California Capitol Hill Bulletin, 5/23/97 Page 1 THE CALIFORNIA INSTITUTE FOR FEDERAL POLICY RESEARCH 419 New Jersey Avenue, SE, Washington, D.C. 20003 Voice: 202-546-3700 Fax: 202-546-2390 e-mail: ransdell@calinst.org California Capitol Hill Bulletin Volume 4, Bulletin 18 -- May 22, 1997 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. SENATE JUDICIARY REPORTS OUT SUBSTITUTE PATENT REFORM BILL The Senate Judiciary Committee reported out favorably S. 507, the Omnibus Patent Act of 1997, after approving by voice vote a substitute offered by Chairman Orrin Hatch (Utah). The substitute language, like the original bill, is intended to bring U.S. patent laws into harmony with other industrialized countries and will convert the Patent and Trademark Office to a government corporation. However, the substitute provides for an exception to the early publication requirement contained in the original bill. The original bill required that all patent applications be published after 18 months. Under the Hatch substitute, where an applicant certifies that patent applications will not be filed in any foreign country, the application will not be published. The intent of the amendment is to respond to the concerns raised by small businesses and individual inventors, but it once again raises the specter that the problem of "submarine patents" will not be resolved. (See Bulletin Vol. 4, No. 7) To respond to the concerns raised by universities and other institutions of higher learning, the Hatch amendment also clarifies the circumstances under which the infringement defense of "prior commercial use" may be used. During consideration of the bill, Sen. Charles Grassley (Iowa) was successful in amending the Hatch substitute to prevent hospitals, medical facilities, health maintenance organizations, and other similar health organizations from being sued when they fail to obtain a license to a patented medical procedure and a physician affiliated with them uses that procedure. In a procedural move, the Committee also reported out the House patent reform bill, H.R. 400, without change. LEGAL IMMIGRANT RELIEF IN BUDGET MAY STILL STRAND THOUSANDS Sen. Dianne Feinstein announced on Wednesday that the budget agreement provision intended to allow Supplemental Security Income (SSI) payments to continue for disabled, elderly legal immigrants could still end up leaving them without benefits for up to six months. The way the provision is written, although disabled legal immigrants would be eligible for SSI benefits, the benefits would first be suspended, and the immigrants would have to reapply and prove they were disabled. Sen. Feinstein warned that this could leave over 100,000 elderly legal immigrants without any financial assistance for several months, despite the fact that officials believe that about two-thirds of all legal immigrants would qualify for continued benefits. Sens. Feinstein and John Chaffee (RI) have introduced legislation that would continue benefits to all legal immigrants in the U.S. as of last August 22, but action on their bill is doubtful. Sen. Feinstein and the Congressional Budget Office, which recognizes the problem with the budget provision, are seeking ways to resolve it quickly. MEMBERS SEEK SUPPORT FOR STATE RFG BILL Representatives Brian Bilbray (Imperial Beach), Juanita Millender-McDonald (Carson), Jerry Lewis (Redlands), and Lucille Roybal-Allard (Los Angeles) are seeking support for and cosponsorship of H.R. 630 regarding reformulated gasoline. The bill would allow California's stringent reformulated gasoline (CaRFG) program to operate in lieu of the federal RFG program, as long as the State standards meet or exceed those of the federal standards. This bill would apply only to California and would not affect other state's compliance with RFG programs. A May 16 ³Dear California Colleague² letter from the four Members notes that since 1990, California has had a long-standing and exclusive ability under the Clean Air Act to operate its own fuels program, and has "developed and implemented its own RFG program that has resulted in dramatic reductions of air toxics and volatile organic compounds." To date, the one-paragraph bill has been co-sponsored by the above members, as well as 27 other members of the delegation, in a nearly even split of Republicans and Democrats. To co-sponsor the bill, or to learn more about the legislation, contact Dave Schroeder of Rep. Bilbray's office at 225- 2040 or Marcus Mason at Rep. Millender-McDonald's office at 225-7924. SECURITIES LITIGATION REFORM LEGISLATION INTRODUCED Reps. Rick White (WA) and Anna Eshoo (Atherton), joined by a bipartisan group of 18 other members of Congress, introduced legislation on Wednesday to establish uniform, national standards to govern class action lawsuits involving nationally trade securities. Eight other members of the California congressional delegation are original co-sponsors of the bill: Reps. Tom Campbell, Vic Fazio, Ellen Tauscher, Brian Bilbray, Jane Harman, Chris Cox, Cal Dooley, and Sam Farr. The first five of these members also appeared with Reps. White and Eshoo at a press conference on Wednesday to announce the introduction of the bill. The bill is intended to correct a problem that has surfaced since the passage of the Private Securities Litigation Reform Act of 1995. That Act makes it harder to bring frivolous securities class action lawsuits against a company in federal court. To get around the law, plaintiffs' lawyers have begun to file securities suits in state courts. The members stated that since the passage of the Act, suits filed in federal court have decreased by about 20 percent, but the same suits in state courts have risen by about 26 percent. The bill also responds to Proposition 211 which was defeated in California last year, but would have made it easier to file frivolous securities suits in state court. The White-Eshoo bill would preempt state law and require that any class action brought in a state court involving a nationally traded security would be removed to federal district court upon the defense's motion. The members emphasized that the bill is limited to class actions, not private party suits, and only to nationally traded securities, not those traded on state securities markets, which will remain under the jurisdiction of state authorities. Rep. Campbell, who has been actively involved in the securities reform effort, also introduced a separate bill last week, H.R. 1653, which would require that all civil actions, not just class actions, in nationally traded securities be brought in federal court. Members wanting more information or to co-sponsor the White-Eshoo bill should contact Ryan Trapani in Rep. Eshoo's office (x5-8104) or Josh Mathis in Rep. White's office (x-5-6311). WELFARE-TO-WORK FUNDS PROPOSED IN FY98 BUDGET DISCUSSIONS The FY98 balanced budget plan would also provide $3 billion over four years to states to assist with welfare-to-work activities. The funds would be provided in conjunction with the Temporary Assistance to Needy Families (TANF) grant program, which is replacing Aid to Families with Dependent Children (AFDC). While the report specifies that allocations within states should be based on areas with poverty and unemployment rates at least 20% above the state average, no guidance is yet provided for a state-by-state allocation of funds. According to the Department of Health and Human Services, California had 2.47 million (or 21%) of the nationıs 11.36 million TANF/AFDC recipients in January of this year. The state share of total welfare outlays is even greater. PRESIDENT SEEKS CHINA-MFN EXTENSION; CONGRESSIONAL FIGHT LOOMS The President stated this week that he wants to extend the Most-Favored Nation (MFN) status accorded China for another year. Such status grants China the same preferential tariff treatment that the U.S. extends to its other trading partners. The debate in Congress over whether to approve the President's extension, however, is expected to be more heated than last year. Many members believe that China should be punished for its record on human rights violations, while others insist that open trade with its free-market policies will encourage democratic reform in China. Rep. Nancy Pelosi (San Francisco), a strong opponent of extending MFN status because of China's deplorable human rights record, has joined with several other members to oppose the extension this year. In addition, Sen. Joseph Biden (DE) cautioned the Administration that members may vote against the extension if the Administration does not ensure that China comply with two recent trade agreements that ban the import of Chinese goods made with prison labor. The President has until June 3 to send Congress formal certification that China's MFN status should be renewed. Congress will then have until August 31 to pass a joint resolution disapproving the certification. It would then be subject to a Presidential veto, and veto override vote. USDA ANNOUNCES FINAL EQIP RULES The U.S. Department of Agriculture published its final rules this week on its new Environmental Quality Incentives Program (EQIP). The program provides $200 million a year to grant contracts and funding to farmers and ranchers to address conservation concerns on their lands. The funds will be used to pay for up to 75 percent of the costs of improving conservation practices, such as manure management facilities, grassed waterways, capping abandoned wells, and providing wildlife habitats. Earlier this month, Reps. Cal Dooley (Visalia) and Jerry Lewis (Redlands) initiated a letter signed by a bipartisan cross-section of nearly half of Californiaıs Members of Congress and sent to OMB Director Franklin Raines. The letter sought to target funds under the program to areas with critical environmental needs, rather than simply base funding on outdated historical patterns. See Bulletin Vol. 4, No. 16. Under the rule originally proposed, the funding allocation and Reps. Lewis and Dooley estimated that, under the rule as originally proposed, California's allocation would have been about half of what it would have been under a more balanced formula. Agriculture Department officials indicated that they recognized California's concerns and would work with the delegation to seek a resolution. The final rule announced on Tuesday alters the proposal by eliminating floors and ceilings -- factors which would have limited Californiaıs ability to receive the funding increases it is due. The original proposed rule had specified that no stateıs funding could be reduced by more than 5%, nor could any stateıs funding increase more than 30%, from the prior yearıs allocation. Under final rule, those caps will be removed for the FY98 allocations. However, cautioned a Governorıs office official, there will also be an interagency review process followed by an overall formula change for the FY98 allocation, and it is unsure how the new formula will look after that process is complete. FLAT PANEL DISPLAY GROUP TO HOLD DEMONSTRATION FOR CONGRESS The U.S. Display Consortium will hold its 4th Annual Washington Display Days on Wednesday, June 4 to demonstrate Flat Panel Display (FPD) products for members of Congress and their staffs. The demonstrations will take place from 10:00 a.m. to 3:00 p.m. on the 4th in Room SC- 5 of the U.S. Capitol. Refreshments will be served between 11:30 a.m. and 2:00 p.m. The FPD program, which receives grants from the Department of Defense, aids U.S. manufacturers in integrating flat panel display products into state-of-the-art military weapons and communications systems, in order to maintain a technology gap between the U.S. and potential adversaries. In FY97, $60 million was appropriated for FPD programs. The President's FY98 budget requested only $37 million, but several members of the House National Security Committee support increasing funding to $55 million for this fiscal year. The June 4 program will feature demonstrations of the most advanced FPD technologies for both military and commercial use by member companies of the U.S. Display Consortium. The Consortium is located in San Jose, California. In addition to the Consortium, the program is being sponsored by the American Electronics Association (AEA), and Semiconductor Equipment and Materials International (SEMI). To RSVP, or for further information, contact SEMI's Washington office at 289-0440. CBP RELEASES REPORT ON CALIFORNIA'S TAX SYSTEM The California Budget Project (CBP), a Sacramento based nonpartisan research organization, recently released a report analyzing California's tax system and family income share of the tax burden. The report finds that California's poorest families carry the largest proportional share of the tax burden. Specifically the CBP notes that the poorest 20 percent of the state's families, with an average annual income of $12,600, spent 12 percent of their income on state taxes in 1995. In contrast, the wealthiest one percent of California families, with an average annual income of more than $1 million, spent 8.1 percent of their income on state taxes. The report also finds that California -- when considering all state and local taxes -- is an "average tax state" compared to the rest of the nation. California, the CBP found, ranks 26th in the 50 states in average combined state and local taxes and slightly below the national average in federal income taxes on a per capita basis. For a copy of this report or any other CBP publication, call (916) 444-0500. In addition, copies of the California Institute's Economic Fact Book, a 24-page desk reference outlining key components of the California economy, may be obtained by calling the Institute at (202) 546-3700. DOD RELEASES QUADRENNIAL REVIEW; SEEKS FURTHER BASE CLOSINGS After various pre-releases and leaks, the Department of Defense formally published its Quadrennial Defense Review this week, which lays out the Pentagonıs broad goals for defense forces and procurement for the near future. For further details, see Volume 4, Bulletins 16 and 17. Among the recommendations expanded upon by Pentagon officials in hearings this week is the desire to move forward with at least one if not two more base closure rounds. California has been hit far harder than any other state by the first four base closure rounds (in 1988, 1991, 1993 and 1995), shouldering 60% of the nationıs military personnel reductions despite having housed just 15% of U.S. personnel before the closure rounds began. There is a solid consensus among Californians in Washington that such disproportionate pain should not be repeated. Defense Secretary William Cohen says he is urging further closures because, ³We are carrying extra weight,² meaning that U.S. forces have declined in recent years more than the number of military facilities has. To review the QDR online, go to http://www.dtic.mil/defenselink/topstory/quad.html. In related news, the California Research Bureau (CRB) recently released a report that gives a brief overview of information on various different state programs and approaches targeted at retaining active military bases. To receive a copy of the report, entitled "State Military Base Retention Programs," contact the CRB in Sacramento at (916) 653-7843. CALIFORNIA COMPANIES CONTINUE TO LEAD DEFENSE PROCUREMENT RACE A Pentagon study of DOD contracting released recently indicates that companies with a major California presence again led the competition for Pentagon procurement dollars in 1996. Lockheed Martin remained the largest DOD prime in FY 1996, winning just shy of $12 billion in contract awards. A close second was McDonnell Douglas with nearly $10 billion. Four companies were on either side of the $3 billion mark for 1996: General Motorsı Hughes Aircraft unit, Raytheon, General Dynamics and Northrop Grumman. Companies with a major California presence comprised nearly half of the top 25 companies, which account for the large majority of the $70 billion spent on defense procurement in 1996. A table of these 25 companies follows. TOP 25 PENTAGON PRIME CONTRACT AWARD RECIPIENTS, FY1996 (Sources: U.S. Department of Defense, Defense News Magazine.) Rk Contractor 1996 Awards 1 Lockheed Martin Corp 11,998,430 2 McDonnell Douglas Corp 9,938,973 3 General Motors Corp 3,240,326 4 Raytheon Company 3,011,905 5 General Dynamics Corp 2,670,030 6 Northrop Grumman Corp 2,604,705 7 United Technologies Corp 2,257,695 8 The Boeing Company 1,724,044 9 Litton Industries Inc 1,709,112 10 General Electric Company 1,530,029 11 Westinghouse Electric Corp 1,440,714 12 Boeing North American Inc 1,287,683 13 Textron Inc 1,193,762 14 Science Applications Intl Corp (SAIC) 1,066,291 15 United Defense Lp 876,614 16 TRW Inc 786,749 17 Computer Sciences Corp 711,956 18 ITT Industries Inc 670,969 19 GTE Corp 599,073 20 Tracor Inc 580,599 21 Halliburton Energy Svcs Inc 573,635 22 AT&T Corp 529,037 23 Texas Instruments Inc 528,569 24 AlliedSignal Inc 511,804 25 Rolls-Royce Plc 462,445