106th Congress: Key Issues and Early Agenda III

CONTENTS FOR THIS SECTION

Defense Policy

Defense Policy and Budget

New Military Base Closure Rounds
Tritium Production

Economic Policy

Tax Reduction and Revision
Budget Policy

Energy

Electric Utility Industry Restructuring
Nuclear Waste Storage and Disposal

Defense Policy

Defense Policy and Budget

New Military Base Closure Rounds. In the 105^th Congress, Secretary of Defense Cohen was unable to persuade Congress to authorize any new base closure rounds. Many Members were opposed for reasons that included: 1) the need to assess fully the outcome and consequences of the first four rounds of base closings; 2) the concern of many local communities about the potentially disruptive impact of any new rounds, and 3) the continuing anger of some lawmakers over President Clinton's 1995 "interference" in the closing of McClellan and Kelly air force bases. In the 106^th Congress, Secretary Cohen will almost certainly continue to advocate closing more bases -- beginning with his submission of DOD's FY2000 budget. He will most likely emphasize, as he has in the past, the critical need to reduce DOD's infrastructure and, thereby achieve much needed savings. In the absence of these savings, he has warned, funding will not be available to maintain the appropriate levels of military readiness and investment in new weapons.

Tritium Production

A critical component of thermonuclear weapons is the radioactive gas, tritium. Because it has a half-life of 12.5 years, tritium must be replenished regularly in the nation's existing nuclear weapons stockpile. Tritium is now supplied from weapons being dismantled as the United States reduces the stockpile to levels set by the START I treaty. This process can only continue to 2005, however, and there are currently no facilities in the United States capable of producing the quantity of tritium that will be required to maintain stockpiles allowed by either the START I or START II treaties. There are two options for a long term source. The first is to use a commercial light water reactor (CLWR) to produce tritium during its normal operation. Within this option, there are two proposals. One is to complete an unfinished nuclear power plant owned by the Tennessee Valley Authority (TVA) and use it to produce tritium, and the other is to use an existing TVA plant. The second option is to build a larger, linear particle accelerator that would be dedicated to tritium production (APT). Recently, the U.S. Department of Energy (DOE) selected the CLWR option using the existing TVA plant. There are, however, a number of proliferation, regulatory, and environmental concerns about this choice, and it is likely to generate significant opposition. In particular, the United States has had a long-standing policy to separate commercial and defense nuclear operations when possible. The APT option, on the other hand, has few proliferation or regulatory concerns, but appears to be more costly than the CLWR option. Congressional review of the DOE selection during the defense authorization and DOE appropriation is expected to be intense.

Economic Policy

Tax Reduction and Revision

In 1998, the Clinton Administration emphasized using projected budget surpluses to cover future retirement costs of the "baby boom" generation. The House Republican leadership advocated using part of the projected surplus for tax relief. On October 21, 1998, the President signed Public Law 105-277. This omnibus spending bill contained a package of tax cuts including extending some temporary tax preferences, lessening the "marriage penalty," reducing the number of taxpayers liable for the alternative minimum tax (for 1998 only), and providing some tax relief for the self-employed, farmers, and businesses. Also in 1998, congressional interest continued concerning fundamental tax reform, particularly the idea of replacing our current income tax system with a "flat-rate tax." Most of these proposals would entail changing the tax base from income to consumption, but some proposals would significantly broaden the income tax base.

The 106^th Congress is expected to debate legislation to cut taxes. Proposed cuts may include reductions in the capital gains taxes, reductions in estate and gift taxes, efforts to reduce the "marriage penalty," new savings incentives, the continuation of the temporary tax preferences, and a curtailment of the coverage of the alternative minimum tax. Legislation will also likely be introduced about fundamental tax reform (primarily flat tax proposals). Finally, tax changes to improve the financial status of the Social Security System will likely be examined.

Budget Policy

The federal government ended fiscal year 1998 (FY1998) on September 30 with a budget surplus of $70 billion, the first surplus since 1969. The off-budget surplus (nearly all social security) was $99 billion; the on-budget accounts were still in deficit by $29 billion. The most recent projections by the Congressional Budget Office (August 1998) do not show a surplus in the on-budget accounts for at least 4 more years. Two factors contributed importantly to achieving the budget surplus in FY1998: 1) a 1997 budget plan agreed to by the Congress and the President intended to eliminate the budget deficit and produce a small surplus by FY2002, and 2) the exceptional performance of the economy which resulted in somewhat lower federal spending and significantly higher tax receipts than had been projected when the budget plan was agreed to.

The effort to devise the FY1999 budget in the second session of the 105^th Congress was marked by a number of significant controversies, including disagreement over how to use the earlier-than-expected budget surpluses. The leadership in the House favored using part of the surplus to finance a tax cut. Senate leadership favored a smaller tax cut offset by spending cuts or other revenue increases. President Clinton argued in favor of addressing the long-term imbalance in social security funding before using the surplus for other purposes. Due in part to this disagreement, no FY1999 budget resolution was adopted; the House and Senate passed separate resolutions, but a conference committee to work out the differences and devise a joint budget resolution was never convened.

Some observers maintain that the current budget surplus is an accounting fiction resulting from inclusion of the surplus receipts of the social security trust fund in the budget totals. But the social security surplus will not last indefinitely. As the baby boomers begin retiring, under current law the social security surplus will disappear sometime after 2010 and turn into a substantial deficit, exhausting the trust fund sometime after 2030. Proposals to resolve this long-term funding imbalance in the social security system are likely to receive a great deal of attention in the coming year.

An additional issue sure to receive attention is how to further cut discretionary spending to meet the limits imposed in the Balanced Budget and Emergency Deficit Control Act (as amended). This act sets limits on specified categories of discretionary spending through FY2002; total discretionary spending will have to be reduced (in dollar terms, not adjusted for inflation) each year to meet the limits. Discretionary spending has diminished from 43.9% of total outlays in FY1985 when the spending limits were first enacted to 33.6% in the FY1999 budget, largely through decreases in defense spending. Further reductions become more difficult to achieve each year.

Energy

Electric Utility Industry Restructuring

In the past, the electric utility industry was considered one of the nation's most regulated industries, with states regulating utilities' retail and intrastate activities and the federal government regulating interstate and wholesale activities. The electric utility industry now is evolving and becoming more competitive. Federal legislation and new generating technologies have lowered both entry barriers and costs to competitors of traditional utilities. As part of a trend toward greater electricity competition at the state level, 13 states have enacted restructuring legislation and six others have issued comprehensive regulatory orders for restructuring.

The 106^th Congress will be faced with decisions on the appropriate federal role and response to electricity restructuring trends. Segmenting a vertically integrated industry raises fundamental issues. These include state-federal regulatory conflicts, particularly as they relate to retail competition; transitional problems, such as "stranded costs" and "stranded benefits"; and operational concerns, particularly with respect to reliability of electric service. Other major issues include the independence of transmission system operators, access to the transmission system, the role of public power, and environmental problems such as the impacts of air pollution requirements and of incentives for renewable energy.

Comprehensive legislation to reduce electricity regulation was introduced in the 105^th Congress, including an Administration proposal, and is expected to be reintroduced early in the 106^th. This legislation addressed three issues. The first issue involved reforming the Public Utility Holding Company Act of 1935 (PUHCA), which defines the permissible corporate structure for public utilities. The second major issue involved the mandatory purchase requirements under the Public Utility Regulatory Policies Act of 1978 (PURPA). The third issue was "retail wheeling," in which retail customers can choose their electric generation from any source available and have their local utility deliver, or "wheel," it to them.

Nuclear Waste Storage and Disposal

Legislation to rewrite the nation's nuclear waste disposal law fell short at the end of the 105th Congress. Both the House and Senate passed comprehensive waste bills (S. 104, H.R. 1270), but an Administration veto threat effectively blocked final action. Renewed efforts are anticipated in the 106^th Congress.

Nuclear utility ratepayers have paid billions of dollars in fees to the federal government to cover the cost of civilian nuclear waste disposal, as required by the Nuclear Waste Policy Act of 1982, which also requires the Department of Energy (DOE) to begin disposing of nuclear waste by January 1998. Because the opening of a planned disposal facility at Yucca Mountain, Nevada, has been delayed until at least 2010, utilities and state regulators charge that ratepayers have received little or nothing for their money. The nuclear industry won a 1997 ruling from the U.S. Court of Appeals for the District of Columbia Circuit that DOE is liable for damages to utilities for failing to meet the 1998 disposal deadline, and the Supreme Court recently declined to consider an appeal of the ruling.

Because the permanent repository is behind schedule, and current law appears to block interim storage before the repository is licensed, DOE may be unable to comply with the court ruling without congressional action. The nuclear industry and its supporters contend that the quickest and most logical solution would be congressional authorization of interim waste storage at the Yucca Mountain site, because stored waste would be adjacent to the planned permanent underground repository. Such an interim storage facility is the central element in the comprehensive waste bills under congressional consideration.

The Clinton Administration contends that Congress should not designate Yucca Mountain for interim storage of nuclear waste before DOE determines whether the site is "viable" for a permanent repository. Environmental groups and nuclear power critics have fought the interim storage proposal on the grounds that transporting tens of thousands of tons of nuclear waste to Nevada would be more dangerous than leaving it in storage at nuclear power plants. The nuclear industry counters that consolidation of spent fuel at a central storage facility would improve long-term safety and security, and that transportation risks would be negligible.

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