one more tool in their battle against congestion. It creates a new source of revenue through user choice. It give them flexibility in managing construction and maintenance, encourages public-private partnerships and speeds traffic through a series of electronic gateways instead of creating logjams at toll booths. It is one more tool in the toolbox of innovative finance options that will lead to a more efficient, safer highway system.

I ask unanimous consent that supporting documents and the text of the bill be printed in the Record.

Mr. President, I rise today to introduce the Reforestation Tax Act of 2003, and I am pleased to be joined by Senators Lincoln, Smith, Breaux, Miller, Chambliss, Pryor, Collins, Landrieu, Shelby and Craig.

The U.S. forest products industry is essential to the health of the U.S. economy. It employs approximately 1.5 million people, supports an annual payroll of $40.8 billion, and ranks among the top ten manufacturing employers in 46 States. This includes the State of Maine where 89.2 percent of the land is forested. Without fair tax laws, future growth in the industry will occur overseas and more and more landowners will be forced to sell their land for some other higher economic value such as development. The loss of a health and strong forest products industry will have a long-term negative impact on both the economy and the environment.

The legislation I am introducing today partially restores the balance between corporate and private landowners in terms of capital gains tax treatment by reducing the capital gains paid on timber for individuals and corporations. The bill is also intended to encourage the reforestation of timberland, whether it has been harvested or previously cleared for other uses, such as agriculture.

Trees take a long time to grow, anywhere from 15 years to, more typically in Maine, 40 to 50 years. During these years, the grower faces huge risks from fire, pests, weather and inflation, all of which are uninsurable. This legislation helps to mitigate these risks by providing a sliding scale reduction in the amount of taxable gain based on the number of years the asset is held.

Specifically, the bill would change the way that capital gains are calculated for timber by taking the amount of the gain and subtracting three percent for each year the timber was held. The reduction would be capped at 50 percent bringing the effective capital gains tax rate to 7.5 percent for most non-corporate holdings and 17.5 percent for corporations.

Since 1944, the tax code has treated timber as a capital asset, making it eligible for the capital gains tax rate rather than the ordinary income tax rate. This recognized the long-term risk and inflationary gain in timber. Tax bill enacted in 1997 and in 2003 lowered the capital gains rate for individuals, but not for corporations. As a result, individuals face a maximum capital gains rate of 15 percent, while corporations face a maximum rate of 35 percent for the identical asset.

As this difference in rates implies, non-corporate timberland owners receive far more favorable capital gains tax treatment than corporate owners. In addition, pension funds and other tax-exempt entities are also investing in timberland, which only further highlights the disparity that companies face.

Secondly, reforestation expenses are currently taxed at a higher rate in the U.S. than in any other major competitor country. The U.S. domestic forest products industry is already struggling to survive intense competition from the Southern Hemisphere where labor and fiber costs are extremely low, and recent investments from wealthier nations who have built state of the art

pulp and papermaking facilities. While there is little Congress can do to change labor and fiber costs, Congress does have the ability to level the playing field when it comes to taxation.

This legislation encourages both individuals and companies to engage in increased reforestation by allowing all growers of timber to deduct all reforestation expenses in the year such costs are incurred. Currently, only the first $10,000 of reforestation expenses is eligible for a ten percent tax credit and can be amortized over seven years.

Eligible reforestation expenses are the initial expenses to establish a new stand of trees, such as site preparation, the cost of the seedlings, the labor costs required to plant the seedlings and to care for the trees in the first few years, as well as the cost of equipment used in reforestation.

The planning of trees should be encouraged rather than discouraged by our tax system as trees provide a tremendous benefit to the environment, preventing soil erosion, cleansing streams and waterways, providing habitat for numerous species, and absorbing carbon dioxide from the atmosphere.

Tax incentives for planting on private lands will also decrease pressure to obtain timber from ecologically sensitive public lands, allowing these public lands to be protected.

Finally, the bill would notify the passive loss rules for small, closely-held landowners to allow them to deduct normal operating expenses pertaining to management of their timber lands.

I ask my colleagues for their support for private landowners and for the U.S. forest products industry that is so important to the health of the our economy.

Mr. President, today I rise in support of fairness for rural America and introduce the Rural Universal Service Equity Act of 2003.

Universal service is a decades old Federal program intended to keep telephone service available and affordable across America. The Federal Universal Service Program has been a tremendous success. America's telephone network is the envy of the world. However, the program faces challenges, and it is imperfect.

The Rural Universal Service Equity Act addresses an inequity in the way Universal Service support is distributed to rural customers served by larger phone companies. Under the program, only eight States receive funding. Three of those States receive more than 80 percent of the funds and one State receives more than half of all dollars available under the program.

Yet many of the most rural States in America the very States the program was intended to assist--receive no funding at all. North Dakota, South Dakota, Idaho, Iowa, Utah, Kansas, Oklahoma, New Mexico, Nebraska and other rural States receive no funding under this program.

My State of Oregon is an example of the unfairness of the program. Oregon has an average of 36 residents per square mile, according to U.S. Census Bureau data. Oregon has many rural and remote areas but does not receive any funding under this program for larger carriers. However, States with between 60 and 101 residents per square mile or more than twice the density of Oregon--receive 90 percent of the funding.

How could this happen? When the FCC created this program in 1999, it determined which States would be eligible for funding by comparing the average cost of providing telephone service per line in each State to a benchmark tied to the national average cost per line. If a State's average cost of service per line exceeded the benchmark, that State would be eligible for funding. If the average cost was below the national benchmark, it would not be eligible.

This method is skewed, in part, because telephone service in a metropolitan area is less expensive to provide than service in a rural area. Customers in cities are closer to one another, and the same facilities can serve more people at a lower cost.

As a consequence, if you are served by a larger carrier and you live in a State with a city--no matter how rural an area, or no matter how far from the city you live--your State probably receives no support.

This problem is exacerbated because the FCC formula also doesn't fully account for the actual cost of providing service in rural areas with natural obstacles such as mountains, lakes and rivers.

In short, the formula is flawed, and the result is unfair to millions in rural America: Three States that are not among the 15 least populated States--receive more than 80 percent of the fund.

The Rural Universal Service Equity Act of 2003 would make this program fair. The Act directs the FCC to replace the current state-wide average formula with a new formula that distributes funds to telephone company wire centers with the highest cost.

Wire centers are the telephone facilities where all of the telephone lines in a given area converge. And because funds would be directed to high-cost wire centers, as opposed to States with the highest average costs, rural residents would no longer be penalized if they lived in a State with a city hundreds of miles away.

The Act also: directs the FCC to develop rules to implement a program that is equitable among States; delegates to the FCC the determination of what an appropriate benchmark for what a high cost wire center should be; directs the FCC to not increase the size of the current program for high cost carriers; ensures a minimum level of support for States that currently receive funding under the program; and

requires GAO to study and report back to Congress on the need for comprehensive universal service reform.

Finally, I am concerned that the Universal Service Program has challenges beyond the inequities of the program for larger carriers. I look forward to participating in the broader debate on how to reform the Universal Service Program and ensure its long term viability and effectiveness. This bill will help further that debate.

However, broadly reforming the Universal Service Program is complex and divisive. It may take years. And I do not believe the inequities of the program for larger carriers should be allowed to continue while Congress grapples with the broader issues. Millions of rural Americans are being disserved, and we can solve this one problem today.

I urge my colleagues to join me and support the Rural Universal Service Equity Act of 2003. I ask unanimous consent that the text of the legislation be printed in the Record.

Mr. President, today I rise in support of fairness for rural America and introduce the Rural Universal Service Equity Act of 2003.

Universal service is a decades old Federal program intended to keep telephone service available and affordable across America. The Federal Universal Service Program has been a tremendous success. America's telephone network is the envy of the world. However, the program faces challenges, and it is imperfect.

The Rural Universal Service Equity Act addresses an inequity in the way Universal Service support is distributed to rural customers served by larger phone companies. Under the program, only eight States receive funding. Three of those States receive more than 80 percent of the funds and one State receives more than half of all dollars available under the program.

Yet many of the most rural States in America the very States the program was intended to assist--receive no funding at all. North Dakota, South Dakota, Idaho, Iowa, Utah, Kansas, Oklahoma, New Mexico, Nebraska and other rural States receive no funding under this program.

My State of Oregon is an example of the unfairness of the program. Oregon has an average of 36 residents per square mile, according to U.S. Census Bureau data. Oregon has many rural and remote areas but does not receive any funding under this program for larger carriers. However, States with between 60 and 101 residents per square mile or more than twice the density of Oregon--receive 90 percent of the funding.

How could this happen? When the FCC created this program in 1999, it determined which States would be eligible for funding by comparing the average cost of providing telephone service per line in each State to a benchmark tied to the national average cost per line. If a State's average cost of service per line exceeded the benchmark, that State would be eligible for funding. If the average cost was below the national benchmark, it would not be eligible.

This method is skewed, in part, because telephone service in a metropolitan area is less expensive to provide than service in a rural area. Customers in cities are closer to one another, and the same facilities can serve more people at a lower cost.

As a consequence, if you are served by a larger carrier and you live in a State with a city--no matter how rural an area, or no matter how far from the city you live--your State probably receives no support.

This problem is exacerbated because the FCC formula also doesn't fully account for the actual cost of providing service in rural areas with natural obstacles such as mountains, lakes and rivers.

In short, the formula is flawed, and the result is unfair to millions in rural America: Three States that are not among the 15 least populated States--receive more than 80 percent of the fund.

The Rural Universal Service Equity Act of 2003 would make this program fair. The Act directs the FCC to replace the current state-wide average formula with a new formula that distributes funds to telephone company wire centers with the highest cost.

Wire centers are the telephone facilities where all of the telephone lines in a given area converge. And because funds would be directed to high-cost wire centers, as opposed to States with the highest average costs, rural residents would no longer be penalized if they lived in a State with a city hundreds of miles away.

The Act also: directs the FCC to develop rules to implement a program that is equitable among States; delegates to the FCC the determination of what an appropriate benchmark for what a high cost wire center should be; directs the FCC to not increase the size of the current program for high cost carriers; ensures a minimum level of support for States that currently receive funding under the program; and

requires GAO to study and report back to Congress on the need for comprehensive universal service reform.

Finally, I am concerned that the Universal Service Program has challenges beyond the inequities of the program for larger carriers. I look forward to participating in the broader debate on how to reform the Universal Service Program and ensure its long term viability and effectiveness. This bill will help further that debate.

However, broadly reforming the Universal Service Program is complex and divisive. It may take years. And I do not believe the inequities of the program for larger carriers should be allowed to continue while Congress grapples with the broader issues. Millions of rural Americans are being disserved, and we can solve this one problem today.

I urge my colleagues to join me and support the Rural Universal Service Equity Act of 2003. I ask unanimous consent that the text of the legislation be printed in the Record.