The California Institute
For Federal Policy Research
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California Capitol Hill Bulletin

Volume 5, Bulletin 12 -- April 2, 1998

CONTENTS OF THIS ISSUE:
 Rep. Eshoo Addresses Advisory Board
 House Passes Supplemental Appropriations Bill
 Four from CA on ISTEA Conference; BESTEA Passes House
 Feds Spent $161 Billion in California but State's Share Fell
 Biomaterials Liability Bill Marked Up
 Senate Committee Approves Higher Education Renewal
 Copyright Treaty and Liability Bill
 Skilled Worker Visa Cap Raise Proposed
 Valenti Addresses Roundtable Luncheon
 48 Californians Sign R&D Tax Credit Letter
 Delegation Letter Backs Bay-Delta Funds
 Utility Deregulation Begins; House Panel Examines Effects on R&D
 Pentagon Seeks More Base Closures
 Anti-Dumping Duties on Taiwan Chips



To expand communications between Washington and California, the California Institute provides periodic faxed bulletins regarding current activity on Capitol Hill which directly impacts our state. Bulletins are published weekly during sessions of Congress, and occasionally during other periods. The e-mail edition is made possible in part by a computer server donation from Sun Microsystems.


Eshoo Addresses Institute's Advisory Board
     Rep. Anna Eshoo (Atherton) spoke Tuesday at the Institute's Advisory Board breakfast, co-hosted this month by GTE and the California Institute for Technology (CalTech).  During the breakfast, Rep. Eshoo touched on a wide range of issues that affect the high-tech industry, as its Silicon Valley home lies within her 14th Congressional District.  Ms. Eshoo praised the high-tech industry for being the engine of the state's economy and her district's contributions to bringing California out of its early 1990s recession.
     Rep. Eshoo gave a brief history of the issue of securities litigation and current congressional consideration of a follow-up bill to the 1996 legislation.  Ms. Eshoo also spoke of her work to increase research and development funding, specifically to double the budget of the National Institutes of Health (NIH) over the next five years, and she spent time describing the need to work beyond the concerns of the law enforcement community over encryption legislation.  Finally, Rep. Eshoo discussed the impact of the global economy and recent trade agreements on the Democratic party.

By Narrow Margin, House Passes Supplemental Funding Bill
     By a vote of 212-208, the House passed its $2.9 billion supplemental appropriations bill before heading home for the April recess. The bill contains $575 million to fund disaster assistance efforts as a result of El Niño, and about $1.8 billion for military operations in the Persian Gulf and Bosnia.  The House, however, did not add the $17.9 billion that the Senate bill contains for the International Monetary Fund (see Bulletin, Vol. 5, No. 11 (3/26/98)).  Moreover, the House bill offset the increased funding by cutting an equal amount from other programs.  The cuts come out of the Section 8 housing program ($2.2 billion), AmeriCorps ($250 million), airport grants ($366 million), and bilingual education programs ($75 million).  These offsets have elicited a veto threat from the White House, and account for the tight vote, which could not withstand a veto.
     The House also did not include $1.6 billion for the Federal Emergency Management Agency to respond to further expected damages from El Niño this summer.  The Senate did include the FEMA money in its bill, and House Appropriations Chairman Bill Livingston (LA) has indicated he will agree to include it in the conference agreement, but he wants it offset by further cuts in other programs.
     California is expected to receive at least $200 million of the supplemental, once it is enacted.

Four Californians to Serve on ISTEA Conference; BESTEA Steered Smoothly Through The House
     Representatives Bob Filner (San Diego), Jay Kim (Diamond Bar), Steve Horn (Long Beach), and Senator Barbara Boxer were appointed on Wednesday night to represent the House and Senate respectively in negotiating a renewal of the nation's transportation laws (last fall's temporary extension will expire May 1st).  California's representation on the conference committee, with four appointees out of the 36 appointed, will be proportionate to the state's share of the nation's population.  Earlier this week, the California House Republican and Democratic delegations, respectively, sent letters to the House party and committee leadership to request that Californians serve on any and all conference committees formed to negotiate ISTEA reauthorization legislation.  All of the state's 28 Democrat and 22 Republican House members, the largest state delegation in Congress, signed their respective party letters.  Each letter noted California's large contribution to the highway trust fund (the largest in the nation at roughly 10% of all contributions) and the state's large and varied transportation needs as reasons for appointing Californians to the conference.
     Earlier on Wednesday, after consideration of several amendments, the House passed its $218.3 billion highway and transit reauthorization measure, H.R. 2400 or BESTEA (Building Efficient Surface Transportation Equity Act), by a 337-80 vote.  Thirty-nine of the 50 serving members (2 vacant seats) of the California congressional delegation voted for the measure.
     California would receive about $19 billion over six years under BESTEA and, in addition, the state would receive a share of federal dollars distributed for other discretionary highway and transit projects and programs.  California would get 9.19% of the $27 billion funds annually allocated for highways and high-priority projects.  Under the old ISTEA law, California received about 9.13% of those same funds.  Not counting the high-priority projects, California would receive about 9.18% of the highway funds; however, the state received 9.33% under the original ISTEA law.  In comparison to the 1991 law, California would receive about 10.42% of the $9.3 billion in BESTEA for high-priority projects, under ISTEA the state had received almost 6% of the highway demonstration projects.
      Key in negotiations between the two houses will be the overall level of funding for highways and transit, whether to take the highway trust fund off-budget, and whether to establish a nationwide .08 blood-alcohol level standard.  The House bill would provide $181.6 billion for highways and $36.7 for transit; the Senate bill would give $173 billion for roads and $41.3 billion to transit.   According to Rep. Kim's office, California would receive about $1 billion dollars more under the House bill than under the Senate measure.  Under the House bill ($15.3 billion), there is about $1 billion more for allocation under the highway formula funds than in the Senate ($14.3 billion).
     Watch for conference committee action during the week of April 21st after Congress returns from its spring recess.
     A list of California projects included in BESTEA is available on the California Institute website at http://www.calinst.org/pubs/BESTEAprojects.htm.

Feds Spent $161 Billion in California During 1997, but State Share Fell
     During the 1997 fiscal year, California's share of federal spending declined to 11.4% of the U.S. total from 11.6% the year before.  Total federal spending in the state rose from $157.4 billion in FY1996 to $160.9 billion in FY1997.  But federal spending in all states climbed more rapidly, from $1.36 trillion to $1.42 trillion over the same period, leaving California's 1997 share less than the year before.
     The primary cause for the decline was a drop in procurement spending in the state which exceeded the rate of decline in national procurement spending.  Nationwide, procurement (two-thirds of which is defense contracts) fell from $181 billion in 1996 to $173 billion last year.  Of those amounts, California won $27.7 billion in 1996, but just $26.2 billion in 1997.
     The decline in share of spending is an indicator that California may again have been even more of a donor state in 1997.  State-level figures for federal tax burden will not be available for a few months, but California's recovering economy can be expected to generate significant income tax revenue for the federal treasury last year.  If so, California taxpayers' balance of payments deficit the extent to which federal taxes paid exceed federal spending in the state could rise well above last year's $10 billion level.
     The state-by-state report, entitled "Federal Expenditures by State for FY 1997" is available from the Census Bureau's website in Adobe Acrobat format (78 pages) at http://www.census.gov/ftp/pub/prod/3/98pubs/fes-97.pdf.  Related county level spending information is available at http://www.census.gov/govs/www/cffr97.html.

House Judiciary Marks Up Biomaterials Liability Bill
     On Wednesday, the House Judiciary Committee favorably reported H.R. 872, The Biomaterials Access Assurance Act of 1998 by voice vote.  The bill makes it easier for suppliers of materials used in the manufacture of medical devices to be dismissed from medical malpractice suits brought against manufacturers and others, if their materials met the manufacturer's specifications.  Before reporting the bill, however, the Committee approved an amendment by voice vote that will ensure that negligent or intentionally tortious suppliers can be brought back into a case if subsequent evidence warrants it.
     Proponents of the bill argue that many suppliers are getting out of the business of biomaterials because of the expense of defending against unfounded malpractice claims.  H.R. 872, introduced by Rep. George Gekas (PA), has been co-sponsored by half the California congressional delegation.
     The bill has also been referred to the House Commerce Committee for consideration.
 
Senate Committee Approves Higher Education Act Renewal Plan
     On Wednesday, the Senate Labor and Human Resources Committee considered legislation, S.1882, to extend the nation's laws governing higher education.  Last month, the House finished committee work on its mesure, H.R. 6, which is awaiting consideration by the full House.  S.1882 is also now ready to be considered on the Senate Floor.
     Much of the debate surrounding reauthorization of the Higher Education Act of 1965 (HEA) has focused on the federally regulated interest rate charged for student loans.  The HEA encompasses both the federal government's major student aid programs and various institutional aid programs.  Under the HEA, the guaranteed loan program (FFELP) provides roughly 2/3 of the total student loan volume, while direct loans made by the federal government provide the remaining third.  In 1993, under the Student Loan Reform Act, Congress changed the base used to set the formulas that determine student loan interest rates.  The change is scheduled to take effect July 1, 1998.
     However, commercial lenders who provide the guaranteed loans, say the new interest rate will make the market unprofitable for private lenders.  In a bipartisan compromise adopted by both the Senate Committee and the House Education and Workforce Committee, Congress would  reset the base for the student loan interest rate to 7.43 percent during repayment.  The compromise also would provide between $1.2 to $3.8 billion in subsidies to return a 7.93 percent interest rate to private lenders in the hope of maintaining their participation in the lending market.  Several lawmakers and private banks are still not satisfied with the rate reduction compromise.  Some believe the commercial subsidies are unwarranted.  Commercial lenders say the interest rates, even with the subsidy, are still too low to be profitable.
     The Senate Labor and Human Resources Committee adopted the House Committee's plan for student rates, but also approved several additional amendments to the HEA.  Among others, the Senate Committee approved a $25,000 penalty if an institution fails to provide required information on school costs, and expanded grants for schools with high enrollments of American Indians and Hispanics.  While the House measure would create competitive state block grants for teacher training funds, S. 1882 would strengthen the teacher training requirements .

House Judiciary Reports Out Copyright Treaty and Liability Bill
     The House Judiciary Committee favorably reported by voice vote H.R. 2281, the WIPO (World Intellectual Property Organization) Copyright Treaties Implementation Act, after merging into it H.R. 3209, the On-Line Copyright Infringement Liability Limitation Act.  H.R. 2281 will bring U.S. copyright law into compliance with the WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty agreed to in Geneva, Switzerland on December 20, 1996.  The bill bans the manufacture and sale of products intended to circumvent technological protection devices, such as encryption, intended to protect copyrighted materials.  It also creates a cause of action against anyone who provides or distributes false copyright management information with the intent to induce or conceal infringement.
     Before including H.R. 3209 in the WIPO bill, Rep. Robert Goodlatte (VA) stated that on-line service providers, copyright holders in the entertainment industry, and congressional negotiators had reached a compromise on the limited liability for providers contained in the bill.  The language of the compromise had not yet been drafted, however, so the Chair stated that a Manager's Amendment to the bill containing the compromise language would be offered when the bill reached the House floor.  With that assurance, several Committee members indicated they would support the bill.

Senate Judiciary Lifts Cap on Skilled Worker Visas
     On Thursday, the Senate Judiciary Committee adopted S. 1723, by a vote of 12-6, which raises the cap on the number of H-1B visas that can be issued for the admission of skilled immigrant workers from 65,000 to 95,000.  The bill also sets the length of the visas at six years, and will allow unused visas from other categories to be shifted to the H-1B program.  The bill responds to the plight of high technology companies, many California-based, that argue they have thousands of unfilled jobs available because they cannot find trained employees in the United States.
     Before reporting the bill, the Committee defeated an amendment, 8-10, offered by Sens. Dianne Feinstein and Edward Kennedy (MA) that also would have raised the cap to 90,000, but would have limited the visas to three years, and require U.S. companies to attest to the fact that they had not laid off an employee in order to hire the immigrant worker.  The Abraham bill also establishes 20,000 scholarships for low-income U.S. students to study math, engineering and computer science.
 In a related development, Rep. David Dreier (Covina) and eight other members, including Reps. Tom Campbell (Campbell) and Jim Rogan (Glendale), sent a letter to Vice President Gore last week asking him to join with them in drafting bipartisan consensus legislation to allow more
H-1B workers into the United States.

MPAA's Jack Valenti Addresses Golden State Roundtable Luncheon
     Motion Picture Association of America (MPAA) President Jack Valenti spoke on Tuesday to California delegation members, Washington representatives of companies and universities, and the California Institute at the Golden State Roundtable lunch.  Mr. Valenti called on the state's congressional delegation to work in a bipartisan fashion to enhance and protect the significant role the entertainment industry plays in fueling California's economy.  California is the world leader in the industry because of its well-developed infrastructure which attracts the world's talent to its borders.
     Employment in the entertainment industry is outpacing the nation's employment rate three-to-one, said Mr. Valenti, stressing the importance of the California-based industry to the national economy.  The demand for the industry's products is at an all time high, he said, noting that the average America spends as many as nine hours a day using the industry's various products.  Movies alone account for a $4 billion trade surplus.  According to the MPAA's web site, U.S. films are shown in more than 150 countries worldwide and American television programs are broadcast in over 125 international markets.
     Mr. Valenti also discussed legislation concerning the entertainment industry.  In particular, he suggested that the U.S. should expand copyrights to match the extended copyrights of European nations; continue its fight against worldwide piracy; and, expand intellectual property right protection by enacting the WIPO copyright treaties agreed to in Geneva in 1996 (see article below).  He also stressed the necessity of other countries enacting and enforcing similar penalties for copyright infringements.
     Visit the Institute's website for updates on legislation regarding encryption, copyrights, and trade at http://www.calinst.org.  For more information on the California State Society's Golden State Roundtable lunches, visit its web page at http://www.css.org.  For more information on the MPA, visit their web site is at http://www.mpaa.org.

48 Californians Sign R&D Tax Credit Letter
     Continuing the bipartisan force exerted last year, 48 members of the California congressional delegation signed a letter to the leaders of the House Ways and Means Committee urging an extension of the R&D tax credit (formally known as the Research and Experimentation Tax Credit).  The credit expires on June 30 of this year.  The letter also expresses the delegation's support for making the credit permanent, rather than having to rely on sequential one-year extensions.  The letter recognizes the importance of this credit to California's biotech and information technology companies, whose research spending has increased from $10.5 billion to $64.2 billion since the credit was first enacted in 1981.  Last year's R&D letter was signed by 39 members of the delegation.

Delegation Sends Out Letter Supporting Bay-Delta Funding
     Forty-two members of the California congressional delegation signed a letter to Energy and Water Appropriations Chairman Joe McDade (PA) supporting full funding of this year's $143 million federal allocation for the restoration of the Bay-Delta estuary.  The letter notes that to date over 70 Bay-Delta restoration related projects have been identified for combined state, local, and federal funding of over $85 million.  Last year, Congress appropriated $85 million of the $143 million in authorized funding for the project.
     A few members of the delegation, however, including Rep. Richard Pombo (Tracy), have expressed concerns with the proposed draft alternatives for restoring the estuary, especially the impact on agriculture.  In a letter to House Budget Committee Chairman John Kasich, Rep. Pombo opposed providing any more funds for Bay-Delta because the alternatives propose converting 150,000 acres of farm land to environmental habitats, and do not adequately provide for water storage.

Power Deregulation Begins in CA, House Panel Examines Effects on R&D
     On the same day that competition formally came to California's electricity industry, the House Science Subcommittee on Energy and the Environment held a hearing to discuss possible changes in research and development funding for energy and the role of the federal government in funding electricity research.
     According to the Committee's background report, under a regulated electricity industry, most states allowed utilities to designate a portion of their rates for R&D on a variety of projects.  According to the GAO, since 1993, there has been an overall drop in the level of R&D funding by utilities (about 30%), DOE (roughly 3%), and in most states (about 30% as reported).  Victor Rezendes, from the GAO, said utilities are reducing R&D spending as part of overall cuts in order to prepare for deregulated electricity markets.  In the same manner, Congress has reduced funds for DOE research to reduce the size of the federal budget.  In addition, utilities are shifting R&D dollars toward applied research -- high-payoff, short-term, low-risk projects, and away from longer-term, high-risk, collaborative projects usually built on basic research.  Overall, Mr. Rezendes said it is unclear what will be the economic consequences of funding changes.
     David Rohy, Vice Chair of the California Energy Commission, said he is confident that deregulation will enhance private R&D spending, but at risk is long-term, pure research which will continue to need public funding.  Mr. Rohy said he is cautiously optimistic, but believes federal and state governments should continue support of the research phases of R&D, but allow private companies to dominate development R&D phases.
     On Tuesday, California became the first state to fully implement competition into electricity generation, said Subcommittee Chairman Ken Calvert (Corona).  California is supporting R&D in its deregulated market, through a surcharge on consumer's bills to put an annual $62 million into a four year fund.  The state has established the PIER program (Public Interest Energy Research) to advance science and technology not provided for by regulated and competitive markets.  Mr. Rohy believes the federal government should be an active, collaborative partner with the private sector and other public agencies to reduce duplication, ensure adequate funding levels, and share the benefits of energy research.  The Clinton Administration's national deregulation plan proposes a similar, but already controversial, approach to funding R&D by creating a $3 billion public benefit trust (PBF) for states to fund renewable energy and energy efficiency research.
     Also testifying at the hearing were Dr. Robert Hirsch from Applied Power Technologies, Mr. Kurt Yeager from the Electric Power Research Institute, and Dr. Robert Shaw from Aretê Incorporated.  Testimony is available on-line from the House Science Committee's website at http://www.house.gov/science/hearing.htm#Energy_and_Environment.  California's Public Utility Commission also has a web site on California's electricity restructuring at http://www.cpuc.ca.gov/elec.shtml.

Pentagon Formally Asks Congress for More Base Closures
     Despite disagreement from most Members of Congress, Defense Secretary William Cohen on Thursday presented a report to Congress arguing for two more base closure rounds on top of the four prior rounds.  In "The Report of the Department of Defense on Base Realignment and Closure," the Pentagon claims that past closures will save billions but that more are still needed.  California was particularly hard hit by the prior closures.  Despite housing only 15% of the nation's military personnel before the closures began in 1988, California shouldered 60% of the nation's net personnel reductions from the first four closure rounds.
     The Pentagon report claims that:  "Annual recurring savings in the post implementation period for each round should approximate $1.7 billion in FY99 dollars."  However, data presented in an appendix to the report indicates that it takes more than seven years before the savings associated with base closures begin to outweigh the costs of closing the bases.  For example, the report estimates that the 1993 BRAC round will have cost $7.7 billion and saved $7.5 billion over the six years from FY94-99.  Likewise, for the six years following the 1995 BRAC round, the closures will have cost $7.3 billion and saved $5.9 billion.  DOD concludes, however, that prior BRAC rounds will produce annual recurring savings of $5.6 billion, and speculates that similar savings would be achieved through any future rounds.
     While not singling out any facility for proposed closure, the Pentagon was required to include a list of its existing unclassified installations within the U.S. with more than 300 personnel.  Of these facilities, 42 are in California.The list includes seven California Army facilities -- a Regional Support Command, the District Engineer Office in Sacramento, Fort Irwin, Oakland Army Base, the Presidio of Monterey, Sacramento Armory, and the Sierra Army Depot.
     The list also includes fifteen Navy facilities in California, including five with San Diego in the title (an Engineering Field Division, a Fleet Industrial Supply Center, Fleet Technical Support, a Naval Medical Center, and the Naval Base-San Diego), as well as the Military Sealift Command Pacific, Naval Air Stations at Lemoore and North Island, the Naval Air Warfare Centers at China Lake and Point Mugu, the North Island Naval Aviation Station, Camp Pendleton Naval Hospital, and three facilities at Port Hueneme (Naval Civil Engineering Center, Naval Construction Battalion Center, and Naval Facilities Engineering Service Center).
     Seven Air Force Bases were noted:  Beale, Edwards, Los Angeles, March, McClellan, Travis and Vandenberg.  Five Marine Corps installations were also mentioned, including the Air Ground Combat Center at Twentynine Palms, Marine Corps Air Stations at El Toro and Miramar, Marine Corps Logistics Base at Barstow, and the Camp Pendleton Marine Corps Base.  Finally, the report listed eight Defense Agency and Field Activity installations, including Defense Distribution Depots at San Diego, McClellan, San Joaquin and Tracy, the El Dorado Defense Contract Management District, the San Bernardino Operating Location, and the San Diego Defense Finance and Accounting Operation Location.
      A complete copy of the report is available at: http://www.defenselink.mil/pubs/brac040298.pdf.  Be advised, however, that this 159-page document is more than 1 megabyte in length.  A Pentagon press release is available at: http://www.defenselink.mil/news/Apr1998/b04021998_bt145-98.html.

ITC Imposes Anti-Dumping Duties on Taiwanese Chips
      The International Trade Commission (ITC) announced on Thursday that Taiwan was dumping Static Random Access memory (SRAM) computer chips on the U.S. market and that the U.S. industry was being materially injured by it.  As a result, anti-dumping duties, ranging from 7.59 percent to 113.85 percent, will be imposed on Taiwanese chips.  At the same time, however, the ITC found that imports of South Korean chips at below market prices were not harming U.S. companies, and therefore no duties would be imposed on those chips.

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