For Clients & Friends of The Gualco Group, Inc.
IN THIS ISSUE – “Let’s Be Real”
NEW GOVERNOR SET AMBITIOUS AGENDA
- Newsom’s First State of the State: “Hard Decisions Coming Due”
- Governor’s Large Agenda = Large Staff
- Who’s Knocking on the Corner Office Door?
LEGISLATURE’S FIRST SISTERS
FINANCIAL RED FLAGS
- PG&E “Most Complicated &Difficult” Bankruptcy Case
- How Many Votes Does it Take to Pass a Tax? CA Supreme Court Must Explain
- Record Number of Americans Driving Delinquent Car Payments
CRIMES AGAINST NATURE
Capital News & Notes (CN&N) harvests California legislative and regulatory insights from dozens of media and official sources for the past week, tailored to your business and advocacy interests. Please feel free to forward.
READ ALL ABOUT IT!!
FOR THE WEEK ENDING FEB, 15, 2019
There was an itchiness to the relationship between Gavin Newsom, who spent eight years as an understudy, and former Gov. Jerry Brown.
Much of it was institutional: California’s lieutenant governor and chief executive don’t run on a joint ticket and once elected, the second in command has almost no official duties. The structure allows even a middling leader to cast an imposing shadow.
But with Brown, an iconic Democrat and the state’s longest-serving governor, the shadow was more like a slow-moving solar eclipse.
That may help explain why Newsom, in his first State of the State address, sought in tone and tempo to revise his agenda for California and rethink its approach to governing. Where Brown often embraced incrementalism, Newsom urged lawmakers to speed things up.
“There are problems that have been deferred for too long and that threaten to put the California dream out of reach for too many,” he said. “We face hard decisions that are coming due.”
Some pronouncements in his address marked a clear departure from the Brown era. Most notably, Newsom embraced only part of California’s beleaguered high-speed rail project, declining to commit to much more.
“Let’s be real,” he said.
But it was potential, not reality, that Brown used as a measuring stick for the $77-billion project. Six years ago, he used his State of the State speech to liken the endeavor to the children’s book, “The Little Engine That Could.”
“I think I can,” Brown said, reciting from the book and channeling its optimism. “And over the mountain, the little engine went!”
Newsom cast doubt on that approach, obliquely criticizing the Brown administration’s management of the bullet train. He sounded a similar concern for the status of the controversial Sacramento-San Joaquin Delta water project, promising a “fresh approach” on another key but unfinished part of the Brown legacy.
Californians would be forgiven if they expect Newsom’s tenure to be a sequel to Brown’s. They are the first Democrats since 1887 to follow each other into the governor’s office. Newsom, whose ties to Brown go back a couple of generations in San Francisco politics, frequently praises the former governor’s fiscal discipline and stewardship of the idea of California exceptionalism. Introducing Brown at last year’s State of the State event, Newsom praised him as a sui generis leader, a Latin phrase meaning “of its own kind.”
But the 51-year old governor, beginning his second month on the job, on Tuesday offered a perspective on state and national events that was more pugnacious than any similar speech by the man who came before him.
Speaking to a Legislature stocked with Democrats — who now hold 88 of its 120 seats — Newsom renewed his support for a state single-payer healthcare system, an effort Brown refused to even consider without first knowing where the money would come from.
Where the former governor insisted California’s wildfire future depends on loosening the liability standards that force utility companies to pay billions, Newsom instead framed the path forward as one focused on “justice for fire victims, fairness for employees, and protection for ratepayers.”
And while just a few months ago Brown heralded his last budget’s record-breaking support for K-12 schools, the governor who inherited that fiscal framework said Tuesday that California is overdue for an “honest conversation” about whether the state is doing enough for education.
Newsom began carefully distancing himself from Brown long before the State of the State speech. Through the end of last year’s campaign and in his first few weeks in office, the governor has hinted before that he won’t hesitate to go where Brown didn’t.
Last month, Newsom said he would roll up his sleeves to search for consensus on rethinking California’s tax structure in hopes of avoiding a 2020 ballot fight over the legacy of the landmark Proposition 13, which has strictly limited growth in property taxes for more than 40 years.
“Gov. Brown had no interest in this, even at the peak of his power, influence and insight,” Newsom said of working on tax reform. (What he didn’t say: Brown argued that a lack of broad-based political consensus would make pursuing the issue impractical.)
Newsom’s State of the State address may be remembered most for providing him the best opportunity to step out of Brown’s shadow, but there is much on which the two leaders agree. The governor’s budget proposal last month asked lawmakers to take an approach similar to one that has been in place for the last several years: Spend billions of dollars in tax windfalls largely on one-time expenses, not ongoing endeavors.
Nor was all of Tuesday’s address different from those in the past. Like Brown, the new governor condemned the effort by President Trump and congressional Republicans to scrap the Affordable Care Act as actions tantamount to “vandalism.” Later, he embraced Brown’s frequent demands to loosen the California Environmental Quality Act. The former governor once called an overhaul of the law “the Lord’s work.” In his speech, Newsom framed loosening the constraints of CEQA as a means to boost construction of needed housing.
Nor did he completely disavow high-speed rail, pausing for a beat in his speech to praise the vision of Brown and former Gov. Arnold Schwarzenegger.
“There’s no doubt that our state’s economy and quality of life depend on improving transportation,” Newsom said.
The path forward for the governor has little precedent. Only three lieutenant governors in the last 70 years have gone on to the state Capitol’s corner office. Few, if any, followed behind a governor who left office with high job approval ratings and a reputation — even among his critics — for pragmatism.
In his first chance to take stock of things, Newsom offered familiar but notable observations as bookends.
“The state of our state is strong,” he said at the speech’s outset.
At the end, though, he told the audience, “The best is yet to come.”
Text of State of the State, with ad libs inserted:
Gov. Gavin Newsom announced plans to hire California’s first surgeon general hours after he took office last month. The next day he announced a new senior advisor for emergency management. Then on his third day, he created a “strike team” to reinvent the troubled Department of Motor Vehicles.
And on Day 4, Newsom unveiled a new state budget, requesting 41 additional staffers and a total of $24.6 million for the governor’s office — more spending than any of his predecessors.
California’s 40th governor is beginning his tenure with a flurry of ideas and enough cushion in the state budget to afford a large inner circle of advisors and aides to help carry out big promises, such as creating a single-payer healthcare system, universal preschool and addressing the state’s housing crisis.
“The truth about the governor’s office is that things move fast and you drink from a fire hose every day,” said Dana Williamson, a former top advisor to then-Gov. Jerry Brown. “He also has a big agenda.”
Brown had a lean crew of confidants. Former Gov. Arnold Schwarzenegger had a more expansive operation, with a $21.9-million budget and a staff of 202 employees at its peak during his final full year in office. Chief executives before him also oversaw large offices, but because some of their employees were paid from the budgets of different departments, it is unclear just how many staff members worked for them.
Facing a $27-billion budget deficit, Brown whittled the size of the governor’s office down to as few as 81 employees and a low of $12.7 million to cover salaries, benefits and administrative overhead.
He also closed the administration’s field offices around the state, eliminated the first lady’s office and forced appointees to take a 5% pay cut in keeping with campaign promises to limit government spending. Williamson said that Brown’s first stint in the governor’s office eased his return to the job more than three decades later, allowing him to operate with a small staff.
Newsom has taken a different approach.
Building a 132-person staff will allow Newsom to reopen five field offices focused on constituent affairs and hire representatives for each region of the state, said Nathan Click, a spokesman for the governor. The outposts will hold public office hours “to bring the governor’s office closer to the communities it serves,” Click said.
Newsom’s hiring spree will also bulk up his Cabinet, a team of senior advisors and high-ranking heads of state agencies. Click said that focus “affords this administration the capacity to make state government work better for the people it serves — from taking aggressive actions to combat the cost crisis families face to more quickly and effectively reacting in times of crisis and disaster.”
In another reversal of course from the Brown administration, Newsom is establishing the Office of the First Partner, his wife Jennifer Siebel Newsom’s preferred title, with seven new positions and a $791,000 budget.
The governor’s office has touted its work to hire a diverse staff — by geography, race and ethnicity, sexual orientation, gender identity, experience and disability status.
“It’s not a shock that a new activist governor would try to bulk up the staff as much as possible,” said Jack Pitney, a professor of government at Claremont McKenna College.
But Pitney also warned about the potential for “bureaucratic infarction.”
“That is, you have so many people sending so many memos to one another that nothing gets done,” he said.
Building a larger office means the 51-year-old governor will probably be more visible than his predecessor — a key component of remaining connected to the Californians who elected him last year. But Newsom’s penchant for launching so-called strike teams to tackle key issues and strategically announcing several hires at once is uncommon compared to past governors, said Susan Kennedy, who was Cabinet secretary to former Gov. Gray Davis and chief of staff to Schwarzenegger.
Last month, Newsom formed a panel to help his administration navigate the bankruptcy of Pacific Gas & Electric. He appointed his chief of staff, Ann O’Leary, to head the group with representatives from the California Independent System Operator, California Public Utilities Commission, California Department of Insurance and California Department of Finance.
He also formed a DMV strike team, led by California Government Operations Agency Secretary Marybel Batjer, to guide a reinvention of the troubled DMV and recommend new leadership. In December and again in January, Newsom rolled out several key positions at the same time, with titles such as “senior policy advisor for cradle to career” and “senior policy advisor for early childhood.”
Forming teams early on shows the governor is putting “boots on the ground” to move quickly and tackle important issues, said Kennedy, who commended Newsom’s hiring of top aides from previous administrations.
“He’s clearly using all the positions he has to make sure he has special teams who are able to bring the people into the process,” Kennedy said. “You exponentially increase your power when you have the ability to get the public, the constituency groups, behind you.”
Newsom has also said he might appoint “czars” to oversee policy on housing, mental health and homelessness, or some combination of the issues.
“I’ve talked a big game about czars, but I haven’t done a czar yet,” Newsom said at a recent news conference.
Though some suggest that selecting independent-minded leaders and new top advisors might allow Newsom to distance himself from any failed policies, others say the governor won’t be able to avoid blame or praise.
“The principal owns the problems and the principal owns the solutions,” said Eric Jaye, a former political advisor to Newsom. “If you succeed, you get the credit, and if you fail, you get the credit.”
While campaigning for governor last year, Gavin Newsom said he wouldn’t be swayed by political donations.
Just because an organization supports you, he said, you’re not necessarily “an apologist for their point of view.”
That doesn’t mean donors aren’t trying.
Labor unions, housing developers and wealthy entrepreneurs are among the thousands of people and groups who gave money to help elect Newsom, according to the final disclosure reports filed by his campaign.
Donors directly gave him roughly $50 million, allowing him to spend more on television ads – $21 million – than his Republican opponent John Cox raised in total. Others ran independent campaigns on his behalf.
Now that Newsom is governor, he’s facing pressure from many of those top contributors to implement policies they support.
Here’s a look at some of the groups that spent big to help the Democratic governor and what they want him to do:
Labor unions spent millions on independent efforts supporting Newsom, allowing them to avoid donation limits as long as they didn’t coordinate with his campaign.. More than two dozen representing a range of professions – from health care workers to construction crews – also gave the legal maximum amount of $58,400 directly to Newsom’s campaign.
Various branches of the Service Employees International Union spent more than more than $2.7 million. The union has applauded Newsom’s efforts to boost funding for the state’s early education programs and his proposal to expand paid family leave, policies the union says will help working families.
The California Correctional Peace Officers Association also spent big to help elect Newsom, dropping $2.8 million.
“We trust Governor Newsom to work closely with public safety leaders and law enforcement to improve our state’s criminal justice system, increase public safety and support and respect the men and women who wear a badge,” the group’s spokeswoman Nichol Gomez-Pryde said in a statement.
The state is negotiating a new contract with the correctional officers union, whose current contract expires in July.
The California Nurses Association spent more than $700,000 on independent efforts to elect Newsom and gave the maximum contribution allowed to his campaign. The group wants Newsom and the Legislature to create a government-funded universal health care system, often called a “single-payer” system.
The nurses endorsed Newsom largely for his commitment to such a system, said Stephanie Roberson, a lobbyist for the union.
But the health care groups backing Newsom don’t all agree on what they want. Private health insurance companies, which could cease to exist under a single-payer system, generally oppose the idea.
Blue Shield of California, for example, spent about $1 million supporting Newsom. The group was one of the insurers who opposed a bill in the Legislature’s last session that would have created a single-payer system in California.
So far, Newsom has taken steps toward expanding access to health care for Californians within the current system, which is made up of both public and private insurance options. He’s also sent a letter to the Trump administration asking for permission for California to develop its own single-payer system, which his office characterizes as an important first step.
In a statement, Blue Shield praised Newsom’s efforts to prop up the Affordable Care Act and to expand eligibility for the state’s health insurance program for low-income people to some immigrants living in the country illegally.
“We applaud the Governor’s actions to make health care more affordable and accessible for all Californians,” Blue Shield spokeswoman Amanda Wardell said “They align with our own mission to create a healthcare system that is worthy of our family and friends that is sustainably affordable.”
The nurses union has also been complimentary, citing Newsom’s plans to help more people access health care and lower drug prices.
Roberson said the governor’s move to ask the federal government for permission to implement a single-payer system is proactive, and said the nurses will continue to push for single-payer. She said she’s not concerned that other groups with competing interests also donated to Newsom.
“They’re going to double down on the winning horse,” Roberson said. “We don’t see that as a sign that this governor is going to be bought and paid for.”
She demurred when asked what the nurses union would do if Newsom backs away from his single-payer promises.
“All we can do as an organization is continue to push our agenda and make our case,” she said. “We’ll cross that bridge if we come to it.”
California teachers unions spent more than $1.3 million supporting Newsom and gave the most they could directly to his campaign.
They’ve applauded his commitment to making charter schools, which are publicly funded but privately run, more transparent about how they spend their money and his call for more state oversight.
Newsom also became the preferred candidate for some prominent charter school backers, who often oppose the teachers unions in California politics.
Charter schools, for example, were a major point of contention during the teachers strike last month in Los Angeles. As part of the deal to end the strike, the school district agreed to the union’s demand to consider a cap on charters.
Netflix founder Reed Hastings was among the major donors behind a more-than-$20 million campaign primarily funded by charter advocates last year to support Antonio Villaraigosa, who promoted charter schools while he was mayor of Los Angeles.
After Antonio Villaraigosa lost to Newsom in the primary, Hastings and several other donors who typically back pro-charter candidates, including philanthropist Laurene Powell Jobs, gave the maximum to Newsom’s campaign ahead of the general election.
The California Building Industry Association, which represents housing developers, spent $1.5 million on Newsom.
So far, the group’s president Dan Dunmoyer says they’re pleased with the new governor’s proposals. He praised Newsom’s commitment to streamlining regulations that slow construction and reducing developer fees that drive up construction costs.
“He made a strong commitment to build more housing units,” Dunmoyer said. “It’s now moving government out of the way of itself to make it easier and more affordable to build.”
Housing policy in Sacramento often becomes mired in fights over wage requirements for construction workers. Developers generally oppose such requirements. arguing they drive up costs. Unions typically argue they ensure construction workers are paid fairly.
Despite Newsom’s support from unions, Dunmoyer said he’s not worried Newsom will push prevailing wage requirements for single-family homes, but he anticipates other areas of disagreement between builders and the governor.
Some landlords and the California Apartment Association gave all they were allowed to Newsom’s campaign.
On the campaign trail, Newsom hinted he would broker a compromise on rent control, one of the most contentious political issues last year because of Proposition 10, a ballot measure that would have let cities and counties pass or expand rent control policies. The fight pitted landlords against tenant-rights groups.
Newsom has yet to weigh in on the issue since taking office. But he is talking with the players involved.
“There are conversations that are happening as we speak around pursuing prospects of some rent caps,” Newsom said at a San Jose town hall on housing in January. “We’re working with some of the biggest developers in the state and the biggest advocates — both the Apartment Association, the Realtors and others — to pursue what we perceive — or rather, we refer to — as a compromise around Proposition 10.”
They spent their childhood on both sides of the Mexican border, on both sides of U.S. immigration laws. Dad was a factory worker, mom a housekeeper. The family spoke little English.
In high school, in the 1980s, when Blanca and Susan Rubio expressed interest in college, a high school counselor suggested they look instead at home-economics classes to get ready for marriage and children.
The Rubio sisters did not grow up imagining careers in elected office.
“I used to believe you could only be in politics if you were related to a Kennedy,” Susan Rubio said recently.
What a difference education, persistence and a lot of teamwork can make.
When Susan Rubio, a Democrat, defeated a more established Democrat in last November’s election for a state Senate seat representing the San Gabriel Valley, she and second-term Assemblywoman Blanca Rubio, also a Democrat, became the first sisters to serve together in the California Legislature.
It might take a while before the Rubios are thought of as a political family on the level of the Kennedys, or the Bushes, Browns, Hahns or Sánchezes. But one political analyst is already calling the Rubio sisters two of the 25 most powerful political figures in the region — emphasis on two.
“Those are two of the new power brokers in L.A. County,” said Alan Clayton, a Democratic redistricting expert who has worked to elect Latino candidates but wasn’t involved in the Rubios’ campaigns. “Because they’re a duo.”
Clayton noted that either of the Rubios could be well-positioned to run for the 32nd Congressional District seat if Rep. Grace Napolitano, D-El Monte, who’s 82, were to retire.
Blanca embraces the idea that they can be a potent team.
“We are going to be a force to be reckoned with,” she says. “I’m tenacious and Susan’s tenacious. Can you imagine us together?”
Blanca Rubio, 49, and Susan Rubio, 48, both born in Juarez, Mexico, attribute their political success mostly to hard work.
“We knew we weren’t the anointed ones,” Blanca said. “We knew we had to work harder.”
While Blanca, D-Baldwin Park, ran unopposed in last year’s race for the 48th Assembly District, she walked precincts to help Susan, D-Baldwin Park, defeat Mike Eng for the 22nd Senate District. Blanca says she lost 35 pounds in the effort.
Susan’s 4.6 point victory was a surprise to most observers, even in a district where more than half the population is Latino. Eng, a former Monterey Park mayor and six-year state assemblyman who is the husband of U.S. Rep. Judy Chu, D-Pasadena, had the support of the California Democratic Party, many of the area’s top Democratic elected officials, and labor unions.
But Susan Rubio made the fundraising race competitive by drawing donations from business groups that saw her as their best option in an election without a Republican contender. Her top 10 campaign contributors, according to Votesmart.org, included oil, realty, construction, trucking and pharmaceutical concerns.
“It gives me a lot of optimism,” said Covina Mayor Walter Allen III, a Republican. Though Allen supported Eng, he views the campaign as an indication that his new senator will be friendly to local business interests.
Susan Rubio’s personal story helped her in an election year clouded by the sexual misconduct charges that forced three L.A. County Democrats to resign from the state Legislature. In divorce proceedings in 2016, she received a three-year restraining order against then-Assemblyman Roger Hernandez of West Covina, whom she said had assaulted and attacked her during their marriage. Susan Rubio’s biggest campaign contributions from political organizations came from the L.A.-based Women’s Political Committee and Sacramento-based Women in Power.
Her victory was one of four by Latinas in the state Senate, which started the year with zero Latina members.
Now, she wants to act on her experience with domestic violence by developing legislation to make lessons about healthy relationships part of the middle-school curriculum.
It’s one of the issues on which the sisters can team up: Blanca Rubio is chairwoman of the Assembly’s Select Committee on Domestic Violence.
The sisters say they want young immigrants to see them as the kinds of role models they lacked as kids.
In a story familiar to many immigrants, the Rubios didn’t know they were in the United States illegally. Their father, Sabino, had been in the Bracero program, working on bridges along the Texas-Mexico border, and the family stayed in the United States after the program ended.
Then came a day when Blanca, then 5, and Susan, 4, were enjoying a traveling carnival in Winnie, Texas, about 60 miles east of Houston. Their parents, Sabino and Estela, were confronted by immigration agents demanding papers.
Susan Rubio got emotional last week when she recalled her parents’ “look of fear (about) not being able to protect their children.”
“The feeling of knowing that you will have to go back to a country that doesn’t provide much opportunity… and possibly not being able to feed your kids, is heartbreaking,” said their mother, Estela Rubio said, in response to emailed questions.
The Rubio family returned to Juarez before moving back to the U.S. legally, using papers available to the family because younger sister Sylvia Rubio had been born in El Paso. Choosing California because the state was more friendly to immigrants, they settled in the late 1970s in the Pico-Union neighborhood of Los Angeles.
The four — later five — children had to overcome low expectations.
Susan and Blanca, who became citizens in 1994, earned master’s degrees in education at Azusa Pacific University. They say Robert’s setback was motivation for them to become teachers.
As a teacher, Blanca said, she said she often lectured students and parents who thought being immigrants prevented them from succeeding.
“I was just like you,” Blanca Rubio said she told them. “My parents didn’t have any money. We were undocumented. But I learned early on that education was the key. If you left your country for a better opportunity, demand more of your kids.
“Other families can say, ‘If they (the Rubios) can do it, we can do it too.”
Their experience informs her view of border politics.
“I believe the United States is the greatest country in the world, where someone like me can have a seat — and now my sister can have a seat — and be two of the 120 people in the state who do what we do,” Blanca Rubio said.
At last month’s ceremonial swearing-in for Susan Rubio, attended by a few hundred district residents and local public officials at San Gabriel Mission Playhouse, Blanca Rubio joked that her sister is always one-upping her: After Blanca Rubio was elected to the school board, Susan Rubio ran for citywide office and became Baldwin Park city clerk and then a city councilwoman. And after Blanca won an open seat in the Assembly, in 2016, Susan set her sights on the state Legislature’s upper house.
It’s not one-upmanship, Susan says. Instead, it’s the result of Blanca “always encouraging me to reach higher.”
Pacific Gas & Electric, the California utility that faces billions of dollars in wildfire damages, hopes to use its bankruptcy to reduce its liabilities and emerge a more stable company.
But the company’s management and board of directors might not have all that much control over the outcome.
Before a bankruptcy judge has even had a chance to delve into PG&E’s financial problems, investors, lawmakers, regulators and customers are trying to exert authority over the utility and shape its future.
BlueMountain Capital, a New York investment firm that owns PG&E stock, said on Wednesday that it had recruited 13 people to replace the company’s directors, though it did not name them. The move came days after PG&E’s board said it was also seeking to replace at least half of its current group of 10 members.
Creditors and wildfire victims are forming committees in bankruptcy court to make sure the utility pays them what they are owed. Companies that sell power to PG&E are requesting that federal regulators intervene in the bankruptcy to make sure the utility is not able to renegotiate its contracts with suppliers.
In a separate case, a sharp-tongued federal judge is insisting that PG&E eliminate the risk of its equipment igniting wildfires, a tall order for a company that has been blamed for starting more than a dozen major fires in the last two years.
And the California Public Utilities Commission is studying options that include breaking up PG&E, which serves 16 million people, or turning all or parts of it into a government-owned utility.
California’s elected leaders will also play a role. They have to decide how much to help PG&E and the state’s other two investor-owned utilities without being accused of bailing them out. In his first State of the State address on Tuesday, Gov. Gavin Newsom criticized PG&E while signaling that his administration was considering broader changes to the state’s energy system.
Legal experts say it could take years to resolve PG&E’s bankruptcy because it involves so many players with disparate interests seeking different outcomes.
“This is the most complicated and difficult decision environment I’ve ever seen for a bankruptcy case,” said Jared A. Ellias, a professor at the University of California’s Hastings College of the Law. “I can’t think of a bankruptcy that had this many powerful parties with unclear bargaining power.”
Investors seem to believe the company, even with all of its problems and liabilities, is still worth a lot of money — nearly $8 billion at Wednesday’s market close. They appear to be betting that California lawmakers will eventually set up a better approach for bearing the costs of more frequent wildfires.
PG&E’s stock surged on Tuesday after Mr. Newsom said he was open to changing the state’s current approach to paying for wildfire damage. “Regulations and insurance practices created decades ago didn’t anticipate these changes,” he said. “We must map out longer-term strategies, not just for the utilities’ future, but for California’s energy future.”
Under a provision of California’s Constitution referred to as inverse condemnation, utilities are liable for wildfires caused by their equipment even when the companies were not negligent in maintaining it. Partly as a result, PG&E has estimated that its wildfire liabilities could total more than $30 billion, much more than it says it can afford.
The California Legislature passed a bill last year that allows PG&E and other utilities to raise rates to pay for some of their wildfire liabilities. But the process can be subject to delays, and the law does not allow utilities to recoup the cost of 2018 wildfires, which could account for a large chunk of PG&E’s liabilities.
As a result, the judge overseeing the company’s bankruptcy, Judge Dennis Montali, may want to be assured that California’s politicians have come up with a better cost-sharing system before releasing the company from bankruptcy. The judge might conclude that without a change to state laws, the company could have to file for bankruptcy protection again in a few years.
“The judge can say, ‘I don’t have a confirmable plan of reorganization because you have provided nothing to account for the risk of future liability,’” said G. Marcus Cole, a bankruptcy expert and professor at Stanford Law School. “It’s totally within the judge’s discretion to make the determination.”
Judge William Alsup of Federal District Court in San Francisco is overseeing PG&E’s probation in a separate, criminal case that stems from a gas pipeline explosion in 2010 in San Bruno. He is pressuring the company to eliminate the risk that the utility’s equipment could start wildfires. PG&E has said complying with the judge’s proposal could cost up to $150 billion.
Last month Judge Alsup ripped into the company. “I feel a responsibility after two years of this to step in and do something about this if somebody else doesn’t,” he said.
PG&E filed a wildfire safety plan with the utilities commission last week. The company said it would spend up to $2.3 billion this year to reduce wildfires. Its plan calls for more tree trimming, equipment inspections and precautionary blackouts on dry and windy days.
The company’s board said it was looking for new directors with expertise in safety. BlueMountain said the same on Wednesday.
But shareholders may balk at a significant increase in spending on safety. After the San Bruno explosion, PG&E invested in improving safety practices and did not increase its dividend for six years. As a result, PG&E’s stock price stagnated, frustrating investors.
The California Supreme Court has some explaining to do.
Late last year, the city of Oakland put a new land parcel tax on the books, after 62 percent of voters turned out to boost funding for public education. Now a local business group is suing the city, arguing that the new tax needed two-thirds of the vote—just over 66 percent— to pass.
San Francisco faces a similar problem, only twice as big. The city recently began collecting two new taxes: a gross receipts levy on commercial landlords to fund childcare services, and a land parcel tax to increase teacher pay. Last June, each received 51 and 61 percent of the vote respectively. The city is being sued twice.
And then there’s Fresno. After 52 percent of voters there opted to increase the city’s sales tax to fund park improvements, city leaders decided to play it safe and do nothing, noting that 52 percent is clearly less than 66. A local nonprofit took them to court for not collecting the new tax.
Sued if you do, sued if you don’t. The reason for all this fiscal confusion: the state’s highest court.
“It creates havoc for public agencies, it creates all this strange uncertainty for taxpayers and everyone else involved,” said Michael Coleman, an advisor for the League of California Cities, which represents city governments in the Capitol. “This kind of thing fuels cynicism about government.”
The central question at issue is a simple one, or at least it ought to be: How many votes does it take in California for a new tax to become law?
Over the last four decades, California voters have passed a series of amendments to the state constitution, all designed to make it harder for governments to tax them and raise new revenue. Proposition 13 from 1978 is the mother of all these tax blockers, but voters and the courts have been going back and forth over the details ever since.
In 1996, voters passed Prop. 218, which clarified that any tax designated for a specific purpose—say, to fund affordable housing—needs two-thirds of the vote to pass. Since then it was widely assumed that this rule applied to all specific taxes—no matter how they find their way onto the ballot.
But a year and a half ago, the state’s Supreme Court threw that into question.
The short version of its ruling in California Cannabis Coalition v City of Upland goes something like this:
- 218 requires that any tax imposed by “local government” must be voted on during a regularly scheduled election.
- A cannabis industry trade group argued that that rule doesn’t apply to initiatives put on the ballot by petition of the local citizenry.
- The court agreed, ruling that a ballot measure initiated by organized citizens (in this case, organized pot shops) is not an act of “local government.”
That got the attention of interest groups and public agencies across the state. If citizen initiatives aren’t acts of “local government” when it comes to the timing of an election, does that mean they aren’t subject to Prop. 218’s other rules—namely, that tax measures need two-thirds of the vote to pass? Did the ruling rip a “huge hole in Prop 13 and 218,” as some initially suggested?
The state Supreme Court didn’t say. And when lawyers involved in the Upland case asked for clarification, the justices turned them down.
But the court surely recognized the implication of its ruling, said attorney Kelly Salt, a Prop. 218 expert. Justice Leondra Kruger even warned in her dissent “that the decision would inevitably extend to the voter-approval requirement,” said Salt. “The logic carries over.”
For many legal analysts, the eventual outcome seems clear.
“Is there any reasonable way to interpret the tax provision differently than the vote-timing provision?” said Darien Shanske, a law professor at UC Davis. “I would be surprised if any justice thought that there really is much reason to read them differently.”
Low-tax advocates and business groups are arguing otherwise, noting that the Supreme Court was not clear on the issue and that, anyway, Prop. 13 also specifies a two-thirds vote for special taxes.
“You need a two-thirds vote if the voters put it on (the ballot), if the city put it on, or if anybody else put it on.” said Greg McConnell, CEO of the Jobs and Housing Coalition, the group representing Bay Area business interests that is suing Oakland. He added that in the lead-up to the election, even Oakland voter information pamphlet specified that a two-thirds vote was required to pass the tax.
Cities now in legal limbo may have years to wait. San Francisco is collecting those two new taxes, but that money won’t be going to social services or teacher salaries—not yet anyway. It will be parked into “segregated, interest-earning accounts until that litigation risk is cleared,” said a statement from the city’s controller’s office.
“These cases tend to be litigated fairly quickly,” said Michael Colantuono, a lawyer who has represented the League of California Cities. What’s quickly? Probably at least “12 to 18 months,” he said.
San Francisco is trying to speed the process. After the Howard Jarvis Taxpayers Association sued the city for collecting its universal child care tax, the city attorney went out and tried to get itself sued again for enacting the teacher salary measure—even running a solicitation in the San Francisco Chronicle.
A record 7 million Americans are 90 days or more behind on their auto loan payments, the Federal Reserve Bank of New York reported Tuesday, even more than in the wake of the financial crisis era.
This is a red flag, economists warn. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills.
“The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market,” economists at the New York Fed wrote in a blog post.
A car loan is typically the first payment people make because a vehicle is crucial to getting to work, and if all else fails, a person can live in a car. When car loan delinquencies rise, it is a sign of significant duress among low-income and working-class Americans.
“Your car loan is your No. 1 priority in terms of payment,” said Michael Taiano, a senior director at Fitch Ratings. “If you don’t have a car, you can’t get back and forth to work in a lot of areas of the country. A car is usually a higher-priority payment than a home mortgage or rent.”
People who are three months or more behind on their car payments often lose their vehicle, making it even more difficult to get to work, the doctor’s office or other important places.
The New York Fed said there were more than a million more “troubled borrowers” at the end of 2018 than there were in 2010, when unemployment hit 10% and the auto loan delinquency rate peaked. Today, unemployment is 4% and many more Americans have jobs, yet a significant number of people cannot pay their car loan.
Most of the people behind on their bills have low credit scores and are under age 30, suggesting young people are struggling to simultaneously pay their car loans and their student loans.
Auto loans surged in the last several years as car sales kept growing year after year, hitting a record high in 2016 of 17.5 million vehicles sold in the United States. Overall, many borrowers have strong credit scores and repay their loans, but the auto industry has suffered from high defaults among “subprime” borrowers, who have credit scores under 620 on an 800-point scale.
The share of auto-loan borrowers who were three months behind on their payments peaked at 5.3% in late 2010. The share is slightly lower now — 4.5% — because the total number of borrowers has risen so much in the past several years.
Still, economists are concerned that the rate has been climbing steadily since 2016, even though unemployment fell to its lowest level in almost half a century, and the number of people affected is far greater now.
Experts warn Americans to be careful where they get an auto loan. Traditional banks and credit unions have much smaller default rates than “auto finance” companies such as the “buy here, pay here” places on some car lots.
Less than 1% of auto loans issued by credit unions are 90 days or more late, compared with 6.5% of loans issued by auto finance companies.
“The No. 1 piece of advice I have is to not get your financing from a car dealership,” said Christopher Peterson, law professor at the University of Utah and former special advisor to the Consumer Financial Protection Bureau. “Shop separately for the vehicle and the financing. Go to a credit union or community bank to get a low-cost loan.”
Rates can vary substantially depending on a borrower’s credit score and where they obtain a loan. A “prime” borrower, with a credit score in the range of 661 to 780, can get an auto loan rate of about 4.5% to 6%, according to NerdWallet. In contrast, a subprime borrower is typically looking at rates of about 14.5% to 20%.
After the 2008-09 financial crisis, there were a lot of restrictions placed on mortgages to make it harder to take out a home loan unless the borrower could clearly afford to make the monthly payments. But experts warn there are far fewer restrictions on auto loans, meaning consumers have to be more savvy.
“Predatory lending practices and a lack of real transportation options leave many households trapped in debt with few ways out,” said Faye Park, president of the liberal U.S. Public Interest Research Group.
Repossessing a car is also a quicker process than foreclosing on a home, thanks to technology and the laws in many states. There are devices installed in some cars that prevent the vehicle from turning on if a payment is missed. It has also become easier to track license plates and geolocate a car to repossess it.
While defaults on auto loans are a red flag, they are unlikely to take down the entire financial system the way mortgages did in the lead-up to the recent financial crisis. The total auto loan market is just over $1 trillion, far smaller than the $9-trillion home mortgage market.
The amount of money people borrow to buy a car is also much smaller — typically less than $35,000. People taking out a home loan often borrow several hundred thousand dollars.
Succulents—drought-friendly, fireproof, angular, Zen—long ago attained the status of design cliché, a living version of the shag rug, Heath mug, Eames chair. But now a particular species, Dudleya farinosa (stage name: Powdery Liveforever), a wild roseate plant with silvery, pink-tipped leaves and a spectacular yellow-flowered stalk, which thrives on California’s coastal bluffs, has become the It Plant for succulent thieves. Last week, in Monterey County, two Dudleyapoachers, a married couple, pleaded no contest to charges including felony grand theft and felony vandalism related to their removal of more than eighteen hundred plants from Garrapata State Park, in Big Sur. It was the fourth successful Dudleya prosecution in California in a little more than a year.
“I’d call it a poaching trend,” Captain Patrick Foy, of the California Department of Fish and Wildlife, told me. The thefts, he said, are driven by emerging demand for Dudleya of all kinds in Asia, where a mature plant can command a price of as much as a hundred dollars. “There are people who book a flight from Korea or China, and they literally fly in, rent a car, stop by a moving store to buy huge numbers of boxes, and then drive up the coast.” Various species of Dudleya are found from Oregon to Mexico. “They harvest the plants, process everything in a hotel room, oftentimes, and ship them back to nurseries in Korea and China,” he said. According to the Guardian, “In Korea, raising succulents is considered an ‘addiction’ popular among housewives, students and others with small living spaces. Korean articles refer to the trend as ‘succulent fever’ and quote wives telling husbands who complain about oversized collections not to worry because ‘I will take all of my succulent plants with me when I leave you.’ ”
The problem came to light in late 2017, when a tipster in Mendocino County, thinking that she’d discovered an abalone poacher, called C.D.F.W. and inadvertently exposed a Dudleya-smuggler. Since then, Dudleya investigations have begun to consume California’s park wardens. In 2018, the California Fish and Game Commission named Adrian Kamada, a deputy district attorney in Humboldt County, its Prosecutor of the Year after he secured felony convictions for two Korean men and one Chinese man who stole twenty-three hundred Dudleya. (Their scheme began to unravel when local postal workers noticed soil spilling from packages bound for Asia.) Foy, who used to investigate illegal marijuana cultivation, told me that unlike drug dealers, who operate within large and highly stratified distribution systems, plant thieves often work as free agents. “With Dudleya, because an individual is able to do so much harvesting—and consequently so much damage—they don’t need a large network of middlemen,” he said. Up and down the coast, game wardens are on high alert for the telltale signs of poachers. “They’re staking out parking lots, looking for a car that’s out of place, or a person standing on the edge of a cliff,” Foy said. “If a person’s coming up the cliff and they’re dirty—like they’ve literally been digging in dirt—their backpack is full, and they’re throwing it in the back of their rental car. If they’re dropping people off, using lookouts, if they’re out at night, with ropes. Wildlife officers are very in tune with how to catch them.”
Debra Lee Baldwin, a garden photojournalist based in San Diego who for decades was a scout for Sunset magazine, bears some responsibility for the mainstream popularity of succulents. “I probably launched the whole movement,” she told me.
In the early days, she said, “I had to do what I call drive-by shootings. I would go down streets in high-end neighborhoods with my camera and shoot succulents out the window. They were so hard to find.” No longer. Baldwin’s book, “Designing with Succulents,” from 2007, was the top-selling garden book on Amazon for nineteen weeks; the second edition came out last year. “What attracted the gardening public to succulents in the first place was largely the Echeverias, because they looked like roses, floral and symmetrical, and they’re not spiny or treacherous,” she said. “In a pot, they give you the look of floral arrangement, and they combine beautifully with flowers. Brides just launched this into the stratosphere.”
Dudleya are the wild cousins of the Echeveria. “These are very beautiful plants when they’re in full, plump, post-rain glory,” Baldwin said. “They look like a lotus, and some are this incredible white-silver, from the powdery coating on their leaves—the ‘farina,’ or pulverulence—that is a protective mechanism for the sun. You really shouldn’t touch ’em, ’cause you’ll leave a fingerprint that never goes away. It’s like touching a butterfly.” They are picky about their habitat, accustomed to hanging from cliffs, and spending much of the year parched. In the summer, she said, when Dudleya look peaked, “Nurturing garden types think, Ooh, needs water.” Don’t, unless you want a rotten plant; Dudleya drink only in winter.
In nature, the mother plants use gravity to send their long stems downslope. As the stems wither, they remain attached to the mother, like umbilical cords, while the daughter plants nestle in rock niches far enough away not to compete with the mother for nutrients. “Just try to replicate that in your garden!” Baldwin said. “Dudleya can live in these very challenging conditions, and they want these challenging conditions. If you want to grow a Dudleya in a pot, you have to turn a pot on its side. When they start to look crappy, I look the other way. It’s sort of like a wild animal. You can tame it, you can have it in your home and enjoy it, but it’s never going to be as happy and integrated in your life as a pet.”
Enforcement is one way to combat smugglers, and the punishments doled out by California so far have been severe: tens of thousands of dollars in fines, visa revocation, jail time. Another way to fight smuggling is to destroy the market. That is the ambition of Kelly Griffin, a Dudleya specialist who works for Altman Plants, a nursery based in Southern California that is the country’s leading supplier of succulents. (They sell to Home Depot, Costco, and Lowe’s.) “I see myself as Johnny Cactuseed,” Griffin told me. “I’m the person that spreads cactus and succulents everywhere.” Griffin travels the world legally collecting plant material—pollen, seeds, and samples—from which he makes hybrid crosses and tissue-cultured clones, plants that people can enjoy without destroying sensitive habitats.
He also stalks the Internet. A few years ago, he noticed rare and, he suspected, ill-gotten agaves being sold for thousands of dollars apiece on eBay. So he cloned thousands of them for nurseries where they sold for five dollars each. “I intentionally killed the market,” he said. “Being an activist, you can say, ‘That looks like a collected plant, and you shouldn’t be selling collected plants.’ ”
Griffin is working on Dudleya crosses now—hearty, cheap, plentifully available, domesticated varieties that he hopes will undermine the theft of the wild, rare, and irreplaceable native plants. The troubling irony of poaching these plants is that they only Liveforever in their natural habitats; plundered Dudleya are unlikely to survive the humid, hot environments where the thieves are sending them. “They’re being sold into a cycle of death,” Griffin said. “To take the plants is about as terrible a thing as you can do to an environment. When you take the mother plant, that DNA goes away from that environment forever.”