CONTENTS OF THIS ISSUE:
Delegation Circulating Letter on Nonstop Flights to South America; Deadline Tomorrow
Resources Hearing on Endangered Species Bill
Cox/Wyden Bill Would Make Internet Tax Moratorium Permanent
Administration Again Eases Limits on Computer Export Speeds
Gramm To Push For EAA Consideration
Labor Department Advisory Impacts Stock Options
Briefing Held on Transportation Equity Act for The 21st Century
Two UC Reports Reveal High Rates of Uninsured in California and Proposed Solutions To Increase Enrollment
NASA to be Ready with Space Station Service Module if Russia is Not
Fusion Community Briefs Congressional Staff
Two PPIC Reports On Fiscal Trends in California:
Tax Limits Raise Borrowing Costs for States
The Changing Nature of State-Local Fiscal Relationships
California Home Sales in 1999: 11.8% Increase in Median Price

Reps. Jerry Lewis (Redlands) and Sam Farr (Monterey) are circulating a letter to the California bipartisan delegation for signatures on a letter to Secretary of Transportation Rodney Slater. The letter supports the application of United Airlines for authority to operate daily nonstop service between Los Angeles and Buenos Aires, Argentina, and LAX and Sao Paulo, Brazil.

The letter points out that Los Angeles is the largest exporter to Argentina and Brazil without nonstop service, and that in 1999 more than 334,000 passengers traveled from Los Angeles to Brazil and Argentina combined. Presently, Los Angeles has five percent of the flights to Argentina and Brazil compared to Miami’s 49 percent and New York’s 31 percent. Permitting daily nonstop service from Los Angeles to these two major gateways in South America would significantly reduce the round-trip travel time now required for passengers originating in the West.

Presently more than 30 members of the California delegation have signed the letter. The deadline for signing is Friday, February 4th at noon. Members wishing to sign should contact Dave LesStrang in Rep. Lewis’ office at x55861, or Sherry Greenberg in Rep. Farr’s office at x52861.
 

Resources Hearing on Endangered Species Bill

The House Resources Committee held a hearing on February 2, 2000 on H.R. 3160, to reauthorize and amend the Endangered Species Act (ESA). The hearing, chaired by Rep. Richard Pombo (Tracy), was the 27th hearing on the subject over the last five years, according to Rep. Pombo. During his opening remarks, Rep. Pombo stressed that the goal of H.R. 3160, introduced by Committee Chair Don Young (AK), was to recover endangered species and remove them from the endangered species list. He argued that the current ESA has failed to recover any species and once a species is listed as endangered it is never removed from the list. Among other things, H.R. 3160 is aimed at requiring more involvement of private property owners in the listing process, and requiring a peer-reviewed science basis for the listing of a species.

The Committee heard from two panels of ten witnesses, including Richard M. Loughery, Edison Electric Institute; Heather Weiner, Endangered Species Coalition/Earthjustice Legal Defense Fund; Steven Appel, Washington State Farm Bureau; and Steven J. Shimberg, National Wildlife Federation. During his testimony, Mr. Loughery, representing shareholder-owned electric utilities, supported the provisions in the bill granting relief from liability for incidental takings when utilities must make emergency repairs because of power outages.
 

Cox/Wyden Bill Would Make Internet Tax Moratorium Permanent

On Thursday, Rep. Christopher Cox (Newport Beach) and Sen. Ron Wyden (OR) introduced the Internet Non-Discrimination Act, a bill to make permanent the existing prohibition on new taxation of internet commerce. While not impacting existing sales taxes, the bill’s one provision would delete the October 2001 expiration date for the existing moratorium on “new, special and discriminatory” taxes on internet transactions, replacing it with a permanent extension. In a prepared statement, Cox argued that the Internet economy is boosting state and local tax revenues, and “Making the moratorium on new and discriminatory Internet taxes permanent will help sustain that growth.”
 

Administration Again Eases Limits on Computer Export Speeds

The Clinton Administration announced this week that it proposes to ease export controls on computers to keep pace with rapidly advancing technology. Congress has six months to review the decision, but the Administration intends to ask for a one-month approval period, which would be possible under a bill by Rep. Zoe Lofgren (San Jose).

Prior to the Administration’s announcement, individual export licenses were required for what are called Tier II countries (most of Southeast Asia, South America, and South Africa) in order to sell computers with speeds over 20,000 MTOPs (millions of theoretical operations per second). This week’s announcement will raise that level to 30,000 MTOPs. (The administration had raised the level from 10,000 to 20,000 MTOPs in July 1999.)

Last summer, computer exports without individual licenses to recipients in Tier III countries (e.g. China, Russia and most Middle East countries) were raised from 2,000 to 6,500 MTOPs for military users, and from 7,000 to 12,300 MTOPs or less to civilian users. Per this week’s announcement, Tier III country exports will be raised to 20,000 MTOPS for civilian use and to 12,300 MTOPs for military use.

Tier 1 countries, our closest allies, have no export restrictions, while a virtual embargo exists on Tier 4 countries — rogue nations including Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria.

Today’s mass-marketed personal computer technology is in striking distance of many of these limits. For instance, Intel expects to unveil its Itanium microprocessor later this year, four of which would yield a computer running at 23,371 MTOPS. The next general Sony PlayStation will also have a greater than 2,000 MTOPs speed.

Responding to the announcement, Rep. David Dreier (Covina) was quoted as saying that the fact that these numbers “will have to be revisited in three months illustrates that this step does not go far enough,” and Rep. Ellen Tauscher (Pleasanton) commented that exporters will remain “behind the 8-ball” until the MTOPs system is jettisoned.
 

Gramm To Push For EAA Consideration

Sen. Phil Gramm (TX) stated this week that he will urge the Senate leadership to take up his Export Administration Act reauthorization bill, S. 1712, before the end of the month. The bill, reported by the Senate Banking Committee last September, would reduce the number of products on the export control list, and eliminate export controls on products, including high-speed computers, that are readily available in foreign markets. (See also above article.) The bill would also substantially increase penalties for violations of the act. Computer manufacturers and semiconductor chip makers argue that the current export controls place arbitrary limits on the performance level of computer exports, and hamper their ability to compete globally.
 

Labor Department Advisory Impacts Stock Options

An advisory letter released in January by the Department of Labor’s Wage and Hour Division may impact the stock options paid to lower-wage employees. Under the advisory, employers would have to include the options’ profits in the wage base for hourly employees when calculating overtime pay. Although this would result in higher overtime wages for the employees, it may discourage employers from offering stock options to hourly workers. Because overtime pay is a factor of base pay, such as “time and a half,” the employers would have to track the profits realized on exercised stock options by their hourly employees and add that into the base pay before calculating overtime.

Reps. Randy “Duke” Cunningham (San Diego) and Steve Kuykendall (Rancho Palos Verdes) have separately written Labor Secretary Alexis Herman voicing their concern over the advisory. Rep. Cunningham’s letter asks for a clarification of Department policy; whereas Rep. Kuykendall asks that the advisory letter be rescinded. Advisory letters deal with individual cases, but are generally considered by employers as the Department’s interpretation of the laws.

Stock options have been gaining popularity with companies, especially high technology companies, as part of the overall package of benefits provided an employee.

Rep. Cunningham has sent a Dear Colleague out seeking bipartisan support for developing legislation to deal with this issue, if the Department of Labor does not. In addition, the Information Technology Association of America has indicated its support for Reps. Cunningham’s and Kuykendall’s letters. For more information on the issue, contact Reps. Cunningham’s or Kuykendall’s offices.
 

Briefing Held on Transportation Equity Act for The 21st Century

On Thursday, February 3, Governor Davis’ Washington office sponsored a briefing for California Congressional staff on TEA-21 and transportation funding, which provides the annual funding used to help finance infrastructure projects in California.

John Ferrera, Assistant Secretary for Transportation at the California Business, Transportation and Housing Agency discussed California’s share of TEA-21 funding and highlighted four of the Governor’s federal transportation priorities for funding this year. Key discretionary funding concerns include $35 million for the Alameda Corridor East; $17.9 million for SR95 construction; funding for an upcoming application for farm worker transportation safety programs (likely $10 million); and $5 million towards a Treasure Island Ferry Program, with a San Diego-Oceanside ferry program a likely future priority. Mr. Ferrera also called for the delegation’s help in securing more flexibility in funding allocations among Municipal Planning Organizations, and noted that California typically receives just 6 to 7% of federal discretionary transportation spending.

The second speaker, Bob Remen, Executive Director of the California Transportation Commission, described how California selects capital outlay projects and more generally the role of TEA-21 in the state’s transportation funding scheme. Remen spoke of the various ways that federal dollars are allocated in the state: one-third through regional agencies to counties and cities; one-third for state highway repairs via CalTrans on a priority basis; and one-third to the State Transportation Improvement Program (STIP), which funds state and local priorities. The Regional Transportation Improvement Program accounts for 75% of STIP, while the Interregional Transportation Improvement Program (CalTrans) accounts for 25% of STIP and is mainly used outside of urban areas.

For more information, contact David Kim at Governor Davis’s office: (202) 624-5270.
 

Two UC Reports Reveal High Rates of Uninsured in California and Proposed Solutions To Increase Enrollment

Two recently released reports by entities with the University of California system point out the high rate of uninsured persons in the state and offer suggestions for a solution to the situation.

First, UC Berkeley’s Center for Health and Public Policy Studies released a report profiling the rates of uninsured in California and outlining policy suggestions for the state. The report finds that in 1998, California’s uninsured population increased by 276,000 to 7.3 million — meaning that nearly one in every four Californians is uninsured. With the highest rates of uninsured in the country, California accounted for one-third of the increase in the total number of uninsured in the U.S.

California’s uninsured tend to be younger adults (39%); Latinos (40%) and other people of color; and non-citizens (50%) rather than citizens. Only 15% of non-Latino whites were uninsured. Six million of the 7.3 million uninsured Californians were in working families and in 1998, the number of uninsured children increased to more than two million. Nearly half of those uninsured have been so for five or more years, or have never had coverage. Two-thirds of the uninsured are poor or nearly poor – with the numbers of moderate-income working families insured between 1995 and 1998 declining.

The report cites a number of policy suggestions to help California’s uninsured crisis. The Berkeley study generally suggests simplifying the application and eligibility process for the Medi-Cal and Healthy Families programs, so that the 1.48 million eligible, yet uninsured children in California will have health care. To increase children’s coverage, the report further asks that California integrate the Medi-Cal, Healthy Families, MRMIP, and AIM programs for a more streamlined and accessible system. The report encourages raising the minimum wage and favors employers who offer health benefits. It further suggests (1) using a share of the tobacco settlement received from the tobacco litigation Master Settlement Agreement of 1998 to fund the state’s share of expansions to Medi-Cal and the Healthy Families program, (2) expanding the state’s high risk pool (MRMIP), and (3) providing subsides to low-income people to purchase private insurance or participate in public programs.

For more information, contact the UC Berkeley’s Center for Health and Public Policy Studies at http://chpps.berkeley.edu:80/ .

A second report, compiled by the University of California’s California Policy Research Center (CPRC), makes further suggestions to expand health care to low-income Californians. In “Expansion of Health Care to the Working Poor,” the CPRC draws on other state’s strategies, namely Washington, Minnesota, Hawaii, Tennessee, Oregon, Massachusetts and Rhode Island where 10-20% of the working-age-low-income population has health care. The CPRC recommends expanding insurance subsidies to low-income workers, via expanding eligibility for Medi-Cal and a broader use of Health Family funds. Furthermore, it asks the Department of Health Services (DHS) to “mount a major effort to increase enrollment in Medi-Cal and Healthy Families” by redesigning the enrollment process. In addition to increasing enrollment, CPRC recommends that California connect state, federal, and county health programs for easier access and seamless coverage. Lastly, CPRC suggests making children automatically eligible for Medi-Cal and Healthy Families, allowing the same income deductions for both programs to cover recent immigrant children under Healthy Families, and covering uninsured children from families with income up to 300% of the poverty level using existing federal options.

For more information, contact the California Policy Research Center at (510) 643-9328 or at its web site: http://www.ucop.edu/cprc .
 

NASA to be Ready with Space Station Service Module if Russia is Not

In an interview on Thursday, Daniel Goldin, Administrator of the National Aeronautics and Space Administration, reportedly stated that the U.S. will be ready this year to launch its own service module for the International Space Station if Russia is unable to do so. Goldin was quoted as saying that if Russia misses its July target date, NASA will finish work on its module in time for a December launch.

As originally envisioned the 42,000 pound service module would provide the early station living and sleeping quarters, life support, electrical power distribution, data processing, flight control, and propulsion. It also will provide a communications system that includes remote command capabilities from ground flight controllers. Much of the contract work on the space station takes place in California.
 

Fusion Community Briefs Congressional Staff

On January 19th, five experts from the fusion community hosted a luncheon briefing for approximately 35 Congressional staff entitled “Progress in Fusion: What’s It Been and Where’s It Going?” The presenters included Bill Dorland of the University of Maryland’s, Steve Cowley of UCLA Stew Prager of the University of Wisconsin, (“Magnetic Fusion Energy: Highlights and Challenges”); Roger Bangerter of Lawrence Berkeley Laboratory, and Anne Davies of the Department of Energy. Princeton’s Rob Goldston and John Lindl of Lawrence Livermore National Laboratory joined the presenters for the Q&A period. UCLA’s Cowley spoke on “Fusion and Plasma Physics: Science at the Energy Frontier,” and LBL’s Bangerter spoke on Inertial Fusion Energy: Highlights and Challenges. California wins a significant portion of federal fusion expenditures.

Presentation overheads from the briefing are available on the General Atomics web site, at http://fusion.gat.com/progress/ .
 

Two PPIC Reports On Fiscal Trends in California:

Tax Limits Raise Borrowing Costs for States

In “Fiscal Rules and State Borrowing Costs: Evidence from California and Other States,” PPIC authors James M. Poterba and Kim S. Reuben review the effects that different economic and fiscal factors have on borrowing costs for states.

California will spend between $25 billion and $50 billion in the next decade on capital investment financed with long-term debt. One factor influencing borrowing costs in California is its general economic health and unemployment rate. Poterba and Reuben found that states with a healthier economy have less difficulty borrowing, and states with lower unemployment rates face lower interest rates in their capital markets. Specifically, a one percent increase in a state’s unemployment rate is associated with a 0.05 percent, or five basis points, increase in that state’s bond yields (a basis point is one one hundredth of one percent). Because California’s unemployment rate decreased from 9.4% (1993) to 5.9% (1998), PPIC predicts that state borrowing costs declined by 20 basis points, or $2 million for every billion of dollars of debt issued.

Fiscal rules, as frequently determined by state Constitutions may also have an effect on borrowing costs. PPIC reveals that states vary in their laws (or absence of laws) mandating a balanced budget, which in turn may effect the general economic health and thus, the borrowing costs. California’s state budget need not be balanced according to the state law. Its other fiscal rules include limiting the amount of state debt that can be issued without voter approval, requiring a supermajority to introduce new taxes (Proposition 13) or increase current taxes, enforcing a state expenditure limit, using the ballot initiative system, limiting property taxes, and requiring a supermajority of voters to issue local general obligation debt. The authors conclude from their analysis of state fiscal rules, those with strict anti-deficit fiscal constitutions pay about nine basis points less than other states to issue new debt interest. Furthermore, they found that states with tax restrictions or those that require supermajorities to increase taxes face higher borrowing costs.

The authors additionally found that the borrowing costs of states with relatively lenient fiscal rules are more sensitive to general obligation bond yields in fiscal news than are the borrowing costs of states with more stringent fiscal rules. Ironically, while California has some of the tightest fiscal rules, it has a high response rate to budget news. The authors speculate that because unfavorable news would be highly unfavorable to the state in terms of borrowing costs, budget projections are considered more important in California.

For more information, contact PPIC at 415-291-4400, or http://www.ppic.org .
 

The Changing Nature of State-Local Fiscal Relationships

In “The State-Local Fiscal Relationship in California: A Changing Balance of Power,” PPIC’s J. Fred Silva and Elisa Barbour review the history of California’s fiscal relationships and propose policy solutions given the historical shifts in fiscal power.

The report views the history of public finance in California as a constant tug of war between local and state control. At the turn of the 20th century, state control over finances gave way to the Progressive movement which pushed for greater local power. The Separation of Sources Act of 1910 gave local governments sole control over property taxes. The next four years saw a constitutional amendment that allowed counties and cities to adopt charters, authorizing cities to enact local ordinances without state permission. Local governments further expanded their power with the administration of health and welfare programs, and then transportation, corrections, tax collection and public safety programs. As a result, cities maintained an independent fiscal relationship from the state, relying less and less on property taxes for revenue. In fact, property taxes comprised 36% of city revenue in 1945, but only 16% in 1978.

A major shift in fiscal control occurred with the passage of Proposition 13 in 1978. In one year, Proposition 13 cut property tax revenue to local governments in half, devastating counties who relied only on property tax revenue for discretionary funding. Because Prop. 13 allowed the state control over the distribution of the property tax, the pre-1978 era of separation of sources had ended. The state attempted to replace about two-thirds of the property tax revenue lost to local governments with state aid, but retracted after realizing the consequences of a 1988 constitutional mandate guaranteeing spending for education. During the recession in the early 1990s, the problem was exacerbated because the state allocated more property tax revenue toward schools, and away from cities, counties, and special districts. County governments saw their per capita discretionary funding revenue plummet by nearly 25% from 1992 to 1995. The “property tax shift” left local authorities angry, giving way to the current demand for reform.

PPIC reviews the current reforms, their policy implications, and makes two suggestions concerning the property tax shift. First, the authors recommend redefinining the role of local government. According to the report, the role of local government should return to pre-1978 status, take on an even greater responsibility, or combine both ideas into one strategy. The authors suggest the latter, in which the state takes on more responsibility in certain areas, and counties take on greater authority in others. The second suggestion would be to redefine fiscal authority. PPIC recommends separating local property tax revenue from the annual state budget to re-establish pre-1978 separation of sources.

For more information, contact the PPIC at (415) 291-4430 or http://www.ppic.org .
 

California Home Sales in 1999: 11.8% Increase in Median Price

As reported by the California Association of Realtors (C.A.R.), almost every region in California saw considerable gains in real estate prices from December 1998 to December 1999. While total sales of existing homes decreased 3.6%, the median price increased by 11.8% in December 1999 when compared to December 1998 figures. The December ’99 median price for a single-family detached home stood at $221,500, an increase of almost 12% from the $198,120 median for December ’98.

In the sixteen California regions studied, fifteen regions showed an increase in median prices from 1998 to 1999. The regions with the highest percent increase in price included Monterey (+ 23.7%) and Santa Barbara (+ 49.1%). Santa Barbara home prices increased to $342,000 in ’99 from $230,000 in ’98, while Monterey prices surged to $340,000 in December ’99, up from $275,000 in December ’98. Other significant median price escalations occurred in Santa Clara (to $427,380 in ’99) and San Luis Obispo (to $205,170 in ’99). The ten cities and communities with the highest median prices in California during December 1999 were: Hillsborough, $1,506,000; Atherton, $1,320,000; Los Altos Hills, $1,300,000; Belvedere/Tiburon, $1,000,000; Los Altos, $950,000; Saratoga, $945,640; Woodside, $899,000, Monte Sereno, $820,000; La Jolla, $800,000; Pacific Palisades, $733,000.

Also notable, the Los Angeles County housing prices rose 4% to $192,000 this past December, pushing the median price for the entire year to $188,000. During the peak point of the previous housing cycle eight years ago, median prices in Los Angeles County stood at $193,000. Similarly, Orange County’s housing market in December 1999 increased 9% when compared to December 1998 – a record high. The median home price in Orange County rose to $258,000, boosting the median price for the entire year to $240,000. This was a boost of 6% from $227,000 in 1998, also surpassing the $218,000 level set in 1991.

Generally, sales in December decreased by 3.6% statewide from the same month one year before. Interest rate concerns and rising home prices inhibited families from buying a home. Prices increases were expected to continue, due in part to a strong economy, buyer confidence, a booming job market, and stock-market gains. A recent study reported that one in five homes purchased in Orange County during the third quarter of 1999 was paid for partly by stock market gains. Stock market profits were used in 13% of third quarter purchases in Los Angeles County. Families are also borrowing from their 401(k) or retirement funds to help make down payments on homes.

For more information, contact Mark Giberson at the California Association of Realtors at (213) 739-8304 or at its website: http://www.car.org . For tables listing median home prices in 353 California cities in 29 counties, see http://www.car.org/economics/archives/datadec99.html .
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