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California Capitol Hill Bulletin

                Volume 9, Bulletin 8 -- March 21, 2002    [or see pdf version]


Governor Delays MTBE Ban

Senators Call For SCAAP Funding Boost

State Attorney General Seeks FERC Refunds for Overcharges in 2000

House Passes FY03 Budget Resolution

Proposed CDBG Shifts Questioned in Housing Subcommittee

Gasohol Impact on Highway Aid Funds Discussed in House Transportation Hearing

Fusion Energy Community Briefs Californians

California Space Authority Outlines NASA's Economic Impact on State

Wine Caucus Letter Seeking Funding to Combat Pierce's Disease Garners Signatures of 44 California Members

Farm Bill Conferees Settle on Spending Levels

Briefing April 12 on Voter Opinions of Welfare and Related Programs

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 in kind donations from Sun Microsystems and IBM Corp.

Governor Delays MTBE Ban

On March 15, Governor Davis issued Executive Order D-53-02, which allows California refineries to delay by up to 12 months the transition from using MTBE to ethanol in producing gasoline. MTBE has contaminated many groundwater sites in the state. The Governor stated that he took the action to "prevent Californians from paying $3 per gallon at the pump." A recent GAO report found that mandating the use of ethanol in gasoline could potentially cause a significant supply problem and result in substantially higher gasoline prices. See, Bulletin, Vol. 9, No. 7 (3/14/02).

Last summer the U.S. Environmental Protection Agency denied California's request for a waiver of the federal oxygenate mandate, even though EPA's own scientific panel declared the mandate ineffective (see The Report of the Blue Ribbon Panel on Oxygenates in Gasoline: The California Congressional Delegation has been working for several years to exempt California from the two-percent oxygenate requirement under the Clean Air Act, because the state has demonstrated that it can meet the Act's emission standards without that requirement.

The Energy Bill currently before the Senate would establish an ethanol mandate requiring California to increase its use of ethanol three-fold, or pay for not using ethanol. Senators Dianne Feinstein and Barbara Boxer have announced that they will seek to amend the bill to at least give California more time to establish the infrastructure needed to meet the ethanol requirements.

The Association of California Water Agencies (ACWA) opposed the decision to delay MTBE phase-out, because it fears that further MTBE contamination of water will occur.


Senators Call For SCAAP Funding Boost

Senators Dianne Feinstein and Barbara Boxer, joined by seven of their Senate colleagues, wrote a letter to the Senate Budget leaders urging $750 million in funding for the State Criminal Alien Assistance Program (SCAAP). The letter, dated March 15, 2000, states that "[g]iven the importance of securing our nation's borders, and our renewed efforts to rid our country of terrorist cells, we encourage you to include funding for SCAAP at no less than $750 million [in the FY03 budget]." It is addressed to Budget Committee Chairman Kent Conrad (ND) and Ranking Member Pete Domenici (NM).

SCAAP received $565 million in funding for FY02, although the President's budget had proposed a $300 million cut in funds. In this year's budget, the President proposed eliminating funding for the program altogether. California receives about 40 percent of SCAAP funding; in FY01, the state and local governments received $225.7 million.

The Senate Budget Committee has been marking up the FY03 budget this week.


State Attorney General Seeks FERC Refunds for Overcharges in 2000

On Wednesday, April 20, California Attorney General Bill Lockyer filed a complaint with the Federal Energy Regulatory Commission (FERC) seeking refunds for billions of dollars that he alleges were overcharged for electricity during California's energy crisis.

The complaint disputes all electricity sales into California during the energy crisis prior to October 2, 2000. FERC to date has refused to order refunds prior to that date. Experts estimate that rates charged before October 2001 exceeded just and reasonable levels by $1.8 to $2.8 billion, and the Attorney General's petition seeks refunds of those excess charges. The state has previously challenged overcharges for other periods, and FERC already has ordered refunds on energy spot market transactions between October 2, 2000 and June 21, 2001. See Bulletin, Vol. 8, Nos. 820 (6/22/01) and 824 (7/27/01).

"California wants full refunds from power companies that charged unjust and unreasonable prices for short-term sales in California before October, 2001," Lockyer said. "Under the Federal Power Act and FERC's own orders, California energy wholesalers should have filed every rate they charged in California with FERC so that the regulatory agency could do its job of determining whether the prices were just and reasonable. The power companies have not filed any of their market-based rates, making every sale illegal and subject to review and refund for excessive charges." Later, the statement alleges, "By not filing their rates, either before or after the fact, wholesale power providers have managed to evade any meaningful rate regulation by FERC. That is neither what Congress intended when it enacted the Federal Power Act nor what the law clearly requires."

California's ISO estimated total power overcharges at nearly $6 billion. To date, FERC has proposed refunds for only $124 million in alleged overcharges for energy sales in January and February 2001 when electricity reserves in the state dropped below critical levels during acute power emergencies.

The complaint also challenges as overpriced the short-term sales of energy to the State Department of Water Resources (DWR), which spent $10 billion for spot market electricity during the first 10 months of 2001, and asks for FERC refunds to the extent that any rate charged was unjust and unreasonable. In separate action, the California Public Utilities Commission is asking FERC to find that the prices paid under the state's long-term contracts are unreasonable. (See Bulletin, Vol. 9, No. 5 (2/29/02).


House Passes FY03 Budget Resolution

By a vote of 221-209, the House passed the FY03 Budget Resolution (H. Con. Res. 353) on Wednesday, March 20. The $2 trillion measure substantially follows the President's budget released in February. The budget provides $393.8 billion for national defense; the largest increase in 20 years, and $37.7 billion for homeland security in FY 2003; almost double what was spent before September 11. The defense spending increase includes the following:

- 4.1 % across-the-board pay raise for military personnel, in addition to this year's 4.6 % raise;

- $68.7 billion for military procurement;

- $140.4 billion - a $12.7 billion increase - for readiness to conduct operations; and

- $53.9 billion for research, development, testing, and evaluation.

Other major categories of funding, include:

- First responders: $3.5 billion for local police, fire, and emergency personnel to provide training, personnel, and equipment needed to respond to terrorism;

- Bioterrorism: $5.9 billion to counter bioterrorism through research, vaccine stockpiles, improved information networks, and enhancements in the health care system.

- Borders: $10.6 billion (a 22% increase) for border security, including increases for the INS, Customs Services, and Coast Guard to hire additional agents (570 new Border Patrol agents and 1,160 new inspection agents), and implement better information systems.

- Aviation Security: $4.8 billion for aviation security to implement new airport security equipment and to hire more screeners and law enforcement personnel.

- Food Supply Safety: $880 million to protect the nation's food supply, including

consumer protection efforts, pest and animal disease prevention, and research.

The budget also calls for a $1 billion increase for Special Education, with full funding of IDEA within ten years, and a $1 billion increase in Title I grants to low-income schools. Additionally, it provides an additional $1.2 billion in outlays for highway and highway safety funding for fiscal year 2003, which the Committee's expects to provide sufficient outlays to restore the $4.4 billion in budget authority that would be cut in fiscal year 2003 were the budget authority provisions of TEA-21 implemented.

For a more detailed summary of the resolution's provisions, go to the Committee's website at: .


Proposed CDBG Shifts Questioned in Housing Subcommittee

On March 14, the Housing and Community Opportunity Subcommittee of the House of Representatives held an oversight hearing on the Community Development Block Grant (CDBG). Buffering bipartisan criticism from subcommittee members, Assistant Secretary of the Office of Community Planning and Development, Roy Bernardi, gave testimony defending the Administration's proposed block grant cuts to the nation's nine wealthiest communities.

In FY2003, CDBG would provide $4.4 billion in housing and community development assistance funds to low-moderate income communities, as well as senior and disabled persons. However, the CDBG budget proposes a 50 percent reduction in annual CDBG allocations to the wealthiest one percent of grantees, those with a per capita income twice the national average. Three California communities out of nine nationwide will suffer CDBG losses from this policy shift, namely Newport Beach, Palo Alto, and Santa Monica.

According to Mr. Bernardi, these cuts will make an extra $8.6 million available for redistribution to all remaining grantees. "By reallocating the funds from the wealthiest communities," Mr. Bernardi said, "the Department will be able to target CDBG funds to communities that have lesser local resources for housing, community and economic development needs."

Committee members acknowledged the existence of greater needs in a time of fewer resources but some were skeptical of Mr. Bernardi's strategy. Subcommittee Chair Sue Kelly (NY) made the point that pockets of poverty exist in all communities and acknowledged that it would be rash and unwise to cut funding now without reevaluating the formula for funding distribution within communities first. Ranking member Barney Frank (MA) also urged more sophisticated formula and statistical techniques in evaluating communities noting that per capita income can be affected by deceptive population shifts. Rep. Frank went on to note that the $8.6 million saved from the budget proposal would amount to a mere 0.5% of the overall CDBG budget - not enough to have a significant impact on poverty reduction in deprived areas.

An alternative legislative measure authored by Rep. Carrie P. Meek (FL) was also introduced in committee. H.R. 1191 seeks to change the formula for CDBG fund distribution by requiring all grantees to directly spend 80 percent of their funds on low-moderate income persons and at least 40% of CDBG funds to directly benefit those with the lowest incomes from grantee communities. Additionally, it would require proportional accounting to ensure funds are used as intended.

The US Department of Housing and Community Development (HUD) currently has no position on H.R. 1191, although Mr. Bernardi raised concerns about the loss of flexibility from such statutory modifications.


Gasohol Impact on Highway Aid Funds Discussed in House Transportation Hearing

The House Highways and Transit Subcommittee of the House Transportation and Infrastructure Committee held a hearing on March 20, 2002, to discuss the shortfall in revenue from declining gas tax receipts affecting the limitation of FY2003 highway aid transportation funds. Committee members heard testimony from experts in evaluation of the current mechanism used to calculate highway-aid funding, the Revenue Aligned Budget Authority (RABA), user fee policies to maintain the Highway Trust Fund (HTF), and the emerging impact of gasoline-ethanol based fuels on Highway Trust Fund revenue.

According to a study from the General Accounting Office (GAO), because of revenue overestimations and poor gas tax receipts due to a weakened economy, the annual RABA adjustment for money to fund highway projects for FY 2003 will decrease from the level guaranteed under the Transportation and Equity Act of 2001 (TEA-21) by $4.369 billion (which, in fact, is $8.6 billion less than the actual funds allocated for FY2002). According to Caltrans officials, California's $618 million share of those lost funds would be the largest single hit in the nation; threatening to harm 20,000-25,000 California jobs.

The increased use of ethanol blended fuel or gasohol has significantly contributed to the loss of available highway revenue from the HTF in two ways. First, in order to encourage the consumption of an alternative fuel, gasohol is exempt from standard gasoline excise taxes; second, 2.5 cents of the tax per gallon of gasohol sold is diverted from HTF to the general fund. Consequently, between 1998 and 2001 gasohol alone cost HTF $3.86 billion in forgone revenue and $2.15 billion in general fund transfers, according to the GAO. These figures are only expected to increase as gasohol is predicted to gain prominence over the next ten years. According to the GAO's testimony, between FY2002 and 2012 gasohol consumption will do an additional $13.72 billion of damage in forgone revenue and $6.92 billion from losses to the general fund.

Donna McLean, Chief Financial Officer of the Department of Transportation also discussed the problem of gasohol as well as her agency's efforts to examine alternatives to the current RABA whereby dramatic fluctuations in the formula would prevent reduced stability in available highway aid funding. Her recommendations are expected to be included when the proposal for TEA-21's reauthorization is submitted next year.


Fusion Energy Community Briefs Californians

On Wednesday, March 20, members of the fusion energy science community, which is largely centered in California, met individually with members and staff of the California Congressional delegation. The participants in "Fusion Day," which included representatives of universities, laboratories and industries, urged support for fusion sciences in the energy budget and appropriations bills.

The Department of Energy's accounts for fusion sciences have declined substantially in real-dollar terms over the past several years. In the early 1990s, fusion energy sciences funding was roughly $400 million in 2000 dollars; by 2000, that level had fallen to $250 million, although that level did constitute an increase over immediately preceding levels. The U.S. fusion research community is seeking a funding level of $335 million for fusion energy sciences, as has been approved by the House.

Earlier in this Congress, letters led by Rep. Randy "Duke" Cunningham (San Diego) highlighted the various benefits of fusion energy science research and cited objective review panel findings to promote budget increases. One letter, which garnered a bipartisan majority of the California Congressional delegation, referenced California's energy difficulties, stating "If we have learned anything from the lessons of the past, it is that the response to this most recent energy crisis must be to broaden and deepen our energy options for the future and to act to address the problem in the short, medium and long-term."

Fusion energy is one of only a very limited selection of environmentally benign long-term energy options, and the DOE program seeks to develop the scientific and technical basis for the nation to deploy fusion power at the earliest possible date. While significant progress has been made, recent flat budgets and prospect of more will leave a number of opportunities without adequate exploration, including a burning plasma experiment, materials and technologies, smaller Innovative Confinement Concepts, inertial fusion research, centers of excellence, and wider use of existing facilities. The fusion community's materials state that an FY03 level of $335 million would have a dramatic impact on scientific progress toward a practical fusion energy source.

For further information regarding fusion, refer to the General Atomics fusion group website at or the DOE fusion page at .


California Space Authority Outlines NASA's Economic Impact on State

California leaders in the space science, research and development community visited Washington this week to impress upon the state's Congressional delegation the importance of NASA and space activities, as well as to urge that commercial satellites, a key engine of economic growth in California, be removed from the U.S. Munitions List. The California Space Authority, a nonprofit corporation representing the interests of California's diverse space enterprise communities in the commercial, civil and national security domains, held meetings with and hosted a reception for California delegation members and staff.

CSA noted that there are 10 NASA centers nationwide, and California is the only state to host three of them -- the Jet Propulsion Laboratory at Caltech in Pasadena, which conducts on robotic exploration of the solar system, among numerous priorities, and provides 4,900 jobs; the Ames Research Center in Mountain View, which focuses on information technology, astrobiology and aviation operations systems and accounts for 1,500 jobs; and Dryden Flight Test Center in Mojave, which conducts research and testing of high performance aircraft and provides 600 California jobs. In addition, NASA contracts account for $2.9 billion in the state's economy, including $1.6 billion in the education community, $952 million to large businesses, $201 million for small businesses, and $104 million for nonprofits.

The CSA representatives noted that the commercial satellite industry accounts for more than 10,000 highly skilled California jobs, but that the market has fallen 25 percent over the past three years, and they also note that the transfer of jurisdiction over commercial satellite exports to the State Department has impacted sales considerably. Reps. Dana Rohrabacher (Huntington Beach) and Howard Berman (Valley Village) have introduced H.R. 1707 to remove satellites from the Munitions List while safeguarding U.S. technology, language which was included in Export Administration Act legislation by the International Relations Committee but excluded by the Armed Services Committee version. Industry representatives expressed concern that export licenses includes U.S. technology generally available in the international marketplace and impede the ability of U.S. satellite companies to obtain insurance. They add that U.S. national security interests would be undermined if the nation's industry loses its lead in the development of leading edge products and services.

For reference, dollar totals for NASA contract awards in every California Congressional district are available at . Note that the FY 2002 figure is only partial, while prior years' data are for the full year.

For additional information, refer to the CSA website at


Wine Caucus Letter Seeking Funding to Combat Pierce's Disease Garners Signatures of 44 California Members

A remarkable 63 Members of Congress from 12 states responded to an invitation to endorse a letter addressed to House Appropriations Agriculture Chair Henry Bonilla (TX) and Ranking Member Marcy Kaptur (OH), requesting additional funding in FY2003's Agriculture Appropriations bill to fight the persisting threat of Pierce's disease and the pest that spreads it, the glassy-winged sharpshooter. The letter supported by 44 Californian members is authored by the joint-Chairs of the Congressional Wine Caucus, Reps. Mike Thompson (St. Helena) and George Radanovich (Mariposa).

Pierce's disease, an ailment that infects California grape vines has already cost growers $40 million in damages in Temecula alone in the last decade, and its eradication is the $2.7 billion California wine and grape industry's number one priority.

The Dear Colleague letter requests $27.7 million in FY2003 for containment, control and research activities.

The Congressional Wine Caucus was formed in 1999 to examine and support issues affecting the American wine industry. It is a bipartisan, bicameral organization with 204 Senate and House members from 47 states.


Farm Bill Conferees Settle on Spending Levels

Farm bill conferees came to consensus on levels of funding for each section of the farm bill on March 20 and resolved a $6.1 billion error in the cost of the Senate version. The overall cost of the bill will not exceed $73.5 billion over ten years-the amount set aside for agricultural programs in last year's budget resolution (H-Con Res 83). Policy conflicts remain over some of the bill's key provisions and will be taken up after the Spring recess.

When debate on the measure began last week on March 13, Conferees were met with a cost issue impediment from an unexpected miscalculation by the Congressional Budget Office (CBO). It was revealed that the CBO had underestimated the Senate-written bill's cost by $6.1 billion. The cost error was made in the commodity section of the bill -- one of the legislation's most contentious.

The current agreement allocates $46 billion for commodities, $17.1 billion for conservation programs, $6.4 billion for nutrition, $3.3 billion for forestry, research and agricultural credit, and $2.6 billion in "cushion" funds not yet assigned for use in conferee negotiations.

An issue of great concern to agricultural interests is how the Conferees will resolve the issue of crop-subsidization caps. The Senate version of the farm bill would lower crop-payment limits from $460,000 to $250,000 per-farm, per-year and eliminate loopholes that may enable some farms to collect unlimited government subsidies. The House version diverges from the Senate by raising the cap on federal payments to farmers to $550,000.

Other issues awaiting reconciliation include specialty crop assistance, food stamp assistance for immigrants, government water-right purchases, a five-year $1.5 billion dairy program, and restrictions on meat packing companies' ownership of livestock.

California Reps. Cal Dooley (Hanford), Richard Pombo (Tracy), and Gary Condit (Ceres) are members of the Conference Committee.


Briefing April 12 on Voter Opinions of Welfare and Related Programs

On Friday, April 12, from 12:00 to 1:30 p.m., the California Budget Project will hold a briefing on California voters' opinions of welfare reform and related programs. The briefing will feature Diane Feldman, Principal of the Feldman Group, Inc., a Washington, D.C. public opinion research firm. The briefing will focus on voters' attitudes toward issues that will be considered as part of the Congressional debate over the reauthorization of the Temporary Assistance for Needy Families (TANF) block grant, including time limits on cash assistance, work requirements, and education and training. Jean Ross, Executive Director of the California Budget Project, will discuss the potential impact on California of changes to the TANF program proposed by the President, as well as those contained in measures pending before Congress.

The briefing will be held on April 12 from 12:00 to 1:30 p.m. in Room B-354 of the Rayburn House Office Building. Lunch will be served. For more information, visit the CBP website at or contact the California Budget Project at or 916-444-0500.

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