Sunshine in Iraq Reconstruction Contracting 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.

Mr. Chairman, I yield myself such time as I may consume.

We have an excellent defense bill before us today. We have learned a number of lessons from the conflict we just concluded in Iraq. I think the lessons of the last 15 years are that we must have in this country broad military capabilities, and that means we have got to be able to handle a conventional armored attack or conventional warfare. We must be able to handle guerilla warfare. We must be able, at the same time, to conduct the war against terrorism, and we have to prepare for the eventuality that ballistic missiles may at some point be launched against the United States.

Mr. Chairman, this bill addresses America's military issues. We address all of the issues that are brought up with respect to personnel. We have a 4.1 percent average pay increase in this bill. We have targeted bonuses where we have critical skills requirements and critical grade requirements. We provide for family housing. We do all the things that are important for people. At the same time, we modernize and we have more money for modernization than we have in years past, Mr. Chairman.

We have lots of old platforms. We know that our Army helicopters average 18.6 years of age. Two-thirds of the Naval aircraft are over 15 years. And if you go down the line you even come up with some antiquities. You come up with B-52 bombers, the youngest of which was built in 1962. So we have many years where modernization is required, and we have embarked on this first step of modernization with this bill that provides a little over $70 billion for modernization.

Mr. Chairman, we have learned lessons in Iraq, and this committee, which worked very hard, Democrats and Republicans on all of our subcommittees listened to our military after the operation in Iraq, and we asked them what their lessons learned were, what new systems, what new capabilities could we work on to give them even more effectiveness on the battlefield. They talked to us, and we have embedded some of these requests, Mr. Chairman, in this bill.

So this bill reflects not just recommendations from the administration over the last several years, but it reflects what war- fighting leaders need on the battlefields and what they have learned is required as a result of this most recent conflict. So this is a very up-to-date bill.

Mr. Chairman, we need a number of what I would call so-called enablers to continue to fight today's wars and also prepare for tomorrow's wars. We need airlifts. You have to have the ability to move that air bridge and move across that air bridge either from the United States to a military operation around the world, or to move from foreign-based troops, troops in Germany or other places, move them into the battlefields and not only move troops in but move equipment in and provide that bridge of tankers to be able to move strike aircraft in, long-range strike aircraft or short-range tactical aircraft which, combined with precision munitions, can hit those targets, whether it is an al Qaeda cave in Afghanistan or a leadership bunker in

Iraq or in some other part of the world. We have supplied more money for that very important area, Mr. Chairman.

We also need to bolster precision-guided munitions which have provided us with so much leverage in this operation. We do that here.

We also provide for more robust missile defense because we know that Scud missiles launched in a theater can paralyze our tactical airfields. Until we can take care of those airfields and bring people in and bring aircraft in, we know we have to have the ability to pull down Scud-class ballistic missiles and increasingly effective ballistic missiles that are actually more high-powered, more capable than Scuds. For that reason, Mr. Chairman, we have money in this bill for Patriot missile systems, for more procurement of our missile systems, so we can protect our troops in theater and project American power around the world. That is another enabler.

We also put money in for the deep strike program, Mr. Chairman. That is important. That will follow on and bolster this fleet of B-1s, B-2s and B-52s that carried the war to the enemy so effectively in this last theater.

So we do a number of things, Mr. Chairman, that will enable us to not only fight today's wars but also look beyond the horizon and will help us fight tomorrow's wars.

Let me tell you, Mr. Chairman, you will be listening to the reports of our subcommittee chairman and the ranking members of those subcommittees and you will see that this bill is a product of a lot of hard work, a lot of folks who sat in those chairs and listened not only to the daily briefings on the Iraq operation but listened very intently to our people in uniform when they told us what we are going to need to protect this country. Our folks have done a great job.

So, finally, let me commend our commander-in-chief, President Bush, for the blueprint that he laid out for us, for Secretary Rumsfeld, our military leaders, but, lastly, everybody who projected American power in this last conflict, who went out, right down to that 19-year-old kid carrying an M-16 trying to go through the choke point at Nasiriya in Iraq.

America's military team has performed brilliantly for us. Now it is time for us to perform for them.

I want to thank my ranking member, the gentleman from Missouri (Mr. Skelton), for his great partnership in putting this bill together. We have had a few contentious moments and we may have a few more as we go through this bill. There are a few items that do not come up very often in the defense bill but will come up. But after the arm wrestling is over, Mr. Chairman, you will see a united Committee on Armed Services and hopefully a united House of Representatives standing tall behind the uniformed people in the United States military. So I am very grateful to the gentleman from Missouri (Mr. Skelton) for his work.

I want to also say I am very grateful to our subcommittee chairman, the gentleman from Pennsylvania (Mr. Weldon), the gentleman from Colorado (Mr. Hefley), the gentleman from New Jersey (Mr. Saxton), the gentleman from New York (Mr. McHugh), the gentleman from Alabama (Mr. Everett), and the gentleman from Maryland (Mr. Bartlett), and also all of their ranking members on their subcommittees for the hard work they have put in.

Mr. Chairman, we will start presenting our subcommittee reports momentarily.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, I yield such time as he may consume to the gentleman from Pennsylvania (Mr. Weldon), the vice chairman of the committee, who is chairman of the Subcommittee on Tactical Air and Land Forces.

(Mr. WELDON of Pennsylvania asked and was given permission to revise and extend his remarks.)

Mr. Chairman, I yield 3 minutes to the gentleman from Ohio (Mr. Turner).

Mr. Chairman, I yield 2\1/2\ minutes to the gentleman from Colorado (Mr. Hefley).

Mr. Chairman, will the gentleman yield?

Mr. Chairman, the gentleman from Missouri (Mr. Skelton) has been a champion of the idea of utilizing Stealth bombers and Stealth aircraft and coupling them with precision munitions and being able to give enormous leverage to American air power.

If we look at our array of deep-strike platforms, we have the 21 B-2s that are based in the gentleman's district, which are extremely valuable assets. We have a few, over 60 now, B-1 bombers, now that 23 are being retrieved or taken out of the force; and we are retrieving a number of those 23 bombers, bringing those back to the force. They worked very effectively in Iraq. And the balance of our 130 or so combat-coded bombers are made up of the old B-52s, the youngest one of which was built in July of 1962, so the newest B-52 is over 40 years old.

We need to strike out and to design and build a new deep-strike platform. So we put $100 million in this bill to commence pursuit of a new deep-strike platform, which may be manned or on the advice of some people may be unmanned. We could certainly have what I call the B-2 Chevy. That is the new variant of the B-2 that does not have some of the Cold War components but nonetheless would be excellent for conventional missions, and that would be somewhat less in terms of cost than the B-2s that were built for strategic delivery.

So it could be a manned system, it could be an unmanned system, but the point is we better start now because it is going to be years before we have new platforms for deep strike.

At the same time, we plussed up the purchases of precision munitions, those joint direct attack munitions that are used to eliminate the need for literally thousands of bombs, hundreds of bombs to one in terms of ratio where again, instead of carpet bombing a bridge to knock it out, you hit that one strut and bring that entire bridge down.

The gentleman is talking about our two most important systems, that is deep-strike platforms and precision munitions. When those two leveraged systems are coupled together, the United States has enormous capability, and I thank the gentleman for his efforts along these lines.

Mr. Chairman, if the gentleman would continue to yield, I thank the gentleman for his work; and if I could just mention, the gentleman from Texas (Mr. Stenholm) just spoke. One of his comments was to the effect that he knew that we were retrieving some of these B-1 bombers that the Air Force decided last year to shelve, and he hoped that the cost of maintaining those bombers would not be drawn from the spare parts accounts of the 60 or so bombers that we have right now.

Let me just say in response to the gentleman, who is a great friend of mine, the intent of the committee is to try to get a high mission- capable rate with our entire bomber force, all of the B-1s, and that means spending what it takes to keep those birds in the air, to give them the ability to deliver their platforms with deep ranges, with good protection to the crew. So we want to see higher maintenance dollars expended on that entire force because it is such an important leverage force.

We saw the B-1s being extremely flexible in its pursuit of targets in the Iraq theater. That was appreciated by the committee. I did not get a chance to respond to the gentleman from Texas (Mr. Stenholm), but I want to assure him that we are going to try to make sure that entire bomber force has a high mission-capable rate, both B-2s that the gentleman is so proud of, and home bases in his district, B-1s, and of course those ancient B-52s.

I know the gentleman from Texas (Mr. Sam Johnson) talked about looking out his prison window in Hanoi in 1972 during Operation Linebacker and watching a B-52 explode in midair as it was hit by a Sand missile. Those planes were shot down over 40 years ago, and by the aircraft, anti-aircraft and Sand capability being delivered to North Vietnam by Russia. That means that we need to move along and develop this new technology as quickly as possible and get new birds in the air as quickly as possible. I know the gentleman from Missouri (Mr. Skelton) and I share that goal.

Mr. Chairman, I offer an amendment.

Mr. Chairman, I yield myself such time as I may consume.

This amendment makes a number of technical corrections that were provided by the Office of Legislative Counsel. It also clarifies several technical points that were raised after the report was filed. For example, on page 290, I have added language to make it clear that the re-leasing of office space will continue to be handled by GSA.

Beyond those corrections that I have described, the amendment also contains the walkback that the gentleman from Colorado (Mr. Hefley) just described with respect to the Endangered Species Act on DOD bases, saying simply that the Endangered Species Act changes are limited to the Department of Defense and that, in fact, the definition of endangered species is walked back to the language that was described by DOD when it was sent to us.

Mr. Chairman, I think it is eminently reasonable. I just pointed out a few minutes ago, with the four overlaps for the Pendleton Marine base, where American Marines practice dying for this country and they can only utilize at this time a very small portion of that 17-mile red beach because there are animals that need to be protected on that beach. Once you overlay the estuarine areas, the gnatcatcher areas and a number of other areas that have now been designated for lockout to the military or controlled use, you have an extremely diminished base in terms of training. So those very fine people that we have sent to the Middle East to carry out American foreign policy are seeing a diminished training area in the United States.

And that is across the board, Mr. Chairman. You can go to Camp Lejeune, where they now have to employ 80 biologists just to try to move these areas around, or any of the other bases, Army, Navy, Marine Corps, Air Force, and you will see that some of them are diminished up to 70, 80 percent, locked out, where the military is locked out of their own base and cannot use it for training.

This is a balance, Mr. Chairman. It is a balance that passed on a bipartisan basis, in fact, in fuller measure than what we have here out of the Committee on Resources. So I think it is absolutely appropriate that this walkback, where now only the Department of Defense is going to be able to receive this treatment, is manifested.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, I yield myself such time as I may consume.

I would just say this. With respect to Marine Mammal, I think the gentleman from Colorado (Mr. Hefley) described it best. This is a commonsense amendment. I have not met a single environmentalist who does not agree with this. That says that if you have a seal sitting on a buoy and a Navy ship goes by, if the seal even looks up, he is, according to at least one biologist in the Department of Fish and Wildlife, potentially disturbed. If you potentially disturb a seal, you cannot undertake that particular military activity.

What we are losing, Mr. Chairman, is our ability to practice our sonar capability and our new sonar equipment. That means life and death for the kids who are underneath the water in those submarines whose lives depend on being able to hear the enemy submarine before it hears them and destroys them.

So I would just say to my colleague and to all my colleagues, most of this language is what we passed with a big vote last year on a bipartisan basis. It is absolutely reasonable. It has been walked back to DOD. I would just recommend, take ``yes'' for an answer.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, I yield 30 seconds to the gentleman from New Jersey (Mr. Saxton).

Mr. Chairman, I yield myself the balance of my time.

Mr. Chairman, there is no exemption for the Marine Mammal Act, so that is one reason why it has not been sought. I would just say there is one endangered species that this provision protects and that is the 19-year-old Marine or soldier or airman who needs adequate training and right now is seeing his training areas diminished by conservationism and environmentalism. Let us give conservation and environmentalism a good name and let us balance those two important goals with another goal which is keeping our men and women in uniform alive when they are in combat.

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.

Mr. President, today I am introducing two key education initiatives designed to promote quality education across our country and respond to the compelling needs in our schools. When I meet with teachers and parents, and even business leaders in West Virginia, everyone is concerned about the condition of our school buildings and the importance of qualified committed teachers working in those classrooms.

To address these clear and compelling needs, I am introducing two education bills. The first initiative, America's Better Classroom Act of 2003, is a school construction initiative to respond to the overwhelming needs for school construction. The Department of Education reports that the average public school building is 42 years old. In 1995, GAO estimated that we needed $112 billion for school construction and renovations. A more recent survey in 2001 in the Journal of Education Finance indicates that the need is increasing, and the unmet need for school infrastructure over the next decade is over $200 billion. My State of West Virginia will need as much as $2 billion for school construction and renovations.

America's Better Classroom Act provides the financial tools to help build and renovate our schools. It will continue the Qualified Zone Academy Bonding, QZAB, Program that has helped economically disadvantaged communities. This provision would provide $2.8 billion to continue and expand the successful QZAB Program. In recent years, this program has provided $4.2 million for support school construction and renovations in disadvantaged communities. Effective programs have earned continued support.

But the truth is that many schools districts need help with school construction and renovations, which is why the America's Better Classroom Act creates a $22 billion Qualified School Bonding Program. Funding will be allocated to the states based on the Title 1 formula so it is targeted, but the states will have flexibility in allocating support among school districts.

Last summer, I toured two schools in Berkeley County, WV--Martinsburg High School and South Middle School. The high school was built in 1928, but it had been renovated. The middle school was built in 1954, and needed serious work. The cafeteria had to serve as a part-time classroom, and they used portable trailers. These schools are in our eastern panhandle which is the region of the greatest population growth, so Berkeley County predicts that it will need to build or renovate nine schools over the next 10 years. Given the current state fiscal crisis, states and communities need the America's Better Classroom Act so that we can make needed investments. Also school construction can play a positive role in helping to stimulate our economy and create needed jobs. School construction is a more reliable economic stimulus, and an important investment in our children's education. I am proud to have Senators Tom Harkin, Tom Daschle, and Tim Johnson as cosponsors of this important initiative. Senator Harkin has been a true leader on education issues throughout this career, including school construction and renovations.

The next initiative to improve education is a bipartisan bill, known as Incentives to Educate American Children Act, or I TEACH. I am proud to have Senators DeWine, Landrieu, and Cochran as cosponsors.

Under No Child Left Behind, every classroom should have a qualified teacher. Studies suggest that an estimated 2 million new teachers will be needed in our classrooms over the next decade. It will be important to ensure that we recruit and retain good teachers in every classroom, including our most disadvantaged schools and our rural schools, which often have more trouble recruiting and keeping teachers.

Unfortunately, without our help, America's disadvantaged and rural schools may not be able to attract the qualified teachers required by the No Child Left Behind Act. Isolated and impoverished, competing against higher paying and well-funded school districts for scarce classroom talent, they are already facing a desperate shortage of qualified teachers. As pressure to hire increases, that shortage could become a crisis, and children already at a disadvantage in relation to their more affluent and less isolated peers will be the ones who suffer most. Principals in West Virginia already are reporting shortages of trained teachers.

To help bring dedicated and qualified teaching professionals into our schools, the I TEACH Act will provide teachers a $1000 refundable tax credit every year they practice their profession in the public schools where they are needed most. In addition to this incentive for disadvantage and rural schools, every public school teacher has the ability to earn a $1000 refundable tax credit if a teacher achieves the National Board for Professional Teaching Standards certification. Under the bill, every teacher willing to work in underserved schools will earn a tax credit. Every teacher who gets Board certification will earn a tax credit. Teachers who work in rural or poor schools and get certified will have both credits, worth $2000. Schools who desperately need help attracting teachers will get a boost. And children educated in poor and rural schools will benefit most.

One-fourth of America's children attend public schools in rural areas, and of the 250 poorest counties in the United States, 244 are rural. West Virginia has rural schools scattered throughout 36 of its 55 counties, and these schools face real challenges in recruiting and retaining teachers, as well as dealing with other issues related to their rural location. Attracting teachers to these schools is difficult in large part due to the vast gap between what rural districts are able to offer and the salaries paid by more affluent school districts--as wide as $20,000 a year, according to one study. Poor urban schools must overcome similar difficulties. It is often a challenge for these schools to attract and keep qualified teachers. Yet, according to the 2001 No Child Left Behind Act, every school must have qualified teachers by the end of the 2005-2006 school year.

In my State of West Virginia, as in over 30 other States, there is already a state fiscal incentive for teachers who earn National Board certification. My legislation builds upon the West Virginia program; together, they add up to a powerful tax incentive for teachers to remain in the classroom and to use their skills where they are most needed.

Education should be among our top national priorities, essential for every family with a child and vital for our economic and national security. I supported the bold goals and higher standards of the 2001 No Child Left Behind Act, but they won't be met unless we invest in quality schools and good teachers. I am committed to working closely with my Senate colleagues this fall to secure as much funding as possible for our children's education.

Mr. President, I rise today to introduce the Adoption Equality Act of 2003. I am proud to have a bipartisan group of cosponsors including Senators DeWine, Landrieu, Collins, Levin and Johnson. Work on this legislation is based on the bipartisan work of the Senate coalition that supported the 1997 Adoption and Safe Families Act, an historic effort to ensure that a child's safety and health are paramount, and that every child should have a permanent home.

The Adoption and Safe Families Act was the most sweeping and comprehensive piece of child welfare legislation passed in over a decade, and since its enactment, adoptions from our foster care system have nearly doubled. In my State of West Virginia, adoptions have nearly tripled. Those adopted children now have a permanent home. But there are still 131,000 in foster care nationwide who have the goal of adoption but are still waiting. In West Virginia, we have 520 children in foster care waiting for adoption, but only 343 children might qualify for support. I believe each child with special needs who is waiting for adoption deserves help but under current law only some do. They are the innocent ones who were victims of abuse and neglect. Clearly we must do more for those children.

Throughout the process of developing the Adoption Act we heard about the challenging circumstances facing children described as having ``special needs''. These include children who are the most difficult to place into permanent homes, often due to their age, disability or status as part of a group of siblings needing to be placed together.

One of the most significant provisions of ASFA was the assurance of ongoing health care coverage for all children with special needs who move from foster care to adoption. Parents willing to adopt such children were promised health care coverage in 1997 which is essential.

While all special needs children that are adopted maintain health care coverage, only half are eligible for adoption assistance payments. Current law provides for the payment of federal adoption subsidies to families who adopt only those special needs children whose biological family would have qualified for welfare benefits under the old 1996 AFDC standards. Federal adoption subsidy payments provide essential income support to help families finance the daily basic costs of raising these special children, as well as support for special services like therapy, tutoring, or special equipment for disabled children. Federal adoption subsidies are a vital link in securing adoptive homes for special needs children who by definition would not be adopted without support.

Under current law, a child's eligibility for these important benefits is dependent on the income of his or her biological parents even though these parents' legal rights to the child have been terminated, and these are the parents who either abused or neglected the child. This is, simply, wrong. The Adoption Equality Act will eliminate this anomaly in Federal law by making all special needs children eligible for Federal adoption subsidies.

The Adoption Equality Act is the next logical step to streamline and promote adoptions from foster care. The bill is designed to ``level the playing field'' by ensuring that all children with special needs, and the loving families who adopt them, have the support they need to grow and develop.

First, the bill removes the requirement that an income eligibility determination be made in regard to the child's biological parents, whom the child is leaving, thereby allowing Federal adoption subsidy to be paid to all families who adopt children who meet the definition of special needs.

Second, the bill continues to give states flexibility to determine the definition of a child with special needs, but it is clear that adoption subsidies should only be provided if the child could not be adopted without such assistance.

Third, the bill requires that States reinvest the monies they save as a result of this bill back into their state child abuse and neglect programs which should help promote prevention and family support.

When we talk about how to help abused and neglected children in this country, many complex questions are raised about what constitutes best policy, and how Federal tax dollars should be spent. Yet, at the heart of all the questions are vulnerable children who desperately want a safe, permanent home. The lack of modest financial resources to support these adoptions is often the only barrier that stands between an abused child and a safe, loving and permanent home.

Federal adoption subsidies are designed to encourage adoption of children with special needs--those children who have the hardest time finding permanent, adoptive families. It is an absurd policy to discriminate against thousands of children with special needs based upon the income of their biological, and often abusive, parents. It is time to create a Federal policy that levels the playing field and gives all children with special needs an equal and fair chance at being adopted.

The Adoption Equality Act will treat every special needs child the same. It is designed to encourage adoption and support those admirable parents willing to help a child with special needs and a history of abuse or neglect. Such children may have physical disabilities, or other may have emotional challenges due to past abuse and neglect. Such children and families often need special counseling or support services, and that is why the adoption assistance payments are key. If we want to truly help our most vulnerable children find a permanent home, this is a wise investment.