The California Institute for Federal Policy Research
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California Capitol Hill Bulletin

                Volume 8, Bulletin 13 — April 27, 2001    [or see pdf version]

FERC Compromise Orders Price Intervention in California Electricity Market

R&D Tax Credit Letter Circulating Among Delegation

Reps. Issa And Davis Circulate California Letter to NSF on Ultra High-speed Computing Venture

Reps. Bono and Condit Circulating California Letter on LIHEAP

Delegation Urges MTBE Waiver For State

Senate Passes Brownfields Cleanup Bill

House Resources Considers Santa Monica Mountains Bill

Senate Takes Up Export Control Bill Amid Controversy

Earthquake Mitigation Bill Being Introduced

Growth At The Ballot Box: Brookings Report Released

New Regionalism and Regional Cooperation in California

California Ranks Third in Auto Related Business

California Institute’s Federal Budget Analysis Available on Web

Briefing April 27 on PPIC Trade Report

PPIC, PRC and Calif Institute Host Briefing-Lunch on Monday, April 30

FERC Compromise Orders Price Intervention in California Electricity Market

By a 2-1 vote on April 25, the Federal Energy Regulatory Commission (FERC) has issued an order to intervene in California’s struggling wholesale electricity market. While stopping short of what some California officials had asked, the FERC order went further than many, including FERC staff, had expected. The move constitutes a significant shift for a commission whose majority has until now been criticized by some as unwaveringly focused on free market solutions.

While initially expected to act first thing in the morning, the Commission instead met late into the evening on April 25 before issuing their order. Details of the order were made available on Thursday, April 26.

The FERC plan would impose restraints starting May 1 on wholesale electricity prices whenever California’s power grid enters a Stage 1, 2 or 3 crisis. FERC staff had initially planned that such restraints would be imposed only during the most dire Stage 3 events. (A stage 1 emergency is called when demand comes within 7.5% of supply capacity; stage 3 is reached when demand reaches 1.5% of capacity.)

The FERC proposal would set a maximum hourly price for power sold during power emergencies based on the generation cost of the least efficient power plant used to meet demand, plus a $2 addition for operation and maintenance expenses. It applies only to generators who provide power directly to the California grid; critics charge that this exempts power brokers who may in many cases simply re-sell the same power at higher prices. The price set will become the "market clearing price" and all electricity bought will be paid that price. Generators who believe their actual costs are higher than the market clearing price will be permitted to justify their request for a higher price.

FERC made the plan, which goes into effect May 1, 2001, contingent upon California’s three investor-owned utilities and the California Independent System Operator (ISO) applying to become part of a western regional transmission organization (RTO) by June 1, 2001. The contingency was criticized by officials of several northwestern states which have been working for several years to develop an RTO without California’s participation — they fear that hastily shoehorning the huge state into their nascent organization could cause severe problems. Governor Gray Davis commented, "It makes no sense whatsoever to condition the 12 months of relief proposed by federal regulators to California’s willingness to join a regional organization that under the best of circumstances cannot be functional for another 18 months."

For complete details of the FERC proposal and the dissent, see the FERC website at http://www.ferc.fed.us and click on the "bulk power markets" link.

R&D Tax Credit Letter Circulating Among Delegation

Reps. Wally Herger (Marysville) and Bob Matsui (Sacramento) are circulating a letter for signature by California Congressional Delegation members urging the permanent extension of the Research and Experimentation (known as R&D) tax credit. The current five-year extension of the credit was enacted by Congress in 1999 and is set to run out June 30, 2004. The letter written jointly to Ways and Means Committee Chairman Bill Thomas (Bakersfield) and Ranking Member Charles Rangel (NY) calls for permanent extension of the credit this year with a small increase in the alternative credit rate.

In support of the permanent extension, the letter cites the latest California Trade and Commerce Agency’s Office of Economic Research finding, stating: "Few areas of the world can duplicate California’s concentration of research resources, skilled workforce, and entrepreneurial finance to support high technology industries. While California represents 13 percent of the nation’s economy, the state performs nearly 20 percent of the nation’s research."

The letter also enumerates the strong bipartisan support that permanent extension of the credit has received. "The R&D credit enjoys broad, bipartisan support and provides a critical, effective and proven incentive for companies to increase their investment in U.S.-based research and development. Last year, Speaker Hastert and Democratic Leader Gephardt spoke strongly in favor of a permanent credit. A permanent R&D credit is the only corporate provision that President Bush included in this year’s tax plan; and a permanent credit was one of a small number of business provisions included in the plan proposed by then Vice President Gore."

High technology companies, including information technology and biomedical companies, have long supported a permanent R&D credit to allow them the stability needed to rely on the credit in making long-term business decisions.

In 1999, 49 members of the California Congressional Delegation signed a letter encouraging permanent extension of the credit. Members wishing to sign the letter this year should contact either Paul Poteet in Rep. Herger’s office (x53076) or Francis Grab in Rep. Matsui’s office (x57163). The authors expect to send the letter out early next week.

Reps. Issa And Davis Circulate California Letter to NSF on Ultra High-speed Computing Venture

Reps. Darrell Darrel Issa (Vista) and Susan Davis (San Diego) are circulating a letter among the bipartisan California Congressional Delegation urging that the National Science Foundation (NSF) support a University of California-led proposal for a "Distributed Terascale Facilities" (DTF) program high speed computing project.

Addressed to NSF Director Rita Colwell, the letter notes that, "Science leaders have identified terascale computing as holding the key to the next wave of significant scientific discovery across all disciplines." The letter goes on to note potential benefits for business and the academic community. The venture is a collaboration between the UC San Diego (which houses the National Partnership for Advanced Computational Infrastructure or NPACI) and the University of Illinois. The Illinois delegation is submitting a similar letter of support for the California – Illinois proposal.

The DTF program, the letter states, "will establish an advanced, multi-site ‘distributed facility’ connected by ultra high-speed networking. This will lead to breakthroughs and enhance the capabilities of U.S. researchers in all areas of computational, computer, and information science and engineering. The DTF will be fully coordinated with the resources and activities of the NSF’s existing advanced computational partnerships." It concludes, "We believe this partnership offers a powerful vision for the future of research, high-end information infrastructure that will meet the nation’s needs well into the twenty-first century."

To sign the letter, contact Donna Smith with Rep. Davis (x5-2040 or mailto:[email protected] ) or Jen Johnson with Rep. Issa ( x5-3906 or mailto:[email protected] ).

Reps. Bono and Condit Circulating California Letter on LIHEAP

In a letter to House Labor-HHS-Education Appropriations Chairman Ralph Regula (TX) and Ranking Member David Obey (WI), California members of Congress are seeking full funding for the Low Income Home Energy Assistance Program (LIHEAP) at its current $2 billion authorized level and a more equitable allocation of LIHEAP funds among states. Reps. Gary Condit (Ceres) and Mary Bono (Palm Springs) are circulating the letter, which will be sent on Friday, April 27.

In addition, the California letter requests an additional $50 million strictly for "direct assistance to those impacted by higher than average utility bills associated with the California energy crisis who might not receive assistance but who otherwise meet LIHEAP eligibility requirements." The letter states that the program is meant to assist low-income households, but notes that California receives little LIHEAP funding — less than 5% of the U.S. total — despite its high poverty rates. "Of more than 2.1 million eligible California households, only approximately 150,000 received assistance in the past year," the letter states.

It adds, "We also request that you revise the funding formulas for this important program. Last year, California received only 4.7 percent of the funds largely because of a 100 percent hold harmless based on share of funds received in 1984. A population-share approach makes sense, though we see the need to maintain a mixed approach also relying on economic need."

Offices of California Members wishing to sign the letter should call ASAP (the deadline is Friday at 10:00 a.m.) to Linda Valter with Rep. Bono at x5-5330 or Randy Groves with Rep. Condit at x6-0659.

Delegation Urges MTBE Waiver For State

Fifty-one House members of the California Congressional Delegation and Senator Dianne Feinstein sent a letter to Environmental Protection Agency Administrator Christine Todd Whitman urging a waiver for California from the Clean Air Act’s two percent oxygenate mandate.

The letter, dated April 6, 2001, points out that exhaustive scientific, technical, and analytical data supporting the environmental and economic benefits to California if a waiver is granted have been presented to the EPA. It notes that a waiver is crucial to California’s commitment to protect public health and the environment by phasing out the use of MTBE by January 1, 2003. Finally, it emphasizes that California can increase air quality with a federal waiver, and reduce nitrogen oxide emissions by an additional 8 to 12 tons per day.

MTBE leakage into the soil has been contaminating California’s drinking water supplies, as well as those of other areas around the country.

Senate Passes Brownfields Cleanup Bill

On Wednesday, April 25, the Senate, by a vote of 99-0, passed legislation to assist in the clean up of abandoned, contaminated urban waste sites, called brownfields. The bill, S. 350, is sponsored by Senator Barbara Boxer. In addition to the overwhelming bipartisan support it received in the Senate, S. 350 is supported by the Bush Administration.

The bill will limit the liability of companies that clean up brownfields, and increase funding for cleanups from the current $15 million to $50 million annually. It also would authorize $200 million annually for five years to state and local governments to evaluate clean up sites.

During consideration on the floor, an amendment was added to allow polluted petroleum sites to be considered brownfields, with a $50 million authorization for cleanup of those sites.

The House is expected to introduce a brownfields bill shortly. While some congressional leaders had initially hoped to address Superfund issues at the same time, a freestanding bill was ultimately viewed as the best option for moving brownfields remediation.

According to Senator Boxer, thousands of brownfields sites in the state have been identified, and cleanup efforts have begun at 39 sites. Nationwide, estimates place the number of brownfield sites at as many as 450,000. A significant number of sites are located at closed or closing military installations and other formerly federal properties.

House Resources Considers Santa Monica Mountains Bill

The House Resource’s Subcommittee on National Parks, Recreation & Public Lands held a hearing on H.R. 640 on Thursday, April 26. The bill, H.R. 640, amends the

National Parks and Recreation Act of 1978 to adjust the boundaries of the Santa Monica Mountains National Recreation Area in California.

Reps. Elton Gallegly (Simi Valley) and Brad Sherman (Sherman Oaks), co-sponsors of the bill, testified before the Subcommittee. They pointed out that the bill would enhance and protect the principal wildlife corridor in the urban area between the Simi Hills to the north and the Santa Monica Mountains. It adds nearly 3,700 acres of public and private lands to the Recreation Area at no cost to the taxpayer. Of that, 2,797 acres donated to the Santa Monica Mountains Conservancy, a state agency, will be transferred to the National Park Service. Another 570 acres is publicly and privately owned open space. The rest, about 330 acres, is comprised of developed residential areas in the cities of Calabasas and Agoura Hills, according to the testimony.

Rep. Gallegly also testified that the rights of private property owners and municipalities within the designated area would not be affected by H.R. 640.

The testimony of all the witnesses can be obtained through the Committee’s website at: http://www.house.gov/resources .

Senate Takes Up Export Control Bill Amid Controversy

On Thursday, April 26, the Senate debated the motion to proceed to consider S. 149, the Export Administration Act of 2001, but did not take up consideration of the bill itself. Some Senators, including Sen. Richard Shelby (AL), objected to consideration of the bill, citing national security concerns, especially in light of the recent incident with China over a Navy reconnaissance flight. A cloture motion on the bill could be filed Thursday afternoon, with a vote set for next week.

The bill establishes a definite time frame for executive branch consideration of export licenses and sets up an interagency dispute resolution procedure for cases where the relevant agencies cannot agree on an export license application. It also allows the Secretary of Commerce to remove controls on an item that has been determined to have foreign availability or mass-market status. The Secretary is required to make foreign availability or mass-market status determinations within six months of receiving a petition for such status. These provisions have been strongly supported by the computer and electronics industry as necessary to remove hindrances to the export of next generation computers and equipment.

Changes were made during the Banking Committee’s markup of the bill on March 22 (see Bulletin, Vol. 8, No. 10 (3/22/01)) to strengthen the President’s ability to impose export controls where national security, anti-terrorism, end-user concerns, and international obligations are involved. The bill imposes maximum criminal penalties of $5 million for violations under the bill, and maximum civil penalties of $500,000.

The Act would sunset on September 30, 2004, unless the President submits a report to Congress detailing the implementation of the Act and the operation of U.S. export controls in general, and proposes reforms to the Act, or certifies that no reforms are necessary. It also repeals the provisions of the 1998 National Defense Authorization Act which required the President to use MTOPS (millions of theoretical operations per second) to set restrictions on the export of high-performance computers. Instead, the overall capacity of the computer will be considered in making the decision on whether to allow its export.

Earthquake Mitigation Bill Being Introduced

Reps. Jerry Lewis (Redlands) and Mike Thompson (St. Helena) will be introducing legislation seeking to ultimately reduce injuries and prevent the loss of property during earthquakes, and reduce the amount of federal disaster assistance needed for recovery.

The bill, the Earthquake Loss Reduction Act of 2001, will provide homeowners, businesses, and public sector organizations with incentives to encourage retrofitting of property. For instance, homeowners would be eligible to receive a 50 percent tax credit for seismic retrofit expenses, and businesses would be able to depreciate these expenses over a five year period. In addition, the bill authorizes a $1 billion Loss Reduction Trust fund to provide matching grants to local governments, public and private hospitals, and institutions of higher education.

Senator Dianne Feinstein has introduced similar legislation (S. 424) in the Senate.

For more information on the bill, or to cosponsor, please call either Dave LesStrang in Rep. Lewis’ office (x55861) or Jennifer Pharaoh in Rep. Thompson’s office (x53311). The deadline to cosponsor the bill is Monday, April 30.

Growth At The Ballot Box: Brookings Report Released

The Brookings Institution recently released Growth At The Ballot Box: Electing The Shape of Communities in November 2000. The report identifies and examines those ballot measures that went before voters on Election Day 2000 which, if passed, would have impacted the quality and pace of growth in states and communities.

Researchers found that there were 553 state and local ballot measures related to growth, with 72.2% of them passing. Of the measures, nearly half (257 or 44.7%) dealt with the preservation of open space, and 201 of those passed. Also, of the 553 measures, 26.1% were related to infrastructure, 16.3% were designed to regulate growth, and 8.5% were designed to promote economic development.

Of the 38 states that had statewide or local measures on growth, California had the most — a total of 78 measures. Of these, two were statewide measures and the remainder local measures pertaining to growth. The first statewide measure, Proposition 37, failed on the ballot. It would have required a 2/3rds vote of the legislature or 2/3rds of local voters to impose future state or local fees to study or mitigate an activity’s environmental, societal or economic effects. The other statewide measure, Proposition 39, dealing with infrastructure and specifically schools, was approved by voters.

The report outlines each measure by state and indicates which of them were approved by voters. The report can be viewed in its entirety at http://www.brook.edu/urban .

New Regionalism and Regional Cooperation in California

A recently-released report from the Center for California Studies at California State University, Sacramento, entitled Drawing Lessons From Regional Successes: "New Regionalism" and the Prospects for Regional Cooperation in California, examines the challenges facing California regions and analyzes the success of different forms of regional government.

The report written Dr. Robert J. Wise, Chair of the Department of Public Policy and Administration at CSU Sacramento, provides an analysis of how political support for regional governance was obtained, as well as an analysis of the first wave of county-level regional governance institutions in California. The report also provides an analysis of city-county consolidation in the U.S. and of "New Regionalism" and the emergence of California’s Regional Alliances or Initiatives.

The report provides specific policy recommendations for the state legislature to assist in developing greater regionalism and cooperation in the state. The policy recommendations include the following: shifting local sales tax to California counties and holding cities harmless via property taxes; using a percentage of property taxes to create regional per capita needs-based Fiscal Disparities Funds; and creating incentives for using voluntary tax sharing within counties.

This report can be viewed in its entirety at the following website: http://www.csus.edu/calst/government_affairs/faculty_fellows_reports.html .

California Ranks Third in Auto Related Business

According to a recently released report by the University of Michigan, California ranks third behind Michigan and Ohio in the economic importance of its auto industry. According to the study which is based on data collected in 1998 and 1999, California’s auto industry generated 462,900 jobs and $17.8 billion in wages and benefits, while Michigan generated one million jobs and $44.7 billion in wages and benefits and Ohio generate 630,800 jobs and $22.6 billion in wages and benefits.

Nationally, according to the report, auto related employment accounted for 6.6 million jobs and $242.8 billion in wages and benefits. The report also examines dealerships, motor vehicle production and facilities. The report indicates California dealerships generate $68.4 billion in annual sales. California has 106 automotive facilities which may include parts distribution, corporate offices, research and development, and engineering and design facilities.

The report, which was prepared for the Alliance of Automobile Manufacturers, can be viewed in it entirety with state by state data at http://www.autoalliance.org/umstudy/ .

California Institute’s Federal Budget Analysis Available on Web

On April 9, 2001, President George W. Bush released the Administration’s Fiscal Year 2002 Budget, providing provides line-by-line programmatic budget figures for the Administration’s spending and revenue priorities for FY02, as a follow-up to the initial budget blueprint released by the Administration in February. The California Institute examined the information contained in this year’s proposal and provided an overview of many areas as well as a detailed assessment of many California aspects. The report is available on the web at http://www.calinst.org/bulletins/bull812Aw.htm or in Adobe Acrobat (pdf) format at http://www.calinst.org/bulletins/bull812A.pdf .

There is one significant correction required to the initial document. The Administration did not make final decisions regarding the DOT transit "new starts" until after the budget was printed, so the figures reported in the Institute analysis were incorrect. Proposed transit new starts figures for California include: $80.6 million for extension of the Bay Area Rapid Transit (BART) system to SFO Airport; $49.7 million for the Los Angeles to North Hollywood Red Line project; $329,000 for the Sacramento light rail program, $65 million for the San Diego-Mission Valley East light rail project; $113,000 for the San Jose Tasman West light rail project; and $13 million for an Oceanside-Escondido project in San Diego County.

Briefing April 27 on PPIC Trade Report

The Public Policy Institute of California (PPIC) and the California Institute will jointly sponsor a luncheon briefing on April 27 entitled "California’s Vested Interest in U. S. Trade Liberalization Initiatives." Based on a recent PPIC report by the same name, the briefing will feature the report’s author, John D. Haveman of the Federal Trade Commission’s Bureau of Economics. Mr. Haveman will detail the importance of international trade to the state and analyze its primary export markets, examining such questions: To whom are goods shipped? What sorts of goods are exported? How significant are the barriers that California exports face in other countries? He will also evaluate the effect of recent and pending trade agreements on the ability of California exports to penetrate particular foreign markets and assess the extent to which recent and future trade initiatives disproportionately benefit or harm both industries and consumers in California.

The report notes that international trade is perhaps more important to California than to any other state in the nation. In 1998, producers in the state shipped more than $105 billion worth of goods to foreign countries. After growing at almost 10 percent per year since 1993, California’s exports in 1998 accounted for almost 16 percent of all goods exported by the United States. The briefing will be held at noon in B-354 Rayburn. The report, as well as other information, is available on the PPIC’s website at http://www.ppic.org .

PPIC, PRC and Calif Institute Host Briefing-Lunch on Monday, April 30

At noon on Monday, April 30, Belinda Reyes of the Public Policy Institute of California will be the featured presenter at a briefing entitled "A Portrait of Race and Ethnicity in California: An Assessment of Social and Economic Well-Being." The luncheon event is sponsored jointly by the Public Policy Institute of California and the California Institute for Federal Policy Research in cooperation with the Population Resource Center and will be held in Room B-354 of the Rayburn House Office Building.

At the briefing, Belinda Reyes of the Public Policy Institute of California will discuss the findings from her recent sourcebook on the state’s racial and ethnic pattern shifts. She will detail the trends and outcomes in demography, education, health, labor, economic status, crime, political participation, and ethnic geography of California’s population, and present key indicators for the state’s four major racial and ethnic groups: whites, African Americans, Asians, and Hispanics. Where possible, she will also present trends and outcomes for major Asian and Hispanic subgroups.

The recently-released sourcebook, which will be the basis of the Monday discussion, is also available on the PPIC website at http://www.ppic.org . To attend the briefing, contact the California Institute at 202-546-3700, or via e-mail at [email protected] .

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