Trends

MORE TRUCK WITH DEREGULATION The partial deregulation of the nation's interstate trucking industry in 1980 has had some dramatic results. Minorities, for instance, have benefited: there now exist more than 300 minority-owned trucking firms, three times as many as in prederegulation days. And shippers everywhere now enjoy reduced rates, large discounts, and improved service. With 6,500 more trucking firms operating today than in 1979, the competitive results are no surprise.

Also no surprise, however, are trucking-industry calls for renewed regulation. In urging new regulation, for example, the American Trucking Associations reports the failure of 250 carriers that were unable to keep up with the vigorous price competition—some carriers have slashed rates by nearly 30 percent and now offer discounts of as much as 10–20 percent. But the Reagan administration—as well as the Interstate Commerce Commission (ICC)—wants to carry deregulation of the industry even further, removing all rate-setting restrictions.

Coming to a head within the trucking industry itself is a battle between contract and common carriers over the rate-reporting requirements. Contract carriers negotiate rates with individual shippers and want exemption from an ICC requirement that they report every rate negotiated. Common carriers, who are legally required to serve anyone, must post rate changes with the ICC 30 days in advance, thus placing them at a disadvantage in negotiating lower rates.

Common carriers want more rate restrictions for the contractors. And while contract carriers may not exactly welcome the competition that would follow from deregulating the common carriers, they would prefer total deregulation for all over more regulation of their own operations.

Meanwhile, as the ICC moves to free up the interstate trucking market, moves are afoot in Colorado and Alaska to deregulate the intrastate markets there. In Colorado, the free-market group Coloradans for Free Enterprise is busy putting together a ballot initiative for motor-carrier deregulation. CFE spokesman Paul Grant reports that the initiative aims to decontrol the entry, exit, rates, and routes for all carriers (including passenger, as well as cargo, carriers).

Over the last 10 years, four bills to implement such deregulation—all sponsored by state senator Don McManus—have lost in the Colorado legislature. Grant expects the voters—who, if the initiative is successful, will decide the issue in the November 1984 elections—to stand up to the antideregulation lobby better than have the state's legislators.

And in Alaska, proponents of an extensive transportation-deregulation initiative are seeking signatures to put the issue on a statewide ballot next year. In addition to decontrolling surface carriers, the initiative seeks to free up air transport as well, including air taxis. In vast, road-poor Alaska, air taxis are essential to transportation—and Alaska is one of the few states that regulate air taxis.

Already, Florida and Arizona have deregulated their motor carrier industries. Prof. James Freeman of the University of Kentucky has studied the Florida situation. In a survey of both shippers and carriers throughout the state one year after deregulation, Freeman found that carriers were about equally split for and against deregulation, while nearly 90 percent of the surveyed shippers were "satisfied" with deregulation (though only 54 percent actually "preferred" deregulation). "There is no evidence," Freeman wrote in his study, "that any shippers or municipalities have been without adequate service since deregulation."

Freeman's recent follow-up research indicates that shipper support for deregulation is even stronger now, while carrier support may have declined slightly. Some of that decline may be explained by another of Freeman's recent discoveries: Florida's intrastate shipping rates apparently haven't increased over the last two years. Now that's competition at work!

TAXPAYERS' RESCUE Last year the skipper of a boat anchored off a coastal island near Santa Barbara, California, tried to fire up his engine, but it wouldn't start. He had no cause to worry—he knew the Coast Guard would save the day. After he radioed the Coast Guard, he was picked up by a helicopter and his boat was later towed back to the harbor.

It may have been a wonderful and dramatic episode, but with the possible exceptions of Zorro and Mighty Mouse, there are no such things as free rescues: the operation, like all other Coast Guard rescues, was paid for entirely by taxpayers. In this case, the Coast Guard's fuel bill alone was roughly $2,000, but the hapless skipper didn't pay a penny of the expense.

Because boaters pay nothing for rescues, the Coast Guard has always had to contend with "unnecessary rescues," Lt. Phil Dyer told the Santa Barbara News-Press. "People who know that a cutter is one hour away are likely to go out without enough fuel and/or a questionable battery—that sort of thing," he said. "The farther away you are from the Coast Guard, the more likely it is that you'll take care of yourself."

Some proposals for reform have been made. In April, for example, the National Advisory Committee on Oceans and Atmosphere (NACOA) proposed that the Coast Guard charge for "nonemergency" rescues. Dyer suggests that another solution could be privately operated seagoing tow services similar to those offered by auto clubs. "A highway patrolman will help you on the highway," he says, "but it's not their job to tow you in. They'll get you the services you need."

In fact, such private towing services are already operating a bit farther down the California coast, Coast Guard spokesperson Rick Woods recently told the Torrance (Calif.) Daily Breeze. And a new company called Vessel Assist began operation at Marina del Rey in May, providing not only towing service but mechanical repair for boats at sea. (Towing is a "last resort if the problem can't be fixed at sea," said Vessel Assist President Bill Lafay.)

On the Florida coast, private tow services have been operating for several years. Lt. Christopher Kelly, an officer of the Coast Guard's 7th District—which covers most of Florida and the Southeast, part of the Gulf of Mexico, and all of the Caribbean and Panama Canal area—told REASON that although it is a fairly new industry, private towing services are operating in 7th District waters. Their custom is mainly providing routine assistance to "Joe Boater who runs out of fuel," Kelly said, while the Coast Guard handles emergency rescue services where long distances are involved or life is in danger.

The NACOA proposal for a limited user-fee system is bound to stir controversy, and the extensive privatization of rescue service on a nationwide basis is far from imminent. But the experience in Florida and California with private tow services has been successful as far as it goes, and there's no reason that routine towing services and even emergency rescue service couldn't be privatized on all the coasts.

ONWARD, CONTRACT SOLDIERS What Carnegie Hall is to music, the Harvard Business Review is to business journalism. When it published an article in its March-April issue called "Growing Opportunities in Public Service Contracting," that was a good sign that contracting out of government services has become respectable.

"With costs rising and tax and other revenues having difficulty keeping up," the article's author, James L. Mercer, said, "the private sector is likely to find many more opportunities in the years ahead to do work for municipal and other local governments."

The article mentioned such successful entrepreneurs as the Cincinnati-based ATE Management & Service Co., which operates 51 transit systems in cities such as Sacramento, Cincinnati, Charlotte, and Wilmington, and seven systems in Saudi Arabia. The firm has documented savings realized by its operation of various transit systems. They range as high as $200,000 while turning an annual 5 percent ridership loss into a 7 percent gain. More than 90 percent of ATE's contracts have been renewed, and the company plans to expand into transit planning and operation of school buses.

According to Mercer, "A key to a successful contractual relationship is an understanding about how performance [of the contractor] is to be measured." He suggests that this should include not only quantitative measures of performance—such as sanitation routes operated per month per dollar value—but such gauges of effectiveness as service "with no more than a certain number of complaints per 100 households."

One problem that Mercer alludes to is the political landscape where the contracting is being done. Powerful interests are often a major obstacle—perhaps none more so than government-employee unions.

In 1978, for example, Los Angeles County voters approved Proposition A, which significantly expanded the range of government services that could be contracted out to private firms. A majority of the present county board of supervisors is favorable to contracting out, and a California taxpayers' newsletter reported in March that 252 "Proposition A contracts" have been awarded for a cumulative amount of $47.3 million. (This is only a fraction of the 6,000 non-Proposition A contracts awarded in 1981–82, with a total value of $250 million.)

But all is not quiet on the contracting-out front. The Service Employees International Union (SEIU), whose membership includes 40,000 county workers, has been fighting the contracting process every step of the way. And the Los Angeles County grand jury recently commissioned a report by McManis Associates on contracting out of services under Proposition A.

When the McManis report was issued in May, County Supervisor Kenneth Hahn, an opponent of contracting, called it a "scathing report" that shows contracting as an "Alice in Wonderland program—a big hoax." SEIU official Cheryl Rhoden told the Los Angeles Times, "I think it's time that responsible people in the community start yelling about [contracting]."

But just what was so "scathing" in the McManis report? Not much. Most important, it disputed county reports of savings realized as a result of Proposition A contracting: the county had showed a total of $25.6 million saved as of December 31, 1982, while the McManis analysts found savings "closer to $10.8 million." But Kris Vosburgh, an aide to the chairman of the board of supervisors, Mike Antonovich, later explained that the discrepancy hinged on a simple misunderstanding. County officials were reporting savings from all contracting out, while the McManis report was counting only the savings by contracting out that resulted directly from Proposition A.

Yet this issue—whether Proposition A was saving the county $25.6 million or a "mere" $10.8 million—plus some relatively minor recommendations for administrative reform, gave rise to charges such as Hahn's and Rhoden's. It is interesting that a dismayed Allan Rusten, who headed the grand jury investigation, told the Times that he regretted "the very heavy emphasis on the negative aspects of the report." He said, "We are saying we think that contracting out is a valuable management tool if used properly."

Despite the political flak, board chairman Mike Antonovich has consistently supported contracting out. "Failure to pursue this policy will result in higher taxes and poorer quality of service to the public," he warned in a letter to the editor of the Times.

RATINGS RISE FOR AIR WAVE FREEDOM "Broadcast deregulation is one of the key issues, and among the most complex, facing Congress this year," a Los Angeles Times reporter observed in May. When one recalls that the issue of broadcasting deregulation was virtually nonexistent only a few short years ago, this is pleasant news indeed.

In May, Reps. Tom Tauke (R–Iowa) and Billy Tauzin (D–La.) cosponsored a bill, strongly supported by the National Association of Broadcasters, that would eliminate procedural hearings for FCC license renewal. This would, as the Times said, make radio and television broadcast license renewal "almost automatic, leaving the broadcasters to operate more freely than ever in the past."

At the time of this writing, political maneuvering on the bill continues, with its supporters trying to circumnavigate Rep. Timothy Wirth (D–Colo.), the chairman of the House subcommittee on telecommunications and no friend of deregulation. "It's all very fluid," an observer told the Times. A showdown should come in the fall, but an indication of the atmosphere on Capitol Hill was the easy Senate passage early this year of a radio deregulation bill cosponsored by Sens. Robert Packwood (R–Ore.) and Barry Goldwater (R–Ariz.).

Meanwhile, more good news for friends of deregulation came from the US Court of Appeals in Washington. A three-judge panel voted to uphold major portions of the Federal Communications Commission's 1981 partial deregulation of the radio industry. The FCC had issued a ruling that dropped limits on commercials, eased license renewal requirements, and abandoned minimum air time for news and public affairs programming.

Two days after the Appeals Court ruling in May, the FCC proposed elimination of two rules under the so-called fairness doctrine. One rule required broadcasters to provide time for individuals and groups to respond to attacks on their "integrity, character, or honesty," and another required any station that endorses or opposes a political candidate to offer response time for the other side.

Maybe the FCC will not bring a free-market utopia to broadcasting, hitherto one of the most regulated industries in America—but it's been inching ever closer.

STOP AND GO FOR TAXI DECONTROL Now added to the list of cities with at least partial deregulation of taxis—all of Arizona's cities and towns; San Diego and Santa Barbara, California; Seattle and Spokane, Washington; Honolulu; and the District of Columbia—is Kansas City, Missouri. In March, the city repealed its rate restrictions on cabs, although the number of permits is still limited (presently to 542).

Barbara Williams, of the city's transportation office, told REASON that the city's decision to repeal the rate-setting ordinance was partially motivated by concern over antitrust liability, following a 1982 US Supreme Court ruling that cities can be sued on antitrust grounds for restraining competition. In addition to allowing operators to set their own rates, the new law requires permits—which now will expire annually—to be attached to operating cabs.

In response to the measures, the city has received nearly 200 or so new applications for permits. Because the city's largest cab operator, Robert Christine, held 200 inactive permits, many new applicants hoped to get a permit under the new rule requiring the attachment of permits to active cabs. But, also in response to the new rule, Christine was able to get most of those inactive permits fixed to operating cabs.

Taxi deregulation, however, recently suffered a setback in San Diego. In response to complaints coming from the tourist industry there, the city council in April imposed a one-year moratorium on new taxi permits. In addition, the council reimposed a maximum rate—$1.60 per mile—that cabs can charge. According to Barbara Lupro, of the city's Paratransit Administration, there has been no official change in the paratransit code. She said, however, that the council may indeed permanently reinstall the rate ceiling.

The problems largely stem, it appears, from "confusion among tourists"—particularly at the city airport—over the competitive pricing of cabs. While some cabs charged as little as $1.20 per mile under deregulated pricing, others charged as much as $2.50 per mile. Apparently, some visitors to the city, unaware of the various rates, felt they had been had.

On a more welcome side, Lupro reported two noteworthy results of deregulation in San Diego: (1) response time to calls for cabs appears to have improved dramatically and (2) insurance rates for cabs have declined significantly, to about 20 percent below the national average—from more than $2,000 annually before deregulation to about $1,400 now. This despite the fact that San Diego requires significantly more insurance coverage for its cabs than most other American cities.

Dave Estey, a San Diego insurance agent, has studied the taxi market there extensively over the last few years. He told REASON that "good old American competition" explains the insurance-rate decline. Since deregulation, the number of cabs in San Diego has doubled (to more than 900 today), creating a larger—and thus more attractive—market for cab insurers. Increased competition for the growing market—as well as insurers' underwriting more lower-cost group policies—has pushed rates down. So much for the oft-proffered antideregulatory argument that insurance would be unavailable for new transit operators under decontrolled entry.

EXPRESS SERVICES OUT OF SIGHT At a time when many other industries are reaching new lows, the small-package-delivery business is soaring. Analysts expect the $3-billion-a-year industry to continue at its present double-digit rate for several more years. And, as a result of airline deregulation, a rising number of companies are scrambling to get a bigger share of the various market areas.

Gargantuans in the field—like Federal Express, Airborne Freight Corp., Emery Worldwide, Purolater Courier, and United Parcel Service—are all busy trying to expand, improve, and innovate service. Emery, for example, recently introduced its Urgent Letter—an overnight desk-to-desk delivery service—in 20,000 North American cities, as well as a worldwide version of the service. And a variety of companies now offer next-day and second-day delivery services, many of them promoted through slick advertising campaigns.

Many firms are moving to start-up facsimile-transmission services to diversify their business. Such expansion is also spurred by the development of electronic and satellite-communications services, which promise to one day supersede document-delivery services.

Not only must the established companies in the field vigorously compete against one another for business—aggressive newcomers are intensifying the battle for market shares. One notable example is DHL Corp., the US branch of an international overnight-package-delivery concern that already serves 97 percent of the 500 largest companies in the United States. DHL has now launched domestic services, supported by a $ 10-million advertising effort. Its main competitor is Federal Express, which is itself attempting to expand into the international market.

With a 44 percent share of the domestic market, Federal Express is hands-down the industry's leader. But the firm is by no means becoming complacent. Feeling more pressures (such as those from the newcomer DHL), Federal Express recently moved to diversify its operations by acquiring the commercial Titan launcher program of the New Jersey-based Space Transportation Company. The new concern, FedEx Spaceman, has immediate plans to seek contracts for launching Intelsat spacecraft. Other of its long-range plans may include launch and marketing services for both reusable and expendable launch vehicles, as well as financial and insurance programs for space transporters.

Express service to the moon, anyone?

CABLE NEWS FROM BRITAIN The British government in April made public its official policy on cable television. The Thatcher government's long-awaited "white paper" by no means opens up a free market in cable, but it shows more respect for a free cable market than we've seen this side of the Atlantic.

Perhaps most laudable is the conspicuous lack of exclusive franchises. A national office—rather than the various local governments—will grant franchises (initially limited to a dozen or so), and more than one franchise may be granted in the same geographical area. The resulting possibilities for competition among cable companies could prove a boon to their customers.

The policy statement allows cable companies to schedule programming without securing prior state permission, unlike conventional broadcasters. Cable operators are not generally obligated to provide balanced programming—as are the conventional broadcasters—though operators are expected to schedule a "proper proportion" of British shows. (In addition, pornography and excessive violence are off-limits to cable programmers.) And cable operators may air commercials with less regulation than broadcast TV. Specific requirements on technology and systems are few, although companies are required to use a more-expensive configuration in laying down the cable network in order to allow for future accommodation of advanced telecommunications.

The move toward a market falters with a provision prohibiting cable companies from offering data- and voice-communication services (with only a few limited exceptions). This is to ensure the state British Telecommunications and its token private "competitor," Mercury, exclusive access to this lucrative communications market. (Mercury and BT, on the other hand, may enter the cable-TV business without undue restriction!)

The British cable policy is certainly no great triumph of the free market. But in light of the highly regulated television industries common to nearly all of Western Europe, the British policy isn't as bad as it might have been.

VOUCHER PLAN EARNS CREDIT Early next year, the Minnesota legislature will vote on a bill to implement a statewide education voucher system for low-income families. Under the plan, the dollar amount of a voucher would be determined by several factors, including the student's grade level and his family's income and welfare dependence. A grade-school student, for example, whose low-income family does not receive benefits under the federal Aid to Families with Dependent Children program would get a voucher for $1,475 (the state's average per pupil cost). A high-school student whose family does receive AFDC benefits could get a voucher for double that amount. The voucher could be used to attend any public or private school in the state.

Though the state's two teachers organizations—the Minnesota Federation of Teachers and the Minnesota Education Association—oppose the voucher plan, the Minneapolis Urban League has endorsed it. Gleason Glover, MUL president, agrees that vouchers would give more choice of education to the children of low-income families.

The bill's sponsor, state representative John Brandi, told REASON that the participation of both public and private schools in the voucher program would be voluntary. Schools, too, would determine their own quotas for voucher students. But, Brandi said, participating public schools would have to accept the voucher as full payment for the student, and private schools would get only 80 percent of the full voucher amount. In addition, once a school had decided to participate, it could not place any further acceptance criteria on voucher students—including, even, academic or achievement standards.

Family income levels determining eligibility for the vouchers would be the same as those for the state's school-lunch program. According to Brandi, the number of students now eligible for the voucher program is around 123,000, or about 15–20 percent of the state's total student population.

Conservative support for the voucher bill appears strong, and Brandi, a Democrat, hopes the bill's focus on low-income families will persuade liberals to go along with the plan as well. Hearings on the bill within the legislature will begin in the fall.

INFRASTRUCTURE ISSUE IN RUINS The great journalist A.J. Liebling once wrote that news stories are like schools of fish—without notice, they suddenly swim to shore then just as suddenly depart. So with political fashions.

One apparently departing political fashion is the crumbling-infrastructure issue. A few months ago, every respectable establishment newsweekly was issuing dire warnings that unless the government (a euphemism in these instances for the taxpayers) spent trillions of dollars, America's bridges, sewers, and highways would crumble, the nation collapsing along with them.

But fashion's passions are nothing if not short-lived. A report issued in late April by the US Conference of Mayors and the National League of Cities has concluded that the costs of repairing and maintaining the infrastructure are now suddenly "manageable." The report, based on a survey of 809 cities, concluded that "relatively small" amounts of assistance in the $1–$5 million range "would pay for most of the privately contracted, high-priority projects in the majority of cities." "This finding should end any charges that urban infrastructure funding would mean massive patronage and public hiring or distortions in the balance between public and private employment," the report said.

It is interesting that a report with such modest conclusions as these would be issued by an interest group—confederations of city governments—that could hardly be expected to minimize needs for government spending. It is also interesting that the report signified a growing acceptance of private contracting. Alan Beal, executive director of the League of Cities, said that most of the city governments surveyed indicated that they would use private contractors to do the work and could finance a significant portion of their projects from local revenues.

A few days after the survey was released, the Congressional Budget Office issued a report on policy considerations for public-works infrastructure. Like all CBO reports, it steered clear of making any formal recommendations to Congress, but it discussed user fees extensively. It pointed out that "most user fees are set well below levels that would recover all the federal government's costs." Highways and airports are an exception, but "even in these two programs, some users—notably, operators of heavy trucks and private planes—pay less than their share of federal outlays, while other users…make up the difference by paying fees that recover more than their share of the costs."

The problems that result from undercharging and thus subsidizing users are familiar to REASON readers. "By stimulating demand," the report said, "subsidies can lead to exaggerated perceptions of infrastructure expansion needs. Overstated demand promotes unneeded new construction."

The report also questioned the old chestnut about infrastructure subsidies invariably helping the needy. "Household expenditure on mass transit, which the federal government subsidizes heavily, is concentrated in the upper-income groups," the report said. "The subsidy for urban transit tends to shift income to high-income households."

The report, entitled Public Works Infrastructure: Policy Considerations for the 1980s, takes a hard look at such areas as water resources, air traffic control, airports, and municipal water supply and is surprisingly reliant in its analysis on free-market principles. Because the Congressional Budget Office, like its 535 employers, has rarely been a bastion of free-market thinking, this is a welcome development.

COMING TO THE SELF-DEFENSE OF EUROPE What would it take for the member-nations of the European Economic Community (EEC) to defend themselves—without the massive financial and personnel assistance of the United States (which costs American taxpayers about $130 billion a year)? Researchers at five major European think tanks on international affairs recently provided some answers to that question.

To make up for withdrawn American troops, the EEC nations would have to expand their ground forces by 300,000; to match the Warsaw Pact's forces, 500,000 more troops would have to be added. Moreover, the researchers concluded, the Europeans would have to develop a nuclear strike force. Britain and France, they suggested, might develop their nuclear weapons to protect all of Western Europe if the other nations would share in the cost.

Though the thinkers finally discounted the notion of self-defense without American aid—the cost would be too great, they said, and the international unity necessary to achieve this end might not materialize—that the question was seriously posed and considered is itself significant. Ever since NATO was formed, the EEC has kept itself out of the defense arena.

And the researchers did advance several reasons why the Common Market nations should develop a defense apart from the United States. They suggested,for example, that Europe's heavy reliance on the Mideast for oil gives it a strong interest in maintaining stability there. Moreover, European nations may now show too little concern for defense because of US military dominance of NATO.

The think-tank dialogue is only part of a wider and growing debate among Europeans over the issue of a defense independent of the United States. Indeed, the Italian, French, and West German governments are attentively studying the possibility of a strictly European defense policy and system.

Late last year, debate began within the Western European Union—a defense group of seven nations—over a French proposal that the union start developing its own supertank and combat aircraft (including a combat helicopter). The French also urged development of a nuclear force independent of US involvement.

So serious is the French government's doubt about the reliability of American defense in the event of a Soviet attack on Western Europe that it has announced independent plans to beef up the nation's defense forces. Included in the plan is the addition of a seventh nuclear-armed submarine, plus investment in nuclear air-to-ground missiles, an MX-like mobile missile system, and a tactical missile force able to penetrate the Eastern bloc.

Ironically, though much of the current self-defense discussion is fueled by European worry over American reliability, many observers fear that the debate will add further credibility to arguments against US subsidization of Europe's defense. With some luck, perhaps, those fears will prove to have been fully grounded.

SLUGGISH FDA NEEDS PICK-ME-UP The Food and Drug Administration (FDA) should perhaps prescribe itself a wake-up tonic to help it keep up with the changing times. Drug manufacturers have for some time been interested in advertising their prescription products directly to consumers, but most have refrained, preferring to wait for the FDA to develop a policy on the issue. Such is the regulatory giant's immobility, however, that it hasn't yet set any policy. And that makes most companies hesitate.

Most—but not all. In May, Boots Pharmaceuticals, a British firm, launched a six-week trial series of television commercials over Florida TV to advertise Rufen, its anti-arthritis drug. The ads emphasize that Rufen is cheaper than the chemically identical Motrin, a product of Upjohn. The ads advise consumers to ask their doctors about Rufen. At the same time, Boots notified doctors and pharmacists of its TV ads through Mailgrams.

Other drug firms have engaged only in limited consumer-directed advertising, mostly through print ads. For example, Merck Sharp & Dohme ads for Pneumovax, a pneumonia vaccine, have appeared in Reader's Digest. Pfizer has run a series of "Healthcare" ads in Time, Newsweek, the New York Times, and the Wall Street Journal. And a Peoples Drug Stores full-page ad for Zovirax, a herpes treatment, appeared last year in the Washington Post.

Wanting time to study the issue, the FDA now urges drug firms to refrain from consumer advertising. But pressed by the reality of competition, the drug industry may simply decide it can't wait for the agency's administrative constipation to subside.

RISING TIDE FOR USER FEES In harmony with its stated aim of instituting more user fees for government-funded services, the Reagan administration recently devised a plan to require users of new federal water projects—particularly dams—to pay more of their share of the costs of the projects. Especially in the arid West, the various users of federal water projects—mainly farmers, utilities and their customers, industries, and recreationalists—are heavily subsidized by taxpayers.

The White House plan would require municipal and industrial users to pay their full share of a new project's cost; farmers, 35 percent of their share; and recreationalists, half of their share. Currently, it is estimated that the federal government recovers less than 15 percent of the costs of dams and water-distribution systems.

The heavy subsidization of water throughout the West has led to many uneconomic uses that may well end if users are charged more. For example, California's Central Valley—naturally a desert and grassland area—has been turned into a major agricultural center by the massive California Aqueduct, which brings water from the north to central and southern portions of the state. There, the charge to farmers, who account for 85 percent of developed-water use in California, is little more than 1.5 percent of the water's actual marginal cost. Since 1948, federal subsidies to the region have totaled about $1 billion.

In contrast to California's extensive subsidization of water use, Arizona has moved to institute more-rational water pricing and less subsidization. Several years ago, the state government recognized an impending crisis: water users—the great majority of which were farmers growing crops in a desert—were drawing twice as much water from natural underground water reserves as was being replaced by nature. In 1980, then, state laws were changed to impose more fees on water users and to allow holders of water rights to sell those rights. The expected result of the upped fees and water-rights bidding is that the state's agricultural industry (now at $2 billion a year) will shrink while others—especially new high-tech businesses—will grow, as water becomes more available for an increased population.

Though the main areas of the Reagan administration's user-fee proposal could be implemented without congressional approval, Congress could pass laws to limit localities' and individual users' cost burden. But, even though Western local officials have historically resisted cost-sharing, they seem more resigned now than before to having to pick up more of projects' costs. Indeed, if the 'White House has its way, local users will have no choice but to pay up—the proposal would require them to contribute to a project's estimated cost up front before construction could begin.

MILESTONES • Regulator rolls box cars. In May, against the strong objections of Interstate Commerce Commission Chairman Reese Taylor, a majority of ICC commissioners decided to uphold an earlier vote to deregulate railroad box-car shipping rates (except for nonferrous recyclable goods). The new ruling allows box-car operators to freely change their rates daily, including those for rental, storage, and return of equipment.

• Spaced out satellites. The Federal Communications Commission has okayed a plan to increase the number of domestic communications satellites in orbit. The increase is achieved by reducing the spacing between satellites in fixed orbit above the United States.

• Catching-up act. The Federal Home Loan Bank Board in April proposed allowing savings and loans to open branches and purchase associations in other states without federal regulatory restriction. If approved, the new policy would confirm an increasingly commonplace practice.

• Saying farewell to welfare. A recent study commissioned by the Reagan administration and conducted by the Research Triangle Institute of North Carolina found that when income-earning welfare recipients lose their welfare benefits, they generally don't quit their jobs to get back on the dole. The studies contradict the predictions of many critics of the Reagan-initiated welfare reforms that cut benefits to the so-called working poor.

• Metals peddle. In mid-May, all 620 California branches of Security Pacific National Bank started a new service—the retail sale of gold and silver. The bank, California's first major institution to retail the investment metals statewide, expects the service to attract many new accounts.

• Spirited dispute. A Coca-Cola subsidiary, Wine Spectrum, is challenging in court an order issued by California's Alcohol Beverage Control Department that the company abandon a cash-rebate offer promoting its wine. Wine Spectrum spokesman Rick Theis told REASON that California wine purchasers stand to recover more than $500,000 from this and other of the firm's scheduled rebates. The Coke subsidiary, which includes Taylor California Cellars, beat the federal Bureau of Alcohol, Tobacco and Firearms in two prior court battles.

• Court axes paper taxes. The Supreme Court ruled in March that it is a violation of the First Amendment for states to impose a special tax on newspapers or to give small papers more-favorable tax treatment than large ones, both attributes of a now-overturned Minnesota law.

• Fighting indecent law. A Utah group, Citizens for Everyone's Freedom, is going to the courts to challenge a new state law banning "indecent" programs from cable TV. Legislators viewed R-rated movies before voting on the law.