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IN THIS ISSUE – “The opportunity for political mischief looms large”
Dan Walters, California’s leading political commentator, on how the Legislature handles the State Budget
- Budget Trailer Bills Unhitch a Simple, Public Fiscal Process
- New CA Senate Leader Takes the Reins, But Only for Two Years
- State Senate Leadership & Committee Assignments Announced
- Federal Soot Standard Increases California’s Air Quality Problems
- Gas Watchdog Seeks to End “Unexplained Price Spikes”
- Snapchat Lays Off 10% of Workers…
- …And a Tortilla Maker Moves to Kansas After Nearly 50 Years in Bay Area
- Ag Property Value Drops as Farmers Migrate to Nevada
Capital News & Notes (CN&N) curates California policy, legislative and regulatory insights from dozens of media and official sources for the past week. Please feel free to forward this unique client service.
FOR THE WEEK ENDING FEB. 9, 2024
Budget Trailer Bills Unhitch a Simple, Public Fiscal Process
CalMatters commentary from Dan Walters
California’s state budget process was relatively straightforward, albeit often opaque, prior to 1978.
Governors and legislators would estimate how much money they had to spend during the forthcoming fiscal year, which was fairly easy because most of the state’s revenue came from predictable sales taxes. They would set aside enough money for basic governmental functions, and divvy up the remainder in response to specific requests from legislators and interest groups, with few legal mandates.
The process became much more complicated after voters passed Proposition 13, the iconic property tax reduction measure in 1978. School systems and local governments that had depended on property taxes clamored for state aid to make up for lost revenue, and overnight the budget became a much larger and infinitely more complicated document.
That complication soon spawned another element of the annual process: “trailer bills” to implement the budget’s financial decrees by changing laws governing how the newly allocated money should be spent.
Over the ensuing 40-plus years, the number of trailer bills blossomed. Eventually, they ceased being just adjuncts to the budget and became vehicles for major changes in policy having little or nothing to do with the budget.
That has been especially true since 2010, when the state’s voters passed Proposition 25, a measure sponsored by Democratic politicians and public employee unions to change the required vote on the budget from two-thirds of both legislative houses to simple majorities.
The measure eliminated the ability of Republican legislators to influence the budget. It also gave budget trailer bills legal standing, declaring that they, too, could be enacted with simple majority votes and – like the budget – would take effect immediately upon being signed by the governor.
Thereafter, Democratic governors and legislators would often draft last-minute bills containing sweeping policy changes, insert token $1,000 appropriations to tie them to the budget and pass them with little or no opportunity for the public or affected interests to know what was happening. Since trailer bills take immediate effect, they could not be challenged via a referendum ballot measure.
As Prop. 25 was pending, then-Assembly Speaker John Pérez and Senate President Pro Tem Darrell Steinberg issued a statement that, if passed, it “will not allow a majority of the Legislature to use budget trailer bills to enact new ‘referendum-proof’ programs or requirements,” adding, “Any attempt by this or any future Legislature to circumvent this right would be in clear violation of California’s constitution…”
In the 13 years since, hundreds of trailer bills have been enacted and many do contain major policy declarations that are referendum-proof.
The misuse of the trailer bill loophole finally became so blatant that voters passed another initiative in 2016, Proposition 54, requiring bills to be in print for 72 hours before final passage. Although legislative leaders, who opposed the measure, often use parliamentary tricks to minimize opportunities to see the contents of trailer bills.
This bit of legislative history is offered because the annual budget process is underway and Gov. Gavin Newsom’s Department of Finance has just released a list of 77 trailer bills that would be attached to his 2024-25 budget, although their precise contents are far from determined.
That’s just the beginning because before the budget is passed in June – and even after it’s enacted – other trailer bills will continue to surface. In fact, we’ll probably see some new trailer bills attached to the 2023-24 budget, which was passed last June, as Newsom and the Legislature try to shrink its multibillion-dollar gap between income and outgo.
The opportunity for political mischief looms large.
New State Senate Leader Takes the Reins, But Only for Two Years
CalMatters
From the outside, Mike McGuire seems like exactly the type of person who would rise to the top of the California Senate.
The Healdsburg Democrat was student body president in high school, according to Sonoma Magazine, and his classmates voted him “most likely to become president” in the senior yearbook. After winning a seat on the local school board at just 19, McGuire then served on the Healdsburg city council and Sonoma County board of supervisors before his election to the Senate, where he already spent the past two years as majority leader.
But at his swearing-in today as the next Senate president pro tem — a powerful role heading the upper chamber of the Legislature that gives him a direct hand in guiding budget and policy decisions for 39 million Californians — an emotional McGuire marveled that he had made it at all.
“In other places in this country, a kid like me would have been forgotten,” McGuire said, recounting a modest youth in Sonoma County where his divorced mother scraped to put food on the table, he helped out on his beloved grandmother’s farm and he struggled to finish school.
“But not here in California,” he said. “In California, we fight to lift up every person, no matter your background, your skin color, who you are, who you love or how you identify. Here in the Golden State, we believe that anyone can do great things.”
Whether they still can is another matter. McGuire — known around the Capitol for his boundless energy and positive attitude — must now turn that optimism that the California Dream remains achievable towards solutions for the major challenges facing the state.
Chief among them is a projected multibillion-dollar budget deficit, which is expected to consume much of lawmakers’ energy this session. There is also an enduring shortage of affordable housing and the seemingly intractable homelessness crisis that has pushed many residents to the limits of their patience, as well as destructive natural disasters aggravated by climate change.
McGuire’s sprawling coastal district, which stretches from the northern Bay Area to the Oregon border, has been slammed particularly hard by wildfires in recent years. He told reporters that stabilizing the convulsing home insurance market is a top priority, though he is not a fan of the regulatory push to raise rates as insurers, who argue that their losses have become too great, flee California.
“Raising rates on homeowners is not the silver bullet,” McGuire said, suggesting that lawmakers should focus on hardening homes and communities to withstand fires. “We’ve seen other states roll out the red carpet for insurance carriers, giving them higher rates, and those insurance carriers still left that market.”
Termed out of the Legislature in 2026, McGuire must rush to make his mark on the Senate. His tenure is unlikely to radically change the business of the Legislature; like his predecessor, he is a liberal Democrat who must wrangle an ideologically diverse supermajority Democratic caucus, and the budget deficit could inhibit many of their most ambitious proposals.
But the optics of McGuire’s ascension are notable: It’s the first time since 1866 that a lawmaker from the north coast leads the Senate, the Associated Press reported. Alongside his Assembly counterpart, Speaker Robert Rivas of Hollister, both legislative leaders now hail from more rural, agricultural areas of California — a shift in the epicenter of power. McGuire succeeds Toni Atkins of San Diego, while Rivas replaced Anthony Rendon of Los Angeles County last summer.
And while Californians continue to elect an increasingly diverse Legislature — including record numbers of women, Latino and openly LGBTQ+ members this session — those representatives have chosen a straight, white man as Senate leader. That has not been the case for nearly a decade.
“Know that representation matters,” McGuire told reporters, “and I will be following through with my commitment and my promise” to work closely with those diverse lawmakers to address the issues they care about.
State Senate Leadership & Committee Assignments Announced
CalMatters & State Senate
When a new legislative leader takes charge, the biggest changes are usually to the internal power structure rather than to policymaking.
So today, state Senate President Pro Tem Mike McGuire, who was sworn in this week as head of the chamber, unveiled his reshuffling of the leadership team and committee assignments.
The shakeup rewards key allies who helped the Healdsburg Democrat pull together the votes last summer to secure his office — but also several rivals he beat in the process.
That includes Sen. Lena Gonzalez, a progressive Long Beach Democrat, who will succeed McGuire as majority leader, his deputy in charge of wrangling the Senate’s ideologically diverse supermajority Democratic caucus.
Gonzalez’s office did not immediately respond to a request for comment. Sen. Monique Limón, a Santa Barbara Democrat whose name was also batted around last year as in the hunt to become pro tem, will continue as Democratic caucus chairperson.
Sen. Angelique Ashby, a Sacramento Democrat who was a major player in whipping support for McGuire, will be one of two assistant majority leaders and take over the business, professions and economic development committee.
McGuire appointed another close ally, Sen. Anna Caballero, a Merced Democrat, to chair the powerful appropriations committee, which determines the fate of every bill with a significant fiscal impact during the semiannual suspense file process.
Sen. Scott Wiener, a San Francisco Democrat, will now oversee the budget committee as California navigates a projected multibillion-dollar deficit. A major advocate for increasing housing construction and public transit, he could serve as a bulwark against significant funding cuts that have been proposed to those programs this year.
Overall, McGuire kept more than half of the two dozen Senate committee chairpersons intact. Other changes include swapping Sen. Nancy Skinner, a Berkeley Democrat who led the budget committee for three years, to head the housing committee, replacing Wiener; elevating first-term Sen. Lola Smallwood-Cuevas, a Los Angeles Democrat, to lead the labor committee; and splitting the governance and finance committee into two separate committees on local government and on revenue and taxation.
Full list of State Senate committee and leadership assignments:
Federal Soot Standard Increases California’s Air Quality Problems
CalMatters
The Biden administration set a new, more rigorous standard for a dangerous air pollutant that has plagued vast swaths of California for decades: Fine particles, commonly called soot.
The U.S. Environmental Protection Agency’s new annual soot standard could throw seven new California counties out of compliance, totaling 29 counties, according to EPA information released today based on 2020 through 2022 data.
San Diego and the rural counties of Mendocino, Mono, Shasta, Siskiyou, Tehama and Colusa could be added to the long list of California counties already breathing unhealthy levels of soot.
And the Los Angeles basin and the San Joaquin Valley, which are blanketed with the nation’s worst smog and soot, now face an even tougher challenge after spending decades trying to clean the air.
California is so far off from achieving clean air that the local San Joaquin Valley Air District wrote to the EPA last year to warn: “There is no clear path forward on how the Valley or other regions of California can attain the proposed standard.”
Spewed by an array of sources — from fireplaces to diesel trucks — fine particles known as PM2.5 can lodge in lungs, aggravate respiratory disease and trigger heart attacks. Hospitalizations and deaths from heart and lung ailments surge when soot concentrations rise, research shows.
The new standard is extremely controversial — and widely expected to be challenged in court by industries and some states.
The EPA predicts that strengthening it will save 4,500 lives and eliminate 290,000 lost workdays nationwide in 2032.
The soot standard was last strengthened in 2012. Although the Clean Air Act requires an EPA evaluation every five years, President Donald Trump’s administration declined to tighten it despite mounting evidence of the threat to public health.
Under the new standard, annual average concentrations of fine particles cannot exceed 9 micrograms per cubic meter of air, down 25% from the current 12.
For years, the Visalia and Bakersfield areas have had the nation’s worst fine particle pollution, with average levels nearly twice as high as the new standard allows, based on the EPA’s 2020 through 2022 data. Mono County, in the Eastern Sierra, also has soot levels more than double the new limit, according to that EPA data.
Although 29 counties have soot exceeding the new standard based on 2020-22 data, the EPA projects that it could drop to 23 counties by 2032.
Nationwide soot in 119 counties exceeds the new standard, based on the 2020-22 data. Of those, 59 already violated the old standard. By 2032, the EPA says it could drop to 52 counties in 16 states that violate the new limit.
Business groups say efforts to attain it will cause widespread economic problems and job losses. Brady Van Engelen, a lobbyist for the California Chamber of Commerce, said the more stringent standards could “effectively put all permitting into a gridlock” for new manufacturing activities and jobs.
“There is no clear path forward on how the Valley or other regions of California can attain the proposed standard.”
Marty Durbin, senior vice president for policy for the U.S. Chamber of Commerce, said in an emailed statement that compliance is complicated by dust from roads and smoke from wildfires.
He said the EPA should have kept the existing standard instead of “punishing counties and the private sector for situations largely out of their control.”
However, the Clean Air Act requires the EPA to set its standards based strictly on the latest scientific evidence — not what is achievable or economical.
Achieving the new target will take wide-ranging new state and local regulations aimed at cutting emissions. Fine particles are spewed into the air from the burning of diesel fuel, gasoline and wood, including trucks, farm vehicles, fireplaces and restaurant charbroilers, but also from manufacturing plants and dust stirred up by farming, construction and roads. (Emissions from wildfires are exempt from the EPA’s soot standards.)
Air pollution rules in California, particularly in the Los Angeles basin, are already the most stringent in the nation. So California officials say that they desperately need the help of the federal government, since states and local agencies cannot control some of the biggest remaining sources of soot — aircraft, trains and ships.
Gas Watchdog Seeks to End “Unexplained Price Spikes”
Sacramento Bee
California’s new gasoline industry watchdog wants to see mysterious price spikes at the pump come to an end. After months of investigation, he shared options for how energy regulators could stop them — penalties not yet included.
Gov. Gavin Newsom’s appointed director of the new Division of Petroleum Market Oversight said the California Energy Commission should impose additional transparency in the daily gasoline market and require oil refineries to store supplies in a Wednesday letter.
“In California we have unexplained price spikes,” said Tai Milder in a news briefing. “Our core goal is to protect consumers. That doesn’t mean the absolute level of prices but making sure prices are set in a fair manner.” Fuel prices have stabilized somewhat. A gallon of gasoline today costs $4.537 on average in California, 2 cents lower than last month and about the same as last year, according to the latest prices from AAA. They are far lower than the summer of 2022 spike that sent lawmakers into a special legislative session to address oil price gouging. At that time, average fuel costs rose to a sky-high $5.52 a gallon.
The governor signed Senate Bill X1-2 last March, establishing the new watchdog division within the California Energy Commission. In September, the division highlighted a suspicious trade on the state’s real-time market for gasoline that quickly caused a 50-cent-per-gallon price spike.
At the time, Milder called the single transaction “unusual” and said it may be a result of the underlying structure of California’s gasoline market. He also criticized refiners for failing to maintain adequate inventories of refined gasoline.
In a new letter to the governor, Milder pointed to two reform options he said would reduce the risk of price spikes. The first is to publish a daily report on trading information in the real-time spot market for gasoline, which he said would decrease volatility in that unregulated facet of the state’s gasoline economy with an outsized influence on prices.
“It appears that spot market volatility, illiquidity, and lack of transparency may all be contributing to and exacerbating price spikes during periods of under-supply and refinery maintenance,” Milder wrote in the letter. He also recommended imposing minimum gasoline storage requirements for refiners.
Milder said when refineries are undergoing maintenance, they often haven’t maintained adequate levels of inventory. This drives down supply during periods of high demand and contributes to price spikes.
Next up, the CEC will recommend additional data transparency regulations this spring and determine whether or not to impose a penalty by the end of the year. Advocates with the Consumer Watchdog group were quick to criticize a perceived delay in the division’s timeline.
“Californians cannot wait an extra six months for the price gouging penalty promised them last year,” said the group’s president Jamie Court. “Governor Newsom needs to put his foot in the Energy Commission’s a– and get them moving quicker if he is going to deliver.”
But Severin Borenstein, director of the Energy Institute at UC Berkeley’s Haas School of Business, considered the delay a wise decision. Setting up the market oversight division is time consuming, and implementing a gasoline storage requirement will be extremely complicated.
https://www.sacbee.com/news/politics-government/capitol-alert/article284917677.html#storylink=cpy
Snapchat Lays Off 10% of Workers…
East Bay Times
Snap Inc, the parent company of Snapchat, said Monday that it is laying off 10% of its staff, becoming the latest tech company to conduct a fresh round of job cuts since the start of the year.
Snap disclosed the latest layoffs in a regulatory filing on Monday, saying the cuts will impact approximately 10% of its global full time employees. This equates to roughly 500 jobs.
“In order to best position our business to execute on our highest priorities, and to ensure we have the capacity to invest incrementally to support our growth over time, we have made the difficult decision to restructure our team,” the company said in a regulatory filing Monday.
Snap said it estimates it will incur approximately $55 million to $75 million in costs related to the restructuring, primarily consisting of severance expenses.
Mass layoffs have roiled the tech sector since 2022, and the job cuts emanating from Silicon Valley have continued to trickle in this year. Since the start of the year, some 30,000 workers in the tech sector have lost their jobs, according to a tally compiled by Layoffs.fyi,
There were some 262,682 tech industry layoffs recorded in 2023, per Layoffs.fyi data, after 164,969 cuts the previous year.
https://www.eastbaytimes.com/2024/02/05/california-based-snapchat-to-lay-off-10-of-staff/
…And a Tortilla Maker Moves to Kansas After Nearly 50 Years in Bay Area
KRON-TV
After 47 years in the North Bay, La Tortilla Factory will be relocating its Santa Rosa location to Kansas, its parent company confirmed to KRON 4 Wednesday. The move will be effective March 31.
According to Flagship Food Group, the business explored multiple options to maintain its business in the Bay Area. However, following “painstaking consideration,” the company said it will be consolidating its manufacturing facilities to leverage its existing operations in Moundridge, Kansas, along with other California locations.
“Relocating will safeguard LTF’s ability to make the best tortillas at fair prices while expanding its capacity to reach new customers and serve our existing customers,” the company said in a statement.
The company also cited lack of ownership of the Santa Rosa facility as a factor behind the move, along with “prohibitive land acquisition costs in the area.”
“This dynamic is not in play at our facility in Moundridge where the company owns sufficient land,” Flagship Food Group said.
There are 135 workers at the Santa Rosa plant. Positions that can work remotely will be retained. Workers who are let go as a result of the move have been offered a severance package based on their length of service, the company said. Flagship Food Group said it will offer job search assistance with other local companies.
https://www.kron4.com/news/bay-area/la-tortilla-factory-in-santa-rosa-relocating-to-kansas/
Ag Property Value Drops; Farmers Migrating to Nevada
Bakersfield Californian
A markdown of almost $2.3 million on 1,134 acres of farmland for sale southwest of Wasco is the latest sign of how acute the buyer’s market for ag property has become amid continuing water challenges, elevated interest rates and slumping commodity prices.
The set of four parcels, served by two separate water districts, boasts a pair of solar arrays, a groundwater recharge basin, revenue from carbon credits and a combination of almond orchards and row crops. But after being listed for sale for about six months, the owners recently slashed the price by 11% in order to generate interest among potential buyers.
Market observers say that price reduction — large because of the amount of land involved — is proportionally modest: Other local properties are being marked down as much as 30% lately, depending on their water situation.
Broker Mike Ming, who represents the property in question, said sellers who held firm last year are starting to accept the fact that valuations aren’t nearly as strong as they were even two years ago.
“It’s not a panic yet,” he said. “I would say it’s at the first stages of the capitulation.”
After peaking in 2015, largely on the strength of what were then high almond prices, ag property valuations have fallen precipitously in the last two years. Local farmland brokers say that although sharply lower almond prices have contributed to the downward price trend, a bigger factor has been a state law limiting groundwater pumping.
One perspective is that the relatively low prices present buyers — mainly private equity firms and privately held companies, rather than family farms — with a historic opportunity to pick up farmland for a bargain.
So said Robb Stewart, a local farmland broker at Pearson Realty.
“It is a phenomenal opportunity to buy things on sale, at sale prices, because things are going to recover,” Stewart said. “Things will improve and things will get better. I think folks are going to look back on this period as an opportunity to buy good ground.’
He added that the volume of transactions is beginning to pick up after a very slow year for sales in 2023. It’s happening, he said, because sellers are accepting that conditions have changed.
“The sky’s not falling,” Stewart said, “but there’s definitely room for improvement in the overall economics of the sector.”
Ming said ag economists he has spoken with agree prices might not bottom out until the fourth quarter of this year or the first quarter of next. He added there’s now more farmland listed for sale locally than he has seen in many years, with many sellers but “very, very few buyers.”
Notably, the situation is different elsewhere in the West. Western region Vice President Mike Merkley for the American Society of Farm Managers and Rural Appraisers said farmland prices have been rising in Nevada as farmers from California have moved their dairies and other ag operations one state over.
“They know they’ve got to truck the water to the dairies … but it’s a stable water supply,” he said.
He and others in the business say interest rates have disrupted the market, but that water supply is the biggest single factor in price reductions.
Stewart said the parcels southwest of Wasco are served by very different water districts, the Shafter-Wasco Irrigation District and the Semitropic Water Storage District. The latter receives water from the State Water Project, whose supplies are more constrained, while the former gets water from the Friant-Kern Canal, which is better off.
Even the better positioned water districts have seen prices fall 10% or more relative to 2022 prices, Stewart noted. But he said farmland with weaker districts, or properties not served by any district, have seen price drops of 20% to 30% in the last two years.
He said there hasn’t been as sharp a downturn in prices since the 1980s or 1990s, when the big drivers at that time were low commodity prices and high interest rates.