The California Institute For Federal Policy Research California Capitol Hill Bulletin Volume 4, Bulletin 20 -- June 12, 1997 http://www.calinst.org TWO HOUSE PANELS PASS NEW $3 BILLION WELFARE-TO- WORK GRANT AS PART OF BUDGET BILL; FORMULAS DIFFER The House Ways and Means Committee on Tuesday approved a new $3 billion welfare-to-work grant under the Temporary Assistance to Needy Families (TANF) program to help transition welfare recipients into paying jobs. The House Education and the Workforce Committee passed a similar plan on Thursday. Some predict the proposals could reach the floor as early as next week. While similar in numerous respects, the two versions propose different formulas for distributing funds. Each would base funds on states' share of certain persons. The Ways & Means plan would distribute funds one-third based on adult welfare/TANF recipients, one-third based on persons in poverty, and one-third based on unemployed persons. The Education & the Workforce proposal formula is based one-half on adult TANF recipients and one-half on persons in poverty. California houses 21.74% of the nation's adult TANF recipients, 15.39% of unemployed persons, and roughly 14% of persons in poverty (depending on the data used). Thus, California's share of grant funds under the Ways & Means "1/3 - 1/3 - 1/3" formula would be 17%. The state's share of the Education & Workforce "½ - ½" approach would be 17.8%. For every billion distributed, the Ways & Means bill would allocate $218 per adult TANF recipient in California (compared to $330 nationwide), and the Education & the Workforce Committee formula would allocate $228 per Californian on welfare. Rep Howard "Buck" McKeon was a key player in ensuring the improved formula share in the Education & the Workforce bill. In addition, the Ways & Means bill would distribute just half of the funds via formula and half via competitive grants, while the Education & the Workforce bill would distribute 95% via formula and the remainder via competitive grants. California would be hard pressed to win as large a share of funds through a competitive grant process as it would receive under a formula approach. In another difference between the bills, the Ways & Means proposal would increase the existing 75% TANF maintenance of effort (MOE) requirement to 80%, where the Education & the Workforce proposal would not. Both would impose a one-third state matching requirement in order for a state to receive the added welfare-to-work formula funds. For further information, call 202-546-3700. CONGRESS CLEARS & PRESIDENT SIGNS DISASTER RELIEF BILL WITHOUT CENSUS SAMPLING RESTRICTIONS OR AUTOMATIC CONTINUING RESOLUTION Late Thursday, both the House on a 348-74 vote and the Senate on a 78-21 vote, approved a revised H.R. 1871, the supplemental disaster relief bill. The bill, unlike the preceding vetoed version, does not prohibit the Commerce Department and the Census Bureau from using 2000 Census models that employ a statistical sampling mode of enumeration. Although details were still vague, it appears that report language to accompany the bill will call for a study of the use of statistical sampling. The bill also dropped the continuing resolution provision that would have kept the government operating even if all appropriations bills had not been passed by the new fiscal year. The bill, as approved, contains all $8.6 billion in supplemental funding for disaster relief and overseas military missions. California is expected to receive almost $2 billion to assist in relief and repair efforts following last year's floods. Though neither of the original versions of the Senate or House supplemental disaster relief bills contained language prohibiting the use of sampling, the conference committee, despite warnings of a Presidential veto, inserted restrictive language that stated that "no sampling or any other statistical sampling procedure, including any statistical adjustment, may be used in any determination of population for purposes of the apportionment of representatives in Congress or among the several states." The proponents of the prohibitive language suggest that sampling would conflict with Article I, Section 2, clause 3 of the U.S. Constitution which mandates a decennial "actual enumeration...in such manner as [Congress] shall by law direct." However, it should be noted that the Carter, Bush, and Clinton Administration Justice Departments have each issued detailed legal opinions supporting the legality of the Census Bureau's proposal to use sampling. The issue at hand is that the Census Bureau, responding to recommendations made by the National Academy of Sciences' Congressionally mandated study, has undertaken the procedure of preparing a 2000 Census that would employ statistical sampling -- a supplement to the Bureau's direct enumeration efforts -- to bring down the perennial undercounts that have plagued previous census efforts. In 1990, California's population was undercounted by 2.73%, considerably more than the national undercount of 1.6%. The effect of the 1990 undercount on the state was that California -- already facing an era of economic belt-tightening -- was forced to provide perhaps several hundred million dollars in federally unfunded services to nearly one million people more than had been counted. Because of the complexity of many federal formulas, exact figures for many programs are nearly impossible to determine, however one estimating technique suggests that California is losing $40 million per year or more due to undercounting. The unfunded services for which Californians are being asked to pay include: SSI, immigration services, and education for the disadvantaged. In related news, 23 members of the California congressional delegation, including both Senators, recently sent a letter to President Clinton urging him to continue to oppose the inclusion of language in any supplemental or other Appropriations bill that inhibits the ability of the Commerce Department and the Census Bureau to use sampling in the 2000 Census. TAX BILL CONSIDERATION BEGINS IN HOUSE; R&D TAX CREDIT AMONG THE ITEMS LIKELY TO BE INCLUDED After an eight hour delay on Wednesday, during which nine separate drafting sessions took place among Committee members and staff, the House Ways and Means Committee formally began consideration of the budget agreement tax bill at 7:00 p.m. When the panel quit at about 2:30 a.m., it had finished dealing only with the child tax credit proposal, and met again Thursday to take up other portions of the plan. Consideration was continuing late into Thursday night. Under the budget agreement negotiated earlier this month, the tax provisions will result in a net tax cut of $85 billion over five years, and include a child tax credit, cuts in the capital gains and estate taxes, and education credits. But the details of each proposal are now being fought out in the committee. On several party line votes during the Wednesday-Thursday consideration, the Committee defeated alternatives to the child credit offered by Democrats. The proposal finally accepted was authored by Chairman Bill Archer (TX) after accommodating concerns made by other Republican members of the committee. It will allow families to take a $400 tax credit in 1998 for each child under the age of 17. The credit would increase to $500 per child in the following years. The primary Democratic alternative would have allowed a $500 tax credit for each child up to the age of 18, but limited to families with incomes under $75,000. Additionally, committee Democrats, led by Rep. Charles Rangel (NY), would have allowed the tax credit to be "refundable," so that families with incomes too low to pay taxes would still have received the tax credit as a refund. In 1995, 28% of California's population was under the age of eighteen, as opposed to 26% nationwide. Demographic trends suggest that California's share of the nation's young population will continue increase over the next decade. The Democrats and Republicans are also split on how to parcel out most other major provisions of the bill. For college tuition tax credits, the Republican plan would give a 50 cent on the dollar credit for costs up to $3,000, whereas the Democrats would make that a 100% credit but only up to $1,500 in costs. For overall college expenses, the Clinton Administration proposed a deduction of up to $10,000, whereas the Democratic plan calls for a tax credit of 20% of the costs up to $10,000. The Republican plan provides deductions of up to $10,000 for investment in state- sponsored tuition plans. During consideration of the bill, an amendment offered by Rep. Xavier Becerra (Los Angeles) was adopted which will expand the tax-free treatment of student loan forgiveness. The committee also adopted, 22-17, an amendment offered by Rep. Ben Cardin (MD) to expand the use of the tax credit to K-12 school expenditures. Over 2.5 million students are enrolled in California's postsecondary institutions. In 1992, 6.4% of Californians were enrolled in colleges or graduate schools versus 5.7% of the U.S. population. The proposals for cutting the capital gains and estate taxes are also in dispute. The Republican plan would cut the current maximum 28% rate to 20% for sales after May 7, 1997. The Democrats propose to drop the rate to 18%, but put a lifetime total of $600,000 on the amount of gains taxed at that rate. Another possible alternative to be offered by the Democrats is to exempt the first $500,000 for the sale of a residence from capital gains taxes. Rep. David Dreier (Covina) has been among the primary California proponents of capital gains reduction. Studies have shown that a decrease in capital gains taxes may increase business investments and reduce the cost of capital. To the extent that the tax cut generates these results, it will benefit California's technology-dominated economy. On issues of particular importance to California, the tax proposals being considered include a nineteen-month extension of the Research and Development tax credit (through December 31, 1998). Reps. Robert Matsui (Sacramento) and Wally Herger (Marysville) have led the efforts to permanently extend this credit. It expired on May 31, 1997 (See Bulletin Vol. 4, No. 16) and its permanent extension is strongly supported by California's high tech and biotech industries. The Republican proposal also includes the Orphan Drug Tax Credit, supported by the U.S. biomedical community (one-third of which is located in California), which provides a credit equal to 50% of qualified expenditures for human clinical trials on therapies that have been designated as orphan drugs by the FDA, and which are aimed at treating rare diseases. Rep. Chris Cox (Newport Beach) was successful in persuading his colleagues not to include a provision in Chairman Archer's proposal which would require companies to report stock options as an expense in their financial statements. This would have discouraged the use of stock options, which are used by California's cutting edge start-up and high tech and biotech companies to recruit talented workers. Finally, Rep. Duke Cunningham (San Diego) succeeded in having portions of his 21st Century Classrooms Act included in the Archer proposal. The bill would encourage companies to donate computer equipment to K-12 schools by increasing the charitable deduction that can be taken. SSI PAYMENTS EXTENDED FOR SOME LEGAL IMMIGRANTS On Tuesday night, the House Ways and Means Committee approved its welfare-related provisions to budget reconciliation by a vote of 21-18. The bill provides about $9 billion so that both elderly and disabled legal immigrants residing in the U.S. and on SSI as of August 22, 1996 will retain eligibility for continued benefits. The provision differs from that negotiated between the White House and Congressional leaders in the budget agreement, which would have sanctioned the cutoff of benefits to elderly, non-disabled immigrants already receiving SSI, but allowed for disabled immigrants in the U.S. as of August 1996, whether or not disabled at that time, to be eligible for benefits currently or in the future. See Bulletin No. 4, Vol. 19. During consideration of the provisions, Rep. Xavier Becerra (Los Angeles) unsuccessfully offered an amendment that would have extended benefits to those legal immigrants in the U.S. as of last August, and who become disabled in the future. The amendment was defeated 19-20. The plan put before the full committee, however, did drop one provision from the subcommittee version of the bill. The full committee proposal eliminated the provision denying SSI to any legal immigrant whose sponsor earned at least $40,000 annually. On a related issue, Rep. Esteban Torres (Pico Rivera) initiated a letter to President Clinton urging him to work to restore food stamp eligibility for legal immigrant farm workers. The letter was also signed by ten other House members, including 8 Californians. Under last year's welfare legislation, food stamps were denied to legal immigrants. Rep. Torres' letter states that 61% of farm workers live below the poverty line and earn an average annual income of about $6,500. DELEGATION LETTER URGES MODERNIZING AIR NATIONAL GUARD FLEET Senators Dianne Feinstein and Barbara Boxer, along with Representatives Elton Gallegly (Simi Valley), Vic Fazio (West Sacramento), Brad Sherman (Sherman Oaks), and Sonny Bono (Palm Springs), are currently circulating a Dear Colleague letter urging fellow delegation members to sign a letter to Secretary of Defense William Cohen supporting the modernization of the Air National Guard's aging C-130E fleet. "These planes," the letter to the delegation members notes, "perform airborne firefighting, transport national guard and law enforcement personnel, and deliver equipment during state emergencies." The C-130E aircraft attached to California Air National Guard's 146th, are among the oldest in the Air Force inventory. If your member wishes to sign the letter, call Don Gilchrest of Rep. Gallegly's office at x55811. POPULATION RESOURCE CENTER TO HOLD IMMIGRATION BRIEFING NEXT THURSDAY; REP. CAMPBELL WILL HOST; PPIC TO OFFER CALIFORNIA ANGLE On Thursday, June 19, the Population Resource Center, in cooperation with Rep. Tom Campbell (Campbell), will hold a Congressional briefing examining "the long-term and short-term consequences of immigration and the policy trade-offs involved for our nation." Titled "Immigration: Costs and Benefits," the briefing will consist of introductory remarks by Rep. Campbell followed by a series of speakers addressing different aspects of the immigration issue with special emphasis on welfare policy. The briefing will be held from 10:30 a.m. to 12:00 noon in 2200 Rayburn House Office Building. To RSVP, call the Center at 202-467-5030. James P. Smith, the RAND Chair in Labor Markets and Demographic Studies, will discuss a new study by the National Research Council for the U.S. Commission on Immigration Reform, which shows significant variation in the fiscal and social impact of immigration on states and localities. For instance, the study concluded that while California had a net fiscal burden per household of $1,178 as a result of immigration, New Jersey had only a net fiscal burden of $232. Making a presentation on immigrants and welfare reform from a California perspective will be Margaret O'Brien-Strain, a research fellow with the Public Policy Institute of California. Finally, Ann Morse, manager of the Immigrant Project for the National Conference of State Legislatures, will discuss progress made by the states in implementing welfare reform legislation. FDA MARKUP POSTPONED IN SENATE The Senate Labor and Human Resources Committee was unable to get to the expected markup of S. 830 this week. The bill, which would streamline the Food and Drug Administration's approval process for drugs and medical devices, as well as make other improvements, was set for consideration on Wednesday, but the Committee took longer to handle its FY98 budget reconciliation bill than expected. In the end, members were only able to make opening statements on S. 830 and further consideration was postponed until Wednesday. Over 60 amendments have been drafted for consideration during markup. Among other changes to the FDA process, the bill would allow the use of third-party private reviewers to assist in the process of approving new drugs and medical devices for sale, but excludes devices that are life-supporting, life-sustaining, or implantable. It would also reauthorize for five years the Prescription Drug User Fee Act (PDUFA), which requires prescription drug manufacturers to help pay for the costs of federal safety and efficacy reviews. Biotechnology companies in California strongly support speeding up and streamlining the FDA approval process for drugs and medical devices. HOUSE AND SENATE PANELS CONSIDER DEFENSE AUTHORIZATION BILLS This week, both the House National Security and the Senate Armed Services committees marked up their FY98 defense authorization bills. The committees share a budget resolution restriction which limits defense funding to about $2.6 billion over the President's initial budget request. The House National Security Committee authorized, 51-3, the spending of $268.2 billion for defense programs, the full amount available to the committee. The Committee members added significantly to Clinton's requests for procurement, research development and personnel, offsetting some of those increases with reductions in operations and maintenance spending. An emphasis on procurement is good news for California. Despite drastic cuts in defense spending, the state is still extremely effective in capturing federal defense procurement dollars. Among the panel's procurement decisions were the funding increases for the Joint Strike Fighter Program (a $23.1 billion increase over the President's request) and B-2 bomber program (revitalizing the program with $331.2 million more than the President's request.) Also of relevance to California was the panel's decision to retain subcommittee language designed to force closure of two large Air Force depots at McClellan Air Force Base (in Sacramento) and Kelly Air Force Base (in Texas). Additionally, the Committee adopted, 29-24, a proposal by Rep. Duncan Hunter (Alpine) which would prevent the government from leasing any facility on a closed military base to a foreign shipping interest. The move came in response to a plan to lease Long Beach facilities to a Chinese firm. For a copy of the House Committee's summary of major provisions of the FY98 defense authorization bill, contact the Institute at 202-546-3700. Meanwhile, the Senate Armed Services Committee continued to meet well into Thursday evening in a closed markup session on their FY98 defense authorization bill. Although the provisions of the Full Committee's bill were not available at the time of writing, the meetings of the subcommittees earlier in the week offer some indication of the direction the Committee will take, at least in the area of procurement. The Military Procurement Subcommittee increased B-2 bomber funding by $350 million more than the President's request and, along with the Research and Development Subcommittee, supported a Pentagon proposal to accelerate production of the Joint Strike Fighter. SENATE RESUMES DISCUSSION OF CHINA'S MOST-FAVORED-NATION STATUS In response to the President's recent formal notification to Congress that the administration is renewing China's Most-Favored- Nation (MFN) status, the Senate Finance Committee held a hearing this week on whether to grant China the same preferential tariff treatment accorded by the U.S. to its other economic allies. Under expedited procedures, Congress has until August 31 to pass legislation denying China's MFN status. Already a coalition of liberal Democrats and conservative Republicans has introduced bills (S J Res 31 and H J Res 79) to prevent the renewal of China's favorable trade status. The bill's authors argue that withholding the MFN classification from China will force human rights reform in the country and will ensure China follows through with its pledge to grant Hong Kong some autonomy. Appearing before the Committee on behalf of the Administration were Secretary of State Madeleine K. Albright and U.S. Trade Representative Charlene Barshefsky. The thrust of the administration's position was encapsulated in Barshefsky's statement that: "the vote on MFN is thus a vote on how best to protect U.S. interests, not an endorsement of China's policies. Engagement is not an end unto itself. Engagement is a means by which we can expand the areas of cooperation with China and deal face-to-face with the Chinese on areas of difference." Responding to the pro-human rights position of some MFN opponents, Albright argued that "the revocation of normal trade relations would eliminate prospects for U.S.-China cooperation on a wide range of issues." Also appearing before the Committee were representatives from Amnesty International, the U.S.-China Industrial Exchange, the AFL-CIO, the Evergreen Family Friendship Service, and a former leader of the Tiananmen Student Movement. The witnesses' testimony can be obtained from the Senate Finance Committee at 224-4515. INSTITUTE CO-SPONSORS ENCRYPTION BRIEFING WITH REP. LOFGREN This past week the Institute, joined by Rep. Zoe Lofgren (San Jose), sponsored a demonstration and briefing on encryption and U.S. policy on encryption exports for the California Congressional Delegation. John Gage, Chief Scientist of Sun Microsystems, and Greg Garcia, Vice President for International Trade of the American Electronics Association, addressed the audience. In her introductory remarks, Rep. Lofgren discussed H.R. 695, the Security and Freedom Through Encryption (SAFE) Act, which would allow for the expanded export of U.S. encryption products and which she has co-sponsored with Rep. Robert Goodlatte (VA). The bill currently has about 120 co-sponsors and has been favorably reported out by the House Judiciary Committee. The House Subcommittee on International Economic Policy and Trade is expected to mark up the bill shortly. After Ms. Lofgren's remarks, Mr. Gage demonstrated the number of sites on the Internet that contain vast amounts of information on how to develop and use encryption technology on a personal computer and, in fact, allow a user to download strong encryption programs onto a personal computer. His demonstration was intended to show that knowledge and use of encryption is ubiquitous world- wide, and attempts by the United States to limit the export of U.S. encryption software and devices in order to prevent its use for criminal acts are futile. Rather, he made the point that law enforcement agencies can use the resources on the Internet to assist in the prevention of crime and the apprehension of criminals. Moreover, he stated that encryption is not just a protective method needed by criminal elements, but is increasingly needed by U.S. companies involved in the global marketplace, so that their employees could communicate by computer on a worldwide basis without fear of company secrets being stolen. Mr. Garcia pointed out that of AEA's 3200 company members, over half were located in California. He explained to the audience that the Administration's desire to hold the decrypting key to all encryption information exported from the United States would not work. Extremely strong encryption products are available worldwide, and consumers would buy from foreign competitors rather than allow the U.S. government access to their encrypted communications.