2019 WCLBMA Government Affairs Report

BY HBSDEALER Staff

The 2019 CA legislative session closed at midnight on September 14th.  We can thank our stars there was an end to the madness.  Today, thanks to labor’s political machine and unlimited money, they have been one of the major driving forces that has created the supermajority of democrats in both houses of the legislature and ALL constitutional offices, but too much of a good thing isn’t always a good for the majority.  The myriad of labor backed bills that were signed by the governor will have a profound impact on the future of the employer-employee relationship and business in general and, thus, the future of CA.

As the overall tone of Newsom’s initial year emerges one bill at a time, he’s clearly moving CA at least a few notches to the left into ideological territory that his predecessors, including Jerry Brown, were not willing to explore.  This is not unexpected, given what he said during last year’s campaign, but he is inviting skepticism about their long-term effects.  Sometimes making political deals, especially by high ranking officeholders, they often become more interested in a deal than ensuring it’s the right deal.  Consider rent control.  Rent control is another potential downer.  CA’s chronic shortage of housing has sent costs skyrocketing and while rent control might help some tenants, it also sends a negative message to housing developers.  While this legislation only applies to older housing units, now that rent control is lodged in state law, Newsom, et al, will be pressed to expand its reach and that possibility will discourage the massive investment CA sorely needs.

In 2019 the number of bills introduced were 792 from the senate and 1,833 from the assembly. Of these 2,625 bills, 870 were signed into law.  A recap of some:

AB 5

The biggest union victory, also the highest profile bill of the session, was the governor wasting no time signing AB 5 into law.  It codified the state Supreme Court’s Dynamex decision, defining which private economy workers must be placed on payrolls and which can remain independent contractors.  The author of the bill, Assemblywoman Lorena Gonzales, a San Diego democrat and a former union official, granted a few exemptions, but shunned most of the requests submitted to the sponsoring unions (Teamsters) by specific employers.  The exclusions are so badly worded as to be unclear in many instances but many industries are expected to be upended.  Hundreds of thousands of independent contractors will be potentially affected, but Newsom’s signature on the bill is clearly not the last word on the issue when it is supposed to take effect January 1, 2020.  Labor had the upper hand because of the court’s decision on this matter but there is still the potential of a fight of the century with ridesharing firms committed to move forward with $90 million on a ballot initiative challenging AB 5 in November 2020, provided it qualifies for the ballot.  Another point to consider, in his signing message for AB 5, however CA regards its 200,000+ gig workers, the federal government still categorizes them as freelancers.  And so, it goes for every action there’s a reaction.  There will be a ballot fight over AB 5, the federal government will weigh in of the definition of independent contractor and, as I’m sure you all have noticed, AB 5 is pushing more employers into mechanizing their workforce but worse, this isn’t about labor, or workers or dignity or proper job classification.  It’s about power and expanding a democracy where policymaking belongs to the highest bidders who come to ask for exemptions or ask for the tweaking of exemptions.

Pension debt

Imagine you are a donor to a non profit organization whose board members receive gifts from employees to whom the board, without your consent, promises retirement benefits.  Now the organization is asking you for larger donations to cover surging retirement spending but not disclosing the real reason more money is needed.  This describes the current situation in CA as tax increases are proposed across the state to fund retirement promises never approved by the voters and made by elected officials who receive donations and other political support from beneficiaries of the retirement promises.  A good example of tax increases covering up retirement spending include the 3% state income tax increase enacted in 2012.  Titled Prop 30 – the Save our Schools Initiative, didn’t save our schools.  A study done on the additional moneys collected from Prop 30 found that not one dollar went to the classrooms.  It all went to pensions.  Our schools are still underfunded and new revenues are swallowed up by rising retirement benefits.  Despite the tax increase and a 10-year bull market that has lifted spending to more than $17,000 per student, a 70% increase since the depths of the recession, CA school districts are laying off teachers and suffering strikes because new money is going to retirement obligations instead of staff and salaries.

Next year on the CA ballot you’ll see the Communities and Schools First Initiative or rather, the split property tax roll.  If this passes commercial properties will be broken out from under Prop 13 protections and reassessed to current market values.  It is estimated as an $11 billion statewide property tax increase squarely on the backs of businesses.

School district and public employee pension debts have been exasperated by the requirement from the Government Accounting Standards Board to now include unfunded retiree medical benefits, starting with fiscal year ended June 30, 2018 on annual financial statements.  A basic metric in understanding the breath of the problem is to take the Unrestricted Net Assets, from the financial statements and divide that number by the population of the municipality.  For the 2018-2019, the year over year change in the combined Unrestricted Net Assets for Orange County’s 34 cities has risen $631 million.  Retiree medical liability inclusion of $469 million represents ¾’s of the cumulative negative growth of net assets.   As I haven’t seen the 2018-2019 financials, I’ll present an example based on the 2017-2018 numbers.  Orange County has net negative unrestricted assets of ($3,312,306,000.00).  As of June 30, 2018, each person living in the county, over and above taxes currently paid, owes the $1028.00 and this doesn’t include your obligation from your school district, your city or the state.  In some areas around the state the combined unrestricted negative assets of the school district, city, county and state the per capita totals over $10,000.00 per person!  Maybe the state should implement an exit tax on those who decide to leave for good before they can transfer their money elsewhere.  Expats used the streets, libraries, schools, parks, community centers, fire, police and EMT services.  Why should expat citizens be allowed to leave without paying their share and leave the fallout on the rest of us?

The California Consumer Privacy Act

Starting next year, all CA residents will have the right to ask retailers, restaurants, airlines, banks and many other companies to provide them with any personal information they have such as purchases and loyalty program information on them.  The law applies to any for profit business that does business in CA and collects data on residents as long as its annual revenue tops $25 million, or holds personal information on at least 50,000 consumers or generates at least 50% of its annual revenue from selling user data.  Even companies with no physical presence in CA, but a website that serves CA residents, will need to comply.  Once the law becomes enforceable, businesses that get a customer request will have to comply with 45 days or risk fines and possible civil litigation.  The law also threatens steep damages in the event of a data breach – as high as $7,500.00 per affected person.  Businesses also have to add a “do not sell my personal information” option to their home page where consumers can opt out.  One uncertainty is whether retail loyality programs – which reward consumers who let a company keep and sometimes sell their data – could be considered a form of discrimination against shoppers who exercise their data rights.

PAGA lawsuits, The Private Attorneys General Act

With state watchdogs spread thin, The Private Attorney’s General Act was enacted in 2004 to fill the gap in labor code enforcement.  This law deputizes private citizens to act as private attorneys general allowing them to pursue civil penalties on behalf of the state for labor code violations for themselves and other employees of a business.  Then in 2009 the CA Supreme Court held that the stringent certification requirements for bringing a class action against a business do not apply to PAGA actions at which point these lawsuits took off.   Now one disgruntled or greedy employee could coerce or deceive fellow employees in joining in on a potential class action against their employer.  A simple pay stub formatting error can elicit a $100.00 fine per pay stub, times each employee for up to 2 years’ worth of pay periods plus attorney’s fees.  This quickly adds up to big money.  Needless to say PAGA complaints have become very big business for legalized extortionist attorneys, some of whom have created a cottage industry in this area of law, but there is hope.  The California Business and Industrial Alliance and National Federation of Independent Businesses are working with many other associations to fix this harmful law.  We’ll see what happens.

AB 857 Public Banking

The governor signed AB 857, by assembly members David Chiu and Miguel Santiago, to allow for the creation of public banks, controlled by local government entities.  Proponents claim the banks are needed to finance infrastructure and housing but its clear that supporters want to take money from private banks to drive ideological agendas, and the list of endorsers of the bill show practically all are of a liberal bent.  Private banks, which need to make a profit to survive and will have a new competitor that wants to take big government accounts away from them.  If the criteria for a loan change to an agenda driven process with less scrutiny to the business side, the results could leave the loan makers in a hole.  Who is left holding the bag?  Tax payers, of course, but there are a number of other problems with this.  One is to the state general fund.  Private banks pay a 10.84% franchise fee for doing business in CA.  Public banks would be exempt from this fee.  Revenue in private banking will likely be reduced as public banks eat into their business meaning there will be less money headed to the general fund.  Another problem will exempt public banks from all state and local taxes and licenses, as well as from state energy resource surcharges, state emergency telephone users surcharge and any tax or license fee imposed by the state on motor vehicles.  The state likes to regulate business but when the state runs the business it will dispense with the charges that burden private enterprises.  As public entities, the workers will certainly be considered public employees subject to collective bargaining agreements.  Can governments do the job better than private bankers?  If San Francisco can’t handle the homeless crisis, LA can’t run its recycling business and both are deep in debt over pensions, what makes them think they can run a bank?

Promises, promises and promises

Remember SB 1 from 2017 that enacted an increase in the gas tax and vehicle registration fees?  Remember when voters reaffirmed the use of this money for roads in no uncertain terms when they rejected Prop 6 in 2018, an attempt to repeal the tax?  The rhetoric during that campaign from the government and its allies was an affirmation to use the money for roads.  Well last month the governor signed and executive order to “leverage” $5 billion dollars in annual state transportation repair and maintenance money to encourage people to get out of their cars and use mass transit, bike or walk.  The state transportation agency insists that SB 1 money is protected and that fixing roads is the agency’s top priority.  Critics don’t buy it and it just so happens that the administration is putting off some road fixes while intending to spend more on alternative transit.  Projects to widen highways in the Central Valley and San Luis Obispo have been set aside for now with the money earmarked for those projects to be used elsewhere to meet the climate change challenge, but the problem goes deeper than spending choices.  It undercuts trust in government and

Summary

Are we at the tipping point where CA’s progressive political imperatives are having such glaring real world repercussions that its hard to keep ignoring them?  Why are people leaving?  I was born and raised in CA and a lot has changed.  As of now my brother moved his painting contracting business to Nevada, I have 3 brother in laws who now have purchased second homes out of state over the last 2 years as a foothold to move to when they retire, our Fairfax Chamber of Commerce executive director pulled up stakes earlier this year and left and two employees who retired recently left the state and I know more.  At the top of the list is home affordability.  The national median home price is around $250,000.00 but the median home price is CA is almost $600,000.00 and its even worse in places like San Francisco where you’ll need over a million dollars for a median priced home, and it won’t be special.  Then there’s gasoline.  We pay over $1.25/gallon more than the national average and rents…now that rent control is law it will depress housing availability.  Add to this recently signed AB 5 into law which messes with our ability to earn a living.  That law forbids many types of contract labor but many people don’t want to be 9-5 wage slaves and prefer piecing together various contract jobs.  Businesses aren’t going to respond by hiring everyone as permanent workers.  This will squelch job growth, especially in CA innovative tech industry.   Oh, I almost forgot about homelessness, where the policies in place to deal with this problem just aren’t working.  Then, just wait until our lawmakers make good on their promise to provide single payer healthcare and enact a sales tax on services.  We shouldn’t forget the possibility of the split property tax roll, because once the state gets its arms around all commercial property, don’t be surprised if it doesn’t try to go after residential in its infinite wisdom.

When I was growing up CA was the golden state where everyone wanted to live.  There was opportunity for honest work and a comfortable lifestyle.   You couldn’t beat all that CA had to offer, but now CA gets its golden color not from being the land of opportunity, but because its goose is almost cooked.

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