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IN THIS ISSUE – “A Strong Warning for the Governor”
RECALL GETS REAL…
- Two New Polls = Sobering News for Newsom
- “Unlikely to Unavoidable” – Governor’s Recall Accelerates
- Former SD Mayor Faulconer Runs to Replace Newsom
…PUBLIC POLICY & POLITICS CONTINUE
- Environmentalists Rising in DC & Sacramento
- State Attorney General Candidates Line Up, Pending Becerra Confirmation
- CA Business Leaders: 5 Ways Sacramento Can Stop the Exodus
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. 5, 2021
Two New Polls = Sobering News for Newsom
UC Berkeley Institute for Government Studies
Public Policy Institute of California
Gov. Gavin Newsom’s approval rating has fallen from record-high levels notched earlier in the pandemic, according to two polls released Tuesday — potentially fueling the campaign to recall him from office.
Around 54% of Californians approve of Newsom’s job performance, down from a record 65% in June, according to a survey from the Public Policy Institute of California. But only 46% of registered voters surveyed by UC Berkeley’s Institute of Governmental Studies approve of Newsom’s performance, a steep drop from the 64% who did in September.
Participants in both surveys gave Newsom especially low marks for vaccine distribution — an indication that improving the state’s sluggish and chaotic rollout may be key to fending off the recall. Just 29% of Californians surveyed by PPIC said the state is doing a good job distributing the vaccine, compared to 22% of participants in the IGS poll. A majority of IGS respondents also criticized Newsom’s coronavirus regulations, with 62% describing them as inconsistent, 60% confusing and 53% ineffective. Around 45% opposed recalling Newsom, while 36% supported it and 19% were undecided.
Mark DiCamillo, director of the IGS poll: “Once your job performance rating starts to decline, it’s more difficult to put it back in the right direction. You kind of accumulate negatives over time.”
“These results should provide a strong warning to the Governor,” said Eric Schickler, co-director of the Institute of Governmental Studies. “If the recall election does go forward, the state’s response to the pandemic needs to be seen as more successful for the governor than it is now for him to be confident of the election outcome.”
IGS:
Fueling the decline, researchers said, is the public’s much more negative assessment of the way Newsom and the state government are handling the pandemic. Here are more telling statistics from the IGS survey:
- 31% rate Newsom as doing an excellent or good job handing the pandemic overall, down from 49% in September.
- 22% gave a positive rating of Newsom and state government in distributing coronavirus vaccines.
- 47% say they have a great deal or some trust in the way the governor and state government are setting the rules when issuing stay-at-home orders or setting guidelines for business to follow to slow the spread of the virus.
- 62% viewed the governor’s coronavirus guidelines as inconsistent, while 60% said they were confusing and 53% said they were ineffective.
- 45% rated Newsom’s handling of jobs and the economy as poor, up from 31% in September.
https://escholarship.org/uc/item/1tj8q5rb
PPIC:
Still, Newsom’s approval rating remains higher than it did pre-pandemic. Around 51% of Californians approved of the governor’s job performance in January 2020, and just 44% did in January 2019, according to PPIC.
Mark Baldassare, president and CEO of PPIC: “Compared to where the governor was when we did our poll a year ago or two years ago … we come to the conclusion … this isn’t a sky is falling scenario here. Yet.”
Key findings from PPIC:
- A majority (54% adults, 52% likely voters) approve of how Newsom is handling his job. Last January, before the pandemic, 51 percent of adults and 49 percent of likely voters approved. Peak approval was last May (65% adults, 64% likely voters). Views of Newsom’s performance are split along party lines, with Democrats (71%) far more likely to approve than independents (46%) and Republicans (16%).
- “A majority approve of the job that Gavin Newsom is doing as governor, while opinions about him remain deeply divided between Democratic and Republican voters,” said Mark Baldassare, PPIC president and CEO.
- Overwhelming majorities (72% adults, 73% likely voters) say the state is in an economic recession, and about one-third (32% adults, 35% likely voters) of Californians believe the state is in a serious recession. Similar shares said the state was in a serious recession last September (31% adults, 34% likely voters) and May (34% adults, 38% likely voters). Across regions, Inland Empire residents (40%) are the most likely to say the state is in a serious recession (34% Los Angeles, 30% Orange/San Diego, 30% San Francisco Bay Area, 27% Central Valley). Among racial/ethnic groups, whites (38%) and African Americans (36%) are more likely to say this is a serious recession than Latinos (27%) and Asian Americans (23%).
“Unlikely to Unavoidable” – Governor’s Recall Accelerates
Politico
The campaign to oust Newsom went from unlikely to unavoidable this week as pervasive frustration with Newsom’s pandemic management cut sharply into his approval numbers. The longer businesses have been closed, hospitals full and school campuses shut, the more the movement has gained traction beyond conservative social media circles.
The nation’s biggest Democratic vulnerability after a score of blue victories has become an irresistible nightly feature on Fox News. Should the effort qualify, look for money to pour into the state and celebrities to add their names to the ballot, if only for the promotional benefits.
Newsom still deflects questions about the opposition effort by saying he is singularly focused on vaccinating Californians and reducing Covid-19 spread. He has adamantly denied that his abrupt decision to reverse stay-at-home orders last month was an attempt to quell voter frustration. And he seems determined to avoid legitimizing the effort by acknowledging it.
But California Democrats and their political backers are bracing for a campaign nevertheless as recall organizers turn in hundreds of thousands of signatures. State lawmakers are proclaiming their support for Newsom, seeking to tamp down any signs of disunity. Interest groups and donors who would be called upon to fund a recall defense are quietly ramping up, with one union launching the first public counteroffensive.
“Are we getting prepared to oppose it? Of course,” said Joe Cotchett, a longtime ally and donor to Newsom.
Nearly 18 years ago, California’s only gubernatorial recall drew 135 candidates, including several B-list celebrities and one A-lister: Arnold Schwarzenegger, who swept into office on a Republican promise to clean up state government. With just two statewide elections in the U.S. this year — governors races in Virginia and New Jersey — another California recall would likely become the biggest political event of 2021.
Getting the recall onto the ballot is the first lift; voters would then have to decide in a special election whether to recall Newsom and simultaneously which candidate they would prefer instead.
The recall could still fail to qualify. The deadline to certify is March 17, and the campaign is still operating on a shoestring budget by statewide campaign standards, relying on volunteers and some paid mail to collect the 1.5 million valid signatures they need. Proponents claim they have 1.3 million total signatures, still a ways off the nearly 2 million they will likely need to compensate for invalid signatories.
Still, the campaign had a surprisingly high rate of valid signatures in the last statewide report through early January, hovering around 85 percent. California county registrars have verified about 600,000 signatures so far.
“This public report does show a very high validity rate but their ultimate success relies on a few things: what happens to their response rate and what happens to their validity rates as they need to broaden their audiences out past just the hardest-core anti-Newsom audiences?” said Ned Wigglesworth, a consultant who is not affiliated with the campaign. “This huge flag is, as they work their way through the voter file, have they gotten this low-hanging fruit?”
Some supporters are not waiting around to see. The National Union of Healthcare Workers has launched an effort to dissuade people from signing onto the recall, including testimonials from hospital workers about how a Newsom recall would undercut them, after “it became clear it might qualify and people wanted to do something about it,” union president Sal Rosselli said.
“We can’t risk opening the door to some new administration that would be far less prepared to get people vaccinated and far less committed to protecting health care,” Rosselli said, adding that he had spoken with other labor leaders and hoped to win over “some friends that could make some significant contributions.”
As allies rally to Newsom’s defense, they will likely remind voters in this overwhelmingly Democratic state that the recall was launched by conservatives and Republicans who supported President Donald Trump — and that the top two GOP challengers backed the president who was deeply unpopular in the state. However, even in California, they can’t overreach in their defense of Newsom; state Democratic Party chair Rusty Hicks was roundly criticized last month when he declared the legal recall effort a “coup,” trying to draw a parallel between the signature drive and the U.S. Capitol siege.
Unlike a normal gubernatorial race, recalls do not limit campaign contributions. That means Newsom could draw on the full financial might of his supporters, including the state’s powerful organized labor movement. California Labor Federation spokesperson Steve Smith said labor leaders were discussing contingency plans to protect a “Democratic governor who’s done a lot of good things for workers.”
“It may not qualify, but we’re always going to be thinking ahead,” Smith said, and while he said groups had not specifically discussed financing, “obviously any campaign you’re talking about a resource allocation.”
But an effort to marshal that support could run into lingering tensions with labor officials who still seethe over what they see as Newsom’s uneven record, including vetoing a job security bill and lending a sympathetic ear to gig companies like Uber in a showdown over worker classification. A union official told the Los Angeles Times that Newsom was “putting us out to die” after shuffling essential food workers out of a top vaccine tier.
Teachers unions, an indispensable political force for California Democrats, are also pushing back on Newsom’s efforts to reopen schools. After the governor said union demands would effectively mean classrooms remain empty, the California Teachers Association retorted that their insistence on vaccines as a prerequisite was “neither a new nor unreasonable notion.”
Some Black women remain angry with Newsom for not appointing a Black woman to replace Vice President Kamala Harris, whose departure from the Senate means the chamber has no African American women. “Newsom and the Party better hope that Black women don’t decide to teach them both a lesson and either sign on to the recall or sit it out should it make it to the ballot,” Jasmyne Cannick, a Los Angeles-based political strategist and Democratic Party delegate, said in an email.
And the governor’s effort to build a united front of elected Democrats has run into the same coronavirus turbulence driving the recall effort. Late last year, Newsom called state legislators to ensure they had his back. Several elected officials joined a January press conference organized in part by Newsom’s team that denounced the recall as a project of the right-wing fringe. But numerous Democratic lawmakers publicly assailed Newsom’s reopening decision last week, saying they had been blindsided and questioning the rationale.
Yet some of those lawmakers moved to swiftly temper their criticisms, signaling that they see party unity superseding their grievances with the governor. After tweeting out her frustration, Assemblymember Laura Friedman (D-Los Angeles) followed up by emphasizing she backs Newsom and opposes the recall, telling POLITICO in a text message that she was “dismayed that people seem to think that my comments were some kind of indictment of the governor or his work.”
“I think the Democratic Party will continue to be very supportive of him,” said state Sen. Steve Glazer, who has been more vocal than many Democrats in questioning Newsom’s coronavirus decisions as not going far enough to protect residents. “No one in the Democratic Party will be happy with any of the current Republican candidates in his place.”
In addition to those Republican candidates — a list that so far includes former San Diego Mayor Kevin Faulconer and Newsom’s 2018 opponent, businessperson John Cox — the free-for-all of a recall raises the threat of a viable Democrat jumping in to challenge Newsom if he is perceived as vulnerable. That is what happened in 2003, when Democratic Lt. Gov. Cruz Bustamante presented himself as an alternative to Gov. Gray Davis. The gambit by Bustamante failed, and his political career crumbled — a lesson not lost on the current crop of California Democrats.
“I can’t imagine an institutional Democrat” who is contemplating jumping in “doesn’t look at what happened in the last recall, specifically to the then-lieutenant governor — not just in his loss but the total destruction of a career,” said Assemblymember Lorena Gonzalez (D-San Diego), who worked for Bustamante, adding that “I don’t know a single Democratic legislator” who thinks “it’s a good idea to recall the governor.”
Newsom’s team will soon know if he will face the melee of a recall. But some political operatives believe the governor no longer has the luxury of waiting and seeing.
“I do think at some point he needs to open a recall committee,” said Democratic consultant Andrew Acosta, “start taking this s— seriously, and start going to war.”
Former SD Mayor Faulconer Runs to Replace Newsom
Politico
With the Gov. Gavin Newsom recall movement gaining intensity in California, Republican Kevin Faulconer on Monday said he will become the first major elected official to officially launch a gubernatorial campaign to challenge the Democratic leader.
Faulconer, who was San Diego mayor for more than six years, told POLITICO in an interview Monday he will run in the recall election should the drive qualify by the mid-March deadline. He will formally announce his campaign Tuesday at a Los Angeles campaign event with parents frustrated by school closures.
“It’s time for the California comeback,” Faulconer said. “And I’m excited to be a voice for Californians who are suffering because Sacramento can’t do the basics. This campaign is going to be about restoring balance and common sense to our government.”
As a moderate Republican who ran California’s second largest city, Faulconer is regularly viewed as the most viable Republican for statewide office in solidly blue California. But any GOP candidate would face an uphill climb against Newsom — who won in a landslide in 2018 in a state where Democrats outnumber Republicans in voter registration by an overwhelming 46 percent to 24 percent.
Faulconer, 54, said he has already raised $1 million in the weeks since he launched his 2022 exploratory campaign for governor. He said that his robust fundraising and support has prompted him to launch earlier than he initially intended as proponents of the recall get closer to collecting the 1.5 million valid signatures they need over the next six weeks.
Few would have given Faulconer a chance a year ago. But recall dynamics defy partisan registrations, as former Republican Gov. Arnold Schwarzenegger proved in 2003 when he came out atop the list of 135 candidates as voters ousted then-Gov. Gray Davis, a Democrat.
Meanwhile, Californians have grown frustrated as they approach the anniversary of when Newsom first ordered businesses closed to control the spread of coronavirus. While the governor was once praised for his success in locking down the state and avoiding widespread problems last spring, California has since endured unprecedented surges that raised the death toll past 40,000 in the state.
At the same time, most public schoolchildren have not been in classrooms since last March, while churches in most counties cannot hold indoor services. Restaurants cannot offer indoor dining and movie theaters and major attractions are shut. Newsom angered some residents when he admitted to having attended a fancy dinner party in the Napa Valley in November after urging Californians not to congregate.
Newsom’s perceived vulnerability has drawn interest from other political competitors. Republican businessperson John Cox, who lost to Newsom in 2018, texted supporters this week that he has put in $1 million toward the effort and has proclaimed he will run in the recall. And tech billionaire Chamath Palihapitiya has indicated to his million Twitter followers that he intends to run — though he has not to date contributed money toward the recall or made any formal moves indicating he is serious. Palihapitiya has been a Democratic donor in the past.
Faulconer said the fire behind the current recall effort comes because “there’s a real sense of urgency on the need for change” in the midst of a pandemic in which “the governor continues to botch the basics.”
He pointed to “the fact that … our public schools have not been safely reopened. And yet private schools are open and public schools across the country have safely reopened.” Faulconer said Newsom has failed to reach out to teachers unions and address the issue with specifics in a way that serves the needs of California parents.
Faulconer also charged that on the issue of unemployment, “we have hundreds of thousands of Californians who can’t get unemployment relief. And yet we’ve racked up $31 billion worth of fraud,” he said, that reportedly has been funneled to inmates and criminal rings through the the state’s Employment Development Department.
A businessperson, Faulconer said the exodus of top tech executives to Texas and other states has also been a chief failure of Newsom and that he would immediately get out the message that “California is open for business,” by holding direct discussions with business leaders to assure them that the state will not continue to “take California companies for granted.”
Major donors to Faulconer so far include Palos Verdes real estate mogul Gerald Marcil; investor Shawn Shiralian; Kelly Burt, the past chair of the New Majority, San Diego; Rancho Santa Fe builder Douglas Barnhart; and Sacramento real estate executive Philip Oates, according to data on file with the California Secretary of State’s office.
But Faulconer has a serious liability in the form of former President Donald Trump, who was deeply unpopular among California voters even before the deadly Capitol siege last month. Faulconer supported Trump in the last election, and Democrats will be sure to circulate a 2019 Oval Office photo of the former San Diego mayor standing next to the former president. A Faulconer spokesperson soon after that meeting tried to refute Trump’s claim that Faulconer had thanked the president for having built the border wall.
Dan Newman, a political spokesperson for Newsom, dismissed Faulconer’s bid and said “he and all the other GOP Trump supporters” will battle each other while Newsom focuses on vaccine distribution and coronavirus recovery.
“It’s appropriate that he picked Groundhog Day to announce once again that he’s running,” Newman said of Faulconer. “He just keeps doing this at the start of each month, waiting vainly for people to pay attention.”
Faulconer on Monday repeatedly aimed to seize the mantle of bipartisanship — and resolutely sidestepped questions about some of the more incendiary issues facing his party, including the future of President Trump as a candidate, his impending impeachment trial and the whether the party’s leadership should remain loyal to him.
“I’m not focused on President Trump … he’s no longer president,” he said. “I think people are concerned about leadership, and not partisanship,” he said, arguing that “I was proud of … the fact that I won mayor twice in a majority Democrats city. I think that speaks volumes about my approach — and my ability to get results.”
Environmentalists Rising in DC & Sacramento
LA Times
WASHINGTON — When Joe Biden last month was mulling over whom to name as his Interior secretary, entrusted with hundreds of millions of acres of public land, a network of nascent environmental groups eager for clout made a move that defied the usual Washington playbook.
They launched a campaign to publicly shame the person believed to be at the top of the president-elect’s shortlist — retiring New Mexico Sen. Tom Udall, a longtime Biden friend and former aide whose father held the post in John F. Kennedy’s Cabinet.
“It would not be right for two Udalls to lead the Interior before a single Native American,” they wrote in a public letter to Udall.
Soon after, Udall was passed over in favor of another New Mexico Democrat less familiar to Biden: Rep. Debra Haaland, who, if confirmed, would be the first Native American to run a Cabinet level agency.
Similarly, California air quality regulator Mary Nichols, the perceived front-runner to lead the Environmental Protection Agency, was derailed — much to the dismay of some big, old-line environmental groups — by opposition led by local activists from California.
As Democrats have taken power in the White House and Congress, long-simmering tensions within the environmental movement are coming to the forefront, leaving established leaders pushed aside by activists who see them as too white, cautious and out of touch with the effects of industrial pollution on communities of color.
“It used to be that these mostly white, mainstream environmental groups would be in those rooms, making the decisions and then call us to say what was decided,” said Robert Bullard, an author and co-chair of the Black Environmental Justice Network, known to some as the father of environmental justice. “We said, ‘Never again. We are not going to leave it to other folks to speak for us.’”
“The tension has been there for a long time,” said Ramón Cruz, who last year was elected the first Latino president of the 128-year-old Sierra Club. “Organizations like ours have done harm in the past. We have supported policies seen by many environmental justice groups as displacing pollution into what we see now were ‘sacrifice zones.’ That is no more.”
The realignment creates both political opportunities and risks for the new administration. Biden benefited from the more liberal groups’ organizing power and resonance with young and nonwhite voters to win election.
And yet, though he delighted the groups with his Cabinet picks, delivering on their policy expectations could prove fraught, given Democrats’ tight majorities in the Senate and House. Biden will be beholden to centrists including West Virginia Sen. Joe Manchin, an ally of fossil fuel companies. The last time a Democratic Congress considered a major climate bill, in 2010, the coal-state senator made a political ad in which he fired a bullet through a copy of the legislation.
“The environmental justice groups this election did the grass-roots work of mobilizing voters and getting their agenda recognized by the Democratic Party for the first time in history,” said Phaedra Pezzullo, a scholar of the movement at the University of Colorado. “Now they are going to be assessing whether it made a difference.”
This moment has been long in coming. Backlash against the environmental establishment first erupted in 1990, when dozens of grass-roots groups sent a letter to 10 of the nation’s largest conservation organizations accusing them of racism and of ignoring pollution in communities of color. Along with the Sierra Club, groups targeted in the letter included the Environmental Defense Fund, the Natural Resources Defense Council and the National Audubon Society.
“Some of those organizations responded by saying ‘We can do better,’” said Ozawa Bineshi Albert, an organizer at the Indigenous Environmental Network. “Some were like, ‘We are going to do our thing.’”
In recent years, the grass-roots organizations coalesced to increase their power and grabbed attention last year amid the national reckoning over racial violence and discrimination.
Before that, environmental justice was the inspiration for New York Rep. Alexandria Ocasio-Cortez to first run for office — after her 2017 visit to Indigenous activists fighting the Dakota Access pipeline. The congresswoman, who quickly became a leader of the party’s left flank, went on to co-write the Green New Deal — an ambitious agenda for fighting climate change that links joblessness and public health crises in marginalized communities to environmental neglect.
The blueprint’s influence grew as groups like the Sunrise Movement, a youth-oriented climate-justice organization, led efforts to oust congressional Democrats perceived as moving with too little urgency. A week after Democrats took control of the House in 2018, Sunrise activists were protesting at the office of incoming House Speaker Nancy Pelosi (D-San Francisco). By 2020, the Green New Deal had helped shape the climate plans of every major Democratic presidential candidate, though Biden’s wasn’t nearly so bold.
The actions that initially confounded some in the mainstream organizations ultimately proved successful in pushing Democrats to embrace more ambitious climate goals and make environmental justice a priority.
The pressure drove then-candidate Biden to bolster his climate agenda, vowing an emissions-free power grid by 2035 and that 40% of spending in his $2-trillion climate plan would go to polluted, low-income communities.
The tension between the old and new guards is spilling over into one of the most sensitive areas: funding. The grass-roots groups now compete for large philanthropies’ donations.
“There’s been a marked shift in funders’ attitudes in the last two years, and a monumental ground shift in the last year,” said Marce Gutiérrez-Graudins, the founder and director of Azul, an Oakland-based group that works with Latinos on ocean conservation.
Another change: Both old and new groups had seats at the table during Biden’s transition to the presidency. Bullard said he and other environmental justice activists were present at meetings where advisors and appointees mapped out Biden’s environmental agenda. On Thursday, the groups’ allies in Congress unveiled legislation to force the administration to allocate conservation funds in accordance with Biden’s campaign promises.
The ascent of national groups like the Sunrise Movement comes after years of lonely battles by local activists — many based in California.
When the state enacted its landmark law to reduce greenhouse gas emissions in 2006, smaller groups were unhappy with the result. Yet they lacked the power, money or experience to do much about it. Fifteen years later, they have formed alliances with one another and with a new generation of Latino lawmakers more willing to listen to activists whose experiences often mirror their own.
Manuel Pastor, a professor of sociology at USC, said of the politicians: “So many of them grew up near polluted areas, and as a result, like me, have fond memories of not being able to see because of the smog and having junkyards everywhere.”
When the Biden team debated who should lead the EPA, leaders of some of the largest environmental groups assumed Nichols would get the nomination and that the fossil fuel industry would oppose her. They hadn’t expected a fight from within the environmental movement.
“Some of the larger, more traditional conservation and environmental groups have voiced a lot of discontent over the critique that we had of Nichols and her leadership,” said Miya Yoshitani, executive director of the Bay Area-based Asian Pacific Environmental Network.
But to Yoshitani and other environmental-justice advocates, their opposition shouldn’t have come as a shock.
For more than a decade, Nichols had been fighting grass-roots activists over California’s cap-and-trade program, which puts a price on greenhouse gas emissions to discourage industry from burning fossil fuels. Though the program wasn’t Nichols’ invention, she became one of its most prominent champions, making her a focal point for groups concerned that the policy benefited polluting industries at the expense of people living next door.
“She is part of an era of environmental policymakers who were beginning to recognize racial justice and equity as important, but always as something to tack on at the end, not as a central driving force for policy,” Yoshitani said.
The activists are now contemplating their next targets.
One priority: making sure communities that disproportionately contend with pollution get the money Biden promised. Another: ensuring that local groups remain influential in an administration heavily staffed by veterans of the Obama administration and mainstream environmental organizations.
Conflicts among the groups are likely to emerge over how — and how quickly — to shift the nation’s power sector from oil and gas without killing thousands of jobs. There are already clashes over the transitional role of nuclear energy and carbon-capture strategies, with activists on the left objecting that such sources would slow the phaseout of fossil fuels.
For that reason, they oppose Biden’s “all of the above” energy approach and his compromise stance on hydraulic fracturing, better known as fracking.
It all leaves the president and other Democrats on tricky political terrain.
The influence over Cabinet nominations by groups previously dismissed as small and disorganized was a “watershed moment,” said Michael Mendez, a UC Irvine professor and author of a book about the environmental justice movement in California. “We have entered a new era.”
State Attorney General Candidates Line Up, Pending Becerra Confirmation
Politico
Gov. Gavin Newsom confirmed on Wednesday that he will wait until Attorney General Xavier Becerra is confirmed as President Joe Biden’s Health and Human Services secretary before announcing a replacement.
“I’m very close to making that decision,” Newsom said, but “our current attorney general is still the current attorney general, has not been formally confirmed by the United States Senate, and so the timing of a public announcement will be determined on the basis of that confirmation.”
Background: Biden set off a California lobbying blitz when he selected Becerra to head the U.S. Department of Health and Human Services. But potential replacements have been in something of a holding pattern because Becerra’s Senate confirmation hasn’t happened yet.
Republicans have taken issue with Becerra’s record, suggesting he is too overtly partisan for the job, in a sign they would try to stymie his appointment. But Democratic victories in a pair of Georgia Senate races boosted Becerra’s chances by giving Democrats a narrow Senate majority.
The Senate has not yet scheduled a confirmation hearing for Becerra, but Newsom said he wants to announce a successor. “We hope that happens sooner — I certainly do — than later,” he said during a press conference announcing a mass vaccination site at the Oakland Coliseum.
What’s next: Ambitious California Democrats with law degrees have been clamoring for the attorney general job — a high-profile statewide platform that can serve as a launching pad for higher office. Newsom said on Wednesday he was weighing “some extraordinary people that have not only sought consideration, some that have not sought consideration.”
Among the candidates in the mix are Rep. Adam Schiff (D-Calif) — who is making a late push with the blessing of Speaker Nancy Pelosi — Assemblymember Rob Bonta (D-Alameda), Equality California Executive Director Rick Chavez Zbur, Santa Clara District Attorney Jeff Rosen, Contra Costa District Attorney Diana Becton and Sacramento Mayor Darrell Steinberg.
CA Business Leaders: 5 Ways Sacramento Can Stop the Exodus
SF Business Times
“We cannot solve our problems with the same thinking we used when we created them.”
Albert Einstein might as well have been talking about California’s corporate exodus when he said that quote, once spotted on the walls of Intel’s Santa Clara headquarters.
A dozen major companies, hundreds of small and midsized ones and thousands of individuals have moved out of the state and the Bay Area in recent years, but few in government seem to be paying attention, even as the movement is poised to intensify.
“I think we will see even more of the relocations in 2021, especially among senior executives, investors and professionals who are more affected by high state taxes and can easily do their work remotely,” said Alison Davis, a prolific fintech investor and member of the board of Silicon Valley Bank’s parent, SVB Financial Group.
Texas and other states are courting Bay Area companies, mining the pricey innovation capital for firms that might be wooed by lower taxes — the Lone Star State doesn’t collect personal income or capital gains taxes from Texans — along with cheaper housing and looser business regulations.
As business leaders fear this is just the beginning, we asked more than a dozen corporate and government leaders: What can state and local officials do to coax companies to stay?
1. Lower taxes on personal income and capital gains.
California’s comparatively high taxes — not to mention new levies state lawmakers in Sacramento have been considering — are blamed for spurring more middle-class and wealthy residents to move out of the Golden State, or consider doing so.
“The tax situation is unbearable,” said former Cisco Systems Inc. CEO John Chambers, voicing concern about California lawmakers considering a bill to raise the state’s top personal income tax rate from 13.3% — already the highest in the nation — to 16.8%.
The legislation didn’t pass in 2020 but is expected to be on the legislative agenda again this year. Unlike at the federal level, there is no favorable tax treatment on long-term capital gains in California, adding to the tax burden of state residents. That means Californians also pay a top tax rate of 13.3% on their long-term capital gains.
Last year, California lawmakers also briefly considered a so-called wealth tax that would impose a 0.4% tax on residents’ net worth above $30 million, excluding real estate. The proposed bill even included a feature that would tax wealthy people for 10 years after leaving the state, though the constitutionality of that measure, if passed, would have been left to the courts. The bill never came up for a vote in the last legislative session, but some fear a proposed wealth tax could emerge in the current session.
Some see little hope for reining in California’s enthusiasm for more taxes and spending.
“It will require a two-party system in which Democrats feel some pressure from their right,” said Joel Kotkin, the presidential fellow in urban futures at Southern California’s Chapman University and a noted author and speaker on urban geographies.
In California, Democrats don’t just have trifecta control of the governor’s office, the Assembly and the Senate; the party has a veto-proof supermajority in both chambers. Kotkin said California lawmakers don’t worry about a threat coming from conservatives or Republicans. Instead, they see their careers depending on the support of the left and not being challenged by someone further on their left.
“The problem is that we have a state that’s really run for the benefit of three groups: the public employees; the green lobbies and green nonprofits and their world view; and the tech oligarchs — and everyone else is irrelevant,” Kotkin said. “The public pensions are insane. The public schools in most of the state are not very good.
“There has to be a wake up to the political class that they’re becoming hopelessly dependent on a small number of taxpayers,” Kotkin said, pointing to the tax windfalls generated by California companies going public. In 2016, state figures show, the top 1% of California taxpayers generated nearly 46% of the state’s tax revenue on personal incomes, including from capital gains.
Then there’s the race to raise tax revenues at the local level, with voters facing almost three-dozen tax measures from Bay Area local governments on last November’s ballot. All but one financing Caltrain were opposed by the Bay Area Council, a business-supported public policy group.
“We’re at a tipping point,” said Jim Wunderman, CEO of the council. “We can’t sustain the budget of this state and provide the kind of services people demand because the money is going to things that are out of our control in these retirement costs that have been negotiated over a long period of time and now have to be undone. It’s not an easy thing to do.”
2. Don’t raise corporate income taxes.
California lawmakers at the state and local levels have long viewed the business community as a bottomless cash drawer. So it’s not surprising that the current legislative session already has one bill put forward to raise corporate taxes. In this case, the new funds are targeted to pay for additional services addressing homelessness.
The proposed law, AB-71, was amended Jan. 12 to include several major tax increases, including raising the income tax rate on corporations with more than $5 million in taxable income from 8.84% to 9.6% for corporations and from 10.84% to 11.6% for financial institutions, along with other changes in tax rules affecting corporate income.
The bill’s sponsors — Assembly members Luz Rivas, D-North Hollywood; Richard Bloom, D-Santa Monica; David Chiu, D-San Francisco and Buffy Wicks, D-Oakland — originally expected it to generate $2.4 billion annually by closing tax loopholes and raising corporate tax rates on corporations with $5 million or more in profits.
AB-71 is already drawing vocal opposition.
“Further clouding California’s already stormy business climate by imposing more taxes on thousands of businesses big and small is the last thing we should be doing in the middle of an economic crisis,” Wunderman said. “Ending homelessness is one of our top priorities, but all the spending in the world won’t make a difference if we don’t fix the deep structural problems that have long plagued our response, including building more housing.”
Aside from corporate tax rates, 80% of small businesses in California pay personal income tax on business profits that flow through the company onto the owners’ personal tax returns, said Dick Kovacevich, a former CEO of Wells Fargo who is sounding the alarm over the exodus.
The California Taxpayers Association is worried higher corporate income taxes will drive more companies out of the state, even if supporters of the tax proposal argue it won’t be a factor.
“That couldn’t be further from the truth,” said Robert Gutierrez, president of the California Taxpayers Association. While Oracle (and) Hewlett Packard Enterprise … made headlines with their decisions to leave, the untold story is how many other businesses also moved departments and functions out of this state because of California’s high cost of doing business, which AB-71 would only make worse.”
Local jurisdictions also levy taxes on corporations. Mountain View’s employee “head tax” went into effect a year ago after winning nearly 70% of the vote in 2018. The per-employee business tax was expected to raise $5 million per year — including $3.3 million or so from Google LLC parent company Alphabet Inc. — mostly to fund transportation needs. And San Francisco voters in November passed the so-called CEO tax, imposed on companies where the highest-paid executives are earning at least 100 times the median pay of their employees based in the city.
When Oracle announced its headquarters move to Austin in December, there was plenty of speculation about how much a company can save by leaving California.
“I doubt that anyone except Oracle’s tax department could give you a reasonable estimate,” said Joseph Vranich, a consultant with Spectrum Location Solutions in Pennsylvania. “My clients tell me they have saved between 15% and 30% on their tax bills by moving to Texas.”
3. Reduce regulations on business.
Jim Wallace, CEO of San Francisco accounting firm BPM, which employs about 650 people, laments the Legislature’s penchant for laws that affect small and midsized companies
“We’re the forgotten class. We make these laws directed toward the huge companies but they affect everybody,” he said.
One recent law that has rankled some in the business community is the California Consumer Privacy Act, which the Legislature passed in 2018 and voters strengthened last November. That law — the strictest of its kind in the United States — applies to California companies that either have more than $25 million in annual revenue; buy, sell or share the personal information of 50,000 or more consumers, households or devices; or derive at least half of their annual revenue from selling consumer information.
“You have the jewel that every state and every country in the world wants to have, and we’re losing it,” said Chambers, the former Cisco chief who is now a venture capitalist and supporter of early-stage startups. “The big companies can afford it — the small companies can’t.”
A report that an outside research firm prepared for the state Attorney General’s Office in 2019 estimated that companies with fewer than 20 employees would incur $50,000 in initial CCPA compliance costs and that companies with 20 to 100 employees would incur $100,000. The total cost of initial compliance was estimated at $55 billion.
“Every piece of legislation that is passed should have an accompanying analysis on the job creation implications, especially for small companies,” Chambers said. “Sometimes the legislation was very appropriate for big companies — they’ve done something wrong, need to be held accountable — but the ones who bear the burden are the small companies who can’t afford financially to implement it.”
Assemblyman Evan Low, D-Campbell, said there are ways the state could cut red tape to make life easier for businesses, such as allowing remote signatories on articles of incorporation.
“There are many things that we can help expedite on the bureaucratic process on the permitting at the local and state level to help ensure that there is a sense of certainty in the regulatory framework,” he said.
Low chairs the Assembly’s Business and Professions Committee and launched the California Legislative Technology and Innovation Caucus in 2015. He said the exodus conversation is taking place in a “silo” apart from the threats facing working-class Californians, many of whom are facing layoffs and eviction during the pandemic.
“When you talk about policies, should we be sympathetic to … venture capitalists, or should we be sympathetic to the fourth-generation Californian who’s working two jobs and cannot put food on the table?” Low asked. “That is a big spread and disconnect, so how do we make sure that we see the exodus as a real thing and provide certainty, while also maintaining our moral clarity about the human compassion and the human interest that we have for everyday Californians?”
4. Build more homes for the middle class.
The cost of living — especially high housing costs — is a huge factor in driving people out of California, business leaders say. Regulations and restrictions add to the cost of housing, in addition to the lack of available land in areas where people want to live, coupled with not-in-my-backyard opposition to development.
Wallace said some of BPM’s East Bay employees are giving new meaning to a reverse commute. They start their morning commute to San Francisco by heading away from the city, going three stops east and grabbing a BART train heading into San Francisco, all to get a seat for the trip west across the Bay.
“It’s water cooler talk, but water cooler talk influences company policy,” Wallace said. BPM added about 5,500 square feet to its Walnut Creek office in 2019, bringing it to about 25,000 square feet, or about the size of its San Francisco headquarters office. The move helps accommodate East Bay employees who prefer to work closer to their homes. BPM also was early — in other words, before the pandemic hit — in allowing employees to work remotely, whether from Dallas, New York or elsewhere.
One business leader who left the Bay Area more than a decade ago said the region’s high costs have contributed to his company paring back in the region.
“The employees need to earn a certain amount in order to maintain their lifestyle in the Bay Area, especially when you’re a small company like ours and you’re competing with the Googles and Facebooks and Ciscos and the Oracles. It’s very difficult to hire good people,” said Howard Sewell, the president of Spear Marketing Group, which was founded in Walnut Creek in 2009.
Sewell left for Seattle 15 years ago after two decades in the Bay Area. His company, which has fewer than 50 employees, once had 80% of its employees based in the Bay Area. It has since dropped to 20%.
Some see the need for further investment in the Bay Area’s roads and bridges in addition to housing. But even among California’s leadership, there’s debate on how to address the housing crisis.
“Infrastructure and smart investment is critical, and to me that’s around transportation and affordable housing,” said Ahmad Thomas, who took over as CEO of the Silicon Valley Leadership Group in August. “That dovetails with quality of life, where we have more affordable housing, more housing stock, ease of mobility and transport within our communities and to one’s workplace — all of those are indicators that are important to employees when they look at their satisfaction.
“We must look at private, market-based solutions that do not touch public dollars or our municipal general funds to provide solutions,” Thomas said. “I am a strong proponent of innovative financing for affordable housing, and put directly, utilizing new financing structures to allow private developers to fully fund municipal affordable housing.”
Still, the region’s astronomical housing costs have some Bay Area middle-class professionals spending their lunch hours looking online at what their housing dollars can get them in Austin, Phoenix or Nashville.
5. Make it harder to get tax increases at the ballot box.
This would be a tough one, according to David Crane, president of Govern for California and previously a special adviser to former California Gov. Arnold Schwarzenegger.
“That’s like howling at the moon … It isn’t going to change,” Crane said. “The reason things like that end up on the ballot generally is because costs are rising so fast.”
The initiative process allows Californians to add measures to the ballot via a petition signed by registered voters. People care a lot about California’s 109-year-old proposition system, Crane said, and it’s especially popular among special interests that have the resources to campaign — one common criticism of the system.
One of the most painful tax hikes at the ballot box occurred in 2012, when voters approved an increase in the state’s top personal income from 10.3% to 13.3%, which was retroactive to the start of 2012 and was supposed to last seven years. In 2016, voters extended the temporary increase in the top tax rate through the end of 2030.
But, voicing concern about ever-increasing taxes, Wallace of BPM called for more “honest data” on who pays taxes in California.
“Every time a tax bill is put on the ballot, it’s often approved because so many don’t pay income tax,” Wallace said. A 2006 Tax Foundation report found that nearly 40% of Californians don’t pay state income tax.
Others criticize ballot measures such as San Francisco’s so-called “CEO tax” passed in November. (It’s worth noting that Marc Benioff, the billionaire CEO of Salesforce.com Inc., has backed higher taxes for businesses and the wealthy.)
“For companies that have given so much, like Salesforce, back to the community — then you smack them, saying, ‘We’re going to help you run your company, we’re going to implement a tax based upon the difference between what your CEO makes and your lowest-paid employee,’” said Chambers, the former Cisco CEO. “You’re building processes which not only do not entice companies to stay here, but encourage them to leave — and in the process, you send a message: ‘We really don’t want you here.’
“You can’t make it so easy that people can raise taxes just by doing referendums,” Chambers said.
https://www.bizjournals.com/sanfrancisco/news/2021/01/29/california-exodus-solutions.html