For Clients & Friends of The Gualco Group, Inc.
IN THIS ISSUE –“It bodes poorly for more bond prospects in November. It’s sending a message that it’s a fight, and the real question is, do lawmakers really want a fight?”
Mike Young, California Environmental Voters, on the prospects for more bonds on the ballot this election
- Bond Backers – Climate, Schools, Housing – Joust for November Ballot
- State Budget Deficit Multiplied by $21-Billion Unemployment Insurance Debt; Jobless System Reform Needed
- State Water Board Takes Control of Kings County Groundwater
- Massive Carbon Sequestration Project Roils the Oil Patch (Kern County)
- US Supreme Court Clamps Down on Local Building Fees
Capital News & Notes (CN&N) curates California policy, legislative and regulatory insights from dozens of media and official sources for the past week. Please feel free to forward this unique client service.
FOR THE WEEK ENDING APRIL 19, 2024
Bond Backers – Climate, Schools, Housing – Joust for November Ballot
Politico
Climate bond backers are getting nervous.
Groups pushing for a state bond to fund climate projects hoped a strong primary showing for Prop 1, Gov. Gavin Newsom’s mental health and homelessness bond, would draw the governor and legislative leaders to the negotiating table.
Instead, Prop 1 squeaked through three weeks after the March election.
“It bodes poorly for more bond prospects in November,” said Mike Young, political director for California Environmental Voters. “It’s sending a message that it’s a fight, and the real question is, do lawmakers really want a fight?”
Another negative sign: the Prop 1 campaign’s interpretation of the results.
Tea-leaf readers think that of the three main bonds jockeying for the November ballot — climate, schools and housing — schools have the best shot, given the state’s limited bond debt capacity. Assemblymember Eduardo Garcia, who’s carrying one of the $15 billion climate bonds, said so himself.
“We believe that there is a strong three-way agreement as it relates to doing a school bond,” he said in an interview. “That leaves us with the discussion about what does a climate bond look like, and what does a potential ballot measure for a housing bond look like?”
Climate has a pretty strong case for second place. Newsom himself floated the climate bond in January 2023 as a way to offset cuts to his $54 billion climate package passed in 2022.
He’s positioned himself nationally as a climate champion, and it’s the top issue of influential lawmakers like Senate Majority Leader Lena Gonzalez and Sen. Monique Limón, chair of the Senate Democratic caucus.
The housing bond has its own powerful backers, like Senate Budget Chair Scott Wiener and Assembly Appropriations Chair Buffy Wicks.
Garcia said he’s hopeful Newsom will offer some priorities next month, when he releases a revised budget plan for the upcoming year. He’s focused on trimming his bond down, and has praised a coalition of more than 150 organizations that’s already unified around a $10 billion proposal.
But Sen. Ben Allen, author of the Senate’s climate proposal, said he’s expecting a slog to the June 27 finish line. “Unfortunately, these things oftentimes get a little uncomfortably close to the deadline,” he said in an interview.
“Obviously, we’ve got to be strategic in what we will put before voters,” Rivas told reporters, while declining to detail his strategy. “It’s a different ballgame, it’s a different electorate in November. We anticipate a higher turnout.”
Enviros say the March election, which was low turnout and attracted more conservative voters than a general election would, isn’t that telling.
“It’s really hard to draw any kind of direct line from Prop 1 to a climate bond,” said Katelyn Roedner Sutter, Environmental Defense Fund’s California director.
Assembly Speaker Robert Rivas said something similar last week.
LA Times
California’s massive budget deficit, coupled with the state’s relatively high level of joblessness, has become a major barrier to reducing the billions of dollars of debt it has incurred to pay unemployment benefits.
The surge in unemployment brought on by the COVID pandemic pushed the state’s unemployment insurance trust into insolvency. And over the last year California’s joblessness has been on the upswing again, reaching 5.3% in February, the highest among all states.
To keep the safety-net program operating at a time when the taxes paid by employers and earmarked for jobless benefits are insufficient, Sacramento has been borrowing billions of dollars from the federal government.
The debt now stands at about $21 billion and growing, an increasing burden for state deficit fighters and for the businesses that pay into the jobless insurance program.
Payroll taxes paid by employers are rising not only to cover payouts to unemployed workers but also a state surcharge and a gradually increasing federal surtax to help pay off the principal on the debt. But the tax increases are not enough to deal with the huge loan the state has incurred, or at least not in any timely manner.
California already has paid more than $650 million in interest on the loan — and another approximately $550 million is due on Sept. 30.
Data also show that jobless workers in California stay on unemployment significantly longer than the national average, which adds to the total payout amount. And California workers claim unemployment benefits in disproportionately high numbers.
The state currently accounts for about 20% of the nation’s jobless claims, far in excess of its 11% share of the labor force population. That partly reflects the state’s higher unemployment and accompanying increases in layoffs and jobless claims in the tech industry and other sectors, but also its comparatively easier eligibility rules and low re-employment rate.
“Businesses are going to continue to see the slow boil eating into their margins,” said Robert Moutrie, senior policy advocate for the California Chamber of Commerce.
Higher taxes will hit small and midsize firms in sectors such as restaurants and tourism especially hard, he said.
“It just adds to the burden and the costs of operating here and makes companies look at operating elsewhere,” Moutrie said.
While the pandemic is largely to blame for California’s huge unemployment insurance debt — and there’s been a lot of attention on dollars lost to fraud — analysts and workers’ rights groups point to another problem: Even during more-normal economic times, the state often doesn’t collect enough unemployment insurance taxes to cover jobless claims.
Last year California’s jobless workers received on average $385 a week, replacing about 28% of the average wage. Both figures are lower than the national averages, according to Department of Labor statistics. (The wage replacement rate is about 50% for minimum-wage workers in California.)
But California also stands out as an outlier in the way it’s managed, or mismanaged, the program.
When COVID struck in March 2020, U.S. unemployment jumped to 14.8% a month later and brought unprecedented jobless claims, forcing California and many other states to borrow from the federal government to keep paying benefits. Almost all of the other states have since repaid those loans, some with pandemic relief money they also got from Washington.
Today only New York and California, plus the Virgin Islands, still owe money for unemployment insurance loans.
Analysts said California could have used some of the $43.5 billion the state received in American Rescue Plan Act money to pay down the debt. Instead, state officials spent the relief money for other purposes, including additional stimulus checks to residents.
“California had options and it chose the spending option instead of the responsible option,” said Matt Weidinger, a senior fellow at the American Enterprise Institute who has written widely on the unemployment insurance program. He said higher employer payroll taxes will ultimately spill over to employees in the form of less wages.
Gov. Gavin Newsom’s office didn’t respond to requests for comment. State legislative analysts were careful not to criticize policy choices made during the extraordinarily uncertain times.
Some suggested, however, that officials may have felt the state had plenty of financial cushion coming out of the pandemic in 2021-22. Then, Sacramento was flush with cash, thanks to huge tax windfalls. And the interest rate on the federal unemployment insurance loan two years ago was at a historical low of 1.6%.
But not only has the interest rate on the loan since risen to 2.6% — and may yet rise further — what were once huge surpluses are now a projected record budget deficit of more than $70 billion in 2024-25, according to a February update by California’s Legislative Analyst Office.
An economic downturn in the state, marked by a falloff in technology investment and rising overall unemployment, has resulted in unprecedented shortfalls in tax revenues.
Under such budget constraints, California officials had little choice but to pull back on plans to spend $1 billion to reduce the principal on the unemployment insurance loan.
California’s Employment Development Department, which oversees the state’s unemployment insurance program, has said that it would rely on increased federal taxes on employers to pay down the debt.
Currently California employers pay a federal unemployment insurance tax of 1.2% on the first $7,000 of wages per employee, but that will rise incrementally every year so long as California is in debt, to more than 3.5% after 10 years. And analysts estimate that it may take at least that long to pay off the debt.
Businesses also pay a state unemployment insurance tax, also on the first $7,000 of wages, based on their layoff history, plus a surcharge when there’s a shortfall in the jobless benefits fund.
Combining both state and federal portions, a new California employer, for example, would be looking at paying about $500 in unemployment insurance taxes per employee this year — almost double than during normal times.
“California’s apparent plan to rely on [federal tax] revenue to pay off the loan avoids addressing solvency in the state unemployment insurance law and places the burden of increased unemployment benefits during the pandemic on employers,” said Doug Holmes, former director of Ohio’s unemployment insurance program and currently president of the consulting firm UWC.
In California, business groups say it’s unfair for employers to shoulder the increasing burden when they weren’t responsible for the pandemic or the temporary lockdowns that were imposed on them, resulting in layoffs and higher unemployment claims. They argue that it will only add to the state’s already higher business costs that have pushed some California companies to relocate to Texas, Nevada and other states.
Traub, of the National Employment Law Project, said employers have to pay more to make the math work and ensure the unemployment trust system is sustainable over the long haul.
Sacramento collects unemployment insurance taxes on the first $7,000 of wages per employee per year. Traub noted that most other states have a significantly higher taxable wage limit — New York at $12,500; New Mexico at $31,700; and Washington state, the highest, at $68,500.
“Raising the taxable wage base has got to be part of the solution,” Traub said.
California legislators are now considering an increase, which many agree is needed. “That’s very reasonable,” said Michael Bernick, an employment attorney at Duane Morris in San Francisco.
Bernick was the EDD director in the early 2000s when, under Gov. Gray Davis, the state raised the maximum weekly unemployment benefits to $450 a week — but without increasing the taxes to cover the larger payments.
Writing in a report with Holmes, Bernick recommended a number of steps the EDD could take to shore up the state’s unemployment benefits program, including tightening eligibility standards and modernizing the agency’s computer and communications systems. But by far the main policy change that’s needed is to help jobless workers move into new jobs more rapidly.
In 2022, California workers stayed on unemployment aid for an average of 18.1 weeks, compared with 14.5 weeks nationally, according to a study by the Department of Labor’s former lead actuary, Robert Pavosevich.
In California that year, 47% of recipients took the full maximum 26 weeks of jobless benefits. Nationally, only 27% exhausted all benefit weeks available.
“Those are striking numbers and highlight just how much the system needs to be reshaped,” Bernick said. “How do we get people back to work quickly? It’s both good for businesses and the workers, but also for the unemployment fund.”
State Water Board Takes Control of Kings County Groundwater
CalMatters
Kings County growers will face millions of dollars in fees and a mandate to report groundwater pumping after California officials voted unanimously today to put local agencies on probation for failing to protect the region’s underground water supply.
The unprecedented decision is a first step that could eventually lead to the state wresting control of a groundwater basin in a severely depleted part of the San Joaquin Valley.
Before issuing the probation order, the State Water Resources Control Board had repeatedly warned five groundwater agencies in Kings County that their management plan for the Tulare Lake basin is seriously deficient, failing to rein in the dried-up wells, contaminated water and sinking earth worsened by overpumping.
Located in the southern end of the San Joaquin Valley, the Tulare Lake basin is the main source of drinking and irrigation water for 146,000 residents and the agriculture that sustains Kings County’s economy. Five other overdrafted San Joaquin Valley basins also may face probation.
Small farmers spoke up during the marathon, 9-hour hearing, saying that the state fees — on top of fees proposed by local agencies — could drive them out of business.
“If the family farms go under, we will have a crisis on our hands,” said Julie Freitas, a Lemoore resident from a multi-generational farming family who traveled to Sacramento to speak to the board. “Most family farms cannot absorb the added cost.”
The state’s pumping fees of $20 per acre foot alone could reach almost $10 million a year in Kings County, according to a CalMatters analysis based on average groundwater use reported between 2015 and 2022. The state also can levy an annual fee of $300 per well, and heavy water users may have to install meters on their wells.
State water board Chair E. Joaquin Esquivel acknowledged the pain and frustration that small farmers expressed at the hearing.
“The goal here is to not be punitive in the least, and simply see probation as a step within a process,” he said. The purpose of the fees, he said, is “not to punish those basins — although I know it can feel that way — but to pay for the additional workload.”
Several small farmers said they’ve been excluded from the local planning process and placed the blame for the overdraft on the region’s large agricultural companies.
“While I will admit that the small acre farm has certainly played a part in the water crisis, I do not believe that it has been the major culprit,” Jacky Lowe, a small grower near Hanford, told the board.
“I think we have to look now at the large corporate farms in Kings County that have for decades changed the natural pattern of waterways, built dams to divert water for their use, and drained areas that historically retained excess water in wet years.”
Agricultural giants J.G. Boswell Co. and Sandridge Partners, controlled by Bay Area developer John Vidovich, have a powerful influence on groundwater policies in Kings County, with representatives on at least three of the five boards managing the basin.
Representatives of the local agencies told the board an updated plan is about 90% complete. Two — including the manager of an agency chaired by Vidovich — tried but failed to convince the board to exempt them from probation under a “good actor” provision because of measures they’ve already taken to reach sustainability.
Yet in the decade since the state enacted its landmark groundwater act, Kings County has shown little change in its management of groundwater. Though field crop acreage has decreased, water-intensive fruit and nut crops have increased.
Meanwhile, roughly the same amount of groundwater was pumped in 2022 as in 2015, varying from year to year. New irrigation wells have been drilled even as household wells go dry.
State water officials said under the deficient local plan, several hundred household wells could go dry, many would struggle with worsening water contamination and the ground would keep sinking.
“I want to ensure my nephews and nieces never lose access to water in their homes, and their water is always potable and safe,” Nataly Escobedo Garcia, policy coordinator for the nonprofit group Leadership Counsel for Justice and Accountability, told the board.
Though state officials issued their warnings six months ago, the local agencies failed to update their plan after a process marked by infighting. Now if they don’t improve it within a year, state officials can begin the process of taking over management of the basin.
California enacted the Sustainable Groundwater Management Act 10 years ago to regulate the state’s precious groundwater stores during a prolonged drought, when growers ramped up pumping and thousands of household wells across the San Joaquin Valley went dry.
The law requires local agencies managing critically overdrafted basins to develop plans to prevent the consequences of overpumping by 2040. Included are dry wells, contaminated supplies and sinking land that can damage canals, roads, buildings and levees.
https://calmatters.org/environment/water/2024/04/kings-county-groundwater-overpumping-probation/
Massive Carbon Sequestration Project Roils the Oil Patch (Kern County)
GVWire
In western Kern County, where rolling hills are punctuated by bobbing rigs, the state’s largest oil and gas producer is betting that a novel technology will stave off the extinction of California’s fossil fuel industry.
The proposal has split this region, known as California’s oil country: Some want a future for oil and gas with less carbon emissions, while others insist that the polluting industries must go altogether.
In a project that would be California’s first attempt to capture and sequester carbon, California Resources Corp. plans to collect emissions at its Elk Hills Oil and Gas Field, and then inject the gases more than a mile deep into a depleted oil reservoir.
The goal is to keep carbon underground and out of the atmosphere, where it traps heat and contributes to climate change.
Around the world, the race to build these carbon capture and storage projects is part of a broader bid by the oil and gas industry to remain viable in a world struggling to decarbonize.
In California alone, federal officials are reviewing 13 proposals to build projects — most in the Central Valley — that would capture carbon dioxide spewed by oil operations, power plants and other facilities or remove it from the atmosphere, then inject it underground into wells.
Although California aims to phase out nearly all fossil fuels, Gov. Gavin Newsom’s administration said they must rely on carbon capture to eliminate millions of tons of greenhouse gases a year to meet its mandate of carbon-neutrality by 2045. The state may become even more reliant on this new technology than originally envisioned to
stay on track in cutting planet-warming emissions.
“We have a very unique market in California, where you have a state government that’s pushing really in favor of an energy transition,” Francisco Leon, California Resources Corp.’s chief executive officer, said during a recent earnings call. “But we also have a state that has relied on oil and gas revenues to support the communities and to pave the roads, to pay for libraries and fire stations.”
At its massive oilfield in Kern County, a few miles from the mostly Latino, low-income community of Buttonwillow, California Resources Corp. is seeking approval to inject 1.46 million metric tons of carbon dioxide a year over a 26-year period into an underground reservoir.
That’s equivalent to the annual emissions of several hundred thousand gas-powered cars. The company hopes to expand to a second nearby reservoir once operations are underway.
The company needs permission from both the U.S. Environmental Protection Agency and the Kern County Board of Supervisors. Both are expected to make their decisions this year, and the company hopes to start its first carbon injections next year.
Many residents and environmental justice groups oppose these projects because they allow oilfields, power plants and other industrial operations to keep emitting dangerous air pollutants in their communities.
At the Kern County project, emissions of fine particles and gases that form smog would be “significant and unavoidable,” according to the county’s environmental impact report.
“You’re locking in pollution infrastructure that should be phased out,” said Daniel Ress, an attorney with the Delano-based Center on Race, Poverty and the Environment. “This was designed by fossil fuel companies so that they can continue to profit off the climate crisis. They set this trap.”
Dave Noerr, mayor of the foothills town of Taft, about 8 miles from the project site, sees the technology as a gamechanger for Kern County: a way of hanging on to well-paying, middle class oil and gas jobs as California tackles climate change. The industry employs about 14,000 people in Kern County, which provides three-quarters of California’s oil.
Signs of oil country are visible throughout Taft, a town of 7,000 people southwest of Bakersfield surrounded by thousands of sentinel-like oil rigs pumping day and night. A bronze monument depicting early 20th century work in the oilfields rises in a town square.
Noerr said California should lead the way with capture and storage technology so that developing countries can eventually adopt it at their high-polluting coal plants. “If we can learn how to do it, and do it right, on a commercial scale, right here, then we can help those people,” Noerr said.
California Resources Corp.’s pipelines and injection wells would be built just four miles from the closest home in Buttonwillow, and within 2.5 miles of the closest elementary school, according to the environmental impact report. Researchers have found connections between people living near oilfields and health effects, including respiratory problems, low birthweight babies and premature babies.
US Supreme Court Clamps Down on Local Building Fees
Wall Street Journal excerpt
It’s about to get more difficult for local governments to slap construction projects with certain fees — and a bit easier for developers to sue governments when they do, according to a US Supreme Court ruling.
As many court watchers expected, the justices sided with George Sheetz, a septuagenarian retiree who sued El Dorado County over a $23,420 building fee.
Sheetz’s lawyers argued that the county should have had to prove that this five-digit fee matched the cost that his manufactured home actually would inflict on local roads and highways. That requirement was established in a four-decade-old court ruling also out of California.
El Dorado County, with the backing of both the Gov. Gavin Newsom and President Joe Biden administrations, countered that such a high bar is only required of one-off fees levied by regulators, not fees scheduled for all developments and established by elected bodies, like the county board of supervisors.
In its 9-0 ruling, the Supreme Court said that “there is no basis for affording property rights less protection in the hands of legislators than administrators.”
A few possible consequences of the ruling:
- Cities and counties now have to show that impact fees are connected to and “roughly proportionate” to the fiscal impact of a given development. That could have the unintended consequence of slowing down permitting.
- Developers may now have a powerful new legal tool to challenge fees that they think are too high.
As of 2015, the average impact fee on a single family home in California was more than four times the national average.
But it’s too soon to say exactly how all of this will shake out. That’s because the court stopped short of saying exactly how far governments have to go to justify their fees — or whether El Dorado County already cleared that hurdle in this case. Those questions were left to lower courts.
The case involved California land owner Sheetz, who was required to pay a $23,420 fee for a local permit to build a small home. El Dorado County’s board of supervisors claimed the fee was necessary to cover the costs of expanding public roads to reduce congestion. Mr. Sheetz sued in state court, arguing the fee was excessive and violated the Takings Clause.
The High Court’s Nollan (1987) and Dolan (1994) precedents require that permit conditions have an “essential nexus” and be “roughly proportional” to a development’s adverse impact.
California courts declined to consider Mr. Sheetz’s claim. They reasoned that the High Court’s precedents applied only to bureaucrats, not elected officials.
“That was error,” Justice Amy Coney Barrett wrote for the Court. “Nothing in constitutional text, history, or precedent supports exempting legislatures from ordinary takings rules,” adding that “special deference for legislative takings would have made little sense historically, because legislation was the conventional way that governments exercised their eminent domain power.”
Some states have adopted California’s unmoored interpretation of the Fifth Amendment, and little wonder why. It lets elected officials use permitting fees to extort property owners while avoiding unpopular broad-based tax increases. The city of Oakland has required multifamily housing developers to fund public art installations.
The Court remanded Mr. Sheetz’s case to state courts to reconsider. During oral argument the Justices seemed to differ on whether permit conditions on a class of properties should have to be tailored like those on a particular property.
Justice Brett Kavanaugh in a concurrence joined by Justices Elena Kagan and Ketanji Brown Jackson stressed the decision “leaves the question open.”
But Justice Neil Gorsuch wrote in a concurrence that the Court’s Nollan and Dolan tests should apply similarly when “an alleged taking affects a ‘class of properties’” as with a particular development. We tend to agree, and the question may return to the Court.