National Guard and Reserve Comprehensive Health Benefits Act of 2003

Mr. President, I rise today to introduce the Intermediate Sanctions Compensatory Revenue Adjustment Act of 2003, ISCRAA. This legislation will restore to the States billions of dollars in revenue due to them from a massive lawsuit recently conducted on their behalf the tobacco-Related Medicaid expenses litigation. ISCRAA amends an existing provision of the Federal tax code in order to enforce basic, universally accepted fiduciary standards governing the award of attorneys fees. By applying these standards to the attorneys who represented the states in the tobacco settlement, ISCRAA reasonably can be expected to restore to the states income with a present value of approximately $9 billion. I have included at the end of my statement a chart detailing how much each state can expect to recover.

ISCRAA's tax formula is borrowed from the 1996 Tax Act's Intermediate Sanctions Tax, IST, which applies a two-step excise tax to any excessive or unreasonable compensation that the managers of a trust pay to themselves from the assets of the trust. The IST framework encourages the trustee to restore the excessive portion of any fee to the trust--when he does so, the IST's punitive taxes do not apply.

ISCRAA extends the IST to another type of trust relationship: that between a lawyer and his client. ISCRAA applies the IST tax formula to any unreasonable or excessive income that a lawyer collects from litigation resulting in a judgment or settlement in excess of $100 million. To avoid IST taxes, an attorney must restore the excessive portion of the fee to the client.

As my colleague Senator Cornyn will explain today, the ethical and legal abuses that resulted from the 1998 State tobacco settlement make the need for this legislation manifest. Senator CORNYN also will discuss the law of attorneys' fiduciary obligations, which establishes that a fee award is the property of the client--and that any unethical fee must be restored to the client, regardless of how the fee award is structured.

I will discuss today how ISCRAA will affect massive litigations generally. In order to gauge the reasonableness of a lawyer's fee award, ISCRAA adopts and codifies a liberal version of the lodestar- multiplier system. As I will later explain in greater detail, ISCRAA allows fee multipliers of up to 500 percent of reasonable hourly rates. This limit is as generous as the most liberal limits adopted by state courts, and considerably more generous than the limits that federal courts have applied in $100 million cases. ISCRAA's fee formula guarantees that attorneys' fiduciary obligations will be respected, while providing plaintiff's lawyers with ample incentive to provide high-quality legal representation in these types of cases.

Federal supervision of fee awards resulting from $100 million litigations is appropriate for several reasons. First, because of their sheer size, these types of lawsuits inevitably operate as a tax on the consuming public. Few defendants actually can afford to pay such judgments with cash on hand. Instead, the affected industries simply will raise the prices that they charge to their customers.

This is exactly what has happened in the State Medicaid tobacco settlement--according to the leading proponents of that litigation. The first State attorney general to file suit against the tobacco companies has admitted that ``what always happens in these cases is the industry passes the costs to the consumer.'' Other commentators agree that this has occurred in the tobacco litigation. As one law-review article notes, ``the [tobacco] settlement * * * is a tax because it's a set of payments made by tobacco companies that depend on how many packs they sell; in short, it looks like a tax and quacks like a tax.''

Because of the way that these massive judgments typically are satisfied, it is particularly important to ensure that attorneys are paid in proportion to the services that they provided--rather than solely on the basis of the size of the recovery. Again, the State tobacco settlement highlights the nature of the problem. As two of the leading academic commentators have noted, it is ``very troubl[ing]'' that under that agreement, ``a group of private citizens [are] getting paid a percentage of a tax increase they helped pass.'' The sheer size of the tobacco settlement--and the fact that attorneys fees were based on this size, rather than on the attorneys' actual efforts--has given the fee awards an uncanny resemblance to the medieval practice of tax farming. In all but name, the government has licensed a group of private individuals to collect a tax from the consuming public.

I would emphasize at this point that ISCRAA is not an attack on the State tobacco lawsuits. The bill does not pass judgment on the merits or the appropriateness of this type of litigation. ISCRAA simply is designed to ensure that when such lawsuits are brought on the public's behalf, the public receive its fair share of the proceeds. If a State chooses to seek compensatory revenue from industry for past harms, then the resulting tax on the public--minus the reasonable value of the legal services actually provided--must go to the State treasury.

There are several reasons why $100 million is an appropriate threshold for applying ISCRAA's fee formula. First, the courts themselves have indicated that fee agreements based primarily on the size of the recovery tend to become unreasonable when judgements reach this size. As one court has stated, ``in much smaller cases, a fee award of 33 percent does not present the danger of providing the plaintiff's counsel with the windfall that would accompany a `megafund' settlement of $100 million or upwards. But it is quite different when the figures hit the really big time.'' Or as the Third Circuit notes, ``courts have generally decreased the percentage awarded [for attorneys fees] as the amount recovered increases, and $100 million seems to be the informal marker of a 'very large' settlement.''

The logic of avoiding judgment-based awards in these very large cases is straightforward. As one court explains, ``it is not 150 times more difficult to prepare, try, and settle a $150 million case than it is to try a $1 million case, but the application of a percentage comparable to that in a smaller case may yield an award 150 times greater.'' Thus, according to another court, ``there is considerable merit'' to disallowing standard percentage awards as the ``size of the [recovery] fund increases. In many instances the increase [in the recovery] is merely a factor of the size of the class and has no direct relationship to the efforts of counsel.''

It also bears mention that because of its $100 million threshold, ISCRAA applies to a fairly limited universe of cases. As courts have remarked, ``there are few so-called `megafund' cases with settlements over $100 million.'' In 2001, the U.S. Court of Appeals for the Third Circuit attempted to catalogue all common-fund cases in federal court that resulted in recoveries greater than $100 million. Though such litigations have been more frequent in recent years, the Third Circuit identified only 22 such cases since 1985. See in re Cendant Corp. PRIDES Litig., 243 F.3d 722, 737 (3d Cir. 2001).

ISCRAA is somewhat broader than the criteria that Cendant Corp. employed to collect cases. ISCRAA is not limited to common-fund cases-- it also applies to judgments won on behalf of tax-exempt entities or even single individuals. ISCRAA also applies to cases brought in State court, and it aggregates identical claims that are brought against common defendants in separate actions, in order to prevent evasion of its limits through the subdivision of actions. Nevertheless, ISCRAA's scope remains fairly narrow. An academic specialist who is familiar with developments in this field has reviewed the bill and concluded that because of its ``relatively high threshold,'' ISCRAA probably would apply only to about 15-20 litigations per year. I will include a copy of this professor's letter to me in the Congressional Record.

Finally, a $100 million threshold also is appropriate because it limits ISCRAA's reach to litigations that are a natural subject of congress's authority to regulate interstate commerce. It is well- established that ``Congress' commerce authority includes the power to regulate . . . those [economic] activities that substantially affect interstate commerce.'' United States v. Morrison, 529 U.S. 598, 609 (2000). See also United States v. Lopez, 514 U.S. 549 (1995). Both the executive and the legislative branches previously have identified $100 million as guideline for determining whether a matter has a significant impact on interState commerce. See, e.g. Executive Order 12866; Congressional Review Act, 5 U.S.C. Sec. 804(2); Unfunded Mandates Act, 2 U.S.C. Sec. 1532(a). Because it is limited to litigations of this size, ISCRAA is consistent with congress's power and obligation to protect the flow of commerce between states.

Another point that I would like to emphasize today is that ISCRAA is not an anti-plaintiffs' lawyer bill. It is not stingy toward trial attorneys. ISCRAA is carefully designed to protect fiduciary interests while providing plaintiffs' lawyers with ample incentives to provide high-quality legal representation in large litigations. ISCRAA's fee formula is as generous as the limits set by the most liberal State courts that engage in meaningful review of attorneys fees, and is considerably more generous than the Federal courts' practices in $100 million cases. Moreover, the multiplier criteria that ISCRAA employs universally are recognized as legitimate prerequisites for a contingency fee--even by trial lawyers' professional associations.

Federal courts primarily rely on two systems for calculating attorneys fees in cases, such as class actions, in which they are required to set ``reasonable fees:'' the percentage method and the lodestar-multiplier method. The percentage method, as its name implies, calculates fees as a percentage of the total recovery. The lodestar system, by contrast, requires a court to first calculate a fee based on the number of hours that the lawyer worked multiplied by prevailing hourly rates, the ``lodestar''. The court then multiplies this lodestar fee again in order to reward the attorney for the risk of nonpayment of fees that he assumed and for any exceptional services that he provided.

Over the last thirty years, courts have moved back and forth between these two systems. Only a few courts make lodestar-multipliers the exclusive means of awarding attorneys fees. But as one academic commentator has noted, ``lodestar, or hours-based methods, have been adopted in every [federal judicial] circuit.''

And more importantly, in large-recovery cases, there has been very little difference between lodestar and percentage systems. This is because even when courts apply a percentage to calculate fees, and as judgements become very large, courts typically also calculate a reasonable lodestar in order to determine what constitutes a reasonable percentage. Thus, again, as the Third Circuit notes, ``courts have generally decreased the percentage awarded as the amount recovered increases, and $100 million seems to be the informal marker of a `very large' settlement.''

Courts have been wary of awarding fees based on percentages alone. As one State supreme court explains: ``to begin the assessment by arbitrarily picking a percentage amount without any reliance on a cognizable structure invites decisions that are nonobjective and inconsistent. What constitutes a reasonable percentage may differ from one judge to another depending on each judge's predilections, background, and geographical location in the state.''

Thus ``courts that employ the percentage approach appear to be motivated in part by a lodestar dynamic. Because courts are reluctant to give fee awards totally incommensurate with the efforts of the attorneys, percentage awards generally decrease as the amount of the recovery increases.''

One result of the cross-use of the lodestar and percentage systems is that even when courts use the percentage system, those awards overwhelmingly tend to reflect a reasonable lodestar multiplier. Therefore, even percentage-based cases tend to provide evidence of the range of multipliers that the courts consider to be reasonable.

In 2001, the Third Circuit ``set forth a chart of fee awards given in Federal courts since 1985 in class actions in which the settlement fund exceeded $100 million and in which the percentage of recovery method was used.'' Cendant Corp. The court identified 17 such cases. In almost every case, the Third Circuit could calculate the multiplier that was used, and ``the lodestar multiplier in those cases never exceeded 2.99.'' And in the direct lodestar-multiplier cases that court identified, the multiplier ranged from 1.2 to 3.25.

Other courts, surveying smaller cases than the $100 million recoveries examined in Cendant Corp., have identified larger multipliers. One Federal district court has ``observe[d] that in virtually every case where the court notes a lodestar but awards fees based upon a percentage, the lodestar multiplier converted from this percentage is in the range of 1 to 4.'' Another Federal district court has found that ``the range of lodestar multipliers in large and complicated class actions runs from a low of 2.26 to a high of 4.5.''

By contrast, some courts have declared that they would allow only lower multipliers. One Federal court has stated that ``only in the most exceptional circumstances would this court award a multiplier of 3 or greater. . . . this court believes that lodestars enhanced by multipliers less than 3 should adequately compensate even the most talented counsel.'' And the Seventh Circuit has suggested that ``it may be that a doubling of the lodestar would provide a sensible ceiling.''

On the other hand, the Florida Supreme Court--which is generally regarded as one of the more plaintiff-friendly courts in the United States--has announced that: ``we set the maximum multiplier available in this common-fund category of cases at 5. . . . [A] multiplier which increases fees to five times the accepted hourly rate is sufficient to alleviate the contingency risk factor involved and attract high level counsel to common fund cases while producing a fee that remains within the bounds of reasonableness. We emphasize that 5 is a maximum multiplier.''

ISCRAA adopts this more liberal standard. It allows fees as high as 500 percent of reasonable hourly rates. ISCRAA awards multipliers based on two criteria: it allows up to 300 percent to be added onto the amount of reasonable hourly fees if a case that involved a substantial risk of nonrecovery of fees, and allows an additional 100 percent add- on if the attorney provided exceptional services that improved the plaintiff's recovery.

The criteria that ISCRAA employs universally are recognized as necessary prerequisites to the legitimacy of a contingency fee. ``Courts in general have insisted that a contingent fee be

truly contingent. The typically elevated fee reflecting the risk to the lawyer of receiving no fee will be permitted only if the representation indeed involves a significant degree of risk.'' Charles W. Wolfram, Modern Legal Ethics Sec. 9.4, at 532 (1986). The risk requirement has been recognized ever since contingency fees first were allowed in the United States. The American Bar Association even noted at that time that ``a contract for a contingent fee, where sanctioned by law, should be reasonable under all the circumstances of the case, including the risk and uncertainty of the compensation.'' ABA Canons of Professional Ethics, Canon 13 (1908). Indeed, even the professional associations of plaintiffs' attorneys have, at times, acknowledged that contingent fees should be based on an actual contingency. In a guide to its members, the Association of Trial Lawyers of America has ``recommend[ed]'' that attorneys ``exercise sound judgment in using a percentage in the contingent fee contract that is commensurate with the risk, cost and effort required.'' ATLA, Keys to the Courthouse: Quick Facts on the Contingency Fee System 13 (1994).

The criteria that ISCRAA employs are universally accepted--and the limits that it sets should be universally acceptable. ISCRAA is not intended to alter the considered standards of any jurisdiction. Rather, it is intended to enforce those standards--and to correct the occasional extreme outlier. Because ISCRAA incorporates a fee formula that is substantially more liberal than the usual practices of the federal courts in $100 million cases, we can be confident that high- quality legal representation will remain available to plaintiffs in these large litigations. See, e.g. in re Sumitomo Copper Litig., 74 F. Supp. 2d 393, S.D.N.Y. 1999, RICO and Commodities Exchange Act case resulting in $116 million recovery; attorneys reviewed millions of pages of documents located throughout the world, many requiring translation from Japanese; Federal district court awards multiplier of 250 percent for total fee of $32 million.

Another issue that I will address today is the argument--occasionally raised in opposition to proposals to limit attorneys fees--that such restrictions violate attorneys' rights to freedom of contract.

The first principle to keep in mind when questions of attorneys fees are considered is that ``a fiduciary relationship exists as a matter of law between attorney and client.'' (Illinois Supreme Court.) As one academic commentator has noted: ``[I]t is uncontroverted today that a lawyer is a fiduciary for, and therefore has a duty to deal fairly with, the client. . . . Lawyers are fiduciaries because retention of an attorney to exercise 'professional judgment' on the client's behalf necessarily involves reposing trust and confidence in the attorney. Exercising professional judgment requires that the lawyer advance the client's interests as the client would define them if the client were well-informed.''

The lawyer's status as fiduciary places limits on his dealings with his client--including with regard to his fee. ``An attorney's freedom to contract with a client is subject to the constraints of ethical considerations.'' New Jersey Supreme Court. ``In setting fees, lawyers are fiduciaries who owe their clients greater duties than are owed under the general law of contracts.'' Massachusetts Appeals Court. ``As a result of lawyers' special role in the legal system, contracts between lawyer and client receive special scrutiny. . . . While freedom of contract is the guiding principle underlying contract law, contractual freedom is muted in the lawyer-client and lawyer-lawyer contexts.'' Joseph M. Perillo, law professor.

The unique status of attorney fee contracts has led courts to reject analogies between such agreements and other business or service contracts. Perhaps the fullest exposition is provided by the Arizona Supreme Court: ``We realize that business contracts may be enforced between those in equal bargaining capacities, even though they turn out to be unfair, inequitable or harsh. However, a fee agreement between lawyer and client is not an ordinary business contract. The profession has both an obligation of public service and duties to clients which transcend ordinary business relationships and prohibit the lawyer from taking advantage of the client. Thus, in fixing and collecting fees the profession must remember that it is a branch of the administration of justice and not a mere money getting trade.' ABA Canons of Professional Ethics, Canon 12.''

The same principle has been identified by the Florida Supreme Court: There is but little analogy between the elements that control the determination of a lawyer's fee and those which determine the compensation of skilled craftsmen in other fields. Lawyers are officers of the court. The court is an instrument of society for the administration of justice. Justice should be administered economically, efficiently, and expeditiously. The attorney's fee is, therefore, a very important factor in the administration of justice, and if it is not determined with proper relation to that fact it results in a species of social malpractice that undermines the confidence of the public in the bench and bar. It does more than that. It brings the court into disrepute and destroys its power to perform adequately the function of its creation.''

In order to protect the lawyer's public role and to enforce his fiduciary obligations, the courts read a reasonableness requirement into every attorney fee contract. ``[T]he requirement that a fee be reasonable in amount overrides the terms of the contract, so that an `unreasonable' fee cannot be recovered, even if agreed to by the client.'' G. Hazard, Jr. & W. Hodes, The Law of Lawyering 1. 5:205 Fee Litigation and Arbitration 120 (1998 Supp.).

As one court has stated, ``[A]n attorney is only entitled to fees which are fair and just and which adequately compensate him for his services. This is true no matter what fee is specified in the contract, because an attorney, as a fiduciary, cannot bind his client to pay a greater compensation for his services than the attorney would have the right to demand if no contract had been made. Therefore, as a matter of public policy, reasonableness is an implied term in every contract for attorney's fees.''

Finally, when assessing whether a fee is reasonable, courts ask whether the fee is proportional to the services that were actually provided. ``Fees must be reasonably proportional to the services rendered and the situation presented.'' (Arizona Supreme Court.) ``If an attorney's fee is grossly disproportionate to the services rendered and is charged to a client who lacks full information about all of the relevant circumstances, the fee is `clearly excessive' . . . even though the client consented to such fee.'' West Virginia Supreme Court.

Because attorneys are fiduciaries, they simply do not have complete freedom of contract in negotiating their fees. An attorney's dealings with his client always must reflect that the client comes to him in a position of trust--and therefore, the attorney's fee always must be reasonable. ISCRAA will help ensure that this important obligation is respected.

Another subject that I would like to address today is ISCRAA's effective date. ISCRAA applies to attorney fee payments received after June 1, 2002. This effective date is appropriate under the circumstances of the State tobacco settlement for several reasons: first, Congress routinely enacts major tax legislation with effective dates that look back much further than does ISCRAA. The Supreme Court has ``repeatedly upheld [such moderately] retroactive tax legislation against a due process challenge.'' United States v. Carlton, 512 U.S. 26, 30-31, 1994; see id. at 33, upholding tax whose ``actual retroactive effect . . . extended for a period only slightly greater than one year''.

Second, ISCRAA is not even truly retroactive. ISCRAA does not change the substantive law governing attorneys fee awards. Rather, it simply enforces established, pre-existing fiduciary standards that already bind every attorney in every state. The Model Rules of Professional Conduct, at Rule 1.5(a), contain a clear, direct command that ``a lawyer's fee shall be reasonable.'' Similarly, the Model Code of Professional Responsibility, at DR 2-106, directs that an attorney ``shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee.'' The Model Code further explains that an attorneys fee is ``clearly excessive when, after a review of the facts, a

lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee.'' Finally, as academic commentators point out, in addition to the model rules, ``all State rules of professional conduct prohibit attorneys from charging excessive fees.''

As I described earlier, to enforce fiduciary standards, ISCRAA codifies and applies a very generous version of the fee multiplier system, allowing attorneys fees as high as 500 percent of reasonable hourly rates. This is considerably more generous than what Federal courts typically allow in large-judgment cases. No attorney can be heard to complain that he is subjected to a law that is more generous than his existing fiduciary obligations.

Further, none of the tobacco-settlement attorneys can reasonably maintain that they have a vested right to see their fiduciary duties to the states go unenforced. Nevertheless, in order to be fair to all parties, ISCRAA's excise taxes are applied only to fees that were paid after June 1, 2002. By this date, all of the tobacco lawyers twice had received notice from George W. Bush that he intended to enact legislation to enforce their fiduciary obligations. In February 2000, then-candidate Bush promised that he would ``extend[] the `excess benefits' provision of the tax code to private lawyers who contract with states and municipalities,'' with ``the reasonableness of the fees * * * [to] be determined by the standard judicial `lodestar' method.'' And as early as February 2001, the current Administration announced that it anticipated providing ``additional public health resources for the States from the President's proposal to extend fiduciary responsibilities to the representatives of States in tobacco lawsuits.'' See A Blueprint for New Beginnings: A Responsible Budget for America's Priorities 80, Office of Management and Budget, February 28, 2001.

Under ISCRAA, all of the attorneys who participated in the State tobacco settlement still will be very liberally compensated. Because ISCRAA does not apply to the first three-and-a-half years of fee payments under the settlement, it exempts the first two-and-a-half billion dollars that these lawyers received. Every one of the tobacco lawyers will have more than enough money left to pay for the yachts, luxury cars, and vacation homes that were purchased with the tobacco proceeds. ISCRAA might simply be described as the one-yacht-per-lawyer rule.

But most importantly, because ISCRAA applies to the last year's worth of tobacco fee payments, and to all future payments, it will return a substantial amount of funds to the States--money that already should belong to the States under any reasonable interpretation of fiduciary standards. It is critical that these funds be restored in this time of widespread fiscal crisis. Today a large number of the States face massive budget deficits that threaten their ability to provide health care to the indigent, to fully fund public education, and to guarantee adequate and effective law enforcement. When such needs risk going unmet, fee abuses that cost the States billions of dollars simply can no longer be ignored. The States must receive their fair share of the tobacco settlement proceeds--funds that are badly needed to support basic public services.

Under the terms of the November 1998 Master Settlement Agreement, MSA, between the States and tobacco companies, $500 million in cigarette taxes is set aside every year to pay the attorneys who chose to have their fees awarded in arbitration. Because extraordinarily high fees were awarded by the arbitrators--estimated to total $15 billion-- the $500-million-a-year income stream, which is not adjusted for inflation, may have to be paid in perpetuity. In addition to this annuity, the MSA also sets aside an additional $1.25 billion in cigarette taxes to compensate those lawyers who choose to forego arbitration and negotiate their fees directly with the tobacco companies.

The present value of the $500-million-a-year fee stream--discounting all future payments for the time value of money--has been conservatively estimated at just over $8 billion. Current and future payments from the $1.25 billion fee fund are less certain, since the grants made from that fund and their disbursement schedule have been kept obscure from the public. Because ISCRAA's effective date is June 1, 2002, ISCRAA will probably recoup for the States an additional $1 billion above the present value of future $500 million-a-year payments. ISCRAA does not affect the first three-and-a-half years of fees paid under the MSA. Because these payments almost certainly are adequate to pay all reasonable fees incurred in the litigation, ISCRAA would restore to the States virtually all fees paid after its effective date. Thus the net present value of the sums that ISCRAA would provide to the States can conservatively be estimated at $9 billion.

By restoring these excess fee payments to the states' MSA escrow account and returning them to the States on a per capita basis, ISCRAA guarantees every State a very substantial recovery. Based on the estimates that I have described, even our Nation's smallest State, Wyoming, would recoup at least $15 million in tobacco fee payments, and other small States, such as North Dakota, would receive approximately $20 million. On the other hand, our nation's largest State, California, can expect to recoup at least $1 billion. Other large States would also see generous returns: Florida, $511 million; Illinois, $397 million; Michigan, $318 million; New York, $607 million; Ohio, $363 million; and Texas, $667 million.

Here is how much each State can expect to recover:

Alabama....................................................$142,220,272 Alaska.......................................................20,046,569 Arizona.....................................................164,079,935 Arkansas.....................................................85,496,543 California................................................1,083,230,642 Colorado....................................................137,556,275 Connecticut.................................................108,911,511 Delaware.....................................................25,059,883 District of Columbia.........................................18,294,706 Florida.....................................................511,123,686 Georgia.....................................................261,806,474 Hawaii.......................................................38,745,502 Idaho........................................................41,381,203 Illinois....................................................397,174,614 Indiana.....................................................194,456,664 Iowa.........................................................93,585,167 Kansas.......................................................85,976,825 Kentucky....................................................129,257,603 Louisiana...................................................142,919,876 Maine........................................................40,772,615 Maryland....................................................169,384,021 Massachusetts...............................................203,046,997 Michigan....................................................317,835,940 Minnesota...................................................157,327,166 Mississippi..................................................90,973,451 Missouri....................................................178,937,382 Montana......................................................28,852,605 Nebraska.....................................................54,726,966 Nevada.......................................................63,905,164 New Hampshire................................................39,520,996 New Jersey..................................................269,094,724 New Mexico...................................................58,173,915 New York....................................................606,875,689 North Carolina..............................................257,420,675 North Dakota.................................................20,537,847 Ohio........................................................363,078,559 Oklahoma....................................................110,353,478 Oregon......................................................109,417,889 Pennsylvania................................................392,753,669 Rhode Island.................................................33,525,716 South Carolina..............................................128,305,961 South Dakota.................................................24,140,253 Tennessee...................................................181,945,847 Texas.......................................................666,850,647 Utah.........................................................71,417,756 Vermont......................................................19,470,563 Virginia....................................................226,374,115 Washington..................................................188,496,659 West Virginia................................................57,831,660 Wisconsin...................................................171,532,756 Wyoming......................................................15,791,372

I ask unanimous consent that the text of the bill and the following four articles be printed in the Record.

Mr. President, I am pleased to join my colleague, Senator Kyl, to introduce today this landmark legislation to clean up our civil justice system. This legislation would enact a badly needed reform to the way in which attorneys are paid in some of the Nation's largest cases. It is designed to address some of the worst abuses of our civil justice system that I have witnessed in my nearly thirty years in the legal profession as a lawyer in private practice, as a state trial and appellate judge, and as state attorney general.

This legislation, the Intermediate Sanctions Compensatory Revenue Adjustment Act of 2003, ISCRAA, will combat the gross abuse of attorney contingent fee agreements, abuses which we have been witnessing at an increasing rate in recent years. The legislation will enforce attorneys' fiduciary duties to their clients in a small but important category of cases--those resulting in judgments greater than $100 million.

Contingent fee agreements can have an important role to play in our civil justice system. Sometimes, when people are injured but cannot afford to hire lawyers out of their own pockets, attorneys will accept the case with the expectation that, if their clients prevail, the attorney will be paid for his or her services out of the judgment or settlement that the attorney is able to secure for the client. Such agreements between attorneys and their clients are called contingent fee agreements, because the attorney's fee is contingent on the client obtaining a money judgment or settlement. Contingent fee agreements, properly understood and utilized, reward attorneys for their work in obtaining monetary recovery for their clients, and the risk that they take that, despite their hard work and best efforts, they are unable to obtain any recovery for the client at all.

Contingent fees can thus help ensure that plaintiffs with legitimate claims have the opportunity to obtain justice from our courts through the assistance of counsel. But contingent fees also present serious ethical problems for our legal system--particularly in cases in which the dollar amounts at stake are extraordinary, and result in a contingent fee award that overwhelmingly exceeds the relatively light or even negligible effort and risk actually undertaken by the attorneys.

Under the time-tested traditions of our legal system, clients hire attorneys with the understanding and expectation that the attorney is ethically, legally, and morally obliged to represent their best interests, and that the attorney will use his or her legal skills in order to produce the best possible result--not for the attorney, but for the client.

Thus, as my colleague has noted, contingent fee agreements are no ordinary agreements between consumers and businesses. It is a bedrock principle and well-established tenet of our Anglo-American system of justice that attorneys are not ordinary businessmen who can engage in hard bargaining with their customers, as courts have made clear on countless occasions. Rather, attorneys are officers of the court who bear a fiduciary duty to their clients. As fiduciaries, attorneys occupy a position of trust in their dealings with their clients, a trust which attorneys may not lawfully abuse.

One obligation that flows from this status as a fiduciary is the attorney's obligation not to charge an unreasonable or excessive fee. This obligation is a fundamental part of an attorney's ethical duties, universally recognized in the ethics rules of all 50 States. Courts have made clear, time and time again, that every attorney fee contract automatically and necessarily includes the requirement that the fee be a reasonable one, a fundamental and basic duty of all attorneys, and one that no provision of such agreements may abrogate.

ISCRAA affirms and reinforces the longstanding substantive law of attorneys' fiduciary duties, by providing a special mechanism to enforce those duties in a particularly high risk category of cases--a category that the courts themselves have singled out as posing special risks of unethical, windfall fees. Courts have noted that allowing standard contingency fee agreements in cases involving judgments of

$100 million or more have a distinct tendency of grossly overcompensating attorneys for their actual services rendered.

ISCRAA prevents attorneys from evading their obligation to charge a reasonable fee in extraordinarily large recovery cases, by effectively limiting awards to a generous multiple of reasonable hourly fees. State courts, Federal courts, and even trial lawyers' themselves have all recognized that a reasonable fee must be proportional to the attorney's actual efforts. ISCRAA codifies and enforces this principle, while continuing to guarantee lawyers ample and generous compensation for their efforts--using fee multipliers that are as generous as the most liberal limits adopted by state courts, and which are considerably more generous than the limits set by federal courts in $100 million cases.

This legislation thus promises to clean up our civil justice system and to repudiate the grossest abuses of our legal system. Make no mistake: Although all attorneys are supposed to uphold a strict ethical code, under which they are strictly forbidden from charging their clients unreasonable or excessive attorney fees, the temptation to abuse contingent fee agreements is a strong one, and even more so when the dollar amounts are truly extraordinary--such as in the $100 million cases that would be covered by this legislation. And make no mistake: the victim of such attorney fee abuse, and the beneficiary of this legislation, is not the defendant who pays the judgment--after all, the defendant pays the same total amount whether the money goes to the attorney or to the client. Rather, the real victim of this abuse, and the real beneficiary of this legislation, is the injured client, whose money is being taken away from the lawyer through an abusive contingent fee arrangement.

As my colleague has also noted, ISCRAA is unquestionably an appropriate exercise of Congress's power to regulate and protect interstate commerce, considering the large size of the litigations to which it applies. $100 million is a standard threshold used by the federal government to determine whether an economic transaction significantly affects interstate commerce.

But the most important reason for federal intervention in this area I have not yet mentioned, and I would like to take a moment to discuss it here: the gross abuses that we have already witnessed in large litigation fee awards. Recent experience amply demonstrates that, if the Federal Government does not act to prevent unethical and grossly abusive fee awards in massive, nationwide lawsuits, no one will. Moreover, recent experience further demonstrates that unreasonable fee payments in such suits threaten not just the attorneys' fiduciary obligations; they also place at risk the integrity of our governmental institutions. The unwholesome incentives created by windfall, unethical fee awards in large-scale litigations have induced some public officials to abandon their civic obligations.

The textbook example of the types of abuses that make ISCRAA necessary is the attorney fee arrangement awarded in the State lawsuits to recover tobacco-related Medicaid expenses. Individual law firms that represented the States in that litigation have been given hundreds of millions and sometimes even billions of dollars in fees. To date, approximately $15 billion in fees has been awarded to the tobacco settlement lawyers, to be paid out in $500-million-a-year increments. Attorneys representing just three of the States--Mississippi, Texas, and Florida--were awarded $8.2 billion in fees. In many cases, such fees were paid to attorneys who filed duplicate, copycat lawsuits at a time when settlement negotiations had already begun and the risk that the states would not recover any money was negligible. Yet these lawyers nevertheless received massive contingency fees, for suits that involved no real contingency. And for most of the tobacco settlement lawyers, the size of the fee awards bears no reasonable relation to the actual effort expended or risk involved.

There is widespread agreement that the fees awarded in the tobacco settlement are excessive and unreasonable. Perhaps the most damning indictments come from those who took the plaintiffs' side in this litigation--including from plaintiff lawyers themselves. For example, Michael Ciresi, a pioneer in the tobacco litigation who represented the state of Minnesota in its lawsuit, and who is no doubt familiar with what these lawsuits actually require, has said that the Texas, Florida, and Mississippi lawyers' fee awards ``are far in excess of these lawyers' contribution to any of the state results.'' Similarly, former Food and Drug Administration Commissioner David Kessler, another leader in the fight against tobacco, has said that the states' private lawyers ``did a real service, but I think the fee is outrageous. All the legal fees are out control.'' Washington, D.C. lawyer and tobacco-industry opponent John Coale has denounced the fee awards as ``beyond human comprehension'' and stated that ``the work does not justify them.'' Even the Association of American Trial Lawyers, the nation's premier representative of the plaintiffs bar, has condemned attorney fees requested in the state tobacco settlement. The President of ATLA has noted: ``Common sense suggests that a one billion dollar fee is excessive and unreasonable and certainly should invite the scrutiny, of the courts. ATLA generally refrains from expressing an institutional opinion regarding a particular fee in a particular case, but we have a strong negative reaction to reports that at least one attorney on behalf of the plaintiffs in the Florida case is seeking a fee in excess of one billion dollars.''

This letter, written in 1997, only concerned one of the Florida lawyers' request for attorney fees. Ultimately, Florida's private counsel was awarded a total of $3.4 billion in fees. These statements demonstrate beyond all doubt that there is real abuse going on here, and that the victim of this abuse is the client, the plaintiff--and not the defendant.

Perhaps the best gloss on the tobacco fee awards is that provided by Professor Lester Brickman, a professor of law at Cardozo Law School and noted authority on legal ethics and attorney fees. Professor Brickman has stated:

``Under the rules of legal ethics, promulgated partly as a justification for the legal profession's self-governance, fees cannot be `clearly excessive.' Indeed, that standard has now been superseded in most States by an even more rigorous standard: fees have to be `reasonable.' Are these fees, which in many cases amount to effective hourly rates of return of tens of thousands--and even hundreds of thousands--of dollars an hour, reasonable? I think to ask the question is to answer it.''

The attorney fees awarded in the state tobacco settlement are simply indefensible. And the process by which the fees were awarded partly explains how they came to be so. Outside counsel fees were determined by a private arbitration panel established by the Master Settlement Agreement, MSA, that resolved 46 of the states' litigation. Four other states had settled their suits earlier. Their lawyers, however, also were paid out of the accounts created by the MSA. Amazingly, the settlement agreement explicitly immunized all fee awards from judicial review. Even more amazingly, one of the three arbitrators who made the awards had a clear conflict of interests: he was the father of a South Carolina lawyer whose law firm has received the largest fee awards of all, believed to amount to over $2 billion. Another one of the arbitrators had no background in fee arbitrations or any related matter, and simply ignored the law in order to make outrageous awards, using the salaries of sports stars and entertainers as a basis of measure. Revealingly, the third arbitrator, a retired Federal judge appointed by President Carter, dissented from the key fee decisions.

As incredible as the MSA fee awards and the arbitration procedures may seem, even more dubious is the process by which many of the law firms that participated in this lucrative litigation were selected in the first place to represent the states.

In my home State of Texas, trial lawyers have accused the then-state attorney general of demanding $1 million in campaign contributions in exchange for their being hired to represent the state in the tobacco litigation. One prominent lawyer--a former president of the Texas Trial Lawyers Association--has since said that the attorney general's solicitation was so blatant that ``I knew th[at] instant . . . that I

could not be involved in the matter.'' He even later wondered if the meeting had been a ``sting operation.'' Another lawyer simply characterized his encounter with the attorney general as a bribery solicitation.

This former Texas attorney general was recently indicted on Federal charges of attempting to fraudulently divert $260 million in tobacco- settlement legal fees to one of his personal friends. He had given a sworn affidavit that this lawyer had served as Texas' ``primary adviser'' in its tobacco lawsuit--despite the apparent fact that the lawyer had attended no court hearings, depositions, or strategy meetings, wrote no memos or legal briefs about the case, and apparently never even spoke to any of the other attorneys. The attorney general even went so far as to forge and fraudulently backdate documents in order to win his friend a share of the tobacco settlement fee.

As for the five law firms that actually did represent Texas in the tobacco litigation, they filed relatively late lawsuits that were based on other lawyers' work--and yet, despite the minimal energy expended on those suits, were awarded $3.3 billion in attorney fees. This award amounts to compensation that, even assuming that the attorneys worked all day every day during the entire period of the litigation, remains well in excess of $100,000 an hour. As one newspaper editorial has noted, for the amount of money that these lawyers were awarded, Texas could hire 10,000 additional teachers or policemen for ten years. Instead, four of these firms gave the attorney general $150,000 in campaign contributions in recent years.

Texas' experience is not an isolated example. In other states as well, lawyers' participation in the tobacco litigation appears to have been the product of political favoritism--and to have resulted in unfathomable fees that bear no reasonable relation to the services provided. For example: New Jersey: The private in-state lawyers who represented this state in the tobacco litigation have admitted that they had no mass-tort litigation experience and played no role in the state settlement talks. They have also admitted that all the key work in the state's lawsuit was done by out-of-state firms--the in-state firms' principal work was drafting pro hac vice motions to have these outside lawyers admitted in New Jersey courts. Any work that the New Jersey lawyers did was submitted to the outside lawyers, who made all of the substantive arguments. Result: these in-state lawyers were awarded $350 million in the MSA fee arbitration. Connections: the New Jersey lawyers were an inside group of past presidents of the New Jersey trial lawyers' association. The State refused to even consider hiring a nonprofit firm to conduct the New Jersey lawsuit.

Pennsylvania: Settlement talks had already begun, the states' tobacco litigation was being resolved, and all of the legal theories already had been developed long before the Pennsylvania state suit was filed. Result: Pennsylvania's private lawyers were awarded $50 million in the MSA arbitration--equivalent to 1000 percent of a reasonable hourly rate. As one expert has noted, ``there's not $50 million of work in there.'' Connections: the two law firms that the state Attorney General selected to conduct the litigation were among his top campaign contributors. The firms were awarded no-bid contracts. As one Pennsylvania commentator has noted, ``obviously, it was a political kind of thing.''

Maryland: Billionaire tort lawyer Peter Angelos demanded a one billion dollar fee for his work on that State's case, even though, according to the State Senate President, the State legislature had retroactively ``changed centuries of precedent to ensure [Angelos] a win in the case.'' Angelos ultimately received an accelerated $150 million payment for this no-risk lawsuit.

Louisiana: The private law firms that represented the State in the tobacco litigation were awarded $575 million. The MSA arbitration panel actually increased this award on the ground that the State government-- the lawyers' supposed client--was opposed to suing tobacco companies. The Louisiana fee award amounts to almost $7,000 an hour, based on the lawyers' estimate that they worked a total 85,000 hours. Moreover, this estimate is unverifiable, because the state's private lawyers kept no billing records--as the attorney general explained, ``I wasn't that big on hourly or written reports.'' The dissenting member of the arbitration panel simply noted that the Louisiana fee award ``shocks the conscience'' The single biggest beneficiary of this largesse-- receiving $115 million in attorney fees--was a law firm based in Lake Charles, the hometown of the state's attorney general. This firm and the next largest fee recipient had donated over $42,000 to the attorney general's political campaigns. Together, all of the firms that represented Louisiana gave more than $100,000 to the attorney general in the years before they were selected to participate in the state's tobacco team.

Ohio: The lawyers representing this State received fees estimated to exceed $50,000 per hour, despite the fact that, according to independent observers, ``all of the legal issues were resolved long before these Ohio lawyers stepped up to the plate.'' The state's outside counsel had donated $26,000 in campaign contributions to the State attorney general prior to their appointment to the state's tobacco team. After the attorney general chose one private lawyer to serve as the state's ``lead special counsel,'' that lawyer hired one of the attorney general's top aides for an undisclosed sum in order to--in the lawyer's own words--``help me get acquainted with a technique called PowerPoint.'' When told that ``there were many people in Ohio capable of doing a PowerPoint presentation,'' the state's outside counsel responded that this particular attorney general's aide ``was the only one I knew of.''

Massachusetts: According to other tobacco plaintiffs' lawyers, Massachusetts's suit piggybacked on the work of other lawyers and was not pivotal to the outcome of the tobacco litigation. Result: $775 million was awarded to the Massachusetts lawyers in the MSA arbitration.

New York: When this State's then-attorney general hired private counsel to represent the State in its tobacco lawsuit, tobacco companies already had paid $15 billion to Florida and Mississippi for identical claims and a national settlement agreement already was under discussion. As one local anti-tobacco leader has noted, ``these were copycat lawsuits, there wasn't all that much work to do.'' The firms' primary job was to collect New York-specific data in order to calculate damages. Ultimately, the New York firms represented the State for just 13 months. And they received a fee award of $625 million. This amounts to at least $14,000 an hour, for a lawsuit that by all accounts involved no risk. The dissenting member of the arbitration panel has denounced the award as ``an astronomical sum unrelated to, the attorneys', efforts or achievements.'' The New York firms had contributed more than $250,000 to New York politicians and their campaign organizations in the years preceding their selection - and another $200,000 after the State settlement.

Wisconsin: The Wisconsin lawyers' tobacco litigation work has been described as chiefly consisting of media and public relations efforts on their own behalf. Their billing records included time spent selecting office space and buying furniture. One lawyer effectively billed $3,000 to the State for reading an article in a Madison newspaper. The lawyers also billed the State for limousine rides around the state, trips on private jets, and stays at luxury hotels. Result: $75 million was awarded to the Wisconsin lawyers. Based on the law firms' records of the total number of hours they devoted to the case-- including work by paralegals--this fee amounts to $3,000 per hour.

Missouri: A State supreme court justice in Missouri resigned his post in order to join one of the private law firms expected to receive a portion of the MSA arbitrators' fee award. Ultimately, the firms representing the State spent just 5 months on the state's lawsuit. They received a fee award of $111 million. One State leader has described the award as ``the biggest rip-off in the 180-year history of the state.'' The law firms receiving these fees had donated more than $500,000 to State politicians and parties in the years leading up to their selection as the State's outside counsel.

These examples are too numerous to dismiss. In State after State, the temptations created by the massive, windfall fees awarded in the Medicaid tobacco settlement corrupted not only lawyers involved, but the government as well. The fee awards poisoned everything that they touched. No one who examines these events closely--who surveys the obscene fee awards, and the political cronyism that determined who benefited--can disagree that this must never be allowed to happen again.

As a final point, I would like to address a question that has been raised with regard to remedy. Some have argued that nothing can be done to correct the excesses of the tobacco settlement fee awards--even with regard to fees that are still being or have yet to be paid. On several occasions, State judges who were called upon to approve their State's tobacco settlement have also, on their own initiative, inquired into the apparent unreasonableness of the fees awarded. In each case, both the plaintiffs' lawyers--and in some cases, even State officials--have challenged the State courts' authority to act. They have argued that these courts lack jurisdiction to review a national settlement, and that excessive fees cannot be restored to the State. One state's attorney general implicated in these events has argued that it is a ``misconception'' that the tobacco settlement ``attorneys' fees are coming out of the public's pocket. That is not the case. They [sic] defendants have agreed to pay these fees.''

Because of the way that the MSA fee payments are structured, no lawyer's award comes out of any one particular, identifiable State's recovery. Instead, all of the lawyers are being paid from one of two separate accounts, each of which is funded by the tobacco companies.

It is a mistake, however, to contend that, because the MSA fee payments are made directly from defendants to plaintiffs' lawyers-- without ever formally or actually passing through the plaintiffs' hands--they are immunized against ethical scrutiny or correction. It is well and long established in our law that fee awards originate as the property of the client regardless of how the fee agreements are structured. The courts have been very clear on this point. As they have stated: ``The allowance of attorney fees in a judgment gives the attorneys no interest and ownership in the judgment to the extent of the amount of the fee allowed, but the judgment in its entirety is the property of the client. The award for fees is for the client, not the attorney.''

``[A]ttorneys' fee provisions exist for the benefit of parties and not the attorneys. . . . Several jurisdictions have noted that the real party in interest with regard to fees is the client and not the attorney.''

``A judgment for costs is a judgment in favor of the party, and not of his attorney, and the money represented by the costs is the property of the party.''

``[T]he award of attorney fees [is] made not to the attorneys but to the litigant who was personally liable to the attorneys. This is also the view in other states when the courts award attorney fees.''

``An award of attorney's fees belongs to the client and not the attorney.''

Indeed, an award of attorney fees is generally taxable as income to the client. In a recent case, the U.S. Court of Appeals for the Ninth Circuit noted that a plaintiff's obligation to compensate the law firm that represented him ``was satisfied by [the defendant]. The payment was therefore to [the client]. The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed.'' The Ninth Circuit emphasized that the fact ``[t]hat [the client] never laid hands on the money paid to the lawyers does not obliterate their constructive receipt.'' In other words, the fee award belongs to the client, regardless of how the award is made.

The rule that fee awards belong to the client is strongly supported by important policy considerations. It is necessary because any other rule would be an invitation to collusion and self-dealing between plaintiffs' lawyers and defendants. Again, the courts have been very clear on this point. As the Third Circuit has noted: ``[A] defendant is interested only in disposing of the total claims asserted against it, and the allocation between the [plaintiff's] payment and the attorneys' fees is of little or no interest to the defense. Moreover, the divergence in class members' and class counsel's financial incentives creates the danger that the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment for fees.''

The Second Circuit has made the same point, noting: ``Defendants, once the settlement amount has been agreed to, have little interest in how it is distributed and thus no incentive to oppose the [attorneys] fee. Indeed, the same dynamic creates incentives for collusion--the temptation for lawyers to agree to a less than optimal settlement in exchange for [generous fees].''

The Ninth Circuit has also addressed the question of ``whether a class member has standing to appeal class counsel's attorney fee and cost award when that award is payable by the defendant independently, and not out of the class settlement.'' The court concluded that ``[e]ven if class counsel's attorney fees are not to be paid from the class settlement . . . , the aggregate amount of the attorney fees and the class settlement payments may be viewed as ``a constructive common fund.'' The court reasoned that ``[i]f . . . class counsel agreed to accept excessive fees and costs to the detriment of class plaintiffs, then class counsel breached their fiduciary duty to the class. If that were the case, any excessive award could be considered property of the class plaintiffs, and any injury they suffered could be at least partially redressed by allocating to them a portion of that award.''

As several commentators have noted, the policy considerations underpinning the rule that fee awards belong to the client apply with full force to the State tobacco settlement. Indeed, that settlement could serve as a textbook example for why this rule exists. As Professor Brickman has noted: ``To the tobacco companies, dollars are dollars, whether paid to States or paid to lawyers. So the real amount on the bargaining table was not the $246 billion that the states settled for, but a larger sum, including the amount to be paid to the attorneys. . . . Stated simply, because dollars are fungible, the fees are coming out of the settlements.''

Even foreign commentators have noted that the State tobacco settlement's ``arbitration is a mere figleaf. The money going to the lawyers was clearly part of the overall amount that the tobacco companies were willing to pay to settle the case. Whatever the lawyers get, the states do not.''

And this point has not been lost upon members of Congress. Representative Chris Cox, R-CA, has testified on the matter: ``It is specious to argue that, billions of dollars, in fees are not being diverted out of funds available for public health and taxpayers. The tobacco industry is willing to pay a certain sum to get rid of these cases. That sum is the total cost of the payment to the plaintiffs and their lawyers. It is a matter of indifference to the industry how that sum is divided--75 percent for the plaintiffs and 25 percent for their lawyers, or vice versa. That means that every penny paid to the plaintiffs' lawyers--whether it is technically ``in'' the settlement or not--is money that the industry could have paid to the state or the private plaintiffs. Excessive attorneys' fees in this case will not be a victimless crime.''

These authorities and their reasoning should be more than sufficient to permanently dispel the notion that an attorney fee agreement can be structured so as to evade the ethical obligation to charge only a reasonable fee. The defenders of the MSA fee payments are simply misleading the public and this distinguished body when they assert that a particular lawyer's award under the settlement does not come out of a particular state's recovery. That fee comes out of all of the State's recoveries. All excessive or unreasonable fees should be restored to all 50 of the States.

Senator Kyl has already presented estimates of the monetary recovery each State can expect if ISCRAA is enacted. I would simply point out here that, according to those estimates, Texas has been charged excessive and unreasonable attorney fees in the amount of $667 million, and therefore would recover those funds if this legislation is adopted.

ISCRAA's return of unethical tobacco-settlement fee awards to the

states is manifestly proper in light of the fact that all fee awards are the property of the client, and the attorney is entitled only to a reasonable fee. No attorney is above these ethical rules and obligations. They cannot be waived or ignored. And in light of our experience with the State tobacco settlement fee awards, and their effect on our public officials, these ethical duties must be carried out and enforced strictly and fully.

Our Federal and State courts generally do a good job of protecting consumers and enforcing the rights of all Americans. But there are problems in our courts that require attention and significant reform. Class action abuse not only threatens the integrity and the perception of rationality in our nation's courts, it also strongly hinders economic and job growth. Tort reform is badly needed to rescue many industries, especially our health care industry, from abuses of our legal system. The judicial confirmation process at the federal level has become bitter, severe and destructive, and that broken process poses a serious threat to judicial independence and the quality and efficiency of our courts. And abusive attorney fee arrangements make a mockery of our civil justice system, all while enriching a small band of unscrupulous litigators at the expense of the real victims, their clients.

To enforce the longstanding fiduciary duty of all attorneys to charge only a reasonable fee, in a class of cases that poses heightened risks of abuse and special significance to the national economy, I urge that this Senate consider expediently, and approve quickly, this important measure, the Intermediate Sanctions Compensatory Revenue Adjustment Act of 2003.

I thank the Chair.

Mr. President, I rise to express my support for the Defense authorization bill that we are debating today and for the remainder of this week.

I first want to thank the chairman and the ranking member for their courtesy, for their thoughtfulness, and for their collegiality in the conduct of the committee in the preparation of this bill. They are two Senators I respect and admire greatly. I thank them for their help and participation.

This is, overall, a very good bill that meets the needs of our fighting men and women. I have some reservations which I will talk about tonight, and during the course of the week I will suggest some improvements in the bill. But overall, this represents a thorough and consistent and appropriate discharge of our responsibility to ensure that the men and women of our Armed Forces are the best prepared and best cared for in the world.

Let me also say this year I had the privilege and the opportunity to serve as the ranking member of the Emerging Threat and Capability Subcommittee. I had the pleasure of working with Senator Pat Roberts of Kansas. I also want to thank Senator Roberts for his courtesy and thoughtfulness and for his collegiality. He created a cooperative spirit on the committee which resulted in legislation that is both thoughtful and which I think is a vast improvement for the men and women of our military services.

The package supported and presented by the subcommittee dealt with a range of subjects. The subcommittee itself was created 4 years ago to deal with new emerging threats and our response to these threats. The subcommittee looked at issues such as the proliferation of weapons of mass destruction, terrorism, and information warfare, and it also focused on ways in which we can respond to these threats.

One of the areas, for example, is the Defense Science and Technology Program--providing the research and the analysis that makes our forces the most technologically advanced in the world.

Another area we are concerned about is the Cooperative Threat Reduction Program. There is a rather simple and obvious point: If we can reduce the threats, that is a better way than to respond to those threats if they are poised against us.

We are also concerned about our special operations forces. I think we have all seen in the past few months how effective and how important these forces are. They really are the tip of the spear when it comes to our efforts on the war on terrorism.

Needless to say, the Emerging Threats Subcommittee is obviously involved in many issues that are of critical importance today.

Let me speak just briefly about some of the issues as we approach the committee markup.

Science and technology is a critical component of our warfighting capability. This was brought home to me graphically in August of 2001. About 20-plus years ago, I commanded an infantry company--a parachute company--of the 82nd Airborne Division. And in August of 2001, I went back to Fort Bragg to watch a live fire demonstration by a division of the 82nd Airborne Division. I was, of course, very pleased with the toughness and skills of the paratroopers. But I was also impressed with the technology. Each soldier had a night vision device, and each soldier had a laser-aiming device on their weapon. Twenty-five years ago, there was one star-light scope for the whole platoon. It was a big, bulky device which we carried around and used sparingly. There was no laser-aiming device on their weapons.

These are graphic examples of the impact of science and technology on our ability to fight. They have made our soldiers, marines, and airmen the most formidable in the world because when we couple this technology with their skills and spirit and their courage, they are unstoppable.

I am pleased this bill includes provisions that strengthen the coordination between the Science and Technology Program. We really want to ensure that we get the maximum value from our technological investment.

I am also very pleased the bill includes Senator Lieberman's legislation which will increase research on technologies to help improve communications and networking and to help address our bandwidth crisis in the field.

Again, 25 years ago when I commanded troops, bandwidth was a concept which no one talked about. Today, it is an item that is critical to the success of any military force.

When members of the committee go out--as I know my colleagues do--and visit troops and talk to commanding officers, one of their consistent complaints is, We just do not have enough bandwidth. We don't have enough space on the spectrum to push out all the digital information we have to all of our warfighters instantaneously.

So I think Senator Lieberman's proposal will give us an added impetus to examine these issues of bandwidth and conductivity. It is literally the electronic backbone of our military forces. There are some issues of concern which I have with respect to science and technology. All of our experts looking at the appropriate level of funding for science and technology suggest that we should be investing about 3 percent of the defense budget in those programs. Secretary Rumsfeld has said the Quadrennial Defense Review made that point, and the Defense Science Board has endorsed this laudable goal of 3 percent expenditure on science and technology. However, last year the final defense budget did not reach 3 percent, and this year the President's request was $1 billion below last year's vital defense budget.

While I am pleased to note that this bill adds nearly $500 million to the Defense Science and Technology Program and supports significant investments in university research, advanced research to support special operations, and advanced undersea warfare technologies, the funding levels fall short of this 3 percent.

I think we have to maintain robust investment in our science and technology. We tried to close the gap, but there is still a gap. I hope in the next reauthorization--indeed in the conference--we can try to close this gap.

In the area of nonproliferation programs, we all understand that weapons

of mass destruction is one of the key threats, particularly if they get into the hands of terrorists. One of the most cost-effective ways to deal with this issue of nonproliferation is to support the Threat Reduction Program. I am pleased to report again that this bill authorizes full funding of these threat reduction and nonproliferation programs, including the Nunn-Lugar program.

This full funding is critical if we are going to eliminate the proliferation threat and if we are going to lower the danger that these materials pose to us, particularly if they get into the hands of terrorists.

Also, the bill includes authority to use Cooperative Threat Reduction Program funds outside the former Soviet Union under appropriate circumstances, as requested by the President.

Again, I think we have to recognize there are many places in the world, regrettably, where material could fall into the wrong hands. This gives the President authority for a much wider geographic approach on proliferation.

One of the problems we particularly worry about is the presence of a vast stockpile of lethal, chemical weapons--some of them small enough to fit into a briefcase--in Russia. This is the residue of years and years of Soviet research.

Under the Nunn-Lugar program, we have a project to destroy all those weapons so they cannot be used and do not fall into the hands of terrorists. There is a set of conditions that requires a Presidential certification before the money can be spent, but this bill provides the President a 1-year waiver of the certification so funds can be used to destroy these chemical weapons. Again, I thank Chairman Roberts, particularly, for his consideration of this request and for his willingness to provide this 1-year waiver.

As I said before, our special operations community each day demonstrates their incredible value in our war against terrorism. In recognition of the expanded role of the special operations forces, the Secretary of Defense has declared that rather than simply being a supporting command, special operations would be a command in itself.

Let me try to parse that. Before special operations command supported the CINCs, CENTCOM, SOUTHCOM. Today, they not only support these CINCs, but they are their own command in and of themselves with new responsibilities.

I applaud this decision, but I believe Congress should have a better appreciation of the new role that special operations command is taking on. Therefore, the committee included, at my suggestion, a recommendation so the Secretary of Defense can report to us information regarding this new role.

The information would include items such as the military strategy for utilizing special operations troops to fight the global war on terrorism and how the proposal contributes to the overall national security strategy with regard to the war on terrorism; the scope of the authorities granted to the commander of the special operations command by the Secretary of Defense; the operational and legal parameters within which special operations forces will exercise these authorities; the impact on existing special operations missions; the decisionmaking mechanisms, to include consultation with Congress, that will be involved in authorizing, planning, and conducting these operations; and future organizational and resource requirements for conducting the global counterterrorism mission.

I believe the answers to these questions will help us frame our oversight responsibility, and I also think it will help provide the details for the special operations commander and the Department of Defense in relation to their responsibilities and their missions in this new responsibility they have been given.

These are just some of the highlights with respect to the Emerging Threats and Capabilities Subcommittee. I want my colleagues to know of these threats. There are other issues I would like to comment upon in addition to those related to my responsibilities on the subcommittee.

There was, in the committee, a proposal to, in my view, change the McKinney-Vento Homeless Assistance Act. I thank my colleagues because, through collaboration with Senators Ensign, Allen, and others, we were able to do what I think the committee wanted to do: to provide the opportunity to temporarily suspend these regulations if property is needed by a State for emergency purposes but not to undermine completely and irrevocably the responsibility we have to provide suitable excess Government facilities for homeless purposes. I am very pleased and proud the committee was so responsive and so cooperative in that regard.

I also included in the bill an amendment which again was adopted unanimously--I thank my colleagues--that would direct the Secretary of Defense to provide guidelines to the Defense Policy Board. This is an advisory committee consisting of distinguished Americans who provide advice and insight, without compensation, to the Secretary of Defense. It is a very important board but recently it has come under some criticism.

I think in order to dispel that criticism but also to convince and assure the public that access to information and access to key decisionmakers is not being used for profit-making purposes but solely is an exercise in the patriotism of the individual members of the board, I ask that the Secretary of Defense provide guidelines. I hope these guidelines are forthcoming. I think they will be useful. I am pleased they are now included within the bill.

Let me turn to several other topics quickly because I see my colleagues are also in the Chamber to speak.

Within the context of missile defense is an area of the bill that I have some grave reservations. We have decided to pursue missile defense. The President has made the decision, and it is his prerogative to do so, to withdraw from the ABM Treaty. The question before us today is, will we do this in a logical, thorough, systematic way? Will we do it in a way in which we can assure the American public we are proceeding with all deliberate speed but also in a way that we can justify a product that eventually will be useful to national defense? These are the basic issues that come before us today.

The President has announced, however, that he intends to field a national missile defense system by September 2004, despite the fact the Pentagon's Director of Operational Test and Evaluation concluded, in his fiscal year 2002 annual report, that the system ``has yet to demonstrate significant operational capability.'' So the plan, in effect, is to field the system before we even know if it will work.

I think that raises grave questions about the usefulness of such a system and grave questions about the level of funding that is going to support a system if we are not ready to declare it operationally useful yet we are ready to declare it will be deployed.

We also understand after 9/11 there are other ways to attack the homeland of the United States and that it is not just through the use of long-range missiles. We have to, in our debate and our discussions and our decisions, be very careful with resources that could be spent in other ways to protect our country and our homeland, particularly.

One of the other aspects of the system that is proposed for deployment is that the decision has been made to field this system without a radar capable of distinguishing between a warhead and a decoy. The radar is a key aspect of any missile defense system.

Indeed, the Clinton administration was criticized very harshly for their national Missile Defense Program, yet this administration has decided to deploy a system that appears, at least on the surface, to be far less capable than the one proposed by President Clinton, particularly when it comes to the radar architecture.

Another issue, with respect to missile defense, is the decision to significantly reduce the number of tests. Ironically, it seems that one of the byproducts of the President's decision to rapidly field a national missile defense is a concomitant reduction in the amount of testing. It seems to me that is sort of doing things exactly the wrong way; that if you are going to accelerate deployment, you would accelerate testing also.

I believe if we are going to have confidence in a system that we field, we have to make the investment in testing now, and not just simply reply upon our faith in technology that has not yet been adequately tested.

Originally, 20 national missile defense tests had been scheduled to occur between mid-2002 and 2007, but after the President's deployment decision, 9 of these 20 tests were canceled without explanation. Furthermore, the scheduled date to complete this new, very minimal test plan is now 2009 instead of 2007. That is 5 years after the advertised deployment of this system in 2004.

We have to recognize this Missile Defense Program is the largest single acquisition program in the Department of Defense, with a budget request of more than $9 billion in fiscal year 2004 alone.

For perspective, this funding could buy 9 DDG-51-class destroyers, 45 F-22 Raptor fighter aircraft, or more than 2,800 Stryker armored vehicles. So the decisions we make are not without cost, not without opportunity costs.

The investment we make in missiles means, quite literally, we cannot buy new destroyers; today we cannot buy more F-22 Raptor fighter aircraft; we cannot buy more Stryker armored vehicles. So again, I think we have to look very carefully at the deployment, at the testing.

I think we are all committed to the notion of someday putting in place a missile defense system that will effectively defend the United States, but we cannot do it hastily, and we cannot do it simply on a wish that it works. I believe we have to prove it works before we deploy it or simply declare it is deployed.

Over the last several years, we have tried to put some structure, if you will, in the Missile Defense Program. For example, at the beginning of fiscal year 2002, Congress required that the Bush administration establish cost, schedule, testing, and performance goals for missile defense, and we directed the General Accounting Office to review whether progress was being made toward these established goals.

By the end of 2002, the Bush administration had still not established any meaningful goals for missile defense. Consequently, in November 2002, the Director of Acquisition and Sourcing Management at the GAO wrote to the committee to say that since no goals had been established, GAO could not complete its review.

I think, at a minimum, there should be costs, there should be schedules, there should be goals, certainly at a level so the GAO can at least offer a preliminary assessment of whether these goals are being achieved or what effort must be expended to achieve these goals. That is something that has not been done.

I support prudent research and development and testing on national missile defense, but I think ultimately we all want to assure the American people that when we put something in the field, it will work, and that we know precisely what it will do when it is in the field. I don't think that is too much to ask the administration.

Finally, let me cover a topic that will receive a great deal of attention over the next couple days. That is the issue of nuclear policy. I have grave concerns over some of the provisions in the bill. Under the guise of maintaining flexibility and keeping all options open, this bill approves and encourages the administration to continue its push to develop, test, deploy, and possibly use nuclear weapons. I heard my colleague Senator Levin earlier today referencing the quote by former Ambassador Brooks, the head of NSSA, who said his bias is to something that can be used. For many decades, our bias was against even thinking about the use of nuclear weapons if we could avoid it.

One of the consequences of the proposal for a low-yield nuclear weapon, for a robust nuclear earth penetrator is, if not a fact, an observation that as you make weapons such that their collateral damage is minimal, there is a tendency to use them. We have to ask ourselves in our recent conflict in Baghdad, would we have dropped dumb bombs in the middle of crowded neighborhoods in an attempt to attack the leadership of Iraq? It would have been a much harder call. But because we had precision weapons with low collateral damage, as a result the call was much easier--a tough call, nevertheless, but easier.

I fear that as we move down this path for low-yield nuclear weapons, more usable nuclear weapons, the threshold, the inhibition against use will come down also. This is just not another tool in our tool kit. Nuclear weapons have been, since Hiroshima and Nagasaki, a weapon every nation has tried to avoid using in combat. I hope we can continue that effort, but I fear the language, the momentum, the incentives that have created these exceptions in the bill are driving us down the wrong path.

We should respond by amending the legislation to reflect the continuing desire to put nuclear weapons outside of use, to delegitimize their use in conflict. We will have opportunity over the next several days to debate in much more detail the issue of nuclear weapons, the issue of missile defense.

I believe this legislation overall is sound. If we could make successful amendments to some of the provisions with respect to missile defense and particularly the provisions with respect to nuclear weapons, we can send to conference a bill of which we will all be very proud. I hope in the next few days we can do that.

I thank the chairman and ranking member for their thoughtful approach and for their continued efforts over the next few days.

I yield the floor.

Mr. President, I send an amendment to the desk on behalf of Senator Kennedy and myself, and we are joined by Senators Feingold, Dayton, and Stabenow.

Mr. President, I think the Senator probably knows this would strike the Spratt-Furse language.

I was 12 years old when the Enola Gay went out of the Pacific. I remember that big mushroom cloud on the San Francisco Chronicle and then, for months afterward, I remember the pictures that came back from Hiroshima and Nagasaki. It may well be that we are too far removed from that day to really understand the repercussions of what this bill is going to begin to allow to happen in the United States. What is going to be allowed to happen is a reopening of the door to nuclear development which has been closed for decades.

This amendment would strike section 3131, and that is the repeal of the Spratt-Furse language which prohibits the development of so-called low-yield nuclear weapons. This prohibition of nuclear development was adopted in the 1994 Defense authorization bill. It has been the law of the land for the last decade.

The language of Spratt-Furse--I would like to read it--says that with respect to U.S. policy, ``it shall be the policy of the United States not to conduct research and development which could lead to the production by the United States of a new low-yield nuclear weapon, including a precision low-yield warhead. The Secretary of Energy may not conduct or provide for the conduct of research and development which could lead to the production by the United States of a low-yield nuclear weapon which, as of the date of the enactment of this act, has not entered production.''

And then it has a section on the effect on other research and development, and it says that nothing in this section shall prohibit the Secretary of Energy from conducting or providing for the conduct of research and development necessary to design a testing device that has a yield of less than 5 kilotons; secondly, to modify an existing weapon for the purpose of addressing safety and reliability concerns, or, three, to address proliferation concerns.

President Bush is right when he says the greatest threat facing the United States lies in the global proliferation of weapons of mass destruction and terrorist access to these weapons. But by adopting a new approach to national security in the wake of 9/11 that stresses unilateralism and preemption and increases U.S. reliance on nuclear weapons, I am deeply concerned that this administration may actually be encouraging the very proliferation we seek to prevent.

This bill, left intact, clearly opens the door to the development of new nuclear weapons and will, if left as is, begin a new era of nuclear proliferation, as sure as I am standing here.

A couple of weeks ago, former Secretary of State Madeleine Albright talked with the Democratic Senate Caucus and she said something interesting. She said, in all of American history, there never has been a greater change in foreign policy and national security than between this administration and the last one.

Indeed, I deeply believe this bill places America at a crossroad in the conduct of foreign policy, and how we determine nuclear weapons policy will go a long way to determining whether we control nuclear proliferation or expand it. This bill will expand it. Let there be no doubt.

To my mind, even considering the use of these weapons threatens to undermine our efforts to stop proliferation. In fact, it actually encourages other nations to pursue nuclear weapons by emphasizing their importance.

For decades the United States relied on its nuclear arsenal for deterrence

only. In the symmetric world of the Cold War, we faced the Soviet Union with nuclear weapons and a conventional military that was stronger than ours. Nuclear weapons were used to deter not only a nuclear attack on our homeland but also a conventional attack against our allies in western Europe and Asia.

Today the Soviet Union is gone, but the world is not a safer place. Rather, we have seen new nuclear states emerge--India, Pakistan, and lately North Korea. As we continue to prosecute the war on terror, it should be a central tenet of U.S. policy to do everything at our disposal to make nuclear weapons less desirable, less available, and less likely to be used.

This bill will do exactly the opposite. Instead of ratcheting back our reliance on nuclear weapons, this administration is looking for new ways to use nuclear weapons and to make them more usable. Does anyone in this Chamber doubt that others will follow? I do not. The administration's Nuclear Posture Review, released in January of 2002, did not focus solely on the role of nuclear weapons for deterrence. It stressed the importance of being prepared to use nuclear weapons in the future. In fact, the review noted that we must now plan to possibly use them against a wider range of countries.

The Nuclear Posture Review said that we need to develop new types of nuclear weapons so we can use them in a wider variety of circumstances and against a wider range of targets such as hard and deeply buried targets or to defeat chemical or biological agents. And indeed, a few months after issuing the Nuclear Posture Review, President Bush signed National Security Presidential Directive 17, saying the United States might use nuclear weapons to respond to a chemical or biological attack.

In the past, U.S. officials have only hinted at that possibility. But this administration has made it formal policy. In doing so, it has telegraphed the importance of nuclear weapons and the administration's apparent willingness to use them.

In the legislation before us today, there is language requested by the administration asking Congress to repeal the Spratt-Furse provision--a decade old law that bans research on weapons with yields of 5 kilotons. Now, that is a third the size of the bomb used at Hiroshima.

I believe Spratt-Furse is an important prohibition with positive security equities for the United States. Since it has been in effect, no nation has developed lower yield nuclear weapons.

This administration wants to repeal Spratt-Furse for one reason, and one reason only: to build new nuclear weapons, particularly for missions against the hardened bunkers that rogue states may be using to store chemical and biological weapons.

By seeking to build nuclear weapons that produce smaller explosions and develop weapons which dig deeper, the administration is suggesting we can make nuclear weapons less deadly. It is suggesting we can make them more acceptable to use. But there is no such thing as a clean nuclear weapon that minimizes collateral damage.

Consider the following facts: According to a Stanford physicist, Sidney Drell, destroying a target buried 1,000 feet into rock would require a nuclear weapon with the yield of 100 kilotons. That is 10 times the size of the bomb dropped on Hiroshima.

According to Dr. Drell, even the effects of a small bomb would be dramatic. A 1-kiloton nuclear weapon detonated 20 to 50 feet underground would dig a crater the size of Ground Zero in New York and eject 1 million cubic feet of radioactive debris into the air.

According to models done by the Natural Resources Defense Council, detonating a similar weapon on the surface of a city would kill a quarter of a million people and injure hundreds of thousands more.

So there really is no such thing as a ``usable nuclear weapon.''

Moreover, nuclear weapons cannot be engineered to penetrate deeply enough to prevent fallout. Based on technical analysis at the Nevada Test Site, a weapon with a 10-kiloton yield must be buried deeper than 850 feet to prevent spewing of radioactive debris. Yet a weapon dropped from a plane at 40,000 feet will penetrate less than 100 feet of loose dirt and less than 30 feet of rock.

Ultimately, the depth of penetration is limited by the strength of the missile casing. The deepest our current earth penetrators can burrow is 20 feet of dry earth. Casing made of even the strongest material cannot withstand the physical forces of burrowing through 100 feet of granite, much less 850 feet.

In addition, the United States already has a usable nuclear bunker buster, the B61-11, which has a ``dial-a-yield'' feature, allowing its yield to range from less than a kiloton to several hundred kilotons. When configured to have a 10-kiloton yield and detonated 4 feet underground, the B61-11 can produce a shock wave sufficient to crush a bunker buried beneath 350 feet of layered rock. We have the weapons to do the job. We don't need another.

But the U.S. military, the strongest and most capable military force the world has ever seen, bar none, has plenty of effective conventional options at hand designed to penetrate deeply into the earth and destroy underground bunkers and storage facilities.

Those conventional bunker busters range in size from 500 to 5,000 pounds, and most are equipped with either a laser or GPS guidance system. A 5,000-pound bunker buster like the Guided Bomb Unit 28/B is capable of penetrating up to 20 feet of reinforced concrete or 100 feet of earth. It was used with much success in Operation Enduring Freedom in Afghanistan.

Other conventional bunker busters were used to take out Saddam Hussein's underground lairs in Operation Iraqi Freedom. In fact, the U.S. military possesses a conventional bunker buster, the GBU-37, which is thought to be capable of taking out a silo-based ICBM. With this conventional arsenal at our disposal, there is little military utility that a low-yield nuclear weapon provides to the U.S. military.

While I agree that nuclear weapons may have some military utility in certain circumstances, the benefit of the development of new mini-nukes appears to me to be far outweighed by the costs. But with the sought- for repeal of Spratt-Furse, the administration seems to be moving toward a military posture in which nuclear weapons are considered just like other weapons--in which their purpose is not simply to serve as a deterrent but as a usable instrument of military power, like a tank, a fighter aircraft, or a cruise missile.

But there are several things wrong with that logic. Nuclear weapons are different.

First, using them--even small ones--would cross a line that has been in place for 60 years. If the Spratt-Furse prohibition is repealed, the development of new nuclear weapons could lead to the resumption of underground nuclear testing in order to test the new weapons. This would overturn the 10-year moratorium on nuclear testing and could lead other nuclear powers, and nuclear aspirants, to resume or start testing, actions that would fundamentally alter future nonproliferation and counterproliferation efforts.

I understand Secretary of State Powell has written a letter supporting this, and I must express my profound disappointment. I must restate something he said last year on ``The NewsHour With Jim Lehrer.'' I quote Secretary Powell:

I mean, the thought of nuclear conflict in 2002, with what

that would mean with respect to loss of life, what that would

mean to the condemnation--the worldwide condemnation--that

would come down on whatever nation chose to take that course

of action, would be such that I can see very little military,

political, or other kind of justification for the use of

nuclear weapons. Nuclear weapons in this day and age may

serve some deterrent effect, and so be it; but to think of

using them as just another weapon in what might start out as

a conventional conflict in this day and age seems to me

something that no side should be contemplating.

This was 1 year ago. What has changed, Mr. President? Why would we open the door to nuclear development at the very time we are trying to say to North Korea this is unacceptable, at the very time we are worried as to whether Pakistan can securitize its nuclear weapons, and whether there may be a nuclear holocaust between Pakistan and India?

I have never been more concerned about where this Nation is going than I am today. Let me give another example. China has a no-first-use nuclear policy. Their warheads have been stable at between 18 and 24 ICBMs. Yet we

have a policy document, the Nuclear Posture Review, that says we would countenance a first use of nuclear weapons against China if they were to use military action against Taiwan, and we said the same thing about North Korea going into South Korea. This is in writing.

Does no one think anybody reads these things? Does no one believe that we do not set the tenor of the world with respect to weapons? We are the largest weapons seller on Earth, and I do not want to see us develop more nuclear weapons, nor do I believe the American people want to see it either. This bill allows that to happen.

I do not believe this side of the aisle can sit by and let it happen to our children and our grandchildren. Tactical nuclear weapons in the most sophisticated military in the world should play no part.

I cannot think of a single issue that should more define the political agenda today than whether the United States should go back into the nuclear business again, and repeal of Spratt-Furse is the first step in that direction.

In the Energy Committee, I suspected this was coming, and I asked Secretary Abraham: Are there any plans? He said no. Last Wednesday, in Defense Appropriations, I asked Secretary Rumsfeld what is going on. He said: Oh, it is just a study. Just a study, baloney. Does anyone really believe that?

The repeal of Spratt-Furse opens the door for America to begin to develop nuclear weapons again, and I for one do not believe we should sit by and see that happen.

We are telling others not to develop nuclear weapons. We are telling others not to sell fissile materials. We are concerned when North Korea has plutonium and uranium and Iran begins to start up refining uranium. Yet it is all right for us to go out and begin to develop weapons that are one-third the size of the weapon that hit Hiroshima and killed instantly 175,000 people? I do not think so. And I do not believe that is what the American people stand for either.

This is a big vote. This is a vote that opens the door. How we can repeal language that says to all the world the United States is not in the nuclear development business, I do not know, but I find it absolutely chilling and even diabolical, particularly when we preach to other nations.

At a time when we brand as evil certain countries based in part on their pursuit of nuclear arms and weapons of mass destruction, we must be careful how we consider our own options and our own contingencies regarding nuclear weapons. So I urge my colleagues to think very carefully about the implications this defense bill is going to carry throughout the world.

The 10-year old prohibition on study, on testing, and on developing nuclear weapons is going to be thrown out the window, and it is a major signal that the United States is going to get back into the nuclear arms business.

I urge this Senate to join Senator Kennedy and I in support of this amendment. I yield time to Senator Kennedy, as much time as he requires.

I ask unanimous consent that Senator Reed from Rhode Island be added as a cosponsor, Senator Durbin of Illinois, I believe Senator Dayton already is, and Senator Bingaman, as well.

I wish the opportunity to speak at the end for 1 hour.

At the end. If it is a unanimous consent agreement, I don't want to be cut off.

Mr. President, I am pleased to join my colleague Senator Snowe in introducing the Medicare Mental Health Copayment Equity Act. This legislation will establish mental health care parity in the Medicare program.

Medicare currently requires patients to pay a 20 percent co-payment for all Part B services except mental health care services, for which patients are assessed a 50 percent co-payment. Thus, under the current system, if a Medicare patient sees an endocrinologist for diabetes treatment, an oncologist for cancer treatment, a cardiologist for heart disease treatment or an internist for treatment of the flu, the co- payment is 20 percent of the cost of the visit. If, however, a Medicare patient visits a psychiatrist for treatment of mental illness, the co- payment is 50 percent of the cost of the visit. This disparity in outpatient co-payments represents blatant discrimination against Medicare beneficiaries with mental illness.

The prevalence of mental illness in older adults is considerable. According to the U.S. Surgeon General, 20 percent of older adults in the community and 40 percent of older adults in primary care settings experience symptoms of depression, while as many as one out of every two residents in nursing homes are at risk of depression. The elderly have the highest rate of suicide in the United States, and there is a clear correlation between major depression and suicide: 60 to 70 percent of suicides among patients 75 and older have diagnosable depression. In addition to our seniors, 400,000 non-elderly disabled Medicare beneficiaries become Medicare-eligible by virtue of severe and persistent mental disorders. To subject the mentally disabled to discriminatory costs in coverage for the very conditions for which they became Medicare eligible is illogical and unfair.

There is ample evidence that mental illness can be treated. Unfortunately, those in need of treatment often do not seek it because they are ashamed of their condition. Among our Medicare population, the mentally ill face a double burden: not only must they overcome the stigma about their illness, but once they seek treatment they must pay one-half of the cost of care out of their own pocket. The Medicare Mental Health Copayment Equity Act will phase-down the 50 percent co- payment for mental health care services to 20 percent over six years. By applying the same co-payment rate to mental health services to which all other outpatient services are subjected, the Medicare Mental Health Copayment Equity Act will bring parity to the Medicare program and improve access to care for our senior and disabled beneficiaries who are living with mental illness. I urge my colleagues to join with us to pass this critical legislation.

I ask unanimous consent that several letters of support be printed in the Record.

Mr. President, owning your own home is the foundation of the American dream. It encourages personal responsibility, improves child development, provides economic security and gives families a greater stake in the development of their communities. Communities where homeownership rates are highest have lower crime rates, better schools and provide a better quality of life for families to raise their children.

However, too many low- and moderate-income families living in urban and rural areas across our nation have not been able to share in the dream and benefits of homeownership due to the lack of available housing or the high cost of what housing is available.

Today, I am introducing the Community Development Homeownership Tax Credit Act, along with Senators Santorum, Sarbanes, Allard, Daschle, Kennedy, Stabenow and Clinton to encourage the construction and substantial rehabilitation of 500,000 homes over the next ten years for low- and moderate-income families in economically distressed areas.

The bill will increase the supply of affordable homes for sale in inner-cities, rural areas and low- and moderate-income neighborhoods across the United States. It will bridge the gap that exists today between the cost of developing-affordable housing and the price at which these homes can be sold in many low-income neighborhoods by providing investors with a tax credit of up to 50 percent of the cost of home construction or rehabilitation.

By facing the mounting challenge of producing affordable housing, I strongly believe we can help provide critically needed economic development low- and moderate-income communities across our country and provide an important stimulus in the development of our nation's economy. The production of new homes provided in this legislation will create both construction and construction-related jobs which will both increase economic growth and lower the unemployment rate. New Economic activity can revitalize many inner-city neighborhoods and rural areas where unemployment and crime have been a fact of life for too long.

Buying a new home also leads to the purchase of new appliances and furnishings. Average new homebuyers spend almost $5,000 on appliances and

furnishings during the first year of living in their new home. This will help stimulate the manufacturing section of our economy. It is clear that building new homes creates jobs and moves our economy forward.

Over the past decade, we have made substantial progress in increasing the homeownership rate in the United States. In 2000, the U.S. homeownership rate reached a record high of 67.1 percent with some 71 million U.S. households owning their own home. However, many working families have been struggling to find an affordable home in our nation's cities. Over the past two generations, many families have moved out of cities and into the suburbs, which has depressed the development of housing in the inner-city. In 1999, the homeownership rate in the central-city areas was 50.4 percent, this is more than 20 percent lower than the suburban homeownership rate of 73.6 percent.

Working families with low- and moderate-income have also had difficulties buying a home. Currently, 83.3 percent of households with family income higher than the median family income are homeowners, while only 52.4 percent of households with family income below the median income are homeowners.

Too many communities face a lack of available homes because developers are concerned that the new houses may not be sold for the cost of construction. Many properties or sites that could be developed into affordable homes now sit vacant, and neighborhoods remain undeveloped because the gap between development costs and market prices has not been filled. The lack of affordable single-family homes affect many urban and rural areas where a majority of residents earn less than the median income.

Today, too many minority families face barriers in their attempts to reach the American Dream of homeownership. According to Census data for the fourth quarter of 2002, non-Hispanic whites have a 74.8 percent homeownership rate, while minority groups have just a 55.4 percent homeownership rate. African Americans have only a 47.5 percent homeownership rate, and Hispanics have a 49.5 percent homeownership rate in the same study. The gap between white and African American homeownership rates has been approximately 25 percent to 30 percent for most of the last century. These numbers are simply unacceptable.

Despite our efforts at the federal level to promote homeownership, many minorities also face higher than average denial rates for mortgage applications. A recent study by the University of Massachusetts shows that racial and ethnic lending disparities continue in Boston. For example, African Americans were 2.73 times as likely as whites to be denied in their mortgage applications. Latinos were 2.25 times as likely as whites to be denied in their mortgage applications. Finally, Asians were 1.55 times as likely as whites to be denied in their mortgage applications.

Along with a lack of available homes in urban and rural areas, our nation is also facing an affordable rental housing crisis. Thousands of low-income families with children, the disabled, and the elderly are finding it difficult to obtain or afford privately owned affordable rental housing units. Recent changes in the housing market have limited the availability of affordable housing across the country, while the growth in our economy in the last decade has dramatically increased the cost of the housing that remains. Constructing new housing will help many families move out of rental housing and help increase the number of available rental housing units and help ease the affordable housing crisis we now face.

The story of Benjamin and Rita Okafor shows how working families in Massachusetts have great difficulty obtaining a decent home of their own. For many years, the Okafor's and their two young children were forced to live in a one-bedroom apartment. Benjamin Okafor, who worked full time as a cab driver in Boston, spent days and months looking for a bigger apartment for his family. However, the lack of affordable housing in the Boston area made it impossible for him to find anything appropriate. When his wife Rita became pregnant with their third child, the Okafor's knew something had to change in their living situation. Luckily, Ben was accepted into the Habitat for Humanity program and worked 300 sweat equity hours constructing a house. In August 2000, the Okafor family moved into a new home of their own in Dorchester. Ben says that this new home gives them the hope and stability they need. Yet, there are still far too many working families living a substandard housing and many more families that desperately need assistance to become homeowners. A new tax incentive for developers to build affordable homes in distressed areas will help working families like the Okafor's to afford a home for the first time.

The benefits of owning a home can bring families financial rewards and personal satisfaction with a deep sense of security. Real estate values have historically risen over time. Homeowners may deduct mortgage interest and property taxes as an expense against income. Real estate has generally been seen as marketable, allowing for property to be sold at a predictable price to a dependable group of available buyers.

We know that owning a home instead of renting leads to a better quality of life for its residents, but we are now learning more and more about the impact homeownership has on the cognitive and behavioral outcomes for children. A recent study by Ohio State University shows that children of families who own their home have fewer behavioral problems and are able to learn more effectively. Specifically, a child's cognitive abilities are 9 percent higher in math and 7 percent higher in reading for children living in their own homes. The study also shows that these children also experienced up to 3 percent lower behavioral problems than other children. This study proves that the national goal of homeownership has an added benefit of helping America's children learn and behave better, which helps our schools produce better citizens and will help our economy develop in the long term.

The Community Development Tax Credit Act, which I am introducing today, bridges the gap between development costs and market value to enable the development of new or refurbished homes in urban and rural areas to blossom. The tax credit would be available to developers or investors that build or substantially rehabilitate homes for sale to low- or moderate-income buyers in low-income areas. The credit would generate equity investment sufficient to cover the gap between the cost of development and the price at which the home can be sold to an eligible buyer.

The tax credit volume would be limited to $1.75 per capita for each State and allocated by the States themselves. Credits would be claimed over 5 years, starting when homes are sold. I believe this legislation will result in approximately 50,000 homes built or refurbished annually, assuming about $40,000 per home.

The maximum tax credit equals 50 percent of the cost of construction, substantial rehabilitation, and building acquisition. The eligible cost may not exceed the Federal Housing Administration single-family mortgage limits. The minimum rehabilitation costs is $25,000. Eligible building acquisition costs are limited to one-half of rehabilitation costs. States will allocate only the level of tax credits necessary for financial feasibility of individual projects. Ten percent of the available credit will be set aside for nonprofit organizations.

The eligible areas for the tax credit are defined as Census Tracts with median income below 80 percent of the area or state median. Rural areas that are currently eligible for USDA housing programs will be eligible for the tax credit. Indian tribal lands will be eligible for the tax credit. State-identified areas of chronic economic distress will also be eligible for tax credit, subject to disapproval by the Department of Housing and Urban Development.

Those eligible to buy homes built or refurbished using the tax credit include: individuals with incomes up to 80 percent of the area or state median and up to 100 percent of area median income in low-income/high- poverty Census Tracts.

Individual states will write plans to allocate the available tax credits using the following selection criteria: contribution of the development to community stability and revitalization; community and local government support; need for homeownership development in the area; sponsor capability; and the long-term sustainability of the

project as owner-occupied residences. Then individual developers along with investors can apply to the state to be awarded a tax credit for developing a property in a low- or moderate-income area. If chosen by the state, investors can start to claim the tax credit as the homes are sold to eligible buyers. They can continue to claim the tax credit for five years. Investors are not subject to recapture. If the home owner sells the residence within five years, a scale would determine the percentage of the gain that would be recaptured by the Federal Government. In the first two years, 100 percent of the gain and 80, 70 and 60 percent in the third, fourth, and fifth years, respectively, would be recaptured.

The Community Development Homeownership Tax Credit Act that I am introducing today will positively affect the lives for approximately 500,000 families over the next 10 years, help resolve the affordable rental housing crisis we face, and help create jobs and grow our economy. I ask all of my colleagues to help expand the foundation of the American Dream by supporting this new tax incentive to encourage the construction and rehabilitation of homes for low- and moderate- income families in economically distressed areas.

This legislation is supported by the U.S. Conference of Mayors, Fannie Mae, Freddie Mac, the Enterprise Foundation, Local Initiatives Support Coalition, Mortgage Bankers Association of America, National Association of Home Builders, National Low Income Housing Coalition, National Association of Local Housing Finance Agencies, National Association of Realtors, National Council of La Raza, National Hispanic Housing Conference, Habitat for Humanity International and others.