The California Institute

CONTENTS OF THIS ISSUE:
President Sends Up Supplemental Appropriations Bill Which Includes Disaster Money
Another Step In The Headwaters Deal
Child Support Enforcement Bill Passes House
Higher Education Act Reauthorization Advances
On the Road Again . . . ISTEA Funding Agreements Struck in Senate
CCSCE Report on California Economy Highlights State’s Leadership in Many Key Sectors
Lofgren & Boxer Help Launch New Privacy Coalition To Fight Encryption Restrictions
Financing of Alameda Corridor, BART-SFO examined by GAO report
Boxer Introduces Salton Sea Bill In Senate
Study Finds Safe Harbor Provision Fosters Greater Information
Intellectual Property Group Releases Information on Piracy Costs
Stanford Nobel Laureate Urges Increased Federal Research Funding
USGS Regional Office to Remain in Menlo Park for 10 More Years
First-Ever California Biomedical Resource Directory Available 

Another Step In The Headwaters Deal
   An Agreement in Principle on a 50-year habitat conservation plan (HCP), was reached last Friday.  A key element toward implementing last year’s deal between the Pacific Lumber Co. and federal and state officials who want to purchase the Headwaters Forest, the HCP agreement is the most recent of many steps being taken to complete the deal.  Last fall, negotiators had struck a preliminary deal with Charles Hurwitz of the Pacific Lumber Co. and owner of the land that includes the Headwaters forest, in which the federal government would provide $250 million for procurement and the State of California would contribute an additional $130 million to buy the forest.  The 1,000-year-old Headwaters forest is the nation’s last privately-owned unprotected expanse of virgin old-growth redwoods and has been the subject of an often volatile, decade-long struggle to halt logging of the forest.
   Key components of last Friday’s HCP agreement include a prohibition from logging in the Headwaters forest and other nearby parcels containing old growth, resulting in a total of over 15,000 acres being protected.  In exchange, Pacific Lumber Co. will be allowed to harvest timber on 192,000 other acres in Humboldt County.  Preservation of the Headwaters forest and nearby woods is intended to protect, in addition to the trees themselves, the habitats of the salmon, bald eagles, northern spotted owls, and the marbled murrelets who inhabit the forests.  Critics of the deal said in press reports that the agreement did not go far enough to protect all threatened or endangered species, including all old-growth trees living in the designated and adjacent areas.  Under the agreement, the HCP plan would take effect March 1, 1999 and hold for 50 years.
   Many more steps must be taken before the Headwaters deal can be completed.  While Congress and the President appropriated the $250 million federal share of procurement in the FY98 Interior Appropriations bill, the state has not yet provided its $130 million share of the deal to buy the lands.  Some state officials favor a legislative appropriation, while Governor Wilson has suggested securing the money through a bond measure.  In addition, once a final agreement is reached on all the details, public hearings must be held and an environmental impact statement issued on the HCP.
   Other signatories to the agreement include: California Secretary for Resources Doug Wheeler; Pacific Lumber Co. owners John Campbell and Charles Hurwitz; Michael Spear, Pacific regional director of the U.S. Fish and Wildlife Service; and William Hogarth, acting regional administrator of the National Marine Fisheries Service.  Senator Diane Feinstein, Rep. Frank Riggs (Windsor), Deputy Secretary of the Interior John Garamendi; and Terry Garcia, Assistant Secretary of the National Oceanic & Atmospheric Administration also participated in the negotiations.

Child Support Enforcement Bill Passes House
   On Thursday, the House passed a bill, H.R. 3130 introduced by Rep. Clay Shaw (FL), that would reduce the financial penalty imposed on states who fail to implement a statewide computer tracking system for collection of  child support.  During the one-hour floor debate, an amendment was added to the bill that would deny visas and other immigration services to foreign citizens owing more than $5,000 in support payments to children living in the U.S.  In addition to modifying the current penalty structure established in the 1996 welfare reform law, the bill also facilitates states’ compliance by allowing for a county-based waiver provision permitting counties with their own effective and elaborate computer systems to be exempt from the unified system requirement.  However, all such waivers must be approved by the Secretary of Health and Human Services.
   HR 3130 creates a new sliding penalty scale for non-compliant states:  4% of a state’s child support administrative block grant in the first year of non-compliance; 8% in the second; 16% in the third; and 20% in the fourth year and thereafter.  States would be able to recoup up to 75% of their block grant funds if they comply before the end of a given year.  The bill received widespread bipartisan support and passed overwhelmingly out of the House by a 414-1 vote.  It is expected to be taken up in the Senate in the coming weeks.

Higher Education Act Reauthorization Advances
   Though the bill’s provisions regarding teacher preparation and student financial aid have yet to be fully resolved, Chairman Buck McKeon (Santa Clarita) and the Subcommittee on Postsecondary Education, Training, and Life-Long Learning on Wednesday reported to the full House Education and Workforce Committee its revisions to the Higher Education Act of 1965.
    At Wednesday’s hearing, several subcommittee members offered amendments to Title II of the bill, which provides federal money for teacher preparation, but then withdrew the amendments in hopes of working together toward a consensus proposal by the time the full committee acts.  The withdrawn amendments would have created alternative certification programs for professional and other highly qualified non-teachers, promoted programs to encourage academic competence by teachers in subjects taught, and formed vertical partnerships among schools and institutions that provide teacher training to give young teachers experience and encourage otherwise not-college bound students to consider a postsecondary education.  Several members offered and withdrew amendments based on separate legislation they have introduced.  Rep. Lynn Woolsey (Petaluma) recommended her bill, H.R. 3085, “The Partnership for Professional Renewal”, as a model for teacher preparation programs.  Rep. Loretta Sanchez (Garden Grove) also offered and withdrew amendments concerning mentoring students in preparation for college and funding for Hispanic Serving Institutions (HSI).
   Unable to reach consensus before the mark-up, the subcommittee also held a hearing on Thursday to discuss the scheduled July 1, 1998 change to the student loan interest rate.  In 1993, under the student loan reform act, Congress changed the base used to set the formula that determines student loan interest rates.  Due to recent changes in the financial markets, the new formula would set the student loan interest rate at a point too low to be profitable, according to private lenders who provide two-thirds of all student loans under the guaranteed loan program (FFELP).  Proposals to address these concerns vary, with some believing that Congress should change the formula again, but others that the government should increase its direct-lending programs to make up for any private industry shortfalls.  Check the Committee’s website for testimony at http://www.house.gov/eeo/.

On the Road Again . . . ISTEA Funding Agreements Struck in Senate
   Debate on the Senate floor this week focused entirely on ISTEA II, the Senate’s proposal to reauthorize the nation’s transportation laws.  On Thursday, a deal was struck to increase funding for mass transit, riding the bumper of a deal made earlier this week to increase highway funding in ISTEA II (S. 1173).
   At the start of the week, the six-year bill would have provided approximately $145 billion for roads and bridges and another $35.7 billion for mass transit.  With this week’s proposed increases, the Senate’s bill will provide about $171 billion for roads and bridges and roughly $41 billion for mass transit over the life of the legislation.  On Thursday, the Senate adopted by voice vote, with the support of the Senate leadership and Budget Committee Chair Pete Domenici (NM), an amendment to increase highway funding by about $26 billion.  The agreement allows federal gas tax dollars, a portion of which was previously dedicated under the 1997 Balanced Budget Agreement to be used for deficit reduction, to be used entirely for transportation funding.  While $1.6 – 1.7 billion in potential offsets are said to be needed to offset the increased highway authorization, it is unknown what programs will be targeted.
   Of the $25.9 billion provided for by the highway agreement, two-thirds, or about $18.9 billion, is to be allocated to the states by the Senate bill’s formula.  California is scheduled to receive about 9.1% of the funds allocated by formula used by ISTEA II.  The remaining one-third, or $7 billion is to be divided among four discretionary programs:  approximately $1.9 billion to the Appalachian Regional Commission (ARC) and roughly $450 million for border crossings and trade corridors; about $850 million for roads on public lands; roughly $1.8 billion to nine states that have large metropolitan areas, California included; and $2 billion to ensure that every state receives a 91% return of the federal gas tax dollars paid into the Highway Trust Fund by the state.  Under ISTEA II before the funding agreements, California would receive about 90.7% of its federal gas tax dollars paid into the Highway Trust Fund.  The highway funding agreement provides flexibility for states in use of these additional funds.  It is unclear what would be California’s total share of the $7 billion new funds.
   The agreement to increase funding for highways did not please everyone.  Several Senators, led by Sen. Alfonse D’Amato (NY), wanted a proportional increase in transit funding as well, to maintain a historical funding precedent established under the original ISTEA law that pledges at least 20% of any new transportation spending increases to mass transit.  On Thursday afternoon, a deal between Sen.  D’Amato and Sen. Domenici was reported that would increase funding for mass transit by $5 billion.  Reportedly, the extra money will be used for new light rail and bus systems.  The proposed transit funding increase has yet to be approved by the Senate.
   On Wednesday and Thursday, the Senate also considered and approved three amendments.  One established a national .08 blood alcohol level standard for drunk driving (62-32), the second established a nationwide ban on driving with an open container of alcohol (52-47), and the third (approved by voice vote) adds tougher ozone and particulate air pollution standards proposed last year and to be enforced by the EPA.  Senators defeated (43-56), however, an amendment that would have prohibited drive-through liquor sales.  California, along with 14 other states, has already adopted the .08 standard, and it prohibits open-containers in vehicles, and does not allow drive-through liquor stores.  The Senate will continue road work next week, as it debates amendments to discontinue minority set-aside programs for federal construction projects and other clean air amendments.

CCSCE Report on California Economy Highlights State’s Leadership in Many Key Sectors
   California companies lead the nation in an increasing number of key economic sectors, according to a report released recently by the Palo Alto-based Center for the Continuing Study of the California Economy (CCSCE).  The 1998 edition of the Center’s annual “California Economic Growth” series notes that the state has gained 800,000 jobs since January 1996, including nearly 450,000 in 1997 alone, giving the state a job growth pace of 6.2% which “far outpaces the very robust 4.6% nationwide gain.”  The report predicts that “California should have another year of strong job and income gains in 1998 — again outpacing national growth rates despite exposure to the Asian economic turmoil.”
   CCSCE director Steve Levy, who also serves as vice chair of the California Institute’s Economic Advisory Council, called the state’s 1995-97 economic recovery “nontraditional,” because the economic sectors that had previously lost the most jobs to recession (aerospace, construction and retail trade) were not significant contributors to the recent job and income gains.  Rather, the recovery was led by four growth sectors — foreign trade, high technology, tourism & entertainment, and professional services.  Levy notes that “California reached a record high of 20.9% of U.S. high tech jobs in 1997,” up two full points from just two years before.
   The CCSCE report notes that the Silicon Valley, which attracted a record $1 billion in venture capital in the 2nd and 3rd quarters of 1997, saw sales by its 150 leading companies reach $170 billion in 1996, up 80% from $95 billion in 1993.  Technology was a strength in other regions, including Southern California (Orange County particularly), Sacramento and San Diego.
 In five years, California’s share of U.S. motion picture starts rose from 50% to nearly 70%, nearing a total of 600 in 1996, and California added roughly 60,000 jobs in the industry in the past two years alone.  The $60,000 average salary for motion picture industry jobs is nearly twice the average for all industries.
   The report notes that, “Foreign trade expansion was a major contributor to the recovery until mid 1997 when exports to Asia stopped growing,” and adds that high tech exports led recent surges.  Computer services, a component of the professional services industry area, was the state’s fastest growing sector in 1995, 1996 and 1997.  The CCSCE report estimates that the state is gaining more than 2,000 jobs per month in the sector, where the average wage exceeds $60,000 per year.
   The report also focuses on several challenges facing the state’s economy.  First, wages have not grown for low and middle income workers — and many former welfare recipients will soon join their ranks — but many of these workers do not have the skills and technical training desired in most high-growth industries.  The report suggests that a universal workforce preparedness strategy is needed.  Second, there is growing tension in California between economic growth, land use policies and quality of life.  Factors suggested as part of the solution include efficient land use, fiscal reform, public investment and equity considerations.  Finally, the report proposes the need for a long term economic strategy for California.
 For more information, contact the Center at 650-321-8550.

Lofgren & Boxer Help Launch New Privacy Coalition To Fight Encryption Restrictions
   Rep. Zoe Lofgren (San Jose) and Sen. Barbara Boxer joined other members of Congress yesterday in lauding the formation of a coalition, the Americans for Computer Privacy (ACP), to fight against restrictions on the use of encryption technology in electronic commerce.  ACP will focus its efforts on educating the American people on the need for encryption technology to protect privacy rights and civil liberties.  It so far has raised $5 million to finance its efforts.  The broad-based group is comprised of companies and associations representing financial services, manufacturing, health care, high technology, and transportation.
   Encryption technology scrambles communications and data as they are sent out digitally  in order to protect them from being tapped into by unauthorized sources.  With the wider use of the Internet and computers for commercial transactions and information exchange, the demand is growing exponentially for stronger, harder-to-break, encryption technology.  The U.S. government severely restricts the export of strong encryption products and software, and recently, the FBI and other law enforcement agencies have argued that domestic use of encryption should also be restricted.  Rep. Lofgren has pointed out that the U. S. policy makes all Americans more vulnerable to illicit and surreptitious access to computer files, phone conversations, and personal information.
   Also yesterday, Sens. John McCain (AZ) and Bob Kerrey (NE) announced that they were modifying their bill, S. 909 dealing with the export of encryption.  Primarily, the changes expand industry representation from four seats to eight seats on the Advisory Board created by the bill to rule on the level of encryption that can be exported based on the availability and anticipated availability of similar levels of encryption from foreign sources.  The Senators hope to bring their bill to the Senate floor for a vote in May.  However, the new modifications are not expected to garner significantly more support from the high technology community for the bill.

Financing of Alameda Corridor, BART-SFO examined by GAO report
   Recently, the General Accounting Office (GAO) released a report titled “Surface Infrastructure: Costs, Financing, and Schedules for Large-Dollar Transportation Projects” (RCED 98-64).  Prepared for Rep. Frank Wolf (VA), Chair of the House Transportation and Infrastructure Subcommittee on Transportation and Related Agencies, the report assessed eight large transportation projects currently receiving federal funds, including the Alameda Corridor and the SFO-BART extension.
   Notably, the GAO report cautioned that financing of the Alameda Corridor project, funded through a combination of state, local, and federal resources, could be jeopardized by an IRS decision last year that limits the use of tax-exempt bonds by the Alameda Corridor Transportation Authority (ACTA), potentially escalating contracting and construction costs, as well as exacerbating the troubled financial state of one of the Corridors primary financiers, the Metropolitan Transportation Authority (MTA).   ACTA gave a briefing on Capitol Hill last week (see, Bulletin Vol. 5, No. 7 (2/26/98)) and said despite the MTA’s recent money troubles, the ACTA had every confidence that the MTA would honor their legal commitment to fund the project.  To date, the MTA has paid about 37%, or $130 million of the $348 million of its share.  The MTA told the Los Angeles Times this week that the funding is secure despite other demands on the agency’s resources.
   For a copy of the large GAO report, access GAO’s web page and use Adobe Acrobat to read http://www.gao.gov/new.items/rc98064.pdf, or call the GAO’s publications office at 202/512-6000.

Boxer Introduces Salton Sea Bill In Senate
 Sen. Barbara Boxer on Thursday introduced a Senate companion bill to the “Sonny Bono Memorial Salton Sea Restoration Act,” introduced in the House last week (see, Bulletin Vol. 5, No. 7 (2/26/98)).  Boxer’s bill requires the Department of the Interior to review all options for restoring the sea, and then recommend one preferred option at the end of one year.  Secondly, the bill gives up to an additional six months, if necessary, for environmental compliance review and public hearings as required by law.  Finally, it also triggers an automatic authorization of $300 million as is also called for in the House bill.

Study Finds Safe Harbor Provision Fosters Greater Information
   A study recently released by Stanford University has concluded that the safe harbor provisions contained in the 1995 Securities Litigation Reform Act have promoted the release of more financial forecasts by companies.  The safe harbor provisions in the law protect companies from frivolous lawsuits based on forward-looking financial forecasts that do not pan out in the future.  The study not only found that the new law has encouraged managers to make more frequent forecasts, but also that the quality of the information released has not become more optimistically biased because of the law’s protections.
   A copy of the study can be obtained by contacting Barbara Buell at Stanford at 650-732-3157 or at [email protected].

Intellectual Property Group Releases Information on Piracy Costs
   The International Intellectual Property Alliance (IIPA) recently estimated that U.S. copyright-holding industries lose about $10.8 billion annually because of piracy of music, books, movies, and computer software.  To combat this growing problem, IIPA recommended that the U.S. Trade Representative, Charlene Barshefsky, should add Bulgaria and Greece to the Priority Foreign Country list, subjecting them to greater pressure from the U.S.  Bulgaria has become the largest exporter of pirate CD products in Europe, with Paraguay holding that ignominious title for Latin America, according to the group.  Noting that U.S. pressure has led China to clamp down on piracy, IIPA is calling on the Administration to apply the same pressure to these countries where piracy is booming.
   The group is also calling on the U.S. to add nineteen countries to the list of five that are now on the Priority Watch List, which triggers greater scrutiny by U.S. authorities.  The current Watch List countries are:  Argentina, Ecuador, Indonesia, the Russian Federation, and Turkey.  The recommended additions are:  Australia, Colombia, the Dominican Republic, Estonia, Guatemala, Israel, Italy, Jordan, Kuwait, Macao, Mexico, Peru, Singapore, and Vietnam.

Stanford Nobel Laureate Urges Increased Federal Research Funding
   In Washington D.C. last week, Stanford University Physics Professor Burton Richter joined Pennsylvania Governor Richard Thornburgh, Ford Motor Company Vice President for Technical Affairs John McTeague, and New Mexico Senator Jeff Bingaman at a Senate forum emphasizing the need for increased levels of civilian R&D funding.  The forum, entitled “Research as an Investment,” was held by the sponsors of S. 1305 (Gramm and Lieberman) – a bill that would double the level of federal R&D funding over the next ten years.  During the forum, Dr. Richter cited a recent Brookings Institution and American Enterprise Institute study showing the positive economic returns of long-term federal R&D.  The study showed that 30-50% of economic growth in U.S. society comes from the introduction of new technologies and that economic returns on research investment amount to 40-50% a year.
   In an effort to quantify the value of science and research, Dr. Richter pointed out that today’s biotechnology industry is based largely on recombinant DNA techniques developed via research in the 1970s, that the explosive growth of the Internet is the result of four decades of intense research, that the global positioning system (GPS) industry is based on ultra precise atomic clocks developed for research nearly 50 years ago, and that research work has revolutionized the telecommunications industry several times over.  He also noted that science in one area is often coupled with advances in other areas — such as magnetic resonance imaging which requires the marriage of health care experts, chemists, mathematicians, and physicists.  Likewise, radiation treatment of cancer resulted from nuclear and particle physics research.
   Dr. Richter noted that 73% of the background support for patent applications in the U.S. comes from publicly-funded research. He concluded that because the high tech industry accounts for its larger share of GDP today than yesterday, it should also account for a larger share of federal funding.

USGS Regional Office to Remain in Menlo Park for 10 More Years
   Rep. Anna Eshoo (Atherton) and Interior Secretary Bruce Babbitt announced this week that the U.S. Geological Survey’s regional center in Menlo Park will stay put for at least the next decade.  An internal panel of USGS has since August considered moving the office elsewhere within nine western states, but the service instead will consolidate offices into eight buildings rather than the current twelve.  Previous workforce reductions (from 1,200 to 800) will permit such consolidation, which will save millions per year in rent.  Scientists and others had protested the proposed move for various reasons, including the strong reputation the Menlo Park site has developed with expertise from Stanford, U.C. Berkeley and U.C. Santa Cruz.  In addition to studying earth movement and natural disasters, USGS scientists in Menlo Park are also responsible for researching the geology, seismology, hydrology and volcanology in nine Western states.

First-Ever California Biomedical Resource Directory Available
   California’s burgeoning biomedical industry has been comprehensively profiled for the first time by the San Diego-based California Healthcare Institute in the California Biomedical Resource Directory.  The Directory contains detailed information on over 2,000 California companies, institutions, and universities involved in researching, developing or manufacturing biotechnology products, pharmaceuticals, medical devices and diagnostics.  For more information or to purchase a directory, contact CHI at (619) 551-6677.

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