CONTENTS OF THIS ISSUE:
Senate Passes Y2K Liability Bill; Veto Threat Clouds Future
SCAAP Funding Slashed by Senate
Commerce Subcommittee Reports Amended Encryption Bill
Delegation Circulating Nearly Unanimous Methamphetamine Letter
Semiconductor Depreciation Bill Introduced in Senate; Garnering Co-Sponsors In House
California and New York Appropriators Raise Transit Equity Concerns
U.S. Conference of Mayors Opposes Transit Funds Cap, Urges FEMA
   to Move Carefully on Disaster Insurance Requirements, Supports Housing
Transportation Appropriations Bills: Analysis of California Items
House Members from Slower Growing States Gun for Fast Growing States’ K-12 Education Funds
Senate Banking Committee Continues EAA Hearings
Commerce Subcommittee Holds Hearing On Database Copyright Bill
Senate Passes Reduced Bay-Delta Funding
H1-B Visa Cap Already Reached
New Software Study Shows Impact on U.S. Economy
Electricity Restructuring Legislation Considered
Joint Economic Committee High Tech Summit

On Tuesday, June 15, the Senate passed the Year 2000 liability limitation legislation, after substituting a compromise version for the House-passed H.R. 775. The substitute was authored by Sens. John McCain (AZ), Dianne Feinstein, Christopher Dodd (CT), and Orrin Hatch (UT). The substitute retains the 90-day cooling off period before a Y2K suit may be filed and eliminates joint and several liability in favor of proportional liability, as the House bill does. See, Bulletin, Vol. 6, Nos. 14 (4/29/99), 15 (5/6/99), 16 (5/13/99), 17 (5/20/99), & 19 (6/10/99). However, it only caps punitive damages in cases where the defendant has 50 or less employees, or a net worth of $500,000 or less. In those cases, the punitive damages may not exceed $250,000 or three times the compensatory damages, whichever is less.

Although the substitute, and especially the narrowed scope of the punitive damages cap, is an attempt to alleviate some concerns, the President has still threatened to veto the bill. It is expected that the Administration will be heavily engaged in the negotiations during the House-Senate conference that comes next.
 

SCAAP Funding Slashed by Senate

On Friday, June 11, the Senate Appropriations Committee reported its FY00 Commerce, Justice, State Appropriations bill with a $485 million cut in funding for the State Criminal Alien Assistance Program (SCAAP). The Committee’s bill contains only $100 million in FY00 funding for SCAAP, versus the $585 million appropriated for FY99. The state estimates that a total appropriation of $100 million would reduce its share of the award to about $31.4 million, a $152 million loss from the prior allocation. Los Angeles County alone would see its $19 million grant dropped to only 3.25 million. Sen. Dianne Feinstein and others are expected to offer an amendment when the bill comes to the Senate floor to restore funding to FY99 levels.

On the House side, all 52 members of the California Congressional Delegation signed a letter in March to Chairman Hal Rogers of the Commerce, Justice, State (CJS) Appropriations Subcommittee, calling for the full $650 million authorized under the Program. The House subcommittee has not yet marked up its CJS appropriations bill.
 

Commerce Subcommittee Reports Amended Encryption Bill

On Wednesday, June 16, the House Commerce Committee’s Subcommittee on Telecommunications, Trade, and Consumer Protection reported, by voice vote, H.R. 850, the Safety and Freedom Through Encryption (“SAFE”) Act, after amending it with a substitute offered by Chairman Billy Tauzin (LA). The substitute retains the major provisions of the bill easing the export of encryption products of any strength that are generally available on the world market. However, it requires the Secretary of Commerce to relinquish control over encryption exports to the National Telecommunications and Information Administration (NTIA), within the Department of Commerce, within two years of the bill’s enactment. It also establishes, within NTIA, the National Electronic Technologies Center (“NET Center”) to bring together federal national security and law enforcement agencies with the private sector to help the agencies develop state-of-the-art decrypting capabilities. The substitute also prohibits the federal government from requiring that a government contractor must use encryption products that contain a key recovery system. The substitute was adopted by voice vote.

The subcommittee adopted an amendment, by a vote of 19-4, offered by Rep. Michael Oxley (OH). The amendment allows the Department of Commerce to deny a license in cases where it believes the encryption product will be used by drug traffickers, child pornographers, or organized crime. It also accepted by voice vote an amendment offered by Rep. Heather Wilson (NM) that increases the 15 calendar-day license review period contained in the substitute to 30 working days. The subcommittee defeated by voice vote two amendments offered by Rep. Cliff Stearns (FL). The first would have prohibited the export of any encryption products to China. The second would have required any third party in possession of encrypted information to provide a plaintext translation of the material to law enforcement authorities under a court order. Opponents of the amendment argued that it would have, in effect, mandated a key recovery system by requiring unrelated third parties, such as Internet service providers, to have some method of decrypting its users’ data.
 

Delegation Circulating Nearly Unanimous Methamphetamine Letter

The California Congressional Delegation, led by Reps. Jerry Lewis (Redlands) and Sam Farr (Carmel) is circulating a letter calling on the Commerce, Justice, State Appropriations Subcommittee to back $18.2 million to allow the State’s Bureau of Narcotic Enforcement (BNE) to continue its Methamphetamine Strategy. So far, roughly three-fourths of delegation members have signed on. The letter notes that last year, “BNE seized 1006 meth labs in California, compared to the 1,556 seized by the DEA [Drug Enforcement Agency] for the entire nation,” and also notes that the impact of the drug “is disproportionately felt in California.”

California had previously been identified as a major source of the illegal narcotic, and in 1996, federal, state and local law enforcement officials devised a coordinated plan to address the crisis. The letter supports funds to continue the strategy which would be used to maintain established enforcement “strike” teams, intelligence support, forensics, officer training, and community outreach and public awareness activities.

In related news, House members from the Central Valley and Senators Feinstein and Boxer this week applauded the federal Office of National Drug Control Policy’s designation of the Central Valley as a “High Intensity Drug Traffic Area,” an unfortunate distinction already won by the Bay Area, Los Angeles and the Southwest Border area. The designation will allow for better statewide coordination of efforts to combat methamphetamine production and distribution, as well as other drug activities.

Offices of members wishing to sign the letter but who have yet to do so should contact Brian Sanderfoot with Rep. Lewis (x5-5861) or Sherry Greenberg at Rep. Farr’s office (x5-2861). The signing deadline will be close of business on Monday, June 21.
 

Semiconductor Depreciation Bill Introduced in Senate; Garnering Co-Sponsors In House

Sens. Orrin Hatch (UT) and Max Baucus (MT) have introduced S. 1150, the Semiconductor Equipment Investment Act of 1999. Sens. Dianne Feinstein and Barbara Boxer are co-sponsors of the legislation. S. 1150 would reduce the tax depreciation on semiconductor equipment from five years to three, to more accurately reflect its useful life. It is strongly supported by California’s semiconductor and semiconductor equipment manufacturers, which account for over 100,000 jobs in California. See, Bulletin, Vol. 6, No. 8 (3/11/99).

Reps. Bob Matsui (Sacramento) and Nancy Johnson (CT) are the chief authors of the House bill. The bill continues to garner co-sponsors, with a total of 46 so far, 27 of whom represent a broad, bipartisan cross-section of the California delegation.

Members still wishing to co-sponsor the House bill should contact either Francis Grab in Rep. Matsui’s office (x57163) or Todd Funk in Rep. Johnson’s office (x54476).
 

California and New York Appropriators Raise Transit Equity Concerns

Letters were sent Wednesday to House Subcommittee on Transportation Appropriations Chairman Rep. Frank Wolf, and Ranking Democrat Martin Sabo expressing strong concern about the Senate Transportation Appropriations provision, dubbed “transit equity,” which would cap transit funding for every state at 12.5%, but impacting only California and New York. The letters request that Reps. Wolf and Sabo oppose this provision on the floor and in conference, concluding that “this is a most important issue for our states that has wide-ranging consequences, not only for New York and California, but for formula-based funding for projects across the country.” Signers of the letter include Reps. Jerry Lewis, Julian Dixon, Nancy Pelosi, Lucille Roybal-Allard, Sam Farr, Duke Cunningham, and New York Representatives James Walsh, Michael Forbes, Nita Lowey, and Maurice Hinchey.

For more information, see Bulletin, Vol. 6, No. 19 (6/10/99).
 

U.S. Conference of Mayors Opposes Transit Funds Cap, Urges FEMA to Move Carefully on Disaster Insurance Requirements, Supports Housing

Thanks largely to the efforts of San Francisco Mayor Willie Brown, Jr., the nationwide membership of the U.S. Conference of Mayors this week adopted resolutions opposing a state cap on federal transit dollars and expressed concern about the Federal Emergency Management Agency’s haste to create stiff disaster insurance restrictions on public buildings.

At its meeting in New Orleans on Tuesday, the USCM approved Mayor Brown’s resolution supporting federal funding for TEA-21 transit accounts and calling upon Congress and the Administration to “strongly oppose appropriations riders, including the imposition of transit spending caps, aimed at overturning TEA-21 …”. For more information about the transit caps, see the preceding article as well as last week’s Bulletin, Vol. 6, No. 19 (6/10/99), which notes the unanimous California Congressional delegation letter opposing the caps.

A separate resolution, sponsored by Mayor Brown and San Jose Mayor Ron Gonzales, “urges the President and FEMA to slow down the rulemaking process on the insurance requirements to ensure that cities and other affected parties have full and substantial input in the development of the proposed rule so that the potential of any changes is thoroughly examined.” As reported in the Bulletin, Vol. 6, No. 19 (6/10/99), 51 members of the California Congressional delegation wrote last week to FEMA director James Lee Witt to express concern about the agency’s rulemaking actions.

In addition, the USCM adopted a resolution by Mayor Brown and Boston Mayor Thomas Menino supporting full funding for Section 8 housing contract renewals, mark-to-market efforts to bring affordable housing rents in line with local market conditions, and enhanced vouchers to residents of below-market buildings where owners elect not to renew section 8 contracts.
 

Transportation Appropriations Bills: Analysis of California Items

As the House prepares to consider its FY 2000 Transportation Appropriations bill on the House floor next week, the California Institute has attempted to identify California provisions contained in the bill and in its Senate counterpart. In a separate document, the Institute follows the order of the bills (S.1143 and H.R.2084) and their accompanying committee reports to examine transportation funding for the state. The $50.7 billion House bill at present includes $50.7 billion, including $27.7 billion for highway construction, $5.8 billion for the Federal Transit Administration and $10.5 billion for the Federal Aviation Administration. The Institute analysis is available at http://www.calinst.org/pubs/tranapp00.htm If any updates are required, please let us know.
 

House Members from Slower Growing States Gun for Fast Growing States’ K-12 Education Funds

Two Pennsylvania Representatives are circulating a letter which seeks to skim fund that would otherwise go to California and other states with rapidly growing populations of poor children. In a battle that seems to continually crop up in slightly modified forms, the letter backed by Joseph Hoeffel and Jim Greenwood seeks to impose a “100% hold harmless” provision on concentration grants in the Title I education program — which would cut California’s share of such funds.

In essence, the hold harmless provision says that no school district should receive less than it received back in 1998, even if other districts (including most in California in this case) have a greater need due to increasing populations of the poor children targeted by the Title I program.

Typically, hold harmless provisions are more often proposed on the Senate side, where slower growing states tend to have a disproportionate voting advantage. An onerous 100% hold harmless provision was imposed on the entire Title I program in FY99 by Senate appropriators from shrinking states. The Hoeffel/Greenwood letter pushes a separate 100% hold harmless for concentration grants, a portion of the Title I program. The California Congressional delegation, the state’s education community and others have been active in opposing hold harmless provisions on education funds.

For more information on the Title I hold harmless problem generally, see the Institute’s fact sheet on our website, at: http://www.calinst.org/pubs/title1-599.htm .
 

Senate Banking Committee Continues EAA Hearings

The Senate Banking Committee held another in a series of hearings on the reauthorization of the Export Administration Act on Thursday, June 17. The Committee plans to release the Chairman’s draft of the reauthorization bill on June 24, and mark it up on June 29.

At Thursday’s hearing, the Committee heard from a panel of industry experts, including: Michael Maibach, Vice President, Intel; Tom Arnold, Chief Technology Officer, Cybersource; and, Eric Hirschhorn, Exec. Sec., Industry Coalition on Technology Transfer. Mr. Maibach, as well as several other witnesses, urged the adoption of an export control system for computers based on the world-wide availability of comparable machines, rather than on a definition based on technical performance. Currently, the U.S. strictly limits the export of computers with over 2,000 MTOPS (millions of theoretical operations per second) to so-called Tier 3 countries (those, such as China, were the U.S. fears use of high-speed computers to proliferate weapons of mass destruction). Mr. Maibach testified that Intel’s current Pentium III performs at about 1,200 MTOPS, but by next year, its Merced microprocessor will perform at 5,622 MTOPS, more than quadruple the computing power. Because of the rapid advances in computer performance, Intel argues that the U.S. export control system should not limit the export of computers or components that are available on the worldwide market. Moreover, assessments of foreign availability by the Department of Commerce should be based on a prospective look at the products that will be available several months down the road. Otherwise, any limits set will be quickly overtaken by the rapid advances in the technology available.

Copies of all witnesses’ testimony can be obtained from the Committee’s website at: http://www.senate.gov/~banking .
 

Commerce Subcommittee Holds Hearing On Database Copyright Bill

The House Commerce Committee’s Telecommunications, Trade, and Consumer Protection Subcommittee held a hearing on Tuesday, June 15 on H.R. 1858, the Consumer and Investor Access to Information Act of 1999. The bill would grant some copyright protection to database compilations, such as stock quotes, but is intended to ensure that the protection granted does not prevent the use of that information. The bill, introduced by Commerce Committee Chairman Tom Bliley (VA) is intended as an alternative to H.R. 354, a broader version reported by the House Judiciary Committee in May. See, Bulletin, Vol. 6, No. 18 (5/27/99).

Among other witnesses, the Subcommittee heard from Andrew J. Pincus, General Counsel, U. S. Department of Commerce, and Frank Politano, General Attorney and Trademark and Copyright Counsel for AT&T. Mr. Pincus testified that the Administration supports efforts to draft a targeted bill to protect database collections. However, he expressed concern over several provisions in H.R. 1858, such as the broadness of certain definitions, the extent to which the fair use doctrine was preserved, and the failure to establish a private right of action to enforce the bill.

Mr. Politano, on the other hand, fully supported H.R. 1858. Citing AT&T’s need to access many databases in many of its operations, he testified that H.R. 1858 represented the necessary balance between preserving protection for the database compiling community and promoting the growth of databases and innovation generally.

Copies of all of the witnesses’ testimony can be obtained from the committee’s website at: http://www.house.gov/commerce .
 

Senate Passes Reduced Bay-Delta Funding

The Senate, by a vote of 97-2, approved its FY00 Energy and Water Appropriations, accepting a lower funding figure for the San Francisco-Bay Delta restoration project approved by the Senate Appropriations figure. The appropriated amount, $50 million, is $15 million lower than the Senate’s $65 million figure from last year, and $25 million lower than the $75 million that was ultimately funded by Congress in FY99 appropriations.

The bill, however, does contain a modest increase in Central Valley Project Restoration Funds. It funds $37.3 million for the CVP, which is $4 million more than last year, but still $10 million less than requested in the President’s budget.

On a related resources issue, the Commerce, Justice, State Appropriations bill, reported by the Senate Appropriations Committee last Friday, contains $100 million in FY00 funding for the Pacific Coastal Salmon Restoration Initiative. The new Initiative will implement the recent U.S.-Canada salmon trade agreement. Of the $100 million, $20 million is allocated to start up programs created under the agreement, and the remaining $80 million will be divided equally between California, Washington, Oregon, and Alaska for salmon restoration initiatives.
 

H1-B Visa Cap Already Reached

The Immigration and Naturalization Service announced Friday, that the H1-B visa cap for FY 1999 will be reached on June 15, 1999, three and a half months before the end of the fiscal year. As of May 31, 1999, INS had approved 108,386 H-1B visa petitions. Last year, Congress increased the H1-B quota from 65,000 to 115,000, but it appears the demand for skilled workers, especially in high technology jobs, still far outpaces the number of visas available. INS announced Friday that it will not accept new first-time H1-B visa applications until October 1, 1999, when the FY00 pool of 115,000 visas can begin to be tapped.

Some studies estimate that 174,000 to 300,000 positions in the computer industry are going unfilled because of the shortage of qualified U.S. workers and the cap on H1-B visas.
 

New Software Study Shows Impact on U.S. Economy

A newly released study shows the significant contribution that the software industry has made to the U.S. economy. The study, Forecasting a Robust Future: An Economic Study of the U.S. Software Industry, was conducted by the Business Software Alliance. It found that in 1998, the industry employed 806,900 employees with an annual average wage of $68,900. The ripple effect of the industry throughout the economy, moreover, accounted for the employment of 2.7 million people earning $128 billion in 1998, according to the study.

On the downside, however, the study also shows that software piracy costs the industry and the economy dearly. In 1998, piracy accounted for 109,000 lost jobs, $4.5 billion in lost wages, and $991 million in lost tax revenues, according to the report.

Copies of the report can be obtained from BSA’s website at: http://www.bsa.org/ceoforum. .
 

Electricity Restructuring Legislation Considered

Secretary of Energy Bill Richardson was the sole witness at a hearing held Wednesday by the House Commerce Committee’s Subcommittee on Energy and Power to consider H.R. 1828, Comprehensive Electricity Competition Act (CECA), the Administration’s electricity deregulation bill. He urged federal legislation to provide competitive, efficient and reliable interstate electric markets, remove the Federal statutory impediments to state and local retail competition programs, allow for the regions served by the Federal utilities to benefit from competition, and enhance and preserve environmental and other public benefits. Secretary Richardson claimed that CECA would lower electric rates, make American businesses more competitive, spur the innovation of new products and services, and reduce the emissions of traditional air pollutants and greenhouse gases. The unanimous California Congressional delegation has previously weighed in on the issue, noting that the implementation of AB 1890 — the state’s broad electric utility restructuring initiative — over the past two and one-half years has been successful, and urging that any federal legislation recognize the changes already underway in California and our state and allow California’s electricity competition program to be implemented.
 

Joint Economic Committee High Tech Summit

The Joint Economic Committee (JEC) sponsored a National Summit on High Technology on June 14-16, holding a hearing each day with testimony from leaders in the high-tech industry, under the leadership of JEC Chairman Sen. Connie Mack (FL), and ranking member Rep. Pete Stark (Fremont). Other California members of the Joint Economic Committee (JEC) include Reps. John Doolittle (Rocklin), and Tom Campbell (Campbell). Several Californians testified during the three days, including Rep. Anna Eshoo (Atherton) who opined that she probably had more constituents among the witnesses than any other member of Congress.

Among those testifying at Monday’s hearing highlighting the strong impact the high-tech segment of the economy has had on jobs, wages and standards of living were: Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System; Louis Gerstner, Jr., Chairman of the Board and CEO, IBM Corporation; and Craig Barrett, President and CEO, Intel Corporation. In his comments, Chairman Greenspan said that innovations in information technology have begun to alter the manner in which business is done in ways that were not foreseeable even five years ago, and described the role of information as the defining characteristic of the current wave of technology. He cautioned, however, that we should be modest about our ability to project technology’s future and its implications for productivity growth and for the broader economy. He added that further reducing regulatory impediments to competition will add to the process of maintaining flexibility in our labor and capital markets. IBM’s Gerstner cautioned that “Policies hastily put in place today could be obsolete tomorrow; or worse, ruin this nascent economic engine.” He also lauded Congressional passage of the Internet Tax Freedom Act and spoke about the importance of encryption, education and federal R&D.

Tuesday’s focus on exploring legislative issues of concern to the industry included, among others, testimony by William H. Gates, Chairman and CEO, Microsoft Corporation; Richard Riley, U.S Secretary of Education; and Robert Holleyman, President and CEO, Business Software Alliance (BSA). Bill Gates included in his comments a discussion of a new era, merging telecommunications, computer technologies and consumer electronics with the Internet, creating new intelligent PCs and complimentary devices. Secretary Riley discussed the connections between education, technology and our economic success in the present and in the future, the upcoming ESEA reauthorization, and the e-rate. Business Software Alliance President and CEO Robert Holleyman told the JEC that the software industry’s sales have generated historic levels of employment and tax revenues which have had a positive, measurable impact on the U.S. economy.

On Wednesday, the Committee heard from panelists including Scott McNealy, Chairman, President and CEO, Sun Microsystems; James C. Morgan, Chairman and CEO, Applied Materials, Inc.; and Gordon Binder, CEO, Amgen. Scott McNealy discussed Sun’s history and vision, the service driven network of the future, Java Technology, and a series of policy recommendations, including his support of the Justice Department’s case against Microsoft. Mr. Morgan discussed the new technology of the standard wafer chip growing from 200mm to 300mm, which will result in cheaper and more powerful chips, and stressed that government leaders need to fully understand the trade-off between export control and export opportunity. Gordon Binder described Amgen’s story as in many ways typical of the entire story of high technology’s role in America’s economic growth, with raising capital and funding research at the heart of the high-tech story. He recommended making the R&D tax credit permanent and warned against introducing price controls on pharmaceuticals.

The Committee also hosted a High Tech Summit “R&D Fair” on Wednesday. Participants showcasing their promising technological advances included CISCO, GTE, AT&T, IBM, Nortel Networks, and America Online.

For testimony from many summit participants, see the Joint Economic Committee website at http://www.senate.gov/~jec/hightechtest.htm .
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