House passes Immigration Reform; Passes Gallegly Amendment separately and Sends Both To Senate The House on Wednesday passed H.R. 2202, the sweeping immigration reform bill aimed at curbing illegal immigration into the United States and cutting some of the benefits received by legal immigrants. As part of a deal to forestall a filibuster in the Senate, the House dropped the controversial Gallegly amendment on educating undocumented children and sent that provision to the Senate separately. The vote on the reform bill was 305-123; on the Gallegly amendment, now called H.R. 4134, the vote was 254-175. The immigration reform bill calls for 5,000 new border patrol agents over five years, which will double the number of agents at the border. In addition, a three-tier fence along the San Diego border is authorized and the number of other INS inspectors and personnel will increase. A voluntary worker verification pilot program is established under the bill, allowing employers to call a toll-free hotline to determine the employment eligibility status of a prospective worker. The bill also stiffens penalties for document fraud and illegal alien smuggling, and expedites the deportation of undocumented aliens. In order to reduce the risk of document fraud, the states will be required by the year 2000 to meet new federal standards for drivers' licenses and birth certificates. Also, the bill makes clear that illegal immigrants are ineligible for all federal social benefit programs, other than emergency medical services and child nutrition programs. The bill also restricts the benefits that legal immigrants can receive. The length of time that a sponsor's income is deemed to be the immigrant's income is extended to ten years, or the date on which the immigrant becomes a citizen. Additionally, legal immigrants receiving most means-tested federal benefits for more than one year during their first seven years in the country will be subject to deportation. Furthermore, required income levels for U.S. citizens wishing to sponsor a legal immigrant's entry into the U.S. have been increased to as much as twice the poverty level. Opponents of the bill argued that the restrictions on legal immigrants are too harsh, while those aimed at employers who hire undocumented workers are not strong enough. In addition, critics decried the weakening of anti-discrimination protections for workers, the denial of Medicaid benefits to HIV-positive legal immigrants, and the waiver of the Endangered Species Act and National Environmental Policy Act for border construction projects. The final version of the Gallegly amendment, approved by the House yesterday as H.R. 4134, would allow any undocumented student enrolled in public school as of January 1, 1997 to finish high school. Although the measure passed the House by a wide margin, the Senate is not expected to act on it before it adjourns. It will take up the larger immigration reform bill shortly. House Judiciary Holds Hearing on Export of Encryption Systems The House Judiciary Committee on Wednesday held a hearing on H.R. 3011, which would allow U.S. companies to export software and hardware containing stronger encryption programs than those currently allowed to be exported. The Committee heard from Deputy Attorney General Jamie Gorelick of the Department of Justice, and Deputy Director William Crowell of the National Security Agency, as well as bill sponsor Rep. Bob Goodlatte (VA). In addition, the following panel of industry representatives testified: Melinda Brown, representing the Business Software Alliance; Roberta Katz representing the Information Technology Association of America and the Software Publishers Association; Patricia Ripley, Managing Director, Bear Stearns & Co.; and Charles Deneka on behalf of the National Association of Manufacturers. Encryption programs prevent an unauthorized user from gaining access to personal information, financial transactions, and the like. As the use of computers and the Internet has continued to grow there has become a growing need for protecting information transmitted through electronic communications. Rep. Goodlatte's bill would allow the export of encryption software and hardware if a product with comparable security is commercially available from foreign suppliers. Currently, the U.S. prevents U.S. companies from exporting any encryption product of more than 40 bits. The current world standard is the Data Encryption Standard (DES) with 56-bits. The Administration witnesses welcomed the dialogue with the committee, but stressed that although the ability to encrypt computer programs to protect personal security and privacy is important, that must be balanced against public safety and national security interests. The Administration's concern is that if stronger and stronger encryption programs proliferate worldwide, it will adversely affect the United States' and other countries ability to protect against national security risks, terrorist threats, and other criminal activity. Thus, the Administration is working on developing a system based on key management and recovery. Although the details have not been worked out, in principal, the system would require encryption programs to have a "key" that could be used to decrypt them. These keys would be held by a designated escrow agent. The escrow agent would be authorized to release the key to the owner of the encryption program, if the owner forgot the key or the program was tampered with or corrupted in some way. The key would also be available to law enforcement agencies, after approval by a federal court under procedures similar to those used currently to obtain wiretaps and the like. The key would gives these agencies access to data and information regarding suspected criminals. The industry representatives argued that America was close to losing its competitive lead in the global computer software industry if encryption export controls were not loosened immediately. Ms. Katz, who is Vice President and General Counsel of Netscape Communications, detailed a multi-million dollar deal with Germany that her company lost because it could not sell its 128 bit key length encryption program overseas. These witnesses argued that there are hundreds of encryption alternatives now available, or soon to be available, from foreign manufacturers. Ms. Brown of the Business Software Alliance called on the U.S. government to immediately allow export of 56-bit key length encryption and to automatically increase the exportable key lengths to keep up with computer power advances. Because many developers of encryption programs are located in California, this issue will continue to be significant to the state's economic growth. Action on H.R. 3011 in the limited time left this year is not expected; but the Committee hopes to work with the Administration to develop legislation for early consideration next year. Copies of the witnesses testimony can be obtained directly from the Committee's home-page at www.house.gov/judiciary. House Acts on Water Bills; Bay-Delta Funds Bill Gains 45 CA Sponsors The House passed two bills under suspension of the rules this week dealing with water issues. The first, H.R. 3217, would extend to all U.S. waters a voluntary program initiated in 1990 aimed at preventing the introduction of non-indigenous invasive species into local waters. The introduction of this marine life primarily comes from ships that enter a port area in ballast and discharge the "imported" ballast water before loading cargo. The result is often the introduction of crabs, clams, worms, and other marine life, into the ecosystem. These species can become established in their new home and destroy the natural marine life that makes up the food chain. In addition, some of these species, such as the zebra mussel and wood-boring clams, can damage wharves and piers and foul water intake pipes used by a city's water system. These problems have been of particular concern for California, especially in the San Francisco Bay/Delta Estuary. California now spends $400,000 annually to control non- indigenous plants in the Bay/Delta, and has spent $1 million to keep a single exotic fish from reaching the Delta. H.R. 3217, passed by voice vote, would authorize $174 million over the next seven years for the development of programs to deal with the problem. The House also passed S. 811 by voice vote on Tuesday. The bill authorizes $55 million over the next several years to fund the research and development of methods of making saltwater useable. States receiving grants under the program for R&D projects would have to match the federal dollar level. For California, where useable water is already very scarce, R&D of water desalinization programs could have great benefit. In other water-related developments, the Bay-Delta funding bill introduced by Rep. Bill Baker has now garnered 45 of the 52 members of the California congressional delegation as co-sponsors. The bill, entitled the "California Bay-Delta Environmental Enhancement and Water Security Act, will authorize $143 million annually for fiscal years 1998 thru 2000 to be used for environmental enhancement and habitat restoration in the Bay-Delta region. Members wishing to co-sponsor the legislation should contact Patrick Sullivan in Rep. Baker's office at x51880. California Think Tank Finds Correlation Between California's Economic Health and Illegal Immigration Flows The Public Policy Institute of California (PPIC) released a study early this week aimed at quantifying the flow of illegal immigrants into the state from 1980 to 1993. The study finds that illegal migration to the state averaged under 100,000 per year in the early 1980s, surged during the late 80s when California's economy was also growing rapidly, and then fell off again at the beginning of the 1990s as California's economy declined. (The study does not address 1994 to the present, as data is not yet available.) Chief demographer of the project, Hans Johnson, contends that the driving force behind the increased illegal migration was probably California's strong economy during the latter half of the 1980s. But he also states that it may have been a one-time phenomenon related to the wave of undocumented immigrants joining relatives who were eligible for amnesty under the Immigration Reform and Control Act of 1986. The study concludes that between 1.3 million and 2.2 million illegal immigrants moved to the stated between 1980 and 1990, accounting for between 22% and 31% of the state's population growth during that time. Copies of the 133-page study can be obtained directly from PPIC at (415)291- 4400. CaliforniaÕs 1995 Poverty Rates Down and Median Household Income Slightly Up, According to Census Bureau Report Between 1994 and 1995, for the first time in six years, households in the United States experienced an annual increase in median income after adjusting for inflation, and the number of Americans living below the poverty level dropped for the second straight year. This is according to three reports released today by the Commerce Department's Census Bureau. State data on income, poverty, and health insurance also are included in the reports entitled, "Money Income in the United States: 1995," "Poverty in the United States: 1995," and "Health Insurance Coverage: 1995." ÒIn 1995, there were 36.4 million poor people living in the United States, 1.6 million fewer than recorded in 1994. Also, 13.8% of the nation's population were living below the poverty level in 1995, a rate lower than the 14.5% noted for the previous year,Ó according to Daniel Weinberg, chief of the Census Bureau's Housing and Household Economic Statistics Division. Although the percentage of Californians living in poverty continues to exceed the national average, that rate has dropped for the third consecutive year. In 1995, 16.7% of Californians fell below the poverty line, this compares to 17.9% in 1994 and 18.2% in 1993. According to the Census Bureau report, the median income of households in 1995 was $34,076 or 2.7% higher than the 1994 inflation-adjusted amount of $33,178. Even though overall household income has not yet recovered to its 1989 pre-recessionary peak of $35,421 (in 1995 dollars), the gap has narrowed. In California, the 1995 household median income reached $37,009, a 1.9% increase over the 1994 level. These figures show slightly less impressive gains than the state-specific per-capita income figures released by the Bureau of Economic Analysis earlier this week. These data indicate that CaliforniansÕ per capita income rose from $22,778 in 1994 to $24,073, in 1995. (Note: the BEA figures are not adjusted for inflation.) This is the first year the Census Bureau is presenting poverty and income estimates for immigrants. The poverty rate of the native-born population declined from 13.8% in 1994 to 13.0% in 1995, while the rate among foreign-born individuals remained unchanged at 22.2%. The real median income of households maintained by a person born in the U.S. rose by 3.1%, to $34,784, between 1994 and 1995. In comparison, the median income of foreign-born households was unchanged at $28,352. In 1995, a higher proportion of the foreign-born population in the U.S. was without health insurance (32.5%), compared with the native-born population (13.6%). The website for these products is: http://www.census.gov/prod/www/titles.html. Conference Committee Preserves Defense Restructuring Program House and Senate Conferees to the defense appropriations bill decided to preserve the Pentagon's system of assisting defense companies cover the costs of merging and restructuring. Recently merged companies that have been promised payments by the Pentagon include Lockheed Martin, which stands to receive about $1 billion, and Hughes Electronics Corporation. Opponents characterize the plan as a Òpayoffs-for-layoffsÓ scheme, while supporters argue that it encourages industry-wide consolidation in a way that ultimately reduces taxpayer costs and helps minimize the pain for laid-off employees. In an effort to insure that the program will achieve just these results, the conferees required companies to show planned savings of $2 for every $1 dollar paid by the Pentagon, up from the current 1-for-1 ratio. Sources suggest, however, that the Pentagon already informally utilizes the higher ratio. Although this issue is presumably settled for this budget go-round, it will likely re- emerge as a budget issue next year. The conference report included a Senate request for a study of the issue, primarily by GAO, over the next six months. Pentagon Plans November Announcement of Remaining Joint Strike Fighter Contract Contenders Earlier this week, the Pentagon revealed its plans to announce the elimination of one of the three aerospace firms competing for the contract to build the next generation of tactical strike aircraft. The announcement is expected in mid-November, after the election. Known as the Joint Strike Fighter (JSF), the plane will be used jointly by three branches of the armed services, and the winner of the contract may find itself well positioned to be a dominant force in the defense aerospace industry. The purpose of the JSF program is to consolidate the production costs of the six fighters currently used by the U.S. military into three versions of one fighter with the capacity for both warship and conventional take-offs. The winning contractor can expect contracts totaling $1 trillion over a 20- to 30-year period. The Department of Defense plans to buy 2,800 of the planes by the year 2025, at a cost of around $34 million per plane. While California firms will serve major roles in all three proposals as subcontractors, the prime contract competitors include Boeing, Lockheed Martin, and a team of McDonald Douglas/Northrop Grumman/British Aerospace. The three firms submitted their bids to the Pentagon this past June. The final contract will be awarded in 2000, following a Òfly-offÓ of the two remaining competitorsÕ prototypes, with the first plane being delivered in 2008. House Holds Hearing on ISTEA Reauthorization On Thursday, the House Subcommittee on Surface Transportation held another in its series of hearings on the reauthorization of the Intermodal Surface Transportation Efficiency Act (ISTEA). The purpose of the hearing was to address two separate topics: (1) the efficient delivery of transportation improvements, and (2) the Congestion Mitigation and Air Quality Program (CMAQ). The first three panels of witnesses discussed ways to improve the delivery of surface transportation programs, especially legal changes that could reduce granteesÕ costs and accelerate project completion. Presenting testimony on this topic were representatives from the Administration, state departments of transportation, transit authorities, and other interested parties. The final two panels of witnesses presented testimony related to the CMAQ program and its ability to improve air quality in non-attainment areas. Appearing before the committee on this matter were representatives from the Federal Highway Administration, the Environmental Protection Agency, state departments of transportation, state air quality officials, representatives from metropolitan areas and other interested groups. The text of the witnessesÕ testimony can be found at the SubcommitteeÕs website: www.house.gov/transportation. Last Gasp Effort to Reauthorize Special Education would Retain California-Unfriendly Funding Formula With only a week or less remaining in the 104th Congress, Senate education staffers are trying to work out differences with between House and Senate versions of a bill to reauthorize the Individuals with Disabilities Education Act (IDEA). The new proposal would retain the current funding formula for distributing IDEA funds. Current law distributes funds based on state-reported counts of disabled individuals, which critics claim can lead to inaccuracy and exaggeration by some states. The original House proposal would have instead instituted an objective formula based on numbers of children -- increasing CaliforniaÕs share substantially. The stateÕs share would eventually have risen from $229 million to $260 million under the House Committee plan. The latest proposed plan would leave CaliforniaÕs funds at the $229 million level. Eight California High-Poverty School Districts Receive School-To- Work Grants The Education and Labor departments have awarded more than $4.9 million to eight California high-poverty school districts as part of the second phase of the 1994 School-to-Work Opportunities Act. The school districts, in Chula Vista, Firebaugh, Inglewood, Oakland, Quincy, San Pablo, Santa Ana, and West Covina, will receive the awards in an effort to, as Education Secretary Richard Riley noted, "address the lack of resources, opportunities and role models that may place young people in high-poverty areas at additional risk." California's share of the total $17 million award is nearly 29%. EU Backs Away From Information Technology Duties Cuts Acting U.S. Trade Representative Charlene Barshefsky said Friday that the European Union appears to be backing away from its previous support for a global agreement to cut duties on information technology. The idea of an information technology agreement was reached last spring at a meeting in Japan of the trade ministers of the European Union, Canada, Japan, and the United States. The agreement would cover a wide range of products, including semiconductors, computer hardware and software, and telephone equipment. The agreement was intended to balance Europe's disproportionately high tariffs on information technology products. The United States and Japan have very low, or in some instances, zero import duties on those products. Barshefsky said that the four ministers will take up the issue again next week when they meet in Seattle. Governor Wilson Signs Utilities Deregulation Bill On Monday, Governor Pete Wilson signed legislation to deregulate the state's electric utilities industry and broaden the sale of electricity. The sweeping changes will represent the largest such deregulation in the country. Proponents argue that millions of households and small businesses will experience at least a 10% drop in their electrical bill by 1998 with further drops expected by 2002, and that manufacturers may see as much as a 30% cut by 2002. A handful of states have been moving toward electrical deregulation since Congress approved legislation authorizing an open, wholesale electrical market in 1992. Under the legislation approved by the governor, privately owned utilities such as PG&E, San Diego Gas & Electric, and Southern California Edison -- whose operations are currently limited to specific regions of the state -- will be able to compete for customers across a $21 billion customer market that stretches from Oregon to the Mexico border. The rate cuts will not affect those covered by publicly-owned utilities such as SMUD in Sacramento and the Los Angeles Department of Water and Power. The legislation allows utility companies to include in the rate base charges to help utilities pay off $29 billion in Òstranded costsÓ, including costs of constructing nuclear power plants and buying power from cogeneration facilities which were previously required by the PUC. The utility companies defend the clause by insisting that they need to expunge all debts before they can compete in the private market. The Governor has until Monday at midnight to either sign or veto the remaining 460 bills that the Legislature sent to his desk. CA & US Unemployment Rates Decline in August, But StateÕs Level Remains nearly 2% Higher; Recent Jobless Claims Rise CaliforniaÕs unemployment rate dropped from 7.2% in July to 7% in August, while the national rate fell from 5.4% to 5.1% for the same period, the Labor Department announced last Friday. CaliforniaÕs decline is good news, but the discrepancy is a reminder that the stateÕs economy still has some recovering yet to do. The nation gained 250,000 jobs in August; California gained 34,000, nearly 10,000 of which came in the services sector. Government employment in the state reportedly rose 6,500, and construction added 5,800. The UCLA Business Forecasting Project estimates that California employment will grow 3% in 1996 and 1997. Regional and county figures showed good news for Los Angeles, which has lagged even the statewide average for some time. According to the stateÕs Department of Finance, unemployment in Los Angeles County fell more than half a point from 8.3% in July to 7.7% in August. Joining Los Angeles County at levels substantially below July but still well above the statewide rate were neighboring Riverside and San Bernardino Counties. Riverside County unemployment fell from 9.8% in July to 9.2% in August, and joblessness in San Bernardino County declined from 8.1% in July to 7.4% in August. Ventura County saw a slight jobless rate increase from 8% to 8.1%. (Please note that rates for the nation, state and L.A. County are seasonally adjusted, while other figures are not. Unadjusted figures for the state showed a decline from 7.7% to 6.9%, and for L.A. County from 9.1% to 8.1%.) Jobless levels were better in most of the rest of the state. San Diego CountyÕs rate fell from 5.8% in July to 5.3% in August on the strength of increases in construction, retail trade and services. Surging Orange County saw unemployment fall from 4.5% to 4.2%. Rates in the Bay Area were considerably better on average than in Southern California. San FranciscoÕs August unemployment rate was 5%, Alameda CountyÕs 6.1%, Marin CountyÕs 3.1%, and San Mateo and Santa Clara each had a 3.6% rate. A separate report issued today by the Labor Department said that initial claims for unemployment rose for the week ended September 14 by 11,000 nationwide and 8,000 in California. State officials reportedly attributed the increase to layoffs in agriculture and to the fact that the 5-day week followed a Labor Day-shortened weekÕs lowered claims. Orders for Defense Goods Rise in August, Other Durables Fall U.S. manufacturing orders fell sharply last month, but orders for defense goods rose. Figures released by the Commerce Department on Thursday showed nationwide durable goods orders falling 3.1% in August to $167 billion, after having risen 1.4% in July. Defense goods, still a critically important sector for California, were one of the only categories of manufactured goods to see an increase in August. Orders for defense goods rose 9% to $5.2 billion in August, after a steep 40.9% decline in July. Employment figures released late last week show that the defense industry gained 300 California jobs in August and has gained 1,400 since February, when defense employment reached bottom at 163,400. This level represents a 60% decline from the industryÕs 1987 high water mark.