The California Institute

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.

Institute Hosts Annual Reception Honoring California Delegation
Rep. Bono Remembered by Congress
Proposed Welfare Changes Would Ease Burden on Child Support Tracking
Bank of America Report Examines Asian Financial Crisis
ISTEA Likely To Be Delayed Until After Budget Agreement
BART-SFO Rail Extension Settles Local Dispute
Disaster Mitigation Efforts Discussed
Coverdell to Introduce Education Block Granting Bill
L.A. Empowerment Zone to be Announced Saturday
Raytheon to Cut 5,200 California Jobs, but State Aerospace Sector Strength May Mitigate Impact
 

Institute Hosts Annual Reception Honoring California Delegation
 On Wednesday, the California Institute sponsored its annual "Welcome Back to Congress" reception honoring the members of the California Congressional Delegation.  The California Institute would like to thank Bank of America, IBM, GTE, and Lockheed Martin for sponsoring the widely attended event and the California Farm Bureau for its donation of Braren Pauli wine.  More than 150 guests joined a bipartisan cross-section of California Congressional delegation members and staff in making this year's reception highly successful.

Rep. Bono Remembered by Congress
 A memorial service was held for Rep. Sonny Bono on Wednesday in the U.S. Capitol.  Congressman Bono's life was remembered in tributes given by several members of Congress, including Speaker Newt Gingrich, Sen. Dianne Feinstein, and California Representatives Ken Calvert (Corona), Duncan Hunter (Alpine), and Jerry Lewis (Redlands).  Tributes were also offered by Rep. Henry Hyde (IL), Chairman of the House Judiciary Committee, and Ahmet Ertegun and Ruth Brown, colleagues of Mr. Bono from his days in the entertainment industry.  Ms. Brown sang a moving a capella, rendition of the hymn Amazing Grace.
 In addition to the personal remembrances offered by the members, several mentioned Rep. Bono's interest in cleaning up the Salton Sea, and pledged to continue his efforts to ensure federal assistance in the restoration project.

Proposed Welfare Changes Would Ease Child Support Tracking Problem
 The House Ways and Means Subcommittee on Human Resources met Thursday to hear testimony on a proposal to lower the financial penalty imposed on states who fail to implement a statewide computer tracking system for collection of child support.  Installation of a centralized computer system is one of the requirements set forth in the 1996 welfare reform law.
 Among the witnesses providing testimony at the hearing were Senator Diane Feinstein and Leslie Frye, Chief of California's Office of Child Support.  Senator Feinstein noted that 14 states are currently without a consolidated tracking system and that 30% of all child support cases cross state lines, and testified that the consequences of current noncompliance penalties will have a nationwide impact.  The Senator maintained that current penalties would only hurt the 2.36 million families that receive child support and impose an unfair penalty on LA County - the largest county in the nation, serving 550,000 families (25% of California's caseload).  She asked that the subcommittee amend an earlier proposal by Rep. Clay Shaw (Fla.) to reduce the non-compliance penalty formula. Under Feinstein's proposal, states would be penalized 2% of their federal child support enforcement block grant the first year of non-compliance with a ceiling of 8% in the fourth year and thereafter until states meet the system requirement.  Shaw's proposal calls for a state to lose a minimum of 4% and a maximum of 20%.  Under current welfare rules, California could eventually lose its entire welfare block grant.  Feinstein announced that she will be introducing her proposal in the Senate.
 Leslie Frye of the state's Department of Social Services, Office of Child Support, voiced her support for Senator Feinstein's proposed changes and advocated adoption of a corrective action process in assessing non-compliance penalties.  Under this process, states that continue development of their systems under a structured plan are granted "forgiveness" of the annual non-compliance penalty.  For example, if California's plan states that 25 percent of its caseload will be on the automated system by the end of the first year and meets that milestone, the 75 percent "forgiveness" will be applied for that year.  Frye testified that this process is used for oversight by both the Department of Health and Human Services and the Department of Agriculture and has been successful in helping states implement federally-mandated programs.  Frye's also recommended that states be allowed to choose whether to let the federal government keep the penalty payment, or to reinvest it in their Child Support Enforcement Programs.

Bank of America Report Examines Asian Financial Crisis
 The Bank of America has prepared a report examining the impact of the Asian financial crisis on the U.S. economy, particularly highlighting the implications of trade with Asia.  The report points out that 51 percent of all merchandise exports from California are to Asian countries, which is significantly greater than the 29 percent national average.
 Although noting that California exports to Asia began to decline before the onset of the crisis this past summer, the report concludes that the state remains particularly vulnerable to the impact of the crisis.  As Asian demand for products decreases as a result of the economic downturn, U.S. exports to Asia will decrease.  Additionally, according to the report, the devaluation of currencies in Asia has, and will continue, to lower the prices of goods produced in that region, thus leading to increased imports into the U.S. with a resulting downward pressure on the price of domestically produced goods.  In conclusion, the report states that the crisis will impact California in two ways:  (1) lower demand for California exports, particularly in the aerospace, computers, electronic goods, machine tools, and chemicals industries; and, (2) lower prices for California goods, especially in the apparel industry, as companies meet the competition from Asian markets.
 On the more positive side, the report notes that California firms have been adjusting to declining markets in Asia for longer than many other states, which may ameliorate some of the shock to the state's firms.  The report was prepared by John O. Wilson, Executive Vice President and Chief Economist for Bank of America.
 On a related note, Federal Reserve Chairman Alan Greenspan testified Thursday before the Senate Budget Committee that fallout from the Asian economic crisis may slow the U.S. economy in the coming months, leading some to speculate that the Fed will be unlikely to raise interest rates to head off inflation at any point in the near term.

ISTEA Likely To Be Delayed Until After Budget Agreement
 Senate Majority Leader Trent Lott announced this week that the Senate would wait, like the House, to take up its six-year highway reauthorization measure until after an agreement on the level of transportation funding is reached in budget negotiations.  Although Senate leadership had promised last year to make its reauthorization bill, ISTEA II (S. 1173), the first order of business upon returning to Washington, the debate continues in both houses over the appropriate level for transportation funding.  At the end of last session, Senators Byrd (WV) and Gramm (TX) said they plan to offer an amendment to return a 4.3 cent portion of the federal gas tax to highway spending instead of deficit reduction.
 While the Senate sent ISTEA II to the floor last year, the House bill, BESTEA (H.R. 2400), remains in the House Transportation and Infrastructure Committee.  Last year, the House Transportation and Infrastructure Committee held BESTEA in committee to push for increased spending of projected new revenues flowing into the highway trust fund.
 Also still at issue is the funding equity of state allocation formulas.  A coalition of donor states, states that pay more into the highway trust fund than they receive, is pushing for favorable changes to the formulas.  California, a donor state, pays 10.5% of all monies paid into the trust fund.  Under the original ISTEA, California received 9.32% of the allocated formula funds from the highway trust fund.  According to the House and Senate Transportation Committees, BESTEA will return 9.18% of allocated formula funds and ISTEA II 9.14% to the state.  The Donor State Coalition notes that under the state allocation formulas in the House and Senate bills, states will only receive an 85% return on the money paid into the highway trust fund because of the large discretionary and demonstration project funds excluded from distribution by formula.  The funding equity issue is not expected to be addressed until after an agreement has been reached on the overall level of funding for transportation.  The coalition estimates California's return at 87%.
 
BART-SFO Rail Extension Settles Local Dispute
 On Wednesday, the San Francisco Chronicle reported that the Bay Area Rapid Transit District (BART) and the Cypress Lawn Cemetery had reached agreement on the building of the planned airport extension of the rail system to the San Francisco Airport (SFO).  Cypress Lawn in Colma agreed to drop its lawsuit and now joins six other cemeteries located along the route in signing construction agreements with BART.  Last year, Governor Wilson vetoed legislation that would have allowed BART to acquire the right-of-way by eminent domain in the hope that the dispute could be resolved locally.  The BART-SFO rail extension is scheduled for completion in 2001.

Disaster Mitigation Efforts Discussed
 According to Director James Lee Witt, the Federal Emergency Management Agency (FEMA) alone spends on average $2.4 billion annually on disaster response and recovery nationwide (not including costs related to the Northridge Earthquake).  On Wednesday, the House Transportation Subcommittee on Water Resources and Environment Subcommittee held a hearing to discuss FEMA's disaster mitigation programs.  FEMA provides state and local governments with grants and training for mitigation activities primarily through the Hazard Mitigation Grant Program (HGMP) authorized under Section 404 of the Stafford Act.  Under the Stafford Act, the President may contribute grants up to 15% of the total cost of the disaster for mitigation to prevent similar future disasters.  Recently, FEMA named 7 communities, including Oakland, to participate in Project Impact, a pre-disaster mitigation program established last year.  It is designed to create disaster resistant communities through partnerships built with state and local governments, academia, and private industry.  Congress provided $30 million in funds for Project Impact in fiscal year 1998, and Director Witt said President Clinton's budget will again propose, as it did last year, $50 million in fiscal year 1999.
 Calling attention to the complexity of some disaster mitigation efforts, Rep. Buck McKeon (Santa Clarita) testified on the process to obtain environmental permits from the Army Corps of Engineers to clear flood channels.  According to Rep. McKeon, it took Los Angeles County two years to obtain an environmental permit to clear flood channels of debris in anticipation of severe weather from El Niño.  Rep. McKeon has introduced H.R. 2741 that would allow a limited exemption, to repair and clear flood channels, from the environmental permitting process required by the Clean Water Act.  For testimony and other information about the hearing, please visit the Subcommittee's web site at <http://www.house.gov/transportation/water/water.htm>.

Coverdell to Introduce Education Block Granting Bill
 Sen. Paul Coverdell (GA) was expected to introduce legislation on Thursday which would make major changes in federal funding for K-12 education.  Committee work is expected to begin in late February or early March.  The package reportedly would provide $3.5 billion annually for education block grants directly to states, bypassing the Department of Education. The bill would also establish tax-free education savings accounts as well as a limited use of school vouchers.
 In the latest chapter in a conflict between Congress and the White House, the House Education and the Workforce Committee this week passed a measure to prevent any use of national testing unless expressly approved by Congress.  Floor consideration is expected on Thursday, February 5.

L.A. Empowerment Zone to be Announced Saturday
 Four years later than expected, Los Angeles will finally receive its designation as a federal empowerment zone at a ceremony in Pacoima.  Vice President Al Gore will be on hand to officially announce the designation, which will allow businesses located within the zones to take a $3,000 tax credit for every employee hired from the central part of the zone.  In addition to the Pacoima area, located in the eastern San Fernando Valley, empowerment zone status will be designated for portions of central and south central Los Angeles, as well as portions of the harbor area.
 Because Los Angeles was unexpectedly passed over for empowerment zone status in 1994, the federal government agreed to institute a federally-funded Community Development Bank, which has begun loaning funds in these poor neighborhoods.  The Bank, reportedly backed by $740 million, will work in tandem with the tax benefits associated with empowerment zone status.
 Unfortunately, the city still has not received assurances that empowerment zone funds will be available until 2000, though the Los Angeles Times indicates that city sources are pushing hard for tax credit availability in 1999.

Raytheon to Cut 5,200 California Jobs, but State's Aerospace Sector Strength May Mitigate Impact
 Barely a month after completing its purchase of Hughes Electronics, Raytheon Co. announced last weekend that it will eliminate 8,700 jobs nationwide, and that 60% or 5,200 will come from Southern California.  The consolidation will leave the company with 11,600 employees in the state, out of its 87,000 nationwide.  Cuts are expected at facilities in El Segundo, Fullerton, Long Beach, Santa Barbara, and elsewhere.  Raytheon reportedly cut just 300 jobs in Massachusetts, the state in which it is headquartered.
 However, aerospace trade press quotes the Congressional Budget Office predicting this week that the need to replace or refurbish equipment bought during the defense buildup of the 1980s "may give way to higher defense spending in the next decade."  In its report "The Economic and Budget Outlook: FYs 1999-2008," CBO forecast the end of the procurement holiday.  But it tempered its forecast by noting that other factors may come into play to inhibit spending -- such as compliance with outlay caps.  According to Hughes sources, CBO's outlay projections for defense through 2008 are as follows:  $284 billion (`00), $286 billion (`01), $297 billion (`02), $306 billion (`03), $316 billion (`04), $329 billion (`05), $336 billion (`06), $343 billion (`07) and $357 billion (`08).
 In addition, California's aerospace sector has been experiencing a resurgence in recent months, in many cases replacing military jobs with civilian aerospace jobs.  Hughes Space and Communications yesterday announced that it had won a $423 million NASA contract to produce two Geostationary Operational Environmental Satellites (GOES) weather satellites.  The contract carries options for two more weather satellites costing another $376 million.  The satellites will be built at the company's El Segundo facility.