THE CALIFORNIA INSTITUTE FOR FEDERAL POLICY RESEARCH 419 New Jersey Avenue, SE, Washington, D.C. 20003 202-546-3700 fax:202-546-2390 ransdell@calinst.org www.calinst.org California Capitol Hill Bulletin Volume 4, Bulletin 25 -- July 17, 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. REP. GARY CONDIT ADDRESSES INSTITUTE'S ADVISORY BOARD Rep. Gary Condit (Ceres) spoke to the monthly breakfast meeting of the California Institute's Advisory Board members on Thursday, July 17. The Institute would like to thank Cliff Jernigan of AMD (Advanced Micro Devices) for hosting the event. Rep. Condit, a leading member of the Blue Dogs, a participatory coalition of moderate Democrats, discussed the coalition¹s involvement in past and present budget discussions, as well as last year's welfare reform bill. Condit also stressed the importance of California's agriculture industry to the state economy, and reminded the California-Washington community to view agriculture as an industry on a par with other top statewide concerns. Condit praised this year's increased bipartisan cooperation among the state¹s Congressional delegation and noted that all 52 members have signed two delegation letters in the last few months -- a feat unseen for decades. Rep. Condit also lauded the bipartisan California delegation task force effort entitled ³Team California² that was initiated by Reps. Lucille Roybal-Allard (Los Angeles) and Jerry Lewis (Redlands) in advance of the California Day activities in Washington this spring. In addition to Rep. Condit, the members of the task force include Reps. Frank Riggs (Windsor); Jane Harman (Rolling Hills); Buck McKeon (Santa Clarita); Zoe Lofgren (San Jose); and Tom Campbell (Campbell). In addition to encouraging unity within the California delegation on specific issues, one of the main goals of the task force is to promote cooperative ties between the congressional delegation and the State Senate and Assembly and develop strategies to implement bipartisan issues that benefit California. In keeping with those goals, Condit said, the task force and the delegation chairs are asking that counterpart task force members at the state level be named and joint meetings be held quarterly. Schedules permitting, Condit hoped that a meeting will be held late next month to follow up on the bipartisan issues that the congressional delegation and State Assembly members and Senators discussed at the California Day meeting in April. Rep. Condit thanked the California Institute's members for recognizing years ago the importance of bipartisan cooperation by creating the Institute, and he encouraged the Institute to continue to assist the task force as it seeks positive results for California. During a question and answer session, participants raised various issues, including the federal budget process, welfare reform, electric utility deregulation, and funding for the Bay-Delta restoration. In addition, two tax issues related to education were raised. One was a request to ensure that the final tax reconciliation bill permanently extend the tax provision (known as section 127) that exempts employees from having to claim as income, tuition paid by their employers for graduate level study. It was pointed out that with California's high tech industries, graduate school education is of significant importance to the employees, as well as employers, and requiring employees to pay taxes on employer-paid tuition will discourage graduate study. A related issue was the effort to ensure that graduate school students who receive tuition waivers and other incentives from their universities not be required to include the value of those waivers as income. Rep. Condit was also thanked for his sponsorship of a recent bipartisan delegation letter seeking relief for CSU and other institutions which were unintentionally included under a tax exempt bond cap by some versions of the tax bill (see Volume 4, Bulletin No. 24). BIPARTISAN DELEGATION LETTER TO SEEK REPEAL OF FLORIDA WINE BAN The California Congressional Delegation is writing to Florida Governor Lawton Chiles asking his swift assistance in repealing a recent Florida law which makes it a felony for residents of Florida to purchase wine or beer from an out-of-state vineyard or brewery, and makes it a third degree felony to ship wine or beer via common carrier into Florida. The letter is being circulated by Reps. Walter Capps (Santa Barbara) and Frank Riggs (Windsor) and delegation co-chairs Jerry Lewis (Redlands) and Lucille Roybal-Allard (Los Angeles). The authors already have secured the signatures of more than two-thirds of California delegation members, and they hope to complete signatures on Friday, July 18. The letter mentions press accounts which cited Florida wholesalers¹ and retailers¹ goal of placing ³prohibitive barriers on out-of-state wineries, particularly in California.² It also quotes Florida¹s own Attorney General who described the bill as ³the perfect tool for the vested interests who seek additional control over the marketplace, at the expense of competition and consumer choice.² The California Delegation letter calls the law ³intended to unfairly target small California wineries for exclusion from the Florida marketplace,² and cites a better alternative passed just this month in Louisiana. Wine is a key California industry, with the state¹s production accounting for 75 percent of all wine, both foreign and domestic, consumed in the United States. According to the Wine Institute, the $9 billion wine industry generates 110,000 jobs annually and an additional 40,000 to 50,000 jobs during the fall harvest. Nearly 10% of California's wine production is now being shipped abroad, with the volume of export shipments increasing 700% during the past decade, from 7 million gallons in 1986 to 39 million gallons in 1995. In 1995, exports were valued at $242 million, an increase of 23% over 1994. Offices of members wishing to sign the letter should contact Ben Romo with Rep. Capps (225-3601) or Jim Tobin with Rep. Riggs (225-3311), as soon as possible. NEARLY EVERY CALIFORNIA MEMBER SIGNS MEDICAID DSH LETTER A bipartisan California delegation letter to Speaker Gingrich regarding Medicaid disproportionate share hospital (DSH) payments garnered 48 signatures last week. The letter, sent on Friday, July 11, asked the FY98 budget negotiators to adopt Medicaid revision provisions to soften the blow of DSH reductions on heavily-impacted hospitals, allow for an appropriate phase- in period, and recognize the fact that California has been one of the only states to ³play by the rules² regarding usage of DSH funds. The letter is yet another in a series of bipartisan delegation letters this year signed by all or nearly all California delegation members. The letter, led by Reps. Brian Bilbray (San Diego) and Henry Waxman (Los Angeles) and delegation co-chairs Lucille Roybal-Allard and Jerry Lewis, expresses ³the strong and united view of the members of the California delegation that the policy that reduces Federal DSH payments must be designed so that a state like California which has fully directed its DSH program to hospitals with high proportions of Medicaid and uninsured patients does not face a debilitating reduction in funds.² SENATE APPROPRIATORS HOLD SCAAP FUNDING TO $500 MILLION LEVEL On Tuesday, the Senate Appropriations Committee, following the lead of its Commerce, Justice, State Subcommittee, approved FY98 funding for the Justice Department that provides $500 million to partially reimburse the states for the costs of incarcerating illegal criminal aliens. The State Criminal Alien Assistance Program (SCAAP), for which the funding is provided, authorizes $650 million for reimbursement, although the program was funded at the $500 million level last year. However, last week, California's House delegation was successful in boosting funding under the House FY98 Commerce, Justice, State Appropriations bill to $600 million, after all 52 members of the delegation sent a letter to Subcommittee Chairman Hal Rogers (KY) urging his support for more money (See Bulletin, Vol. 4, No. 24). The delegation and Governor Wilson will now work to ensure that the $600 million remains in the House bill and is accepted by the Senate during conference on the two bills. Of the $500 million Congress appropriated in FY97 to help reimburse states for the costs of incarcerating illegal criminal aliens, California and its local governments received about $270 million, or 54 percent. If that percentage holds, and the $600 million level is finally appropriated, California would stand to get about $324 million. The state estimates that it will cost about $452 million in the coming year to incarcerate illegal criminal aliens. SENATE APPROPRIATIONS BILL PROVIDES FULL FUNDING FOR CENSUS BUREAU On Friday, July 11th, the Senate Appropriations Subcommittee responsible for funding the Census Bureau, ended months of speculation and agreed to fully supply the Census Bureau with the Bureau¹s entire $354.8 million request for 2000 census preparations in Fiscal Year 1998. The funding, however, did not come without certain instructions. During the Friday afternoon mark-up of the legislation, the panel also approved legislative language that would prohibit the Census Bureau from making any ³irreversible² decisions in their plans to employ statistical sampling in the upcoming 2000 census. The accompanying report expresses concern with the ability of the Bureau to implement the increasingly controversial 2000 census and requires the Bureau to provide a quarterly progress report, the first of which would be due November 30th. The language in the current Appropriations bill closely resembles the compromise language adopted by the Senate in June as part of that chamber¹s supplemental disaster relief bill. In that case, the Senate¹s compromise language was replaced in the Conference Committee with House language that mandated that ³no sampling or any other statistical 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 States² (see Bulletin, Vol. 4, No. 19). In large part because of the prohibitive sampling language, the supplemental disaster relief bill was vetoed and eventually replaced with a version excluding language pertaining to the Census Bureau. The Senate¹s return to their earlier language on sampling may once again set the stage for a showdown with the House, which is showing no sign of backing down from the language that was included in the supplemental. House language would also withhold nearly three-quarters of the Fiscal Year 1998 funds for the 2000 census activities until Congress passes subsequent language mandating how the census should be administered. In related news, Rep. Dennis Hastert (Illinois), a leading opponent of the Census Bureau¹s plan to conduct the 2000 census with statistical sampling, has threatened to subpoena Bureau Director Martha Farnsworth Riche for 2000 census information that Hastert claims Riche has deliberately withheld. Hastert¹s threat came one day after the General Accounting Office (GAO) issued a report critical of the Bureau¹s past communications efforts and that stated that ³[l]ittle margin for missteps, indecision or miscommunication remains.² The GAO report, while critical of the Bureau¹s efforts to keep Congress informed of ongoing developments, also warned that a 2000 census that fails to utilize sampling would be ³more expensive and [had] shown no likelihood of reversing or significantly reducing past accuracy problems in census data.² BAY-DELTA FUNDED AT $120 MILLION IN HOUSE APPROPRIATIONS The House Appropriations Committee approved $120 million in funding for the CALFED Bay-Delta restoration program during its markup Thursday. Although that level is $23 million below the Administration's request, it is $70 million more than the Senate Appropriations bill approved on Wednesday of this week (See Bulletin Vol. 4, No. 24). Rep. Vic Fazio (West Sacramento), Ranking Member of the Energy and Water Appropriations Subcommittee, and the Subcommittee's Chairman Joseph McDade (PA) led the effort to protect the project's funding. During the House markup, Rep. Zach Wamp (TN) attempted to boost funding for his own state's Tennessee Valley Authority and would have used $85 million of the Bay-Delta funding to offset the increase. His amendment was defeated easily by a show of hands, 36-9. The fight to protect the funding is not over, however, as the proponent's will now be faced with convincing the Senate to recede to the House funding level during Conference Committee on the bills. INTERNET TAX MORATORIUM BILLS HEARD IN HOUSE In the last week, two House Subcommittees held hearings on H.R. 1054, the Internet Tax Freedom Act, introduced by Rep. Chris Cox (Newport Beach). The bill would impose a moratorium on state and local taxes that specifically target the Internet and authorize a two-year study of U.S. and foreign taxation of Internet commerce. Additionally, the bill calls on the Administration to pursue international agreement to keep the Internet free of taxes and tariffs. On Thursday, the House Judiciary Subcommittee on Commercial and Administrative Law held a hearing at which Rep. Cox and Rep. Bob Matsui (Sacramento) testified. Speaking on behalf of his bill, Congressman Cox pointed out that the Internet is already the vehicle for the exchange of more than a billion dollars in goods and services internationally, and that growth is continuing to soar day-by-day. If, however, the 30,000 state and local taxing authorities in the U.S., as well as those authorities overseas, begin to "'shake down the Net," Rep. Cox warned that the Internet could be driven into an early grave. Pointing out that the Internet is not just interstate but global, Cox urged that Congress "take action to ensure that state, local, federal, and foreign tax policies promote rather than interfere with the free flow of Internet traffic." Rep. Bob Matsui strongly endorsed H.R. 1054 in his testimony, calling the Internet "the ultimate level playing field for business ventures both small and large," which allows anyone for a negligible cost to set up shop on the Internet to market their products globally. In order to encourage this burgeoning economy, Matsui emphasized the need to harmonize domestic and international tax policies. He cited the stark differences that state and local taxing authorities are beginning to take in taxing Internet transactions and the confusion and burden they are creating. Rep. Matsui also strongly supported the bill's call for the establishment of the Internet as an international duty-free zone, which would benefit the U.S. economy and consumers because of the dominance of U.S. companies in the computer and software industries. Organizations testifying at the hearing included the Motion Picture Association of America, the Business Software Alliance, and Netscape Communications Corp. The Commerce Committee's Telecommunications, Trade, and Consumer Protection Subcommittee also held a hearing on H.R. 1054 on July 11, and heard from Sen. Ron Wyden (OR), who introduced and co-wrote the Senate companion bill. In addition, the subcommittee received an Internet "tutorial" from an Arthur Anderson accounting firm representative and heard from America Online, the U.S. Internet Council, and the Texas Comptroller of Public Accounts. Testimony from both hearings can be obtained from the respective subcommittees: Commercial and Administrative Law (202) 225-2825; and, Telecommunications, Trade, and Consumer Protection (202) 225-2927. SENATE APPROPRIATIONS VOTES TO SPLIT U.S. NINTH CIRCUIT During consideration of the FY98 Commerce, Justice, State Appropriations bill, the Senate Appropriations Committee adopted an amendment that would split up the U.S. Circuit Court of Appeals for the Ninth Circuit. California and the territorial islands (Guam, American Samoa, and the Marianas) would remain in the 9th Circuit, but Alaska, Arizona, Idaho, Montana, Oregon and Washington would become a new 12th Circuit. Nevada and Hawaii, now currently in the 9th Circuit, would be allowed to choose which circuit to join. The amendment to the $31.6 billion appropriations bill was offered by Sen. Judd Gregg (NH) and adopted by voice vote. The Committee rejected an amendment that would have called for a study of the workload allocation among all the federal circuits, as an alternative to the Gregg amendment. This amendment is similar to a House provision that calls for studying the organization and workloads of the federal appeals courts. In a letter last week to Judiciary Committee Chairman Orrin Hatch (UT), Governor Pete Wilson opposed splitting the Circuit on the grounds that it would be judicial gerrymandering seeking to cordon off some judges and keep others. He also pointed out that such a split could generate inconsistent rulings along the West Coast in the areas of commercial, environmental, and maritime law. The Governor stated that if a study is undertaken to examine the implications of splitting the 9th Circuit, he would be willing to contribute one or more representatives to assist in the study. ADMINISTRATION REPORTS NAFTA WORKS; OTHERS CONCERNED ABOUT IMPACT ON SPECIFIC POPULATIONS AND ISSUES In a report to Congress on Friday, July 11, White House officials stated that the North American Free Trade Agreement (NAFTA) has been beneficial for the American economy during its first three years of operation. The fifteen year agreement is expected to continue to provide "positive trends" for the economy, according to U.S. Trade Representative Charlene Barshefsky. White House economic advisor Gene Sperling says that the number of jobs produced by the agreement has risen by 311,000, and that family and per capita income has risen as well. In contrast to the Administration's findings, however, a "Latino Review on President Clinton's NAFTA Package" argues that NAFTA has adversely impacted Latino workers concentrated in such industries as garments, textiles, and electronic and transportation parts. The Review was prepared by the National Council of La Raza, the Willie C. Velasquez Institute, and Dr. Raul Hinojosa-Ojeda, UCLA/North American Integration and Development Center. The report was released at a press conference led by Rep. Esteban Torres (La Puente). The report also argues that the programs established under NAFTA to offset worker displacement and ensure effective environmental standards and clean-up along the border have not been implemented. EU OPPOSITION TO BOEING/MCDONELL DOUGLAS MERGER DRAWS QUICK FIRE European Union officials are expected to meet in Brussels, Belgium on Wednesday where they have signaled that they will most assuredly vote to reject the nearly $14 billion Boeing Corporation-McDonell Douglas merger that was announced in December, 1996 (see Bulletin, Vol. 3, No. 43) and approved by the Federal Trade Commission just last week. Word that the EU will block the merger drew a swift and emphatic vote by the U.S. Senate Wednesday evening which unanimously approved a measure condemning the EU. Thursday, President Clinton weighed in on the matter, stating at a White House press conference that ³[w]e have a system for managing this through the World Trade Organization and we have some options ourselves when actions are taken by Europe in this regard.² Clinton stopped short of stating that a costly trade war was in the works, however. Rep. Ron Packard (Oceanside) commented to Reuters that the FTC found no problem with the proposed consolidation, and added, ³The EU is simply holding this merger hostage for a sweeter deal.² As reported in last week¹s Bulletin (Vol. 4, No. 24), European officials have complained about the consolidation of the Seattle-based Boeing and St. Louis-based McDonell Douglas into one entity because the new Boeing would likely stake out 70 percent of the large commercial airline market, leaving the four-nation Airbus Industrie consortium with the remaining 30 percent. In particular, the EU officials have criticized Boeing¹s contract to be the exclusive supplier of jets to Continental, American, and Delta airlines, a deal that the EU claims violates antitrust and competition laws. The nearly $14 billion merger could have a substantial impact on California. McDonnell Douglas' Long Beach operation, Douglas Aircraft Co., has been troubled of late and some industry observers are predicting that the business may continue to deteriorate unless purchased by the Boeing Corporation. Some aerospace analysts even believe that the Boeing Co. may likely expand operations at the 20,000-person production plant in Long Beach, and possibly also expand work at McDonnell's 5,600-person space operation in Huntington Beach. In all, 42,000 of the 200,000 employees of the proposed new Boeing Co., are located in California, which would make Boeing the largest private industrial employer in the state, a title many think it would be unwilling to compromise.